The provisional Local Government Finance Settlement for
2024–25 largely confirmed what we knew already: councils will
receive extra grant funding next year and, if they increase
council tax bills by the maximum allowed, will see their core
funding increase by 6.5% in cash-terms, equivalent to 4.7% in
real-terms based on economy-wide inflation forecasts. Following
on from increases in funding over the last two years, that means
councils’ core funding will be 10% higher next year than in
2021–22.
However, since last year’s settlement, economy-wide inflation has
been much higher than expected, with no extra government funding
to offset this. This has made 2023–24 much tougher financially
than expected, and will mean – even with some extra social care
funding – councils will receive around 4% less in real-terms next
year than they might have been expecting in December 2022 based
on indicative plans published at that time.
Councils’ costs, particularly for social care, home-to-school
transport and homelessness services, also appear to be growing
significantly faster than economy-wide inflation, explaining
reports of widespread financial struggles across the sector. We
can expect another year of councils drawing down reserves to meet
financial pressures, and potentially a much more difficult
picture from 2025–26 if medium-term spending plans pencilled in
at the Autumn Statement are stuck to.
Kate Ogden, a Senior Research Economist at the Institute
for Fiscal Studies and an author of the comment said:
“On the face of it, the 6.5% increase in core funding that
councils will receive next year if they increase their council
tax by the maximum allowed seems very generous: far ahead of
finally-falling economy-wide inflation, and substantially more
than even the NHS. However, the costs for many services that
councils provide – including adult’s and children’s social care,
temporary accommodation, and home-to-school transport for
children with special needs – have recently been increasing far
faster than economy-wide inflation, and a near-10% increase in
the National Living Wage in April will increase labour costs. The
additional money may therefore not stretch that far.
Even so, claims of a new austerity are a bit overblown – at least
for now. But based on the overall spending plans pencilled in for
the second half of the 2020s by the Chancellor in the Autumn
Statement, austerity could return from 2025–26 onwards. So, while
the waters will be far from calm for councils in the coming year,
the real storm could well come into view this time next year.”
Read the new briefing
here.
