Written statement on Provisional Local Government Finance Settlement 2026-27 - Dec 17

Minister for Local Government (Alison McGovern)

Introduction

Today, the government has published the first multi-year Local Government Finance Settlement (‘the Settlement') in a decade, through which we will deliver the long overdue Fair Funding Review 2.0 reforms. In partnership with local government, we are keeping our promises and building a fairer, more sustainable system for everyone.

A decade and a half of austerity has impacted every community across the country, but people living in the most deprived areas were worst affected. The link between funding and deprivation has been broken, and services were slashed in the poorest places in England, creating a downward spiral of poverty and poor life chances. We will fix it – giving councils the funding to reinvest in those neighbourhood services that saw the biggest cuts in the last 14 years, such as libraries, street cleaning, and youth clubs. We will introduce an evidence-led system of determining need that properly recognises local circumstances and the costs of delivering services in deprived communities. We will compensate councils that are unable to generate as much funding through council tax, so no one is punished for living in an area with a weaker tax base.

A year ago, we outlined our intent to fix the foundations of local government. Since then, we agreed our approach to transformational funding reform, consulted three times, and published a policy statement in November. We are acting on reforming the services putting the most pressure on local government: launching a landmark cross-government strategy to prevent homelessness before it occurs, investing over £2.4 billion to the Families First Partnership programme to reform children's social care, and have committed to reforming special educational needs provision to deliver a sustainable system that supports children and families. We are pressing forward on our commitment to 1.5 million homes including supporting local authorities to build. We are devolving power to the right level – empowering Mayors to drive economic growth through the visitor levy on short-term stays; to use funding flexibly to deliver local priorities through the Integrated Settlement; and £6 billion over the next 30 years for the Devolution Priority Programme. And we have committed to the once-in-a-generation reform to simplify local government, by ending the wasteful two-tier system.

We said we would deliver on our promises – and we are. We invite all stakeholders to respond to the consultation on the provisional Settlement.

Provisional Local Government Finance Settlement 2026-27

We recognise the challenges local authorities are facing from higher demand and costs for critical services, and are investing in local government to build a better future. The Spending Review in June 2025 announced over £5 billion of new grant funding for local services over the multi-year Settlement period, including £3.4 billion of new grant funding delivered through this Settlement.

The provisional 2026-27 Settlement makes available over £77.7 billion in Core Spending Power for local authorities in England, a 5.7% increase compared to 2025-26. This increases to over £84.6 billion by 2028-29, by the end of the multi-year period, a 15.1% increase compared to 2025-26. This means that in total, under this Labour government, we will make available a 23.6% cash-terms increase in Core Spending Power in 2028-29 compared to 2024-25.

The multi-year Settlement will provide more certainty for councils, enabling them to better plan local provision with stability into future years. We know councils are concerned about what happens at the next Spending Review – we will continue to work closely with them to avoid cliff edges in funding.

The Fair Funding Review 2.0

This government believes in treating every area fairly. The previous government's irrational funding system benefitted some authorities disproportionately. We will act where they did not, taking the tough decisions to create a fairer, evidence-led system.

As set out at the policy statement(opens in a new tab), we are giving councils more certainty with the first multi-year Settlement in a decade, and putting local authorities on an equal footing to better enable them to reinvest in neighbourhood services. We set out we would undo the damage of austerity by maintaining the £600 million Recovery Grant allocations from 2025-26, targeted towards those most impacted by the cuts, and confirmed we are introducing a Recovery Grant Guarantee, providing an above real-terms increase to social care authorities who received the grant last year (subject to a £35 million cap).

We are providing more financial protection for councils and consistent services for local people by supporting local authorities through the change with funding floors, and phasing in new allocations across the multi-year Settlement. We also committed to improving efficiency and value for taxpayers by simplifying 36 funding streams worth over £56 billion over the multi-year Settlement and resetting the business rates retention system to restore the balance between aligning funding with need and rewarding local growth.

Our reforms mean that the top 10% most deprived authorities will see an average increase in Core Spending Power per head of 24% from 2024-25 to 2028-29, compared to an increase of 6% for the 10% least deprived authorities. No more will deprived places be punished for their poverty – this government will act as an equaliser to protect local services.

Social Care

We recognise the strain on vital services that people rely on. That's why we are driving long-term reform to make our public services efficient, more sustainable and focused on prevention.

This government is building a National Care Service based on higher quality of care, greater choice and control, and better join up between services, backed by around £4.6 billion additional funding made available for adult social care in 2028-29 compared to 2025-26. This includes £500 million for the first-ever Fair Pay Agreement – the most significant investment in improving pay and conditions for adult social care staff to date.

We have already begun the full-scale transformation of children's social care through the Families First Partnership programme, funded with £2.4 billion over the next three years. This investment will help councils move from firefighting crises to preventing them – delivering the right help at the right time.

We know local authorities are being pushed to the brink while some private children's social care providers continue to make excessive profits – this cannot continue. This Government's ambition is to reduce reliance on residential care, reshape the market for care placements, and move towards a system rooted in family environments through fostering. This is better for children, and better for councils.

We are taking action through the Children's Wellbeing and Schools Bill. Using these powers, the Housing and the Education Secretary will explore how we might implement a profit cap in the children's social care placement market. This would be a crucial step in ensuring public money delivers value and care – not profiteering. We will set out further information on our approach in 2026.

Special Educational Needs and Disabilities

We recognise that local authorities are continuing to face significant pressure from Dedicated Schools Grant (DSG) deficits on their accounts. In June this year, we announced a two-year extension to the DSG Statutory Override to support local authorities to manage these impacts. The government has also confirmed that it will bring forward a full Schools White Paper early in the new year. This will set out substantial plans for reform of special educational needs (SEND) provision to deliver a sustainable system which – first and foremost – supports children and families effectively, and which is also financially sustainable.

We recognise that the size of deficits that some councils may accrue while the Statutory Override is in place may not be manageable with local resources alone, and will bring forward arrangements to assist with them as part of broader SEND reform plans. Whilst we do not expect local authorities to plan on the basis of having to meet deficits in full, any future support will not be unlimited. Councils must continue to work to keep deficits as low as possible. We will provide further detail on our plans to support local authorities with historic and accruing deficits and conditions for accessing such support later in the Settlement process.

Homelessness & Temporary Accommodation

We inherited a homelessness crisis. We recognise the pressure that temporary accommodation costs are putting on councils' budgets. Last week we published A National Plan to End Homelessness, our cross-government homelessness and rough sleeping strategy which sets out the action we are taking to get back on track to ending homelessness. This includes tackling the root cause of homelessness, as well as supporting a shift to prevention and taking immediate action to support households in temporary accommodation and experiencing long-term rough sleeping. The strategy includes action to help councils invest in good-quality and lower-cost temporary accommodation, reducing the use of expensive B&Bs and nightly-paid accommodation.

As announced on Monday, funding for the Domestic Abuse Support in Safe Accommodation Duty will see a £19 million uplift to £499 million over the multi-year Settlement. This funding is part of the government's mission to halve violence against women and girls in a decade, with improved support for victims.

Council tax & Exceptional Financial Support

Fairness for taxpayers is at the heart of this government's decision making. Over the multi-year Settlement, the government intends to maintain a core 3% council tax referendum principle, and a 2% adult social care precept as they were in 2025-26 for the vast majority of local authorities.

Decisions on council tax levels are a matter for local authorities.

The government is committed to ensuring the local government funding system is fair for taxpayers across the country. In some areas of the country, council tax levels are radically lower than others – a small number of places with many expensive properties can set far lower council tax and raise as much or more. The reality of this is that the council tax bill for a house worth £10 million in Westminster can be less than an ordinary family home in places like Blackpool and Darlington.

To increase fairness for taxpayers, provide better value for money, and enable areas to rebalance disparities in their council tax levels should they wish to, the government proposes not setting referendum principles for six authorities in 2027-28 and 2028-29: City of London, Hammersmith and Fulham, Kensington and Chelsea, Wandsworth, Westminster and Windsor and Maidenhead. These councils are all upper tier, will receive 95% income protection and have the lowest council tax levels of any upper tier authority in the country – this year band D taxpayers paid between £450-£1280 less than the average in England. By choosing not to subsidise very low bills for the 500,000 households in these places, we will provide £250 million more funding for public services in places with higher need.

Decisions on council tax levels are a matter for local authorities. The flexibility will give greater choice to these authorities in deciding how to manage their financial position in the way most appropriate for them, including deciding whether to draw on the relatively high reserve levels, income from the second homes premium and reduced pension contributions that a number of them benefit from.

Alongside the new High Value Council Tax Surcharge, expected to be implemented from 2028, these changes will make the tax paid on homes fairer and more progressive.

The government is under no illusions about the pressures councils are facing. Following precedent set by the previous government, we will continue to have a support framework in place next year to help authorities in the most difficult positions, including considering requests for additional council tax flexibility. In recognition of cost-of-living pressures, the government will not agree to requests for additional flexibility to increase bills from authorities where council taxpayers are already paying more than average. Any support or flexibility provided should be a time-limited and temporary measure and we will continue to expect local authorities to be doing all they can to manage their finances and protect vulnerable taxpayers. MHCLG continues to offer any council a discussion, in confidence, about its ability to manage its budget.

We expect any authority that decides to make additional increases to their council tax to ensure that appropriate support is put in place for vulnerable households.

Mayors

This government is committed to giving locally elected strategic leaders the powers and funding they need to deliver jobs, new homes, and new transport. For the first time, every Mayoral Strategic Authority will receive funding through the local government finance settlement to create greater alignment of the funding at a local level, avoiding needless duplication and waste. We will continue to work on integrating funding for Mayoral Strategic Authorities further into the Settlement where relevant, including through the consideration of options to allocate Mayoral Strategic Authorities a direct share of business rates from across their region as set out at the Autumn Budget.

We have also taken steps into a new era of fiscal devolution in England, giving Mayors the power to raise and invest money into projects that improve their local areas, raising living standards and driving growth through a new Visitor Levy power for Mayors of Strategic Authorities.

Outcomes Framework

We will introduce the new Outcomes Framework for local government in the new year, operational from Spring 2026, It will enable outcomes-based performance measurement against key national priorities, delivered at the local level and driven by councils as local leaders of place.

Conclusion 

The consultation on the provisional Local Government Finance Settlement 2025-26 will be open for four weeks, closing on 14^th January. We welcome views from the local government sector and beyond through this consultation.

This Written Ministerial Statement covers England only.