An overhaul of the outdated and complex council system will bring fairer funding, more stability and improve lives of people across the county
An overhaul of the outdated and complex council system will bring fairer funding, more stability and improve lives of people across the county
New place-based, focussed formulas to target money to places most in need, replacing decade old data and outdated funding system
Streamlined funding and multi-year settlements introduced in drive for council efficiency and improved public services as part of the Plan for Change
The local government funding system will be reformed to get councils back on stable footing, improve the lives for people across the country and deliver essential funding for better public services, delivering on the Plan for Change.
Working hand-in-hand with the sector, proposals will create a fairer system that reflects areas' changing needs, differing delivery costs and the level of demand on front-line services that people rely on such as social care.
For too long, many residents have seen council tax hikes despite declining local services. This will be tackled by overhauling the decade old, outdated funding methodology currently used to fund councils, so allocations are made based on the latest and best available data and recognise the areas where demand for council services is greatest. As a result of these changes, left behind places will on balance see larger increases in available income.
It will also scrap existing competitive bidding processes councils often have to go through for small pots of money, simplifying the 300 grants that already exist to slash time waste in councils and Whitehall and prioritise value for taxpayer cash. This could help cut the almost 90,000 document pages historically required as part of the competitive processes. This would be almost the equivalent of the drive from Birmingham to Wolverhampton, if laid end to end.
Targeting money to places in need, prioritising prevention and reforming public services as part of the government's mission-driven agenda to deliver for working people, tackle poverty and drive growth across the country as part of a decade of renewal. These changes will deliver the Fair Funding Review launched by the previous government in 2017 but never actioned.
Minister for Local Government and English Devolution, Jim McMahon OBE said:
We inherited a local government sector on its knees-councils pushed to the financial brink, facing rising demand, and working people not receiving the quality local services they rightly deserve.
There's broad agreement across council leaders, experts, and parliamentarians that the current funding model is broken and unfair. This government is stepping up to deliver the fairer system promised in the 2017 Fair Funding Review but never delivered.
These reforms are urgently needed to put councils on a stable footing and ensure better services for residents - especially working people - right across the country. It's a key part of our Plan for Change to deliver the outcomes people deserve.
It follows last week's additional funding announced in the Spending Review and the 2025-26 Local Government Finance Settlement that saw £69 billion allocated for local authorities.
The eight-week consultation launched today sets out how the government will make funding allocations fairer for councils of all sizes and across all parts of England.
Rural areas: proposals to recognise the remoteness of areas and account for the additional costs in delivering services in rural places;
Urban areas: making sure that deprivation is properly recognised in the 'assessment of need' of councils, so that the vital services that support the poorest in communities are properly funded;
Social care: updating the formula used to work out funding for local authorities that provide adult social care so it properly reflects the demands of our ageing population. We are also reforming children's social care and Special Educational Needs and Disabilities (SEND), including ensuring councils are properly funded to help support and protect the most vulnerable children. While these reforms are underway, the Dedicated Schools Grant Statutory Override, which helps councils manage SEND costs, will stay in place until the end of 2027/28 and in addition we will introduce a bespoke formula to recognise Home to School transport costs;
Resetting the business rates retention system: so that it incentivises local authorities to help their local economies grow by better matching the system to local need; and
Consolidating billions in grant funds: so that councils no longer waste time or money bidding for small pots of funding, replacing it with a streamlined grant system that promotes prevention and public service reform, and reflects key missions in the Plan for Change. The Department estimates councils shelled out almost £70million in administrative costs and consultancy fees on bidding for the Levelling Up Fund and other bidding schemes.
The first multi-year settlement in a decade will also be brought forward in 2026-27 to finally provide council leaders with security and certainty over their finances, ending short-termism to deliver meaningful change to their communities.
These reforms, together with the additional funding announced through the spending review will ensure the vast majority of upper-tier councils will see real-terms increases in available funding over the multi-year settlement.
