No local authority will see a reduction in core spending power next year, Minister promises

The Government has said it can guarantee that no local authority will see a reduction in its core spending power in 2025-26, in an announcement detailing the Government's Local Government Finance Settlement.

In a written ministerial statement made in Parliament today, Jim McMahon, Minister for Local Government and English Devolution, also announced a consultation on reforming the "fundamentally broken" local government funding system.

Commenting on the plans for reform, the minister told MPs: "After years of delays, we will update the local government finance system.

"The current funding system is fundamentally broken, wasting taxpayers' money and starving authorities of the funding needed to provide the services we all rely on."

He said the Government will consult on and implement an up-to-date assessment of needs and resources for local government "starting in 2026-27".

According to McMahon, the settlement in 2025-26 "will target additional funding to the places that need it most".

There will be an additional £680 million via the Social Care Grant and a new Children's Social Care Prevention Grant, worth £250 million.

He also announced a new 'Recovery Grant', worth £600 million, "for places with greater need and demand for services (we have used deprivation as a proxy for this) and less ability to raise income locally".

He said: "This tackles head on the combination of rocketing demand; low tax bases which restrict the ability of local areas to raise income locally; and weakened resilience in many of these councils after substantial central government funding cuts during the 2010s.

"Alongside this, our commitment can be judged against a guarantee that no local authority will see a reduction in their Core Spending Power in 2025-26, after taking account of any increase in council tax levels.

"This will provide the protections required for all authorities, including district councils, to sustain their services."

He said that every planning and social care council "will have more to spend on services in 2025-26 than in 2024-25; and for almost all authorities we expect this to be an increase in real terms".

The minister meanwhile further confirmed plans to "rebuild" the system of accountability and oversight in local government, including an overhaul of local audit, scrutiny and standards.

He also re-confirmed that the Government plans to consult on strengthening the standards and conduct framework for local authorities in England.

Elsewhere, McMahon said the department would formally confirm the previous Government and the Office for Budget Responsibility's (OBR) assumed core council tax and adult social care precept referendum principles of 3% and 2%, respectively.

He added that the Government will continue to consider requests for bespoke referendum principles where a council in need of exceptional financial support views additional council tax increases as critical to maintaining its financial sustainability.

"In considering requests, the government will take account of councils' specific circumstances, including the potential impact on local taxpayers", he said.

The minister also commented on devolution plans, noting that the upcoming English Devolution White Paper will set out plans for a governing settlement for England to include a "landmark" programme of devolution and reorganisation.

He said the white paper would detail new powers for local leaders to generate new jobs, skills, and include provisions aimed at creating more efficient and accountable local authority structures, "moving towards suitably sized unitary councils".

Responding to the statement, Cllr Louise Gittins, Chair of the LGA, said: “It is positive today’s statement has pledged to deliver a programme of reform that fixes the foundations of local government, commits to multi-year settlements as we have previously called for, and reforms public services with a focus on prevention.

“The extra funding in the recent Budget will also help meet some, but not all, of the significant pressures in adult and children’s social care, SEND and homelessness support."

It added: “However it is vital the forthcoming provisional Local Government Finance Settlement also now fully funds the changes to employer national insurance contributions included in the Budget.

“This will lead to a £637 million increase in councils’ wage bills for directly employed staff, and up to £1.13 billion through indirect costs via external providers including up to £628 million for commissioned adult social care services.

“Without action, councils will be forced to make further cuts to statutory services, and risk not fulfilling some of their most important duties."

Cllr Sir Stephen Houghton, Chair of the Special Interest Group of Municipal Authorities (SIGOMA), welcomed the 'Recovery Grant', describing it as “a promising signal that the Government intend to make the system fairer and more sustainable.

"The new Children's Social Care Prevention Grant is a positive step, recognising the significant pressures for children's services and the importance of preventative work."

He also welcomed the plans to introduce new funding on a deprivation-basis as it recognised “the disproportionate nature of the cuts and demand-increases that the most deprived areas have seen over the last decade”.

However, the County Councils Network (CCN) complained that most of its member councils “will receive nothing” from the ‘Recovery Grant’ because it will be weighted by deprivation.

Cllr Tim Oliver, Chairman of the County Councils Network, said: “The County Councils Network (CCN) will be carefully analysing the local government finance policy statement 2025/26 in the coming days, but on first glance the way government intends to distribute resources will be concerning for many county and unitary councils.

“Considering that increases in the minimum wage and National Insurance contributions will more than wipe out extra funds for social care, it is possible most CCN member councils – and many more across the country – will receive nothing from the ‘Recovery Grant’ which will be heavily targeted and weighted exclusively by deprivation.

“We are also very disappointed that the government have chosen to repurpose some grants and redistribute this funding elsewhere, which will adversely impact rural councils.”

He added: “As we have argued over the last few weeks, whilst deprivation is a key indicator of a council's need, it is not the only indicator nor the most important measure of financial distress.

“The reality is that it is demand and market failure across adult and children’s social care and special educational needs services that are pushing councils to the brink.”

Cllr Oliver argued that with previous CCN analysis showing county authorities have a larger funding gap than metropolitan boroughs next year, CCN member councils “deserve an appropriate share of the Recovery Grant”.

IPFA Chief Executive Owen Mapley said: "Today's policy statement provides important insights into how the funding announced for local government in the budget will be targeted. The recognition of the huge demand and cost pressures facing councils, along with the real terms increases in funding set out, are steps in the right direction.

"Councils will understandably want to hear more detail in due course about how the transition to new allocation models in the multi-year settlements next year will work.

"Councils in areas of higher deprivation will welcome the approach set out for the new recovery grant and its recognition that current council tax systems have not addressed major inequalities between different areas and their needs."

Adam Carey