Government confirms final settlement for local government of £69bn for 2025-26 with just six authorities getting above threshold council tax increases

February 3, 2025

The Government has confirmed a final local government finance settlement for 2025-26 of £69bn, which it claims will provide councils with a 6.8% cash-terms increase in core spending power.

It also revealed that a record number of councils had asked the Government for support this year to help them set their budgets, and a record number of these councils had asked for additional council tax increases to aid their financial recovery.

However, for the 2025-2026 settlement, only six authorities have secured bespoke additional council tax referendum principles. They are:

Windsor and Maidenhead Borough Council (+4%)
Birmingham City Council (+2.5%)
Bradford Council (+5%)
Newham Council (+4%)
Somerset Council (+2.5%)
Trafford Council (+2.5%).

The Ministry of Housing, Communities and Local Government said: “For councils that require Exceptional Financial Support, the government has considered requests from councils for bespoke council tax referendum principles on a case-by-case basis and has agreed bespoke referendum principles for six local authorities.

“All six of the councils have been clear they will not be able to set a balanced budget without government support. The government has not agreed to all requests and has not agreed to any request in its entirety, to reduce the impact on taxpayers.

“In the areas where we have made the difficult decision to allow limited council tax rises, we expect that no taxpayer will see their bills reach higher than the average compared to similar authorities.”

The MHCLG said the 5% referendum principles on council tax increases – a threshold for council tax of 3% with 2% for the adult social care precept – were being maintained to protect taxpayers from excessive increases.

It claimed: “Unlike previous years, this government has introduced a stricter approach to the inherited arrangements that allowed councils to request higher council tax increases if they need Exceptional Financial Support and see increases as critical to maintaining their financial sustainability.

“This approach puts taxpayers at the forefront, for example by only agreeing increases where councils are amongst the lowest existing levels for tax. In fact, taxpayers in these areas are still expected to be paying less than the average council tax compared to similar councils. This approach has limited the number and scale of additional increases, with the government not agreeing where councils have asked to increase council tax by a very high amount or by high amounts in successive years.”

Commenting on the overall final settlement of £69bn, the MHCLG said: “With increased demand and running costs rising, this money is a lifeline and will guarantee no council sees a decrease in their core spending power.” 

It highlighted:

Up to £3.7 billion additional funding to social care authorities, including an £880 million uplift to the Social Care Grant, compared to 2024-25.
A new £270 million Children’s Social Care Prevention Grant.
A new £600 million Recovery Grant “to help support places most in need”.
Confirmation of £60 million to fund long-term improvements to the local government sector over the next year, “including empowering mayoral areas leading the devolution revolution in delivering local priorities and supporting councils’ financial reporting with a fit and legal audit system to ensure transparency”.

Deputy Prime Minister, Angela Rayner said: “Councils deliver vital services across the country – driving growth and local economies and providing a lifeline for those that need it most.

“Through our Plan for Change we are determined to fix the foundations of local government; investing where it is needed, trusting local leaders and working together to deliver growth, better health and social care services and the affordable homes people need.”

The Minister of State for Local Government and English Devolution, Jim McMahon, said: “We have been clear we will fix the foundations of local government. That means an end to short-term solutions and instead rebuilding the sector to put councils on a more stable and secure footing.   

“Local leaders play a crucial role in delivering the day-to-day services communities across the country rely on, which is why we want to work with them towards a fairer funding model that tackles regional inequality and prioritises outcomes for local people.”

The MHCLG also confirmed it would bring forward the first multi-year settlement in a decade in 2026-27 “to provide certainty and economic security to councils setting budgets”.

Responding to the Local Government Finance Settlement, Cllr Louise Gittins, Chair of the Local Government Association, said: “Extra money for councils next year, including compensation for employer national insurance contributions increases, will help meet some of the cost and demand pressures they face but still falls short of what is desperately needed to cover them all.

“This financial year therefore remains extremely challenging for councils of all types who now face having to increase council tax bills to bring in desperately needed funding next year yet could still be forced to make further cuts to services. Wherever possible they will be working alongside their local partners to innovate and try and protect the services that people rely upon as much as they can.

“Councils also recognise that having to increase council tax places yet more financial burden on households. We remain clear to Government that it is not the answer to meeting the long-term pressures facing high demand national services."

She added: “The forthcoming Spending Review will be critical to the future of our local services and must include significant and sustained increases in overall funding for councils.

“However, this alone will not address the multiple issues with the way local services are funded. Councils stand ready to work with the Government on creating an improved and a more sustainable future funding system that works for the whole of local government.”

Cllr Barry Lewis, Finance Spokesperson for the County Councils Network, said: “Today’s final Local Government Finance Settlement will be a disappointing one for the majority of county and unitary councils, and sets up a difficult twelve months for those authorities.

“With the government choosing to heavily target its £600m ‘Recovery Fund’ to local authorities covering major cities and towns at the expense of county areas, just 3% of this grant will go to County Councils Network (CCN) councils.

“Compounding this is the increase in the National Living Wage and employers’ National Insurance, with the costs of these policies outweighing any additional funds made available in this finance settlement for county and unitary councils. Consequently, more than four in five CCN members say they are in a worse position than before the Autumn Budget and this finance settlement, and one third say their service reductions next year will now be severe. Considering there is very little fat left to cut from many of these services already, a further reduction will have a material impact on our residents.”

Cllr Lewis also criticised ministers’ decision to target funding by exclusively using deprivation within the funding formula, and said it was imperative the fair funding review is carried out transparently.

“Whilst deprivation is a reason some councils’ costs are high, it is not the sole reason," he said adding that the CCN's evidence showed demand and market failure across adult and children’s social care and special educational needs services to be the main reasons as to why councils across all four corners of the country are struggling.

Cllr Lewis said: "If the trend of this finance settlement does continue, the government will completely understate the very real financial pressures faced by councils outside of towns and cities and it will push many county and unitary councils to the brink."

Cllr Claire Holland, Chair of London Councils, said: “Massive service pressures and tight funding constraints mean that hard times are still here for boroughs’ budgets. Having faced more than a decade of structural underfunding, councils in the capital remain under enormous financial strain.

“We are dealing with a range of immense challenges in London, but the worsening homelessness emergency represents the biggest single risk to borough finances. The impact of homelessness on Londoners – especially families with children – is devastating, and the costs to boroughs are utterly unsustainable."

She added: “With more and more boroughs forced to turn to the government for Exceptional Financial Support simply to stay afloat, it is clear that there is a long way to go to end the crisis in local government finance.

“Boroughs provide vital local services for our communities and play a crucial role in delivering new homes and driving economic growth. We desperately need financial stability and will carry on working with the government to achieve this.”