Provisional Local Government Funding Settlement
The Government has announced the new provisional local government funding settlement, which will 'provide £78 billion for local authorities next year.'
The funding settlement is the first multi-year settlement in over a decade, which will give councils three years of funding certainty.
Headlines from the announcement include:
- By the end of this multi-year settlement, councils will see an increase of over 23% in their core spending power compared to 2024-25. In 2026/27 this will increase by £3.9bn (5.8%), by 4.3% in 27/28 and 4.4% in 28/29. IF all councils put council tax up by the maximum allowed without a referendum. An assumption long used but likley to be challenged by party politics and devolution.
- Council tax rises will be capped at 3% with an extra 2% for adult social care. This year, six councils with “historically very low bills” will be given flexibility for 2 years to increase above this level: Wandsworth, Westminster, Hammersmith and Fulham, City of London, Kensington and Chelsea, and Windsor and Maidenhead.
- The settlement also includes reforms for fairer housing incentives, such as by letting councils keep all additional council tax from new homes to encourage local growth and home ownership.
- The new funding system is based on deprivation, restoring local services and fairness.
- The settelement proposes Revenue Support Grant distribution, sets Baseline Funding Levels, outlines business rates retention, and designates business rates pools, pending House of Commons approval in early 2026.
- Simplification means consolidation of grants. Because of this, DHSC are providing 'notional' amounts for social care funding to try and influence where investment is made, however these are not mandatory.
- A new calculator reveals each local authority's Fair Funding Share, showing their portion of England's total funding based on assessed relative need and available resources, aiming for a more equitable distribution of public funds.
Resources
The government is now consulting on proposals for the 2026/27 settelement, the closing date for comments is the 23 February 2026.
All documents including the consultation, calculator, metholody for the fair funding review, funding available for adult social care and details on chldren and young people's services forumla funding can be found here.
Following the provisional local government settement, the IFS has published analysis on the redistribution of funding to more urban and more deprived councils in England.
