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 figures outlined are not new (additional) money but were already outlined in the Spending Review. The Settelemt provides the detail of how monies announnced in the SR will be allocated.
The funding settlement is the first multi-year settlement in over a decade, which will give councils three years of funding certainty. That does not mean that there will not be additional funding pots, changes or tweaks along the way. In fact, there will need to be given local government reorganisation, SEND reforms, the Fair Pay Agreement and devolution as only a few changes coming into effect in the next three years.
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, alongside fewer ring-fenced funds. 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. The Better Care Fund, Social Care Frang and the Market Sustainability and Improvement Fund remain ringfenced.
- 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.
While the extra clarity offered by a multi-year settlement is helpful and widely welcomed, there is still the challenge of sufficiency and whether there is enough money being invested in local government to fully cover the costs of the services they provide. We know our members are increasingly finding a gap between fee rates and the costs of deliverying support. The Local Government Association say budget setting will be 'another hugely challenging task' for councils, while the County Councils Network points to the impact of differences in allocations between councils.
The full impact will be clearer as we enter 2026 and councils start to set their 2026/27 budgets.
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 how DHSC thinks this should be prioritised, 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.
