Local Government Finance Policy Statement: an initial response

The government has today published a policy statement outlining its plans for local government funding in England next year, and providing further details on longer-term reform plans.

IFS associate director and head of devolved and local government finance David Phillips said:

“Today’s announcement on council funding is a clear statement of intent from the new government.

If all English councils increase their council tax by the maximum allowed (on average, just under 5%), their overall core funding would increase by 5.6%, or 3.2% in real-terms after accounting for forecast economy-wide inflation. And add on new income from the producers of packaging, and the increase will be closer to 5% in real-terms.

But funding increases will be very much targeted at deprived, typically urban, councils. Grants targeted at rural councils are to be abolished to part-fund a new deprivation-based grant. The government is at pains to point out that councils serving rural areas will still see a boost to their overall funding, but this will be substantially smaller than in more deprived areas.

The government has described these changes as a stepping stone to more fundamental reforms from 2026-27 onwards. Its commitment to reform the council funding system with updated assessments of spending needs and local revenue-raising capacity is welcome – and long overdue. Existing funding allocations are based on a range of ad-hoc decisions and data from back as far as the 1990s. The current system is simply not fit for purpose and the government is right to reform it.

The changes made for the coming year suggest these longer-term changes will also have an emphasis on redistributing funding to more deprived areas, to offset cuts they bore the brunt of during the 2010s. Whether that is fair will be in the eye of the beholder. The status quo could not continue indefinitely though, and a forthcoming consultation will allow councils and other stakeholders across England their say on what a reformed funding system should prioritise.”