On 3 February 2025, the Deputy Prime Minister, my right hon. Friend the Member for Ashton-under-Lyne (Angela Rayner) set out the final local government finance settlement for 2025-26. The settlement makes available over £69 billion for local government, which is a 6.8% cash terms increase in councils’ core spending power on 2024-25. The settlement reaffirms this Government’s commitment to rebuild and reform local government, and to empower local leaders to deliver that change so that the benefits are felt in every community. The additional funding made available in this settlement and the Budget will deliver over £5 billion of new funding for local services over and above local council tax.
The Government are under no illusions about the fragile state of the sector and the pressures councils are facing to deliver for residents. As a result of the 14 years of decline and instability overseen by the previous Government, we know there are large numbers of councils in significant financial difficulty. Our fiscal inheritance means that there will be tough choices on all sides to get us back on the path to recovery, and it will take time. However, we are committed to restoring stability and bringing forward reform to ensure local government is fit, legal and decent and can play its critical role in providing the services communities rely on. We have already taken steps to improve sector sustainability, including targeting money towards areas with greater need and demand for services and less ability to raise income locally at this year’s settlement with the introduction of the new £600 million recovery grant.
The financial legacy of the previous Government has resulted in a record number of councils engaging with the Government asking for exceptional financial support to help them set their budgets. We confirmed in the local government finance settlement that we have already had to consider requests for council tax increases from some councils where this was necessary for their long-term sustainability. As set out in the settlement, we only agreed to this on an exceptional basis, we did not agree to all requests, no request was agreed to in its entirety and we have only permitted additional increases where councils had lower levels of existing council tax compared to similar councils.
The exceptional financial support process has existed since 2020 to support those councils facing unmanageable financial pressures. This Government understand that fragility in the system has left some councils in difficult positions and recognise that support is required in exceptional circumstances to balance budgets. Unlike the previous Government, we have been clear that we do not believe in punishing councils and local residents where this is the case. We are taking a partnership approach to the exceptional financial support process which prioritises protecting the interests of local residents. We have already announced that, where councils deem it necessary to undertake additional borrowing to support their recovery, we will not replicate the previous Government’s punitive approach of making that borrowing more expensive through an additional 1% premium.