Local Government Finance

On 20 November, my Department published a policy statement setting out our approach to the first multi-year local government finance settlement in a decade. Today, we publish the provisional settlement itself and launch our formal consultation on the proposals. It represents the choices we are making as a Government. Unlike the Tories, we will not look the other way as poverty gets worse. We will not ignore the economic and social costs of deprivation. The spending review announced over £5 billion of new grant funding for local services over the multi-year settlement period. That includes £3.4 billion of new grant funding being delivered through this settlement.

Before I give more details, I want to make this point. For 14 years, the Tories decimated local government, asking local leaders to do more with less, and that had consequences. Local high streets are always changing, but deprived towns saw more empty shops, more vape shops and more pawnbrokers than other places. Their councils did not have the resources to do anything about it. In 2019, the Chartered Institute of Public Finance and Accountancy found that nearly 800 libraries had closed since 2010. In 2022, The Guardian newspaper uncovered a real-terms annual cut of nearly £330 million to the upkeep of our local parks, with the biggest cuts in the poorest parts of the country. The last decade and a half of austerity impacted every community, but the very worst effects were felt by people living in the most deprived areas—and that was a choice.

By breaking the link between funding and deprivation, the Tories punished poorer councils. Year after year, they exacerbated inequality. As a result, too many places in this country feel forgotten and left to fend for themselves. The answer is not Reform’s return to austerity or the Tories’ carping from the sidelines; it is to use the best data we have available to redesign the funding system so that deprivation is recognised and addressed within the settlement. That is why the figures we are publishing today are derived using the very latest data from the 2025 index of multiple deprivation released at the end of October this year. It is why, according to our analysis, whereas under the old system deprivation scores could account for only 25% of variation in per capita funding applications, under this settlement it is up to 75%, with other important factors such as coastline, miles of road or visitor numbers making up the rest.

In addition, we are giving councils more certainty with the first multi-year settlement in a decade, allowing local leaders to focus on long-term investment and change. We are addressing the damage of austerity by maintaining the £600 million recovery grant allocations from 2025-26, targeted towards those most impacted by the cuts, and introducing a recovery grant guarantee, providing an above-real-terms increase to social care authorities that received the grant last year.

We are supporting local authorities through change by providing funding floors and phasing in new allocations across the multi-year settlement. We are improving efficiency and value for money by simplifying an unprecedented 36 funding streams, worth more than £56 billion over the multi-year settlement. We are resetting the business rates retention system to restore the balance between aligning funding with need and rewarding local growth, and unlocking the dream of home ownership for more people by boosting real incentives for councils to build new homes. We know that councils are concerned about what will happen at the next spending review, so we will keep working closely with them to avoid cliff edges in funding.

This settlement is our most significant move yet to make English local government sustainable at last. It will take overall core spending power for local government to over £84.6 billion by ’28-29—equivalent to a 15% cash-terms increase compared with ’25-26. The Labour Government have made it clear that we back local government through action. Since coming into power, we have made available a 23.6% increase in core spending power in ’28-29 compared with ’24-25.

However, we have to do more, because the previous Government’s funding system left local government in chaos. Social care costs were soaring out of control, with very little focus on prevention. Children’s social care, the impact of a failing special educational needs and disabilities system, and the spiralling costs of homelessness and temporary accommodation have destabilised council funding, even where councils have acted judiciously to protect the public pound through this difficult era. That is why we need national change to empower local councils to maximise the benefit of this announcement.

The Government are building a national care service based on higher quality of care, greater choice and control and better integration. This is backed by around £4.5 billion of additional funding made available for adult social care in ’28-29, compared with ’25-26. We are changing children’s social care through the families first partnership, funded with £2.5 billion over the next three years, because all children deserve good parenting and a loving home environment—and we know that costs less in the long run, too.

The children’s social care residential market is broken, and we are taking action. Using powers in the Children’s Wellbeing and Schools Bill, the Housing and Education Secretaries will explore how we might implement a profit cap in the children’s social care placement market, which would be a crucial step in ensuring that public money delivers value and care, not profiteering. We will set out further information on our approach in 2026.

On special educational needs and disabilities, in the new year the Government will bring forward the schools White Paper, which will set out ambitious plans to reform special educational needs provision. But we recognise the impacts of the dedicated schools grant deficits on local authorities’ accounts. In future, special educational needs provision will be funded by central Government; local authorities will not be expected to fund costs from general funds once the statutory override ends in March 2028. We will provide further details on our plans to support local authorities with those deficits later in the settlement process.

On homelessness, Members have already heard me acknowledge that temporary accommodation is another growing financial pressure on councils, with spend reaching nearly £3 billion in ’24-25. Last week, we published the national plan to end homelessness—our strategy to prevent homelessness before it occurs. We have set clear objectives to get our children out of costly B&Bs and to help councils to balance the books.

The Government intend to maintain a core 3% council tax referendum principle and a 2% adult social care precept for the vast majority of councils. We are committed to ensuring that the funding system is fair for taxpayers throughout the country. In some areas, council tax levels are radically lower than others. Council tax bills for £10 million houses in some of the wealthiest parts of the country can be less than what an ordinary working family pays in places like Blackpool or Darlington.

The Government plan to lift referendum principles in ’27-28 and ’28-29 for Wandsworth, Westminster, Hammersmith and Fulham, City of London, Kensington and Chelsea and Windsor and Maidenhead. This change will improve fairness, as taxpayers in those councils have the lowest bills in the country, and this year paid up to £1,280 less than the average council taxpayer. It will enable the Government to allocate more than £250 million of funding in the system more fairly, instead of subsidising bills for the half a million households in those council areas. It will also provide greater flexibility for those authorities in deciding how to manage their finances following our reforms. The councils will decide on the level of council tax increase to set and whether to draw on the relatively high alternative sources of income from which a number of them benefit.

We know that adapting to our reforms will take time. We will therefore continue to have a support framework in place next year to help authorities in challenging positions. Following precedent set by previous Governments, councils in significant financial difficulty can request additional flexibility from the Government. In making that decision the Government have been clear, unlike the Tories, that they will not agree to increases where the council has above-average council tax. In recognition of cost of living pressures, each application will be considered on a case-by-case basis, and decisions will reflect the support offered to low-income and vulnerable residents.

In closing, I go back to the libraries that have been closed and the parks that have been neglected. Under this Labour Government not only is our Chancellor of the Exchequer making sure that our schools have libraries, but we are making sure through this funding that councils can ensure that parks are good for our children to play in. We can never turn the clock back—we cannot undo all the past damage to councils—but we can change town hall finances so that councillors battling the consequences of poverty have a Government who are on their side for once.

We said we would restore the link between funding and deprivation, and today we are doing exactly that. There will be no more forgotten people left to fend for themselves and no more forgotten places sneered at by Conservative Members, but a fighting chance for every place in this country. I commend this statement to the House.

I call the shadow Minister.

It is no surprise that the Government sought to sneak this consultation out with the minimum level of attention, proposed, as it was, for simply a written ministerial statement at the last possible second. We can all see that poverty is rising, driven by a shrinking economy and rising unemployment, combined with inflation running at 3.6% and higher energy bills. Rising business rates are crippling our businesses, and local communities everywhere are feeling the pressure created by this Government’s choices.

How does the settlement help our councils to deal with all that? First, it assumes that working people—all people—will pay higher taxes everywhere. We should not misunderstand the Minister’s words on core spending power. The settlement enshrines an assumption that taxes will rise to the maximum possible extent everywhere, with fees and charges for parking, libraries and everything else following the same trajectory. Even if the inflation target of 2% is reached—which seems unlikely given that it is currently at 3.6%—the increase represents a 1% uplift for local government during the whole life of this Parliament, and that sector was left £1.5 billion worse off by the rise in national insurance contributions alone.

Resources at a local level are going backwards. This is a settlement that punishes efficiency, with those councils that deliver the best value for money being raided to bail out the more spendthrift—and I am sure we can guess which parties tend to run those councils. It is a settlement that introduces new, higher taxes on hospitality—voted for by every party in this Chamber besides the Conservatives—bearing down on investment and opportunity. It brings in a homes tax on more expensive homes—money that goes to the Treasury, not councils. In the Red Book, that is estimated to cost the Government a net £335 million due to the damage it does to the housing market. Only this hapless Labour Government could bring in new taxes that actually cost the Treasury money—and here they go again.

I can hardly wonder at getting that purely political response when I made the perfectly legitimate political point that under the Tories a lot of councils were dealt very bad funding settlements indeed. We do not need to trade political insults to see the libraries closed, the parks left unmaintained and the damage done to councils, but I look forward to discussing this issue with the hon. Member across the Dispatch Box as we move forward, once he has talked to his own councils about the funding settlement they will be receiving.

The hon. Member asked some slightly more important questions, particularly on SEND. He will know that this is primarily a matter of getting the absolute best outcome for our children. The Department for Education will bring forward plans in the new year, and I am working closely with Ministers in that Department to ensure that we get it right. I mentioned some of the details in my statement.

I do not recognise the picture described by the hon. Member on devolution, and I feel confident in saying that nor would the Minister for devolution, my hon. Friend the Member for Peckham (Miatta Fahnbulleh), who is in her place. She announced significant investment for the places affected, and we all look forward to working with areas up and down the country to ensure that our country grows as we wish it to.

I call the Chair of the Housing, Communities and Local Government Committee.

I thank the Minister for her statement. I know she has been working really hard on this issue since she took on the role a few months ago. She is aware of the many pressing issues facing councils up and down the country—from SEND to temporary accommodation, housing and adult social care—and 14 years of under-investment will not be reversed by one funding settlement. It is therefore important that we continue to work with councils.

This is the first multi-year settlement in a decade, which will help our local leaders in planning for the future and, most importantly, planning for their local residents. I welcome the inclusion of local housing costs in the new funding formula, but ultimately it does not take in local housing allowance, which the Minister knows has been frozen for many years and is still causing a lot of pressure for councils.

The Minister mentioned that the Government will be looking at the council tax freeze in some areas, and at lifting referendum principles. She knows there is growing consensus on wholescale council tax reform instead of us tweaking it. It is the most regressive form of taxation and there is inequality across the country. Will the Minister look at what the Committee’s report says about a wholescale review of council tax banding, so that local leaders can have funding to spend on their local areas, and make sure that other areas see that funding come through?

I thank the Chair of the Select Committee for that comprehensive run through all the issues. She is right that we need not just funding but policy change to get councils to financial sustainability. I look forward to discussing that with my hon. Friend and her Committee. She also asked about council tax reform, which was not the subject of my statement, but I have no doubt that she will be asking me about it again in the near future.

I call the Liberal Democrat spokesperson.

I thank the Minister for advance sight of her statement. The Liberal Democrats welcome the fact that this is a multi-year settlement, which gives councils a greater degree of certainty and the ability to plan ahead. We have long called for that. However, a longer settlement on its own does not resolve the deep financial instability facing local government. The Minister is right to say that social care, SEND and homelessness costs are destabilising council finances—a direct result of years of Conservative neglect—but recognising the problem is not the same as resolving it.

It will take us and council teams time to review the detail of the settlement and understand what it means in reality for local government. However, early conversations with local government colleagues have highlighted a concerning lack of clarity on the SEND debt. The settlement provides minimal information on how councils are to manage SEND costs until 2028, or how existing deficits will be resolved. Can the Minister provide a clear timeline for when councils will receive certainty on the SEND deficit? Without one, responsible financial planning is simply not possible.

I also seek clarity on the issue of social care. Although the statement includes various measures to try to address the social care crisis, the reality is that that will be swept away by the rising scale of need and the costs of social care. When will the Government finally bring forward a fully funded, long-term plan for adult social care reform that ensures that local authority funding settlements are not undermined by the escalating costs of a social care system that is bankrupting councils and placing unsustainable pressure on the NHS?

The hon. Lady mentions multi-year settlements alone not being the answer—no, but they do help. That relates to her two other points on SEND and social care, because multi-year settlements allow councils to plan properly and undertake commissioning activities over a longer period of time. That was our objective, which we have achieved with this. She asked for more details on SEND. I mentioned in my statement that local authorities will not be expected to fund costs from general funds once the statutory override ends in 2028. We will have more to say on that throughout this settlement process.

The hon. Lady asked about adult social care. Significant reform is needed there, but I do not think that anybody could say that we have not done anything. We are building a national care service, backed by about £4.5 billion of additional funding for adult social care in 2028-29, compared with 2025-26, including £500 million for the first ever fair pay agreement. I will never forget visiting care homes after they had got through the hell of covid. All that we do on social care has to back those people who did the most when our country needed them.

Members will have seen that many want to speak, so I make a plea to help one another out and keep questions and answers concise.

I thank the Minister for her statement. I particularly welcome the restoration of the link between funding for local government and deprivation, and the inclusion of housing costs within the measure of deprivation. It makes no sense to do anything other than that.

Even with the funding settlement, the financial situation will continue to be very challenging for my local authorities of Lambeth and Southwark without meaningful support from the Government with the costs of temporary accommodation. When does the Minister expect to be able to set out more detail on how councils will be supported to reduce the need for temporary accommodation and to bring the costs down?

My hon. Friend, who chairs the Education Committee, will know that it is not just the cost of temporary accommodation to councils; it is also the cost of children’s schooling. Last week I set out our strategy to counteract that terrible phenomenon and I will talk in detail to councils in the weeks and months to come to do exactly as she asks.

I thank the Minister and her officials for their work—it is the most painful task to have to pull all this together and they are all to be commended. I agree with her that multi-year settlements should lead to smarter commissioning, which should then deliver greater return on the money. She will know that the cost of delivering services in rural areas is higher—everyone across the House recognises that—so can she say what this proposed settlement will do specifically to address that and allow equity of opportunity in access to services, whether one is an urban or rural resident?

The hon. Gentleman is absolutely right to highlight how we have to do things differently in rural areas, and we have tried to take account of that need. That is why we are including a journey times adjustment in our assessment of cost for all services. We are also increasing the cap in the home-to-school transport formula from 20 miles to 50 miles, in recognition of the fact that the original distance cap would penalise local authorities that have no choice but to place children further from home. We are also including a remoteness adjustment in the adult social care formula to address the point that he mentions. Overall, the point cannot be made enough that we have to do things differently in rural areas, and we all need to take account of that.

The fair funding review is significant. It is the first multi-year settlement for a decade, and the first real attempt at fairly distributing resources based on need, cost and the ability to raise revenue locally. It represents a serious piece of work by decent public servants, and I pay tribute to the finance team in my hon. Friend’s Department. The consultation asked councils to make their case for adjustments. London councils asked for housing to be included in the measure of deprivation, and we can see that in some of the changes that have been made, but that sees a significant shift towards London. The recovery grant has made a significant difference and I am pleased to see it continue, but it shows that fundamentally the formula is not yet picking up the real cost pressures being felt by local government as a result of the previous Government.

Much has been said about council tax, but the inequality goes much further, as the Minister knows: our car parking income is £2 million, but Westminster city council alone generates £90 million. That is more than the entire recovery grant for Manchester, Liverpool, Newcastle, Sheffield and Leeds combined, so there are much wider structural issues that need to be addressed. My hon. Friend will also know that, despite best endeavours, councils will still find this settlement very challenging and that bigger reforms are needed, so can she make the case—I know she will—to her colleagues in the Treasury that, if the Government want the benefit to be felt on every street in every community, in the end local government will need more money put into the pot more generally?

First, I must pay tribute to my hon. Friend for his work on this. I might be putting the ball in the net today, but he was the midfielder who created the goal. It is his work to reconnect deprivation and council funding that we are delivering today, and I pay massive tribute to him. He asked whether we might go further to persuade our Treasury colleagues to invest in local government. I think that the best way to do that—I will welcome his support in this—is to show the results that councils get when they are properly invested in. We see that nowhere more than in his home city region of Greater Manchester and his council of Oldham, which show time and again that they provide value for money and they are growing our economy.