Today, the Government have set out details of the first multi-year local government finance settlement in a decade, through which we will deliver the long-overdue fair funding review 2.0 reforms and deliver on our commitment to make the system fairer and more transparent.
The last decade and a half saw local government services slashed to the bone by a misguided programme of austerity. The services people see every day outside their front door were systematically undermined, and people’s lives got harder as a result. We celebrate the hard work of councillors, frontline staff and mayors, who kept vital services running during those hard years, but they did not get the backing they deserved from central Government.
Austerity expected local government to act as caretakers, providing only the most basic statutory services. Our long-term aim is a future where councillors have the freedom to innovate, rebuilding public services, renewing the public realm, and investing in their high streets, youth clubs, and libraries. The past has been written, but the future of local government is up for grabs. This is about providing visible proof that the state can still improve people’s lives and keep its promises. The journey will at times be difficult, but the end result will be a new role for councils as agents of renewal.
This Government believe in treating every area fairly. Some authorities have benefited disproportionately from the unfairness of the current system, something which the previous Government recognised when consulting on funding reform. However, they did not take action. This Government are taking the tough decisions to create a fairer, evidence-based funding system. This means that poorer local authorities that have been unable to generate as much funding through local tax will finally receive the funding they deserve. As a result, areas will be able to rebuild the public services on which our communities rely.
We recognise the challenging reality still facing local authorities, and the sky-rocketing demand for critical services that cannot be overcome by these changes alone, but these reforms are a vital part of getting the sector back on a sustainable footing and ensuring that every pound goes where it is most needed.
The Government are bringing forward a wider reset, which will radically redefine local government in England, making the system fit for the challenges that the country faces in 2025, and making sure that we have strong local leaders and councils, ready to drive economic growth, grow our towns and cities, and raise living standards for working people in every region—the Government’s No. 1 mission. That is why, as well as introducing funding reforms, we remain committed to ending the two-tier system in this Parliament; to focusing on outcomes, over micro-management; and to overhauling local audit, conduct and standards. Yesterday, I launched a series of consultations on local government reorganisation, published on gov.uk.
We also thank local government, interested organisations and members of the public who have engaged with our consultations on reforming the local government funding system over the past year.
The broken system we inherited
The austerity of the 2010s was imposed on every community, but the worst effects were felt by those in the most deprived local authorities. The places which historically had been most supported by Government were left furthest behind, breaking the link between funding and need. Dozens of fragmented funding streams, outdated funding formulas—including those that used data from the 1970s—and short-term settlements contributed to the overall issues in the funding system. As a result, many councils have been pushed to a financial cliff edge, meaning poorer services for residents.
The first steps toward a fairer approach
Undoing this damage will take time, but this Government took immediate steps in our first year to make funding fairer. We made over £69 billion available to local authorities through the 2025-26 settlement. That included a £600 million recovery grant, targeted at areas that suffered most from austerity, and that had greater need and demand for services, and less ability to raise income locally. At the spending review, we announced over £5 billion of new grant funding over the period 2026-27 to 2028-29 for local services, including £3.4 billion of new grant funding, which will be delivered through the multi-year settlement. We have been working closely with the local government sector over the past year. We have consulted twice on our proposals for reform and once on resetting the business rates system, and we now plan to put them into action.
Fairer funding through the 2026-27 multi-year settlement —undoing a decade of damage
This Government believe in treating every council and community in England fairly. We will act where the previous Government did not to target funding to deprived areas, enabling them to deliver vital services for communities up and down the country. We are:
Giving councils more certainty with the first multi-year settlement in a decade, which will allow local leaders to focus on longer-term financial planning and opportunities for ambitious regional growth plans, rather than giving them year-to-year settlements, and an opaque funding system of fragmented pots.
Providing better access to frontline services by closing the gap between local deprivation and council funding. We are using up-to-date data to paint a true picture of councils’ needs and resources—a picture that encompasses population projections, the 2025 English indices of multiple deprivation, cost of service delivery, and demand for services.
Reforming children’s social care, with over £2.4 billion over the settlement to support vulnerable families by focusing on prevention and early intervention. We are updating the children and young people’s services formula, so that it uses the latest index of deprivation affecting children. That will mean that no matter where people grow up, they get the support they need to have the best start in life.
Providing at least £2.4 billion for a new, ring-fenced, combined homelessness, rough sleeping and domestic abuse grant over three years, which includes dedicated funding for councils to invest in prevention. This will move us away from over-reliance on temporary accommodation, which has led to unsustainable costs for councils in recent years.
Undoing the damage of austerity by maintaining the targeted £600 million recovery grant allocations from 2025-26 across the multi-year settlement. We are also introducing a recovery grant funding guarantee to upper-tier authorities in receipt of the grant.
Unlocking the dream of home ownership for more people by boosting incentives for councils to build new homes, as projections on future house builds will be omitted from funding allocations over the settlement, so authorities will benefit from all additional council tax raised for each new home they build.
Improving efficiency and value for taxpayer cash by cutting needless paperwork and red tape by simplifying 33 funding streams, worth almost £47 billion over three years, to provide councils with certainty and more flexibility to invest in community priorities.
Supporting councils through change by providing funding floors, and phasing in new allocations across the multi-year settlement to provide more financial protection for councils and consistency of services for local people.
The recovery we embarked on in 2025-26 is just the beginning for deprived places that suffered most from austerity. We will maintain recovery grant allocations from 2025-26 across the multi-year settlement as a targeted fund to support those worst affected by austerity. We will also provide a funding guarantee to upper-tier authorities in receipt of the grant, which will ensure that they see a more than real terms increase across the multi-year period, except for where a £35 million cap applies.
The Government will maintain core referendum principles as they were in 2025-26 over the multi-year settlement, including core council tax and adult social care precept referendum principles of 3% and 2% respectively. This acts as an additional democratic check and balance, giving taxpayers the final say on council tax increases through a local referendum. The £3.4 billion in new grant funding in the settlement, taken together with these referendum principles, results in a 2.6% real-terms average annual increase in core spending power over the spending review period.
This multi-year settlement will better align funding with deprivation and need, as part of a simplified funding landscape that is fit for the future. By 2028-29, we expect that the 10% most deprived authorities will see a significant increase in their core spending power per head, compared to the least deprived. People living in the places that suffered most from austerity will finally see their areas turned around.
We know there is more to do. There are no quick fixes, and it will take time to deliver the change this country needs. Our reforms will get money to where it is needed most, but we cannot undo a decade of damage overnight. We know some councils will ask for additional help, and we will continue to have a framework in place to support those in the most difficult positions. We made important strides in our first year and, in partnership with local government, we will rebuild a state people can rely on.
More detail on these proposals will be provided in the local government finance policy statement and fair funding review 2.0 response, to be published on gov.uk later today. Proposals for the 2026-27 settlement will be subject to the usual consultation process at the provisional local government finance settlement. This written ministerial statement covers England only. The policy statement will be deposited in the House Libraries.