Funding for local authorities in inner London

Funding changes in the Fair Funding Review

The government has made changes to the way in which funding is distributed to local authorities in England. These changes, published as the Fair Funding Review 2.0, have updated and replaced the formulas that are used to assess each local authority’s level of relative need for funding.

As a result of these changes, the assessed level of need has decreased in all inner London boroughs except two (Tower Hamlets and Hackney). This has fed through into changes in the level of core spending power that these boroughs have been allocated in the Provisional Local Government Finance Settlement 2026-2027 to 2028-2029 - Tower Hamlets and Hackney will both have large increases in their per-person core spending power levels by 2028/29, whereas for most other inner London boroughs the level will not change by much.

The elements that make up core spending power will change by different amounts for different boroughs. Some authorities will receive an increase in their un-ringfenced Revenue Support Grant, while others will receive a decrease. Changes in retained business rates revenue and transitional funding (as the new settlement is brought in over several years) will also be distributed unevenly.

The overall effect of the new settlement will be to bring inner London’s core spending power to about the same level as that of outer London, on average, but below the England average (if we exclude funding to the Greater London Authority).

Changes to council tax

Council tax revenue makes up a significant proportion of core spending power, and all inner London boroughs will see increases in the amount of council tax that they collect (all boroughs will be allowed to increase their council tax rates by up to 5% in 2026/27). The government expects that increases in future years will be particularly high for authorities which currently charge relatively low rates of council tax, such as Wandsworth and Westminster. These authorities will also receive less central government funding as a result of the "resource adjustment" in the Fair Funding Review.

Grant simplification

The Fair Funding Review also simplified the way in which central government grants are provided to local authorities, by consolidating many of these individual grants into four ring-fenced grants. These grants will be distributed using their own formulas, but the distribution among inner London boroughs will be broadly similar to the distribution of core spending power.