Local Government Finance Settlement 2025/26
Local authorities in England will have £69.4 billion to spend in 2025/26. Here we look at the changes in this year’s funding, and the longer-term context.
The Local Government Finance Settlement for 2025/26 will be debated by the House of Commons on 5 February 2025. If approved, this will set the amount of funding that local authorities in England will have available in the 2025/26 financial year.
The settlement was published in provisional form on 18 December 2024, and was open for consultation until 15 January 2025. The final version was published on 3 February 2025. All analysis in this briefing is based on the final settlement; a previous version of this briefing, published on 30 January, was based on the provisional data.
Changes to fundingIf approved by the House of Commons, this settlement will make £69.4 billion of core spending power available to local authorities in England. Of this, 24% is un-ringfenced settlement funding, 14% is grants for social care, 6% is other grants, and the remaining 55% is council tax. Overall core spending power in 2025/26 is £4.4 billion higher than in 2024/25, a 6.8% cash terms increase (or 4.3% when adjusted for inflation).
A number of changes to funding have been made in this settlement. Several grants have been renamed, replaced or consolidated into other grants, and some of these are distributed differently to their predecessors. The settlement also includes compensation to local authorities for the increases to employer National Insurance contributions introduced in the 2024 Autumn Budget.
Factors affecting changesAuthorities which provide social care will generally have larger increases in funding than those which do not. This is partly because of specific grants for social care, and partly because authorities with social care responsibilities will be allowed to increase their council tax rates by more than those without.
Changes in the level of guaranteed funding, and changes to the allocation of grants, also mean that shire districts in general will end up with less funding in real terms than in 2024/25, while metropolitan districts in particular will have the largest increases.
Reforms and longer-term contextThe overall increase in core spending power in this settlement is broadly in line with increases in the last few years. However, in real terms, core spending power is still around 9% below where it was in 2010/11. Over the past decade, local authorities have become more dependent on council tax revenue, while un-ringfenced settlement funding has become a much less significant resource.
The government has announced that it intends to keep certain aspects of the funding system broadly the same in 2025/26 as in previous years. However, it has also begun consultations on reforming the system from 2026/27 onwards. Proposals include a reset of the business rates retention system, a move to multi-year funding settlements, changes to the relative needs formulas which govern the distribution of funding, and fewer funding streams to simplify the system.
Data supporting this briefingThe spreadsheet accompanying this briefing includes much of the data used to carry out the analysis. It is mostly based on the data published by MHCLG as part of the final Local Government Finance Settlement, but also includes estimates of real-terms and per-person figures based on OBR forecasts of the GDP deflator, and ONS population estimates. Please get in touch with us at papers@parliament.uk if you would like to access the data in a different format.