Last week the Government published the policy statement for Local Government Finance 2025-2026.  This included outline details of the headline allocations through the Provisional Settlement for Local Government for which a consultation will be launched in December ahead of the Christmas recess.  The detail of allocations to local authorities will be published at that time leaving local authorities awaiting the implications the announcements will bring to their finances.

This outline includes several financial enhancements: a £600 million Recovery Grant for particularly needy areas, a £680 million increase in the Social Care Grant, and a new £250 million Children’s Social Care Prevention Grant aimed at better outcomes for vulnerable populations.

Notably, the overall financial outlook for local governments will see a real-terms increase in Core Spending Power by approximately 3.2%, ensuring that no council experiences a budget cut after adjustments for potential council tax increases. Rural areas are projected to receive around a 5% increase in Core Spending Power, marking an improvement over the previous year. There was no mention of the increase in core spending power for urban areas, but it is likely to be significantly higher than that for rural.

‘The Rural Services Delivery Grant has been repurposed to target funding towards areas with high need and service demand, whilst investing in the priority services people care about such as adult and children’s social care.’

The Rural Services Network is concerned that deprivation is being highlighted as the only proxy for demand for services, when other factors such as the ageing demographic also play a big role.

The proposed financial framework for 2025-2026 will maintain the existing referendum thresholds for council tax increases, balancing taxpayer protection with the necessity to fund public services amidst ongoing cost of living challenges.

The government has committed to supporting the public sector with increased costs due to changes in employer National Insurance Contributions, merging and simplifying funding streams, and overhauling the local audit system. Discussions about potential reorganisation of local government will also be held.

Longer Term Implications

The main detail of the announcement was the one year settlement for 2025-2026 however it also set out the Government’s position for what was termed the ‘fair funding review’.

“From 2026-27, we want to fundamentally improve the way we fund councils and direct funding to where it is most needed, based on an up-to-date assessment of need and local resources. These reforms will build on the proposals set out in the previous government’s review of Relative Needs and Resources (also referred to as the ‘Fair Funding Review’), using the best available evidence to inform local authority funding allocations. We will move gradually towards an updated system and will invite views on possible transitional arrangements to determine how local authorities reach their new funding allocations.”

An initial consultation will be launched alongside the provisional settlement consultation in December, so that councils can contribute to the development of objectives and principles of the government’s proposed approach.

Further consultations are planned before finalising these proposals, with an implementation phase aligned with multi-year funding settlements beginning in 2026-2027. This approach aims to give local authorities the stability needed to plan and invest long-term.

Under the proposed changes, the government plans to abandon the previous system, which has led to significant disparities among councils in terms of financial health and service delivery capabilities. Some councils have seen their reserves increase, while others struggle to balance their budgets and maintain essential services.

The new approach, subject to extensive discussions with local leaders, aims to align funding more closely with specific needs. This reform builds upon the insights gained during the Fair Funding Review, which had previously identified critical flaws in the funding mechanism but was delayed and not implemented.

Deputy Prime Minister Angela Rayner highlighted the need for these reforms, stating, "For too long councils have been let down by an outdated and inefficient funding system." She emphasised that while the solution isn't instantaneous, these measures are crucial steps toward repairing the foundation of local governance.

For more detailed information on these reforms and to participate in the upcoming consultation, members are encouraged to review the government's full proposals and engage in the public consultation process to ensure that rural perspectives are well-represented.

The Rural Services Network has issued an initial response to this statement, read it in full here: https://www.rsnonline.org.uk/response-to-local-government-finance-statement