Councils still need additional resources
In August, the LGA responded to the Government’s Fair Funding 2.0 consultation. We welcomed many aspects of the proposed approach to local government funding reform in England, including: the guarantee of multi-year settlements; grant simplification; less competitive bidding; and potentially greater flexibilities over sales, fees and charges.
However, different councils will have contrasting views on many of the other proposals in the consultation.
The Government needs to ensure that reform does not put the sustainability of individual councils’ finances and services at risk. The consultation’s proposals on transitional protection are key in this context.
While the offer of a cash-flat floor appears reasonable at first, it does not protect councils from real-terms cuts in their core spending power (CSP). The consultation is also clear that not all councils will receive the cash floor, meaning they potentially face cash-terms cuts in CSP over the period.
Given the scale of cost and demand pressures currently faced by the sector, real-term and cash-term cuts will be challenging for any council.
While the LGA has welcomed many of the consultation’s proposals, it does not mean that the sector’s financial problems are resolved.
Funding reductions in the 2010s, followed by rapid cost and demand increases in recent years, mean that local government is under extreme financial pressure.
Prior to the Spending Review 2025, the LGA estimated that councils faced a funding gap of £8.4 billion by 2028/29, compared with 2023/24, based on projected cost pressure and modelled income. While we have not updated our analysis, the funding announcements set out in the Spending Review are largely in line with our original income projections. This implies that a significant funding gap remains at the sector level.
Even where councils gain from the fair funding changes, it is unlikely that the long-term funding issues they face will have been corrected.
So, the proposals set out in the consultation provide a first step towards greater certainty and sustainability of funding, but they are not a resolution to the sector’s financial problems.
The LGA has reiterated that councils still need a significant and sustained increase in overall funding to stem the emerging risk of system-wide financial failure, and to ensure that councils can meet growing demand for the vital services needed by their communities.
Alongside additional funding, we also called in our consultation response for deeper reform, as the core components of the system are largely unchanged.
The Government should undertake a cross-party review of options to improve the wider local government finance system, including widening the tax base by giving more freedoms on local taxes and charges, as called for in our report on ‘Reforming the local government funding system in England’ (see www.local.gov.uk/publications). This has to include a review of council tax, including consideration of fairness in the system, alongside other council funding sources, and whether business rates retention represents a viable future funding model.
We should look to build a sector-wide consensus on the nature of any proposed reform.
Finally, the consultation’s proposals sit within a broader range of financial and service challenges.
It is vital that these are not overlooked and that the fair funding reforms align with other proposed changes, including to: the Treasury management costs of Dedicated Schools Grant deficits; internal drainage boards; devolution and local government reorganisation; and waste funding.