Provisional Local Government Finance Settlement 2025/26: On-the-day factual briefing

The local government finance settlement is the annual determination of funding to local government from central government. This briefing covers the provisional local government finance settlement for 2025/26 which was announced on 18 December 2024. We expect the final 2025/26 settlement to be laid before the House of Commons, for its approval, in late January or early February 2025.

Alongside the provisional settlement the Government published a consultation on Local Government Finance Reform. The deadline for responding to the reform consultation is 12 February. The LGA will be responding to this consultation.

The LGA has issued a media statement responding to today’s provisional settlement.

The Ministry of Housing, Communities and Local Government (MHCLG) has issued the provisional local government finance settlement for 2025/26.

We have provided a glossary of Local Government Finance terms which provides a brief explanation of some of the language used in this briefing. This can be found at Annex B.

The closing date for responses to the consultation document is 15 January 2025. We expect the final settlement to be published in late January / early February 2025.

Our, in person, Local Government Finance conference on 9 January 2025 will offer perspectives on the 2025/26 provisional local government finance settlement and what it means for local authorities, as well as look to the longer-term outlook for local government. It will cover issues raised in the Autumn budget, and key current topics that local government finance professionals are addressing in their local authorities, departments, and organisations. Book your place.

The Governments figures indicate that total Core Spending Power will rise by 6.0 per cent in 2025/26.

Core Spending Power consists of:

• Settlement Funding Assessment (which consists of Revenue Support Grant, and the baseline funding level).
• Income from council tax assuming that the tax base grows, and councils increase council tax by the maximum possible allowable under council tax referendum principles.
• Compensation for under-indexing the business rates multiplier.
• Social Care Grant.
• Local Authority Better Care Grant.
• Adult Social Care Market Sustainability and Improvement Fund.
• Children’s Social Care Prevention Grant.
• New Homes Bonus.
• Recovery Grant.
• Domestic Abuse Safe Accommodation Grant will be consolidated as a new, separate line in the settlement, maintaining its existing distribution.
• A funding floor, to ensure that no local authority sees a reduction in their Core Spending Power in 2025/26, after accounting for council tax levels.

Core Spending Power does not include the £515 million funding for National Insurance or a £13 million uplift to the Children’s Social Care Prevention Grant. 

The Government has held back some grant funding as a contingency. The Government will make clear how this contingency funding will be allocated at the final settlement. Detailed Core Spending Power figures are included in Annex A.

The Government has announced that:

• £515 million of new funding will be provided to support councils with the costs associated with the increase in employer National Insurance Contributions (NICs). Individual allocations will be based on 2023/24 Revenue Outturn data and published at the final settlement. A methodology note has been published as part of the provisional settlement.
• The £515 million in new funding for NICs has not been included in Core Spending Power. The Government has said this funding will be reflected in Core Spending Power figures at the final settlement.

The Government has announced the following referendum principles for 2025/26:

• A core referendum principle of up to 3 per cent will apply to shire county councils, shire unitary authorities, metropolitan districts and London boroughs.
• Shire districts will have a referendum principle of up to 3 per cent or £5, whichever is higher.
• Social care authorities will be able to set a 2 per cent adult social care precept without a referendum (in addition to the existing basic referendum threshold referred to above).
• Fire and Rescue Authorities will have a principle of £5.
• £14 for police authorities and police and crime commissioners (PCCs) including the PCC component of the Greater Manchester, West Yorkshire and York and North Yorkshire Combined Authorities’ precepts.
• The non-police element of the Greater London Authority (GLA) will have a referendum principle of 3 per cent.
• There will be no referendum principles for mayoral combined authorities (MCAs) except where the Mayor exercises police and crime commissioner functions. In these cases the PCC principle will apply. There are no referendum principles for parish and town councils.

The Government has announced that where a council in need of exceptional financial support views additional council tax increases as critical to maintaining their financial sustainability, the Government will continue to consider requests for bespoke referendum principles. Local proposals will be considered on a case-by-case basis.

The Government expects that additional increases would only be agreed in exceptional circumstances, and following careful consideration of a councils’ specific circumstances, such as their existing levels of council tax relative to the average, the potential impact on local taxpayers, and the strength of plans to protect vulnerable people. 

In terms of Revenue Support Grant (RSG):

• The Government is not proposing to change the distribution of RSG from that used in 2024/25. The Government proposes to increase 2024/25 RSG levels in line with change between September 2023 and September 2024 in the Consumer Price Index (1.7 per cent). This is before accounting for rolled in grants.
• The Government will continue to eliminate ‘negative RSG’.
• The Government is proposing to consolidate four grants (maintaining their existing distributions) into the Revenue Support Grant:
  • Electoral Integrity Programme (£4.6 million).
  • Tenant Satisfaction Measures (£3.9 million).
  • Transparency Code grant (£3.6 million).
  • Extended Rights to Home to School Transport grant (£54 million).

The following will apply to business rates in 2025/26:

• As announced in the 2024 Autumn Statement, the small business rates multiplier will be frozen for 2025/26 at 49.9p. The standard business multiplier will rise by CPI to 55.5p. The Government will compensate local authorities for the loss of income for this decision. 
• Baseline funding levels (BFLs) will increase by applying the rise in standard multiplier to a weighted proportion of each individual local authority’s BFL.
• 2025/26 is the last year of the technical adjustment in response to the 2023 revaluation. The Government will apply the approach set out in the previous government’s 2022 consultation.
• All current region-wide enhanced business rates retention arrangements will continue for 2025/26. The Government has announced it will “consider how a new model of business rate retention could better and more consistently support Strategic Authorities to drive growth”.
• The Government is consulting on 25 business rates pools. 
• In 2024/25, every authority in England will receive a share of £100 million accumulated surplus from the business rates levy account. This will be distributed on a one-off basis based on each local authority’s 2013/14 Settlement Funding Assessment in line with relevant legislation. Local authorities will receive payment for their share of the £100 million levy account surplus by 31 March 2025. Detailed allocations for each local authority will be published at the final local government finance settlement.

The Government intends to ‘reset’ the business rates retention system from 2026/27. The reset will apply nationally, but business rates growth generated within designated areas such as Freeports, Enterprise Zones and Investment Zones will be exempt in line with current policy.  Further details are in the Local Government Funding reform consultation which has been published alongside the Provisional Local Government Finance Settlement.

The Government has announced that:

• There will be a new one-off ‘Recovery Grant’, worth £600 million. The grant will be distributed using a formula, based on deprivation and population less the ability to raise income through council tax. A technical note on the formula’s methodology has been published alongside this consultation.
• The grant is unringfenced. Allocations are capped at 3 per cent of Core Spending Power, with a minimum allocation of £10,000.

The following has been announced:

• In 2025/26, £5.9 billion will be provided through the Social Care Grant, for both adult and children’s social care. This is an overall increase of £880 million compared to 2024/25, and is £200 million more than the £680 million increase for this grant announced by Government in the policy statement on 28 November 2024. The Government intends to use £240 million of the £880 million increase to maintain the component of the Social Care Grant which is used to equalise the variation in yield from the adult social care precept. This is an increase in the rate of equalisation which the Government says is to reflect the growth of the taxbase since adult social care precept equalisation was introduced. The remaining Social Care Grant funding will be distributed using the adult social care relative needs formula.
• In 2025/26, local authorities will receive £2.6 billion through the Local Authority Better Care Grant. This is a single grant which consolidates the Discharge Fund (£500 million in 2024/25) and the improved Better Care Fund (iBCF) (£2.1 billion in 2024/25). The grant will be required to be pooled as part of the BCF and will be distributed using the current iBCF methodology. The Government will publish the BCF policy framework for 2025/26 which will set out further details on how local authorities should work with their local NHS partners and wider public services to plan their integrated use of the BCF.
• £1.05 billion will be allocated through the Market Sustainability and Improvement Fund (MSIF) for adult social care. The Government proposes to distribute this funding using the existing adult social care relative needs formula. Reporting and grant conditions will be published in due course.

The following has been announced:

• As stated above, in 2025/26 £5.9 billion will be provided through the Social Care Grant for both adult and children’s social care. This is an increase of £880 million compared to 2024/25.
• The Government is putting £250 million of new funding into a new Children’s Social Care Prevention Grant. It will be distributed “using a children’s needs-based formula, which will allocate funding according to estimated need for children’s social care services. Alongside the interim formula, the variation in the cost of delivering services and the ability of local authorities to raise resources locally has also been taken into account to determine the grant allocations”. The Government has published an explanatory note on the formula’s methodology. Conditions placed on the Children’s Social Care Prevention Grant will be published alongside the final settlement. 
• At the final settlement the Government will uplift the Children’s Social Care Prevention Grant by a further £13 million to £263 million. This will be used to rollout mandatory Family Group Decision Making. The Government will set out further details in the final settlement. 
• Funding for several existing DfE children’s social care programmes, including the Supporting Families programme (£253.5 million), Supported Accommodation Reforms (£94.5 million), Staying Put (£33.3 million), Virtual School Heads Extension for Previously Looked After Children (£7.6 million), the Leaving Care Allowance uplift (£13.4 million) and Personal Advisor Support for Care Leavers (£12.1 million) will be consolidated into a single Children and Families Grant worth £414 million. This funding will retain its 2024/25 allocations in 2025/26 and will not be included in Core Spending Power for 2025/26. The Government will publish the grant conditions for the Children and Families Grant alongside the final settlement.
• The Government has said that the two separate grants for children’s social care in 2025/26, the Children’s Social Care Prevention Grant and the Children and Families Grant, are a transitional arrangement. In 2026/27, the Government plans to merge these grants and explore further consolidation in children’s services.

The following has been announced:

• Core spending power includes a provisional amount of £290 million for the New Homes Bonus (NHB) in 2025/26, compared with £290.8 million in 2024/25. The method for calculating the NHB will not change from 2024/25 and new payments will not attract legacy payments. The threshold over which the bonus is paid remains at 0.4 per cent. 
• The Government proposes that 2025/26 will be the final year of the NHB in its current format and councils should consider this in their financial planning.  The Government is consulting on the NHB beyond 2025/26 as part of the consultation on the principles and objectives of funding reform which has been launched alongside the settlement.

Funding from the Rural Services Delivery Grant (£110 million in 2024/25) will be repurposed. The Government is keen to hear from councils about how best to consider the impact of rurality on the costs of service delivery, and demand, as part of their consultation on the principles and objectives of funding reform.

The Services Grant (£87 million in 2024/25) will also be repurposed.

For 2025/26, the funding floor will be £121.5 million and protects all local authorities from a year on year reduction in CSP. The funding floor assumes authorities use the maximum of their council tax flexibilities but excludes any grants rolled into Core Spending Power in 2025/26.

In line with the previous two years, the Government will provide £3 million in funding for authorities impacted by increased Internal Drainage Board levies. The allocations for this funding will be published later in the financial year. These payments are not part of Core Spending Power.

In 2025/26, the Government will maintain the 2024/25 increase in funding for island authorities. The Isle of Wight will continue to receive the £4 million additional funding it received in 2024/25, whilst the Isles of Scilly will retain its £150,000.

In addition, the Government intends to hold back a small proportion of grant funding as contingency. This is the same approach as previous years, where contingency has been used to cover, for example, adjustments to New Homes Bonus allocations following updated data. The Government says it will make clear how this contingency funding has been allocated at final settlement.

In its Funding Policy Statement published on 28 November, the Government committed to update the assessment of need and local resources from 2026/27, building on the proposals set out in the previous government’s review of Relative Needs and Resources (also referred to as the ‘Fair Funding Review’). In November, the Government said that they 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.

A consultation on the principles and objectives of funding reform has been published alongside the provisional settlement.

Since 2018, a statutory accounting override has been in place on part of International Financial Reporting Standard 9 (IFRS 9). The override means that councils do not have to reflect nominal (or “paper”) fluctuations in the values of pooled investment funds in their revenue accounts.

The override was originally due to end 31 March 2023 and was extended by two years. It is currently due to end March 2025. The settlement consultation says that the Government is minded not to extend the override beyond March 2025 and asks for views on this proposal and for details of the financial impact on councils.

The Government has confirmed that any council concerned about its financial position or its ability to set or maintain a balanced budget should make contact with MHCLG. The Government has confirmed that it will not replicate conditions that made borrowing more expensive under the previous exceptional financial support framework.

The Government has stated that it will consider requests for bespoke referendum principles from councils seeking exceptional financial support. Local proposals will be considered on a case-by-case basis.

2025/26 will be the first year of the Extended Producer Responsibility for Packaging (pEPR) scheme. Beyond the settlement, the extra funding announced at the Autumn Budget includes a guarantee that local authorities in England will receive at least £1.1 billion in total in 2025/26 from the new Extended Producer Responsibility for packaging (pEPR) scheme, with each local authority guaranteed at least the level of income indicated in provisional local payment figures which were sent to Chief Executives on 28 November.

These payments are excluded from councils’ Core Spending Power in 2025/26 and will not be factored into any payments councils receive from the funding floor in 2025/26.

The following has been announced:

• The DfE’s Extended Rights to Home to School Transport grant (£54 million) will be rolled into the Revenue Support Grant.
• On 28 November, the DfE published the provisional funding allocations for 2025/26 through the schools, high needs and central school services national funding formulae (NFFs) through a written ministerial statement. The core schools budget will increase by an additional £2.3 billion next year;
• The Government is providing a £1 billion increase to Special Educational Needs and Disabilities (SEND) and Alternative Provision funding.
• The statutory override on accounting for Dedicated Schools Grants (DSG) deficits is due to end on 31 March 2026. The settlement consultation says that the Government intends to set out plans for reforming the SEND system in further detail next year and that this will inform any decision to remove the statutory override.

The provisional settlement did not include an announcement of the Public Health Grant.

Fire authorities will also receive an increase in their business rates funding baseline and revenue support grant in line with inflation, including compensation for under-indexing the business rates multiplier and will be entitled to the funding floor.

As set out above, Fire and Rescue Authorities (FRAs) will be able to raise their precept by £5 in 2025/26.

The Provisional Police Grant Report 2025/26 was published by the Home Office on 17 December 2024. Overall funding for policing will rise by up to £987 million compared to the 2024/25 funding settlement (assuming police and crime commissioners raise council tax by the maximum permitted by the referendum principle of £14).

To help inform the LGA’s response to the consultation settlement we will continue to analyse the settlement to develop a deeper understanding of the effect on councils. To further inform the LGA’s response please send your responses to, and any comments on, the settlement to [email protected].

Source: Core Spending Power Supporting Information 

Notes

1. Council tax projections for 2025-26 assumes local authorities increase their Band D council tax in line with the maximum allowable level set out by the council tax referendum principles for 2025-26. That is: a 3% core principle; a 2% adult social care precept; the greater of 3% or £5 cash principle for shire districts; a cash principle of £5 on Band D bills for Fire Authorities; and a cash principle of £14 on Band D bills for the police element of the Greater London Authority.                                                                                                                                  
2. From 2025-26, the ASC Discharge Fund allocations were rolled into the improved Better Care Fund (iBCF), with the iBCF renamed to the Local Authority Better Care Grant.                                                                                                                            
3. From 2020-21, Winter Pressures Grant allocations were rolled into the Improved Better Care Fund (now known as the Local Authority Better Care Grant), and no longer ringfenced for alleviating winter pressures.
4. From 2020-21, Social Care Support Grant allocations were rolled into the Social Care Grant.
5.  From 2023-24, Market Sustainability and Fair Cost of Care Fund allocations were rolled into the ASC Market Sustainability and Improvement Fund. For years prior to 2025-26, this grant was known as the ASC Market Sustainability and Improvement Fund.
6. For 2025-26, Domestic Abuse Safe Accommodation Grant funding has been rolled into the Settlement. This funding has been illustratively backdated for years prior to 2025-26 to maintain the integrity of Core Spending Power comparisons between years.
7. Further information about the Recovery Grant can be found in the accompanying technical note, published alongside the Settlement.

Further information about the Children's Social Care Prevention Grant can be found in the accompanying explanatory note, published alongside