About the Local Government Association (LGA)
The LGA exists to strengthen local government, so communities thrive. This means championing and being the voice of local government, ensuring it has the resources, powers and support to deliver the best possible outcomes.
This response has been approved by the Chair, Group Leaders and Local Government Resources Committee Lead Members.
Key messages
Before addressing the specific consultation questions there are a number of key summary points that are important to make.
Funding reform is welcome
The LGA has consistently called for the updating of the formulas and the underlying data used for the assessment of relative needs and resources. An opaque and outdated funding system has weakened councils' financial sustainability and vital public services. In this context we welcome many aspects of the proposals set out in the consultation including multi-year settlements and grant simplification where this does not lead to funding reductions.
Different views across the sector
Different councils are affected by the settlement in very different ways. Some councils will welcome the extra resources provided through the Fair Funding Review 2.0 (FFR2). However other councils will be deeply concerned that the outcome of the FFR2 has not provided sufficient resources to meet the growing demand and cost pressures they face. In this context it is imperative that Government listens to all the views across the sector and considers the full range of different local outcomes. All councils must have adequate resources to deliver vital services to support their communities and places.
Transparency
While we recognise that the settlement includes many announcements and that Government has taken steps to produce new funding baselines, the presentation of some aspects of the data is nonetheless confusing. The use of 2024/25 as a baseline for change in Core Spending Power (CSP) over the spending review period adds an unnecessary complication for councils who will have to rebase their figures to 2025/26 and produce annual change calculations to reflect their actual financial planning timelines. Within the presentation of the national figures for CSP it is not clear that some of the additional grant funding is for new responsibilities such as the Simpler Recycling Scheme and the implementation of a Fair Pay Agreement for adult social care. Councils will have to unpick the cost of these new responsibilities to understand fully the outcomes of the settlement for their finances.
Timing
The complexity of the data adds to the challenge faced by councils in setting their budgets in the very tight timeframe available following another mid-December publication of the provisional settlement. Given the scale of change following the outcomes of the FFR2 it will be hugely challenging for councils to set their budgets for 2026/27 in this timeframe. While the move to multi-year settlements should provide a greater degree of certainty in future years the Government should implement the recommendations of the 2018 Hudson Review on the timings of the publication of the provisional and final settlements for future years.
Additional resources are desperately needed
The settlement funding envelope does not provide the increase in funding councils need to ensure their financial sustainability and protect services. Despite a 7.4 per cent increase in CSP from 2024/25 to 2025/26, 29 councils required Exceptional Financial Support (EFS) to set a balanced general fund budget for 2025/26. Given that the provisional settlement for 2026/27 to 2028/29 provides an annual average rate of CSP growth of 4.8 per cent it is hard to see how this settlement will halt the annual increase in councils reliant on EFS1.
A key issue is the low rate of growth of grant funding – which has an annual average increase of only 2.6 per cent in this period. This level of increase in grant funding does not reflect the growing pressures and demands on local authority funding and the level of new requirements placed on them by central Government.
The low rate of grant funding growth also puts greater pressure on councils to continue raising their council tax rates up to their referendum thresholds. The pressure on councils to use their full tax raising powers to fund demand-led services such as adult social care means there is increasingly less space for local choice and flexibilities on the part of democratically elected decision-makers. The settlement forecasts that council tax will grow as a share of CSP from 52.6 per cent in 2025/26 to 55.5 per cent in 2028/29.
Stronger transitional protection is needed to support the FFR2 reforms
While the Government is providing transitional protection to councils, the tight overall funding envelope means many councils are likely to receive three-year settlements that do not reflect the scale of cost and demand pressures they face. This includes councils not in receipt of transitional support. Given the cost and demand pressures in adult and children’s social care, home to school transport for children with special educational needs and disabilities (SEND), and temporary accommodation, real-terms reductions in CSP will be particularly challenging. However, despite these pressures, 10.5 per cent of social care councils will see a real terms reduction in CSP in 2026/27, increasing to 14.5 per cent of these councils over the three-year period 2025/26 to 2028/29. For shire district councils the figures are 67.1 per cent and 70.1 per cent respectively. Further transitional funding from outside the current envelope is needed to support these councils.
Exceptional Financial Support is not the answer
We anticipate that there will be an increase in the number of applications for EFS to help set councils’ general fund budgets for 2026/27. However, we have significant concerns over the efficacy of EFS as a method to support councils experiencing severe financial pressure. There is a risk that the EFS, as currently designed, could load struggling councils with further debt and/or undermine future capital programmes by eroding councils’ capital receipts.
Further funding reform is needed
The sector’s financial challenges are not resolved by the announcements in the settlement. We recognise that Government has updated aspects of the funding system via the FFR2 and is consulting on proposals such as the visitor levy. However, the core components of the system are largely unchanged by the reforms. Consequently, we would call for deeper reform to the council funding system. The Government should undertake a cross-party review of options to improve the wider local government finance system. This has to include a review of council tax, alongside other council funding sources, and whether business rates retention represents a viable future funding model.
The funding arrangements for SEND provision need urgent attention
Councils urgently need clarity on Government’s plans for SEND reform and how it intends to address historic and accruing dedicated schools grant (DSG) deficits. We note the Government’s commitment to provide further detail on its plans to address deficits “later in the settlement process” and would caution that failure to meet this commitment may well have severe implications for some councils’ finances. The recent announcement that the DSG High Needs Block for 2026/27 will be ‘cash flat’ despite ongoing demand pressures, reinforces the need for action.
Furthermore, the statements in the settlement that councils should “keep deficits as low as possible” and do “all they can locally to manage their system effectively” ahead of their deficits being addressed are unhelpful. The deficits are the result of structural under-funding of SEND provision relative to demand rather than the lack of effective management by councils. Councils also have the added incentive to keep deficits as low as possible as they already bear the real time cash costs, in the form of lost interest income and/or additional borrowing costs, of maintaining the deficits. DSG deficits are not cost free to councils. Finally, it is important to recognise that councils have no powers to hold education or health partners to account for their contributions to local SEND systems, or for decisions taken by tribunals, both of which can have a significant and long-term impacts on high needs budgets.
1This figure is the compound yearly percentage increase in CSP from 2025/26 to 2028/29 as taken from Core Spending Power table: provisional local government finance settlement 2026 to 2029. As par the table, this figure does not include the allocations for the City of London in 2027/28 and 2028/29.
Consultation questions
Question 1: Do you agree or disagree with the government’s proposals for distributing the total Fair Funding Allocation across the multi-year Settlement period from 2026-27? This encompasses the approach to Baseline Funding Levels, Revenue Support Grant, the Adult Social Care Relative Needs Formula distribution, the additional funding for local services, the approach to the Local Authority Better Care Grant, and the method for calculating tariffs and top-ups.
We agree with the broad principle that the data and formulas needed updating. However, views will differ between councils as to the whether the precise way in which these principles have been delivered is appropriate. Nonetheless, there are a number of specific points we would like to raise:
- Councils should be appropriately resourced to deliver new responsibilities. In this context, the lack of transparency around the funding for the Simpler Recycling programme sets a potentially worrying precedent. While we welcome the Government’s commitment in the FFR2 consultation response to the principles underlying the New Burdens Doctrine there are concerns about the lack of clarity on the Government’s costings for the Simpler Recycling programme. The Government should publish its modelling of the scheme’s cost and set out how much has been allocated to meet these costs through the Spending Review.
- We welcome the principle of grant simplification and consolidation. However, the presentation of the four consolidated grants in relation to CSP is confusing and risks double counting. Under the current proposals the entirety of the Public Health Grant and Crisis and Resilience Fund are outside of CSP, the entirety of the Homelessness and Rough Sleeping Grant is inside CSP, and certain elements of the Children, Families and Youth Grant are included in CSP while others are excluded. This is unnecessarily complex and confusing.
- Specifically in relation to the Crisis Fund, it is disappointing that the Fund represents a funding reduction compared to the previous component schemes.
- We note that in the calculation of the 2025/26 income baseline the Government has also made an assumption to incorporate local authority pooling benefits. Specifically, for pooling authorities, the assumption assumes levy due from the pool is split out in proportion to the pre-pooling levy each local authority would be liable for. Given the potential implications of this assumption for some councils, including for transitional support, it is crucial that the voices of members of pools are listened to. We note the Government’s position that any alternative method must be replicable for all local authorities with pooling arrangements. However, we would question whether this is feasible and would ask Government to consider whether a uniform approach is needed.
Question 2: Do you agree or disagree with the government’s proposed transitional arrangements?
We welcome the principle that transitional support is available to local authorities, though we recognise that different councils will have different views on the precise design of the transitional arrangements. However, we are clear that any transitional arrangements must be sufficiently robust to ensure that the proposed reforms do not push individual councils into needing Exceptional Financial Support (EFS) and that no council faces real terms CSP reductions. In particular, the LGA has been clear throughout the FFR2 consultation process that no council should face a real terms reduction over the spending review period. But under the current transitional measures, 10.5 per cent of social care councils will see a real terms reduction in CSP in 2026/27, increasing to 14.5 per cent of these councils over the three-year period 2025/26 to 2028/29. For shire district councils the figures are 67.1 per cent and 70.1 per cent respectively. Further transitional funding from outside the current envelope is needed to support these councils and to prevent a significant uptick in demand for EFS.
Question 3: Do you agree or disagree with the proposed package of council tax referendum principles?
We support abolishing council tax referendum limits so, in due course, alongside the completion of the Fair Funding Review, councils and their communities can decide what increase in council tax is warranted to help protect or improve local services.
However, council tax is not the solution to the financial challenges facing local government. It places a significant burden on some households. In addition, increasing council tax raises different amounts of money in different parts of the country not related to need.
It is disappointing that the Government has continued to rely on council tax and the social care precept, alongside grant, to fund adult social care. Council tax is not the solution for meeting long-term pressures facing high-demand national services such as adult social care. The assumption that not only the adult social care precept but also a substantial part of any council tax uplift should fund adult social care leaves little for other council services on which all residents depend.
If there are to be referendum limits, we agree that shire districts should have the extra flexibility but would propose a cash limit of £10 rather than £5, alongside the percentage increase.
We note that six councils will have no referendum principles applied in 2027/28 and 2028/29. Government have assumed that these councils will use this flexibility to move their council tax rates into line with the national average. Given the implications of these assumptions, the Government should consider the views of these councils.
Question 4: Do you agree or disagree with the government’s proposed approach to distributing funding for the Families First Partnership programme via the final version of the Children and Young People’s Services (CYPS) relative needs formula?
We note that there is an expectation that councils spend the great majority of the Children’s, Families and Youth Grant on the Families First Partnership programme, and that the “Department for Education will be closely engaging local authorities on spend and delivery of the programme”. While it is appropriate that councils contribute to the delivery of national agendas, it is also important that funding arrangements are sufficiently flexible to allow for opportunities to capitalise on the local knowledge and expertise of councils.
The CYPS formula is focused on the potential for children to become Children in Need or Children Looked After in each council area. This is in line with the focus of the Families First Partnership programme. However, we note that:
- Some councils have raised concerns over the design of the CYPS formula and the scale of its redistributive effects. If the CYPS formula is to be used for this grant it is important that all voices are listened to, that the scale of redistribution between councils is clear, and that the outcomes for individual councils are realistic given their funding pressures.
- The Government proposes to implement a cash flat floor for this grant for the three-year spending review period. Given the scale of cost and demand pressures in children’s social care, the Government should find additional resources from outside the settlement to ensure that all relevant councils are protected in real terms for this grant funding over the spending review period.
- Funding for the Families First Partnership programme is reduced by £124 million in 2028/29 compared to 2027/28. This decision must be kept under review given the pressure on these services.
Although not formally an element of this consultation, and in the absence of a consultation on the specific issue, we also want to comment on the proposal to introduce notional allocations for adult social care:
- In the context of the Government’s move to remove ringfences and reduce grant fragmentation, which we support, this proposal feels counter intuitive. Our position is that locally elected members are the best judges of local spending needs, and providing councillors with greater flexibility helps maximise value for money.
- We note Government’s statement that the figures will “act as a reference point and not a ringfence” and that Government recognises that “a number of local factors will influence local authority budget setting”. However, we are concerned nonetheless that where discrepancies exist between the notional and actual figures councils could come under pressure to alter their spending plans.
- In terms of the specific proposals, we think the 6.3 per cent minimum three-year increase in budgeted adult social care spend will be challenging for the 14.5 per cent of social care councils that will experience a real-terms cut in CSP in this period. This minimum increase needs to be re-considered.
- Finally, we would point out that the Government’s planned publication date for the notional figures of “early in 2026” is very late in the council budget setting process. Consequently, councils will have very little capacity to make meaningful changes to their budgets in response to the publication of the data, which brings the value of this data into question.
It is also a source of frustration that the sector is yet to receive clarity on the composition of the additional £4 billion in adult social care funding announced at Spending Review. Government should publish a breakdown of this figure.
Question 5: Do you agree or disagree with the government’s proposed approach of continuing the IDB support grant for 26-27 but seeking an alternative solution from 2027-28?
Councils with high Internal Drainage Board (IDB) levies will welcome the continuation of the IDB Grant although may have views on the quantum.
We welcome the Government’s recognition that IDBs should be “set up for the longer term” and look forward to the publication of the Government’s commissioned research into IDB funding and costs. It is essential that this work engages fully with relevant councils and takes full account of the financial impact of the levies on these councils’ finances and their services.
Question 6: Do you agree or disagree with the government’s proposal on Mayoral Strategic Authorities in the Local Government Finance Settlement?
These proposals, in which some Mayoral Strategic Authority (MSA) funding is included in both CSP in the local government finance settlement and each MSA’s integrated settlement, pose a clear risk of double counting aspects of funding in local areas. The Government’s proposal of noting this in the “relevant footnotes” may not be sufficient to guard against this.
Question 7: Do you have any comments on the impact of the proposals outlined in this consultation document on persons who share a protected characteristic? Please identify which protected characteristic you believe will be impacted by these proposals and provide evidence to support your comments.
The Government has said that it has sought to mitigate the impacts of the settlement on protected groups by increasing the funding available to the sector and strengthening the relationship between funding and deprivation. However, the closer alignment with deprivation involves the reallocation of resources between areas, and this, alongside the smaller increase in overall funding, means that some areas will receive real terms funding cuts in 2026/27. There is a risk that residents with protected characteristics will be affected in areas that have not received sufficient funding to meet the demand and cost pressures they face.
Contact
Alex Burfitt
Principal Adviser (Local Government Finance)
Email: [email protected]