Debate on the Local Government Finance Settlement 2026/27, House of Commons, 11 February 2026

• The LGA has consistently called for the updating of the formulas and underlying data used for the assessment of relative needs and resources, and for reform of the local government funding system. An opaque and outdated funding system has weakened councils' financial sustainability and vital public services.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.
   
• Despite an increase in CSP in recent years, the low rate of grant funding growth (annual average 2.8 per cent) does not reflect growing pressures on local authority funding and additional requirements placed on councils by central government.
   
• Additional funding, greater transitional protection, and deeper reform of the core funding system remain necessary to reflect councils’ cost pressures.

• We welcome the principle that transitional support is available to local authorities, though different councils will have different views on the precise design of the transitional arrangements.
   
• Transitional arrangements should 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.
   
• Following the final settlement, 9.8 per cent of social care councils will see a real terms reduction in CSP in 2026/27, increasing to 15 per cent of these councils over the three-year period 2025/26 to 2028/29. For shire district councils the figures are 22.0 per cent and 67.7 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.

• We are pleased the Government has announced a significant funding package to tackle 90 per cent of the historic high-needs deficits which removes the immediate threat of insolvency for many councils.
   
• This is recognition that these costs are not of councils’ making and have accrued due to a broken system that is urgently in need of reform. However, fully writing off historic and future high needs deficits remains critical
   
• Councils continue to work hard to use their finite resources in the best way possible to ensure the best outcomes for children and to meet their legal duties to support children and young people with SEND. It is important the Schools White Paper delivers the much-needed reform of the SEND system, leading to better outcomes for children and families, both now and in the future, and that is financially sustainable for councils.
   
• The announcement that the DSG High Needs Block for 2026/27 will be cash flat despite ongoing demand pressures reinforces the need for action. 
   
• 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 that have significant long-term impacts on high needs budgets. 

• Councils face significant cost and demand pressures in adult and children’s social care, driven by demographic change, workforce costs and inflation. The settlement funding envelope does not fully reflect councils’ social care pressures. Councils will continue to face funding gaps if costs grow faster than funding increases.
   
• The Government recently published 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. Locally elected members are the best judges of local spending needs, and providing councillors with greater flexibility helps maximise value for money.

• The Government should implement the recommendations of the 2018 Hudson Review on the timing of provisional and final settlement publications to improve the budget setting process.

• The settlement puts greater pressure on councils to raise council tax up to referendum thresholds to fund demand-led services such as adult social care, leaving less space for local choice and flexibility.
   
• The settlement forecasts that council tax will grow as a share of CSP from 52.6 per cent in 2025/26 to 55.3 per cent in 2028/29
   
• 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.
   
• There is a need for a fundamental review of council tax alongside other council funding sources. We urge all stakeholders to engage in this debate and to seek a sector-wide, cross-party consensus on the future of council tax.

• The LGA anticipates that there will be an increase in the number of applications for EFS to help set councils’ general fund budgets for 2026/27. Based on an LGA survey of chief finance officers (to which 49 per cent of member authorities replied) before the final settlement, more than a third (34 per cent) of councils have already applied or are very or fairly likely to apply for EFS in at least one of the financial years between 2026/27 and 2028/29. 
   
• Almost 6 in 10 councils told the LGA it will be fairly or very difficult to set a balanced budget in 2026/27. While 8 in 10 councils feel they will be able to meet their minimum legal duties in 2026/27, this number halves to 43 per cent by 2028/29.
   
• The LGA has significant concerns over the efficacy of EFS as a method to support councils experiencing severe financial pressure, and the risk that EFS could load struggling councils with further debt and/or undermine future capital programmes by eroding capital receipts. 

• Although Government has updated aspects of the funding system via Fair Funding Review 2.0 and is consulting on proposals such as the visitor levy, the core components of the system of funding local government are largely unchanged. 
   
• The Government should undertake a cross-party review of options to improve the wider local government finance system, including a review of council tax and other council funding sources, and whether business rates retention represents a viable future funding model. 

Arian Nemati (Public Affairs)

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