The government has unveiled a new three-year funding deal for local authorities in England, promising to channel more resources to some of the nation's most-deprived urban areas. The settlement, announced by Housing and Communities Secretary Steve Reed, aims to prioritise councils with high social needs, marking a significant shift away from the previous funding model.
Winners and Losers in the Funding Shake-Up
Under the new "fair funding" formula, major urban centres and outer London boroughs are set to receive substantial increases in their core spending power. Manchester, Birmingham, Luton, Bradford, Coventry, Derby, and London boroughs like Haringey and Enfield are among the biggest gainers. Ministers have framed the move as an effort to "restore pride and opportunity in left-behind places" after a decade of austerity cuts.
Steve Reed stated the settlement represented a chance to "turn the page on a decade of cuts," allowing local leaders to reinvest in libraries, youth services, and community hubs. However, the reaction from some quarters has been mixed. Leaders in Labour's northern heartlands expressed disappointment, arguing that the last-minute inclusion of London's high housing costs as a deprivation measure made "London's suburbs the biggest winners," leaving other deprived communities facing further cuts.
Council Tax Rises and Political Promises
The financial settlement has complex implications for council tax bills. Six wealthy central London authorities with low tax rates and high reserves—Wandsworth, Westminster, Kensington and Chelsea, City of London, and Windsor and Maidenhead—will be permitted to raise council tax above the standard 4.99% cap from April. The government believes they can use reserves and second-home premiums to mitigate funding losses.
Meanwhile, several councils led by the Reform party, such as Kent, have gained funding but face a political dilemma. Kent's leader, Linden Kemkaran, was recorded stating that avoiding a full council tax rise was "the best thing" to show Reform could govern. However, internal papers from other Reform-led authorities like Durham and Warwickshire suggest that lower tax rises would necessitate millions in further service cuts, potentially risking council viability.
An Unresolved Crisis and Mounting Debt
Despite the new money, analysts warn the settlement is unlikely to resolve the deep-seated crisis in local government finance. An increasing number of councils are expected to seek special financial assistance to balance their books this year. Furthermore, the deal provides little detail on how to tackle the forecast £14 billion deficit in special educational needs services by 2028, a critical issue for upper-tier councils.
The County Councils Network, representing shire counties, criticised the settlement as "unfair" for disproportionately benefiting urban areas, accusing ministers of "cherrypicking." The final deal followed months of negotiation and a significant late formula change that reduced the impact on London councils, a move that has angered some northern leaders who feel their areas have lost out.
Sir Stephen Houghton, chair of the Special Interest Group of Municipal Authorities, summed up the frustration, stating the use of housing costs as a key measure was "especially disappointing." As the new financial year approaches, the true impact of this redistributive deal on local services and council tax bills will soon become clear.
