Ministers have announced a significant shift in council funding, with a focus on redirecting money from wealthier areas to the most deprived towns and cities in England. This marks a departure from the previous trend established during a period of austerity that lasted a decade. The government is also considering requests from councils facing financial difficulties to raise council tax above the current threshold of 5% for upper-tier authorities and 3% for districts.
In the past, only councils that declared themselves effectively bankrupt, such as Croydon and Thurrock, were allowed to exceed the cap levels for council tax. Requests from Medway and Somerset councils earlier this year to raise council tax by 10% were denied. A new £600 million recovery grant will be specifically targeted at the most deprived areas in the north and Midlands, with longer-term plans aimed at creating a more equitable distribution of council funding away from the affluent southeast.
The changes announced by ministers are intended to address the root issues affecting local government and ensure that councils with high needs in areas such as adult social care and child protection receive a fair share of funds. Angela Rayner, the deputy prime minister and local government secretary, emphasized the need to reform the outdated funding system to improve the efficiency of public services and ensure that taxpayer money is spent effectively.
The financial challenges faced by councils in recent years have pushed many to the brink of insolvency, as they grapple with rising costs for social care, special educational needs, and homelessness. The Ministry of Housing, Communities and Local Government acknowledges the pressures on councils and recognizes the need for a long-term strategy to ensure financial stability.
The proposed funding system for 2026-27 will prioritize deprivation levels, potentially creating winners and losers. This has drawn criticism from the Conservatives, who argue that funds may be reallocated to Labour strongholds, while councils in rural and affluent areas fear their financial struggles will be overlooked. Tim Oliver, chair of the County Councils Network, highlights the importance of considering factors beyond deprivation when assessing a council’s financial distress.
Additional funding of £250 million for children’s social care will be introduced in April to support families and reduce the number of children in care, particularly in areas where child protection services are under strain. Plans to transition to three-year funding agreements for councils, changes to business rates, and the streamlining of grant funding pots are also in the works to stabilize and simplify council finances.
David Phillips from the Institute for Fiscal Studies notes that the emphasis on redistributing funding to deprived areas aims to offset cuts experienced during the previous decade. Sir Stephen Houghton, chair of the Special Interest Group of Municipal Authorities, welcomes the focus on deprivation in allocating new funds. However, Kevin Hollinrake, shadow local government secretary, criticizes the government for allegedly favoring Labour strongholds and neglecting rural areas in funding decisions.
Overall, the government’s decision to reallocate council funding to prioritize deprived areas reflects a shift towards addressing longstanding inequalities in local government finance. The challenge lies in balancing the needs of different regions while ensuring that essential services are adequately funded for all residents.
