In a significant policy shift, the Labour government in England has announced plans to redirect council funding predominantly towards poorer areas. This reform aims to address long-standing disparities in funding that have been exacerbated by outdated financial formulas used for over a decade. The government’s initiative underscores its commitment to ensuring that local authorities facing higher demands for services due to economic deprivation receive the necessary financial support.
The proposed overhaul will implement new formulas that distribute billions of pounds more equitably among councils, particularly benefitting those that serve economically disadvantaged communities. Ministers within the Labour government assert that the current funding framework fails to accurately reflect the growing demand for local services in these areas. Jim McMahon, the local government minister, stated that the change aims to channel approximately £2 billion in funding to regions that face greater difficulties, particularly where property values are lower, thereby limiting the potential revenue from council tax collections.
Despite the intended advantages for urban and economically deprived areas, rural councils have expressed ample concern regarding the implications of this new funding strategy. Many local authorities in less populated regions fear they will experience dramatic losses in funding, estimated to be in the millions as resources are redistributed. This issue brings forward a complex debate on how deprivation and rurality should be balanced within government funding decisions.
Currently, councils receive about half of their funding from central government, which is allocated based on a complex set of criteria designed to reflect the varying demands for services across different areas. The upcoming changes aim to simplify this system, planning to reduce the number of funding formulas by over one-third to enhance efficiency and target resources more effectively. These plans, set to be implemented over a three-year period starting in 2026, seek to ensure that lower council tax bands are better accounted for, thereby funneling more funds to councils that serve lower-income populations.
Additionally, the reforms do not propose changes to the local revenue raised through council tax, which remains capped at a 5% increase annually unless additional permissions are granted through local referendums. This aspect has raised questions about the ability of councils, especially those that stand to lose funding, to maintain service levels without raising local taxes above the government’s stated cap.
The reaction from different council representatives has been mixed. While urban areas represented by groups such as SIGOMA have applauded the shift, asserting that it compensates for financial losses during austerity measures, rural councils are voicing their apprehension about an oversensitivity towards deprivation that may overlook the specific needs of their communities. Tim Oliver, the chair of the County Councils Network, highlighted the potential pitfalls of the new rules, particularly in relation to issues of funding linked to council tax.
Socioeconomic research institutions, including the Institute for Fiscal Studies, have indicated that while the changes will promote a significant redistribution of government funding towards deprived areas—especially those situated in urban centers in the North and Midlands—there remains uncertainty about the detailed impacts on each individual council. Expectations of potential cash funding reductions are tempered by an understanding that councils might not necessarily see immediate financial losses, but they could be compelled to either economize or seek voter support for increased council tax rates to meet rising service delivery costs.
In addition to this funding reform, the government has also extended a financial rule facilitating councils in managing deficits related to special educational needs and disabilities (SEND) services, easing the pressure on local budgets. Plans have been disclosed to overhaul how council tax is collected, emphasizing a transition towards monthly payment structures and addressing challenges individuals face in disputing council tax band placements.