Full Breakdown
New Funding Settlement for English Councils: Winners, Losers, and Implications
12/19/2025, 11:21:24 PM
Overview of the Funding Settlement
The UK government has announced a new three-year funding settlement for English councils, allocating £78 billion to support local authorities from 2026 to 2029. This settlement introduces a new 'Fair Funding' formula, prioritizing councils with higher deprivation scores, which are determined by factors such as income, employment, health, and housing costs. The aim is to address disparities in funding and restore services in areas that have faced significant cuts over the past decade.
Winners and Losers
Under the new formula, councils in deprived urban areas such as Birmingham, Manchester, Luton, and several outer London boroughs, including Newham and Enfield, will see substantial increases in their spending power. For instance, Birmingham's core spending power is projected to rise by 45.3% by 2028-29. Conversely, wealthier councils, particularly in central London and affluent commuter areas, will experience funding reductions. Harborough in Leicestershire will face the largest cut, with a 15.8% decrease in spending power.
Reactions to the Settlement
The funding announcement has elicited mixed reactions. Housing Minister Steve Reed characterized the settlement as a chance to "turn the page on a decade of cuts," emphasizing the need for local leaders to invest in community services. However, some councils have criticized the settlement for favoring urban areas at the expense of rural councils. The County Councils Network accused the government of "cherry picking," arguing that rural areas will continue to struggle with financial pressures.
Council Tax Implications
Most councils are expected to raise council tax bills to the maximum allowable increase of 4.99% to mitigate funding shortfalls. Notably, six councils with historically low tax levels, including Wandsworth and Kensington and Chelsea, will have the option to exceed this cap for two years without a referendum. Critics, including Shadow Local Government Secretary Sir James Cleverly, argue that this could lead to significant tax hikes in areas losing funding, potentially reaching increases of up to 75% in some cases.
Financial Stability Concerns
Despite the funding increases, many councils are still grappling with rising demands for services, particularly in social care. The Local Government Association has warned that the settlement does not adequately address the financial sustainability of councils, with a collective deficit in special educational needs services projected to reach £14 billion by 2028. As a result, some councils may seek exceptional financial support from the government to avoid bankruptcy.
Conclusion
The new funding settlement represents a significant shift in how resources are allocated to English councils, aiming to address historical inequities. While it provides much-needed support to deprived areas, concerns remain about the sustainability of funding for rural councils and the potential for increased council tax bills in wealthier areas. As councils prepare to implement these changes, the long-term implications for local services and financial stability will continue to unfold.
