Council funding

To secure the long-term sustainability of local services and to support communities, councils need a strong and certain financial foundation.

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Councils provide more than 800 local services, from looking after vulnerable people and keeping our streets clean to running neighbourhood leisure centres and building stronger and safer communities. Many of these services have been critical during the pandemic and will continue to play a significant role as we recover, but their future is far from certain. 

Even before COVID-19 councils faced serious financial challenges. Whilst the demand for services keeps increasing, such as care services for adults and children, over the last decade core funding from central government has fallen dramatically. Councils in England face extra cost pressures of almost £8 billion by 2024/25 just to keep vital local services running at pre-pandemic levels. The pandemic has added to these challenges by generating additional extraordinary financial pressures in local government.  

To secure the long-term sustainability of local services and to support communities, councils need a strong and certain financial foundation.


How councils are funded

How councils are funded 2019/20 pie chart
Chart shows how councils are funded. 38% of their funding comes from council tax, 34% comes from sales, fees and charges, 20% comes from business rates, 3% comes from social care grants, and 6% comes from other grants.


Why council tax is not the answer


Council reserves

Councils hold financial reserves so they can plan for the future. 

Reserves are used to pay for planned projects, such as renewing the town centre or for harder to predict situations, such as coping with a pandemic, or responding to emergencies like flooding. They also help councils even out their cash flow. Government grants often cover spending that will happen in more than one year and having reserves lets councils use unspent funding for a specific, purpose when it’s needed. 

Council reserves explainer
Image above shows how council reserves are split. Some are earmarked reserves for known risks such as insurance, some are ringfenced reserves for a specific purpose such as public health and some are unallocated reserves for events or emergencies.

Councils often come under pressure to use reserves to plug ongoing budget gaps but using reserves is not the solution to the financial pressures councils are facing.  Reserves can only be spent once. Any reserves held to cover general risks that have been spent will need to be replenished to make sure councils can continue to deliver local services whatever unexpected situations arise.