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Consultation on the Provisional Local Government Finance Settlement 2025/26

14 January 2025


Key messages

  • We welcome both the increase in Core Spending Power and those resources outside Core Spending Power such as the extra £1.1 billion in extra resources for 2025/26 from the new Extended Producer Responsibility for packaging scheme and the extra £515 million to compensate for increases in employer national insurance contributions (NICs). This extra funding, inside and outside Core Spending Power, will help councils meet some - but not all - of the cost and demand pressures councils face. Councils of all types will continue to struggle to balance the books. Many face having to increase council tax bills to bring in desperately needed funding next year but will still be forced to make further cuts to services.
  • It is good that the Government has provided details of how it will compensate councils for the direct costs they will face through increases in employer national insurance contributions (NICs). However, this falls short of the £637 million we have estimated it will cost councils next year. We have also warned that indirect employer NICs cost increases, through commissioned providers, will cost councils up to an extra £1.13 billion next year. While we are pleased that councils will receive extra social care funding, which will help towards these indirect costs, we remain deeply concerned about the impact the NICs rise will have on the organisations that the sector relies on to deliver vital care and support, especially smaller charities and providers. As we have warned, alongside more than 100 organisations, this will exacerbate the already unsustainable pressures facing vital local services.
  • Different councils are affected by the settlement in different ways. For some councils this is a good settlement and they will welcome the extra resources including the Recovery Grant. However other councils will be concerned about the repurposing of grants such as the Rural Services Delivery Grant and the Services Grant and the Government’s use of a different method to allocate some additional funding next year. It is vital that all views are considered and the Government ensures all councils have adequate resources next year to provide the services their communities rely on every day and can meet growing and complex cost and demand pressures.
  • The final settlement, and recently launched Spending Review, will be critical to the future of our local services. It is good that the Government has committed to providing councils with multi-year settlements following the Spending Review, but it must also include a significant and sustained increase in overall funding. However, this alone will not address the multiple issues with the way local services are funded and councils stand ready to work with the Government on creating an improved and a more sustainable future funding system that works for all of local government.

Questions in the consultation

Question 1: Do you agree with the government’s proposals for the Settlement Funding Assessment, including payment of Revenue Support grant and the basis of calculation of tariffs and top ups, in 2025-26?

The methodology used is unchanged from last year. We consider that as part of the forthcoming funding review, data and underlying formulae should be reviewed and the Government should provide sufficient funding so that no council experiences a loss of income.

Councils affected will welcome the cancellation of negative Revenue Support Grant.

We welcome compensation for councils due to the decision to freeze the small business rates multiplier, however this removes buoyancy from the business rates system, and without alternative means of funding or compensation, council income would reduce in the medium term.

Question 2: Do you agree with the government’s proposals to roll grants into the local government finance settlement in 2025-26?

We support rolling grants into the settlement in the interests of simplicity. This needs to be done in a transparent manner.

Question 3: Do you agree with the proposed package of council tax referendum principles for 2025-26?

An increase in council tax of up to 5 per cent will place a significant burden on households. In addition, increasing council tax raises different amounts of money in different parts of the country not related to need.

It is disappointing that the Government has continued to rely on council tax and the social care precept, alongside grant, to fund adult social care. Council tax is not the solution for meeting long-term pressures facing high-demand national services such as adult social care. The assumption that not only the adult social care precept but also a substantial part of any council tax uplift should fund adult social care leaves little for other council services on which all residents depend.

We agree that shire districts should have the extra flexibility but would propose a limit of £10 rather than £5.

We support abolishing council tax referendum limits so, in due course, alongside the completion of the fair funding review or its equivalent, councils and their communities can decide what increase in council tax is warranted to help protect or improve local services.

Question 4: Do you agree with the government’s proposals to introduce the Recovery Grant for 2025-26?

Different councils will have contrasting views about the introduction of the Recovery Grant. It is vital that all views are considered and the Government ensures all councils have adequate resources next year to provide the services their communities rely on every day and can meet growing and complex cost and demand pressures.

Question 5: Do you agree with the government’s proposals on funding for social care as part of the local government finance settlement in 2025-26?

Additional funding for social care is helpful, but LGA analysis shows that prior to the Autumn Budget children’s and adult social care faced additional cost pressures of £3.4 billion in 2025/26 compared to 2024/25. This ongoing shortfall puts services for children and adults at risk, and severely limits councils’ ability to support the Government mission to break down barriers to opportunity. It also jeopardises full realisation of all the ambition in the Health Mission (and 10 Year Plan for Health). The grant increases will help but they will not close the gap.

The additional funding must also be seen in the context of the announced increases to the National Living Wage and employers’ National Insurance contributions. The additional £515 million to compensate for increases in employer national insurance contributions (NICs) falls short of the £637 million we have estimated it will cost councils next year. Care providers will likely expect to see their increased costs reflected in their fees paid by councils. NICs cost increases, through commissioned providers, will cost councils up to an extra £1.13 billion next year. While we are pleased that councils will receive extra social care funding, which will help towards these indirect costs, we remain deeply concerned about the impact the NICs rise will have on the organisations that the sector relies on to deliver vital care and support, especially smaller charities and providers. As we have warned, alongside more than 100 organisations, this will exacerbate the already unsustainable pressures facing vital local services.

It is critical that the Government uses the final settlement and next spring’s Spending Review to provide councils with a significant and sustained increase in overall funding that reflects current and future demands for services. This must include a new focus on prevention, reducing the need for later acute and reactive spend and enabling people to live fulfilled, happy and productive lives, as well as reducing socioeconomic inequality and poor health.

Question 6: Do you agree with the government’s proposal to allocate £250 million in a new Children’s Social Care Prevention Grant to invest in family help?

We welcome the resources in the new Children’s Social Care Prevention Grant and note that it will be specifically targeted at new burdens in the Children’s Wellbeing and Schools Bill relating to the national roll-out of Family Help and that the £13 million uplift at the final settlement will be used to rollout mandatory Family Group decision making. This will limit local flexibility.

We note that the Children’s Social Care Prevention grant will be distributed by a new children’s needs-based formula, which will allocate funding according to estimated need for children’s social care services. Individual councils will have views on the distribution method. We would ask for assurance that the new burdens represented by these duties will be fully covered.

Question 7: Do you agree with the government’s proposals for New Homes Bonus in 2025-26?

The New Homes Bonus (NHB) makes up a considerable part of funding for some councils, particularly shire district authorities and they will welcome the confirmation of another year’s funding. Councils need clarity on the future of the NHB following a consultation in 2021. Any changes should come with transitional funding to ensure that local authority services that residents rely on are not put at risk.

Question 8: Do you agree with the government’s proposals to repurpose grants in order to target funding where it is needed most in 2025/26?

Different councils will have contrasting views about the Government’s use of a different method for some funding next year. It is vital that all views are considered and the Government ensures all councils have adequate resources next year to provide the services their communities rely on every day and can meet growing and complex cost and demand pressures.

Question 9: Do you have any comments on the impact of the proposals outlined in this consultation document on persons who share a protected characteristic? Please identify which protected characteristic you believe will be impacted by the proposals, and provide evidence to support your comments.

We would recommend that in addition to section 8 in the consultation, which concerns the impacts of these proposals, the Government should review whether their distribution methodology leads to disparities on the basis of protected characteristics.

In addition, the LGA refers the Government to responses from individual member authorities.

Question 10: Do you agree with the government’s proposal to not extend the IFRS 9 statutory override beyond its current end date of 31 March 2025? Please specify the financial impact, if any, on your council and any implications with respect to financial sustainability.

We do not agree with this proposal. We support making the IFRS 9 statutory override permanent or, as a minimum, extending for another five years. The IFRS 9 statutory override was introduced in 2018 following concerns raised by the sector that without it councils would be subject to unnecessary financial volatility that would have unwanted impacts. Having the override in place means that councils do not have to make unnecessary cuts in service in response to variations in paper valuations of pooled investments.

Having the override in place does not mean that local authorities do not have to monitor or measure changes in value at balance sheet date, just that such changes, particularly temporary changes, do not affect the revenue account directly in the short term.

Other key issues

Public Health

We note that there was no announcement of the public health grant for 2025/26. We hope to see the grant announced before the final settlement and for better alignment of timing between the provisional Local Government Finance Settlement and the Public Health settlement in the future. 

Extended Producer Responsibility for packaging (pEPR) scheme

The introduction of packaging extended producer responsibility (pEPR) is welcome. The LGA has called on the need for the scheme to incentivise producers to reduce unnecessary waste and make it easier to re-use and recycle, and ensure that the polluter, rather than the public purse, picks up the cost of dealing with packaging in household waste and litter.

It is welcome that the funding local authorities will receive from the pEPR will be treated as ‘additional’ income in 2025/26, which is separate to the local government finance settlement. This is something the LGA has long called for.

Councils received details of their pEPR allocations in November 2024. It is important that the methodology behind these figures are shared with councils and that there is a process to discuss any issues. It is welcome that the HMT are developing an EPR income guarantee, to provide some certainty for local government to fund local waste services.

In the longer-term, councils need to receive the full actual costs for delivering local waste and recycling services rather than estimates. Based on our modelling work, £1.1 billion for UK local government may be lower than what local authorities need to deliver the packaging waste services. 

Internal Drainage Board levies

Councils with high Internal Drainage Board levies will welcome the continuation of the £3 million funding outside the settlement and will continue pressing the Government to find a long-term solution.

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