LGIU Response: Local government finance policy statement 2025 to 2026

Jonathan Carr-West, Chief Executive, LGIU, said:

“It’s good to have a government that recognises the structural challenges to local government finances and is committed to resolving them and to resetting the relationship with councils. Today’s statement from MHCLG is exactly right to say that it will be a long slog to fix local government finances. This may only be the first step, but it is at least a step in the right direction.

Before the election, LGIU members were clear about the need for multi-year financial settlements, an end to competitive bid funding and a return to needs based funding allocations. So, we welcome the government’s commitment to moving towards all of those in 2026/27.

Additional funding in the upcoming financial year may relieve some pressure but it will not stop many councils from moving closer to a financial cliff edge. So it is encouraging to see the government commit to a move away from the established forms of exceptional financial support.

We know from our research that over the next five years, half of all councils are concerned about their capacity to balance their books. More structured guidance and support is essential. The support framework promised in today’s statement is bound to be tested soon. And, even with these welcomed changes to overall council funding, there will be councils where the changes will not go far enough, fast enough. A focus on reform past 2026/27 must look at the whole system and incorporate reforms to the tax base, expanded revenue options and fully integrated budgets.

We have consistently urged the government to see local government finance reform, public service reform and devolution as part of a single project, so we welcome today’s statement bringing them together. It’s important however, that form should follow function and structural changes to local government and local governance must be about quality of public service provision and democratic engagement not just narrowly defined “efficiency”. We look forward to seeing more about this in the forthcoming devolution white paper.”

ENDS

Notes to editors 

How can 10 years of English devolution inform our response to the UK Government’s White Paper? With a White Paper on devolution in England due imminently, this think piece from Dr Andrew Walker surveys the approach to devolution that has been pursued in England since the first deal was struck a decade ago.

2024 State of Local Government Finance – the key headlines

• Published annually since 2012, more than half of councils (47 respondents) face bankruptcy within the next parliament, with nearly one in ten (14 respondents) warning they could go under in 2024/25.
• Cuts in grants from central government, increased need for services and inflation costs mean councils nationwide are struggling to balance the books.
• Residents’ council tax makes up a quarter of local government funding with the rest coming from central government grants, fees and commercial activity
• For councils with responsibility for social care, children’s social care is by far the most urgent short term pressure, and adults and children’s social care together make up the most serious long-term pressure.
• Among councils without these responsibilities, housing and homelessness is the most serious short-term and long-term pressure, with environment and waste a close second place for long-term pressure.
• Only 4% of councils have confidence in the sustainability of local government finance system
• The results of the first annual finance survey in Scotland from 2023 can be found here.

State of the Locals Our annual polling carried out by Ipsos on UK attitudes to local elections, the work of councillors and the role of local government in England. This year, more than half of respondents consider local councils to have the most impact on the quality of life in local areas (57%), far above the Westminster Parliament (14%).

About LGIU

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