Councils warn of acute pressures despite funding boost next year

Urban and rural councils have warned that the increase in funding next year announced by the Government will not relieve acute pressures on local services.

Changes to the draft local government finance settlement included a £700 million uplift in funding for social care and the costs of changes to national insurance.

But the County Councils Network (CCN) said the extra funding would not come close to covering forecast costs facing its members, while the District Councils Network (DCN) said the changes mean “little or no increase” in funding in many areas with worrying consequences for services.

Meanwhile, councils in London have estimated that the settlement will still lead to a collective funding shortfall next year of at least £500 million.

The draft local government finance settlement for 2025-26 has been amended to increase funding set out in provisional proposals in November from £1.3 billion to more than £2 billion.

The increase includes a £200 million increase in the social care grant, and a further £515 million being made available for the burden councils face due to the increase in employer national insurance contributions.

The revised provisional settlement for 2025-26 will mean £69 billion will be available overall to local government in England, a 6% increase in cash terms and an average 3.5% real-terms increase in councils’ core spending power provided in 2024-25.

The CCN welcomed the extra funding for social care but warned the national insurance support would not cover forecast costs facing its members, which amount to £488 million.

The body, which represents county and unitary councils covering about 50% of the population, also repeated concerns that the Government was favouring city and town councils by distributing the £600 million Recovery Grant exclusively on a deprivation formula.

CCN vice-chairman Barry Lewis said: “While we welcome the Government providing a further £200 million for social care, today’s provisional local government finance settlement confirms our fears that the Government is unfairly cherry-picking which councils deserve the greatest financial support next year.

“By targeting the £600 million Recovery Grant on metropolitan and urban councils, the Government is ignoring the fact deprivation is not the only driver of councils’ costs nor the key indicator of which councils are under the most financial distress.

“Instead, it is demand and market failure across adult and children’s social care and special educational needs services that are pushing councils in all regions and of political control to the brink.”

The CCN said the settlement means its members will be in a worse position than before the autumn Budget, with “extremely difficult” decisions still required on service reductions and council tax rises.

Meanwhile councils in London warned that they will be “stuck in survival mode” next year with a collective £500 million funding shortfall at a time of immense service pressures and spiralling costs.

London Councils, which represents the capital’s 32 boroughs, said elements of the Government’s support for tackling homelessness were “a step in the right direction”.

But it added that a new requirement for councils to spend 49% of the Homelessness Prevention Grant on homelessness prevention means the large costs of temporary accommodation could be squeezed as acute demand rises.

London Councils chairwoman Claire Holland said: “Overall, boroughs are still grappling with significant shortfalls, making it harder to protect local services.

“The Government has rightly committed to reforming the broken council funding system. We will continue to work with ministers on restoring stability to borough finances and ensuring next year’s Spending Review brings the long-term investment we need.

“This is crucial so that boroughs can keep delivering local services for Londoners, putting prevention at the heart of our work, and driving inclusive growth across the capital.”

The DCN said its members, which represent 20 million people, are set to get little or no real-terms increase in funding next year despite being promised a 0.3% cash increase.

This uplift is now dependent upon council tax increases and does not reflect many of the rising costs councils face, it added.

The DCN said districts are “heavily dependent” on funding from the “extended producer responsibility for packaging scheme”.

But it added that as this scheme is aimed at encouraging manufacturers to shift to more environmentally friendly packaging, the funding source will substantially drop in the coming years if this goal succeeds.

The DCN welcomed the 37% increase in the Homelessness Prevention Grant, but said this funding is insufficient to strengthen all vital homelessness services for councils facing the greatest demand.

The repurposing of funding from the Rural Services Delivery Grant and proposed reform to the New Homes Bonus “could severely impact on the finances of many district councils”, the DCN said.

Jeremy Newmark, DCN finance spokesperson, said districts offer “incredibly good value for money” but there are “few cuts left to be made which will not lead to reductions in local services”.

He added: “Rural councils, in particular, could be hit as funding is directed by the Government to more urban areas, inevitably impacting on the services received by rural communities.

“It costs more to provide services to sparsely populated areas and the funding system must continue to reflect this.

“We’re anxious to avoid cuts to essential local services as we seek to balance budgets but the fact is that for many communities some services will be cut – including those that create jobs, boost growth and prevent the need for expenditure in the NHS.”

Responding to questions in the Commons, local government minister Jim McMahon said: “No council, when taking into account council tax, will see a reduction in their core spending power.”

He added that the Government was “covering national insurance contributions” and “funding an extra £880 million through the social care grant, so we have heard representations through the sector, but we aren’t saying that all this will fix everything today, it can’t”.

Mr McMahon continued: “You know, we’re less than six months into the new Government and we’ve got 14 years to reconcile.”

Louise Gittins, Labour chairwoman of the Local Government Association (LGA), said councils of all types will continue to struggle to balance their budgets next year, with “desperately needed” council rises not enough to prevent cuts to services.

She added that the national insurance support will fall short of the estimated £637 million the changes will cost councils next year.

Ms Gittins said: “Different councils will have contrasting views about 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.”