Local Government Finance Settlement: County and rural councils say government is ‘cherry picking’ funding towards urban and city councils

Today the government has published how much councils will receive next year, but the County Councils Network (CCN) warns that ministers are ‘cherry picking’ what local authorities to focus funding on in 2025.

The allocations were revealed in the provisional Local Government Finance Settlement for 2025/26, with a consultation running until early next year on final decisions. But despite a further £200m increase in funding for social care, because the government proposes to heavily target a large chunk of its grant funding via a ‘Recovery Grant’ towards urban and city councils, the CCN warns its 37 members will be in a worse position than before the Autumn Budget.

As a result, county and rural councils say that they will have to make more service reductions next year, including to care services, warning of ‘extremely difficult’ decisions with ‘very little fat left to cut’ from their budgets. At the same time, they will have to increase council tax to balance their budgets.

In the Autumn Budget, the government announced £1.3bn in new grant funding for local government but did not say at that point how it was to distribute it. The Chancellor also announced increases to the National Living Wage (NLW) and employers’ National Insurance (NI) in the budget.

Analysis by CCN and the Society of County Treasurers shows that the costs of NLW increase will be £454m next year for county and rural unitary authorities. Whilst the Local Government Finance Settlement proposes to distribute in additional £2bn grant funding, including a further £200m for social care, CCN member councils will receive just £433m of this £2bn total.

Alongside this, the government has announced £515m in compensation for all councils across England for the NI increase. But CCN says that its analysis shows the direct and indirect cost of the rise will amount to £488m for their councils alone, leaving the compensation falling well short of the additional costs facing these councils.

As a result, CCN warns that its member councils are in a worse off than before Autumn Budget, and the government is ‘cherry picking’ which councils receive the greatest financial support next year. This is because the government has proposed to distribute the £600m Recovery Grant exclusively on a deprivation formula and target this heavily towards city and town councils. Over half the Recovery Grant goes to 34 out of 36 metropolitan boroughs, whereas just three county and rural councils benefit from it.

Compounding this, the government is abolishing the £110m Rural Services Delivery Grant, which will impact on 17 CCN members, who will lose a further £91m in grant funding.

Cllr Barry Lewis, Finance Spokesperson and Vice-Chair of the County Councils Network, said:

“While we welcome the government providing a further £200m 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 £600m 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.

“With rising demand and additional costs, county authorities will effectively be in worse position than before the Autumn Budget. While our members do receive a fair share of social care funding, the costs of the increase in the living wage alone completely outweigh the grant our councils will receive. Moreover, our analysis shows the compensation for the national insurance increase will fall well short of the costs our councils are expected to face. 

“Consequently, county and rural councils will have little option but to reduce services next year, including in social care, whilst increasing council tax in order to balance our budgets. With very little fat left to cut, we will have to make some extremely difficult decisions. 

“The County Councils Network wants to see the evidence that backs up ministerial decisions to target funding so specifically. With our previous analysis showing county authorities have a larger funding gap than metropolitan boroughs next year, our councils deserve a fairer share of the resources announced today.

Today the government also announced it was launching a consultation on the future distribution of funding to local councils, called the Fair Funding Review. This consultation will run until 12^th February next year.

 Cllr Lewis added:

 “The County Councils Network will study these proposals carefully and fully engage in the review, which seeks to update the outdated and unfair way local government is funded. However, the direction of travel of this settlement today is worrying and if continued will completely understate the very real financial pressures faced by councils outside of towns and cities.

 “Such a situation would also dramatically hinder us at a time when the government is trying to implement some of the most radical changes to council structures through local government reorganisation. We share the government’s ambitions here and recognise efficiency savings can be made in the future. But these gains could potentially be vastly outweighed by the financial loses some county authorities experience.”

 “To avoid this and ensure an evidence-based review that benefits all types of councils, we will be advocating for a fairer approach to the distribution of funding across England which recognises that deprivation is not the only indicator of need, alongside proposals to equalise council tax that do not push local authorities into further financial distress.”