Local government finance policy statement

Introductionnt 2025 to 2026

From tackling homelessness to delivering social care, from bin collection to driving local economic growth, good local government is the foundation of a good state – working in genuine partnership with central government to deliver better outcomes for the public. We need local government to help us deliver 1.5 million homes, including a new generation of secure, social and affordable homes; an NHS and social care system that’s back on its feet; the sustained economic growth we need to raise living standards; and the strong communities on which good lives are built. 

Councillors, officers and frontline staff are due our respect and appreciation for the work they have done to keep services going through very difficult times.

This government is under no illusion about the scale of the issues facing local government, and we won’t shy away from the challenge. We know that the demand for, and cost of, services has increased significantly – and that this has made the job for councils in recent years much harder.

We are taking immediate action to address these challenges. The Autumn Budget announced over £4 billion in additional funding for local government services, £1.3 billion of which will go through the 2025-26 Local Government Finance Settlement (‘the Settlement’). We will target additional funding within the Settlement towards the places that need it most, increasing funding for social care, and introducing a new ‘Recovery Grant’ that will increase the efficiency of our funding by targeting money towards areas with greater need and demand for services (we have used deprivation as a proxy for this), and less ability to raise income locally. Outside of the Settlement, the government has also announced additional funding to support local government across a range of priorities, including special educational needs and disabilities (SEND) and homelessness services, a guarantee for income from the Extended Producer Responsibility for Packaging (pEPR) scheme, as well as an additional £500 million funding for local roads maintenance.

The government has also started work on delivering the biggest increase in social and affordable housebuilding in a generation, and local government has a critical role to play in fulfilling this aim. We have previously announced an immediate one-year cash injection of £500 million into the current Affordable Homes Programme, to support the delivery of up to 5,000 new social and affordable homes, with bidding open to councils and other social landlords. We are also providing an additional £450 million to councils through the Local Authority Housing Fund, allowing them to grow their housing stock.

At the Autumn Budget, we set out a series of further measures to support councils to increase their capacity, confidence and motivation to invest in new homes. This included better protection of existing social housing stock by reducing Right to Buy discounts to their pre-2012 levels, and confirming that councils will be able to retain 100% of the receipts generated from Right to Buy sales. We also confirmed we are extending the preferential borrowing rate available for council housebuilding from the Public Works Loan Board until the end of 2025-26. Additionally, we are consulting on a new 5-year social rent settlement to provide councils with the certainty they need to plan for the long term, whilst also ensuring that there are appropriate protections for existing and future social housing tenants. Taken together, these actions represent our first steps towards achieving a council housing revolution. 

However, we know that we are facing huge financial challenges as a country. Our fiscal inheritance means that there will be tough choices on all sides to get us back on the path to recovery, and it will take time. There is no magic wand. It will be a long, hard slog to work with councils to rebuild from the ground up, to deliver the services taxpayers need and deserve. While there is little we can do about the past, we can learn lessons from it and set a different course for the future.

We will fix the foundations of local government, so that local authorities can return to delivering the core services the public relies on and shaping their places. But this will depend on economic growth. Growth is the bedrock of good, functioning public services. Improving frontline public services depends on sparking economic growth in every corner of Britain. That’s why this government will give local leaders the tools they need to drive growth in their places through our landmark programme of devolution. We have asked local authorities to come together within sensible economic geographies to deliver that growth through combined authorities. We believe that devolving power to leaders with skin in the game will generate new jobs, skills, and ultimately growth, by allowing policy to be tailored to local challenges and opportunities, informed by local knowledge.

We will bring those leaders into the centre of government through the Council of Nations and Regions, the Mayoral Council, and the Leaders Council, so that they can co-produce policy and feed in their unique expertise. We are also working with local areas in England on the upcoming English Devolution White Paper, which will make it easier to form combined authorities and deepen the powers available to them, alongside collaborating with them as they develop Local Growth Plans.

In addition, the government has been clear on its long-term vision for simpler structures. There are significant opportunities available to areas from the creation of suitably-sized unitary councils. Efficiency savings from reorganisation can help meet the needs of local people, who deserve clearer, more accountable structures, capable of delivering sustainable and high-quality public services. The government will work with councils to move to simpler structures that make sense for their local areas.

This will be part of a new governing settlement for England – a permanent shift in power away from the centre, towards people and communities.

Local authority funding reform

We need change. The current system for funding local authorities does not represent best value for taxpayers, and without action this will get worse. After years of delays to much needed funding reform, we will reform the local government finance system to put councils on the road to recovery. This is about spending taxpayers’ money as efficiently as possible – making sure that funding reflects local need and demand for services, and an area’s ability to raise income locally. But it is also about the impact it will have on real people’s lives. We cannot continue to operate in a system that has seen some councils increasing their level of reserves and others struggling to deliver essential services and balance budgets.

We are therefore committed to fixing the basics to enable local government to focus on its priorities – delivering for residents and providing high quality, vital frontline services that people rely on every day.

We will begin this process at the 2025-26 Settlement. The government will introduce a new ‘Recovery Grant’, worth £600 million, which will increase the efficiency of our funding by targeting money towards areas with greater need and demand for services (we have used deprivation as a proxy for this), and less ability to raise income locally. It will start to correct the inefficiency of the current system to put councils on a more stable footing.

From 2026-27, we want to fundamentally improve the way we fund councils and direct funding to where it is most needed, based on an up-to-date assessment of need and local resources. These reforms will build on the proposals set out in the previous government’s review of Relative Needs and Resources (also referred to as the ‘Fair Funding Review’), using the best available evidence to inform local authority funding allocations. We will move gradually towards an updated system and will invite views on possible transitional arrangements to determine how local authorities reach their new funding allocations.

We intend to ‘reset’ the business rates retention system, as was originally intended when the previous government established the system. This is long overdue given that there has been no reset of the system since its introduction in 2013-14. A reset will further allow us to match funding to where it is needed most. The reset will apply nationally, but business rates growth generated within designated areas such as Freeports, Enterprise Zones and Investment Zones will be exempt in line with current policy. The government acknowledges that some local authorities have worked collaboratively with mayoral combined authorities (MCAs) in their area to ensure that new business rates income is directed to local growth priorities across the wider region.

In the spirit of partnership between central and local government, we want to consult and engage councils about reforms to the funding system so that they can feed in views and properly plan for these changes. This will include an initial consultation on the objectives and principles of the government’s proposed approach, launching in December alongside the provisional Local Government Finance Settlement 2025-26. We will consult on the technical detail of resetting the business rates retention system in early 2025. We will then develop, publish and consult on a detailed plan for reform ahead of the provisional Settlement for 2026-27. Implementation of these reforms will begin through the multi-year Settlement in 2026-27.

Wider reforms to local government

Beyond reforming how we distribute funding, we will empower local government to deliver for their local communities whilst supporting the government’s objectives. 2026-27 will mark the first multi-year funding Settlement for local government in 10 years – giving local authorities the certainty to plan and invest for the long term. We will also reduce the number of funding pots so that councils have more certainty and flexibility to judge local priorities, to meet the needs of local people, and to decide how best to deliver on our national priorities.

We will reset the relationship with local government, working as equal partners, to give the sector greater autonomy. We will set out and measure progress on the key services and outcomes we expect local authorities to deliver, in order to be clearer on priorities and reduce micromanagement. In return, we expect the sector to deliver continuous improvement for its communities, operate at the highest standards of probity, and provide value for money.

We will rebuild the system of accountability and oversight in local government, so that councils have the systems in place to ensure that members and citizens can hold them to account. As part of this, we will overhaul local audit, scrutiny, and standards. We will work hand in hand with the sector so that every council is fit, legal and decent, achieving this through a reformed local audit system and insights drawn from local audit. We will also reform the conduct regime for local authorities, so that local authorities have the powers they need to enforce the high standards that the public rightly expect of their elected members. We will shortly consult on strengthening the standards and conduct framework for local authorities in England.

We recognise the essential role that the £392 billion Local Government Pension Scheme (LGPS) already plays in rewarding workers who provide vital local services, as well as investing in the local communities they serve. We want to protect its sustainability for the long term and ensure it maximises the benefits of scale in line with its position in the top ten schemes globally. Planned reforms set out by the Chancellor in November 2024 will ensure that the LGPS asset pools deliver their full potential on behalf of the funds, drive investment in local growth, and strengthen the governance of the pools and funds.

Public service reform

Reform and prevention are critical if we are to turn around the cycle of system failure and cost escalation. We will reform the services that have for too long been overlooked, particularly for children’s social care, homelessness and rough sleeping, special educational needs and disabilities (SEND), and adult social care services. We need to focus on prevention, early intervention, and reforms to markets. Above all else, these reforms will improve outcomes for the most vulnerable residents who rely on them. They will also reduce the costs of local government services, leading to savings for the taxpayer, and ensuring that demand-led pressures do not overwhelm councils’ budgets – so that councils can continue to provide the services we all use.

The funding announced at the Autumn Budget marks the first steps we are taking to implement these reforms. The 2025-26 Settlement will include a new Children’s Social Care Prevention Grant, worth £250 million. This will lay the groundwork for children’s social care reform, enabling investment in additional prevention activity through Family Help. This will nearly double direct Settlement investment in preventative children’s social care services to over half a billion in 2025-26.

The government is also increasing the Social Care Grant by £680 million, and we are committed to reforming adult social care and improving the quality of care for people in need. Over the long term, we will build the consensus needed to create a National Care Service based on consistent national standards. Furthermore, we have introduced legislation to establish the first ever Fair Pay Agreement for care professionals to ensure care workers are fairly rewarded for the work they do. This will help to resolve the recruitment and retention crisis in the profession, alleviating pressures on our public services in the longer term.

Outside of the Settlement, the Autumn Budget also provided funding for children’s social care, homelessness services, and SEND provision. This includes £44 million of new funding to pilot a Kinship Allowance, and to create hundreds of new foster placements, enabling more children to stay in family environments. The government will set out plans for fundamental reform of the children’s social care system next year. We will promote early intervention to help children stay with their families where possible, and fix the broken children’s social care market – by bringing forward legislation to crack down on private providers profiteering from our most vulnerable children and ensure local government can deliver safe, loving homes for children in care.

Local authorities will receive £233 million of additional funding for homelessness services in 2025-26 – taking total spending on these services to nearly £1 billion. Local authority allocations will be published alongside the provisional Settlement. This will support local authorities to fund their statutory duties to provide temporary accommodation and prevent homelessness and rough sleeping, and support our objective to put the country back on track to ending it. The government is also reforming the Right to Buy scheme to deliver a fairer, better value, and more sustainable scheme where longstanding tenants can buy their own homes, but crucially, where local authorities can replace those homes. This will help local authorities to contribute to the government’s mission to deliver 1.5 million homes over this Parliament.

The government is providing a £1 billion increase to SEND and Alternative Provision funding, equivalent to 6% real growth. This is an important step in realising the government’s vision to reform England’s SEND services to improve outcomes for children and return the system to financial sustainability. The government will work closely with parents, teachers and local authorities to take this work forward.

In recognition of the continued costs incurred by local authorities providing services for SEND, the Statutory Override for the Dedicated Schools Grant (DSG) was introduced in 2020 and in 2023 further extended until 31 March 2026. We will set out government’s plans for the future of the Statutory Override at the provisional Settlement in December.

These reforms won’t be easy and there is no quick fix. It will take time to deliver change and stabilise the system for the future. We recognise that in the weeks and months to come councils will need to make tough decisions. In some cases, we know that councils may be worried about their financial positions. We have confirmed that the government will have a framework in place to support those in the most difficult positions. 

However, delivering our programme of recovery and reform will mean that funding goes to the places where it is needed, and that services will focus on prevention, driving down costs in the long term. Councils will have the certainty and flexibility to focus on their priorities, delivering the vital services that people across the country rely on every day.

Local Government Finance Settlement 2025-26

This year’s Settlement will begin to put us on the right course, spending taxpayers’ money efficiently, and ensuring that funding goes to the places that need it most.

Summary

• The Autumn Budget announced over £4 billion in additional funding for local government services, £1.3 billion of which will go through the Settlement. Overall, the provisional Settlement will ensure that local government will receive a real-terms increase in Core Spending Power of around 3.2%.
• This year will also see the launch of the Extended Producer Responsibility for Packaging (pEPR) scheme. Provisional local payment figures for 2025-26 will be shared directly with councils for the first time by the end of November, to support councils in preparing for the implementation of the scheme and invite views on the approach to payment values. Councils will receive their first scheme payments by November 2025. The government is taking immediate action to provide certainty by guaranteeing that local authorities in England will receive at least £1.1 billion in total in 2025-26, with each local authority guaranteed at least the level of income indicated in November’s provisional local payment figures.
• This year the government is taking difficult decisions to improve the value for money and efficiency of the grant funding we provide. We will repurpose a number of grants in order to target more funding towards authorities that have weak tax bases, and high levels of need and service demand.
• The government is clear in its commitment to tackling the issues that matter most to rural communities. On average, places with a significant rural population will receive around a 5% increase in their Core Spending Power next year. This real-terms funding increase demonstrates how this government stands behind rural councils, and is in addition to over £300 million in new income for areas with a significant rural population in 2025-26 through guaranteed pEPR payments, as well as at least £250m in additional SEND (high needs) funding next year, and further funding for transport and homelessness services.^{[footnote 1]}
• In this context, funding from the Rural Services Delivery Grant will be repurposed through improved methods to target funding toward areas with high need and service demand, whilst investing in the priority services people care about such as adult and children’s social care. The government believes that the Rural Services Delivery Grant is outdated and does not properly assess rural need. A large share of predominantly rural councils receive nothing from the Rural Services Delivery Grant. This is clearly not right, and the government is keen to hear from councils about how best to consider the impact of rurality on the costs of service delivery, and demand, as part of our longer term consultations on local authority funding reform. We are clear though, that our focus on the services that people rely on, such as social care, where pressures have grown across the country in recent years, will deliver for rural areas just as it will for the whole country.
• These proposals will release a substantial amount of funding which we will redirect towards our priorities in a highly targeted way, as outlined below.
• Taken together, the Autumn Budget and repurposed funding enable us to deliver:
• An additional £680 million via the Social Care Grant.
• A new ‘Recovery Grant’, worth £600 million. This will be distributed to places with greater need and demand for services (we have used deprivation as a proxy for this), and which are least able to fund their own services through income raised locally.
• A new Children’s Social Care Prevention Grant, worth £250 million. The grant conditions will be set out alongside the final Settlement.
• We guarantee that no local authority will see a reduction in their Core Spending Power in 2025-26, after taking account of any increase in council tax levels by applying a funding floor. This will provide the protections required for all authorities, including district councils, to sustain their services between years, whilst recognising that we must begin the process of increasing efficiency as much funding as possible in 2025-26. Taking into account money allocated to councils through both the Settlement and the pEPR guarantee, every planning and social care council will have more to spend on services in 2025-26 than in 2024-25; and for almost all authorities we expect this to be an increase in real terms.
• The government is committed to protecting local taxpayers from excessive council tax increases. Many households are still feeling the impact of the prolonged cost of living crisis and government must take account of that. We will strike the balance between protecting taxpayers and providing funding for local authorities. The referendum principles for core council tax (3%), shire districts (3% or £5), and the adult social care precept (2%) will be the same as the previous two years. The referendum principle for the police precept will be £14, and £5 for fire and rescue authorities.
• More detail on the provisional Settlement 2025-26 can be found below.
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Core Settlement

The Core Settlement will increase in line with the Consumer Price Index (CPI). These following proposals are the same as for the 2024-25 Settlement.

• We will increase the Revenue Support Grant in line with the CPI measure of inflation.
• There will be no ‘negative Revenue Support Grant’.
• Local authorities will see an increase in the sum of baseline funding levels (BFLs) and compensation grant as if both business rates multipliers had increased by CPI between September 2023 and September 2024.
• It was announced at the Autumn Budget that the small business rates multiplier will be frozen at 49.9p, and the standard business rates multiplier will increase to 55.5p. For 2025-2026, BFLs will increase to reflect the increase of the standard multiplier, accounting for the fact that authorities have different shares of properties subject to the small and standard multipliers. This will be done by using proxy data from the Valuation Office Agency’s non-domestic rating list published on 1 April 2023. We will also compensate local authorities for the freeze in the small business rates multiplier via an increase to the calculation of under-indexation compensation.
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Council tax referendum principles

Council tax referendum principles must strike a balance between the burden on the taxpayer and funding local authority need, whilst acting as an additional local democratic check and balance. Whilst we recognise that council tax is a critical part of local government’s funding, worth more than 50% of the Settlement, the government is also committed to protecting local taxpayers from excessive council tax increases.

The council tax referendum principles we are proposing are consistent with the assumptions made by the previous government and the Office for Budget Responsibility (OBR). They are not a cap, nor do they force councils to set taxes at the threshold level. The decisions on the level to set, or whether to hold a referendum to go beyond the referendum principle, sit squarely with local authorities, which must consider the pressures many households are facing, as well as their requirement to set a balanced budget. The proposed referendum principles are:

• A core council tax referendum limit for local authorities of up to 3%;
• A council tax referendum principle of up to 3% or £5, whichever is higher, for shire
  district councils;
• An adult social care precept of 2% for all local authorities responsible for adult social care services;
• A council tax referendum principle of £14 for police authorities;
• A core council tax principle of £5 will apply to fire and rescue authorities;
• There are no council tax referendum principles for mayoral combined authorities or town and parish councils.

The government will require local authorities to adjust the presentation of the adult social care precept on council tax bills from 2025-26, so that they show a single line for the council tax increase set by social care authorities. This will not only simplify bills received by billpayers but also provide clarity on council tax increases set by local authorities. The government will also consider longer term options to improve council tax billing. This will include how to further strengthen the transparency of council tax bills and accompanying material, such as how revenue is spent, and whether to move to 12 monthly council tax billing from the current 10 months.

Adult social care

Social care can support local communities, enabling people to live independently in a place they can call home. The government wants social care to be preventative, tailored to people’s needs and circumstances, and to be delivered by a professional, qualified, valued workforce. We recognise the need to stabilise and reform these critical services. This will take time.

The government will continue to provide funding through the Settlement to support local authorities to address the pressures in adult social care and improve outcomes for people who access it. The funding this year is the first step to achieving our ambitions of stabilisation and reform. 

• In 2025-26, £5.7 billion will be provided through the Social Care Grant, supporting both adult and children’s social care – whilst equalising for the adult social care precept. This is an increase of £680 million compared to 2024-25.
• £1.05 billion will be allocated through the Market Sustainability and Improvement Fund (MSIF) to support local authorities to maintain key aspects of adult social care, such as fees, to support provider pressures.
• In 2025-26, local authorities will receive £2.6 billion (including discharge funding) to provide their minimum contribution to the Better Care Fund (BCF), alongside the £711 million Disabled Facilities Grant. Local authorities and NHS integrated care boards will be asked to agree plans at health and wellbeing board level for how best to use this funding to provide joined-up services for people with more complex health, social care, and housing needs. This will help them stay as independent as possible, prevent avoidable hospital and care home admissions, and ensure timely and effective hospital discharge. Further details will be set out at the provisional Settlement and in the 2025-26 BCF Policy Framework.
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We expect local authority spending on adult social care to increase to reflect demand and cost pressures. The Department of Health and Social Care (DHSC) will monitor local authority budgets and spending in 2025-26, with an expectation that local authorities make appropriate use of the following sources of income to support adult social care outcomes:

• Grant funding for adult social care as part of MSIF and BCF (including discharge funding), alongside an appropriate share of the £680 million additional funding in the Social Care Grant which is being provided for social care pressures particularly those in adult social care.
• An appropriate share of £600 million ‘Recovery Grant’ and £50 million uplift to Revenue Support Grant funding.
• The resources raised in 2025 to 2026 from the adult social care precept, which makes available around £650 million.
• We also expect local authorities to make use of increases in other income, including an appropriate share of the 3% council tax uplift, which makes available around £970 million.
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DHSC will publish monitoring data and facilitate additional conversations to support councils, where required. DHSC will continue to work with the Care Quality Commission to assess local authority performance.

Children’s social care

• The 2025-26 Local Government Finance Settlement will include a new Children’s Social Care Prevention Grant, worth £250 million. This will be distributed using a new children’s needs-based formula, which will allocate funding according to estimated need for children’s social care services. Alongside the funding which is already spent on preventative services in the Children and Families Grant, this new grant will lay the groundwork for children’s social care reform, enabling direct investment in additional prevention activity through transition to Family Help. This will nearly double direct Settlement investment in preventative children’s social care services, to over half a billion in 2025-26.
• This investment will be delivered in addition to the £5.7 billion provided through the Social Care Grant, supporting both adult and children’s social care.
• The National Minimum Allowance (NMA) for foster carers is routinely uplifted each year, taking into account changes in inflation and earnings forecasts produced by the Office for Budget Responsibility, and what is affordable for local government. Allowances are set in advance of the financial year, so that councils can plan their budgets, and so that foster carers receive additional funding at the earliest possible opportunity. We have uplifted the NMA by 3.55% for the next financial year (2025-26) and full details will be published on GOV.UK.

Remaining Settlement grants

• The government is introducing a new one-year ‘Recovery Grant’, worth £600 million. This will be distributed to places with greater need and demand for services (we have used deprivation as a proxy for this), and which are least able to fund their own services locally. The grant will allocate funding where the numbers of vulnerable people who rely on council services are highest, and the ability to fund need locally is weakest. This will start to correct the inefficiency of the current system and put councils in the most deprived areas on a more stable footing. The ‘Recovery Grant’ will go to places where, weighted by population, deprivation outweighs council tax raising ability. The grant is intended to be highly targeted, meaning that not all authorities will receive an allocation. It will tackle head-on the combination of rocketing demand, for which deprivation is a significant contributing factor, low tax bases which restrict the ability of local areas to raise income, and the fact that many of these councils have weakened resilience after substantial central government funding cuts during the 2010s.
• There will be a new round of New Homes Bonus (NHB) payments in 2025-26. In line with recent years, these payments will not attract legacy payments. NHB allocations will continue to be made in the usual way, applying the same calculation process. We know that the NHB has been an important source of funding for local authorities. However, we are aware, including from recent consultation responses to the Local Government Finance Settlement, that having a portion of the Settlement allocated on a payments-by-results basis negatively interacts with the remainder of the Settlement. The government will therefore consult on proposals for reforming the NHB beyond 2025-26 in due course. The government will propose that 2025-26 will be the final year of the NHB in its current format and councils should consider this in their financial planning.
• This year the government is taking difficult decisions to improve the value for money and efficiency of the grant funding we provide. We will repurpose a number of grants in order to target more funding towards authorities that have weak tax bases, and greater need and demand for services (we have used deprivation as a proxy for this).
• We will repurpose the Services Grant to further simplify the system, removing a grant which has significantly reduced in value in recent years.
• The government is clear in its commitment to tackle the issues that matter most to rural communities. On average, places with a significant rural population will receive around a 5% increase in their Core Spending Power next year. This real-terms funding increase demonstrates how this government stands behind rural councils, and is in addition to over £300 million in new income for areas with a significant rural population in 2025-26 through guaranteed pEPR payments, as well as at least £250 million in additional SEND (high needs) funding next year, and further funding for transport and homelessness services.^{[footnote 2]}
• In this context, funding from the Rural Services Delivery Grant will be repurposed through improved methods to target funding toward areas of high service demand that need it most, whilst investing in the priority services people care about such as adult and children’s social care. The government believes that the Rural Services Delivery Grant is outdated and does not properly assess rural need. A large share of predominantly rural councils receive nothing from the Rural Services Delivery Grant. This is clearly not right, and the government is keen to hear from councils about how best to consider the impact of rurality on the costs of service delivery, and demand, as part of our longer term consultations on local authority funding reform. We are clear though, that our focus on the services that people rely on, such as social care, where pressures have grown across the country in recent years, will deliver for rural areas just as it will for the whole country.
• In line with the previous two years, the government will provide £3 million in funding for authorities impacted by Internal Drainage Board levies. The allocations for this funding will be announced in due course. This government recognises the need for a long-term solution and is working to explore potential approaches.
• The government recognises the importance of protecting the funding position of councils. We guarantee that no local authority will see a reduction in their Core Spending Power in 2025-26 after taking account of any increase in council tax levels by applying a funding floor. This will provide the protections required for all authorities, including district councils, to sustain their services between years, whilst recognising that we must begin the process of redirecting as much funding as possible to the places that need it most.

Extended producer responsibility

• 2025-26 brings with it a significant new income stream from fees paid by packaging producers, the Extended Producer Responsibility for Packaging (pEPR) scheme. This income will cover the existing costs local authorities incur for managing household packaging waste, provide additional funding for new legal duties, and support much needed investment in the waste and recycling industry. Provisional local payment figures for 2025-26 are being shared directly with councils by the end of November by the Department for Environment, Food and Rural Affairs.
• Although a new scheme, the government is clear that local authorities in England will be able to rely on this income. The government will ensure that local authorities in England will receive in 2025-26 at least £1.1 billion in total, with each local authority receiving at least the level of income indicated in November’s provisional local payment figures.
• Given these unique circumstances, these payments are excluded from councils’ Core Spending Power and will not be factored into any payments councils receive from the funding floor in 2025-26. Taking into account both money allocated to councils through the Settlement and the pEPR guarantee, every planning and social care council will have more to spend on services in 2025-26 than in 2024-25; and for almost all authorities we expect this to be an increase in real terms.
• More details on this pEPR guarantee will follow in due course. The government will assess the impact of additional pEPR income on the relative needs and resources of individual local authorities, and how we factor it into our measurement of local authority spending power, ahead of the 2026-27 Settlement. We will consult local councils on any expected changes.
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Exceptional financial support

• The government is under no illusions about the scale of the issues facing local government, and this Settlement will begin to address the pressures that councils are under. But this is a long-term project to deliver financial security for councils, and we recognise that we may see some continued instability as we adjust to the new system.
• Any council concerned about its financial position or its ability to set or maintain a balanced budget should make contact with MHCLG. The government has a framework in place to support councils in the most difficult positions. As part of this, we will not seek to replicate conditions that made borrowing more expensive.
• Where a council in need of exceptional financial support views additional council tax increases as critical to maintaining their financial sustainability, the government will continue to consider requests for bespoke referendum principles. Local proposals will be considered on a case-by-case basis. In considering any requests, the government will take account of councils’ specific circumstances, for example their existing levels of council tax relative to the average, the potential impact on local taxpayers, and the strength of plans to protect vulnerable people.
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Supporting households

• Many households are still feeling the impact of the prolonged cost of living crisis and the government is committed to protecting local taxpayers from excessive council tax increases. The previous government, and the Office for Budget Responsibility (OBR) in March 2024, assumed core council tax and adult social care precept referendum principles of 3% and 2% respectively. The government is now formally confirming that it will maintain these proposed core and adult social care precept referendum principles for next year. These strike the balance between protecting taxpayers and providing funding for local authorities.
• We are ensuring that households receive the support they need from programmes outside of the Settlement. The Autumn Budget confirmed the extension of the Household Support Fund (HSF) by a further year, from 1 April 2025 until 31 March 2026. This will ensure low-income households can continue to access support towards the cost of essentials, such as food, energy and water. Funding of £742 million will be provided to enable the HSF extension in England, plus additional funding for the Devolved Governments through the Barnett formula to be spent at their discretion, as usual.
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Capital finance

• We will extend the flexible use of capital receipts to 2030. Since 2016, this direction has allowed local authorities to use the proceeds from asset sales to fund the
  revenue costs of projects that result in ongoing cost savings or improved efficiency. The government will also remove the restriction with respect to redundancy costs, imposed from April 2022, that limits the use of the flexibility to statutory redundancy costs only. This will support authorities in taking forward transformation and invest-to-save projects.
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Business rates retention system (BRRS)

• 2025-26 is the last year of the technical adjustment in response to the 2023 revaluation. We will continue to apply the approach set out in the previous government’s 2022 consultation to give final revaluation adjustment values to all local authorities.
• Where requested, we will proceed with business rates pooling for 2025-2026.
• All current region-wide enhanced business rates retention arrangements will continue for 2025-2026.
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Next steps

The government has committed to provide support for departments and other public sector employers for additional employer NICs costs. This applies to those directly employed by the public sector, including local government. We will provide more information on this at the provisional Settlement in December 2024, where we will also consult on the detailed Settlement proposals for 2025-26 in the usual way.

Grant consolidation and funding simplification

As part of this government’s commitment to resetting the relationship with local government, we are simplifying the local government funding landscape. This will give local authorities greater certainty and greater freedom to deliver their own priorities, as well as our national priorities. We will consolidate funding streams for local authorities into the Settlement and reduce the overall number of grants to local authorities. We will also work to end competitive bidding processes and cut burdensome reporting requirements.

Existing New Burdens grants

• For 2025-26, we will consolidate four unringfenced MHCLG grants into the Settlement. The Domestic Abuse Duty Safe Accommodation grant (worth £160m, which reflects an uplift of £30 million for 2025-26) will be consolidated as a new, separate line in the Settlement, maintaining its existing distribution. Ongoing funding from the Electoral Integrity Programme New Burdens grant (worth £4.6 million), the Tenant Satisfaction Measures New Burdens grant (£3.9 million), and the Transparency Code New Burdens grant (£3.6 million) will be rolled into the Revenue Support Grant – also maintaining their existing distributions.

Homelessness and rough sleeping grants

• For 2025-26, we are consolidating our main rough sleeping and single homelessness focused grants (Rough Sleeping Initiative, which includes Housing First funding, and Accommodation for Ex Offenders) into a single grant outside of the Settlement, to run alongside our Homelessness Prevention Grant. These two, targeted grants will put an end to bidding processes and enable local authorities to more efficiently and flexibly plan and deliver services. We will announce local authority level allocations of these grants alongside the provisional Settlement.

Children’s Services grants

• The Department for Education’s Extended Rights to Home to School Transport grant (£54 million) will be rolled in, unringfenced, to the Revenue Support Grant.
• We will also consolidate into the Settlement a single Children and Families Grant, worth £414 million from existing programmes, previously funded by Department for Education. This funding will not form part of Core Spending Power for 2025-26. Conditions placed on this Children and Families Grant will be published alongside the final Settlement, but it should be used to continue preventative services where they are running now.
• By preventative services we mean targeted, whole family support to help children and families overcome challenges at the earliest opportunity. This should be in line with the Children’s Social Care National Framework, take forward the learning and evidence from the Supporting Families programme, and lay the groundwork for Family Help.
• Existing funding consolidated into the single Children and Families Grant will maintain its 2024-25 distribution in 2025-26 and includes:
• Supporting Families
• Supported Accommodation Reforms - New Burdens to LAs
• Staying Put
• Virtual School Heads Extension for Previously Looked After Children
• Leaving Care Allowance
• Personal Advisors
• The Supporting Families programme operates a Payment by Results model for most local authorities. As part of moving towards a new Family Help system for supporting and protecting children and families, the Payment by Results model will be suspended for the remainder of 2024-25. This means all local authorities will receive their outstanding funding for the remainder of the financial year in their next quarterly payment. Local authorities will still be expected to track and report successful family outcomes. The 2025-26 funding should be used to continue preventative services where they are running now, and should be used alongside the new Children’s Social Care Preventative Grant to transform those services in line with further guidance to be supplied by Department for Education.

Next steps and ambitions for 2026-27

• For 2026-27, we will go much further and radically simplify the local government funding landscape – consolidating grants from across central government.
• We intend to streamline the MHCLG growth-focused capital grants into a consolidated, more flexible fund and significantly reduce the number of housing, planning, resettlement and numerous smaller grants owned by the department – rolling them into the Settlement wherever possible. This is in addition to a number of New Burdens grants we have already identified for rolling into the Revenue Support Grant (including Consumer Regimes New Burdens and Awaab’s Law New Burdens).
• In 2026-27, we intend to reduce the number of funding pots for adult social care, consolidating existing adult social care grant funding and rolling in smaller adult social care grants, where possible.
• In 2026-27, we will merge the Children’s Social Care Prevention Grant and Children and Families Grant, and explore further consolidation in children’s services.
• Further proposals for simplification will be announced in due course. To reduce burdens on local authorities we will also reduce and standardise the grant data we collect.

https://www.gov.uk/government/publications/local-government-finance-policy-statement-2025-to-2026/local-government-finance-policy-statement-2025-to-2026