Government promises to allocate cash based on need in response to Fair Funding Review consultation

Changes to the funding landscape will come in from 2026-27, and the government said that by 2028-29 it expects the 10% most deprived authorities to see “a significant increase in their core spending power per head compared to the least deprived”. 

Other measures include a £600m recovery grant maintained for areas with the greatest immediate needs and “less ability to raise income locally”, as well as councils keeping all additional council tax from new homes to boost homeownership.

Another change will see the existing competitive bidding processes councils often have to go through for small pots of money scrapped.

A document setting out the government’s response to the consultation said: “By 2028, funding will be aligned with need and deprivation, and properly account for areas’ ability to raise resources locally.

“We will have implemented new social care formulas and ensured the majority of funding delivered through the settlement is targeted using sophisticated and dynamic formulas. 

“We will have simplified more than 30 separate funding streams, worth nearly £47bn, and a clear link will have been established between local deprivation and a local authority’s spending power.”

The Fair Funding Review 2.0 aims to reform an “outdated council funding system based on decades-old data” that has “entrenched inequality”, according to the government.

Housing secretary Steve Reed explained that the previous system “led to regional divides, postcode lotteries and substandard public services for too many people”.

He added: “Our changes will make sure cash going to councils is shared out in a fairer way that follows needs.

“We want every family to benefit from our Plan for Change, and fairer funding means people will soon be able to see and feel the difference in their own local area.”

Alison McGovern, minister for local government and homelessness, said it is “simply wrong that where you live determines the quality of services you get and ultimately determines your life”.

“These reforms end that injustice. By using up-to-date data and targeting funding to areas with greatest need, we’re reversing years of unfairness and unlocking opportunity in every part of the country,” she added. 

The Local Government Association (LGA) said there are “some positive measures” in these reforms, such as multi-year settlements, fewer fragmented grants and reduced reliance on competitive bidding.

Pete Marland, chair of the resources committee at the LGA, said: “However, some councils will clearly do better than others from these allocation plans. 

“It is good that government has pledged some extra transitional support, but we reiterate our call for all councils, both rural and urban alike, to be protected from real-terms cuts to ensure their financial sustainability. 

“It is now critical that the provisional local government finance settlement is published as a matter of urgency so councils are not waiting until the Christmas period to understand what allocations they will receive.

“Greater financial certainty and a simpler funding system are important, but council finances remain under severe pressure. 

“Councils are facing huge cost increases in areas, including adult social care, temporary accommodation, SEND [special educational needs and disabilities] and home-to-school transport, and so need a significant boost in resources to prevent widespread financial failure.”

The government said that at the provisional local government finance settlement in December, proposals for the 2026-27 settlement will be subject to consultation followed by a debate and vote in the House of Commons.