1. Introduction

1.1 The local government finance settlement is an annual process to distribute core resources to local government. It consists of grant, locally retained business rates and council tax.

1.2 The Ministry of Housing, Communities and Local Government published the provisional local government finance settlement for 2025-26 on 18 December 2024. The consultation closed on 15 January 2025.

1.3 This publication outlines the government response to the consultation and confirms the final proposals for the 2025-26 local government finance settlement. It should be noted that the Local Government Finance Report 2025-26 and the Referendums Relating to Council Tax Increases Report 2025-26 still require approval by the House of Commons. The debate on these statutory reports will take place on 5 February 2025.

1.4 On the distribution of Settlement Funding Assessment (SFA), the consultation document set out the following summary of the government’s proposals:

• Local authorities will see an increase in the total of baseline funding levels (BFLs) and under-indexation compensation grant as if both business rating multipliers had increased by CPI;
  • BFLs will increase to reflect the increase of the standard multiplier, accounting for the fact that authorities have different shares of gross rates subject to the small and standard multipliers;
  • Local authorities will be compensated for the freeze in the small business rates multiplier in 2025-26 via an increase to the calculation for under-indexation compensation;
• Before rolling in grants, we propose to provide a uniform percentage increase in Revenue Support Grant (RSG) allocations from 2024-25, in line with the change in the CPI between September 2023 and September 2024; and
• There will be no ‘negative Revenue Support Grant’.

1.5 On funding simplification, the consultation document set out the following:

• We propose to roll in four grants into the Revenue Support Grant – maintaining their existing distributions. The grants comprise of three MHCLG grants – the Transparency Code, Electoral Integrity Programme and Tenant Satisfaction Measures grants (together, worth £12.1 million) – and the Department for Education’s (DfE) Extended Rights to Home to School Transport grant (£54 million);
• MHCLG’s Domestic Abuse Safe Accommodation Grant (uplifted by £30 million to a total of £160 million) will be consolidated as a new, separate line in the settlement, maintaining its existing distribution;
• Funding for several existing DfE Children’s Social Care programmes, including the Supporting Families programme (£253.5 million), Supported Accommodation Reforms (£94.5 million), Staying Put (£33.3 million), Virtual School Heads Extension for Previously Looked After Children (£7.6 million), the Leaving Care Allowance uplift (£13.4 million) and Personal Advisor Support for Care Leavers (£12.1 million) will be consolidated into a single Children and Families Grant worth £414 million. This funding will retain its 2024-25 allocations in 2025-26 and will not be included in Core Spending Power for 2025-26.

1.6 Council tax referendum principles apply to the increase in the band D council tax charge set by a local authority. The consultation document set out the following on these referendum principles:

• Maintaining the policy of the previous government and in line with the March 2024 Office for Budget Responsibility March 2024 forecasts, maintaining the core council tax referendum limit of up to 3% from April 2025. Councils can set higher increases if they wish, via the consent of a local referendum;
• In addition, local authorities with social care responsibilities will again be able to set an adult social care precept of up to 2% without a referendum;
• A bespoke council tax referendum principle of up to 3% or £5, whichever is higher, for shire districts;
• No council tax referendum principle for mayoral combined authorities (MCAs);
• No council tax referendum principle for town and parish councils;
• A £5 referendum principle for fire and rescue authorities; and
• A £14 referendum principle for police authorities and police and crime commissioners.

1.7 On the Recovery Grant, the consultation document set out the following:

• We will introduce a new, one-off Recovery Grant, worth £600 million, to target places with greater need and demand for services (we have used deprivation as a proxy for this), and less ability to raise income locally.

1.8 On the distribution of adult and children’s social care resources, the provisional consultation document set out the following:

• In 2025-26, £5.9 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 £880 million compared to 2024-25. The majority of this additional funding will be allocated using our adult social care relative needs formula, while £240 million will be used to equalise the variation in yield from the adult social care precept.
• £2.6 billion will be distributed through the Local Authority Better Care Grant. This is a single grant, which consolidates the previous Discharge Fund (£500 million) into the grant which was previously the improved Better Care Fund (iBCF) (£2.1 billion). Like its predecessors this grant will be required to be pooled into the Better Care Fund (BCF). The government also committed to setting out the objectives and conditions of the BCF in the 2025-26 BCF policy framework. This was published on 30 January 2025.
• £1.05 billion in 2025-26 will be distributed for adult social care through the Market Sustainability and Improvement Fund (MSIF);
• A new Children’s Social Care Prevention Grant, worth £250 million at the provisional settlement, will fund the national rollout of Family Help - a whole-family, preventative service. This will be distributed through an interim children’s need-based formula, which will allocate funding according to estimated need for children’s social care services. We committed to uplifting the Children’s Social Care Prevention Grant to £263 million to fund the rollout of mandatory Family Group Decision Making at the final settlement. We have now confirmed that the Children’s Social Care Prevention Grant will be worth £270 million in total.

1.9 On New Homes Bonus (NHB), Rural Services Delivery Grant (RSDG) the Services Grant and the funding floor, the consultation document set out the following:

• There will be a final round of NHB payments in 2025-26. There will be no change to the calculations process, and allocations for 2025-26 will continue to be made in the usual way;
• The RSDG, which was worth £110 million in 2024-25, will be repurposed. The government believes this grant is outdated and does not properly assess rural need;
• The Services Grant will also be repurposed to direct funding where it is needed most and further simplify the system, by removing a grant which has significantly reduced in value in recent years. In 2024-25, the Services Grant was worth £87 million, around a tenth of its value in 2022-23 (£822 million);
• The proposed funding floor will guarantee that no local authority, including any affected by these decisions, sees a reduction in their Core Spending Power in 2025-26, after taking into account the increase in council tax levels;
• In addition, the government intends to distribute £3 million to authorities who continue to be affected by increased Internal Drainage Board levies. The distribution of this funding will be confirmed later in the financial year, as in previous years;
• The government intends to maintain the additional funding that the island authorities received in 2024-25;
• The government will also hold back a small amount of grant funding as contingency in line with previous years. The government will make clear how this contingency funding will be allocated at the final settlement.

1.10 The government invited views and evidence on the impact that the government’s proposals may have on persons who share a protected characteristic.

1.11 The consultation also invited views on the government’s proposal to not extend the IFRS 9 statutory override beyond its current end date of 31 March 2025.

2. Responses to the consultation

2.1 The government received 227 responses to this consultation. Each response has been given full consideration alongside other representations made during the consultation period, including from a number of Members of Parliament who met with the Minister of State for Local Government and English Devolution. The government is grateful to everyone who took time to respond to the consultation.

2.2 The table below gives a breakdown of consultation responses by the type of respondent.

Organisation type	Count	% of total responses
London borough	19	8
Metropolitan district	25	11
Unitary authority	35	15
Shire county	19	8
Shire district	57	25
Fire and rescue authority	17	7
Local authority association or special interest group	10	4
Other organisation types consisting of: combined authority, parish or town council, other local authority grouping, other representative group, and voluntary organisations	20	9
Local authority officer	17	7
Member of Parliament or local authority councillor	4	2
Member of the public	4	2
Total	227	100%

2.3 This document provides an overview of the responses received. It would not be practical to capture every point made in response.

2.4 There may be discrepancies between headline numbers and figures included in this summary where responses were ambiguous or contradictory.

2.5 A number of views were raised in responses that fell outside the scope of this consultation, primarily on employer National Insurance Contributions and the Extended Producer Responsibility.

2.6 HM Treasury has made available £515 million to compensate local authorities for the impact of National Insurance Contributions. This funding was announced at the provisional settlement and an accompanying explanatory note was published alongside to set out how the government would distribute the funding at the final settlement. A large number of respondents expressed concern that the funding announced is insufficient, and some respondents raised the exclusion of expenditure on the Housing Revenue Account within the funding methodology. The government has listened to this feedback and has incorporated Supervision & Management (HRA) expenditure within the funding methodology to ensure councils with large staff costs budgeted for within the HRA are not disadvantaged compared to councils without housing responsibilities or those without a dedicated HRA. An updated explanatory note has been published to account for this change.

2.7 Beyond the settlement, the extra funding announced at the Autumn Budget includes a guarantee that local authorities in England will receive at least £1.1 billion in total in 2025-26 from the new Extended Producer Responsibility for packaging (pEPR) scheme, with each local authority guaranteed at least the level of income indicated in November’s provisional local payment figures. This guarantee was mentioned in a small number of responses, including some concerns about the future of the scheme. The government will guarantee that if local authorities in England do not receive Extended Producer Responsibility income in line with their November 2024 payment estimates in the first year of the scheme (2025-26), they will provide an in-year top up. If an in-year top up is required for local government, the Ministry of Housing, Communities and Local Government expects to make top up payments to local authorities in England through unringfenced section 31 grants in March 2026. Grants paid to local authorities in relation to the government’s guarantee of pEPR funding will be payments based on figures collected from the Scheme Administrator. If an in-year top up is required, the Ministry of Housing, Communities and Local Government expects to conduct a reconciliation process in the usual way. More details on this process will be set out when any payments are made.

3. Distribution of Settlement Funding Assessment (SFA)

3.1 The provisional local government finance settlement outlined the government’s proposal to, before rolling in grants, provide a uniform percentage increase in Revenue Support Grant (RSG) allocations from 2025-26, in line with the change in the CPI between September 2023 and September 2024.

3.2 The provisional settlement also confirmed that we have no plans to introduce ‘negative Revenue Support Grant’.

3.3 Overall, 63% of respondents either agreed with the proposal or did not have a view. In total, 192 respondents provided additional comments to this question. The percentages included in the analysis below are based on this figure.

3.4 Of the 192 respondents who provided additional comments, 30 (16%) welcomed the increase in RSG in line with CPI, while 12 respondents (6%) stated this increase is insufficient. Twenty-three respondents (12%) said that increasing RSG by CPI is not sufficient and does not reflect the increasing cost pressures local authorities are facing. Fifteen respondents (8%) disagreed with the use of September 2024 CPI figures.

3.5 On the government’s proposal to continue not to introduce ‘negative RSG’, views were mixed: 19 (10%) respondents disagreed with the proposal, whilst 10 (5%) agreed.

3.6 Respondents took the opportunity to provide views on the broader settlement proposals, with 41 (21%) stating that the overall settlement is insufficient. Whilst several respondents welcomed the government’s commitment to funding reform from next year, 7 (4%) highlighted that there is uncertainty over what this will look like. Fourteen respondents (7%) requested longer-term certainty, beyond one year of funding allocations. On RSG specifically, 18 respondents (9%) pointed to the need to update the formula, stating that it is out of date.

3.7 Having considered these responses carefully, the government intends to proceed with the approach consulted on for the 2025-26 local government finance settlement. The government notes the views raised regarding longer-term reform of RSG and of the wider funding system. We have committed to fundamentally improve the way we fund councils and direct funding to where it is most needed through the first multi-year settlement in 10 years at the 2026-27 settlement. We will consider responses to this consultation alongside responses to the consultation on updating how local authorities are funded through the local government finance settlement, which closes on 12 February.

4. Funding simplification

4.1 The consultation on the provisional local government finance settlement sought views on: rolling in four grants into the Revenue Support Grant (RSG), maintaining their existing distributions; consolidating the Domestic Abuse Safe Accommodation Grant as a new, separate line in the settlement, maintaining its existing distribution; consolidating several DfE funds into a single Children and Families Grant worth £414 million, retaining its 2024-25 allocations in 2025-26. The Children and Families Grant will not be included in Core Spending Power for 2025-26.

4.2 Overall, 79% of respondents either agreed with the proposal or did not have a view. In total, 187 respondents provided additional comments to this question. The percentages included in the analysis below are based on this figure.

4.3 Of the 187 respondents who provided additional comments, the vast majority (176 respondents, 93%) welcomed the principle of simplification of the funding system.

4.4 Thirteen (7%) of these respondents argued for greater ambition on future funding simplification and rolling in grants ahead of the next settlement. Twelve respondents (6%) directly expressed support for the removal of ringfences or reporting requirements.

4.5 Forty-nine (26%) respondents had concerns that consolidated funding would be at risk of future reductions and 15 respondents (8%) cited concerns that future funding reform would play a part in this. Sixteen (8%) also shared concerns that funding would not benefit from sufficient future uplifts. Respondents pointed to the need for transparency on funding simplification, with 25 respondents (13%) wanting earlier notice around which grants were being rolled in and the associated process. Thirty-three respondents (17%) outlined concerns that once grants are rolled into the settlement, visibility of funding is reduced.

4.6 Twenty-three respondents (12%) were concerned that rolling in funding and changing the formulae for certain grants would mean that the funding for specific pressures would be lost.

4.7 Twelve respondents (6%) disagreed with rolling the Extended Rights to Home to School Transport grant into RSG, noting the disproportionate impacts on rural areas. Two respondents disagreed with rolling-in the Tenant Satisfaction Measures New Burdens given the funding for this is paid for from the Housing Revenue Account, as the funding will not automatically offset the new burden costs from this account without the extra administrative step of passporting it over.

4.8 Other themes outside the scope of the consultation were raised, namely that 10 respondents (5%) would prefer to have fewer conditions on the Homelessness Prevention Grant (HPG), including the removal of the pre-existing ringfence and the new conditions imposed in 2025-2026.

4.9 After consideration of the responses, the government intends to proceed with the approach to funding simplification for 2025-26 as set out in the consultation. Simplification of local government funding is a priority for this government, and key to resetting the relationship with local government and ensuring its sustainability. We are committed to consolidating and de-ringfencing funding to provide councils with greater flexibility to meet pressures.  

4.10 The government notes the views raised regarding concerns about future reductions of the RSG, transparency of grant data and uplift to existing funding and will consider these in future funding simplification consolidation and reform.

5. Council tax 

5.1 The government consulted on its package of referendum principles which included maintaining the core council tax referendum limit of up to 3% from April 2025, maintaining the policy of the previous government and in line with the March 2024 Office for Budget Responsibility March 2024 forecasts.

5.2 Overall, 38% of respondents either agreed with the proposal or did not have a view. In total, 202 respondents provided additional comments to this question. The percentages included in the analysis below are based on this figure.

5.3 Many respondents argued firmly in favour of removing referendum principles and leaving the decisions on council tax increases for local authorities to make. Respondents raised many concerns over Core Spending Power (CSP) calculations, arguing that council tax should firstly not be included within these, and secondly that CSP should not assume full use of the proposed referendum principles. 

5.4 A significant number of respondents argued that the proposed council tax increases would only heighten cost of living challenges faced by local residents. Points were raised regarding the ability of local residents to afford the proposed increases as well as arguments that increased need for support would leave systems struggling to meet demands.

5.5 There were further arguments for greater flexibilities to be raised for district councils, fire and rescue authorities and police and crime commissioners. Whilst a similar number of respondents argued that overall council tax was not a sustainable way to fund local authorities, it was also noted that the proposed council tax referendum principles were not high enough to meet the pressures on services that local authorities currently face. 

5.6 Of the 202 respondents who provided additional comments, 103 (51%) respondents commented that referendum principles should be ended or that decisions on council tax increases should be left to local authorities. 

5.7 Eighty-four (42%) respondents commented that increases in council tax further compounds cost of living challenges, meaning that local residents would not be able to afford to pay their council tax, and would lead to further strains on support systems of local authorities.

5.8 Thirty-six (18%) respondents suggested the referendum principles are not sufficiently flexible to meet service pressures. 

5.9 Fifty-one (25%) respondents argued for greater flexibilities for shire district councils. 

5.10 A number of additional points were raised in the consultation that included: arguments that the council tax system should be reformed; comments on the inadequacy of the adult social care precept to fund services; comments on council tax in relation to councils in need of exceptional financial support; concerns regarding the difference across England in the strength or size of each local authority’s tax base; and comments on receiving certainty on multi-year funding to help councils with financial planning.

5.11 The government has considered the arguments put forward by respondents to the proposals, including those that requested wider local government funding reform, expansion of the adult social care precept to cover children’s social care and the removal of all referendum principles. The government believes that the overall package set out in the provisional local government finance settlement balances the need to protect local residents from excessive council tax increases, while also providing local authorities with sufficient resource generating capacity. The government expects local authorities to consider the cost-of-living pressures when taking any decisions relating to council tax. 

5.12 The government has also considered requests put forward by respondents on multi-year funding certainty. The local government finance policy statement 2025-26 set out the government’s intention to move to multi-year settlements from 2026-27 which will help local authorities with planning and long-term sustainability.

5.13 As part of our consultation on updating how local authorities are funded through the local government finance settlement, which closes on 12 February, we are also seeking views on how we account for council tax in the distribution of funding.

5.14 The provisional local government finance settlement also confirmed that, as with previous years, the government would consider requests from councils for bespoke council tax referendum principles from councils seeking exceptional financial support. This confirmed that any requests would be considered on a case-by-case basis and would only be agreed in exceptional circumstances, with the impact on taxpayers at the forefront of decision-making.

5.15 Following requests from councils seeking Exceptional Financial Support, the government has agreed to set bespoke referendum principles for Windsor & Maidenhead, Birmingham, Bradford, Newham, Somerset and Trafford councils. For Bradford Council an additional council tax referendum principle of 5% will apply; for Newham Council and Windsor and Maidenhead Borough Council an additional council tax referendum principle of 4% will apply; and for Birmingham City Council, Somerset Council and Trafford Council an additional referendum principle of 2.5% will apply.

5.16 In line with the provisional settlement, in making these decisions, the government has considered each council’s financial position, existing levels of council tax, and the potential impact on taxpayers. The government considers that agreeing to this limited number of requests, and to a small increase in each case, strikes the right balance between supporting councils in their financial recovery and protecting the interests of working people.

5.17 The government has agreed to provide these flexibilities, but it remains the responsibility of individual authorities to decide the level at which they set their council tax. We have been clear to all councils that they should take whatever steps locally they consider will help to protect the most vulnerable residents from the impact of any additional increase.

6. Recovery Grant

6.1 The government set out its proposals to introduce a new, one-off Recovery Grant, worth £600 million, to target places with greater need and demand for services (we have used deprivation as a proxy for this), and less ability to raise income locally.

6.2 Overall, 55% of respondents either agreed with the proposal or did not have a view. In total, 191 respondents provided additional comment to this question. The percentages included in the analysis below are based on this figure.

6.3 Of the 191 respondents who provided additional comments, 90 (47%) expressed views in favour of the Recovery Grant, welcoming the additional funding for local government, the principle of supporting councils with greater need, and the positive first-step towards bringing forward more fundamental reform.

6.4 The most common concern (75 respondents, 39%) was that the methodology used to distribute the Recovery Grant is too simplistic and that the 2019 Index of Multiple Deprivation (IMD) does not accurately assess the need of councils. Many who shared this concern were supportive of the objective of the Recovery Grant. Thirty respondents (16%) stated that the IMD is out of date. Sixteen respondents (8%) argued that fire and rescue authorities should be included in the design of the formula. Five respondents (3%) did not agree with the way that council tax is taken into account in the Recovery Grant formula.

6.5 A quarter of respondents (47 respondents) shared criticism around the lack of transparency over how the formula has been designed and argued that local government should have been consulted on the formula prior to the provisional settlement. Among these responses, many called for the publication of the calculations behind the Recovery Grant and more evidence around how the formula was designed.

6.6 Views around the patterns of distribution were mixed. While many welcomed additional funding to urban areas, thirty-five (18%) expressed concern that the Recovery Grant does not support rural areas, particularly given proposals to repurpose the Rural Services Delivery Grant. Thirty-three (17%) respondents, noting the targeted nature of the Recovery Grant, highlighted the pressures faced across the sector.

6.7 After consideration of the responses, the government will implement the £600 million Recovery Grant in the 2025-26 local government finance settlement. The government understands the concerns raised in the consultation, particularly around the simplicity of the grant design. Existing formulas in the current system were last updated in 2013-14, some of which include data from 2001. The government believes that it was necessary to take action this year and, considering the limited time available, this one-year grant remains the best available option to target funding where it is needed most. We have been clear that the Recovery Grant, which forms a small part of the overall settlement worth over £69 billion, is an interim measure and is not as sophisticated as a fully updated assessment of need. We are consulting on our approach to updating the way we allocate funding to local government that will take into account a much broader measure of need.

7. Distribution of adult and children’s social care resources 

7.1 The consultation sought views on the government’s proposals regarding social care funding in 2025-26 as part of the local government finance settlement.

7.2 These proposals include increasing the Social Care Grant allocations to £5.9 billion and ringfencing this fund for adults’ and children’s social care; retaining the same quantum and distribution methodology as 2024-25 for the ASC Market Sustainability and Improvement Fund; and consolidating the two previously existing grants known as the improved Better Care Fund (iBCF) and the Discharge Fund into the Local Authority Better Care Grant, retaining the same quantum and distribution methodology as 2024-25.

7.3 Overall, 68% of respondents either agreed with the proposal or did not have a view. A total of 149 respondents provided additional comment to this question. The percentages included in the analysis below are based on this figure.

7.4 Of the 149 respondents who provided additional comments, while three quarters (76%) welcomed the increase in funding, many also expressed concern that the increase in funding is not sufficient to meet pressures in adult social care (60%) and children’s social care (56%). As mentioned in paragraph 2.5, there were concerns related to costs associated with the increase in the National Living Wage and employer National Insurance Contributions, and requests for long term certainty over the funding.

7.5 Thirteen respondents (9%) requested clarity about social care distribution methodologies, eight respondents (5%) expressed concerns about the choice of formulas for the funding, and thirty-one respondents (21%) argued that the formulas need updating.

7.6 Nineteen respondents (13%) argued that the adult social care council tax precept is an inappropriate way to generate funding for adult social care. Views around equalisation in the Social Care Grant were mixed. Whilst twelve (8%) respondents reported that the Social Care Grant should not have a component that is used to equalise the variation in yield from the adult social care precept, twenty-eight respondents (19%) reported that there should be a larger equalisation component in the Social Care Grant.

7.7 Twenty-one respondents (14%) welcomed the consolidation of the iBCF and Discharge Fund into the Local Authority Better Care Grant. Nearly a quarter of respondents suggested that there should be a long-term proposal for adult social care reform.

7.8 After consideration of the responses, the government intends to proceed with the position consulted on for the 2025-26 local government finance settlement. The additional funding for social care in this Settlement is in recognition of the important role councils have in commissioning and delivering adult and children’s care services. We note the concerns raised about the additional cost from changes to employer national insurance contributions. The government has announced £515 million of support for local government to manage the impact of these changes. Payments to councils will be unringfenced to give local authorities discretion over the use of funds in their areas. We will provide funding certainty by moving to multi-year settlements from 2026-27, to help authorities with planning and long-term sustainability. We also note comments requesting clarity on plans for funding adult social care and long-term reform; the government has announced the launch of an independent commission into adult social care as part of our critical first steps towards delivering a National Care Service and rebuilding the adult social care system to meet the current and future needs of the population.

7.9 Information about social care charging arrangements and allowances for 2025-26 has been published alongside the local government finance settlement to support local authorities in their financial planning. Draft grant conditions for the Social Care Grant and Local Authority Better Care Grant will be published shortly. We will publish Market Sustainability and Improvement Fund (MSIF) grant conditions in spring. Using MSIF alongside other available funding, we expect local authorities to maintain existing improvements and, where possible, seek further improvements. As with the previous two years, this funding can be used by local authorities to target increasing fee rates paid to providers, workforce recruitment and retention, and improving waiting times for care. There will be reporting requirements placed on MSIF regarding performance and use of funding to support improvement against the objectives. To support local authorities, we aim to make this process simpler and more effective by reducing and simplifying the reporting requirements.

7.10 At the provisional local government finance settlement, the government proposed to put £250 million of new funding into a new Children’s Social Care Prevention Grant. This will be used, alongside funding in the Children and Families Grant, to invest in the national rollout of ‘Family Help’, a preventative service, and child protection reforms. The government proposed the Children’s Social Care Prevention Grant be distributed using a children’s needs-based formula, which allocates funding according to estimated need for children’s social care services, taking into account the variation in the cost of delivering services and the ability of local authorities to raise resources locally.

7.11 Overall, 84% of respondents either agreed with the proposal or did not have a view. A total of 191 respondents provided additional comment to this question. The percentages included in the analysis below are based on this figure.

7.12 Of the 191 respondents who provided additional comments, 90 (58%) respondents welcomed the increase in funding, while thirty-two (21%) respondents argued the funding increase is not sufficient to meet children’s social care pressures.   

7.13 Thirty-six (23%) respondents raised concerns over the transparency of the methodology of the formula or requested further information on this.

7.14 Thirty-five (23%) respondents disagreed with the methodology of the children’s needs-based formula or were unhappy with their allocation of funding, of which fifteen (10%) respondents argued that the formula should not take into account local authorities’ ability to raise resources locally. One (1%) respondent argued the opposite – local authorities’ ability to raise resources locally should have more weighting in the formula design. Some respondents felt that the methodology did not recognise their unique circumstances, and they resultingly received allocations that would not have an impact on service delivery.

7.15 Twenty-nine (19%) respondents commented on or requested clarity on grant conditions.

7.16 Having reviewed these responses carefully, the government intends to proceed with the proposal to distribute the Children’s Social Care Prevention Grant. Allocations have been uplifted to account for an additional £13 million announced at the provisional settlement to make funding available for Family Group Decision Making. The government will also provide a further uplift to allow further investment in prevention, Family Help and child protection, bringing the total value of the Children’s Social Care Prevention Grant to £270 million. The government will also introduce a minimum allocation, to enable local authorities with very low allocations to begin the transformation of their children’s social care services. This minimum allocation will be set at £30,000.

7.17 The Department for Education plans to set out further detail on the distribution methodology of this grant and the development of a new relative needs formula for children’s social care shortly following the conclusion of the local authority funding reform consultation (details in 7.22) in line with normal practice.

7.18 Grant conditions for the Children’s Social Care Prevention Grant have been published in draft alongside the final local government finance settlement to support local authorities in their financial planning.

7.19 The Children’s Social Care Prevention Grant is a one-year, interim grant. When taking forward decisions for the upcoming multi-year settlement, the government will carefully consider responses to this consultation alongside responses to the consultation on updating how local authorities are funded through the local government finance settlement, which closes on 12 February and seeks views on a new relative needs formula for children’s social care.

8. Other Grants – New Homes Bonus, Rural Services Delivery Grant, Services Grant and funding floor

8.1 The consultation sought views on the government’s proposals to deliver a final round of New Homes Bonus (NHB) payments in 2025-26, using the same calculations process as 2024-25. The consultation also confirmed the government’s intentions that 2025-26 will be the final year of NHB in its current format, with consultation on funding reform from 2026-27 ongoing.

8.2 Overall, 78% of respondents either agreed with the proposal or did not have a view. In total, 171 respondents provided additional comment to this question. The percentages included in the analysis below are based on this figure.

8.3 Of the 171 who provided additional comments, 38 (22%) welcomed that it would be the final year of the NHB.

8.4 Twelve respondents (7%) argued for an immediate removal of the payments with the funding repurposed within the RSG.

8.5 Forty-six (27%) stated that NHB no longer provides the intended incentive and seventeen (10%) noted that taking funding as a top slice of RSG has resulted in funding being diverted from other areas of need.

8.6 Sixty-six (39%) respondents requested urgent clarity on long-term funding reform. Some (7 respondents, 4%) wanted a continuation or similar incentive while others would prefer allocations based on need (33 respondents, 19%). Nine (5%) respondents called for NHB funding to be directed to other areas such as social care.

8.7 Having considered all the responses to the consultation, the government intends to proceed with the position consulted on for the 2025-26 local government finance settlement. The government is inviting views on the future of the NHB as part of our consultation on updating how local authorities are funded through the local government finance settlement, which closes on 12 February, and will carefully consider all responses to both consultations. The government will also consult on detailed proposals for arrangements beyond 2025-26 in the first half of 2025.

8.8 The provisional local government finance settlement outlined the government’s proposal to repurpose the Rural Services Delivery Grant, repurpose the Services Grant and apply a funding floor that would guarantee no local authority sees a reduction in their Core Spending Power in 2025-26.

8.9 Overall, 64% of respondents either agreed with the proposal or did not have a view. A total of 185 respondents provided additional comment to this question. The percentages included in the analysis below are based on this figure.

8.10 Of the 185 respondents who provided additional comments, 84 (45%) welcomed the overall principle to repurpose grants. Conversely, 63 (34%) were opposed to the overall principle.

8.11 On the proposal to repurpose the Rural Services Delivery Grant, 25 (14%) agreed, particularly as a means to support authorities with greater need. Conversely, 31 (17%) argued that service delivery within their area would be impacted by repurposing this grant.

8.12 Few (10 respondents, 5%) supported the proposal to repurpose the Services Grant, noting the reduction in 2024-25. Some (20 respondents, 11%) argued against it and wanted the Services Grant reinstated.

8.13 On applying a funding floor, thirteen (7%) of respondents supported this, while thirty-four (18%) did not, mainly because it would not provide sufficient funding to address their needs.

8.14 Forty respondents (21%) raised questions about the methodologies used to repurpose grants. These focused on how ‘where funding was needed most’ was determined, and the potential weighting of deprivation and density over other factors that can affect service delivery. Several respondents felt changes to the existing methodologies would be more appropriate than complete repurposing of the grants.

8.15 Twenty-nine respondents (15%) argued that limited evidence had been presented to explain reasons behind repurposing grants. A similar number of respondents (31, 16%) raised concerns that there had been no prior consultation on these changes and that the late notice would have implications for their budgeting processes.

8.16 Six (3%) respondents raised concerns about the impact of Internal Drainage Boards on council finances.

8.17 After consideration of the responses, the government intends to proceed with the proposals to repurpose grants in order to target funding where it is needed most in 2025-26. The government acknowledges the respondents who expressed concern about the late notice given on these proposals. The government believes that it was necessary to take action this year and believes the decision to repurpose grants as the best option to pursue with the limited time available. The government is committed to delivering a multi-year settlement in 2026-27 which will provide the certainty local authorities need and deserve.

8.18 The government also recognises the mixed comments raised about the repurposing of the Rural Services Delivery Grant and the Services Grant and understands concerns about the methodologies used to redistribute funding, as noted in paragraph 6.7. For 2025-26, the government is supporting rural authorities by ensuring that no local authority will see a reduction in core spending power when taking into account council tax rises. Taking into account both money allocated to councils through the Settlement and the EPR guarantee, every planning and social care council will have more to spend on services in 2025-26 than in 2024-25; and for every district council we expect this to be an increase in real terms. Looking ahead, the 2026-27 settlement will distribute funding on an updated assessment of need. We are consulting on our approach and will consider all feedback we receive.

8.19 The government recognises the sustained increase in Internal Drainage Board levies, and using contingency funding, will uplift the existing £3 million grant to £5 million at the final settlement. Contingency funding has also been used to uplift the Children’s Social Care Prevention Grant, as outlined in paragraph 7.18 and cover adjustments to New Homes Bonus allocations. At the final settlement, the government also set out that nearly £60 million has been confirmed to fund long-term improvements to the local government sector over the next year, including empowering mayoral areas leading the devolution revolution and fixing the local audit system to ensure transparency. Remaining contingency funding has contributed to this commitment. Further details of this funding will be made available in due course.

9. Impacts of these proposals 

9.1 The government invited views through the provisional local government finance settlement consultation on the impact of the proposals on persons who share a protected characteristic.

9.2 Responses to this question have been considered in government decisions on the final local government finance settlement. A statement on how government has taken these responses into account in the assessment of the impacts of the settlement is included below.

9.3 A total of 116 number of respondents provided additional comment to this question. The percentages included in the analysis below are based on this figure.

9.4 Of the 116 respondents who provided additional comment, 94 (81%) argued that the settlement proposals would mean there will continue to be negative impacts on groups sharing a protected characteristic. Respondents highlighted the negative impacts of local authority funding on the elderly (53, 46%), children (30, 26%), those with a disability (20, 17%), race (4), sexual orientation (2) and gender (1).

9.5 Twenty-two respondents (19%) argued historic funding decisions have negatively impacted those sharing protected characteristics, with 40 (34%) calling for more funding for local government. Several respondents highlighted the need for funding reform to improve outcomes for disadvantaged groups, with others calling for reform of social care and special educational needs and disabilities services.

9.6 Twenty-four respondents (21%) welcomed the positive impacts, with a number of those approving of the focus on more deprived areas.

9.7 Twenty-one (18%) respondents mentioned rurality, with a number of those highlighting deprivation within rural areas. The government notes that this is not a protected characteristic under the Equality Act 2010.

9.8 Finally, 10 respondents (9%) mentioned fire and rescue authorities and the need to have greater regard to them in equalities analysis and funding decisions.

Approach to assessing the impact

9.9 Public bodies have a duty under section 149(1) of the Equality Act 2010 (the ‘Act’) to consider the needs of people who share particular protected characteristics. This is known as the public sector equality duty (PSED). In carrying out their functions, public bodies should have due regard to the need to achieve the following PSED objectives set out under the Act:

• Eliminate unlawful discrimination, harassment, victimisation and any other conduct prohibited by the Act;
• Advance equality of opportunity between people who share a particular protected characteristic and people who do not share it; and
• Foster good relations between people who share a particular protected characteristic and people who do not share it.

The protected characteristics which should be considered are:

• age
• disability
• sex
• gender reassignment
• marriage or civil partnership
• pregnancy and maternity
• race
• religion or belief
• sexual orientation.

9.10 When making decisions on the local government finance settlement, the government must have due regard to the PSED objectives outlined above. The government must consider the equalities impacts of settlement decisions on people with shared protected characteristics, including when making policy and spending decisions.

9.11 We can anticipate to some extent how local authorities might respond to changes in funding and the impact this may have on service users. This is informed by responses to this consultation, the government’s broader continued engagement with local government, and historic trends. Engagement with local government also allows us to ensure the assumptions underlying our modelling on the amount of funding local government requires are robust.

9.12 In considering the impact of the funding distribution on protected characteristics, the government has also considered the final distribution of Core Spending Power between local authorities as outlined in this response, as well as the characteristics of the people that live in the local authorities. The government also had due regard of qualitative and quantitative research on the users of the local government services, the impact of these services and the likely impact of funding decisions.

Brief outline of the policy proposal

9.13 A summary of the measures consulted on can be found in chapter one of this response. Further detail can be found in the provisional local government finance settlement 2025-26 consultation.  

9.14 Alongside the provisional settlement, amongst other measures, the government also announced £515 million of further funding, which has now been made available at the final Settlement to support councils with the increase in employer National Insurance Contributions.

Foreseeable impacts of policy proposals on people who share protected characteristics

9.15 The government understands that some people with particular protected characteristics are overrepresented in the use of local government services, such as: age, disability, sexual orientation, and sex. Where funding changes year on year, people in specific groups within these protected characteristics are more likely to experience the positive or negative consequences of those changes compared to those who do not share the protected characteristic.

9.16 Local authorities provide various services which persons that share a protected characteristic will benefit from. Changes in the amount of flexible funding available to local authorities – whether an increase or a reduction – will affect a local authorities’ ability to provide these services, and therefore impact those persons sharing protected characteristics.

9.17 Furthermore, inadequate local government funding has the potential to negatively impact lower income households through, for example, increased fees for the services provided by local government. Although socioeconomic status is not a protected characteristic, there are multiple interactions between income and groups within particular protected characteristics. Without effective mitigating action, spending decisions may therefore have an indirect equalities impact.

9.18 The government has given due regard to the potential equalities impacts raised in the consultation, including on the most commonly cited protected groups (elderly – 53, 46%, children – 30, 26%, and those with a disability – 20, 17%). The government notes that local government in England will see an increase in Core Spending Power of up to £4.4 billion next year, or 6.8% in cash terms – an above-inflation increase, and that this real-terms increase in funding is likely to be distributed across protected groups. The Settlement has announced significant increases in funding for adult and children’s social care, and the government considers that these increases will to some degree address the potential adverse equalities impacts on the elderly, children and those with a disability, that were raised in consultation responses. Overall, we have therefore not identified a significant disproportionate impact on any groups that share a particular protected characteristic as a result of the proposals for this year’s local government finance settlement. Looking to the future, the government will separately consider equalities impacts on proposals for the reform of local authority funding, starting in 2026-27.

9.19 As local authorities decide how their resources are allocated, it is not possible to say for certain how changes in funding will affect specific groups of persons sharing a protected characteristic. In making these decisions, local authorities will also need to have due regard to their PSED objectives under the Act.

Monitoring arrangements 

9.20 The department collects detailed revenue expenditure data on a yearly basis through the Revenue Account and Revenue Outturn publications. The department also regularly and directly engages with local authority officers, Councillors, and Members of Parliament. Furthermore, the department responds to and monitors correspondence relating to local government funding and its implications. This engagement adds further detail to our understanding of financial pressures facing local government, the sufficiency of the settlement to meet these pressures, and the implications of government’s policy decisions on people who have particular protected characteristics.

10. The International Financial Reporting Standard 9

10.1 The consultation on the provisional local government finance settlement sought views on the government’s intention to allow the current statutory override, relating to the treatment of pooled investment funds under IFRS 9 (“the override), to elapse from 1 April 2025.  As set out in the consultation, the government does not intend to extend the override further and local authorities would therefore be required to apply IFRS 9 requirements, as adopted by CIPFA’s Code of Practice on Local Authority Accounting in the United Kingdom. In practice, this would likely mean that local authorities holding relevant pooled investment funds, would need to recognise gains and losses in the fair value movements of those funds in their revenue accounts from 1 April 2025 onward.

10.2 This section summarises the responses to the consultation and provides further detail on the government’s response to specific matters raised. As this is a summary, it does not attempt to capture all views that were shared as part of the response to the consultation. All views, however, have been carefully considered.

10.3 Overall, 49% of respondents either agreed with the proposal or did not have a view. In total, 137 provided additional comment to this question. The following analysis of responses and the percentages of respondents included in the analysis below are based on this figure.

10.4 Of the 137 respondents who provided additional comments, the majority (114, 68%) did not agree with the government’s intention to allow the override to elapse. A third of respondents (45 respondents) expressed the view that the override should be made permanent. The main arguments for retaining the override, as set out in the responses, remain substantively the same as those out forward in previous consultation on the override in 2018 at inception and in 2022 when the override was extended. In summary these were:

• that without the override, the fair movements of pooled investment funds will need to be reflected in the general fund. This will introduce volatility to budgets giving losses that would need to be managed, potentially through increasing council tax or cutting service expenditure. Seventy-six (46%) respondents explicitly stated the view that ending the override from 1 April 2025 would create additional budget pressures for the sector, in some cases potentially affecting service delivery or financial sustainability.
• that there is already sufficient transparency with respect to the affected investments, as movements in the fair value of pooled fund investments are already disclosed in the accounts (even though the impact to the revenue accounts is then removed). Therefore, several respondents felt they were already complying with good accounting practice. There is already a duty to comply with statutory codes of best practice, suggesting that risk is sufficiently transparent and taken into account without the requirement of fair value movements to be taken to the revenue account which would affect council tax calculations.
• that the override supports councils to invest in more diversified investments to limit risk exposure and benefit from the investment income. Further, that pooled investment assets are low risk over the long-term, even though there may be significant ‘paper losses’ in a particular year, and that it is therefore inappropriate to introduce annual volatility.

10.5 Of the respondents that stated the override should be allowed to elapse, the main arguments were that local authorities are exposed to same levels of risks from pooled investment funds as other entities are, and it was therefore appropriate for IFRS 9 requirements to apply on the same basis. It was acknowledged that the override does not affect the valuation on balance sheets (produced in compliance with the Code), but that removal of fair value movements from the revenue account results in a loss of transparency by removing any impact to the general fund position and reserves, and defers risk to when the assets are sold.

10.6 The consultation question also specifically asked local authorities to provide information on financial impacts of the override ending from 1 April 2025.  Of the local authority respondents, 31 gave an indicative figure for the financial loss in 2025-26 due to the override elapsing. The aggregate loss for these respondents is £76 million. In most cases the loss amount is not large compared to overall core spending power (CSP) (loss value is an average 2% CSP with a median of 0.61%). However, the majority of these authorities indicated this would reduce resources available for service delivery or reduce reserves, particularly given wider financial pressures.

10.7 The government recognises the views of the sector and that without the override in place, this will mean that fair value movements of pooled investment funds will need to be reflected in budgets. However, the override has always been a time-limited measure, intended to give local authorities time to prepare for full compliance with the Code, which has adopted IFRS 9 in full following due process. The original override was put in place for 5 years as a reasonable timeframe for authorities to address the risks highlighted in 2018, and further extended for 2 years from 2022. The responses to this consultation indicate that a number of local authorities have taken the opportunity to reduce their risk exposure or build up reserves to manage volatility.

10.8 The government agrees that unrealised gains and losses should not lead to pressures on service delivery or be reflected in council tax. Local authorities should, however, ensure that their investment strategies effectively manage their exposure to investment volatility, and authorities should not become overly exposed such that volatility can have a material effect on their ability to set a balanced budget or deliver services.

10.9 Having carefully considered the responses, including the information provided on the financial impact, the government remains of the view that the override should not be extended beyond 1 April 2025. Any new investments from 1 April 2025 must comply fully with the requirements as set out in the Code. However, reflecting on the financial position of the sector, and the responses provided we recognise that there may be a case for additional transitional support for historic investments. We will continue to work with the sector and will make further announcement, if required, in due course.