The government has announced over £69 billion funding for councils as part of its ‘Plan for Change’ to rebuild trust in public services and create economic stability at the local level. This includes:
- £3.7 billion additional funding for social care, including an £880 million uplift to the Social Care Grant, compared to 2024-2025.
- £270 million Children’s Social Care Prevention Grant to support family help services.
- £600 million Recovery Grant to assist financially struggling councils.
- £60 million for long-term local government reform, particularly in mayoral areas.
- A 6.8% increase in Core Spending Power compared to last year.
Two statutory reports have also been published:
- The Local Government Finance Report, which explains how core settlement funding will be allocated.
- The Council Tax Referendum Principles Report, setting the guidelines for council tax increases. If local authorities plan to exceed the 5% threshold, they will be required to hold a local referendum
Deputy Prime Minister Angela Rayner said that through this funding they are determined to “fix the foundations of local government; investing where it is needed, trusting local leaders and working together to deliver growth, better health and social care services and the affordable homes people need”.
Council Tax Rise
Birmingham, Somerset, and Trafford Council have been granted a higher 7.5% council tax threshold, while Newham and Windsor & Maidenhead can raise taxes by 9% before triggering a referendum. The City of Bradford has the highest threshold at 10%.
The referendum threshold —3% for general services and 2% for adult social care—set by the previous organisation remains in place. The Council Tax Referendum Principles Report, states that the general threshold for council tax increases is 5%, except for councils in extreme need.
Under the Local Government Finance Act 1992, councils must determine whether their planned council tax increases are excessive, using principles set by the Secretary of State for Housing, Communities and Local Government. If an increase exceeds these thresholds, a referendum must be held for public approval.
Labour insists that taxpayers are not going to be affected by these council tax rises and that “they won’t see their bills reach higher than the average compared to similar authorities”.
Many councillors have been pushing for higher increases to cope with ongoing financial pressures. A record number of 19 councils were given ‘Exceptional Financial Support’ last year, allowing them to raise council tax above the standard threshold.
Cllr John Cotton, Leader of Birmingham City Council, supports this new funding settlement, which allows the council to raise its tax rate to 7.5%. Originally, he had called for an increase to 10%. “After 14 years of Tory neglect, we now have a government that wants to work with us and support councils, and this settlement provides a significant boost,” he said.
This was criticised by Birmingham’s opposition leader, Cllr Robert Alden. He argued that this will add £134 extra for the average household.
Devolution and Local Funding
Labour’s commitment to the ‘Devolution Revolution’ continues, with promises to reduce bureaucratic bidding processes for funding pots. The government has announced in their 2025 to 2026 Local Government Finance Report that local authorities will receive £2.2 billion in Revenue Support Grant (RSG), with funding levels adjusted based on inflation and service demands.
Key elements include the division of business rates revenue, with 50% retained by councils and the other half going to central government. However, some areas, including Greater Manchester, Liverpool, and Cornwall, will continue with increased business rates retention, keeping up to 100% of locally collected business rates to support local services.
Councils will also receive over £1 billion in total through the new Extended Producer Responsibility for Packing scheme (pEPR), this will cover the costs for managing household packaging waste, provide additional funding for new legal duties, and support the “much needed investment in the waste and recycling industry”.
Tackling Social Care Crisis
Another element of this funding package is a £3.7 billion additional funding to ease the pressure on social care. With an ageing population and increasing pressure on adult and children’s social care services, councils have repeatedly warned that existing funding levels are unsustainable. The Health Foundation estimates that adult social care alone needs an additional £8 billion per year just to maintain current levels of service.
The current government has pledged a move towards a ‘multi-year funding settlement’ in 2026-27 for a fairer distribution of resources in underfunded councils. “We have been clear we will fix the foundations of local government. That means an end to short-term solutions and instead rebuilding the sector to put councils on a more stable and secure footing,” Minister of State for Local Government and English Devolution, Jim McMahon OBE said.
This funding promises social care reform and new mechanisms to stabilise struggling councils, aiming to rebuild local services amid an economic crisis in the UK. Without further reform, particularly in social care funding and the council tax system, both local authorities and taxpayers may continue to struggle. While multi-year settlements and a new funding model offer hope, it remains to be seen whether this Plan will Change the current councils’ and taxpayers’ financial struggles over the coming years.