Local Government Finance

Florence Eshalomi Excerpts

Wednesday 11th February 2026 Commons Chamber

[Steve Reed]

I am going to make some progress, I am afraid.

There are a few councils facing extremely challenging financial pressures that the previous Government turned into a crisis by ignoring their problems for over a decade. In response to requests from those councils, I am giving them flexibility to increase their council tax above referendum principles next year. Unlike the previous Government, we will not agree any increases that could lead to households in these areas paying above national average council tax, but we will not let councils go to the wall and see their residents punished with failing services. These flexibilities will apply to Warrington, Trafford, Worcestershire, Shropshire, North Somerset, Windsor and Maidenhead, and Bournemouth, Christchurch and Poole. One fire authority will also be granted additional flexibility. These are caps, not targets, and no area with additional flexibility will see bills rise above the national average.

[Florence Eshalomi (Vauxhall and Camberwell Green) (Lab/Co-op)]

I thank the Secretary of State for making that point about council tax and flexibility for local councils. Does he agree with the Local Government Association, which is worried, stating that

“council tax is not the solution to the financial challenges facing local government. It places a significant burden on some households”,

including the poorest. Does he agree that we should now be looking at council tax reform?

[Steve Reed]

I agree with the Chair of the Housing, Communities and Local Government Committee that council tax cannot be the only means to fix these problems. That is why we have increased the level of funding overall and reconnected it with the deprivation indices that tell us which areas have the greatest need, and should therefore get a fair share of the available funding.

The Home Secretary and I have also agreed an additional £3.50 council tax flexibility for six police and crime commissioners in 2026-27, where that was critical to financial sustainability in maintaining law and order. It is for councillors, mayors and police and crime commissioners to set their own council tax, and to take into account the impact on households when making those decisions.

Nationally, council tax will not increase by more than it did last year. Six local authorities set council tax bills between £450 and £1,000 lower than the national average because of the high value of homes in their areas. The previous Government made no adjustment in the funding formula for this, creating unfairness. It is not fair that people living in our poorest communities should subsidise rock-bottom bills in some of our wealthiest areas, so I am giving those councils additional flexibility to manage their budgets as we align funding with need, as we should.

For councils that need some support to balance their budgets this year, we will no longer just sign off borrowing or the sale of assets without a credible approach to reforming services to get back to financial stability. Later this month, I will confirm arrangements for supporting councils in the most difficult positions, but they will be expected to bring forward plans for more effective and sustainable services, built on sustainable budgeting into the future.

--- Later in debate ---

[Florence Eshalomi (Vauxhall and Camberwell Green) (Lab/Co-op)]

I thank the Secretary of State, who is not in his place, for opening this debate on the settlement. I know the work that he and the Local Government Minister have led on in bringing forward this statement, and they have been strong voices for our local government colleagues. I should declare that the Secretary of State and I served at Lambeth council, and the Minister served as a councillor in Southwark, one of my neighbouring boroughs. I also want to pay tribute to the former Minister, my hon. Friend the Member for Oldham West, Chadderton and Royton (Jim McMahon), for the work he did with many councils to get us to the place we are at.

I know that many local authorities across England will be delighted to see that the Government are going to be covering 90% of the debt that has built up through supporting children with special educational needs and disabilities. The issue of SEND appears in all our inboxes, and it has been a big ongoing issue for many councils, regardless of which party leads them. The issue is how we continue to support some of the most vulnerable children, so we must ensure that councils are adequately funded in this area.

If we are honest, SEND costs are not of councils’ making. As the shadow Minister, the hon. Member for Ruislip, Northwood and Pinner (David Simmonds), highlighted, the costs are a result of the broken system, which is finally being addressed by this Government. I hope that the Government will continue to address this issue in the upcoming schools White Paper.

One of the first things that everyone across local government asks for is certainty from the Government—certainty that authorities can make long-term investments in infrastructure; certainty that they have the funding to build the homes that we need; and certainty that they can start turning around the 14 years of under-investment in local government. I know that Opposition Members do not like to hear about it, but we saw 14 years of under-investment in SEND, temporary accommodation and adult social care. We should all welcome the first multi-year settlement in a decade, which ends the year-on-year waiting game that held back investment for too long.

This settlement has been called for not only by the current Housing, Communities and Local Government Committee but by its predecessor Committee, which was chaired by my wonderful colleague, my hon. Friend the Member for Sheffield South East (Mr Betts). It is good to see that the Government are finally listening on this issue.

We welcome the reduction in the number of grants. We have been asking our cash-strapped councils to continually bid for small pots of money. That means officer time being taken away from frontline services. Councils are bidding for those pots when, in some cases, they will not even be successful. That is not a good use of vital officers’ time, and in some cases the councils had to justify submitting the bids in the first place. We really do welcome this crucial change.

There are two other areas I want to focus on, one of which has been raised by right hon. and hon. Members this afternoon. The reality is that even with this welcome funding, a number of councils will still face budgetary issues. The Local Government Association anticipates that more councils may apply for exceptional financial support. When we see more councils having to apply for emergency funding, there is nothing exceptional about it. We cannot have a situation where councils have to rely on emergency funding to carry out day-to-day services and to avoid declaring bankruptcy. I hope that the Government will look at this area.

[Mr Will Forster (Woking) (LD)]

I agree with what the hon. Lady is saying. I am concerned that the Government’s support package for councils such as Woking borough council—which effectively went bankrupt several years ago following Conservative mismanagement—is allowing them to borrow more money to pay off their Government loans. Does she agree that the exceptional financial support process needs to change immediately?

[Florence Eshalomi]

I thank the hon. Member, an excellent colleague on our cross-party Select Committee, for his intervention. The Committee looked at this in our report on local government finance, and he will remember that our report stated:

“Exceptional Financial Support (EFS) by means of capitalisation direction is a stopgap measure that avoids section 114 notices and allows councils to produce short-term balanced budgets, but can weaken councils’ finances and capital investment in the long term.”

There is an issue, and we cannot keep sweeping it under the carpet and thinking that it is going to go away—it is not. In the long term, we are building more debts for those councils, which we have to look at addressing. I am pleased that the Government are going to ensure that councils applying for ESF have a wholesale root-and-branch review of how that money is to be allocated.

We know that this multi-year funding process will not solve the underlying issues facing all our councils. Another area at the heart of this issue, which I have mentioned on many occasions and on which there is growing cross-party support, is the reliance on the most regressive form of taxation to pay for mandatory demand-led services, where councils have little control over that demand. Council tax amounts to about half of the settlement total, with an assumption of the maximum increase across the board, despite the fact that the Government have little control over how much that figure will be. The Secretary of State has highlighted that in boroughs where the referendum principle will be lifted, the Government are assuming that increasing council tax will help, with some councils having to increase their council tax by over 30% just to reach their core spending powers and the figures in the settlement.

I think we all understand the challenges the Government face when it comes to balancing the books and the inheritance they were left with after 14 years. These are difficult decisions that we have to make, but let me take us back to when the former Local Government Minister, my hon. Friend the Member for Oldham West, Chadderton and Royton, told us:

“There is a real danger to the democratic process if there is not a link between the tax that people are paying and the quality of public services that they are getting in return.”—[Official Report, 5 February 2025; Vol. 761, c. 850.]

[Mark Garnier]

On exactly this point about the democratic process, my constituents were promised by the Reform candidates that they would cut council tax, but Worcestershire county council’s council tax is going up by 9%. It is a shame that not a single Reform Member of Parliament has turned up to defend what they have done. The worrying point is that we are being denied a referendum even though this goes above the 5% threshold. That bit of the democratic process has been removed from Worcestershire.

[Florence Eshalomi]

I agree. I think many residents are feeling the pinch. Yes, we have seen fantastic initiatives and new legislation from this Government, but that is not trickling down quickly enough. Many residents will be seeing their council tax bills in the next few months, and for a number of them, those bills will be going up. It is important that we look at that democratic link.

[Graham Stuart]

A £200,000 house in the East Riding of Yorkshire will be paying between £3,000 and £4,000 in council tax, depending on its 1991 valuation. A £2 million flat in Westminster will be paying £2,000. There is an opportunity to put that right. I know that the hon. Lady is from London and the Secretary of State is from London—it feels to a lot of us out in the provinces that everybody in charge is from London—but this system is so egregious and wrong. Does the Chairman of the Committee not agree that something needs to be done about this? We did not do it in our years in office, but this Government said they would have a fairer system, but it is not fair yet.

[Florence Eshalomi]

I think it is fair to say that successive Governments have put the issue of council tax in the “too difficult” box. I hope that it will fall on this Government to finally address that and bring an end to this regressive form of taxation.

[Antonia Bance (Tipton and Wednesbury) (Lab)]

Does my hon. Friend agree that the work being done on the draft local government settlement to get us to this final local government settlement has actively put the principles of fairer funding into place? My local authority in Sandwell—the fifth most deprived local authority in the country—is getting an extra £28 million as a result of the continuation and increase of the recovery grant. That money will go on crucial services that we were deprived of in my area during 14 years of Conservative austerity. I know my hon. Friend will want to join me in welcoming the work being done by the Local Government Minister and our friends in the Treasury to make sure that the principles of fairer funding are put into place.

[Florence Eshalomi]

My hon. Friend is a doughty champion for her constituency and for her council’s needs. I think it is fair to say that the outdated and opaque previous funding settlement caused a number of issues for councils up and down the country. It is good to finally see this Government responding to that and ensuring that we have a fairer and more simplified settlement, so that our councils can get on with the day job of providing vital services for residents.

We have to be honest and ask: if councils have to impose a council tax hike just to fulfil mandatory services—going back to the question raised by the hon. Member for Wyre Forest (Mark Garnier)—where is that democratic choice for residents? If council tax is collected locally, how can it be right that what it is largely spent on is dictated by central Government? We know from the settlement today that the Secretary of State and the Minister have shown a boldness by ensuring that they continue to engage with local leaders, the Local Government Association, and cross-party colleagues and councils, to get to grips with the day-to-day issues facing local government, but I urge the Minister to continue on that road of being bold. The Government need to continue working, especially with Treasury colleagues, to properly address the growing demand on the mandatory costs that councils face, from SEND to adult social care and temporary accommodation. That demand for those core services will continue to grow no matter how much money the Government put into them.

There is a real need for a fundamental review of council tax and wider council funding. I urge the Government to go further and bring about a cross-party consensus, and to truly reform council tax and bring an end to this regressive form of taxation once and for all.