Local Government Finance

Jim McMahon Excerpts

Monday 24th February 2025 Written Statements

[The Minister for Local Government and English Devolution (Jim McMahon)]

On 3 February 2025, the Deputy Prime Minister, my right hon. Friend the Member for Ashton-under-Lyne (Angela Rayner) set out the final local government finance settlement for 2025-26. The settlement makes available over £69 billion for local government, which is a 6.8% cash terms increase in councils’ core spending power on 2024-25. The settlement reaffirms this Government’s commitment to rebuild and reform local government, and to empower local leaders to deliver that change so that the benefits are felt in every community. The additional funding made available in this settlement and the Budget will deliver over £5 billion of new funding for local services over and above local council tax.

The Government are under no illusions about the fragile state of the sector and the pressures councils are facing to deliver for residents. As a result of the 14 years of decline and instability overseen by the previous Government, we know there are large numbers of councils in significant financial difficulty. 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. However, we are committed to restoring stability and bringing forward reform to ensure local government is fit, legal and decent and can play its critical role in providing the services communities rely on. We have already taken steps to improve sector sustainability, including targeting money towards areas with greater need and demand for services and less ability to raise income locally at this year’s settlement with the introduction of the new £600 million recovery grant.

The financial legacy of the previous Government has resulted in a record number of councils engaging with the Government asking for exceptional financial support to help them set their budgets. We confirmed in the local government finance settlement that we have already had to consider requests for council tax increases from some councils where this was necessary for their long-term sustainability. As set out in the settlement, we only agreed to this on an exceptional basis, we did not agree to all requests, no request was agreed to in its entirety and we have only permitted additional increases where councils had lower levels of existing council tax compared to similar councils.

The exceptional financial support process has existed since 2020 to support those councils facing unmanageable financial pressures. This Government understand that fragility in the system has left some councils in difficult positions and recognise that support is required in exceptional circumstances to balance budgets. Unlike the previous Government, we have been clear that we do not believe in punishing councils and local residents where this is the case. We are taking a partnership approach to the exceptional financial support process which prioritises protecting the interests of local residents. We have already announced that, where councils deem it necessary to undertake additional borrowing to support their recovery, we will not replicate the previous Government’s punitive approach of making that borrowing more expensive through an additional 1% premium.

On 20 February 2025, my Department wrote to 30 councils confirming that we would provide in principle support to enable them to set balanced budgets. The total amount of support provided is circa £1.5 billion, around £1 billion lower than was announced last year. In some cases, requests relate to support in prior years or to reprofiling existing support agreed in previous years.

Details of the councils and support provided were published on www.gov.uk. This includes six councils whose improvement is being supported via statutory intervention. We are continuing to work with these councils and through the commissioners and panels in place to support the councils’ recovery from more severe financial issues. Support is being provided through financial flexibilities where the Government permit councils, in special circumstances, to treat revenue costs as capital costs. This is known as capitalisation and means councils can then meet those costs through capital receipts, or if necessary, borrowing, in line with the approach of the previous Government. Since capitalisation is a relaxation of normal accounting requirements, it has always been subject to agreement from the Secretary of State.

In taking these decisions, the Government have considered carefully appropriate protections for the public and the public purse—including the protection of treasured community assets. We have set out a clear expectation that where a council is considering financing capitalisation support through capital receipts, this should not be from the disposal of community and heritage assets. Retaining these treasured assets within public ownership is imperative to ensure local communities can continue to benefit from them.

While we are taking a collaborative approach, the Government have been clear on our wider commitment to effective oversight of local government and our expectation that councils deliver value for the taxpayer’s pound. That is why we are working to fix the local audit system and strengthen the standards and conduct framework for councils in England. In line with this, as part of our partnership process, we will seek additional external assurance for councils receiving exceptional financial support that will help support local improvement as well as providing an assessment on action each council is taking locally to help manage its position. I am clear that Government will continue to expect councils to make sure they are doing all they can locally to deliver for residents. We will always act where there is any evidence of failure, including in the management of public money.

We are committed to setting a new relationship with the local government sector. As part of this, we will treat all discussions with councils worried about their positions in confidence, with respect and determination to find a solution together. In making these decisions, we are committed to prioritising the needs of residents.

We also want to make sure that councils have the information that they need to conduct their business sensibly. For this reason, the decisions highlighted today were communicated to councils as soon as possible after the House had had the opportunity to consider the local government finance settlement. Given that this was while the House was in recess, we wrote to relevant MPs, the Opposition and the Chairs of the Public Accounts Committee and the Housing, Communities and Local Government Committee to inform them of our decisions and confirm that we would make this written ministerial statement once the House returned.

This written ministerial statement applies to England only.

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