Local Government Finance

Steve Reed Excerpts

Wednesday 11th February 2026 Commons Chamber

[The Secretary of State for Housing, Communities and Local Government (Steve Reed)]

I beg to move,

That the Local Government Finance Report (England) 2026-27 (HC 1604), which was laid before this House on 9 February, be approved.

[Madam Deputy Speaker (Ms Nusrat Ghani)]

With this it will be convenient to discuss the following:

That the Referendums Relating to Council Tax Increases (Principles) (England) Report 2026-27 (HC 1605), which was laid before this House on 9 February, be approved.

[Steve Reed]

Before I begin, I notify the House that the local government finance report has been updated with small corrections on pages 7 and 13. These corrections have been passed on to the House in the proper way ahead of today’s debate. Like you, Madam Deputy Speaker, I am grateful to the Joint Committee on Statutory Instruments for its careful consideration of these reports.

I believe in local government, because I have lived it. As a councillor and as a council leader, I saw the difference that councils make to people’s lives. Local government is the part of our democracy that is closest to people and the things that they care about the most—their family, their community and their home town.

Labour took office after 14 years of ideological cuts imposed on local government. The Tories devolved the blame for their failure in national government by imposing £16 billion of cuts on councils and local communities. Even worse, they targeted the worst of those cuts deliberately on our poorest communities. The former Prime Minister, the right hon. Member for Richmond and Northallerton (Rishi Sunak), was filmed standing in a leafy garden in Tunbridge Wells boasting about how the Conservatives had stripped away funding from struggling towns so that they could play politics with public money.

[Lincoln Jopp (Spelthorne) (Con)]

Has the Secretary of State made an analysis of the division of Pride in Place funding between Labour and Reform seats versus Liberal Democrat and Conservative seats?

[Steve Reed]

I thought the hon. Gentleman was going to stand up and apologise to the House for what his Government did in diverting money away from the poorest communities. I am very disappointed that he did not take that opportunity, and I suspect that I am not the only one—perhaps he will take the opportunity later on. I remind him and his colleagues that under the Tories, only three in 10 councils received funding that aligned with deprivation; with this Government, the number is more than nine in every 10.

Local people were forced to pay a staggeringly high price for Tory venality. High streets were hollowed out and boarded up. The number of people sleeping rough on our streets doubled. The number of families stuck in temporary accommodation doubled. There were more potholes on our roads than craters on the moon.

[Mark Garnier (Wyre Forest) (Con)]

rose—

[Steve Reed]

I will give way to the hon. Gentleman so that he can apologise for that.

[Mark Garnier]

I was going to say thank you for the Pride in Place money, actually; I am very grateful that the Government have given £20 million to my constituency.

On the subject of funding for councils, the Government are requiring district councils to pay for food waste recycling. That is not an unreasonable proposition, but there was a principle under the previous Government of new burdens funding, whereby when a new burden was presented to a council, the Government would sort it out. Why have the Secretary of State’s Government decided not to support councils with new burdens funding?

[Steve Reed]

I am grateful for the hon. Gentleman’s words about Pride in Place. I am glad that he has answered the question of the hon. Member for Spelthorne (Lincoln Jopp), because that money is being distributed to constituencies represented by Members right across the House. On the point that the hon. Member for Wyre Forest (Mark Garnier) makes about food waste recycling, funding for that has been built into the settlement, so it is present. The new burden is being funded in that way.

[Mark Garnier]

The Secretary of State is being incredibly kind. He talks about the settlement, but the settlement does not work. Wyre Forest district council has had a 0% increase in core funding. Dare I say that across the whole of Worcestershire, where there is a district council with a Conservative Member of Parliament, there has been a 0% increase, but where there is a district council with a Labour Member of Parliament, there has been an increase of up to 5%. Can he explain why that has happened?

[Steve Reed]

The settlement follows a funding formula and takes account of the costs of delivering food waste recycling in the way that the hon. Gentleman described earlier.

[Graham Stuart (Beverley and Holderness) (Con)]

Will the Secretary of State give way?

[Steve Reed]

Let me return to my theme for a moment before I take any more interventions.

The right hon. Member for Beverley and Holderness (Graham Stuart) and colleagues across the House will remember that the Tories used to belittle local councillors as part-time volunteers and took away their pension rights to deter people from risking a career on the frontline of local government. Today, it falls to this Government to fix the foundations that the Tories smashed apart.

We are rebuilding local government so that councils can rebuild their communities. We are making good on our promise to introduce multi-year funding settlements so that councils can plan for the future with certainty. We are reconnecting funding with need so that we can take off the Tory shackles that have held back so many of our towns and communities for so long. We are ending wasteful bidding wars for funding, freeing councils to focus on filling in potholes, not forms. We are putting fairness back into a system that the Tories bragged about breaking. We reject the decline that ripped the heart out of towns and communities up and down this country. We choose change.

[Helen Morgan (North Shropshire) (LD)]

Shropshire council is about to see a 10% cut in its core funding from central Government, having been terribly badly run by the Conservatives for the previous 16 years before the Lib Dem administration took over in May. The Government have given the council permission to put up its council tax by 9% without a referendum, but that does not even touch the sides of the cut in funding from central Government. How is Shropshire, which needs to receive exceptional financial support in this year, ever going to fill the ever-growing black hole unless the funding from Government reflects the costs of delivering services in rural areas?

[Steve Reed]

I believe the hon. Lady has had several meetings with my colleague the Minister for Local Government. It is right and very important that we should align funding with need; that is the only way to ensure that funding is fair across the whole country. That is what we promised to do in our manifesto, and that is what we are doing with this settlement.

[Several hon. Members rose—]

[Steve Reed]

I have taken an awful lot of interventions so far, and I do not want to leave no time, but I will take one last intervention.

[Matt Rodda (Reading Central) (Lab)]

The Secretary of State is being very generous with his time. Like him, as a councillor I saw appalling pressures put on our local council in Reading while funding went up in neighbouring Wokingham, which is a much better-off area and was then controlled by the Conservatives. I appreciate his work on readjusting the settlement to reflect need. That should be a fundamental point in any allocation of resources to local government. Would he like to say a little more about his work on this, and how it is going to benefit residents on the lowest incomes in the most disadvantaged communities?

[Steve Reed]

At core, what we are hearing from all parts of the House at the moment is people’s views on the fact that under the previous Government, the alignment between funding and deprivation was broken, and this Government are bringing it back. Because the previous Government did nothing about it for 14 years, funding became extremely detached from deprivation. We are putting that back in and making sure that funding goes where the need is greatest, so that stealing money from the poorest communities to pork barrel Tory areas—which the former Prime Minister bragged about—can no longer go on.

[Mr Clive Betts (Sheffield South East) (Lab)]

My right hon. Friend is being a little unfair to the Tories. The biggest cuts under austerity from 2010 to 2024 came from 2010 to 2015 when the Lib Dems were in coalition, so perhaps they should share some of the blame.

[Steve Reed]

I certainly agree that the Lib Dems should share the blame for austerity. I was a council leader while the Lib Dems and Tories were in coalition together. I think they cut our council by a third just over the first one or two years that they were in power. Now they have the chutzpah to stand up and complain that this Government are putting some of it back. I really think they should reflect on that.

[Several hon. Members rose—]

[Steve Reed]

I have taken an awful lot of interventions, more from the opposite side of the House than from my own side, so with your kindness, Madam Deputy Speaker, I will make a little progress.

I thank all who contributed to the provisional settlement consultation. We listened carefully to views expressed by councils and MPs, and today I am pleased to announce an additional £740 million in new grant funding over and above the provisional settlement. This means that by the end of the multi-year settlement, councils will benefit from a 15.5% increase in core spending power, worth over £11.4 billion, compared with 2025-26.

When this Government took office, we introduced the recovery grant, targeted on those areas held back the most by Tory and Lib Dem austerity. This year we have maintained that grant, so every upper-tier council that received it will see a real-terms boost. I can announce a £440 million uplift to the recovery grant over the multi-year settlement targeted at councils the Tories hit with below average funding increases. By the end of this Parliament, we will have invested a total of £2.6 billion in the most deprived councils through the recovery grant, over and above what they receive through the settlement.

I have also listened carefully to feedback from the sector about business rates pooling. As a result, I am compensating any authorities that would have lost funding this year so that they have time to adapt to the new arrangements.

[David Baines (St Helens North) (Lab)]

I was council leader at St Helens for five years before coming here in July 2024. I just want to say thank you to the Secretary of State and the Minister for Local Government, and the Ministers in post before them, for the engagement, because the relationship now is different from what it was before. The conversation we have had since the provisional settlement has been constructive—it has been good; it has been done in good spirit—and I am very grateful for the result that we have for St Helens. In 2010, St Helens got £127 million a year from the last Labour Government, but when the Conservative party opposite left office it was £13 million a year. Does the Secretary of State share my absolute shock at the brass neck of Conservative Members?

[Madam Deputy Speaker (Ms Nusrat Ghani)]

Brief interventions can be just as productive as lengthy ones.

[Steve Reed]

I thank my hon. Friend for his intervention. What he is seeing is the realignment of funding with deprivation, and that is as it should be.

[Graham Stuart]

rose—

[Steve Reed]

I will take one more intervention and then make progress.

[Graham Stuart]

The Secretary of State has been tremendously generous in giving way. He has also been making his usual barnstorming political knockabout speech, but perhaps he should start to act more like a Secretary of State, because low-income residents of the East Riding, of whom there are many in Beverley and Holderness, are going to have a £200 council tax bombshell. The smallest house is going to be paying £200 more in three years’ time and will have reduced overall funding to support public services after the increase in costs imposed by the Government. That is the reality. The Secretary of State said he wants to focus on need; why has rurality been removed from the category of need, when it is such a real issue?

[Steve Reed]

Well, the easy answer to that is that it has not been; it is still there.

Above all, this settlement is about fairness, because this Government reject the Tory belief that our poorest communities should be left to sink with less funding and worse public services than other parts of the country. That approach pulled our country apart; and, in doing so, was profoundly unpatriotic. Our settlement reflects a council’s ability to raise income locally, and it reflects the fact that it costs more to deliver services in different parts of the country, retaining rurality funding for social care, because we recognise that workers in those areas have to travel longer distances. We have used the most up-to-date data on deprivation to make sure funding accurately follows need.

We are introducing changes gradually over the period of the settlement so councils have time to adapt, and we are protecting councils’ income, including from business rates growth. Today’s settlement is a milestone in returning councils to a sustainable financial footing, and in restoring fairness to local government funding.

[Lincoln Jopp]

rose—

[Steve Reed]

I will give way one last time.

[Lincoln Jopp]

I am incredibly grateful to the Secretary of State for giving way. He calls it a milestone; I call it a millstone. He talks about fairness. Stanwell in my Spelthorne constituency hits the markers for the double deprivation criteria that would qualify for the Pride in Place funding, but that is diluted by the more affluent areas in my constituency. How is it fair to the people of Stanwell that they do not qualify for Pride in Place funding just because they are surrounded by more affluent areas? Rather than helping, is the Secretary of State not just going to engineer the continuation of pockets of deprivation?

[Steve Reed]

I am afraid the hon. Gentleman has misunderstood how it works. An area does not get diluted. The scheme looks at super-output areas on a very small level so we can ensure that the funding goes to those areas with the highest levels of deprivation. I would be happy to write to him about the process if it would help him to better understand how it works.

For the vast majority of councils, increases in council tax will be restricted to 3%, and 2% for the adult social care precept.

[Bradley Thomas (Bromsgrove) (Con)]

Will the Secretary of State give way?

--- Later in debate ---

[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.

[Several hon. Members rose—]

[Steve Reed]

I want to make some progress, because I have taken quite a lot of interventions, but I will give way before I conclude.

Local government is still under pressure, and we will not bury our heads in the sand or dodge the difficult decisions. The adult social care system is in crisis, and we are facing up to that by transforming it. This settlement makes available around £4.6 billion of additional funding for adult social care in 2028-29, compared with 2025-26, including £500 million for the sector’s first ever fair pay agreement. That means more carers getting better pay and having the time to provide the high-quality, compassionate care they want to give. It will get us moving towards a national care service that gives people better-quality care, joined-up services, and more choice and independence.

[Mr Calvin Bailey (Leyton and Wanstead) (Lab)]

We are very grateful for the settlement and the announcements that the Secretary of State has made today. Both Redbridge and Waltham Forest in my constituency are receiving significant uplifts from this Parliament, and Ministers have been excellent in listening to the arguments of both those London boroughs. Although this measure will not be enough to fill the immediate financial gaps left by the Tories, it is a step forward. However, given that temporary accommodation costs have risen so much in London—by about 75% over the last five years—will the Secretary of State set out how the Government are acting to expand the supply of socially rented homes?

[Steve Reed]

I thank my hon. Friend for recognising that funding is now following deprivation. He will find the answer to his question in the homelessness strategy, which I will come to. [Interruption.] Madam Deputy Speaker, you are indicating with your wrist that I need to speed up, so I will make some progress.

On children’s social care, the system was again left on its knees. That is why this Government are driving forward the biggest transformation of children’s social care in a generation by rolling out the Families First Partnership programme. We have backed the programme with nearly £3 billion over four years, including an investment of over £2.4 billion in this multi-year settlement. It gives local authorities, police and health partners the tools to provide families with the right support at the right time, shifting the system from expensive statutory provision towards early intervention and preventive support. It will help families stay together, divert thousands of children from care and transform the outcomes and wellbeing of children across the country.

The investment in the Families First Partnership programme marks a milestone in transforming the children’s social care system, but we recognise that the children’s social care residential market is fundamentally broken. Local authorities are being pushed to the brink, while some private providers are making excessive profits. This cannot—and it will not—continue. Instead, we are working to reduce reliance on residential care and move towards a system rooted in family environments through fostering. Last week, the Government set out a plan to expand fostering for 10,000 more children by the end of this Parliament. The evidence is clear that taking this approach will be better for children and better for the local authorities that provide the services. Using the new powers in the Children’s Wellbeing and Schools Bill, we will explore the implementation of a profit cap in the children’s social care placement market to ensure that public money delivers value and care, not profiteering.

It is obvious that the current special educational needs and disabilities system is not working for children and families. We know that it is not working for councils either, as they are seeing funding for neighbourhood services diverted into a broken system. The Government are bringing forward ambitious reforms that will create a better and financially sustainable SEND system, built on early, high-quality support for kids with SEND to improve their time at school and maximise their potential throughout life. My right hon. Friend the Secretary of State for Education will set out the details of those reforms in the upcoming schools White Paper.

Crucially, we are taking action now to support local authorities as we move towards that reformed system. We will deliver this in phases, the first of which will address historic deficits accrued up to the end of 2025-26. All local authorities with SEND deficits will receive a grant covering 90% of their high-need deficit up to the end of 2025-26. This is subject to local authorities securing the Department for Education’s approval of a local SEND reform plan.

On homelessness, as my hon. Friend the Member for Leyton and Wanstead (Mr Bailey) has said, we know that temporary accommodation is a growing financial pressure on councils, with near record levels of rough sleeping and declining social housing stock. The final settlement also provides a £272 million uplift to the homelessness, rough sleeping and domestic abuse grant, taking total investment delivered through the settlement to £2.7 billion. On the ground, that will mean families off the streets; kids out of temporary accommodation and instead living in safe, secure homes; and people’s lives put back on course. We are matching that landmark investment with our national plan to end homelessness, led by the Minister for Local Government and Homelessness, to put the full might of the state behind preventing homelessness before it happens.

Today’s settlement is about keeping a promise—a promise to repair the broken foundations of local government, and a promise to put the heart back into our communities. When the last Conservative Government slashed councils to the bone, the consequences were severe: the services people use every day were undermined, streets became filthy and people’s lives got tougher. The hard work of councillors, mayors and frontline staff kept vital services running during those hard Tory years, and we thank them for the work they did in those circumstances. Our aim is a future where councillors, working with their communities, have the freedom to innovate—rebuilding public services and investing in high streets, youth clubs and libraries. We are fixing the foundations so that councils and their communities can build the public services, renew the high streets and shape the future they want to see.

[Madam Deputy Speaker (Ms Nusrat Ghani)]

Before I call the shadow Minister, I will announce the result of today’s deferred Division on the draft Greenhouse Gas Emissions Trading Scheme (Amendment) (Extension to Maritime Activities) Order 2026. The Ayes were 362 and the Noes were 107, so the Ayes have it.

[The Division list is published at the end of today’s debates.]