Councils in more deprived areas of England are set to receive a greater share of government cash, under a planned overhaul of funding rules. The shake-up will see formulas that affect how billions of pounds are allocated to authorities updated for the first time in over a decade. Labour ministers argue the current system is failing to properly reflect higher demand for council services in poorer areas. But rural councils have raised concerns about the new plans, warning they could lose out to the tune of hundreds of millions of pounds.
Councils get around half their funding from central government, according to a complex mix of formulas that attempt to capture differing levels of demand and cost for council services. Plans unveiled on Friday would see the number of these formulas reduced by over a third, along with tweaks designed to direct more cash towards authorities with higher levels of deprivation. The new system, to be phased in over three years from 2026, would also redistribute more central government funding towards authorities where a higher share of properties are in lower council tax bands.
Ministers have argued the current system, last updated in 2013, fails to reflect poorer areas’ higher demand for council services, and their weaker council tax bases due to lower average property values. Local government minister Jim McMahon said the new rules would move “around £2bn of funding to the places and communities that need it most”. The changes have been welcomed by SIGOMA, a group of mainly Labour-led urban councils that has long argued that they were harder hit when government funding was slashed during the austerity era in the 2010s.
But the County Councils Network, which represents a group of mainly rural authorities, warned the new rules could “overcompensate” for deprivation, arguing there was “little evidence” it was the main driver for services other than social care. The impact of the new system on each council is not exactly clear, with further details expected in the autumn, when a consultation on the plans closes. The Institute for Fiscal Studies, a think tank, said the changes were likely to lead to a “significant redistribution” of government funding towards deprived areas, particularly in urban parts of the North and Midlands.
The Liberal Democrats criticised the government’s plans, adding they would “stand up for the parts of the country which face bearing the brunt of these changes”. In other changes, the government has said it plans to extend an accounting rule that allows councils to keep ballooning deficits for special educational needs and disabilities (SEND) services off their main balance sheets. The rule was set to expire in March next year, but has now been extended until 2028 pending a “phased transition” towards a new funding model.
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