Closed consultation

Local authority funding reform: objectives and principles

Published 18 December 2024

Applies to England

Ministerial foreword

This government is fixing the foundations to build a country that works for working people. It’s a vision for change with local government at its very heart. We will be working alongside our partners in local government on all of our missions – from our plans to deliver 1.5 million homes, including a new generation of secure, social and affordable homes, and an NHS and social care system that’s back on its feet, to achieving the sustained growth that will raise living standards.

As a creature of local government myself, I know about the importance of good services and strong community institutions. I loved my job when I was a home help for Stockport council in Greater Manchester; I learned what it means to know and trust your neighbours and neighbourhood, and to have grass-roots networks and teams you can rely on.

But I’m also under no illusions about the scale of the problems facing local government. Our fiscal inheritance means there are tough choices ahead. Yet while there is little we can do about the past, we can set a different course for the future. And I am pleased now to be inviting as wide a range of views as possible on reforms to the local government finance system, as we set to work putting councils on the road to recovery.

Our aim is for councils to return to improving the lives and surroundings of residents rather than firefighting service failures – allocating funding efficiently to reflect an updated assessment of local need and revenues. To me, the current system is perverse. Since 2010, government funding to councils has been cut dramatically, disadvantaging deprived areas the most – who receive less funding than they need and perform worse on key outcomes. We will reform how councils are funded, building on the previous government’s proposed reforms which have been called for from across the political spectrum and backed by independent voices. However where the previous government failed to act, we will deliver.

We will also honour a longstanding request from local government that it is best placed to target funding for local communities. As a result, 2026-27 will mark the first multi-year funding settlement for local government in ten years. We will also reduce the myriad funding pots to give councils more flexibility to focus on priority outcomes agreed with government.

We recognise that this won’t be easy in the short term. But our long-term programme of recovery and reform will mean funding going where it’s most needed. Investment going into crisis prevention rather than its more expensive cure. And it will see councils once again given the certainty and flexibility they need to focus on their priorities – including the vital services people rely on every day. Together, we will fix the foundations for everyone.

Rt Hon Angela Rayner MP

Deputy Prime Minister and Secretary of State for Housing, Communities and Local Government

18 December 2024

Scope of the consultation

Topic of this consultation

This consultation seeks views on the approach to local authority funding reform through the local government finance settlement from 2026-27.

Scope of this consultation

This consultation seeks views on the approach to determining new funding allocations for local authorities and fire and rescue authorities. It covers: our guiding objectives and principles; measuring differences in demand for services and the cost of delivering them; measuring differences in locally available resources; the New Homes Bonus; and implementing changes and keeping allocations up-to-date. It also covers: ways we can reduce demands on local government to empower them to deliver for communities; and sales, fees and charges reform. It invites views on the possible equalities impacts of these proposals.

Text in bold represents a statement of the government’s position. Words or phrases which are Capitalised are defined in the glossary of technical terms available at Annex C.

To enable us to develop a robust approach to local authority funding allocations, please provide explanation and supporting evidence for your answers where possible.

Geographical scope

These proposals relate to England only.

Basic information

Body responsible for the consultation

The Local Government Finance Directorate within the Ministry of Housing, Communities and Local Government (the ‘Ministry’).

Duration

This consultation will last for 8 weeks from 18 December 2024 to 12 February 2025.

Enquiries

For any enquiries about the consultation please contact:lgfcorrespondence@communities.gov.uk  

How to respond

We strongly request you respond through the following online form:

Local authority funding reform: objectives and principles - Citizen Space

The online survey will allow you to save a draft response and return to the survey at a later time. You may also submit additional information or evidence to support your response to this consultation. Further advice on how to use these features is available on the home page of the online survey.

If you are unable to use the online form, responses may be sent by email or post as set out in Annex B of this consultation document.

About this consultation

This consultation document and consultation process have been planned to adhere to the Consultation Principles issued by the Cabinet Office.

Representative groups are asked to give a summary of the people and organisations they represent, and where relevant who else they have consulted in reaching their conclusions when they respond.

Information provided in response to this consultation may be published or disclosed in accordance with the access to information regimes (these are primarily the Freedom of Information Act 2000 (FOIA), the Environmental Information Regulations 2004 and UK data protection legislation). In certain circumstances this may therefore include personal data when required by law.

If you want the information that you provide to be treated as confidential, please be aware that, as a public authority, the Ministry is bound by the information access regimes and may therefore be obliged to disclose all or some of the information you provide. In view of this, it would be helpful if you could explain to us why you regard the information you have provided as confidential. If we receive a request for disclosure of the information, we will take full account of your explanation, but we cannot give an assurance that confidentiality can be maintained in all circumstances. An automatic confidentiality disclaimer generated by your IT system will not, of itself, be regarded as binding on the Ministry.

The Ministry of Housing, Communities and Local Government will at all times process your personal data in accordance with UK data protection legislation and in the majority of circumstances this will mean that your personal data will not be disclosed to third parties. A full privacy notice is included below.

Individual responses will not be acknowledged unless specifically requested.

Your opinions are valuable to us. Thank you for taking the time to read this document and respond.

Are you satisfied that this consultation has followed the consultation principles?  If not, or you have any other observations about how we can improve the process please, contact us via the Complaints Procedure.

1. Summary of the government’s proposed approach

1.1. The case for change and a summary of proposals

1.1.1. Local government is essential to the running of our country, providing over 800 vital front-line services that people rely on every day, as well as being a key partner to mission-led government.

1.1.2. The link between funding for local authorities and need for services has broken down, contributing to worse outcomes and higher Council Tax bills on balance in more deprived places. Allocations through the Local Government Finance Settlement (the ‘Settlement’^{[footnote 1]}) have not been updated since 2013-14, and there is consensus amongst independent voices and across the political spectrum that they no longer reflect need^{[footnote 2]} and reform is necessary^{[footnote 3]}. The Housing, Communities and Local Government Committee has repeatedly identified the need to update allocations which are now “over ten years out of date”^{[footnote 4]}. Since 2010, the level of central government grants has reduced significantly, increasing local authorities’ reliance on locally generated revenue from Council Tax and retained business rates. This has most disadvantaged more deprived places who can raise less money locally^{[footnote 5]}. For example, despite higher levels of deprivation, residents in one northern city are paying £351 more Council Tax this year than the residents of a southern shire county with a similar population^{[footnote 6]}.

1.1.3. The current system for funding local authorities therefore represents bad value for taxpayers, and without action this will get worse. Local authority funding allocations offer poor value to taxpayers both locally, with some households unfairly being asked to pay more for worse services, and nationally, as funding is allocated inefficiently through outdated formulae. This is leading to perverse outcomes, where some authorities are struggling to provide basic services whilst others are better off. To leave the system as it is would be to waste public money on deteriorating services. This government will take a new approach based on investment and reform.

1.1.4. The government will deliver a permanent shift in power away from the centre and into the hands of those who know their communities best. We will reset the relationship with local government, giving the sector more autonomy and putting councils on the road to recovery. Our landmark English Devolution White Paper sets out this vision, which we will deliver on by bringing forward the English Devolution Bill. We will empower local leaders and Mayors to make the right decisions for their communities, working together to grow an inclusive economy, reform public services and secure better outcomes. We will set out and measure progress on the key services and outcomes we expect local and strategic authorities to prioritise for local residents, to be clearer on priorities and reduce micromanagement – so authorities can focus on serving, and being held to account by, their residents. The English Devolution White Paper is available here:

​​English Devolution White Paper​: Power and partnership: Foundations for growth

1.1.5. As part of this work, the government will also overhaul local audit, oversight and standards, to ensure that every council is fit, legal and decent so they can better deliver for their residents. These reforms will restore our financial early warning system and ensure that every council is equipped to deliver the best value for council taxpayers. We will also strengthen the local government standards system to support councils to deliver the high standards that they strive for, and sanction misconduct whenever and wherever it occurs. We will work hand in hand with the sector, and are consulting on overhauling the local audit system and strengthening the standards and conduct framework for local authorities:

Local audit reform: a strategy for overhauling the local audit system in England

Strengthening the standards and conduct framework for local authorities in England

1.1.6. To enable local authorities to succeed, we are committed to fixing the foundations of local government funding – we will allocate funding where it is needed most, delivering better value for taxpayers and allowing local authorities across the country to provide high-quality services that people rely on every day. Allocating funding based on an updated assessment will enable local authorities who have had to scale back services the most to catch up and allow people to access the services they need no matter where they live in England. This is not just about spending taxpayers’ money more efficiently – it is about the impact it will have on families and communities across the country. It is also about enabling local government to play its role in the delivery of the government’s missions and the milestones, as set out in our Plan for Change^{[footnote 7]}.

1.1.7. The previous government recognised that the existing system is unfair, and in 2018 they consulted on a “review of local authorities’ relative needs and resources” (the ‘2018 Consultation’), also known as the ‘fair funding review’. The stated intention of this consultation was to “develop a more robust and up-to-date approach to distributing funding across all councils” considering the drivers of local authorities’ costs and the resources available to them. However, the previous government did not implement the proposals consulted on. The 2018 Consultation is available here:

Review of local authorities’ relative needs and resources

1.1.8. This government agrees with the previous government that we should use the best available evidence to assess differences in the need for local government services – including deprivation – and resources available to local authorities. Whilst our proposed objective is in line with the 2018 Consultation, we are seeking to re-test it given this was six years ago and there have been significant changes since then, including the COVID-19 pandemic. We will act where the previous government did not and begin implementing an updated assessment as set out in paragraph 1.1.14 below.

1.1.9. There are choices on the design of a new distribution methodology within this objective. We are seeking views on not only on our proposed objective and principles, but how these will inform key decisions within this.

1.1.10. As part of this reform, we intend to deliver a ‘Reset’ of the Business Rates Retention System as was originally intended when the previous government established the system. The Reset will move business rates income retained by local authorities to the places who need it most. Whilst business rates income will be allocated based on the updated assessment, the Business Rates Retention System will continue to reward local authorities for local business rates growth, and designated areas will be exempt from the Reset. Some local authorities work collaboratively with Mayoral Combined Authorities in their area to ensure that a portion of the extra business rates income is directed to local growth priorities across the wider region. In recognition of this, and as part of the government’s reform of funding for local government, we will consider how the Business Rates Retention System could better and more consistently support Strategic Authorities to drive growth.

1.1.11. We will consult further on the Reset early next year - this technical exercise will seek views on updating Business Rates Baselines i.e. how much business rates are available. We will also seek opportunities to reduce complexity. Finally, we will consider the impact on tax bases of business rates changes announced at Autumn Budget 2024. Further information is available in chapter 5.

1.1.12. The government intends to apply measures to smooth changes in Settlement allocations. This will allow local authorities to plan for changes in an orderly and efficient manner. The government will need to consider the broader fiscal and economic climate in the design of any ‘Transitional Arrangements’, as well as the trade-off between Transitional Arrangements and the pace at which we can direct funding to where we assess it is most needed. We are inviting views on possible Transitional Arrangements as part of this consultation.

1.1.13. In the spirit of partnership between central and local government, we want to consult and engage local authorities about changes to the funding system so that they can share views and plan properly. This consultation and engagement will inform the development of our detailed proposals, which we will consult on following the multi-year Spending Review (which will conclude in late spring 2025) and ahead of the provisional multi-year Settlement for 2026-27.

1.1.14. This government will act where the previous government did not and begin fundamental reform of local authority funding allocations at the 2026-27 Settlement – we will do this as part of the first multi-year Settlement in ten years, providing local authorities with greater certainty to plan. Further delay will lead to worsening financial challenges and service outcomes for residents. By providing local authorities with long-term certainty similar to other public services, we will enable them to plan ahead and achieve better outcomes for local residents, as well as better value for money for taxpayers. Together with our plans to allocate funding based on need and continue to reward business rates growth, we will equip local authorities with the tools they need to deliver high-quality services for residents wherever they live in England. Our reforms at the 2026-27 Settlement will build on the measures in the 2025-26 Settlement, which we are consulting on in parallel to this consultation:

Provisional local government finance settlement: England, 2025 to 2026

1.1.15. In addition to reforming how we distribute funding, the government proposes simplifying the local funding landscape so local authorities can plan more effectively. This will include consolidating funding streams to reduce the number of funding pots, providing local authorities with more flexibility to judge local priorities, meet the needs of local people, and decide how best to deliver on our national priorities. We will also work across departments to prioritise and rationalise the asks that central government makes of local authorities to reduce the burdens created by uncoordinated demands for data and spending returns. As noted above, we will set out and measure progress on the key services and outcomes we expect local authorities to deliver to be clearer on priorities and reduce micromanagement. In return, we expect the sector to deliver continuous improvement for their communities, operate at the highest standards of probity, and provide value for money.

1.1.16. The government has retained control of a number of important fees that local authorities can charge for local services, limiting councils’ flexibility to manage their budgets locally - we would like to work with the sector to understand where it may be more appropriate for the level to be controlled by local authorities themselves, in the longer-term beyond 2026-27. This will include considering whether devolution would improve service outcomes locally, and how authorities would manage any impacts on different groups of service users.

1.1.17. The longer-term solution to local government’s finances also requires reform of local government services to focus on prevention, improving outcomes for local residents, reducing costs and managing demand more effectively – particularly for children’s social care; homelessness and rough sleeping; special educational needs and disabilities; and adult social care services. Key to this is to move quickly to draw together public services around a place-based plan built around people and communities, not institutions or agencies of government acting in silos. Work is already beginning, and a number of measures focused on reform and prevention of these services were announced as part of Autumn Budget 2024^{[footnote 8]} and in the local government finance policy statement 2025 to 2026^{[footnote 9]}.

1.1.18. As the English Devolution White Paper sets out, in the longer term the government will consider the best way to provide resource funding to Strategic Authorities through the Local Government Finance Settlement, including the Mayoral Council Tax Precept. Where powers which are currently funded through the Settlement are held by or conferred to a Strategic Authority, the government will ensure the Strategic Authority receives an appropriate amount of funding. These proposals are not within the scope of this consultation, and the government will work with strategic and local authorities as these proposals are developed. The White Paper also sets out more detail on our plans to work with local authorities to create unitary councils that can lead to better outcomes for residents, save significant money which can be reinvested in public services, and improve accountability with fewer politicians who are more able to focus on delivering for residents.

1.2. The government’s objectives for local authority funding reform

1.2.1. The government’s principal objective is to develop a new distribution methodology, based on an updated assessment of need and resources, to allocate funding more efficiently to local authorities through the Local Government Finance Settlement. We will do this by updating the existing Settlement Funding Assessment. Fixing the foundations of local government funding will enable local authorities to provide vital front-line services and be a key partner to mission-led government. This new distribution methodology will be used to allocate grant funding and retained business rates income. It will:

i) Measure differences between local authorities in demand for services, using updated ‘Relative Needs Formulae’, taking into account drivers of demand including population and deprivation;

ii) Measure differences in the cost of providing services, using ‘Area Cost Adjustments’; and

iii) Adjust for the ability to raise Council Tax locally.

Question 1

Do you agree with the government’s objective to allocate grant and retained business rates income in a way which accounts for differences between local authorities in demand for services, the cost of delivering services and ability to raise Council Tax locally?

1.2.2. The government also intends to simplify the local government funding landscape, as well as review the demands on local government and the Sales, Fees and Charges system. We are inviting views on these objectives and how we can best achieve this in chapters eight and nine.

1.2.3. The scope of this consultation is updating and improving how local authorities are funded through the Local Government Finance Settlement. There are other long-standing and complex elements, not in scope of this consultation, that impact on the funding available to local authorities. This includes access to capital, local authority borrowing frameworks and the design of local taxes like Council Tax and business rates. Whilst out of scope of this consultation, the government is interested in how these – and other – areas may be improved in the future to deliver better outcomes for communities, acknowledging that a revaluation of residential properties for the purposes of Council Tax has been ruled out in this Parliament.

Question 2

In addition to the areas included in this consultation, are there elements of the local government finance system that are not fit for purpose and require improvement and reform? If so, please provide information on reforms required and why.

1.3. Guiding principles

1.3.1. The government proposes its approach is informed by the principles used in the 2018 Consultation. There are a number of choices required to inform the design of a new distributional methodology in line with the objective above. The previous government developed principles to guide these decisions, which we propose continuing to use. We are seeking the latest views on these principles, as well as how we should apply them to key choices within our proposed approach.

i) Simplicity – we will introduce a simpler distributional methodology, but recognise that needs to be balanced against the other guiding principles of our approach (in particular sustainability and robustness). Given local government provides over 800 services, we could add to the complexity of our methodology indefinitely – however there is widespread recognition of the benefits of simpler funding arrangements for local government.^{[footnote 10]} We are also proposing to simplify local government funding by consolidating the disparate landscape of grants paid to local authorities.

ii) Transparency – information on how local authority allocations have been calculated will be publicly available and understandable. This will ensure users have confidence in the system and enable the principle of accountability below.

iii) Dynamism – the new Settlement Funding Assessment will be based on the most up-to-date data possible. To facilitate more frequent updates, as far as practicable, funding allocations will be based on data that can be updated at planned intervals. If the collection of data or other technical requirements means that desirable changes cannot be made at the point of implementation, the government will consider whether and how to introduce these at a later date whilst providing local authorities with financial certainty. Referred to in the 2018 Consultation as the ‘contemporary’ principle.

iv) Sustainability – we will identify and assess the factors which drive demand and costs for local authorities, as well as assessing available local resources, to understand how much funding each local authority requires to be financially sustainable whilst delivering high-quality services.

v) Robustness – the new distribution methodology will take into account the best possible objective analysis and evidence, and allow experts in local government to understand the calculation and review it.

vi) Stability – the new distribution methodology should support predictable, long-term funding allocations through multi-year Settlements. Local authorities will also be assisted by temporary Transitional Arrangements to smooth changes as they move to their new funding allocations.

1.3.2. In addition to these principles, the government proposes adding the principle of accountability. The approach should enable citizens to understand how local authorities are funded and more effectively hold their local authorities to account for the quality and cost effectiveness of services they provide, as well as for local decisions on how and to what extent to raise resources locally. We will also ensure that an updated Settlement supports wider plans to rebuild the system of accountability and oversight in local and strategic authorities so they have the systems in place to ensure that members and citizens can hold them to account. As set out above, this includes plans to reform the local audit system and conduct regime.

Question 3

Do you agree that the suggested principles should inform our approach to updating local authority funding allocations?

1.4. This consultation

1.4.1. The focus of this consultation is broadly divided into ten chapters:

• Chapter 2 sets out the government’s proposal to assess local authority need relatively, using relative need formulae to assess differences in demand for services. It seeks views on options, such as: simplifying the assessment by reducing the number of formulae; and what drivers of demand and datasets we should use.
• Chapter 3 details the government’s proposal to assess differences in the cost of providing services between local authorities through service-specific Area Cost Adjustments.
• Chapter 4 outlines the government’s plans to continue to adjust for ability to raise Council Tax locally and invites views on how to do this and whether other income should be accounted for.
• Chapter 5 seeks high-level views on the proposal to Reset the Business Rates Retention System.
• Chapter 6 asks for views on how we can enable and encourage local government to support housebuilding in their local areas.
• Chapter 7 explains the government’s approach to implementing these reforms and possible measures to support authorities to move to their new allocations. It also sets out options to keep allocations updated, noting the tension with multi-year certainty.
• Chapter 8 sets out the government’s intention to streamline reporting requirements by setting out and measuring progress on the key outcomes, as well as to consolidate grants. It also invites views on how else we can reduce demands on local authorities so they can focus on delivery for residents and communities.
• Chapter 9 explores whether central government should give local authorities more control over some sales, fees and charges.
• Chapter 10 seeks views on the potential impact of the options outlined in this consultation document on persons who share a protected characteristic.

2. Measuring differences in demand for services

2.1. Context and the existing system

2.1.1. The needs of local authorities are currently assessed using ‘Relative Needs Formulae’ (see the technical glossary at Annex C for more information). Relative Needs Formulae calculate a share of need for each local authority for a particular service or group of services, estimating demand for a service compared to other authorities based on a local authorities’ particular characteristics. Relative Needs Formulae can be adjusted for factors which affect the relative costs of service delivery (such as labour or property costs) using ‘Area Cost Adjustments’. It is important to note that these calculations will never be able to perfectly assess differences in need between local authorities.

2.1.2. At present, 15 different Relative Needs Formulae are used to determine annual funding allocations through the Settlement. The current formulae assess over 120 drivers of demand but were last updated in 2013-14. As part of the 2018 Consultation, it was recognised that the funding formulae urgently needed updating to reflect changes in local authorities’ characteristics since 2013-14.

2.2. Proposed approach to measuring differences in demand and cost

2.2.1. As set out in chapter 1, the government intends to continue to assess differences between the demand for local government services and the cost of delivering these locally, to ensure authorities are efficiently funded in line with the principles of sustainability and robustness. As set out in more detail below, we intend to do this by making an assessment for each local authority which is both updated and is simpler by only having bespoke assessments of need for the largest and most significant areas of local authority spend.

2.2.2. We propose continuing to separate factors which drive demand for the number of services or interventions required, and those which affect the cost of delivering those services or interventions. Factors which principally drive demand (such as the number of people living in a local authority area) will be accounted for in Relative Needs Formulae. Factors that principally affect cost (such as the cost of employing staff or providing services across congested or sparsely populated areas) will be covered by Area Cost Adjustments (see chapter 3). This approach has been informed by the principle of transparency, as such a distinction will make it easier to follow our updated calculation.

2.2.3. Some local authorities may require bespoke arrangements outside the needs assessment, because of specific local circumstances that make a robust assessment more challenging. We will consider appropriate options for these authorities separately from this consultation.

2.2.4. Informed by the principles of robustness and dynamism, we intend to use the best available evidence in our Relative Needs Formulae^{[footnote 11]}. However, given the complexity of local government and partial and incomplete data (particularly for non-social care services), there may be an argument for exercising judgement in the identification and weighting of drivers of demand for some services.

2.2.5. In addition, we propose using the most up-to-date data. The most recent population figures released by the Office for National Statistics (ONS) were mid-year population estimates for 2023^{[footnote 12]}. These estimates are based on data from Census 2021, which was recorded during the COVID-19 pandemic. The ONS have taken steps to maximise the quality of Census 2021 population estimates^{[footnote 13]}. For mid-2024 population estimates, which we intend to use in the assessment, the ONS’ ambition is to publish admin-based population estimates in the Summer of 2025 as the preferred measure, but this is subject to meeting the acceptance criteria which they plan to share in January 2025.

2.3. Proposed approach to ‘Relative Needs Formulae’

2.3.1. We are seeking initial views on which Relative Needs Formulae to include within the new distribution methodology, including whether to assess multiple services through a single formula. We are also seeking views on which specific drivers of demand to include within the assessment.

2.3.2. When considering the number and type of Relative Needs Formulae, several of our principles are of relevance. There is an opportunity to prioritise simplicity by using fewer Relative Needs Formulae and including fewer drivers of demand within each of these. However, this needs to be balanced with our principles of sustainability and robustness, which state we should use the best available evidence and analysis to assess the drivers of demand and cost.

2.3.3. Guided by our principle of simplicity, we do not propose introducing a bespoke Relative Needs Formula for every local government service. There are several factors we could consider when deciding whether to introduce bespoke formulae and further complexity. These include: whether a service has unique drivers of demand; whether there is a disproportionate impact on particular geographic areas or groups of authorities; and whether there is similarity between different drivers of demand.

2.3.4. Respondents should be mindful of the government’s proposal to begin implementation from 2026-27. Given local government is facing acute financial challenges, there is an urgent need to ensure funding allocations are updated to better reflect local need and resources.

Simplifying the approach for non-social care services

2.3.5. The previous government proposed simplifying the approach by bringing together multiple non-social care services under a single formula – we are inviting views on whether we should continue this approach. The starting assumption was that all local authority services would be covered by a ‘Foundation Formula’, with standalone Relative Needs Formulae introduced for particular service areas on case-by-case basis. Such a formula would therefore be likely to represent a large proportion of the assessment of local authorities’ funding need.

2.3.6. In order to reflect the structure of local government and the responsibilities of different tiers, the government would need to introduce separate formulae for upper and lower tier authorities. In the case of single tier authorities, both the lower and upper tier formula would apply. The upper tier formula could cover services such as waste disposal, public transport, public libraries, and central services, while the lower tier formula could cover services such as waste collection, environment health, homelessness, local planning, sports and recreation, and central services.

2.3.7. The population of a local authority remains the most important driver of demand for the bulk of non-social care services. Beyond this however, even the best statistical model of non-social-care need was found to be weak at explaining historic expenditure in this area.

2.3.8. This may be an area where we should exercise judgement in determining the drivers of demand. There is a strong argument that local authorities with high levels of deprivation see more demand for their services. Local authorities play a vital role in supporting people in need outside of social care provision, such as by supporting those at risk of or who are homeless, providing equitable access to sport and recreational facilities, and promoting community development.

Adult social care

2.3.9. Under the 2014 Care Act, local authorities have a statutory requirement to provide adult social care services. This includes duties to: promote individual well-being and the integration, diversity and quality of services; prevent needs for care and support; provide information and advice; and safeguard adults at risk of abuse or neglect. Adults who may have care and support needs will likely undergo a needs assessment and a financial assessment, which will determine whether they have needs for local authority-funded care and support.

2.3.10. Adult social care represents the largest area of service expenditure within the scope of reform for local authorities. It provides vital support which enables people to live independent lives and plays an essential role in preventing or delaying the escalation of people’s care and support needs. Providing adult social care services to people with eligible needs is a statutory requirement for upper tier local authorities. Examples of the types of services included within adult social care are: learning disability support; physical support; mental health support; support with memory and cognition; and commissioning and service delivery.

2.3.11. We believe a bespoke Relative Needs Formula is essential for ensuring funding that is intended for adult social care is allocated where need for local authority-funded adult social care and support is greatest. This is due to the importance of adult social care to individuals who rely on it, the scale of the costs involved in supporting people’s care needs and the specific factors that influence the costs local authorities are likely to face related to adult social care.

Children, young people and family services

2.3.12. Children, young people and family services represent a combination of statutory and targeted support for children and their families, and universal support for all families. These services represent the second largest area of service expenditure within the scope of reform for upper tier authorities. This is a complex area of need to assess. A significant proportion of expenditure is directed towards a relatively small population. The cost of providing support for a child looked after, with unique needs met only in a bespoke or secure placement, for example, can be high and relatively unpredictable compared to other local government services with established and negotiable unit costs.

2.3.13. There has been research into the factors that are associated with children’s social care activity, including the Drivers of Activity in Children’s Social Care^{[footnote 14]} research report, commissioned by the Independent Review of Children’s Social Care (May 2022). The drivers of activity for children and family services for which the Department for Education holds robust evidence are as follows:

A. At child-level (held in the anonymous National Pupil Database):

• Sex of child (categorised as male or female)
• Age of child
• Ethnicity of child, defined by minor ethnic group
• Eligibility for free school meals (FSM) on date of the census

B. At neighbourhood-level, at the level of Lower layer Super Output Areas (LSOA):

• Socio-economic deprivation level in child’s LSOA (as measured by the 2019 Income Deprivation Affecting Children Index, IDACI)
• Proportion of children in child’s LSOA with parents with low qualifications
• Proportion of children in child’s LSOA with poor health
• Proportion of overcrowded households in child’s LSOA
• Population density (measured in persons per km2) in child’s LSOA
• Travel time from LSOA centroid to nearest town centre (mins)

2.3.14. Given the proportion of local government spend and the unique drivers of activity, we believe a specific Relative Needs Formula for children, young people and family services is justified for upper tier authorities. Owing to the most significant drivers of activity – using data that is currently held and robust – being specific child, family and neighbourhood characteristics, there is merit in designing a Relative Needs Formula underpinned by these factors. The Department for Education will consult in detail on the design of a new formula alongside our next consultation, which will follow the conclusion of the multi-year Spending Review in late spring 2025.

2.3.15. For financial year 2025-26, the government has proposed introducing a new Children’s Services Prevention Grant. This will be distributed using an interim needs-based formula, which reflects the drivers of activity mentioned above. The explanatory note accompanying the Prevention Grant^{[footnote 15]} describes the interim methodology used to calculate these allocations. This approach reflects the distribution methodology for allocating grant funding set out in Section 1.2 of this document:

• Assessing the differences between local authorities in demand for children and family services, using an up-to-date Relative Needs Formula. This accounts for drivers of activity unique to this service area.
• Assessing the differences in the cost of providing children and family services across the nation, using a service-specific Area Cost Adjustment; and
• Adjusting for the ability of local authorities to raise Council Tax locally.

The future use of each element of this interim distribution formula, whilst assessed as appropriate for 2025-26, is subject to consultation as set out above following the multi-year Spending Review. It is therefore subject to modification for future financial years.

Bespoke non-social care services formulae

2.3.16. There is a strong rationale for retaining a bespoke formula for fire and rescue services. Fire and rescue services in England include: firefighting and rescue operations; community fire safety; and emergency planning and civil defence. These services are carried out by stand-alone fire authorities in some areas, and by upper tier authorities in other areas. This service area is distinct as it takes account of risk as well as demand factors, which justifies taking a bespoke approach.

2.3.17. The government is considering updating the existing fire and rescue Relative Needs Formula. The current formula was last updated over a decade ago and used data which may no longer be reflective of the current need for some fire and rescue services. It consists of a basic allocation of funding per resident, with adjustments for coastline, population density and sparsity, deprivation, fire risk areas and community fire safety. These elements include both indicators of the risk of requiring a fire service response - such as the risk of dwelling fires occurring - and indicators of the cost of providing fire service cover, such as population sparsity. Funding for national resilience capabilities, including urban search and rescue and high-volume pumps, is distributed outside of the Settlement.

2.3.18. Retaining a bespoke highways maintenance Relative Needs Formula may also be justified. Highways maintenance is an upper tier service area, including services such as: environmental, safety and routine road maintenance; structural maintenance; street lighting; and winter services. In response to the previous government’s December 2017 consultation^{[footnote 16]}, there was broad agreement that two drivers of demand - road length and traffic flow – were the most significant.

Other possible Relative Needs Formulae

2.3.19. Given local government provides over 800 services, there are of course a wide range of additional Relative Needs Formulae that could be developed and applied. For example, upper tier authorities have a statutory responsibility to provide free or concessionary transport for elderly or eligible disabled people. Similarly, free home to school transport services must be provided to children according to specific legislative criteria, and lower tier authorities have statutory responsibilities to provide temporary accommodation.

2.3.20. We could also include a bespoke formula for flood defence and costal protection. Whilst expenditure on flood defence, land drainage and coastal protection is an important issue for a small number of lower tier authorities, expenditure in this area accounts for a small proportion of local authorities’ total service expenditure and a bespoke formula may not be warranted.

2.3.21. We are inviting respondents’ views on additional Relative Needs Formulae that we should consider, in pursuit of our sustainability and robustness principles. However, there is a trade-off with our simplicity principle, and we will consider carefully the merits of any additional Relative Needs Formulae.

Potentially excluded Relative Needs Formulae

2.3.22. There is an argument for removing the ‘Fixed Costs’ element of the needs assessment. The existing system includes a fixed costs element, which in principle allows funding to be distributed to each authority regardless of their size or relative need. However, this adds complexity and fixed costs are arguably identified in the wider assessment.

2.3.23. There is also a case not to have a bespoke legacy capital financing formula. The existing assessment includes a legacy capital financing formula based on historic assumptions around debt repayment and interest charges. Guided by the principle of simplicity, the government would like to consider using a simplified non-social care formula rather than continuing with a bespoke formula. The government also wishes to explore whether these historic debts should continue to be accounted for within a future distribution system.

Question 4

Do you agree with our proposal to use the best available evidence and most up-to-date data in the assessment of need, including using the most recent census data?

Question 5

Do you agree with our proposal to simplify the assessment by reducing the number of Relative Needs Formulae? If you disagree, please explain why and which service areas you are concerned about.

Question 6

For the children, young people and family services formula, do you agree that the variables set out are the right ones to consider in an assessment of relative need? If you recommend the addition or removal of variables, please provide supporting evidence and recommend a suitable dataset.

Question 7

Do you agree that the government should consider updating the data in the fire and rescue services Relative Needs Formula?

3. Measuring differences in the cost of delivering services

3.1.1. The cost of delivering the same services may vary between local authorities. For example, the costs of employing staff or renting non-domestic properties, or the possible differences in costs of delivering services in urban or rural areas. There is a long history of considering variation in the costs of delivering services, both for local government and across other public services. The current system distinguishes between Relative Needs Formulae, which determine demand for services, and Area Cost Adjustments which seek to account for factors that affect the relative costs of delivering local services.

3.1.2. The previous government consulted on a more sophisticated approach to assessing cost differences through Area Cost Adjustments (‘ACAs’) in the 2018 Consultation, including an adjustment for ‘Accessibility’ (see below). In 2020, the previous government used an updated ACA to distribute funding to address COVID-19 pressures^{[footnote 17]}, and in 2021 it published an updated ACA^{[footnote 18]}. Neither the COVID-19 nor the 2021 ACA are currently used in the Settlement.

3.1.3. As noted in chapter 2 above, the government has proposed that 2025-26 Local Government Finance Settlement will include a new Children’s Social Care Prevention Grant, distributed using an interim needs-based formula. We propose applying an up-to-date ACA to this grant. Detail of the 2024 ACA is available at:

Explanatory note on Children’s Social Care Prevention Grant methodology

3.1.4. In line with our objective to measure differences in the cost of providing services, and the principles of robustness and sustainability, we propose continuing to measure cost differences by applying Area Cost Adjustments. ACAs will be applied to Relative Needs Formulae, and will ensure that we are accounting as accurately as possible for the costs when calculating funding allocations.

3.1.5. The government proposes continuing to assess the same factors as the 2024 ACA, which seeks to account for relative cost differences facing both rural and urban areas – in line with the principle of dynamism, we will ensure our approach is informed by the latest data and evidence. We are inviting views on this approach and whether we should account for any other factors which could affect cost, as well as any evidence for including these. The 2024 ACA assesses three factors which affect the cost of providing services:

i) A ‘Rates Cost Adjustment’, to reflect the variation between areas in the cost of using equivalent premises. This draws on the Valuation Office Agency database of property valuations, controlling for the effects of building characteristics known to affect valuation.

ii) A ‘Labour Cost Adjustment’, to reflect the fact that authorities will need to compete with other potential employers to secure and retain suitably skilled staff. This is calculated using data from the Office for National Statistics Annual Survey of Hours and Earnings, controlling for local factors such as industry, occupation, age and gender.

iii) The Labour Cost Adjustment accounts for ‘Accessibility’, which measures the impact of travel time as a result of longer distances and traffic congestion in all local authorities, including in rural areas. Labour productivity is likely to be lower in areas with longer journey times because authorities will have to pay their staff for more hours to deliver similar services. The 2024 ACA identifies two robust measures to account for the additional costs associated with Accessibility: ‘Dispersal’, measuring journey times between groups of households to service ‘hubs’; and ‘Traversal’, measuring journey times between groups of households.

3.1.6. When considering differences in the costs of delivering services between authorities, one approach to considering this is the possible differences between rural and urban areas. Our proposed approach outlined above will capture differences in cost, including as a result of travel times through the Accessibility adjustment. We are inviting respondents to share any evidence of additional costs authorities face relative to other authorities (above those captured in the approach outlines above) as part of this consultation, particularly as a result of delivering services in urban or rural areas.

3.1.7. Given the relative cost of delivering services will differ across different services, we will tailor Area Cost Adjustments to each service area. Some local government service areas are more affected by labour costs, whereas others are more affected by the cost of property. Whilst the structure of ACAs could remain the same as summarised above, the weighting of the factors could be amended to reflect the different impact of costs on different services.

Question 8

Do you agree we should assess differences in cost using an Area Cost Adjustment based on the structure of 2024 ACA? If not, please provide evidence for alternative approaches.

4. Measuring differences in locally available resources

4.1.1. In addition to funding allocated through the Settlement, local authorities raise resources locally. An authority’s capacity to raise resources will depend on a number of factors, including the value of property and historic local policy choices. Authorities’ capacity to fund services through local resources therefore varies across the country, depending on both their relative levels of needs and the resources they can raise.

4.1.2. The principle of taking account of local authorities’ locally raised resources when determining the distribution of funding at the Settlement is well established and the current system accounts for them. However, this assessment is very out-of-date given it was last updated for 2013-14.

4.1.3. The government believes that we should continue to adjust for local authorities’ ability to raise resources when allocating funding through the Settlement. We agree with the previous government that local authorities better able to raise resources locally should receive a larger reduction to their allocation and those with less ability to raise funding locally should receive a smaller reduction. We have been guided in this view by the principle of sustainability.

4.1.4. We also broadly agree with the previous government’s proposal to continue to adjust for Council Tax but not other forms of local income, such as Sales, Fees and Charges (SFCs), for the reasons outlined in the 2018 Consultation. These reasons included: the fact that SFCs are generally charged at below or up to cost recovery; and SFCs’ volatility makes them harder to adjust for accurately whilst providing multi-year certainty. The government is also inviting views on whether we should in principle adjust for the new Extended Producer Responsibility (pEPR) income source, how we should do so, and to what extent.

4.1.5. To adjust for ability to raise Council Tax in Settlement allocations, the government will need to determine a measure of Council Tax income. Authorities will retain their actual Council Tax income, no matter what adjustment is made. The adjustment will, however, inform their allocation of funding through the Settlement.

4.1.6. In simple terms, the government proposes a measure of Council Tax income based on multiplying the number of liable dwellings in each local authority (i.e. their ‘Tax Base’) by an assumed ‘Level’ of Council Tax charged. Making uniform assumptions on the Council Tax Level charged by all authorities, and on factors which determine their ability to raise Council Tax^{[footnote 19]}, promotes simplicity, fairness and accountability. By making uniform assumptions, this approach will be simpler than perfectly reflecting each local authorities’ actual Council Tax resources through bespoke adjustments for each authority. It will be fairer to local authorities and their residents where they have had to take difficult decisions historically on Council Tax, often due to having weaker Tax Bases, as we will remove the impact of these local decisions on Council Tax allocations. This will avoid perverse incentives and ensure that government doesn’t reward places that have been able to keep council tax levels low due to having stronger Tax Bases. Finally, it promotes accountability as it will be clear where a local authority has chosen to deviate from the assumptions on Council Tax Level or other factors impacting Council Tax income. This will enable citizens to more effectively hold their local authorities to account for decisions on local income and the balance with service quality. We are inviting views on how we can design this approach in a way which is consistent with the government’s policy to maintain Council Tax Referendum Principles.

4.1.7. To allow the government to adjust for against the ability to raise Council Tax, we would need a set of assumptions. For example, the assumed Council Tax Level will dictate the extent we take into account Council Tax income. We could assume that all authorities have the average rate of Council Tax, in effect adjusting fully for ability to raise Council Tax. This would theoretically make funding available in such a way as to enable local authorities to provide the same level of service, regardless of their Tax Base. By contrast, we could only partially adjust for local ability to raise Council Tax.

4.1.8. We are inviting views on what our assumptions should be used regarding Council Tax Level, and other factors influencing Council Tax resource, such as the use of Discounts, Exemptions, and Premia, the Council Tax Collection Rate, and the split of Council Tax resource between tiers of local government.

4.1.9. Proposals on how we account for business rates income are covered in the next chapter.

Question 9

Do you agree that (other than locally retained business rates) we should only adjust for Council Tax when assessing local resources? If you do not agree, please include details of what other sources of income you think should be included (if any), and how the government should adjust for them.

Question 10

Do you agree that we should measure Council Tax income by making uniform assumptions on the Level of Council Tax charged by local authorities and factors which determine their ability to raise Council Tax?

Question 11

To what extent should we adjust for Council Tax when determining local authority allocations (i.e. what assumption should we make on Council Tax Level)?

5. Resetting the Business Rates Retention System

5.1.1. The Resetting of Business Rates Baselines in 2026-27 is crucial to this government’s aims to ensure funding is targeted where it is needed most and restoring the balance between aligning funding with need and rewarding business rates growth. The Business Rates Retention System was designed to be periodically Reset but this has not happened. It is long overdue.

5.1.2. Under the Business Rates Retention System, the distribution of business rates income is determined by the relationship between Baseline Funding Level and the Business Rates Baseline. The Baseline Funding Level is the level of business rates income allocated to meet an authority’s need, as determined by the Settlement. Updating the measure of local authority need is discussed in detail in the preceding chapters. Business Rates Baselines reflect the amount of business rates income each authority is predicted to raise.

5.1.3. At a Reset, Business Rates Baselines are recalculated for the forthcoming Reset period for all local authorities. During this period, growth in the authority’s locally raised business rates (and so income) can be retained above its Baseline Funding Level, subject in some cases to the payment of a levy. The system was designed to be Reset periodically in order to ensure that the distribution of resource is realigned with need.

5.1.4. As announced in the local government finance policy statement 2025 to 2026^{[footnote 20]}, the government intends to carry out a full Reset in 2026-27. It has been over a decade since current Business Rates Baselines were put into place. This has meant that retained business rates have continued to accumulate locally, contrary to the aims of the system when consulted on and introduced by the previous government in 2013.^{[footnote 21]} Recalculating Business Rates Baselines alongside a new assessment will ensure that business rates income is allocated to meet changes in relative need. This will help the system fulfil its intended purpose of providing a responsive funding stream for local government while rewarding business rates growth.

5.1.5. Under a full Reset, no growth accumulated to date is retained into the forthcoming Reset period, as this would be reallocated as per the updated funding assessment set out in this consultation. However, growth that comes on stream after the Reset would be retained for the duration of the future Reset period, continuing to reward authorities for local business rates growth, subject in some cases to the payment of a levy. Business rates growth generated within designated areas, such as Freeports, Enterprise Zones and Investment Zones, will be exempt in line with current policy.

5.1.6. The government proposes Transitional Arrangements take into account the impact of reform as a whole, including a Reset. The government acknowledges concerns around potential ‘cliff edges’ at the end of a Reset period. To minimise the risk of these cliff edges, the government intends to consider the impact of reforms to the Settlement as a whole in the design of Transitional Arrangements. Transitional Arrangements are discussed in chapter 7 of this consultation.

5.1.7. The government will take decisions on the treatment of areas with enhanced business rate retention arrangements. Some local authorities work collaboratively with Mayoral Combined Authorities in their area to ensure that a portion of extra business rates income is directed to local growth priorities across the wider region. In recognition of this, and as part of the government’s reform of funding for local government, we will consider how the Business Rates Retention System could better and more consistently support Strategic Authorities to drive growth.

5.1.8. Further detail around the delivery of a Reset and the methodology of updating Business Rates Baselines will be included in a forthcoming technical consultation to be published in early 2025. This will also consider how business rates tax policy changes announced at Autumn Budget 2024, and the planned 2026 business rates revaluation, can be accommodated within the delivery of a Reset.

5.1.9. Beyond 2026-27, this government intends to deliver periodic Resets to ensure funding allocations are kept up-to-date while providing future funding certainty to local authorities. To meet these objectives, the government is keen to explore how best to give authorities advanced notice to plan for future decisions beyond the upcoming Reset and multi-year settlement. The government will work with the sector to determine Reset periods – the time elapsed between Resets – to balance the objectives of rewarding business rates growth and providing a responsive funding stream for local government while providing future funding certainty.

Question 12

Do you agree Transitional Arrangements should account for a Business Rates Reset? If not, please explain why.

6. The New Homes Bonus

6.1.1. As set out in chapter 1, the government’s objective is to update Settlement funding allocations from 2026-27 by developing an updated distribution methodology which continues to assess relative need and resources, directing funding efficiently to the places which need it most. A potential alternative or additional objective could be to incentivise or reward certain outputs or outcomes delivered by local government.

6.1.2. A portion of Settlement grant is currently allocated through the New Homes Bonus, which is paid to authorities in recognition of net additions to effective housing stock in their area. As the New Homes Bonus is funded through a top slice of the Revenue Support Grant, this funding is not allocated according to local authority need.

6.1.3. We know that the New Homes Bonus has been an important source of funding for local authorities – particularly shire district councils. As set out in the government’s Plan for Change^{[footnote 22]}, building homes in the right places is vital to kickstarting economic growth. The government has an ambitious milestone of building 1.5 million safe and decent homes in England this Parliament, and work has already begun to deliver on this.

6.1.4. However, we are aware, including in recent consultation responses to the Local Government Finance Settlement, that the efficacy of the housing incentive is blunted by the interactions with the remainder of the Settlement.

6.1.5. The government intends to consider a range of options for how to balance the principles of robustness and sustainability through the Settlement with wider housing objectives. This includes exploring allocating all Settlement funding according to our updated distribution methodology, and subject to wider spending review decisions, providing a housebuilding incentive outside of the Settlement.

6.1.6. The government proposes that 2025-26 will be the final year the New Homes Bonus is paid in its current format. The government will consult on detailed proposals for arrangements beyond 2025-26 in the first half of 2025. However, ahead of that consultation, we welcome views on the best way to enable and encourage local authorities to support housebuilding in their areas.

Question 13

Do you agree or disagree we should enable and encourage local authorities to support housebuilding in their areas through the Local Government Finance Settlement? Please provide any explanation or supporting evidence for your view.

7. Implementing changes and keeping allocations up-to-date

7.1. Implementing updated Settlement allocations

7.1.1. The government is working towards beginning implementation of updated funding allocations as part of the 2026-27 Settlement, alongside a Business Rates Reset. This will follow the multi-year Spending Review, which will conclude in late spring 2025. This approach seeks to balance the urgent need for reform, to allocate funding where it is most needed according to our principles of robustness, sustainability and dynamism, whilst also allowing time to co-develop our proposals with our partners in local government.

7.1.2. We recognise that early notification of updated funding allocations is crucial to local authorities’ short- and medium-term financial planning and service delivery. The government’s current aim is to publish a detailed approach as part of a further consultation, which will follow the multi-year Spending Review concluding in late Spring 2025. We will continue to explore ways in which we can provide further certainty to local authorities about the likely outcomes.

7.2. Transitional Arrangements

7.2.1. Calculating new allocations for local authorities is likely to result in changes to the level of funding individual local authorities receive. Once new funding allocations have been established, we could explore introducing measures which determine how authorities reach their new funding allocations (‘Transitional Arrangements’).

7.2.2. In line with our stability and sustainability principles, the government intends to apply some form of Transitional Arrangements to smooth changes in allocations from 2026-27. This is vital to ensuring that authorities can plan for changes and prepare for them in an orderly and efficient manner. We will investigate a wide range of options regarding the design and scope of Transitional Arrangements. The government will need to be considerate of the broader fiscal and economic climate in the design of any Transitional Arrangements, as well as the trade-off between Transitional Arrangements and the pace at which authorities that are receiving less funding than they need can move to their new allocations.

7.2.3. The government is minded to implement updated allocations over several years, in line with our stability principle. Whilst we could move all local authorities to their newly assessed level of funding from 2026-27, this would likely result in significant short term movements in funding levels for those facing the greatest change. Therefore, we propose moving authorities to their updated allocations over several years, to avoid sudden changes in funding allocations and allow time to plan.

7.2.4. We could move authorities to their new allocations over several years by gradually ‘blending in’ their new allocations to overall Settlement allocations. Figure one below demonstrates how this could work over an illustrative period of three years (this is not the government’s position on the implementation period).

Figure 1: How updated Settlement allocations could be blended into Settlement allocations (illustrative and not the government’s position)

	2026-27	2027-28	2028-29
No reform allocation	66.6%	33.3%
Target allocation	33.3%	66.6%	100%

7.2.5. The scale of transition will depend on the baseline it is measured from, and there are choices for how this is constructed. One option would be to measure Core Spending Power available to each local authority before we begin to implement these changes (i.e.in 2025-26). However, this position may require some form of adjustment in order to reflect wider considerations. For example, in addition to Core Spending Power, we could include business rates growth in the 2025-26 baseline to help smooth losses, given the proposal for a Business Rates Reset in 2026-27.

Question 14

What measures should we use to support local authorities to move to their updated funding allocations?

7.3. Ensuring allocations remain up-to-date and multi-year certainty

7.3.1. It is the government’s position that an updated Settlement Funding Assessment will be based on the most up-to-date data possible. This follows from the principle of dynamism, which is one of the key principles informing the design of our approach.

7.3.2. We could design our updated distribution methodology in such a way as to keep allocations updated. However there is a trade-off with offering multi-year certainty to authorities, a repeated request of local government which this government is committed to deliver from 2026-27. The government will therefore need to consider this balance carefully when designing an updated methodology, and we are interested in respondents’ views on how we can strike this balance.

7.3.3. We could keep allocations up-to-date by using forecasts and projections within the distribution methodology. Being guided by the principles of this review, we would only look to use forecasts where robust modelling exists and forecasts would be likely to substantially impact allocations (thus not unnecessarily adding complexity). For example, we could also include forecasts on population and age in the updated calculation. The Office for National Statistics produces population projections on the future size and age structure of local populations, based on the latest Census. Whilst taking account of expected population changes may reduce the risk of a relative needs assessment becoming quickly out of date, population projections cannot reflect unpredictable changes.

7.3.4. There is also a choice whether to include full or partial projections of available Council Tax. If we adjust for the ability to raise Council Tax (see chapter 4 above), it would be possible to include projections on Council Tax Levels by reflecting the Referendum Principles for the period of the forecast. Developing assumptions as to Council Tax Base may be more challenging, and we invite views as to how this could be achieved and whether this would be desirable.

7.3.5. There is also a choice on the frequency of updating data informing the distribution methodology. This could be done annually, when new data becomes available or at the beginning of each multi-year Settlement. Reflecting actual changes in data such as population and Council Tax Base would more accurately assess local authorities’ need for funding. However it would involve changing authorities’ allocations, reducing medium-term financial certainty.

Question 15

Do you agree we should keep funding allocations up-to-date dynamically by using the most up-to-date data possible? If so, how?

8. Reviewing demands on local government

8.1.1. Alongside fixing the foundations of local government funding, and as part of resetting the relationship between local and national government, we want to make sure local authorities can focus on the things that make a difference for local residents. Many local leaders have raised concerns over excessively burdensome asks or requirements which take up disproportionate time and resource, becoming an unnecessary distraction and taking resource away from delivering high-quality, value for money services. Equally, as the number of grants to local government have increased, so have the associated reporting requirements and approaches to evaluation.

8.1.2. We want local leaders to be able to focus on delivery for residents and communities. To support this, we will set out and measure progress on the key services and outcomes we expect local government to deliver to be clearer on priorities. We will also deliver the first multi-year Settlement in ten years, which will provide local authorities with the certainty to plan and invest for the long-term and achieve better outcomes and value for money for local people. Through this consultation, we wish to identify excessively burdensome activities councils are required to fulfil, that detract from delivery of high-quality services. We are inviting views on which burdens, if reduced, could help free up local government capacity and support more effective local prioritisation and deployment of resources.

8.1.3. The government intends to streamline and rationalise reporting requirements, alongside consolidating grants into the Local government Finance Settlement. We will streamline New Burdens payments, combining them into quarterly payments and using this as a model for wider reform across Section 31 Grants. This will reduce the number of separate payments to local authorities and the administrative burdens associated with these. By reducing this burden on local authorities, they will be able to focus on delivering the high-quality services that citizens care about.

Question 16

What are the most excessively burdensome activities or requirements for councils, which if changed, could significantly free up local government capacity?

Question 17

Do you agree with our proposals to reduce the number of grants and New Burdens payments issued to local government? 

9. Sales, fees and charges reform

9.1.1. We are seeking views on the landscape of Sales, Fees and Charges. In the near term, the government is interested in improving its understanding of the current fragmented landscape, working in partnership with local government.

9.1.2. Local authorities can charge for statutory services, as prescribed by legislation. The pieces of legislation governing individual Sales, Fees and Charges are usually within the policy and legislative responsibility of different government departments, depending on the service to which the fee or charge relates. Lead departments specify the charging framework and any restrictions on the use of income.

9.1.3. Fees across the public sector, including local authorities, can generally be set at a level that allows the recovery of not more than the full costs of delivering the service. This is to ensure the public sector does not profit at the expense of consumers.

9.1.4. In some instances, it may not be appropriate for local authorities to pass the full cost of a service on to service users. In particular, this may not be appropriate where it would prevent the use of important local services, or where doing so would have a disproportionate effect on those with lower incomes or protected characteristics, or on businesses.

9.1.5. The government is aware that in some service areas statutory fees which local government can charge have not been updated, and recognises the impact this may have on service delivery.

9.1.6. As part of its commitment to hand back control and reset the relationship with local government, the government is exploring proposals on whether responsibility for setting levels for some statutory fees and charges should be devolved to local government in the longer-term. In considering this, the government will need to carefully weigh the potential impacts on service users, including businesses, and wider policy priorities like housing and growth. The government will adhere to the principles above, and will not devolve fees where there would be a disproportionate impacts on service users and working people.

9.1.7. In this context, we are asking authorities and service users for their views on: where flexibilities could support higher quality services; how authorities could manage the impacts of fee increases on service users locally; and which specific service fees should be devolved, including consideration of the impact of increased fees on service users, including vulnerable individuals, working people and businesses.

Question 18

Do you agree or disagree that the government should provide local authorities with greater flexibility and control over Sales, Fees and Charges? Please provide supporting evidence, considering specific fees where greater control would be of most benefit, and expected impacts on charge-payers. 

10. Equalities impacts of the proposals in this consultation paper

10.1.1. Public bodies have a duty under the Equality Act 2010 to consider the needs of people who share particular protected characteristics. The three aims under the Public Sector Equality Duty (PSED) are to:

i) Eliminate unlawful discrimination, harassment, victimisation and any other conduct prohibited by the Act;

ii) Advance equality of opportunity between people who share a particular protected characteristic and people who do not share it;

iii) Foster good relations between people who share a particular protected characteristic and people who do not share it.

10.1.2. The relevant protected characteristics are:

• Age
• Disability
• Gender reassignment
• Civil partnership
• Pregnancy and maternity
• Race
• Religion and belief
• Sex
• Sexual orientation

10.1.3. As local authorities decide how their resources are allocated, it is not possible to say for certain how changes in funding will affect specific groups of persons sharing a protected characteristic. In making these decisions, local authorities will also need to have due regard to their PSED objectives under the Equalities Act.

10.1.4. However, the aim of these reforms is improving our assessment of need and resources, ensuring funding is directed to where it is needed most. This will have a positive impact on communities, particularly those with certain protected characteristics who are over-represented in the use of local government services.

10.1.5. The consultation also contains a proposal to review Sales, Fees and Charges landscape. We seek views on whether Sales, Fees and Charges should be devolved and the equalities impacts of any such reform, as well as any evidence. The government will explore the equalities impacts of the devolution of fees in the future, if taken forward, reflecting on the evidence provided through this consultation.

10.1.6. The government intends to include a summary of the equalities impacts of its proposals as part of the response to this consultation. We will publish this summary alongside the detail of our proposed approach ahead of the provisional Settlement for 2026-27.

Question 19

Do you have any views on the potential impacts of the proposals in this consultation on persons who share a protected characteristic?

Annex A: Personal data

The following is to explain your rights and give you the information you are be entitled to under UK data protection legislation.

Note that this section only refers to personal data (your name, contact details and any other information that relates to you or another identified or identifiable individual personally), not the content otherwise of your response to the consultation.

1. The identity of the data controller and contact details of our Data Protection Officer    

The Ministry of Housing, Communities and Local Government (the ‘Ministry’) is the data controller. The Data Protection Officer can be contacted at dataprotection@communities.gov.uk or by writing to the following address:

Data Protection Officer
Ministry of Housing, Communities and Local Government
Fry Building
2 Marsham Street
London
SW1P 4DF

2. Why we are collecting your personal data  

Your personal data is being collected as an essential part of the consultation process, so that we can contact you regarding your response and for statistical purposes. We may also use it to contact you about related matters.

We will collect your IP address if you complete a consultation online. We may use this to ensure that each person only completes a survey once. We will not use this data for any other purpose.

Please do not share special category personal data or criminal offence data if we have not asked for this unless absolutely necessary for the purposes of your consultation response. By ‘special category personal data’, we mean information about a living individual’s:

• race
• ethnic origin
• political opinions
• religious or philosophical beliefs
• trade union membership
• genetics
• biometrics
• health (including disability-related information)
• sex life
• sexual orientation

By ‘criminal offence data’, we mean information relating to a living individual’s criminal convictions or offences or related security measures.

3. Our legal basis for processing your personal data

The collection of your personal data is lawful under article 6(1)(e) of the UK General Data Protection Regulation, as it is necessary for the performance by the Ministry of a task in the public interest/in the exercise of official authority vested in the data controller. Section 8(d) of the Data Protection Act 2018 states that this will include processing of personal data that is necessary for the exercise of a function of the Crown, a Minister of the Crown or a government department i.e. in this case a consultation.

Where necessary for the purposes of this consultation, our lawful basis for the processing of any special category personal data or ‘criminal offence’ data (terms explained under ‘Sensitive Types of Data’) which you submit in response to this consultation is as follows. The relevant lawful basis for the processing of special category personal data is Article 9(2)(g) UK GDPR (‘substantial public interest’), and Schedule 1 paragraph 6 of the Data Protection Act 2018 (‘statutory etc and government purposes’). The relevant lawful basis in relation to personal data relating to criminal convictions and offences data is likewise provided by Schedule 1 paragraph 6 of the Data Protection Act 2018.

4. With whom we will be sharing your personal data

Other government departments including:

• Attorney General’s Office
• Cabinet Office
• Department for Business and Trade
• Department for Culture, Media and Sport
• Department for Education
• Department for Energy Security and Net Zero
• Department for Environment, Food and Rural Affairs
• Department for Science, Innovation and Technology
• Department for Transport
• Department for Work and Pensions
• Department of Health and Social Care
• Foreign, Commonwealth and Development Office
• His Majesty’s Treasury
• Home Office
• Ministry of Defence
• Ministry of Justice
• Northern Ireland Office
• Office of the Advocate General for Scotland
• Office of the Leader of the House of Commons
• Office of the Leader of the House of Lords
• Office of the Secretary of State for Scotland
• Office of the Secretary of State for Wales
• UK Export Finance

The Ministry may appoint a ‘data processor’, acting on behalf of the department and under our instruction, to help analyse the responses to this consultation.  Where we do, we will ensure that the processing of your personal data remains in strict accordance with the requirements of the data protection legislation.

5. For how long we will keep your personal data, or criteria used to determine the retention period.

Your personal data will be held for two years from the closure of the consultation, unless we identify that its continued retention is unnecessary before that point.

6. Your rights, e.g. access, rectification, restriction, objection

The data we are collecting is your personal data, and you have considerable say over what happens to it. You have the right:

a. to see what data we have about you

b. to ask us to stop using your data, but keep it on record

c. to ask to have your data corrected if it is incorrect or incomplete

d. to object to our use of your personal data in certain circumstances

e. to lodge a complaint with the independent Information Commissioner (ICO) if you think we are not handling your data fairly or in accordance with the law.  You can contact the ICO at https://ico.org.uk/, or telephone 0303 123 1113.

Please contact us at the following address if you wish to exercise the rights listed above, except the right to lodge a complaint with the ICO:

dataprotection@communities.gov.uk  

Knowledge and Information Access Team
Ministry of Housing, Communities and Local Government
Fry Building
2 Marsham Street
London
SW1P 4DF

7. Your personal data will not be sent overseas

8. Your personal data will not be used for any automated decision making

9. Your personal data will be stored in a secure government IT system

We use a third-party system, Citizen Space, to collect consultation responses. In the first instance, your personal data will be stored on their secure UK-based server. Your personal data will be transferred to our secure government IT system as soon as possible, and it will be stored there for 2 years before it is deleted.

Annex B: Address details and list of consultation questions 

We strongly request responses through the following online form:

Local authority funding reform: objectives and principles

However, if the survey link is inoperable, responses may be sent by email to: lgfcorrespondence@communities.gov.uk 

Alternatively, they may be sent by post to:

Local Government Finance  
Ministry of Housing, Communities and Local Government
Fry Building
2 Marsham Street
London
SW1P 4DF  

If you reply to this consultation by email or post, please confirm whether you are replying as an individual or submitting an official response on behalf of an organisation and include the following information: 

• Your name
• Type of respondent or organisation are you replying on behalf of (select one): combined authority; fire and rescue authority; local authority association or special interest group; local authority councillor; London borough; member of parliament; member of the public; metropolitan district; other representative group; parish or town council; shire county; shire district; unitary authority; voluntary organisation
• The name of your organisation (if applicable)
• Your position (if applicable)
• An email address
• A contact telephone number
• An address, including post-code

Please also structure your response to answer the following questions. Please answer ’no view’ where you do not have a view in response to a question. We will categorise responses as not indicating a view where written responses are unclear.

Question 1: Do you agree with the government’s objective to allocate grant and retained business rates income in a way which accounts for differences between local authorities in demand for services, the cost of delivering them and ability to raise Council Tax locally?

Agree – Neither agree nor disagree – Disagree – No view (Choose one option)

Please provide any additional information, including any explanation or evidence for your response. (Free text)

Question 2: In addition to the areas included in this consultation, are there elements of the local government finance system that are not fit for purpose and require improvement and reform? If so, please provide information on what reforms are required and why.

If you have views, please share these and any supporting explanation or evidence. (Free text)

Question 3: Do you agree that the suggested principles should inform our approach to updating local authority funding allocations?

Agree – Neither agree nor disagree – Disagree – No view (Choose one option)

Please provide any additional information, including any explanation or evidence for your response. (Free text)

Question 4: Do you agree with our proposal to use the best available evidence and most up-to-date data in the assessment of need, including using the most recent census data?

Agree – Neither agree nor disagree – Disagree – No view (Choose one option)

Please provide any additional information, including any explanation or evidence for your response. (Free text)

Question 5: Do you agree with our proposal to simplify the assessment by reducing the number of Relative Needs Formulae? If you disagree, please explain why and which service areas you are concerned about.

Agree – Neither agree nor disagree – Disagree – No view (Choose one option)

Please provide any additional information, including any explanation or evidence for your response. (Free text)

Question 6:  For the children, young people and family services formula, do you agree that the variables set out are the right ones to consider in an assessment of relative need? If you recommend the addition or removal of variables, please provide supporting evidence and recommend a suitable dataset.

Agree – Neither agree nor disagree – Disagree – No view (Choose one option)

Please provide any additional information, including any explanation or evidence for your response. (Free text)

Question 7:  Do you agree that the government should consider updating the data in the fire and rescue services Relative Needs Formula?

Agree – Neither agree nor disagree – Disagree – No view (Choose one option)

Please provide any additional information, including any explanation or evidence for your response. (Free text)

Question 8: Do you agree we should assess differences in cost using an Area Cost Adjustment based on the structure of 2024 ACA? If not, please provide evidence for alternative approaches.

Agree – Neither agree nor disagree – Disagree – No view (Choose one option)

Please provide any additional information, including any explanation or evidence for your response. (Free text)

Question 9: Do you agree that (other than locally retained business rates) we should only adjust for Council Tax when assessing local resources? If you do not agree, please include details of what other sources of income you think should be included (if any), and how the government should adjust for them.

Agree – Neither agree nor disagree – Disagree – No view (Choose one option)

Please provide any additional information, including any explanation or evidence for your response. (Free text)

Question 10: Do you agree that we should measure Council Tax income by making uniform assumptions on the Level of Council Tax charged by local authorities and factors which determine their ability to raise Council Tax?

Agree – Neither agree nor disagree – Disagree – No view (Choose one option)

Please provide any additional information, including any explanation or evidence for your response. (Free text)

Question 11: To what extent should we adjust for Council Tax when determining local authority allocations (i.e. what assumption should we make on Council Tax Level)?

Fully – Partially – Not at all – No view (Choose one option)

Please provide any additional information, including any explanation or evidence for your response. (Free text)

Question 12: Do you agree Transitional Arrangements should account for a Business Rates Reset? If not, please explain why.

Agree – Neither agree nor disagree – Disagree – No view (Choose one option)

Please provide any additional information, including any explanation or evidence for your response. (Free text)

Question 13: Do you agree or disagree we should enable and encourage local authorities to support housebuilding in their areas through the Local Government Finance Settlement? Please provide any explanation or supporting evidence for your view.

Agree – Neither agree nor disagree – Disagree – No view (Choose one option)

Please provide any additional information, including any explanation or evidence for your response. (Free text)

Question 14: What measures should we use to support local authorities to move to their updated funding allocations?

Blend in updated allocations over several years – Other transitional arrangements (Check options that apply)

Please provide any additional information, including any explanation or evidence for your response. (Free text)

Question 15: Do you agree we should keep funding allocations up-to-date dynamically by using the most up-to-date data possible? If so, how?

Agree – Neither agree nor disagree – Disagree – No view (Choose one option)

Please provide any additional information, including any explanation or evidence for your response. (Free text)

Question 16: What are the most excessively burdensome activities or requirements for councils, which if changed, could significantly free up local government capacity? 

If you have views, please share these and any supporting explanation or evidence. (Free text)

Question 17: Do you agree with our proposals to reduce the number of grants and New Burdens payments issued to local government?

Agree – Neither agree nor disagree – Disagree – No view (Choose one option)

Please provide any additional information, including any explanation and evidence. (Free text)

Question 18: Do you agree or disagree that the government should provide local authorities with greater control over Sales, Fees and Charges? Please provide supporting evidence, considering specific fees where greater control would be of most benefit, and expected impacts on charge-payers.

Agree – Neither agree nor disagree – Disagree – No view (Choose one option)

Please provide any additional information, including any explanation and evidence. (Free text)

Question 19: Do you have any views on the potential impacts of the proposals in this consultation on persons who share a protected characteristic?

If you have views, please share these and any supporting explanation or evidence. (Free text)

Annex C: Glossary of technical terms

Accessibility

See Area Cost Adjustments.

Annual Survey of Hours and Earnings

The Annual Survey of Hours and Earnings (ASHE), carried out in April each year by the Office for National Statistics, is the most comprehensive source of information on the structure and distribution of earnings in the UK.

Area Cost Adjustment (ACA)

Area Cost Adjustments are calculations which account for factors that affect the costs of services (as opposed to those that driver demand). These are referred to as ‘multiplicative’ factors, and mean that even authorities with broadly similar drivers of demand (such as population size) could experience different costs in service provision as a result of factors that are outside of their control. Area Cost Adjustments are applied to Relative Needs Formulae.

It is possible to account for: variation between areas in the cost of using equivalent premises (measured using a Rates Cost Adjustment); variation in the cost of employees, to reflect the fact that authorities will need to compete with other potential employers to secure and retain suitably skilled staff (measured using a Labour Cost Adjustment); the impact of the difference in travel time to provide services on the cost of labour (measured using an Accessibility adjustment within the Labour Cost Adjustment); and the possible variation in the cost of some inputs due to the size of local markets or isolation from major markets (measured using a Remoteness adjustment). The 2024 Area Cost Adjustment only includes a Rates Cost Adjustment and a Labour Cost Adjustment, including an adjustment for Accessibility.

Baseline Funding Level (BFL)

The amount of an individual local authority’s Settlement allocation provided through the local share of retained business rates income. The intention is for Baseline Funding Levels to be updated in line with our updated distribution methodology, to ensure funding reflects local authority need.

Blending In

A form of Transitional Arrangement, by which authorities are moved to their new allocations over several years. Authorities’ ‘transitional allocations’ during the implementation period would represent a weighted average of: a ‘no reform’ allocation based on the existing system; and their updated ‘target allocation’ calculated using the new distribution methodology.

Business Rates Baseline (BRB)

An authority’s Business Rates Baseline is an estimate of the authority’s business rates income generating ability, last determined on an individual basis at the outset of the Business Rates Retention system. The intention is for these to updated as part of a Business Rates Reset, which we intend to consult on separately on in early 2025.

Business Rates Reset

A technical exercise to update our assessment of: how much business rates are available (updating Business Rates Baselines); and where they are needed (updating Baseline Funding Levels). We intend to consult separately on the Reset in early 2025.

Business Rates Retention System (BRRS)

Business rates are a tax on non-domestic properties. Billing authorities have a responsibility to issue bills and collect rates in their areas. Since 2013-14, local government has retained, as a whole, 50% of its business rates (excluding areas with increased Business Rates Retention arrangements). This income is subject to redistribution across local government via ‘top-ups’ and ‘tariffs’. Growth in an authority’s locally raised business rates can be retained above its Baseline Funding Level, subject in some cases to the payment of a levy.

Core Spending Power (CSP)

A measure of the revenue funding available for local authority services through the Settlement. This includes Council Tax; business rates; Revenue Support Grant; the New Homes Bonus; Social Care grants; and other grants.

Collection Rate

The percentage of Council Tax payable which is actually collected by the billing authority.

Council Tax Base

A measure of the Council Tax revenue available to each local authority. It is dependent on: the number of properties in their area for which Council Tax is liable; the Council Tax bands into which those properties fall; and potentially revenue forgone or gained due to Council Tax Discounts, Exemptions, Premia and Local Council Tax Support.

Council Tax Base is multiplied by Council Tax Levels to calculate a local authority’s actual Council Tax revenue.

The size of a local authority’s Council Tax Base is defined as the number of Band D equivalent dwellings, after accounting for Council Tax ‘Discounts, Exemptions and Premia’. Properties in other bands are set as proportions of Band D: for example, a Band H property is set as twice the value of a Band D, whilst a Band A property is two-thirds the value.

Council Tax Discounts, Exemptions and Premia

There are multiple categories of discounts, exemptions and premia for which local-authority level data is available. Some, such as the single person discount and student exemptions, are set nationally by central government. Others, such as the second homes discount, empty homes discount, empty homes premium and Local Council Tax Support are set with some local discretion.

Council Tax Referendum Principles

These mark levels of Council Tax increases (either in percentage or cash terms) above which a local authority must hold a referendum, which allows residents to approve or veto the increase. The comparison is made between the authority’s average Band D Council Tax Level for the current financial year and the proposed average Band D for the next financial year.

Council Tax Level

The amount of Council Tax charged, determined by individual authorities on an annual basis as part of their budget setting process. Whilst local authorities have discretion over the level of Council Tax they set, central government ensures that Council Tax-payers have the ability to veto excessive increases through a local referendum.

There are two options for the treatment of Council Tax Levels in the measure of Council Tax income: taking account of ‘actual’ Council Tax raised by every authority, deducting all (or a proportion) of this from their Settlement allocation; or making assumptions as to the amount each authority charges and can raise, and deducting an amount based on this assumption from their allocation.

Drivers of Demand

See Relative Needs Formula.

Extended Producer Responsibility (pEPR) income

The Department for Environment, Food and Rural Affairs’ Packaging Extended Producer Responsibility scheme requires producers of packaging material to pay local government for the collection, handling, treatment and disposal of packaging waste, incentivising the design of new, recyclable packaging. The scheme is launching in 2025-26, and will inject over £1 billion in new funding to the sector. This is a genuine uplift in the funding available to local government, as it will fund services that are already provided by local authorities. Whilst the distribution of pEPR payments will vary across England, the scheme intends to meet the full net costs of managing household packaging waste through EPR payments, where authorities operate efficient and effective waste management systems. The funding is in part intended to increase investment in local authorities’ waste collection and disposal activities.

Fixed Costs

The existing system includes a Fixed Costs element, which allows funding to be distributed to each authority on a per person basis.

Foundation Formula

A Relative Needs Formula proposed by the previous government, which could cover all local authority services not covered by a service-specific Relative Needs Formula. In order to reflect the structure of local government and the responsibilities of different tiers, the government would need to introduce separate formulae for upper and lower tier authorities.

Labour Cost Adjustment

See Area Cost Adjustments.

Local Authority

Local authorities are established under the Local Government Act 1972 to provide local services. There are five types of local authority: county councils; shire district councils; unitary authorities; London boroughs; and metropolitan boroughs.

In some areas of England there are two-tiers of local authority. In such areas, shire counties act as the ‘upper tier authority’, and shire districts as the ‘lower tier authority’. See Tier Splits for more information on how funding is allocated in these areas.

Fire and Rescue Authorities are also funded through the Settlement.

Local Authority Level Expenditure-Based Regression Modelling

A statistical technique used to account for variances in relative needs between local authority areas. This technique measures and compares the relationship between past expenditure on local authority services and independent datasets which potentially explain demand for services (‘drivers of demand’). These models attach a weighting to each driver of demand included in a Relative Needs Formula. The greater the extent to which a driver of demand explains the pattern of past expenditure, the more weight is attached to that driver of demand. The model estimates the average relationship between each driver of demand and past expenditure across all local authorities. This makes it possible to understand how much, on average, an additional unit of a particular driver of demand represents a change in spending need – and therefore how much of the funding available for distribution should be allocated. Allocations are therefore determined by the value for each demand driver in each authority.

Local Council Tax Support

Local Council Tax Support is provided to both low income pensioner and working age residents to help them pay their Council Tax. Whilst it is mandatory to provide a Local Council Tax Support scheme for both pensioner and working age residents, the level of support that is offered to working age residents is something over which local authorities have discretion. Local flexibility can be applied to both the design of the scheme (i.e. the level of support offered) and the eligibility criteria used to determine entitlement.

Local Government Finance Settlement

The local government finance settlement (the ‘Settlement’) is the annual determination of core funding to local authorities and fire and rescue authorities in England. The Settlement consists of grant, locally retained business rates and Council Tax. Settlement funding allocations are determined by the Settlement Funding Assessment.

Lower Layer Super Output Area (LSOA)

A statistical geography comprising between 400 and 1,200 households, usually with a resident population between 1,000 and 3,000 persons. Further information available here: Statistical geographies - Office for National Statistics

Multi-Level Modelling

A statistical technique used to account for variances in relative needs both between and inside local authority areas. Compared to the less sophisticated ‘Local Authority level Expenditure-Based Regression Modelling’, this has the advantage of helping to eliminate any undue impact that individual council expenditure decisions may have had on the pattern of relative needs identified. Multi-Level Modelling does this by taking data at the lowest level for which robust data is available - for example small geographic areas like Lower Layer Super Output Areas, or even at the level of individuals within the local authority - and combines this with hierarchical levels of data up to the unit of allocation (in this case, a local authority). 

New Burden

A New Burden is a policy or initiative that increases the cost of local authority services. The New Burdens doctrine states that the government department that introduces a policy must pay for the additional costs. New Burdens funding is paid through a Section 31 Grant to local authorities where it is not possible to pay through the Settlement. 

New Homes Bonus

The New Homes Bonus is paid to authorities in recognition of net additions to effective housing stock in their area. Most authorities receive some form of New Homes Bonus funding from central government.

Precept

A Council Tax charge from local authorities which do not issue bills themselves. These include county councils, police and crime commissioners, fire and rescue authorities, the Greater London Authority, combined authority mayors, and town and parish councils.  Billing authorities – usually shire district councils or unitary authorities – collect Council Tax on behalf of precepting authorities and pass the proceeds to them.

Rates Cost Adjustment

See Area Cost Adjustments.

Relative Needs Formula (RNFs)

A mathematical calculation which accounts for differences between local authorities in demand for (particular) local government services, using variables (‘drivers of demand’) which are predictive of likely service use, such as population and deprivation. In order to reflect the fact that some drivers of demand are more significant than others, each driver is weighted in the formula to reflect its relative importance. RNFs are distinct from Area Cost Adjustments, which account for factors that affect the costs of services.

Revenue Support Grant

Revenue Support Grant is paid from central government to authorities under section 78 of the Local Government Finance Act 1988. It is calculated through the Settlement Funding Assessment (SFA). It is in addition to their local share of business rates, as long as their Revenue Support Grant allocation through the SFA methodology has not fallen to, or below, zero.

Remoteness

See Area Cost Adjustments.

Sales, Fees and Charges (SFCs)

The means by which local authorities can charge for the delivery of a service. Sales, fees and charges (SFCs) can be used where legislation permits them to be used, in the case of a statutory service, or where no legislation prohibits a fee to be charged for discretionary services. SFCs are usually set at a level up to 100% of the cost of delivery.

Section 31 Grant

A Section 31 grant is a grant paid by the central government to local authorities in England under Section 31 of the Local Government Act 2003.

Settlement Funding Assessment

A local authority’s share of the local government spending control total, comprising its Revenue Support Grant and its Baseline Funding Level for the year in question. Last calculated for the 2013-14 Settlement, but it is proposed that this is updated from the 2026-27 Settlement.

The existing Settlement Funding Assessment is calculated using a ‘four-block model’, which consists of:

1. A ‘relative needs amount’, calculated using 15 relative needs formulae populated with 120 drivers of demand variables, chosen because they were considered at the time to be predictive of the costs that local authorities face when delivering different services;
2. A ‘relative resources amount’, which accounts for local authorities’ differing ability to raise Council Tax;
3. A ‘central allocation’, where for authorities below a certain threshold of need (as defined by the first 2 blocks), a per capita allocation was calculated instead; and
4. ‘Floor damping’, a Transitional Arrangement providing additional funding to local authorities that might have lost and scaling back the additional funding to authorities that might have won.

Spending Review

The Spending Review sets out the spending limits for government departments. HM Treasury announced the outcome of a 1-year Spending Review covering 2025-26 on 30 October, and will announce the outcome of a multi-year Spending Review in late spring 2025.

Strategic Authority (SA)

The English Devolution White Paper sets out the government’s plan to legislate to create the concept of a ‘Strategic Authority’ (SA). This role will usually be provided by Combined Authorities, Combined County Authorities, and the GLA. A statutory devolution framework will detail the responsibilities and functions that SAs can access at each level of devolution: Foundation, Mayoral, and Established Mayoral. The devolution framework – which details the powers at each level – is set out in the English Devolution White Paper.

Tier Split

Arrangements which determine how funding is allocated in areas of England with two tiers of local government (county councils and shire district councils) and/or where there are separate fire and rescue authorities. Tier splits are relevant both when assessing differences in demand and locally available resources. They are also relevant to the split of business rates, which will be consulted on separately as part of the accompanying technical consultation on the Business Rates Retention System.

Transitional Arrangements

Measures which determine how authorities reach their updated allocations. Could include: blending in updated allocations over several years; or a Funding Floor.

1. For definitions of capitalised terms in this consultation document, see the technical glossary at Annex C. ↩

2. How much public spending does each area receive? Local authority level estimates of health, police, school and local government spending. ↩

3. Autumn Budget and Spending Review Submission 2024. ↩

4. Financial distress in local authorities, page 18. ↩

5. Ibid, page 9. ↩

6. Based on analysis of the 2019 indices of deprivation and Band D Council Tax bills for 2024-25. ↩

7. Plan for Change. ↩

8. Autumn Budget 2024 – HC 295, paragraph 4.65. ↩

9. Local government finance policy statement 2025 to 2026. ↩

10. For example, independent research by the House of Commons Communities and Local Government Committee highlighted that a simplified needs assessment formula could achieve outcomes that were a good approximation of those of a more complex system: Reforming local authority needs assessment summary, October 2017. ↩

11. See Annex C for definitions of Local Authority Level Expenditure-Based Regression Modelling and Multi-Level Modelling. ↩

12. Population estimates for the UK, England, Wales, Scotland, and Northern Ireland: mid-2023. ↩

13. Maximising the quality of Census 2021 population estimates. ↩

14. Drivers of Activity in Children’s Social Care. ↩

15. Explanatory note on Children’s Social Care Prevention Grant methodology. ↩

16. Fair funding review: a review of relative needs and resources. ↩

17. Coronavirus (COVID-19): emergency funding for local government in 2020 to 2021 and additional support in 2021 to 2022. ↩

18. 2021 Area Cost Adjustment. ↩

19. Namely: ‘Discounts, Exemptions, Premia’; ‘Local Council Tax Support’; Council Tax ‘Collection Rate’; and the approach to Council Tax ‘Tier Splits’ in multi-tier areas. See Annex C for definitions of these terms. ↩

20. Local government finance policy statement 2025 to 2026. ↩

21. Business Rates Retention: A step-by-step guide. ↩

22. Plan for Change. ↩