Consultation outcome

Annex: Summary of measures in the Fair Funding Review and glossary of key terms

Updated 20 November 2025

Summary of measures in the Fair Funding Review

Chapter 2: Determining local authority funding allocations

• Calculate an Fair Funding Assessment for 2026-27 by bringing together: an updated assessment of relative need; a new resources adjustment; an expanded approach to adjusting for differences in costs; and transitional arrangements.
• The calculation will account for local authorities’ ability to raise council tax, however local authorities will retain all council tax they raise locally.
• The government does not expect that any local authority will receive a ‘zero allocation’ within the Fair Funding Assessment over the upcoming multi-year Settlement.
• Maintain a bespoke arrangement for the Council of the Isles of Scilly because of its small population size, with a fixed amount apportioned between funding from locally retained business rates, and a top-slice of the Revenue Support Grant (RSG).

Chapter 3: Funding simplification

• Radically simplify the funding landscape from 2026-27 to provide local authorities with more flexibility and certainty over a greater portion of their income.
• The government is simplifying over 30 funding streams in total, worth nearly £47 billion across the multi-year Settlement. Currently, these funding streams are paid to local authorities through a mix of grants within the existing Settlement, and outside the Settlement by six different government departments.
• In the updated system, £21.5 billion of this funding will be delivered through four new ‘consolidated grants’ as part of the multi-year Settlement package.
• £25.3 billion will be rolled into the Revenue Support Grant, which is unringfenced funding within the core Settlement.
• We intend to simplify further funding streams, where appropriate, in future years.
• Publish adult social care ‘notional allocations’ to be used by local authorities as a reference point to support budget setting, and in conjunction with adult social care priorities to inform collective decisions about adult social care spending.

Chapter 4: Approach to assessing demand

• Use relative needs formulas to calculate how much ‘need’ a local authority has relative to other authorities for a particular services or group of services.

• Streamline our assessment of need to 9 formulas, which are:

  1. Adult social care - older adults
  2. Adult social care - younger adults
  3. Children and Young People’s Services
  4. Foundation Formula - Upper tier
  5. Foundation Formula - Lower tier
  6. Fire & Rescue
  7. Highways Maintenance
  8. Home to School Transport Service
  9. Temporary Accommodation
• The ‘Foundation Formula’ will assess demand for most non-social care services.
• Include bespoke formulas for individual services where there is a strong case that doing so improves the effectiveness of our overall assessment of need.
• No longer include ‘fixed costs’ and ‘legacy capital finance’ in the Foundation Formula.
• Use data from the updated 2025 English Indices of Multiple Deprivation in the foundation formula. This reflects the impact of housing costs’ on income deprivation. We will also use the 2025 Income of Deprivation Affecting Children Index (IDACI) in the Children and Young People’s Services formula.
• Use the latest 2024-25 Revenue Outturn data for weighting most formulas, except Home to School Transport which will need to be weighted using 2023-24 data, as the 2024-25 dataset will not be published until December.
• Include population projections in the Foundation Formula, Adult Social Care formula and Fire Rescue formula to provide a more up to date assessment of need.

Chapter 5: Approach to assessing cost

• Account for the relative cost of delivering services in local authorities when determining funding allocations.
• Apply local cost adjustments to the Relative Needs Formulas to account for the difference in costs of delivering services.
• Adjust for differences in labour costs, premises rates and accessibility within the Area Cost Adjustment (ACA).
• Measure journey times rather than sparsity as a better reflection of the cost of delivering services.
• Use Subjective Analysis Return (SAR) as broadly representative of the underlying local authorities by size and class.
• Apply a ‘remoteness adjustment’ when assessing the cost of delivering adult social care services. It will not be included in the ACAs applied to other formulas.

Chapter 6: Approach to resources

• Use a resource adjustment to equalise for councils’ ability to raise tax locally, to ensure areas receive a fair share of government funding.
• To fully equalise against the council tax base, set the notional council tax level at the average Band D level of council tax in England for authorities in scope of these reforms This means that for 2026-27 the notional council tax level will be £2060, for 2027-28 it will be £2160, and for 2028-29 it will be £2265.
• Fully include the impact of mandatory discounts and exemptions in the measure of taxbase.
• Use statistical methods as a proxy for the impact of Working Age Local Council Tax Support in the measure of taxbase. This approach will be a linear regression approach to estimate the proportion of Band D equivalent dwellings in a billing authority which receives Working Age Local Council Tax Support. We will also reflect the 2025 Indices of Multiple Deprivation, in line with our principle to use the most up-to-date data available.
• Assume that authorities make no use of their discretionary discount and premium schemes in the measure of taxbase. It will monitor the application of the Second Homes Premium and other schemes.
• Apply a uniform 100% council tax collection rate assumption in the resources adjustment, to send a clear signal to local authorities to minimise council tax avoidance.
• Uniformly split or allocate the resource adjustment in multi-tier areas according to the average share in council tax receipts in multi-tier areas.
• Within the measure of council tax base for the resource adjustment, use an average of student exemptions data (Class M & N exemptions) collected in May and September, rather than the September data only.

Chapter 7: Running the business rates retention system

• Proceed with a full reset of the business rates retention system.
• Proceed with an increase to the Safety Net to protect 100% of local authorities’ baseline funding level for 2026-27, moving down to the current level of 92.5% for most authorities over the multi-year Settlement.
• Redesign the levy rate for all authorities to better recognise the need to provide a meaningful reward for business rates growth, simplify the Business Rates Retention System and continue the levy’s role in funding the Safety Net.
• Beyond the multi-year Settlement, deliver periodic resets to the Business Rates Retention system to ensure funding allocations are kept up to date, to coincide with multi-year Settlements and business rates revaluations.
• Consider how the Business Rates Retention System could better, and more consistently, support Strategic Authorities to drive growth as part of the government’s reform of funding for local government.

Chapter 8: The New Homes Bonus

• End the New Homes Bonus and retain the funding within the wider Settlement.

Chapter 9: Transitional arrangements and keeping allocations up to date

• Phase in new Fair Funding Assessment allocations, moving local authorities to their new allocations in increments of one third over the multi-year Settlement (subject to funding floors summarised below).

• Support authorities which would see their income fall as a result of these changes, by protecting their 2025-26 income, including business rates growth, across the multi-year Settlement with a range of funding floor levels:

  • 100% income protection. For the majority of authorities (subject to the floors below), we will ensure 100% of their 2025-26 income is protected;
  • Real-terms protection. For standalone Fire and Rescue Authorities, we will provide a funding floor which protects their 2025-26 income in real-terms across the multi-year Settlement; and
  • 95% income protection. For upper tier authorities which are 15% or more above their Fair Funding Assessment, and which have council tax levels below the average, we will protect 95% of their 2025-26 income through a funding floor. For all lower tier authorities which are 15% or more above their Fair Funding Assessment, we will protect 95% of their 2025-26 income.
  • Recovery Grant Guarantee. Ensure that upper-tier authorities in receipt of Recovery Grant see an increase of at least 5% / 6% / 7% across the multi-year Settlement compared to their 2025-26 income, subject to a cap of £35 million per authority over the multi-year Settlement.
• Maintain Recovery Grant allocations for all recipients from 2025-26 across the multi-year Settlement.
• Have a framework in place for next year to support councils in the most difficult positions.
• Reward local authorities for housebuilding by excluding council tax base projections from the resource adjustment.
• Include council tax level projections in the resource adjustment calculations to fully account for local authorities’ income across the multi-year Settlement.
• Include residential population projections in Foundation Formula, Adult Social Care formula and Fire and Rescue formula.

Chapter 10: Devolution, local government reorganisation and wider reform

• At the Settlement, multi-year allocations will be set out based on existing structures. In recognition that local government reorganisation will change the structure of local authorities from April 2027, we will set a ‘funding envelope’ for the new local authorities created where areas reorganise. This envelope will be set by combining the allocations of the relevant local authorities in the year(s) of the multi-year Settlement following reorganisation.
• Where boundary changes take place as part of reorganisation, areas will need to agree a fair division of this funding how to divide an appropriate amount of funding for each new unitary. For example, if a county is divided in two, the two new unitaries will need to agree how to divide the funding due to the county council.
• Set a clear timeline, with a deadline for when agreements should be made: the June before vesting days for new unitaries.
• Provide guidance to councils on how to arrive at local agreements, via an external provider.
• Set out an intention to use a ‘backstop’ arrangement as a last resort if any area is unable to come to a local agreement. If a backstop is required, the Secretary of State for Housing, Communities and Local Government makes a determination on a fair division of relevant Settlement funding. The government will provide further detail on how this determination will be made in due course.
• Clarify that we will recalculate allocations for new unitaries once the relevant data becomes available to incorporate them into revised formulas, in the next multi-year Settlement.

Chapter 11: Sales, fees and charges

• Conduct a review of sales, fees and charges against the criteria set out in the Fair Funding Review 2.0.

Chapter 12: Relative Needs Formulas

• Include the formulas in the ‘Chapter 4’ row of this table.
• More detail on individual formulas can be found in Chapter 12 of the Fair Funding Review 2.0. The below sets out key elements of their design and recent changes following the consultation.

• Include an adult social care formula for older and younger adults

  • Formula will use population projections
  • Formula will include the latest population data in its need indicators

• Include a children’s and young people’s services formula

  • Formula will use the 2025 Index of Deprivation Affecting Children Index (IDACI), published as part of the updated English Indices of Deprivation
  • Formula will remove the parental qualifications variable
  • The overcrowding variable has been changed to overcrowding of households with dependent children
  • The ethnicity variable has been removed

• Include a Foundation Formula for upper and lower tiers, to assess relative need for most non-social care services

  • Formula will include data from the updated 2025 English Indices of Multiple Deprivation
  • Formula will include both daytime and residential populations
  • Commuter and tourist need will be of reduced importance relative to residential population need
  • Formula will use population projections

• Include a fire and rescue formula

  • Formula will include population projections

• Include a highways maintenance formula

  • Formula will include latest traffic flow data in its need indicator

• Include a home to school transport formula

  • Distance cap increased from 20 to 50 miles

Include a temporary accommodation formula

Glossary of key terms

Baseline Funding Level

The amount of an individual local authority’s Fair Funding Assessment provided through the local share of retained business rates income.

Business Rates Retention

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 between rates-rich and rates-poor authorities via top-ups and tariffs.

Core Spending Power (CSP)

A measure of the revenue funding available for local authority services. This includes council tax; business rates; Revenue Support Grant; and other grants.

Fair Funding Review 2.0

A consultation which ran from 20 June 2025 to 15 August 2025, and set out proposals on the approach to determining new funding allocations for local authorities and fire and rescue authorities.

Funding Floor

A policy decision that gives local authorities a minimum amount of funding or increase in order to ensure that local authorities are protected from reductions in funding made available.

Levy account

Within the operation of the business rates retention system some authorities pay a levy on business rates growth, which is used to cover the cost of Safety Net payments made to other authorities that have seen a decline in their business rates income. Levy and Safety Net income/payments are credited and charged to a specific levy account.

Revenue Support Grant (RSG)

Revenue Support Grant is paid from central government to authorities as part of their allocation of 2026-27 Fair Funding Assessment.

Safety net

A mechanism to protect any authority which sees its business rates income drop, in any year, by more than 7.5% below their baseline funding level for that year.

Fair Funding Assessment (FFA)

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. The Fair Funding Assessment also refers to how we are calculating this share of funding using our updated assessment of needs, costs, and resources in 2026-27.