Guidance

Technical note: Changed approach to allocation of pooling gains in 2025-26 income baselines

Published 9 February 2026

Applies to England

1. In implementing the Fair Funding Review 2.0, the government has stated its intention to put in place transitional arrangements to phase-in the funding reforms. As part of those arrangements the government proposed to set a baseline representing a definition of each authority’s 2025-26 income, against which each local authority’s new funding allocations would be phased-in and income protection calculated.

2. In its response to the Fair Funding Review 2.0 consultation the government stated that baselines would include current business rates income, including locally retained growth and s.31 grant compensation paid in connection with the business rates retention system, growth retained in enhanced retention areas, and an estimate of local authority pooling benefits in 2025-26.

3. The government’s reset policy paper, published alongside the local government policy statement on 20 November, set out further details of the planned baseline calculation.  To ensure that the benefit of pooling could be incorporated in a proportionate way, the paper stated that an assumption would be made as to how the pooling benefit was distributed between pool members. The paper explained that this was necessary as the government does not collect data on how the impact of pooling affects business rates retention income for each local authority in a pool.

4. A calculator was published alongside the reset policy paper to assist local authorities in understanding how the government had estimated their 2025-26 business rates income for the purposes of delivering the transitional funding arrangements that would be shared as part of the provisional local government finance settlement. The method employed in the calculator assumed any levy gain from the pool was to be split out in proportion to the pre-pooling levy each local authority would have been liable for.

5. The provisional settlement consultation published indicative transitional funding figures for local government that included use of this method to distribute pooling gains. In the provisional settlement consultation (3.1.4b) the government again highlighted the method used to distribute pooling gains and asked respondents for comments on that approach as part of the consultation.

Method change for final Settlement

6. Following feedback received across the settlement process, including a number of responses to the provisional settlement consultation, the government agrees that the original method used was not representative of how local authorities generally share pooling gains locally. Some stakeholders have put forward alternative distribution methods to share out pooling gains more equitably, better reflecting local arrangements. The government agrees that a change would better meet the stated policy intention.

7. The initial methodology allocated pooling gains only to local authorities who but for the pooling arrangements would have paid a levy and hence have contributed to the pooling gain. However, in practice, gains from pooling are shared out across all pool members.

8. The government’s policy across this process has been to make the best estimate, as far as practicable, of each  authority’s 2025-26 income. Feedback recognised the importance of this in delivering transitional arrangements. With this in mind, the government agrees that the initial methodology by which pooling gains were distributed could be significantly improved. Therefore government has changed the method used in the final Settlement to better estimate local authority current income.

9. The new approach still allocates pooling gains within the locally pooled area. It distributes gains more equitably across 2025-26 income baselines within each pool which is more reflective of how pooling arrangements work. Final Settlement transitional funding allocations will change for some authorities as a result of this compared to indicative allocations published as part of the provisional Settlement consultation.

10. A summary of the revised method is set out below. The government has also published a new calculator for 2025-26 business rates retention income which feeds into to wider income baseline positions from which transitional funding arrangements are calculated from. The previous calculator, published alongside the reset policy paper, has been removed to avoid confusion.

11. To help councils adjust to this change, the government will provide a one-off Adjustment Support Grant in 2026-27 to authorities who would otherwise see their Core Spending Power reduce in 2026-27, compared to allocations set out at the provisional Settlement. Allocation for this grant are set out within the Settlement.

Revised method

• The overall pooling gain is calculated by comparing the difference between the levy that the pool is liable for and the sum of the levies that each pooling member would have been liable for outside of the pooling arrangement.
• The pool gain is then divided into two pots and is apportioned out across pool members by following the below approaches.
  • 50% to tariff authorities in the pool based on the share of individual levy contributions
  • 50% to top-up authorities in the pool using share of BFLs.