Guidance

Explanatory note on the City of London’s bespoke treatment

Published 9 February 2026

Applies to England

This note outlines how the City of London (the “City”) is treated within local government funding reform and the multi-year Local Government Finance Settlement 2026-2029. It sets out why the City requires bespoke treatment, the assumptions used within this bespoke treatment and the methodology that has informed these indicative allocations.

Context

Amongst the authorities eligible for income protection, the City is unique in the extent it has benefitted from growth in business rate income above their baseline funding level. Protecting such a large amount of income, which is not allocated based on need, must be carefully considered in terms of value for money to taxpayers. The City is also an extreme outlier in its Core Spending Power per person.

Indicative allocations, proposed engagement and consultation

At the provisional Settlement, the government provided the City with a provisional allocation for 2026-27 only, noting we would protect 95% of the City’s 2025-26 income (including business rates growth). The City received multi-year allocations for consolidated grants, namely: the Homelessness, Rough Sleeping and Domestic Abuse Grant; Children, Families and Youth Grant; Public Health Grant; and Crisis and Resilience Fund.

In response to the City’s consultation response and further engagement with the City, at the City’s request we are now publishing full indicative Settlement allocations for 2027-28 and 2028-29 to support the City’s financial planning. These indicative allocations are a continuation of our consultation with the City and subject to further engagement. Following this engagement, we will consult on proposals later this year as part of the provisional Local Government Finance Settlement 2027-28.

The City’s change in income is largely driven by the business rates reset. There are strong value for money considerations when considering protection of this income. The City’s indicative allocations have therefore been calculated by applying a £50 million cap to the level of business rates growth in scope of income protection, which will put the amount of the City’s income protection in a similar position to that of other authorities.

Through the proposed indicative allocations, the City would receive the highest Core Spending Power per person of any local authority across the multi-year Settlement. The City would also still receive the largest payment of income protection in each year of the multi-year Settlement. Further details on the calculations are laid out below.

In addition, for 2027-28 and 2028-29 we propose the City will have council tax referendum principles removed, reflecting their significantly lower-than-average bills, enabling them to rebalance disparities in their council tax levels should they wish to.

We will continue to engage with the City on the approach and indicative allocations, as well as the future of their bespoke arrangements through the business rates retention system, and consult later this year.

Assumptions made within the City of London’s bespoke treatment

Funding Component	Assumption
Business Rates Growth	In 2027-28 and 2028-29, a cap of £50 million is applied to all authorities’ 2025 Business Rates income above Baseline Funding Level in scope of income protection.
Council Tax	Not setting referendum principles for 2027-28 and 2028-29, as per arrangements for 6 authorities with the lowest council tax levels of any upper tier authorities in England. Assume that these authorities increase their council tax by 5% plus an additional £150 in each of 2027-28 and 2028-29 for the purposes of calculating their income protection allocations in these years, although decisions on whether to increase council tax levels and by what amount are for local authorities to make.

Methodology for calculating the City of London’s 2027-28 and 2028-29 indicative allocations

Our approach to implementing the proposed policy that no authority can receive transitional payments on more than £50 million of 2025-26 business rates income above baseline funding level would be:

1. Generate two values of 2025-26 business rates income – (A) without income cap, (B) post income cap;

2. (A) will be used in all three years for the City’s share of total 2025-26 legacy funding for the purpose of phasing in calculations;

3. (A) will be used to calculate total 2025-26 income for the purposes of the City’s 2026-27 income protection floor;

4. (B) will be used to calculate total 2025-26 income for the purposes of the City’s 2027-28 and 2028-29 income protection floor.