Significant pressures remain despite funding increases for councils
When the provisional local government finance settlement for 2025/26 is published in December, it will contain an additional £1.3 billion in grant funding for councils in England.
The £1.3 billion – announced by Chancellor Rachel Reeves MP in her first UK Budget last month – includes at least £600 million for social care.
Together with council tax flexibilities and locally retained business rates, this will provide a real-terms increase in total core spending power of around 3.2 per cent.
In its initial response to the Budget, the LGA said this was “encouraging” and would help meet some – but not all – of the significant pressures in councils’ adult and children’s social care, and homelessness support services.
While councils will want to see more detail on the £600 million for social care, the Government needs to give clarity on whether councils will be protected from the extra cost pressures from increases to employer National Insurance (NI) contributions for directly employed and contracted out services.
Care providers will likely expect to see their increased NI costs reflected in their fees paid by councils – almost certainly absorbing all of the grant increase for many councils, leaving little or nothing to address immediate challenges such as long waiting times for care needs assessments or the start of care packages.
Other measures announced in the Budget for our sector – including the ‘extended producer responsibility’ scheme for packaging (pEPR), a funding uplift for special educational needs and disabilities (SEND) support, the extension of the Household Support Fund to March 2026, and funding for bus service improvement plans, local roads maintenance, homelessness pressures, and a kinship allowance pilot – represent more than £4.5 billion in additional funding.
Around £1.1 billion of that funding in 2025/26 will be for implementation of the pEPR scheme, to improve how packaging waste is dealt with from January 2025 .
The LGA has welcomed the pEPR and that funding for it will be treated as ‘additional’ income in 2025/26 (separate from the local government finance settlement). But in the longer-term, UK councils need to receive the full actual costs for delivering local waste and recycling services rather than estimates, as £1.1 billion may be lower than what is needed to deliver packaging waste services.
An extra £1 billion for children with SEND is positive but now needs to be followed by fundamental reform of the SEND system, focusing on improving inclusion in mainstream settings and writing off councils’ high needs deficits.
The Budget confirmed plans to charge private schools 20 per cent VAT and remove business rates relief, but also to compensate councils and devolved governments for the VAT they are charged on fees for SEND pupils whose needs can only be met in a private school.
Private schools that are “wholly or mainly” concerned with providing full-time education to pupils with education, health and care plans will remain eligible for business rates charitable relief.
Reflecting the concerns of some councils that these changes may result in children moving from fee-paying to state schools, the LGA has called on the Department for Education to monitor their impact.
“Looking ahead to the spending review, it is critical that the Government provides a significant and sustained increase in overall funding for local government”
The LGA was also pleased that the Government is providing extra funding to continue children’s social care reforms and to pilot a kinship allowance, and will set out plans to promote early intervention to help prevent children and families reaching crisis point in the first place.
Other announcements in respect of children and young people included an additional £1.8 billion to continue the expansion of government-funded childcare and help more parents, particularly women, stay in and return to work; more than £30 million for the roll-out of free breakfast clubs next year; and £69 million to continue delivery of a network of family hubs.
As set out in recent LGA research, local authorities are particularly concerned about the childcare expansion in September 2025 and have long raised concerns around funding and support for the workforce.
Additionally, the Budget includes some positive measures that the LGA has called for, such as on Right to Buy reform and affordable housing, and funding of £500 million for potholes, which will help councils repair roads, build new homes and improve existing homes.
Measures include a £500 million boost to the Affordable Homes Programme to build up to 5,000 additional affordable homes; and reducing discounts on the Right to Buy scheme and enabling councils in England to keep all the receipts generated by sales.
The LGA has long made the case for reform of Right to Buy, and for councils to be empowered to build more affordable, good quality homes quickly and at scale.
In the long term, the Government should roll out five-year local housing deals to all areas of the country that want them – combining funding from multiple national housing programmes into a single pot.
This will provide certainty and efficiencies and could support delivery of an additional 200,000 social homes in a 30-year period.
The Chancellor also announced £233 million of additional spending in 2025/26 on homelessness, taking total spending to £1 billion. While this will help to prevent increases in the number of families in temporary accommodation and help to prevent rough sleeping, councils are spending more than £1.74 billion to support over 117,000 households in temporary accommodation in 2024.
“The Government should roll out five-year local housing deals to all areas of the country that want them”
The LGA is disappointed the Government did not use the Budget to address the temporary accommodation subsidy gap, currently stuck at 2011 levels, as this is driving ever-higher spend on temporary accommodation and limiting the resources available for homelessness prevention.
However, the £1 billion extension to the Household Support Fund and Discretionary Housing Payments, including Barnett impact for Wales, will help councils continue to provide welfare support to vulnerable households.
Elsewhere, the Budget commits to multi-year finance settlements from 2026/27 – something councils and the LGA have long called for to enable sustainable long-term financial planning.
It also promises a comprehensive set of finance reforms – including redistribution of funding through the local government finance settlement – to return the sector to a sustainable position.
In its response to the Budget, the LGA says the Government should provide certainty and clarity over financial reforms, making sure the sector is properly engaged, and consulting on any potential changes in a timely manner.
Looking ahead to the spending review due next spring, it is critical that the Government provides a significant and sustained increase in overall funding for local government that reflects current and future demands for services, including a new focus on prevention.
- For more on the issues raised here and the many other announcements in the Budget – including on asylum and resettlement, building safety, business rates, devolution, domestic abuse, flooding, local growth, mental health, net zero and clean energy, planning, skills and workforce, and transport – please read the LGA’s comprehensive Budget briefing.
