Urgent call for reform of England’s local government funding system

13-12-2024

A new report from the Local Government Association (LGA), SOLACE, and CIPFA calls for urgent reform of the local government funding system, highlighting that an outdated and complex funding model is hindering councils’ ability to plan effectively and meet the growing needs of their communities.

Since the last significant reform in 2013 - with the introduction of 50 per cent business rates retention - councils have faced a steady erosion of financial resilience and unprecedented challenges from funding constraints, rising service demand, and inflationary pressures.

This has been exacerbated by increased reliance on short-term finance settlements, one-off grants and emergency support.

Alongside additional funding, the LGA, SOLACE, and CIPFA report – Reforming the Local Government Funding System in England - urges the Government to consider immediate interventions to address systemic issues, including the introduction of timely, multi-year financial settlements for councils and more clarity on system reform, including a review of the data and formulae underlying the funding allocation model.

This needs to be alongside a full-scale cross-party government review on options to improve the local government funding system as the current model is out-of-date, complex and opaque. The review of the system should look at the future of both council tax and business rates retention.

The bodies are clear that reform has the potential to drive inclusive economic growth, improve local services, optimise public expenditure, and strengthen communities across England.

CIPFA Chief Executive Owen Mapley, said:

“The local government funding system does not meet the needs of councils or the communities they serve. Its chronic short termism and complexity has left councils unable to deliver essential services in the face of mounting pressures. Without timely, multi-year settlements and a comprehensive review of funding mechanisms, councils will continue to face significant financial uncertainty, undermining their ability to plan effectively and respond to the needs of their communities.

 

“Reforming the funding model isn’t just about improving local government resilience—it’s about strengthening the foundation for economic growth, better public services, and stronger, more cohesive communities. CIPFA look forward to working with the government and with system partners to support the vital reforms needed, in the hope of delivering a fairer, more transparent, and sustainable funding system for local government.”

Cllr Pete Marland, Chair of the LGA’s Economy and Resources Board, said:

“Funding pressures and a lack of reform over recent years have weakened the financial sustainability of councils and left them with a complex, outdated funding system desperately in need of wholesale reform.

“Councils need a significant and sustained increase in overall funding to meet the requirements being placed on them but this alone will not address the multiple issues with the current funding system.

“Creating an improved and a more sustainable system for local government has the potential to strengthen the value for money of local spending and, most importantly, improve services for communities.”

Patrick Melia, Solace spokesperson for finance, said:

“The local government finance system is palpably broken.

“The system has been creaking at the seams for decades but the pressure exerted on it in recent years means it is now comprehensively failing to provide councils with the security of funding they need to reliably and effectively deliver for all of their communities. The result is weakened public services, hampered growth, and poorer outcomes for many, but in particular the most vulnerable.

“We need a rebooted local government finance system that is fit for purpose and delivers financially resilient councils and socially resilient communities who can better contribute to the wealth and success of the nation.”

Notes to editor