Joanne Pitt, Senior Policy Manager
December saw the floodgates open for local government consultations, including the white paper on devolution in addition to consultations on local audit, strengthening standards, funding reform and pensions - all released alongside the 2025-26 local government provisional settlement. And while deadlines vary, the challenge of resourcing responses is concerning. Reaching the right solutions requires sustained and well-informed input, as well as high-quality challenge and debate.
As a veteran of the 2016 Fair Funding Review, I am aware that while consensus around principles is relatively easy, progress slows significantly when delving more deeply. Despite the challenges, progress is essential. Here are my observations on the provisional local government finance settlement 2025-26 consultations.
CIPFA CEO Owen Mapley has welcomed the additional funding, particularly for social care – a critical issue for local authorities - and recognised the need for further reform. We also welcome the consolidation of four grants into the Revenue Support Grant, which simplifies the funding landscape.
Transparency and funding conditions
A key area for improvement lies in transparency. Delays in disclosing the specifics of allocated funding, particularly new funding, complicates budgeting. For instance, the conditions for the Children’s Social Care prevention grant will only be published alongside the final settlement. While additional funding is welcome, uncertainty around accompanying conditions hampers financial planning. Going forward, such conditions should be included in policy statements to enable better financial decision-making.
National insurance concerns
The changes to National Insurance contributions announced in the budget remain a significant concern for local government. Many council employees, particularly within the care sector, fall in this bracket. While the government hinted at compensation, the funding of £515m appears more like a contribution, leaving councils to absorb additional costs.
Compounding the issue, allocations will be based on 2023-24 Revenue Outturn data and published at the final settlement. This delay creates gaps in budget figures, leaving many councils struggling to stretch their funding. CIPFA urges the Ministry for Housng, Communities and Local Government (MHCLG) to clarify funding sooner. The fact remains, compensation and contribution are not the same thing. Councils can manage challenges effectively only when the full picture is provided in advance.
IFRS 9 statutory override
My final comment on the provisional settlement revolves around the impact of IFRS 9. CIPFA has consistently maintained that the override on pooled investments should end as soon as possible.
While there are difficulties with removing this statutory override, the sector remains in the same position as that of October 2022. Fair value movements on investments in pooled funds should impact the general fund of local authorities, aligning with high standards in financial reporting that improve financial and risk management.
If the override is extended, CIPFA and ICAEW recommend a time-limited extension with a defined scope. This approach balances the need for stability with the importance of adhering to sound financial principles.
While the sector has faced worse settlements in the past, the increased funding - especially for vulnerable groups - is welcomed. In addition, the approach to recovery grant allocation, while not outright reform, hints at a direction of travel. CIPFA emphasises that sustained progress requires greater transparency, timely communication of funding conditions, and adherence to high reporting standards. These elements are crucial for ensuring local authorities can manage their finances effectively and continue delivering critical services.