A leading think tank and the largest association of local councils say that the funding from central government that has been announced this week is still not enough to deal with steepling increases in costs faced by town halls across the country.
The funding package provides an above-inflation 6.8% increase in councils’ spending power compared to 2024-2025, although the increase in costs faced by councils has risen even more steeply.
In the House of Commons, Angela Rayner, the Deputy Prime Minister, said, “With increased demand and running costs rising, this money is a lifeline and will guarantee no council sees a decrease in their core spending power.”
The government has allowed a clutch of councils to increase Council Tax in April by more than the 4.99% maximum. Council Tax will increase by 10% in Bradford, by 9% in Newham and in Windsor and Maidenhead, and by 7.5% in Birmingham, Somerset and Trafford. Birmingham’s Council Tax increased by 10% last year, too.
In Croydon, having hiked Council Tax by an eye-watering 15% in 2023, Tory Mayor Jason Perry will be hitting residents with another 5% increase this April, meaning that Council Tax has risen by 27% in two years since he took over at the Town Hall.
Rayner’s Commons speech was hardly full of hope and bright, sun-lit uplands… “Change will not happen overnight, but this settlement marks the beginning of the government’s commitment to rebuild and stabilise local government and run services that taxpayers can rely on.”
‘Change will not happen overnight’: Angela Rayner announced the council funding settlement in the Commons
Rayner claimed that this year’s settlement is the first “multi-year settlement” – with spending plans laid out over more than a 12-month period, in a decade, something that local council chiefs have been calling for.
“We will begin introducing an up-to-date assessment of councils’ funding needs and financial resources, allowing local government to plan for the long-term and deliver best value for taxpayers’ money,” Rayner said.
But as the think-tank the Institute for Fiscal Studies noted, this coming financial year, “… will continue the trend of substantial above-inflation increases in funding for English councils. Unfortunately, their costs have also been outpacing inflation, and with a tighter outlook for funding from central government looming from 2026–2027 onwards, tackling the demand and cost drivers impacting councils’ budgets is becoming increasingly urgent.”
In Croydon under Conservative Mayor Perry, the council is predicted to overspend its budgets by £130million across the 2024 to 2026 financial years.
The government’s settlement confirmed this week includes some compensation for employer National Insurance contributions increases, “but still falls short of what is desperately needed to cover them all”, the Local Government Association said.
“This financial year therefore remains extremely challenging for councils of all types who now face having to increase Council Tax bills to bring in desperately needed funding next year yet could still be forced to make further cuts to services.”
The LGA says that the £515million allocated towards increase National Insurance costs “still falls short of the £637million we have estimated it will cost councils next year due to directly employed staff”.
The LGA warned that indirect National Insurance cost increases, through outsourced service providers, will cost councils up to an extra £1.13billion next year.
“While we are pleased that councils will receive extra social care funding, which will help towards these indirect costs, it is hugely concerning that employer NICs costs have not been fully funded,” the LGA said.
“This will exacerbate the already unsustainable pressures facing vital services.”
Read more: Labour accuse Perry of ‘mismanagement’ of Town Hall finances
Read more: ‘Mayor and CEO are respected and provide strong leadership’
Read more: Croydon In Crisis: budget overspend now close to £100m
Read more: Cash-strapped council’s Mayor wants to give himself a pay rise
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