Labour MPs representing constituencies across the north-west of England are preparing to mount a significant rebellion against the government's proposed local funding settlement, which they argue systematically disadvantages northern towns. The dispute centres on a three-year provisional settlement announced last year that MPs claim fails to address the specific deprivation challenges faced by their communities.
Growing Pressure on Ministers
MPs from the Liverpool city region have formally written to Local Government Secretary Steve Reed, urging him to reconsider the settlement's terms. Their concerns have been amplified by a parallel letter from Steve Rotheram, the Labour Mayor of the Liverpool City Region, who has also called for increased investment in northern towns including Wigan, Warrington, and St Helens. With the settlement due for a vote in the House of Commons, several MPs have indicated they are prepared to vote against it to force a government rethink.
Constituency Concerns and Electoral Pressures
One Labour MP, speaking anonymously, highlighted the political urgency of the issue, noting that many north-western MPs are facing significant challenges from Reform UK at the next election. "This is causing a lot of angst among north-western MPs," the MP said. "A lot of whom are facing a challenge from Reform UK at the next election and need their constituents to be able to feel the effect of the investment the government is putting in."
Anneliese Midgley, the Labour MP for Knowsley, articulated the core complaint in the Commons last week, stating: "In Knowsley where deprivation is driven by low incomes, the provisional local government settlement doesn't meet the needs we face."
The Deprivation Index Dispute
At the heart of the controversy is the government's methodology for allocating funds. While ministers have framed the settlement as redistributing money away from the south towards major cities in the north and Midlands, MPs and council leaders in northern towns argue their areas are losing out. They contend the allocation formula, which partially bases funding on housing costs, is flawed. They assert that deprivation in their regions stems primarily from low incomes, not high housing costs—a problem more acute in London and the south-east.
Jim McMahon, MP for Oldham West and a former local government minister, acknowledged the government's efforts to stabilise local government but identified a critical shortfall. "Everybody accepts that the government has done a significant amount to stabilise local government and reflect that deprivation is a driver of cost and need," he told the Local Government Chronicle. "Where MPs see there is a gap is when they go back to their local authorities who are taking budgets to council that will see more cuts as rocketing demand for children's services, adult social care and temporary accommodation are still eating into budgets." McMahon has called for an extra £400 million annually to be added to a "recovery grant" for councils with the highest need.
Council Leaders Voice Their Opposition
Stephen Houghton, the Labour leader of Barnsley Council, was blunt in his assessment: "The inclusion of housing costs in the deprivation index has moved money that should have been going to the north back to the south."
Analyses by local government bodies paint a concerning picture of the financial landscape. Calculations by the Special Interest Group of Municipal Authorities (SIGOMA), representing 49 urban authorities, suggest dozens of councils face real-terms cuts in central government funding over the next three years. A separate Local Government Association (LGA) analysis indicates approximately 15 top-tier councils and 115 district councils in England—many in London and the south-east—will experience real-term reductions in total funding.
Rising Risk of Council Insolvency
Local authority leaders warn that an increasing number of councils may be forced to seek special financial support to avoid effective bankruptcy. Last year, a record 30 councils in financial distress relied on Exceptional Financial Support (EFS) totalling £1.5 billion. More applications are anticipated this year due to soaring costs in social care, homelessness services, and other demand-led areas.
EFS allows councils to meet their legal obligation to balance budgets through mechanisms like loans, asset sales, or council tax increases above normal caps. Recent recipients include high-profile insolvent councils such as Birmingham, Thurrock, and Croydon.
Louise Gittins, Chair of the LGA, issued a stark warning: "Government should urgently provide additional new funding to protect councils from real-terms cuts and work with councils on deeper, long-term reform so local services remain financially sustainable and communities get the support they need."
The Ministry of Housing, Local Government and Communities has been approached for comment on the MPs' concerns and the potential rebellion. As the vote approaches, the pressure on Keir Starmer's leadership to manage this internal dissent while advocating for northern communities continues to intensify, highlighting a critical tension within Labour's regional policy agenda.
