Local authorities across England are set to receive a massive financial injection of nearly £78 billion following a radical shake-up of council tax and funding rules announced by the government. This represents the first multi-year funding settlement for councils in over a decade.
Funding Fairness and Core Spending Power Surge
The central element of the plan is a dramatic increase in the core spending power available to councils. Compared to the 2024-25 financial year, authorities will see their spending power grow by over 23%. This money is earmarked for essential frontline services that residents rely on daily, including bin collections, housing support, and children's services.
In a significant move aimed at addressing regional inequality, the settlement deliberately targets support towards the most deprived areas. The most deprived 10% of councils will receive a funding increase of 24% per head. Ministers state this is designed to "fix the link between funding and deprivation" and create a fairer system across the country.
Council Tax Caps and New Rules for Residents
While councils are receiving more central government funding, new rules will also govern how much they can raise through council tax. Under the plans, annual council tax increases will be capped at 3%. An additional 2% precept will be permitted specifically for adult social care, recognising the severe pressures in that sector.
There are notable exceptions to this cap. Councils will be allowed to raise taxes above the limit only if their residents do not already pay more than the national average. Furthermore, six councils with historically very low bills will have complete freedom to raise council tax as they see fit. These are: Wandsworth, Westminster, Hammersmith and Fulham, the City of London, Kensington and Chelsea, and Windsor and Maidenhead. This is intended to balance the redistribution of more government cash to poorer areas.
Investing in Services and Communities
The government frames this settlement as a historic chance to reverse years of austerity in local services. Local Government Secretary Steve Reed declared it an opportunity to "turn the page on a decade of cuts". He urged local leaders to use the funding to reinvest in community assets, stating the goal is to "bring back libraries, youth services, clean streets, and community hubs".
Specific major investments accompany the broader funding boost:
- £4.6 billion extra for adult social care by 2028-29, including £500 million to improve care workers' pay, as a step towards a National Care Service.
- A £2.4 billion investment to transform children's social care.
- A new incentive for councils to keep all additional council tax revenue from new homes, designed to encourage local growth and support home ownership.
Minister of State for Local Government and Homelessness, Alison McGovern, emphasised the strategic goal: "Deprivation doesn't happen by accident – it's the result of years of broken systems and wrong priorities. This settlement tackles that head-on by directing funding where it’s needed most... This is how we deliver a fairer Britain where everyone has the chance to succeed."
The announcement, made on 17 December 2025, aims to provide three years of financial certainty for local authorities, allowing them to plan long-term for the restoration and improvement of vital public services.
