A turning point for local government funding

Posted on March 20, 2026

Over the past 15 years, councils representing the most deprived communities have faced devastating real-term cuts in funding. 

By 2023/24, the top 10 per cent most deprived councils in England had seen a real-term cut around three times as high as the least deprived 10 per cent of councils. 

This was caused by a combination of significant cuts to grant funding – on which the most deprived councils are more reliant – and council tax and business rates growth making up an increasing share of council funding (both of these funding sources raise more in the most affluent areas). 

This was why the introduction of the £600 million Recovery Grant in 2025/26 was such a crucial and welcome intervention. 

The Recovery Grant was targeted at those places with high levels of deprivation and low council tax bases – exactly the kind of areas that had seen the biggest cuts under austerity. 

Indeed, the authorities that received the Recovery Grant in 2025/26 had seen a real-term cut in funding (-20.6 per cent) more than double that of the authorities that did not receive it (-9.7 per cent). 

The Recovery Grant was a lifeline for many of our members representing the most deprived communities. They benefited from three-quarters of this additional funding, which enabled them to invest in new services for the first time in over a decade. 

However, it was clear that more fundamental reforms were needed to create a fairer system, as the core part of the finance system remained broken. 

Seizing the opportunity presented by the Government’s Fair Funding Review 2.0, we launched ‘Towards a fairer future’, our campaign to lobby for a fairer funding system, in Parliament in March last year. 

Central to this would be ensuring that the wide-ranging ability of councils to raise council tax was properly recognised when grant funding was allocated. 

‘Full equalisation’ would result in a significantly fairer distribution of funding and ensure that affluent authorities with the largest council tax bases would no longer have their low council tax bills in effect subsidised by the rest of the country.  

We were very pleased that the Government delivered on this ask in full, while also building in recognition of the fact that the most deprived areas have to provide more significant local council tax support schemes. 

Importantly, on top of this, the Government has recognised that the recovery is not over, with many of the most deprived areas still recovering from the impacts of austerity. 

In this context, the continuation of the Recovery Grant for three more years, and the introduction of the Recovery Grant Guarantee ensuring real-term increases as a minimum, were very welcome. 

It is also very welcome that the Government listened to our concerns following the provisional settlement about the outcomes for some of our members, and subsequently delivered a £440 million uplift to the Recovery Grant targeted at deprived areas that were to see lower increases in funding. 

This announcement, in addition to the positive news about SEND deficits, followed by the well-received Schools White Paper, means that the final settlement marks a turning point for local government funding.

You can read the article in Local Government First here.