Fair Funding 2.0 next steps: Turning promises into action for deprived communities

Posted on September 08, 2025

Full Council Tax equalisation and the use of deprivation indices mark a critical shift toward needs-based funding for local authorities, says Sir Stephen Houghton.

The government's Fair Funding 2.0 is a crucial opportunity to fix the broken funding system, and we were pleased to submit our consultation response and contribute to this landmark moment in local government finance.

SIGOMA represents many of the most deprived urban authorities in England, so the inclusion of our campaign ask to fully equalise Council Tax was very welcome. This means that the government will fully account for an area's ability to raise Council Tax: deprived areas will no longer be disadvantaged by their inability to raise as much money locally as more affluent areas, as equalisation will ensure that they get a higher proportion of grant to pay for vital services.

 We were surprised to see some colleagues from the sector misconstrue Council Tax equalisation as local taxpayers funding areas in other parts of the country, when in fact, it is a long overdue redressing of the imbalance in the system created by austerity and the long-standing failure to equalise the system properly. The devastating impact of the savage cuts made by the previous government meant that many deprived authorities were left with no choice but to increase Council Tax. This placed an unfair but inescapable burden on taxpayers in our member areas, many of which are on lower incomes, whilst authorities in the most affluent areas were able to keep Council Tax lower.

This commitment from the government to target money to where it is most needed began with the introduction of the Recovery Grant in the 2025-26 settlement, a lifeline for many authorities after a decade of damaging austerity, and continues with the vital inclusion of the Index of Multiple Deprivation (IMD) in Fair Funding 2.0. The use of the IMD in the Foundation Formula and the adjustment for Local Council Tax Support claimants, and the IDACI (Income Deprivation Affecting Children Index) in the Children's formula, will ensure that funding is based on need: a paramount principle that is long overdue, and one that would be undermined by any last-minute changes to the IMD.

While there are many elements to welcome, concerns have started to arise about some of the outcomes not living up to the government's welcome commitment to support the most deprived areas. These concerns were echoed by the Institute for Fiscal Studies (IFS), which found that a number of deprived urban areas could lose out from the reforms, including several in the North East. 

We finally have a government committed to directing funding to where it is most needed: a principle SIGOMA has long championed, so we expect that there will be enough flexibility in the system to deliver a truly fair funding settlement for all our members later this year. 

Cllr Sir Stephen Houghton, Chair of the Special Interest Group of Municipal Authorities (SIGOMA)

You can access the full article in the MJ here.