The Local Government Finance Settlement 2026 distributes £77.7 billion in Core Spending Power to English councils for 2026-27, rising to an estimated £84.6 billion by 2028-29, and it is the first multi-year settlement in a decade.1 Published on 9 February 2026 and approved by the House of Commons two days later, it rewrites how money reaches councils through a new needs-based formula, a full reset of business rates retention, and the consolidation of 17 separate grants into a single un-ringfenced pot. The direction is redistributive: urban and deprived areas gain, district and rural councils tighten.
What Is Locked In and For How Long
The settlement covers three financial years: 2026-27, 2027-28, and 2028-29. Final allocations for the second and third years will be confirmed in their respective years after consultation, but every council received indicative figures for the full period to support planning. That certainty is itself the point, delivering a manifesto commitment to move away from single-year announcements.
Across the three years, the government says it is providing more than £5.6 billion in new grant funding for local services, with over £4 billion of that flowing through the annual settlements. By 2028-29, Core Spending Power is projected to be 15.5 percent higher in cash terms than in 2025-26, an increase of more than £11.4 billion.
The New Funding Formula
The distribution engine is Fair Funding Review 2.0, the first full reassessment of councils’ relative needs since 2013. It uses nine formulas covering adult social care, children’s services, highways maintenance, temporary accommodation, fire and rescue, and other service blocks, each weighted according to its share of total council spending.
The inputs are refreshed: 2025 population figures, population projections, the 2025 English Indices of Multiple Deprivation (which now uses income after housing costs), and recent traffic flow data for highways. An area cost adjustment accounts for local differences in labour costs, property rents, journey times, and remoteness, with the remoteness element applied specifically to adult social care. A resource adjustment based on the national average council tax rate stops councils being rewarded or penalised for their own tax-setting choices.
The shift to the new formula is phased in thirds. Councils move one-third of the way toward their new “fair funding share” in 2026-27, two-thirds in 2027-28, and reach full implementation in 2028-29. Income protection floors guarantee that no council falls below 95 percent, or in some cases 100 percent, of its 2025-26 cash-terms funding during the transition. The government estimates it will spend £560 million on these floors by 2028-29, plus a further £100 million on a real-terms floor for recovery grant recipients.
Grants Rolled Into the Revenue Support Grant
The settlement folds 17 previously separate funding streams into the un-ringfenced Revenue Support Grant, worth £11.66 billion in total. Consolidated streams include the Social Care Grant, the Market Sustainability and Improvement Fund, the New Homes Bonus, employer National Insurance contributions funding, the War Pensions Disregard, and the Social Care in Prisons grant.
The New Homes Bonus was ended outright. The government concluded it was “not an effective incentive,” arguing it often rewarded councils for housing that would have happened anyway; its roughly £290 million annual budget was returned to the core settlement for distribution through the new needs formula.
Four ringfenced grants sit outside the RSG: the Homelessness, Rough Sleeping and Domestic Abuse Grant (£2.7 billion over the settlement period, including a £272 million top-up in the final round); the Children, Families and Youth Grant; the Public Health Grant; and a new Crisis and Resilience Fund. A Recovery Grant of £2.6 billion over three years targets councils hit hardest by historic funding cuts, with a £440 million uplift added at the final settlement for upper-tier authorities whose total funding increase would otherwise fall below 17 percent. Mayoral capacity funding stands at £138.6 million over three years, and fire and rescue receive an additional £15 million.
Business Rates Reset
The settlement resets the business rates retention system for the first time since its 2013-14 launch, redistributing the “vast majority” of growth that individual councils had accumulated over the intervening 13 years. Every council received a new business rates baseline, a new baseline funding level, and recalculated tariffs or top-ups based on the Fair Funding Review 2.0 needs assessment. Income from designated areas and qualifying renewable energy schemes is exempt from the reset.
The old flat 50 percent levy on growth above baseline is replaced by a marginal structure. Councils retaining between 100 and 110 percent of their baseline funding level pay a 10 percent levy; 110 to 200 percent, a 30 percent levy; above 200 percent, a 45 percent levy. The safety net threshold, below which central government compensates losses, was raised to 100 percent of the baseline for 2026-27, stepping down to 97 percent in 2027-28 and 92.5 percent in 2028-29.
Business rates relief granted by government will now be compensated through section 31 grants routed via collection funds rather than general funds. Local government income from business rates will be indexed to CPI, with central government absorbing the cost of new rate multipliers.
Pooling gains proved contentious. The final methodology splits gains 50:50 between top-up and tariff pool members, but the change still reduced estimated 2025-26 baseline income for shire districts by £113 million while increasing it for shire counties by £90 million. All 11 business rates pools proposed at the provisional settlement stage were later revoked at the request of the authorities involved. A one-off Adjustment Support Grant, weighted toward shire districts (£89.6 million) and the City of London (£20.8 million), cushions the impact for 2026-27, though no further support has been announced beyond that year.
SEND Deficit Write-Off
Alongside the core figures, the government committed to writing off 90 percent of councils’ historic deficits from Special Educational Needs and Disabilities overspending on the Dedicated Schools Grant’s high needs block up to the end of 2025-26. Total accumulated SEND deficits are estimated at around £5 billion. Councils must submit a local SEND reform plan to access the write-off, which will be delivered through a “high needs stability grant” in 2026-27. Officials described the residual 10 percent liability as a deliberate incentive to keep councils engaged in reform. From 2028-29, the government plans to fund SEND centrally within departmental spending limits.
Council Tax Referendum Limits for 2026-27
Councils can raise council tax by the following amounts before triggering a local referendum:
- County and unitary councils with social care responsibilities: 5 percent (3 percent general, plus a 2 percent adult social care precept).
- District councils: 3 percent or more than £5 on a Band D property, whichever is greater.
- Fire and rescue authorities: more than £5 on a Band D property.
- Police and crime commissioners: more than £15 on a Band D property.
- Greater London Authority: more than £20.13 on a Band D property.
Several councils in severe financial difficulty received individual permission to exceed these limits. Birmingham, Somerset, and Trafford were allowed 7.5 percent; Newham and Windsor & Maidenhead up to 9 percent; and Bradford up to 10 percent. The government expects these bespoke increases to raise roughly £45 million between them.
For 2027-28 and 2028-29, the government plans to remove referendum principles entirely for six authorities with the lowest council tax levels: the City of London, Hammersmith and Fulham, Kensington and Chelsea, Wandsworth, Westminster, and Windsor and Maidenhead. The equivalent of over £250 million will be redirected toward areas with higher assessed need.
Who Gains and Who Loses
The government says that by 2028-29, nine in ten councils will have funding broadly matching their assessed need, up from around one in three previously. The most deprived tenth of areas are projected to receive 46 percent more core funding per person than the least deprived tenth, up from a 26 percent gap in 2025-26. Between 2024-25 and 2028-29, funding for the most deprived decile is set to grow by 23.3 percent on average, while the least deprived decile sees 4.1 percent growth, close to zero in real terms.
District Councils
District councils are the most clearly disadvantaged group. The Institute for Fiscal Studies found that 70 percent of shire districts are projected to see their funding fall in real terms over the three-year period, and the Local Government Association stated that two-thirds face real-terms cuts. The new needs formula shifts resources away from services typically delivered by districts, such as refuse collection, planning, and leisure, toward social care, home-to-school transport, and other services delivered by counties and single-tier authorities. The end of the New Homes Bonus and the business rates reset compound the pressure. Three district councils, North West Leicestershire, Harborough, and North Warwickshire, are so reliant on transitional protections that these floors account for more than a third of their core funding by 2028-29. The District Councils’ Network warned that the cuts will hit remote and rural district areas particularly hard.
County and Rural Councils
The County Councils Network criticised the settlement’s direction, accusing the government of focusing money on metropolitan cities and towns “at the expense of counties.” The network reported in January 2026 that government funding covered only “2p in every £1 of new costs” for county areas, warning of sweeping service cuts. It also argued that county and rural council tax payers are being made to “foot the bill” for the reforms, given that those areas already tend to have higher council tax levels and receive proportionally less grant support.
Metropolitan and Urban Councils
Urban and metropolitan councils are the principal beneficiaries. Sir Steve Houghton, chair of the Special Interest Group of Metropolitan Authorities, said the settlement would “ease the financial challenges” for areas hit hard by austerity. The recovery grant and the deprivation-weighted formula channel the largest increases toward cities with high levels of deprivation.
Adult Social Care
The settlement identifies £4.6 billion in additional funding available for adult social care by 2028-29 compared with 2025-26, though most of it is not ringfenced. The government has instead published “notional allocations” for each social care authority, intended as a reference point for budget-setting and as a basis for dialogue about whether councils are spending enough on care. An additional £150 million for 2026-27 is distributed through the adult social care relative needs formula within the RSG. The Better Care Fund, held jointly by councils and local NHS bodies, remains ringfenced and is being reformed to focus on integrated services.
Whether that is enough is contested. Leonard Cheshire, the disability charity, warned that the £4.6 billion figure assumes councils raise council tax and the social care precept at the maximum rate every year, which not all will do. The National Living Wage rise to £12.71 in April 2026 adds around £1.2 billion in cost pressures to the sector, according to the Nuffield Trust. The Association of Directors of Adult Social Services reported that councils expected to make £869 million in savings in 2026-27 because of budget overspends. The government has earmarked £500 million by 2028 for a Fair Pay Agreement in social care, though the 2025-26 settlement’s £502 million for employer National Insurance costs did not extend to social care providers.
Wales
Wales runs a separate local government finance system. For 2026-27, the Welsh Government announced that local authorities would receive £6.6 billion through the Revenue Support Grant and redistributed non-domestic rates, a 4.5 percent increase (£282.3 million) on a like-for-like basis compared to 2025-26. The final figure followed a budget agreement between the Welsh Government and Plaid Cymru that added £112.8 million above the original provisional proposal of 2.7 percent growth. A funding floor ensures no Welsh authority receives less than a 4 percent increase; Newport sees the largest rise at 6.1 percent, and ten authorities receive top-up funding to maintain the floor.