Local government has responded to the chancellor’s Budget with a mix of cautious positivity, concern and anticipation for the future – with it being described as at once “reassuring” for some and “worrying” for others.
Many in the sector have noted that the £1.3bn of additional grant funding does not meet an estimated £2.3bn gap in 2025/26 to ‘just stand still’. But an array of measures were welcomed – albeit with a need for clarity in places and a demand for more.
Michael Hudson, executive director finance & resources at Cambridgeshire County Council, welcomed the Budget and looked forward to “lots more to come” in working with government to “fix the foundations”.
He said: “This was a well presented and thought through Budget delivered by our first female chancellor and the additional funding announced is welcomed. There is clearly lots more to come with the Phase 2 announcements around further reform of SEND, business rates, devolution and the funding regime.
“These are not small issues and particularly addressing the high needs DSG deficit will need both significant reform and investment in what is a very short time period to meet the next phase deadline. As such we look forward to working with government as a key stakeholder to fix the foundations.”
David Green, director at Arlingclose, said it was “not clear” if local authorities will be compensated for the increase in employers’ National Insurance Contributions on top of the real terms 3.2% increase in ‘spending power’ for 2025/26, potentially dampening any impact.
There will also “be some losers as well as winners” as funding in multi-year settlements from 2026/27 “is to be redistributed around the country to reflect the latest assessment of needs and revenues”.
Another key takeaway for Green is that the government is borrowing more for investment, “some of which will become capital grants for local authorities – but this is also expected to lead to a modest increase in inflation and interest rates”.
And, as predicted in a recent interview with Room151, he noted that PWLB HRA rate has been extended – “although only for nine months”.
Richard Harbord, interim strategic director of finance and s151 at the London Borough of Barking and Dagenham, said that “realistically” the Budget “does nothing to help authorities struggling to make a lawful budget in 2024/25”. Additionally, the details on the announcements on core funding, pay awards, employers NIC, living wage increases, social care and homelessness that should come in the December Settlement are “very late for 2025/26 budgets and will make finalisation of them very difficult”. He noted that NIC is forecasted to cost £270m alone, for example, and if such costs must be found “that will make a material difference”.
“There is actually a lot of targeted money such as £500m for highways and £1bn for removal of dangerous cladding, but the great difficulty is timing and also whether these sums include any sums previously announced,” Harbord said.
“There are major changes to business rates and a separate 20-page document sets them out. This is split into the extra reliefs granted in the budget and their future aspirations.”
His conclusion is that the Budget “could have been much worse but the devil is in the detail and that comes in December, and it must not be forgotten how much we need to catch up to be where we were a decade ago”.
He also noted that, while not in the Budget, a major reorganisation of local government to increase unitaries and provide a network of elected mayors for devolution has been announced. But while the government “claims this will save money”, Harbord pointed out that “no reorganisation since and including 1965 has managed that”.
Louise Gittins, chair of the Local Government Association, said the £1.3 billion extra funding for the next financial year would “help meet some – but not all – of the significant pressures in adult and children’s social care and homelessness support”.
She said extra funding for children with special educational needs and disabilities is “positive” but must “be followed by fundamental reform of the SEND system, focusing on improving inclusion in mainstream settings and writing off councils’ high needs deficits. We are also pleased the government is providing additional funding to continue children’s social care reforms and to pilot a Kinship Allowance and will set out plans to promote early intervention to help prevent children and families reaching crisis point in the first place.”
For Gittens and the LGA, the Budget is “a step in the right direction” but she warned that councils “still face a precarious short and long-term future”. She added: “The government needs to give explicit clarity on whether councils will be protected from extra cost pressures from the increases to employer national insurance contributions.
“Only with greater funding certainty through multi-year settlements and more clarity on financial reform, can councils protect services, meet the needs of residents and work in partnership on the government’s priorities. We look forward to continuing to work in partnership with the government to address these issues for councils and communities.”
CIPFA chief executive Owen Mapley agreed that the Budget had “started the work to address serious weaknesses in public services” but major reform was needed instead of “just ongoing emergency funding for broken systems”.
He called the combination of immediate funding increases for a number of frontline public services followed by future reforms and medium-term funding plans in the remainder of the spending review period “both understandable and [representing] a step change in approach from recent fiscal events”. He added that the Budget will “reassure some public service leaders and worry others”.
Mapley commented: “Increases in core spending power for councils are much needed but until there is more detail about the commitments to redistribution and new funding formulas this will create huge uncertainty only weeks before councils must set their budgets for next year.
“And while any user of NHS services will welcome the major commitments on both day-to-day funding and capital investment, it is essential that long term plans for the health and wellbeing of the population recognise the massive contribution of other local public services on the wider determinants of health in local communities.
“Those same local services are also major contributors to the wider determinants of growth and a clear commitment from government to greater powers, funding and flexibilities for Mayors through combined authorities is good to see.”
He noted that the Treasury’s budget book “refers to support for local government reorganisation” and commented: “This will clearly be contentious but is unavoidable if we are to ensure that mayors can work in partnership with bodies delivering services and not simply become another tier in an overly complicated patchwork quilt of local public service structures.”
Solace local government finance spokesperson Patrick Melia highlighted the point that the additional funding for social care and homelessness announced in the Budget is “still far short” of the increase in funding required to stabilise councils’ finances in the medium term. But it does at least represent an “acknowledgement of some of the pressures” facing the sector, he said.
A failure to provide a “more comprehensive redress” in the weeks and months ahead will threaten councils’ financial resilience, but Solace said it looked forward to working with ministers and officials to achieve just that.
Melia also welcomed the chancellor’s “decision to change the measurement of government debt to account for assets and not just the cost of investment”. He said: “We must invest because the alternative of cutting our way out of weak public finances simply does not work.”
With an estimated £2.3bn budget gap for local authorities in 2025/26 to just stand still, Melia noted that the £1.3m additional funding, while welcome, was not sufficient. “The chasm could grow wider yet depending on how the increase to employer National Insurance contributions – a potential major budget pressure – will be applied to local government, alongside increases to the National Living Wage which will increase the cost of many services local government provides,” he warned.
Overall, he said the Budget announcements were a step in the right direction but “do not change the fundamentals affecting councils’ budgets”.
Tim Oliver, chairman of the County Councils Network, said the £1.3bn additional funding would make budget setting an “easier task” for 2025/26. The additional investment of £1bn in special educational needs is also “vital” as a “down payment ahead of reforming the system to make it sustainable in the long-term”.
Reform of both children’s services and SEND should be implemented within 12 months of the Spending Review next year, Oliver added.
But he agreed that the remaining funding gap and “significant additional expense” incurred by the increase in the National Living Wage would mean councils “have little choice but to raise council tax and still will need to take difficult decisions over services to balance their budgets”.
Oliver said: “We now await December’s local government settlement to set out how this funding will be distributed. Ahead of the Spending Review and when consulting on proposed reforms to local government finance, the government should not seek to unfairly redistribute any existing resources next year which would worsen the financial challenge for some councils. It must also ensure that all council types receive a fair share of the £1.3bn of new resources, while ensuring that there is a fair approach to council tax equalisation.”
Sam Chapman-Allen, chairman of the District Councils’ Network (DCN), warned against the devolution plans and hints at reorganisation in the Budget. He said “The DCN believes that wholesale reorganisation of local government is the last thing the country and our local communities need. It would be a huge distraction that would risk paralysing the delivery of local services in large parts of the country for the rest of the parliament. House building and economic development are among the areas that face disruption.”
He noted that “past experience suggests local government reorganisation is no panacea for saving money and improving the financial sustainability of local councils” with “many new unitary councils [having] experienced deep financial difficulties”.
Chapman-Allen added: “Evidence that new councils are more efficient and effective is inconclusive at best. There is a danger that cash-strapped new unitary councils would have no choice but to use money intended for value-adding services like leisure, wellbeing, social prescribing, homelessness prevention and community outreach to plug financial gaps in social care and children’s services.
“Any changes must meet the needs of local people. Imposing top-down reorganisation and abolishing district councils would move power away from local communities and would be the opposite to devolution.”
Claire Holland, chair of London Councils, welcomed measures to tackle homelessness after warning of a “homelessness emergency that is pushing boroughs to the brink of bankruptcy” ahead of the Budget.
She said: “While the Budget will help to address some of the immediate pressures we face, the outlook for borough finances remains extremely tough after 14 years of structural underfunding. We will continue working with ministers to address the significant financial challenges we face in local government and maintain vital local services.
“Next year’s Comprehensive Spending Review will be a crucial opportunity to ensure London boroughs have the resources we need to be an effective partner to national government over the coming years and help to drive growth across the capital.”
The additional £1.3bn of funding being given to local councils will play an important role in stabilising local government finances “to support real long-term planning, not just quick fixes, enabling public services to grow and meet people’s needs”, according to Peter Cudlip, Head of Public and Social Sector at Forvis Mazars.
He said: “While chancellor Rachel Reeves has signalled a commitment to ‘rebuild Britain’ and move away from austerity, future fiscal policies must also address the deep-rooted financial challenges local authorities face, including better investment in digital skills and infrastructure. Public services should be seen as drivers of growth and wellbeing, not just expenses. The government must act now to rebuild and protect them.”
Taking a wider perspective on public finances, Institute for Fiscal Studies director Paul Johnson said Reeves was “gambling” that a big cash injection for public services over the next two years will be enough to turn performance around, and that many of the temporary spending pressures “won’t persist”. He said: “If she’s wrong about that, and spending pressures don’t dissipate after two years, then to avoid cutting unprotected areas she may well need to come back with another round of tax rises in a couple of years’ time – unless she gets lucky on growth.”
Assessing the government’s new spending plans, Johnson said it was “remarkable the degree to which they’re front-loaded”. He added: “Day-to-day public service funding is set to be 4.8% higher in 2024/25 than in 2023/24 and is then set to grow by a further 3.1% in 2025/26. After that, spending is set to grow by just 1.3% per year – a rate of growth that would almost certainly involve uncomfortably tight settlements for many public services.
“Of the total real-terms increase planned over the next six years, around 60% is in place by the end of year two. Perhaps it will be possible to spend big now, address various backlogs and temporary pressures, and then slow the spending taps to a dribble later. But a government splashing the cash in the short term and promising to be more austere in future? Stop me if you think you’ve heard this one before.”
Nigel Wilcock, executive director of the Institute of Economic Development, said while the immediate injection of £1.3m additional grant funding for essential services for local government is “welcome”, the spring 2025 spending review “will need to address the precarious state of local government finances in the longer term”.
He said: “From an economic development perspective, the multi-year funding settlements for priority sectors, linking to the modern industrial strategy to unlock the growth industries for the future, are a step towards recognising the importance of the profession. We are also pleased to see the funding commitments to devolution, local plans, housing, infrastructure, and business rates relief. This is a budget that speaks to a desire to boost long-term economic growth, but there is more to do.”
He said it was important to identify local places that can help deliver on the growth ambitions of the new government. “Building the capacity at a local level to identify and manage those growth projects which will provide a financial return in the future must be reflected. We also believe that the local growth solution is at least partly about how funds are allocated rather than the overall expenditure level,” he said.
Paul Dolan, group chief executive of housing association Riverside, welcomed the focus on affordable housing. “The £500m boost to the Affordable Homes Programme (AHP) will help with delivery in the short-term but the acid test will come in next year’s Spending Review when long-term funding for the AHP will be decided.
“We stand ready to work with the government to achieve its house building mission, however we need the long-term financial certainty to match our commitment through a ten-year rent settlement and increased funding.
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