The Funding and Sustainability of Local Government Finance

Housing, Communities and Local Government Committee Closed Inquiry
Opened: 11 Dec 2024 Closed: 18 Mar 2026 Parliament page
As Government seeks to reform local government finance, this inquiry will consider whether the local government finance system is fit for purpose and assess how it can meet the needs of local authorities and service users. It will explore how much control local authorities have over their own finances and … Read more
22 Recommendations
36 Conclusions
1 Report
4 Oral sessions
4 Events
Activity timeline 10 events
21 Oct
2025
Report published
23 Jul
2025
Report published
7 May
2025
Oral evidence
7 May
2025
Formal meeting (oral evidence session) · The Thatcher Room, Portcullis House
8 Apr
2025
Oral evidence
8 Apr
2025
Formal meeting (oral evidence session) · The Wilson Room, Portcullis House
11 Mar
2025
Oral evidence
11 Mar
2025
Formal meeting (oral evidence session) · The Thatcher Room, Portcullis House
11 Feb
2025
Oral evidence
11 Feb
2025
Formal meeting (oral evidence session) · The Grimond Room, Portcullis House
Oral evidence sessions 4 sessions
7 May 2025
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Oral Evidence
Jim McMahon MP · Ministry of Housing, Communities and Local Government Nico Heslop · Ministry of Housing, Communities and Local Government
8 Apr 2025
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Oral Evidence
Abdool Kara · National Audit Office Dan Bates · OnTor Limited Gareth Davies · National Audit Office Jane Pearson · Ribble Valley Borough Council Owen Mapley · Chartered Institute of Public Finance and Accountancy (CIPFA) Rob Powell · Warwickshire County Council Vicky Davis · National Audit Office
11 Mar 2025
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Oral Evidence
Councillor Barry Lewis · County Councils Network Councillor Bill Revans · Somerset Council Councillor Grace Williams · London Councils Councillor Jeremy Newmark · District Councils Network Councillor Neghat Khan · Nottingham City Council Councillor Peter Marland · Local Government Association Councillor Tony Dyer · Bristol City Council
11 Feb 2025
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Oral Evidence
Aileen Murphie Charlotte Pickles · Reform David Phillips · Institute for Fiscal Studies Jonathan Carr-West · Local Government Information Unit Professor Andy Pike · Newcastle University Professor Tony Travers · London School of Economics Stuart Hoddinott · Institute for Government
Title HC No. Published Items Response
2nd Report - The Funding and Sustainability of Local Government … HC 514 23 Jul 2025 58 Responded
Recommendations & Conclusions
24 results
Clear
4 Recommendation Deferred
2nd Report - The Funding and Susta…
Undertake a review of local government statutory service requirements by the end of 2025.
The Government must undertake a review of which local government services should, and which should not, be statutory requirements. This review must begin by the end of calendar year 2025 and go to consultation by June 2026. If changes are … Read more
Government Response
The government's response focused on ongoing and planned reforms for specific services like children's social care, SEND, and homelessness, including funding commitments and upcoming strategies/white papers, rather than committing to a review of which services should be statutory requirements.
Ministry of Housing, Communities and Local Government
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8 Recommendation Deferred
2nd Report - The Funding and Susta…
Provide further clarity on service reforms' implementation and success measurement for prevention initiatives.
The Government has committed over £1.5 billion from the Transformation Fund to reform adult social care, children’s social care, SEND, and homelessness services so that they are focused on prevention. Reforms to these services are urgently needed, but the Government … Read more
Government Response
The government's response detailed the consolidation of capital funds into a new Local Regeneration Fund and a commitment to move towards allocative funding, but did not provide clarity on the implementation and measurement of reforms for adult social care, children's social care, SEND, and homelessness services as requested.
Ministry of Housing, Communities and Local Government
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11 Conclusion Deferred
2nd Report - The Funding and Susta…
Prioritise funding and support for local preventative services to reduce acute service demand.
The Ministry must prioritise funding and support for local preventative services to fix the foundations, reduce the demand for acute services, and bring down costs in the longer term. (Recommendation, Paragraph 50)
Government Response
The government detailed funding allocated at the Autumn Budget 2024 to support the public sector with increased employer National Insurance Contributions, rather than committing to prioritising new funding specifically for local preventative services.
Ministry of Housing, Communities and Local Government
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12 Conclusion Deferred
2nd Report - The Funding and Susta…
Over-reliance on ringfenced funding reduces local authority efficiency and decision-making.
Successive Governments have relied too much on ringfencing of funding to control the activities of local government. Through ringfencing, the Government has required local authorities to spend their money in specified ways, which may not be the most efficient use … Read more
Government Response
The government's response focused on the roles of various departments in the local tax system and plans to move the Valuation Office Agency into HMRC, without addressing the recommendation to move away from ringfencing to an outcomes-based system.
Ministry of Housing, Communities and Local Government
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13 Conclusion Deferred
2nd Report - The Funding and Susta…
Local Government Outcomes Framework launch represents a positive shift to outcomes-based accountability.
We are encouraged by the recent launch of the Local Government Outcomes Framework and the beginning of a transition towards an outcomes-based system of accountability for local government, and we look forward to further detail, as it emerges during the … Read more
Government Response
The government outlined the independent commission into adult social care and detailed various funding and reform initiatives for social care, but did not provide further detail on how the Local Government Outcomes Framework will be used.
Ministry of Housing, Communities and Local Government
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14 Conclusion Deferred
2nd Report - The Funding and Susta…
Implement agreed outcomes-based system for local authority accountability before 2026/27 financial year.
After the conclusion of the Framework’s live call for evidence and before the start of the 2026/27 financial year, the Ministry must implement the agreed outcomes-based system, by which local authorities will be held accountable for achieving the agreed outcomes … Read more
Government Response
The government's response detailed ongoing reforms to NHS Integrated Care Boards and efforts to strengthen partnerships between the NHS and local government, rather than committing to implement an outcomes-based accountability system for local government.
Ministry of Housing, Communities and Local Government
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15 Conclusion Deferred
2nd Report - The Funding and Susta…
End ringfencing and standard spending requirements on all local authority funding.
The Ministry must end ringfencing by removing the standard spending requirements that are placed on the funding available to local authorities, whether the funding was provided by Government or collected locally. Spending requirements, such as ringfencing, should only be used … Read more
Government Response
The government's response focused on funding for Special Educational Needs and Disabilities (SEND) reform and managing associated deficits, rather than addressing the broader recommendation to end ringfencing of local authority funding.
Ministry of Housing, Communities and Local Government
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16 Conclusion Deferred
2nd Report - The Funding and Susta…
Move away from competitive bidding requires clarity on alternative funding programmes.
We welcome the Government’s desire to move away from the competitive bidding process as outlined in the Plan for Neighbourhoods, but further clarity is needed around what alternative funding programmes will replace competitive bidding. (Conclusion, Paragraph 65) 75 Read more
Government Response
The government responded by outlining funding and reforms within the Special Educational Needs and Disabilities (SEND) system aimed at reducing home-to-school travel costs, but did not clarify general alternative funding programmes to replace competitive bidding.
Ministry of Housing, Communities and Local Government
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17 Conclusion Deferred
2nd Report - The Funding and Susta…
Outline transparent funding allocation process for local authorities, moving away from competitive bidding.
The Ministry must outline how it plans to allocate funding to local authorities in future investment programmes and move away from competitive bidding between councils. Any allocation must use a transparent process, based on clear criteria, and be focused on … Read more
Government Response
The government described current funding allocations for the Household Support Fund, Discretionary Housing Payments, and the Local Authority Housing Fund, along with future considerations for Local Housing Allowance rates, without outlining a general transparent and outcomes-based process for future investment programmes to replace competitive bidding.
Ministry of Housing, Communities and Local Government
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18 Conclusion Deferred
2nd Report - The Funding and Susta…
Reduce the number of funding pots managed across multiple government departments
As part of the Ministry’s reduction of the use of funding pots and competitive bidding, it must consider and reduce the number of funding pots managed across multiple government departments, not just those managed by the Ministry. (Recommendation, Paragraph 67) Read more
Government Response
The government responded by outlining plans to update the funding formulae in the Settlement and incorporate new deprivation data, including housing costs, into the Index of Multiple Deprivation, rather than addressing the reduction of funding pots across multiple government departments.
Ministry of Housing, Communities and Local Government
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19 Conclusion Deferred
2nd Report - The Funding and Susta…
Unfunded mandates contribute to the local government sector's lack of sustainability
Unfunded mandates (responsibilities for local authorities without adequate funding or compensation) contribute to the lack of sustainability in the local government sector. (Conclusion, Paragraph 74)
Government Response
The government noted a recommendation to reform or replace council tax (not the provided conclusion) and stated that all tax policy remains under review, with decisions made by the Chancellor at fiscal events.
Ministry of Housing, Communities and Local Government
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21 Conclusion Deferred
2nd Report - The Funding and Susta…
Strengthen the New Burdens doctrine to include increased costs for local authority services
The New Burdens doctrine must be reviewed, updated, and put on a stronger statutory footing. It must focus not only on new responsibilities, but on any increase in the costs of mandatory services delivered by local authorities. For any such … Read more
Government Response
The Government did not address the recommendation to review and strengthen the New Burdens doctrine, instead discussing national business rates multipliers, local relief powers, and generally keeping all tax policy under review.
Ministry of Housing, Communities and Local Government
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22 Conclusion Deferred
2nd Report - The Funding and Susta…
Increased employer National Insurance Contributions represent an unfunded mandate for local authorities
The increase in the rate of employer National Insurance Contributions has placed a significant financial burden on local authorities that has not been sufficiently covered by new funding. It is an unfunded mandate of the Government’s making. (Conclusion, Paragraph 81) Read more
Government Response
The Government did not address the conclusion regarding unfunded employer National Insurance Contributions, instead discussing the Business Rates Retention System reset in 2026, transitional arrangements, and future reset timings.
Ministry of Housing, Communities and Local Government
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24 Conclusion Deferred
2nd Report - The Funding and Susta…
Align accountability for national taxation decisions impacting local government between departments
The Ministry and HM Treasury must work together to align accountability over decisions that affect local government, including around national taxation. Authority over tax decisions that affect local government and responsibility for the financial sustainability of local government should be … Read more
Government Response
The Government did not address aligning accountability for local government finance across departments, instead discussing Section 114 notices, financial flexibilities for councils, and an upcoming consultation on support frameworks.
Ministry of Housing, Communities and Local Government
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25 Conclusion Deferred
2nd Report - The Funding and Susta…
Inaction on adult social care reform creates unsustainable human and financial costs
We support and echo the conclusions of the recent report Adult Social Care Reform by the Health and Social Care committee. As they have said in the summary of their report, successive Governments have not fully considered the human and … Read more
Government Response
The Government did not address the urgent need for social care reform, instead committing to improving assessment of central government funding distribution and setting out further detail on an updated support framework in the autumn.
Ministry of Housing, Communities and Local Government
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26 Conclusion Deferred
2nd Report - The Funding and Susta…
Proposed timescale for adult social care commission risks insufficient and delayed reform
While we support the new independent commission into adult social care led by Baroness Casey, we are concerned that the proposed timescale means that urgent reforms to social care services will not be implemented soon enough to overcome the severity … Read more
Government Response
The Government did not address concerns about the timescale for social care reform, instead discussing the transparency and external assurance reviews for councils receiving Exceptional Financial Support (EFS).
Ministry of Housing, Communities and Local Government
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27 Recommendation Deferred
2nd Report - The Funding and Susta…
Accelerate adult social care commission timescale and fully fund sector by Parliament's end
The timescale for the commission into adult social care should be brought forward, and it must present actionable reforms to the sector as part of its interim findings in 2026. The Government must not wait for the commission to publish … Read more
Government Response
The Government did not address speeding up the social care commission or fully funding adult social care, instead discussing local authorities' responsibility for workforce management and financial training for councillors and officers.
Ministry of Housing, Communities and Local Government
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28 Conclusion Deferred
2nd Report - The Funding and Susta…
Ensure alignment of Integrated Care Systems reforms with local government and adult social care
The Department for Health and Social Care must ensure that the ongoing reforms and cuts to Integrated Care Systems and Integrated Care Boards are aligned both with wider reorganisation of local government and with necessary reforms to the adult social … Read more
Government Response
The Government did not address aligning health and social care system reforms with local government reorganisation, instead detailing a local audit strategy, the establishment of the Local Audit Office, and a review of local authority accounts.
Ministry of Housing, Communities and Local Government
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29 Conclusion Deferred
2nd Report - The Funding and Susta…
Statutory override for Dedicated Schools Grant deficits hides true local authority cost burden
The statutory override that allows local authorities to keep deficits of the Dedicated Schools Grant (DSG) off their books is an unsustainable measure that hides the true cost burden on local authorities. The recent extension of the override until 2028 … Read more
Government Response
The Government did not address the sustainability of the Dedicated Schools Grant (DSG) deficit override, instead outlining a commitment to review the Code of Audit Practice by the end of 2027 and championing auditors' statutory reporting powers.
Ministry of Housing, Communities and Local Government
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30 Recommendation Deferred
2nd Report - The Funding and Susta…
Eliminate local authority DSG deficits by 2028 and develop approach for historical shortfalls
The Government’s upcoming reforms to the Special Educational Needs and Disabilities (SEND) system must be bold enough to eliminate local authorities’ deficits on the DSG going forwards before March 2028, while ensuring SEND children receive the support they need. The … Read more
Government Response
The government acknowledges DSG deficits and confirms funding for SEND reform, with a White Paper expected soon. It states the statutory override is extended to 2027-28 and promises more detail and a plan for supporting local authorities with historic and accruing deficits in the coming months.
Ministry of Housing, Communities and Local Government
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47 Recommendation Deferred
2nd Report - The Funding and Susta…
Implement a phased business rates reset to prevent cliff-edges for local authorities.
Pending a fuller reform of the business rates system, business rates resets must avoid cliff-edges for local authorities by means of a phased reset, by which growth is reset to a fixed prior period, say seven years before the date … Read more
Government Response
The government acknowledges concerns about cliff-edges and will consider transitional arrangements for the 2026 reset, but defers a decision on a phased reset mechanism, stating it will confirm the timing and design of the next reset by the end of the next multi-year settlement period.
Ministry of Housing, Communities and Local Government
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50 Recommendation Deferred
2nd Report - The Funding and Susta…
Amend the section 114 process to mitigate long-term financial pressure from single-year budget deficits.
The Government must amend the section 114 process so that an inability to set a balanced budget in a single year because of financial pressure does not cause long-term additional financial pressure. This could be done by extending the requirements … Read more
Government Response
The government acknowledges the potential benefits of financial flexibilities and has invited views on the matter through the FFR 2.0 consultation, promising further details in the autumn.
Ministry of Housing, Communities and Local Government
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52 Recommendation Deferred
2nd Report - The Funding and Susta…
End the routine use of capitalisation directions within Exceptional Financial Support for local authorities.
The Government should aim to end the use of capitalisation directions as a standard part of EFS. Alternative measures to support local authorities must improve local government sustainability not only in the short term, but in the long term as … Read more
Government Response
The government has invited views on transitional arrangements and financial flexibilities as part of a consultation and will set out further detail on an updated support framework in the autumn, without explicitly committing to ending capitalisation directions.
Ministry of Housing, Communities and Local Government
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58 Recommendation Deferred
2nd Report - The Funding and Susta…
Require local auditors' opinions to assess actual value for money and provide early warnings
The Ministry must act on other recommendations from the predecessor Committee’s report on Financial Reporting and Audit in Local Authorities that have not yet been addressed. Specifically, the Ministry should work with the organisation that prepares the Audit Code (currently … Read more
Government Response
The government commits to a post-implementation review of the Code of Audit Practice by the end of 2027, which will consider expanding VFM assessments, and notes that the LAO's responsibilities include championing auditors' early warning powers.
Ministry of Housing, Communities and Local Government
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Government Response AI assessment · 58 of 22 classified
Accepted 12
Accepted in Part 4
Acknowledged 6
Deferred 24
Not Addressed 3
Rejected 9
Total 22 recs + 36 conclusions