2nd Report - The Funding and Sustainability of Local Government Finance

The government announced a review of statutory duties placed on local government, launched on 3 July 2025, which will explore simplification and improvement of requirements over approximately one year, with recommendations to be tested with councils.

The government is coordinating a programme of local government finance reform (FFR 2.0) which will implement an updated assessment of local need following consultation, and will set out its proposed approach to reviewing the sales, fees, and charges system in the Autumn consultation response.

The government recognizes the importance of a cross-government approach to local government financial sustainability and is coordinating various cross-government reforms, including finance reform, funding simplification, and a review of sales, fees, and charges, with a regular cross-departmental review group informing decisions.

The government announced the Local Government Outcomes Framework (LGOF) on 3 July 2025, which will be published alongside the provisional Local Government Finance Settlement for 2026–27, and will be actively used from April 2026 to guide outcome-based accountability.

The government committed to further funding simplification for 2026–27, intending to consolidate grants from across government into large ringfenced grants delivered via the Settlement and rolling suitable grants into the Revenue Support Grant, building on previous consolidations.

The government plans to radically simplify the grant landscape for local authorities in 2026–27 by consolidating grants across various service areas into large, multi-year grants delivered through the Local Government Finance Settlement (LGFS) and rolling suitable grants into the Revenue Support Grant.

The Government did not commit to fully compensating councils for increased NICs, instead detailing over £5 billion in new grant funding, a 2.6% real terms increase in Core Spending Power, and planned funding reforms from 2026-27, alongside new Mayoral fiscal powers.

The government acknowledges the rising costs of home-to-school transport are linked to the SEND system and commits to improving inclusivity in mainstream schools through significant new SEND funding, a forthcoming White Paper, and £740 million in high needs capital.

The government is committed to targeting funding effectively at areas with the greatest need through the Fair Funding Review 2.0, utilizing updated needs assessments that account for deprivation at local authority and sub-ward levels for social care.

The government states it already maintains transparency regarding EFS and publishes external assurance reviews, which cover the reasons, assessment, and amount of support, on GOV.UK.

The government has laid statutory instruments to ensure proportionate audit regimes for smaller and major local audits and committed to review the content and format of local authority accounts in April 2025 to address the committee's concerns about audit requirements.

The government has published a strategy setting out local audit's purpose, established the Local Audit Office, laid statutory instruments for proportionality, and committed to review local authority accounts by April 2025 to ensure they deliver value.