Government unveils first multi-year finance settlement in a decade amid criticism from rural and county councils

Detailing the funding changes in a ministerial statement on Thursday (20 November), Minister of State for Local Government and Homelessness Alison McGovern said the reforms would "make sure cash going to councils is shared out in a fairer way that follows needs".

The multi-year funding settlement will cover the period between 2026-27 and 2028-29, include over £5 billion of new grant funding, and will change how funding is given out based on new 'deprivation indices'.

However, the plans have been met with criticism, with the District Councils Network and County Councils Network both claiming the approach unfairly distributes funding to urban areas.

The Labour Government made over £69 billion available to local authorities through last year's 2025-26 Settlement, alongside the introduction of a £600 million Recovery Grant targeted to areas which suffered most from austerity, with greater need and demand for services, and less ability to raise income locally.

At the Spending Review, the Government announced over £5 billion of new grant funding over the period 2026-27 to 2028-29 for local services, including £3.4 billion of new grant funding which will be delivered through the multi-year settlement.

The Government said its new 2026-27 multi-year settlement' aims to give councils "more certainty" through the first multi-year settlement in a decade, and will "close the gap" between local deprivation and council funding, "using up to date data to paint a true picture of councils' needs and resources".

These will look at population projections, the ‘2025 English Indices of Multiple Deprivation', cost of service delivery and demand on services, McGovern added.

The targeted £600 million Recovery Grant allocations from 2025-26 will also be maintained across the multi-year Settlement, McGovern said.

"We are also introducing a Recovery Grant funding guarantee to upper tier authorities in receipt of the grant," she added.

She also announced that £2.4bn will be used over the settlement to reform children's social care to support vulnerable families by focusing on prevention and early intervention.

A further £2.4bn will be provided through a new ring-fenced combined Homelessness, Rough Sleeping and Domestic Abuse grant over three years that includes dedicated funding for councils to invest in prevention and move away from over-reliance on temporary accommodation.

Elsewhere, the new settlement will include incentives for councils to build new homes by omitting projections on future house builds from funding allocations over the settlement.

This will mean that authorities will benefit from all additional council tax raised for each new home they build, according to McGovern.

The Government also said it will cut "needless paperwork and red tape" by simplifying 33 funding streams worth almost £47 billion over three years to provide councils with certainty and more flexibility to invest in community priorities.

McGovern said the multi-year settlement would "better align funding with deprivation and need, as part of a simplified funding landscape which is fit for the future".

However, Cllr Steven Broadbent, Finance Spokesperson for the County Councils Network, claimed the announcement represents a "backtrack on [the Government's] funding commitments to rural areas and will unfairly target resources to urban metropolitan cities and towns".

He said: "Last year the government made £600m available in a 'Recovery Grant' to urban areas, as a one-off fund ahead of doing a new 'needs assessment' to judge how much areas should receive in this Fair Funding Review. The updated needs assessment, which included a measure of deprivation, showed that County Councils Network's member councils have seen the biggest increase in needs.

"But ministers have decided to overlook this and continue the Recovery Grant for the duration of this parliament – once again cherry picking which councils to focus funding on and redistributing even more funding to urban areas at the expense of counties. "

Cllr Broadbent said the CCN will analyse the proposals and await the provisional settlement and consultation later this year.

The District Councils' Network (DCN) also raised concerns over the funding plans, claiming that the redistribution of money between councils, which removes the use of 'remoteness' as a factor in determining district council funding, fails to recognise the additional costs of delivering services in rural areas.

The DCN's finance spokesperson, Cllr Jeremy Newmark, said: "Money is being diverted from many rural and non-urban councils, and those doing the most to build homes and grow local economies.

"Many councils will have no option but to cut the most visible local services, impacting on wellbeing and quality of life. Because district councils deliver the day-to-day services that people see and use most, from maintaining parks, play areas and leisure centres, collecting the bins and managing town centres, residents will feel the impact.

"Councils are likely to have to scale back preventative work that leads to saving elsewhere in the public sector, including leisure centre fitness programmes that avert illness and early intervention to stop people becoming homeless."

Commenting on the settlement, Steve Reed, the Secretary of State for Housing, Communities and Local Government, said: "We are reforming the funding system that led to regional divides, postcode lotteries, and substandard public services for too many people.

"Our changes will make sure cash going to councils is shared out in a fairer way that follows needs."

Adam Carey