Response to the Final Financial Agreement of the English Local Government

Kate Ogden, senior research economist at the Institute of Fiscal Studies (IFS) said:

“The Government published yesterday the last financial agreement of the local government, which confirmed the final financing allocations for English councils in 2025–26. Its total budgets are established at £ 64.2 billion, which is 4.8% of the total government expenditure.

The established figures differ a bit from those included in the provisional agreement published last December.

First, the Government now includes compensation for invoices of greater national insurance contributions (NICS), which amounts to £ 470 million for the councils (more £ 45 million for the Firefighters authorities, the authority of the Great London and the combined authorities ). This is distributed to the councils based on their net expenditure on services (excluding education and police services, which are compensated separately) from 2023-24. This approach is sensible.

The use of the general spending of service instead of compensating the advice based on their expenses on the personnel that they use directly avoid penalizing the advice they have chosen to outsource more of their services than others. However, the total number of funds provided to the advice throughout England has been designed to compensate, on average, only for the costs related to the personnel directly used by the advice and not for those who provide their services in a contrary way . Therefore, the tips will have to use some of their other funds to help comply with the indirect costs of higher nic invoices. And the use of net service expenses instead of brute to assign compensation means that the advice that finances a greater proportion of expenses through rates and charges must try to recover the cost of the highest nic invoices of the service users .

Second, the Government increased its new social care grant for children by £ 20 million (from £ 250 million to £ 270 million). This subsidy will constitute around 0.4% of the main funds of the Board next year, and could finance about 2% of the net expenditure of children’s social services.

Thirdly, the Government agreed to allow six councils to increase its council tax bills in April for more than 5% standard for social care authorities (although less than they had requested). Invoices are expected to increase by 7.5% in Birmingham, Somerset and Trafford, 9% in Newham and Windsor & Maidenhead, and 10% in Bradford. We hope that these ‘exceptional’ increases generate around £ 45 million. In five of these areas, the Tax Law of the Council for a property of the B band is currently in the lowest national quarter. However, invoices in Somerset (£ 2,267) already exceed the national average (£ 2,171).

Taken together, these changes mean that if all the councils present the tax invoices of the Council for the maximum allowed without a local referendum, they could expect a substantial increase in the terms in cash in their central financing (own income more subsidies): of £ 4.3 billion, or 7.2%. After counting the inflation of the predicted economy, this is equivalent to an increase in financing of 4.7% of real terms. Excluding NICS compensation, the increase is 3.9% in real terms.

As we highlight in our response to the provisional agreement, the figures for central spending power exclude £ 1.1 billion new funds from the ‘extended responsibilities of the producer’, a tax scheme for the use of producers’ containers. While this is outside the main finance agreement, it represents an additional increase in the financing of the Councils this year that they can use for existing services. Including this makes the increase in financing to £ 5.4 billion or 8.9% in terms of cash, on average (6.4% in real terms).

This income will constitute an impulse of financing particularly important for Shire district councils: include the average cash increase in its central financing from 1.4% to 9.2% (from a cut of real terms of 0.9% on average to an increase of 6.6 %).

In general, 2025–26 will continue the tendency of substantial increases above inflation in the financing of English councils. Unfortunately, their costs have also been exceeding inflation, and with a closer perspective for the financing of the central government that is coming from 2026 to 27 onwards, addressing the demand and costs that impact the budgets of the councils become increasingly more urgent. ”