LGA calls for transitional protections for councils that will lose out through Fair Funding Review

The Government’s Fair Funding Review of local authority finance needs better transitional protections and measures to compensate councils that will lose out, the Local Government Association (LGA) has said.

Details: 21.Aug.2025

Proposed funding reforms were issued for consultation in June and the LGA said in its response that whatever impact these had, additional funding for the sector remained “desperately needed” to avoid damage to public services.

Among the proposed reforms were ending competitive bidding processes for small pots of money and measures Whitehall said would make allocations fairer between councils.

There would be an updated formula to calculate adult social care funding and the Dedicated Schools Grant Statutory Override for SEND costs would remain until March 2028, together with a new formula to recognise home-to-school transport costs.

The LGA said welcome proposals included the guarantee of multi-year settlements; grant simplification; less competitive bidding and potential greater flexibilities over sales, fees and charges.

It supported funding reform as “it is clear that an opaque funding system has weakened councils' financial sustainability and vital public services”.

Formulas and the underlying data used for the assessment of relative needs should though be updated and appropriately reflected in the funding allocation system.

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But the LGA said effective transitional protection was needed so that reforms did not put the sustainability of any council’s finances and services at risk.

“While the offer of a cash flat floor appears reasonable at first it does not protect councils from real terms cuts in their core spending power”, the LGA said.

“The consultation is also clear that not all councils will receive the cash floor, meaning they potentially face cash-terms cuts in core spending power over the period. Given the scale of cost and demand pressures faced by the sector currently real terms cuts and cash terms cuts will be challenging for any council.”

Losers from changes to the way funding is allocated must be protected from both cash terms and real terms cuts, but not by reducing the gains accruing to councils set to receive more generous settlements.

“Government must provide additional flexibilities to support councils in this period,” the LGA urged.

It said the Government “should also introduce sufficiently robust transitional arrangements to ensure that individual councils are not pushed into needing exceptional financial support or forced to make drastic cuts to key services purely as a result of the proposals in this consultation”.

Councils face a funding gap of £8.4bn by 2028-29, according to LGA estimates, and even those that gain from the proposed reforms were unlikely to see the impact of long-term funding problems corrected.

The LGA concluded: ”Additional resources are desperately needed. Councils need a significant and sustained increase in overall funding to stem the emerging risk of system-wide financial failure and to ensure that councils can meet growing demand for the vital services needed by their communities.”

Mark Smulian