At a glance

• Total local authority funding is set at £83.5bn in 2026-27, rising to £90.5bn by 2028-29.
• Core Spending Power is forecast to increase cumulatively by 15.5 percent by 2028-29 compared with 2025-26, and by 24.3 percent compared with 2024-25. These are cumulative increases, not annual rates.
• Fair Funding Review 2.0 updates how relative need is assessed and phases allocations towards a new Fair Funding Share over three years.
• The business rates retention system is reset from 2026-27, recalculating baselines, tariffs and top-ups.
• The settlement resolves 90 percent of historic High Needs SEND deficits accrued to the end of 2025-26, subject to reform plans – future deficits are not covered without limit.

The government has confirmed the final Local Government Finance Settlement for 2026-27, the first year of a three-year funding package running to 2028-29.

This is the first multi-year local government funding deal in a decade, giving councils greater certainty than they have had for years. It also introduces structural changes to how funding is distributed, including a full reassessment of relative need and a major intervention to address historic SEND deficits.

Across England, total local authority funding is set at £83.5bn in 2026-27, rising to £90.5bn by 2028-29 under the three-year settlement. Core Spending Power is forecast to increase by 15.5 percent by 2028-29 compared with 2025-26, representing a 24.3 percent increase compared with 2024-25. Core Spending Power combines grant funding with locally raised income, including council tax and retained business rates.

The settlement also confirms:

• A £440m uplift to the Recovery Grant, taking total Recovery Grant funding to £2.6bn over the three years. This £2.6bn figure is the total across the three-year period, not an annual amount.
• Over £5.6bn of new grant funding across the settlement period.
• A reset of business rates baselines, with new tariffs and top-ups from 2026-27.
• A decision to resolve 90 percent of historic High Needs SEND deficits accrued to the end of 2025-26.

CIPFA has characterised the settlement as very significant, highlighting both the scale of additional funding and the balance sheet impact of the SEND intervention.

The overall increase is clear. How that translates into local capacity will vary depending on population size, density, demand profile and reliance on locally raised income.

Fair Funding Review 2.0 – the structural shift

The most significant technical change is the implementation of Fair Funding Review 2.0. Relative need has been reassessed for the first time in over a decade and allocations are being phased from historic funding shares towards a new Fair Funding Share over the three-year period. The phasing means redistribution is staged across the three years rather than applied in full in 2026-27.

Funding is now more explicitly weighted towards deprivation and assessed need, which benefits many metropolitan councils, London boroughs and larger unitary councils with high levels of population density and demand.

Some shire counties and shire districts have argued that the formula does not fully capture sparsity, remoteness and the additional costs associated with delivering services across large rural geographies, even with adjustments to journey time and transport factors.

Although the redistribution is being phased in, the settlement strengthens the link between funding and assessed need over the period.

Business rates reset

From 2026-27, the business rates retention system is reset. Baselines, tariffs and top-ups are recalculated, altering the balance between authorities that retain growth and those that receive top-up support. This reset changes starting baselines for retained income – an authority may gain under Fair Funding Review 2.0 but lose under the reset, or vice versa, so the combined effect will vary at council level.

For city regions and growth-focused unitary councils, the reset affects long-term assumptions about retained business rates income. For shire districts and shire counties, it reshapes the starting point for future growth projections. Medium-term financial planning will now be anchored to these new baselines rather than historic arrangements.

The SEND intervention

The decision to resolve 90 percent of historic High Needs SEND deficits removes a substantial liability from many council balance sheets. Nationally, those deficits were projected to exceed £5bn.

This materially reduces financial risk across a number of authorities that have accumulated large high-needs pressures over recent years, including metropolitan councils, unitary councils and shire counties. The intervention is conditional on reform plans, and future deficits will not be covered without limit, but it represents a significant stabilising measure.

The Institute for Fiscal Studies has noted that recent settlements continue substantial above-inflation increases in funding for English councils, while also warning that councils’ costs have been rising faster than inflation. Demand pressures in adult social care, children’s services and temporary accommodation therefore remain central to financial planning, regardless of authority type.

Council tax and local income

The core referendum principle remains at 3 percent, plus a 2 percent adult social care precept for most authorities. Seven councils have been granted additional flexibility above 5 percent.

Because Core Spending Power includes locally raised income, part of the forecast growth to 2028-29 depends on authorities increasing council tax within these limits.

For some shire counties in particular, council tax remains a significant component of adult social care funding, while for more densely populated authorities the balance between local tax base and grant funding differs.

What this means for public sector buyers

A three-year settlement provides greater medium-term certainty. Procurement teams can plan pipelines with more confidence than under single-year allocations, reducing the likelihood of late-cycle reprioritisations.

The redistribution towards assessed need means funding trajectories will differ between authorities with large, dense populations and those serving more dispersed communities. Buyers will need to interpret local budget positions carefully rather than assuming a uniform uplift across the sector.

The emphasis on reform, particularly in SEND and children’s social care, signals a stronger focus on measurable outcomes. Commissioning is likely to place greater weight on prevention, impact and evidence of demand reduction.

The reset of business rates baselines changes the financial starting point for many authorities. Buyers linked to regeneration, infrastructure and growth strategies will need to factor in revised revenue assumptions.

What this means for suppliers

There is genuine additional funding in the system, but it is phased and unevenly distributed. Opportunity should be assessed authority by authority rather than assumed across the board.

Authorities with larger populations and higher service demand may see stronger funding growth over the settlement period, while those serving more rural or dispersed areas may experience more constrained uplift relative to delivery costs.

The SEND deficit intervention stabilises the specialist education and children’s services landscape and reduces balance sheet risk in several authorities that had accumulated significant high-needs liabilities. Adult social care, workforce reform, homelessness prevention and early intervention remain priority areas.

Suppliers that can demonstrate measurable outcomes and cost avoidance are likely to be better aligned with the commissioning environment emerging from this settlement.

The bottom line

• The final Local Government Finance Settlement 2026-27 establishes a three-year funding framework to 2028-29.
• It reassesses relative need through Fair Funding Review 2.0 and phases redistribution over three years.
• It resets business rates baselines from 2026-27.
• It resolves 90 percent of historic High Needs SEND deficits accrued to the end of 2025-26.

For buyers, it provides greater planning stability within continued demand pressure. For suppliers, it signals meaningful opportunity in priority service areas, with material variation between authorities serving dense populations and those covering more dispersed geographies. It marks a significant development in local government finance.