Tackling deprivation and reversing years of unfair council funding
Source: gov.uk (2025-11-20)

Outdated funding formulas that penalised deprived areas for decades are being scrapped, so local people finally get the vital public services they deserve.

- Outdated funding formulas that penalised deprived areas for decades are being scrapped, so local people finally get the vital public services they deserve - no matter where they live.
- Backed by a £5 billion boost for local services over the next three years to correct historic imbalances and level the playing field, delivering national renewal for the long term.
- Overhaul of decades-old data and fragmented funding pots will free up local leaders to deliver on community priorities – from housing to growth – and give taxpayers better value.
For too long, an outdated council funding system based on decades-old data has entrenched inequality – leaving some councils on a financial cliff edge and communities in deprived areas facing crumbling services, cuts and rising bills. Meanwhile, some councils in less deprived areas have benefited disproportionately, building up reserves while others struggled to cope.

Today’s reforms reverse this injustice and ensure councils will be funded fairly, based on the latest deprivation data and local need, so that communities with the highest demands get the public services they rightly deserve. This is about ending postcode lotteries, closing regional divides, and restoring fairness at the heart of local government. By taking account of the differing ability to raise funds locally, all local authorities will be able to provide the same level of service to residents.

Making funding fairer and simpler is part of wider work to fix the foundations of local government under the Plan for Change – consolidating grants, reducing bureaucracy, and enabling councils to invest in prevention to tackle the root causes of rising costs through reforming Children’s Social Care and a new Homelessness and Domestic Abuse grant.

Secretary of State, Steve Reed 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.

We want every family to benefit from our Plan for Change, and fairer funding means people will soon be able to see and feel the difference in their own local area.

Minister for Local Government, Alison McGovern said:

It’s simply wrong that where you live determines the quality of services you get and ultimately determines your life – from birth to old age.

These reforms end that injustice. By using up-to-date data and targeting funding to areas with greatest need, we’re reversing years of unfairness and unlocking opportunity in every part of the country.

Following extensive consultation with councils of all types in England, a renewed, modern and fairer approach to funding councils has been set out:
- Closing the gap: Funding allocations will now reflect true local need using 2025 Indices of Multiple Deprivation (https://gbr01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.gov.uk%2Fgovernment%2Fstatistics%2Fenglish-indices-of-deprivation-2025%2Fenglish-indices-of-deprivation-2025-statistical-release&data=05%7C02%7CCelia.Forbes%40communities.gov.uk%7C8462dd2f442941483f4f08de276a1a6a%7Cbf3468109c7d43dea87224a2ef3995a8%7C0%7C0%7C638991533840400782%7CUnknown%7CTWFpbGZsb3d8eyJFbXB0eU1hcGkiOnRydWUsIlYiOiIwLjAuMDAwMCIsIlAiOiJXaW4zMiIsIkFOIjoiTWFpbCIsIldUIjoyfQ%3D%3D%7C0%7C%7C%7C&sdata=eTBy2VdsJZXNPgbg684IkmtoeguE0KlfLydwfjYqxkQ%3D&reserved=0), population projections, and service demand.
- Protecting vulnerable families: £2.4 billion for children’s social care reforms over the Settlement– so every child gets the best start in life.
- Tackling homelessness and supporting domestic abuse survivors: At least £2.4 billion for a new ring-fenced combined Homelessness, Rough Sleeping and Domestic Abuse grant over three years including funding on prevention services and a move away from over reliance on temporary accommodation.
- Targeted support: £600 million Recovery Grant maintained for areas with greatest immediate needs and less ability to raise income locally.
- Fairer housing incentives: Councils keep all additional council tax from new homes – boosting local growth and home ownership.
- Simplifying the system: Cutting red tape by consolidating more than 30 funding streams into five - worth nearly £47 billion over three years.
- Equalising for local income: Directing funding towards the places that are less able to meet their needs through locally raised income so residents get the same level of service.
- Certainty and stability: First multi-year Settlement in a decade, with funding floors and phased changes to protect councils during transition.
Further information:
- The government’s full response to the Fair Funding Review 2.0 consultation is available on Gov.uk here. (https://www.gov.uk/government/consultations/the-fair-funding-review-20)
- The full Local Government Finance Policy Statement is available on Gov.uk here. (https://www.gov.uk/government/publications/local-government-finance-policy-statement-2026-27-to-2028-29)
- A Written Ministerial Statement from Minister Alison McGovern is available here (https://questions-statements.parliament.uk/written-statements/detail/2025-11-20/hcws1080).