Select committee: Housing, Communities and Local Government Committee
Recommendation 50
2nd Report - The Funding and Sustainability of Local Government Finance
Published 23 Jul 2025
Addressed to Ministry of Housing, Communities and Local Government
Housing, Communities and Local Government Committee The Funding and Sustainability of Local Government Finance All items in this report Report on parliament.uk ↗ Inquiry on parliament.uk ↗
Recommendation (the committee's words)
The Government must amend the section 114 process so that an inability to set a balanced budget in a single year because of financial pressure does not cause long-term additional financial pressure. This could be done by extending the requirements to a rolling two-year basis (that is, allowing councils to recoup losses in the following year), by incorporating the year- end accounts into the criteria (that is, ensuring councils are actually making a loss instead of merely expecting to), or by easing the use of some reserves to fill funding gaps. (Recommendation, Paragraph 192) 80
From: Housing, Communities and Local Government Committee, 2nd Report - The Funding and Sustainability of Local Government Finance (HC 514), 23 July 2025
Government response
The government responded to the whole report on 21 October 2025 (deadline 23 September 2025).
Summary written by Accountability Index from the government's response. It is not the government's own words.The government accepts the case for reform of local government finance but declines several of the Committee's specific recommendations, setting out its own reforms centred on the Fair Funding Review 2.0 and a multi-year settlement for 2026-27.
- On council tax, the government "does not accept" the recommendation to devolve full responsibility for setting it to individual councils "at this time", noting that councils already set levels and have discretionary powers over discounts and premiums.
- On the New Burdens Doctrine, the government says placing it on a statutory footing "would reduce its effectiveness", but it is reviewing and updating the Doctrine.
- On ringfencing, it intends to bring grants together into "large ringfenced consolidated grants" and to roll suitable grants into the Revenue Support Grant, rather than end ringfencing.
- On outcomes-based accountability, the final Framework will be published alongside the provisional 2026-27 Settlement, and it expects to use it from April 2026.