Source · Select Committees · Housing, Communities and Local Government Committee
2nd Report - The Funding and Sustainability of Local Government Finance
Housing, Communities and Local Government Committee
HC 514
Published 23 July 2025
Recommendations
2
Accepted
Publish a clear vision for local government's role in the state by end of 2025.
Recommendation
The Government must assess the role of local government and, by the end of 2025, publish its vision for local government’s role in the state, including whether they see its role changing as a result of reorganisation and devolution to …
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Government Response Summary
The government announced a review of statutory duties placed on local government, launched on 3 July 2025, which will explore simplification and improvement of requirements over approximately one year, with recommendations to be tested with councils.
Ministry of Housing, Communities and Local Government
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7
Accepted
Appoint a single Minister accountable for each mandatory local government service across departments.
Recommendation
We support the calls by the National Audit Office and Public Accounts Committee that the Government must provide cross-government reform to ensure that the entire system of local government is sustainable. The Ministry must collaborate with other departments on this …
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Government Response Summary
The government committed to further funding simplification for 2026–27, intending to consolidate grants from across government into large ringfenced grants delivered via the Settlement and rolling suitable grants into the Revenue Support Grant, building on previous consolidations.
Ministry of Housing, Communities and Local Government
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23
Accepted
Compensate councils fully for additional costs from increased employer National Insurance Contributions
Recommendation
The Government must fully compensate councils for the additional costs arising from the increase to employer National Insurance Contributions. (Recommendation, Paragraph 82)
Government Response Summary
The Government did not commit to fully compensating councils for increased NICs, instead detailing over £5 billion in new grant funding, a 2.6% real terms increase in Core Spending Power, and planned funding reforms from 2026-27, alongside new Mayoral fiscal powers.
Ministry of Housing, Communities and Local Government
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54
Accepted
Publish supporting information demonstrating necessity and form of new Exceptional Financial Support cases.
Recommendation
When the Ministry announces new cases of EFS, it must publish alongside its announcement sufficient supporting information to demonstrate how it determined that EFS was necessary, how much it would provide, and what form it would take. This published information …
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Government Response Summary
The government states it already maintains transparency regarding EFS and publishes external assurance reviews, which cover the reasons, assessment, and amount of support, on GOV.UK.
Ministry of Housing, Communities and Local Government
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57
Accepted
Review the purpose and requirements of local audit for proportionality and public value
Recommendation
The Ministry must review the purpose and requirements of local audit to ensure that they are proportionate and deliver maximum value for the public and users of the accounts. There must be clarity about the purpose of local audit, and …
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Government Response Summary
The government has published a strategy setting out local audit's purpose, established the Local Audit Office, laid statutory instruments for proportionality, and committed to review local authority accounts by April 2025 to ensure they deliver value.
Ministry of Housing, Communities and Local Government
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Conclusions (7)
3
Conclusion
Accepted
The statutory and non-statutory responsibilities of local government have not been reviewed holistically for many years, contributing to the fragmented system of requirements that local authorities are required to deliver. What is needed to satisfy statutory requirements is too often unclear, which causes confusion and leads to inconsistency between service …
Government Response Summary
The government is coordinating a programme of local government finance reform (FFR 2.0) which will implement an updated assessment of local need following consultation, and will set out its proposed approach to reviewing the sales, fees, and charges system in the Autumn consultation response.
5
Conclusion
Accepted
Decisions made by departments other than the Ministry can have a significant impact on services delivered through local government, and it is local authorities and residents that must bear the brunt of the impact. 73 For example, those affected by welfare cuts such as the freezing of Local Housing Allowance …
Government Response Summary
The government recognizes the importance of a cross-government approach to local government financial sustainability and is coordinating various cross-government reforms, including finance reform, funding simplification, and a review of sales, fees, and charges, with a regular cross-departmental review group informing decisions.
6
Conclusion
Accepted
The Ministry is in regular contact with other departments and government bodies about the needs of local government, but it lacks the levers that it needs to control decisions across central government. In our view, merely discussing the issues with other departments is not enough. To properly reform and stabilise …
Government Response Summary
The government announced the Local Government Outcomes Framework (LGOF) on 3 July 2025, which will be published alongside the provisional Local Government Finance Settlement for 2026–27, and will be actively used from April 2026 to guide outcome-based accountability.
9
Conclusion
Accepted
We support the Government’s current stated intention to focus more on prevention to reduce the demand for more expensive acute services in the long term. These preventative services have been weakened by a decade of underfunding in local government. However, bolstering preventative services must not come at the expense of …
Government Response Summary
The government plans to radically simplify the grant landscape for local authorities in 2026–27 by consolidating grants across various service areas into large, multi-year grants delivered through the Local Government Finance Settlement (LGFS) and rolling suitable grants into the Revenue Support Grant.
31
Conclusion
Accepted
Home-to-school transport is a particular area of concern for the affordability of local government services. We support the Government’s proposed update to the assessment of local authority’s needs relating to home-to-school transport, but while this more fairly distributes money between local authorities, it does not make the service as a …
Government Response Summary
The government acknowledges the rising costs of home-to-school transport are linked to the SEND system and commits to improving inclusivity in mainstream schools through significant new SEND funding, a forthcoming White Paper, and £740 million in high needs capital.
36
Conclusion
Accepted
We acknowledge the trade-offs that the Government is making in updating the local government funding formula, and we support the Government’s decision to focus funding towards areas with higher need, which will help correct an existing imbalance in the system. We are pleased to see that factors considered in the …
Government Response Summary
The government is committed to targeting funding effectively at areas with the greatest need through the Fair Funding Review 2.0, utilizing updated needs assessments that account for deprivation at local authority and sub-ward levels for social care.
56
Conclusion
Accepted
We support the Government’s moves to clear the local audit backlog and get the local audit system functioning, including the creation of the Local Audit Office and amendments to the Code of Accounting Practice, noting that these are in line with recommendations made by the predecessor Committee in its report …
Government Response Summary
The government has laid statutory instruments to ensure proportionate audit regimes for smaller and major local audits and committed to review the content and format of local authority accounts in April 2025 to address the committee's concerns about audit requirements.