Source · Select Committees · Public Accounts Committee
Recommendation 2
2
Accepted
Implement plan to simplify and consolidate cross-government grant funding for local authorities by autumn 2025.
Conclusion
Local authorities’ ability to improve outcomes for people is undermined by an overly complex funding system, with competing policy demands and funding streams. Local authorities receive funding through the annual local government finance settlement, which includes formula-based grants and locally retained business rates. They can also raise income locally through council tax, and other local charges. Government has committed to a return to multi-year finance settlements from 2026–27, the first in a decade, which will provide local authorities with more certainty and ability to plan and invest, to achieve greater efficiency. Estimates suggest that 4 there are still several hundred unique grants available to local government from central government departments outside of the finance settlement. These are often small and ring fenced for a specific purpose, but the administrative work involved for local authorities can be considerable. In the past, government has not had a grip on how many of these grants existed, but it is now working with HM Treasury to consolidate grants to provide better value for money and flexibility to meet the needs of people. Many departments rely on local authorities to deliver policy initiatives, although lack of joined-up working can result in competing policy demands. We understand that as part of the upcoming spending review government is encouraging join-up between departments to help deliver the government missions. RECOMMENDATION As part of the multi-year funding settlement in autumn 2025, MHCLG must work with other departments to implement its plan to simplify funding across the system, including the consolidation of cross- government grant funding to local authorities.
Government Response Summary
The government agreed and outlined specific plans to simplify local authority funding through the Fair Funding Review 2.0 and Local Government Outcomes Framework, including consolidating grants into large ringfenced funds for key areas and rolling suitable grants into the Revenue Support Grant, with further consolidation planned for future years.
Government Response
Accepted
HM Government
Accepted
The government agrees with the Committee’s recommendation. Government Finance Settlement. On 20 June 2025, the government published the Fair Funding Review 2.0 consultation which set out the approach to radically simplify local authority funding, to provide local authorities with more flexibility and certainty over a greater proportion of funding. This will be supported by the Local Government Outcomes Framework, which, as set out above, establishes 15 national outcomes that central government wants to work with local authorities to deliver with their more flexible funding. From April 2026, the Framework will be used to help facilitate better join-up across central government to support local delivery, based around a set of collective priorities for local government. To simplify local authority funding that is currently distributed outside of the Local Government Finance Settlement, the government intends to bring together grants from across departments into large ringfenced consolidated grants, delivered as part of the upcoming multi-year Settlement. At least four large, consolidated grants will bring together funding streams across government for Public Health; Children, Families and Youth; Crisis and Resilience; and Homelessness and Rough Sleeping. The government also intends to roll suitable grants into the Revenue Support Grant where appropriate. The government also proposes to simplify existing Settlement grant funding, including for adult social care. The government is proposing to consolidate the Market Sustainability and Improvement Fund and Social Care Grant into the updated Settlement Funding Assessment next year. The LA Better Care Grant will remain a grant, to ensure continued joint working between health and social care. MHCLG and DHSC continue to work closely on funding arrangements and assurance for adult social care. The upcoming multi-year Settlement will pave the way for further consolidation in future years. Cross-government work will continue to explore which grants can be consolidated into the Settlement, aiming to avoid the use of micro-grants and future proliferation of grants to local authorities.