Some councils will be worse off after national insurance increases introduced in Rachel Reeves’s budget despite an increase in funding for local authorities, the Government has said.
Communities minister Jim McMahon said the 1.2% employers’ national insurance hike will outweigh extra money being given to local authorities in England by the Government, as he admitted the funding settlement was “good, but not perfect”.
He was asked by Conservative former health secretary Steve Barclay (North East Cambridgeshire): “Could he just take his opportunity, as he is at the despatch box, to confirm whether any council will be worse off when you take this settlement, netted against the additional cost of employer national insurance, and the additional costs of their suppliers’ national insurance?
I think what he is saying – I think it’s important to be clear – as a result of this financial settlement, a number of councils will be worse off
Steve Barclay
“Because the reports that we have is a number of councils will be worse off.”
Mr McMahon said the Treasury had put forward a £515 million sum to be given to councils based on expenditure costs for services.
He said the impact on local authorities will be unpredictable, but the money will be based on whether councils have long-standing contracts for services with outsourced providers, any negotiations that take place with external companies, and if they provide the services themselves.
One area that could see costs rise is in social care, he said.
He told MPs: “Nobody’s going to pretend that this settlement fixes the system. What we want to try and do with the settlement is to stabilise the system so we get to a multi-year settlement, with those bigger reforms that really begin to stabilise.”
Mr Barclay replied: “I think what he is saying – I think it’s important to be clear – as a result of this financial settlement, a number of councils will be worse off.
“He explained the context of that, but he just confirmed expressly that councils will be worse off as a result of the tax rises the Chancellor has imposed which this financial settlement do not fully meet.”
This final settlement marks an important milestone, as we finally turn the page on chaos, austerity and 14 long years of managed decline
Jim McMahon
“I think that’s true, to a point,” Mr McMahon said.
The minister said the overall funding settlement for local councils would be £69 billion for 2025-26, a 6.8% rise.
“This final settlement marks an important milestone as we finally turn the page on chaos, austerity and 14 long years of managed decline,” he said.
“And in that spirit, this settlement addresses the financial crisis facing councils head on, moving away from bidding wars for wasteful competitive funding pots, and towards secure, stable, multi-year financial settlements.”
Local authorities will still have to hold referendums if they want to raise council tax by more than 5% in a year, he confirmed, but he indicated the Government might consider some discretionary changes.
Mr McMahon said: “We know that some councils are in very difficult positions, and we’ve heard some of that today, and for some, unique local decisions have impacted on their financial stability.
“For others, over a decade of mounting pressures has finally caught up, whatever they do. It’s just the reality of where they are. But we are determined to work together to find a way through, including considering requests for additional council tax flexibility from councils seeking exceptional financial support.”
Conservative shadow local government secretary Kevin Hollinrake warned that ending a £105 million grant for sparsely populated councils will result in “higher council tax increases” across rural England.
Mr Hollinrake said “all councils are under” financial pressure, “principally through rising demand on services, that’s the reality”.
Turning to the Rural Services Delivery Grant, he told the Commons: “The reality is rural areas will face higher council tax increases to make up for reduced central funding, despite the increases in cost of providing services in rural areas.
“To give the House an easy example of this, my local authority, North Yorkshire Council, spend more on school transport than they do on the whole of children’s social care – that’s the cost of delivering services in rural areas.”
The Government said last year the grant would be “repurposed through improved methods to target funding toward areas of high service demand that need it most”.
Mr Hollinrake later continued: “It’s now clear that it’s not being repurposed in a way that supports rural areas in the way the delivery grant used to do, and despite, again, the costs being higher there to deliver services.”
