UK Council Funding Overhaul: Who’s Winning, Who’s Losing?
Picture this: the UK government is about to ditch a 20‑year‑old system that’s been as useful as a broken umbrella at the last UK council budget meeting. A fresh IFS report promises to align council funding with real spending needs—and along the way, it turns out that the changes will be a bit of a roller‑coaster.
What’s Happening?
- Funding rethink: The new scheme proposes that council tax rates equal the national average. By 2028‑29, 85 % of councils would get funding within 2 % of their assessed spending needs—if, of course, we’re left-handed with the old system, only 20 % would hit that mark.
- Big swings: If the reforms kicked in immediately: 10 % of councils would lose more than 14 % of funding; another 10 % would gain over 10 %.
- Phased rollout: To smooth the ride, the government will roll out changes over three years, aiming for an average real‑terms increase of 8 %. Yet, about a quarter of councils could see real‑term cuts of 11‑12 %.
Geography of Gains and Losses
- Inner London is deep in the red. Even with “funding floors,” boroughs like Camden, Westminster, and Kensington & Chelsea could be down 11‑12 % in real terms by 2028‑29—12 % lower even if council tax jumps to the 5 % cap each year.
- Outer London feels the sweet spot. Boroughs such as Enfield and Hillingdon could enjoy a 20 % real‑term jump—if they’re willing to bump council tax by 5 % annually.
- East Midlands and Yorkshire shine. These regions could see 15 % and 12 % real‑term increases, respectively.
- South‑East shrugs. Only a 7 % lift on average—small but not nothing.
- Leadership of the deprived areas? Surprisingly, the top‑30 % deprived councils get the same average boost as those in the middle 40 %. Deprived areas aren’t all in the red because spending‑needs updates don’t fully compensate for revenue shortfalls. Relying on the current grant funding targets for the most deprived areas still provides a cushion.
- Rural relief? The least densely populated councils—just the 10 %—seem to be sitting at the national average. The new “remoteness adjustment” is pushing assumed spending needs up for those far from a major city. Without it, far‑flung councils would struggle even more.
IFS Voices: “Let’s Not Let One Huge Shake Kill Us”
Kate Ogden (IAS Senior Research Economist & report author) says the current system’s been a nightmare for at least 12 years, possibly more like 20. She believes the reforms will rescue many councils—though some will feel the sting if they’re currently over‑funded. She recommends giving those councils more flexibility to raise council tax to a “typical” level.
David Phillips (IFS Associate Director) adds that the magnitude of changes shows just how arbitrary the old allocations were. He insists the new system must be updated periodically, otherwise another decade of disaster will follow. That flexibility is a safeguard against future policy shifts.
Bottom Line
It’s a classic “hope‑and‑fear” story: a better market‑aligned funding model promises fairness but also re‑shapes the power balance across regions. Think of it like a pot‑luck dinner—some bring enough for everyone, others bring a gourmet dish that leaves the table a bit shorter. And if the government wants to keep the delicious spread going, it will need to keep tweaking the recipe.
