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According to a recent report by the Institute for Fiscal Studies (IFS), changes in council funding could have a significant impact on inner London boroughs. The research suggests that some councils in inner London may see their funding levels decrease by up to 12% after adjusting for inflation. However, the changes are expected to benefit areas in outer London and urban areas outside the capital, including Nottingham, Wolverhampton, and Slough.
The government has defended the proposed overhaul, arguing that it is necessary to realign council funding with the demand for local services. The new funding system, set to be phased in over three years starting in 2026, will involve changes to the formulas used by the government to assess demand for council-run services and the cost of delivering them. A greater portion of funding will be redirected to areas with more properties in lower council tax bands, while the redistribution of business rates income will also be adjusted.
The IFS estimates that the proposed changes will redistribute approximately £2.1 billion in annual government funding, with 186 authorities facing cuts and 161 set to benefit. However, the exact impact on each area will not be known until the plans are finalized later this year. Areas like Camden, Hammersmith and Fulham, Kensington and Chelsea, Wandsworth, and Westminster are projected to experience an 11–12% drop in overall funding, despite a proposed funding floor aimed at limiting losses.
Outside London, regions like the East Midlands and Yorkshire and the Humber are expected to see the biggest increases in funding. Additionally, areas with relatively high population densities, including outer London boroughs and councils in Blackpool, Nottingham, and Slough, are likely to fare well under the new system. Shire district councils are predicted to experience a range of outcomes, with some losing out while others, particularly in more urban areas like Harlow, Crawley, and Norwich, coming out as winners.
The changes in council funding are part of a broader attempt to redistribute central government funding to local authorities in England. Labour ministers have criticized the outdated funding rules, arguing that they fail to address the higher demand for services in poorer areas. While the government says the reforms are aimed at improving public services and bringing local councils back on track, critics like the Liberal Democrats have raised concerns about the potential negative impact on communities
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