The recent report from the Institute for Fiscal Studies (IFS) highlights a significant shift in council funding that will greatly impact inner London boroughs. According to the IFS, councils in this area are poised to become the primary losers due to the proposed changes in government funding rules. Many boroughs in inner London could experience funding reductions of up to 12% when inflation is taken into consideration, creating concerns about their capacity to maintain essential services.
This proposed funding strategy aligns with the current government’s assertions that council finances have become disconnected from local demand for services. While inner London stands to lose substantial amounts of funding, boroughs in outer London and urban centers outside the capital — such as Nottingham, Wolverhampton, and Slough — are expected to see financial gains, highlighting a significant imbalance in allocations that could exacerbate existing inequalities.
The government aims to implement these changes gradually, beginning in 2026 and extending over three years, in a broader effort to recalibrate the formulas used to determine council funding. This restructuring will take into account factors such as local demand for services and the varying costs associated with delivering them. Notably, a higher share of the funding will be redirected to districts that have a larger number of properties in lower council tax bands, which often comprise more deprived areas. Furthermore, adjustments will be made to the business rates income that councils retain, redistributing these funds in the process.
Estimations by the IFS indicate that the restructuring will lead to approximately £2.1 billion in annual government funding being redistributed. This will simultaneously benefit some 161 local authorities while leaving 186 councils at a financial disadvantage. It is projected that areas like Camden, Hammersmith and Fulham, Kensington and Chelsea, Wandsworth, and Westminster will see drastic funding drops despite the implementation of safeguards designed to limit potential deficits.
The report has raised flags regarding the fairness of the proposed funding strategy and its likely repercussions. Certain inner London boroughs, already characterized by high property values and lower council tax rates, are poised to experience more severe losses. In contrast, regions beyond London, particularly in the East Midlands and Yorkshire and the Humber, are expected to receive substantial increases in funding. This dynamic indicates a clear pattern where financial resources are shifting away from affluent urban centers to support less prosperous areas, which some critics have described as “robbing Peter to pay Paul.”
Daisy Cooper, the deputy leader of the Liberal Democrats, criticized the funding changes, arguing that they merely transfer the financial burden created by long-standing deficiencies in council funding rather than addressing the underlying issues. Her assertion reflects a wider apprehension among local leaders regarding their ability to meet rising expenses associated with mandatory services, including adult social care and special educational needs.
In response to the mounting criticism, a spokesperson from the local government department defended the reforms, claiming that the existing funding mechanisms are outdated and no longer reflective of service needs. According to government officials, the ongoing revamp aims to support councils in delivering improved public services effectively.
Despite the acknowledgment that the current system necessitates an update, the task of designing a new framework proves to be a politically challenging endeavor for ministers, particularly with critical local elections approaching. The juxtaposition of various needs and pressures intensifies the difficulty of executing a system that fairly addresses financial disparities across different regions.
As the UK heads into an era of potential changes in local funding, the government’s strategy faces scrutiny not only from political rivals but also from council leaders who voice concerns about the future viability of their services. The outcomes of these proposed funding reforms have the potential to reshape how communities function, calling for careful consideration of the impacts on both inner and outer London councils.
