The Government has announced an increase of over £700 million in funding for councils next year, aimed at supporting social care and covering costs related to national insurance changes.  

The provisional local government finance settlement for 2025-26 has been revised, raising the funding from the initial £1.3 billion proposed in November to over £2 billion.  

This adjustment includes an additional £200 million for the social care grant, now totaling £880 million, which can be utilized for both children’s and adult social care. Additionally, £515 million has been allocated to address the financial burden of increased employer national insurance contributions.  

The revised settlement provides £69 billion for local government in England, reflecting a 6% increase in cash terms and an average 3.5% real-terms rise in councils’ core spending power for 2024-25. This includes a previously announced £600 million emergency recovery grant, sourced from repurposed existing grants.  

In a written statement, Local Government Minister Jim McMahon confirmed that the final settlement, to be announced early next year, will incorporate the additional £515 million for national insurance costs.  

This funding will also be available to mayoral combined authorities and distributed following an assessment of authorities’ share of “relevant” net spending on services.

Mr McMahon reaffirmed that the previous government’s policy on council tax will be maintained amid Tory warnings the levy would increase significantly due to financial pressures across the sector.

This means that council tax for top-tier councils with social care responsibilities can only increase the levy annually by more than 5% if the rate is approved through a local referendum.

Councils will also be required to provide more clarity next year on the social care precept element of bills, which remains fixed under the referendum principle at 2%.

Mr McMahon confirmed that all councils will receive a share of the accumulated surplus currently held in the business rates levy account, which is held centrally and is intended to provide a safety net for local authorities.

This will see £100 million returned to local government on a one-off basis, with individual allocations confirmed in the final settlement.

The Government has also said it will consider how business rates retention can be best directed to local growth priorities as part of wider reform of the way local government is funded.

Deputy Prime Minister Angela Rayner said: “Local leaders are central to our mission to deliver change for hard-working people in every corner of the country through our Plan for Change and I know our councils are doing everything they can to stay afloat and provide for their communities day in, day out.

“We won’t take the easy option or shy away from the hard work needed to rebuild a more effective and efficient system. These kind of reforms won’t happen overnight, but we are determined to deliver fairer funding, ending postcode lotteries meaning everyone gets the support from public services they deserve.”

The amendments to the finance settlement come after the Government published the English Devolution White Paper.

Under the proposals, two-tier areas, covered by both county and district authorities, would be abolished and new unitary councils could emerge, which “must be the right size to achieve efficiencies, improve capacity and withstand financial shocks”.

A 10-week consultation has launched on strengthening the current standards and conduct framework in England, with views being sought on proposals including mandating a model code of conduct, strengthening investigation processes for breaches of the code of conduct.

Mr McMahon said: “We know councils are calling out for help, which is why we have prioritised this vital increase in funding, but we must stop taxpayers’ money being thrown into a broken system.

“As a former council leader, I know too well that councils have suffered from short-term solutions. But we will fix this outdated system, turning to our partners in local government, working hand in hand to bring ambitious reform and do the long-term, necessary work to rebuild the foundations, and crucially, trust.”

But shadow local government minister David Simmonds said the Government’s festive funding announcement saw the gift for councils “emptier than expected”.

Speaking in the Commons on Wednesday, Mr Simmonds said: “The two wise men and wise woman of the Government have arrived bearing their gifts for local councils. But on closer inspection, while the gold is beautifully packaged, the box is somewhat emptier than what people have been expecting.”

Mr Simmonds added town halls would still face increased costs caused by extra duties introduced by the Children’s Wellbeing and Schools Bill, and that the money to cover the rise in employers’ national insurance would not cover the £1.76 billion sum identified by the Local Government Association.

“As many of our councillors go away for their Christmas break and try and digest the detail of this with their Christmas lunch, they are going to be facing rumbling indigestion as they realise that their budget pressures are growing significantly,” he said.

“If this is fixing the foundations, I wouldn’t want to stay in the tent that’s the only thing this will hold up in our local authorities,” he added.