Local Government: Finances

Understanding local council money in England is complex. Councils primarily get funds from four sources: Council Tax from residents, Business Rates from companies (partially retained locally), Central Government Grants, and Local Fees and Charges for services. Most of these funds aren't 'ring-fenced', giving councils spending flexibility. The Local Government Finance Settlement, decided annually by central government, determines grant levels and how business rates are shared. Councils are accountable to voters but can face government intervention for serious financial issues or failing their Best Value duty.

Key Takeaways:

• Local government finance in England is complex and distinct from other UK nations.
• Main funding comes from Council Tax, Business Rates, Central Government Grants, and Local Fees/Charges.
• Most funding isn't 'ring-fenced', offering councils spending flexibility.
• Council Tax levels are set locally but subject to government limits.
• Councils collect Business Rates, retaining 50% locally via a redistribution system.
• Central Government Grants include non-ring-fenced (like RSG) and specific grants.
• The Local Government Finance Settlement annually determines main grants and business rate distribution.
• Councils are accountable locally but face government intervention for failure or failing the Best Value duty.

Important Definitions & Concepts:

• Council Tax: A local tax on residential properties, set by councils based on property value bands determined by the VOA.
• Business Rates: A tax on non-domestic properties, collected by councils, with 50% kept locally via a redistribution system.

Discussion and Reflection Question: Considering the mix of local revenue sources and the annual nature of the main central government settlement, what are the potential challenges for councils in planning long-term finances and ensuring stable services for their communities?

Source: Local government in England: structures
Research Briefing
Published Tuesday, 22 April, 2025

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