Is your area a winner or loser from new council funding formula? Ministers divert money to Labour heartlands while London and South East face being battered with higher tax

Councils in London and the South East face funding cuts as ministers are accused of “gaming” the system to support Labour’s heartlands.

A new funding formula in England will see central money directed to the most ‘deprived’ areas, putting pressure on better-off authorities who have previously managed to keep bills under control.

Five London authorities with ‘historically low’ council tax levels will scrap a 5 per cent cap on increases for the next two years after ministers urged them to charge more.

Other council estates that currently have below-average taxes are being told they can apply for ‘exceptional’ permission to get around the long-standing cap.

Overall, English councils will receive £78 billion for essential services next year as part of a new multi-year funding deal setting out local government funding for the three years to 2029.

According to the Department of Housing, Communities and Local Government (MHCLG), the end of the multi-year agreement will see councils’ core spending power increase by 23 per cent compared to 2024-25.

This can be used to pay for services such as garbage collection, housing and child services.

The Conservative Party condemned Labour’s plan as ‘gaming’ with the numbers and accused the Government of a ‘naked political power grab’.

But local government secretary Steve Reed said: ‘This is a chance to turn the page on a decade of cuts and for local leaders to invest in building back what has been lost to bring back libraries, youth services, clean streets and community centres.

‘Today we’re ensuring every community has the funding it needs to succeed.’

An updated financing system aims to provide more money for areas that need it most, with a 24 percent increase per capita in the poorest 10 percent of municipalities.

Details of deals for specific councils revealed the percentage change in core spending power from 2024/25 to 2028/29, assuming local authorities increase council tax by a maximum of 5 per cent.

Birmingham (45.3 per cent), Bradford (46.9 per cent), Barking and Dagenham (47.9 per cent), Coventry (46.5 per cent), Derby (46.8 per cent), Enfield (58.2 per cent), Hillingdon (47.1 per cent), Hounslow (52.1 per cent), Luton (63.4 per cent), Manchester (46.8 per cent), Newham (52.8 per cent) and Slough (47 per cent) were among the top gainers.

Ashfield (-3.8 per cent), Ashford (-3 per cent), Derbyshire Dales (-3.4 per cent), Harborough (-15.8 per cent), High Peak (-4.5 per cent), Horsham (-3.9 per cent), Mid Suffolk (-4.3 per cent), North West Leicestershire (-4.3 per cent), Ribble Valley (-5.5 per cent), Runnymede (-12.5 per cent) and Tonbridge and Malling (-15 percent) were among the biggest losers.

County and county councils, many of which are already on the verge of bankruptcy, have warned they will face huge pressure to raise taxes to make ends meet.

The government argues that some councils benefit disproportionately from the current system, which allows them to build financial reserves, while others are ‘struggling to cope’.

Announcing the new system last month, the Department for Housing, Communities and Local Government (MHCLG) said ‘taking into account different abilities to raise funds’ would mean ‘all local authorities can deliver the same level of service to residents’.

The five London authorities with the 5 per cent cap on increases waived are Wandsworth, Westminster, Hammersmith and Fulham, City of London, Kensington and Chelsea and Windsor and Maidenhead.

MHCLG said 500,000 households in these areas already had ‘very low bills’, with the typical Group D paying between £450 and £1,280 a year less than the UK average.

The funding reforms are part of a wider effort to ‘fix the fundamentals of local government’ under the Government’s change plan.

The department said this includes consolidating grants, cutting red tape and enabling councils to make preventative investment to address the root causes of rising costs through reform of children’s social care and a new homelessness and domestic abuse grant.

Tendring, Blackpool, Rotherham and Hastings are among the areas highest in deprivation, which will help determine funding.

Local Government Minister Steve Reed said: ‘This is a new chapter on a decade of cuts and a chance for local leaders to invest in building back what has been lost to bring back libraries, youth services, clean streets and community centres.’

Senior Tory MP Sir James Cleverly, shadow local government secretary, said: ‘Labour say they want to make local government funding ‘fair’, but instead they are launching a naked political power grab.

‘The government is gaming the funding model to punish councils that keep council tax low and shift funding to irresponsibly spending, poorly run Labor councils.

‘Inevitably, losing councils will have to cut services or increase taxes and, with the referendum principles being scrapped, these increases will be huge.

‘This is part of Labour’s mission to increase council tax across the board. Hidden behind their rhetoric about supporting local government is a council tax bombshell, with the average family living in a Group D home facing a total council tax increase of £1,143 across this Parliament.

‘Under Labour, ordinary people pay more for less. ‘Only the Conservatives will keep tax on the family home low and ensure residents get a fair deal across the country.’

A Labor source said: ‘The days of Rishi Sunak shoveling money into Tunbridge Wells and boasting about it at garden parties are over.

‘Deprivation is now again at the center of council finances. Places devastated by the Conservative Party’s austerity will get the support they need to get back on their feet.

‘That’s the difference a Labor Government has made.’

Major Jeremy Newmark, finance spokesman for the District Councils Network (DCN), said: ‘As with any local government solution, there are winners and losers.

‘While some councils are seeking to delay long-term spending cuts, other councils may have little choice but to scale back services over the next few years.’

Major Steven Broadbent, Financial Spokesperson for the County Councils Network, said: ‘Overall, the three-year solution outlined today will be extremely challenging and will leave the majority of member councils facing a significant funding gap throughout this parliament.

‘It is simply unrealistic to expect them to provide vital care services while receiving huge cuts in government grants, and more councils may now have to apply for extraordinary financial support.

‘CCN will fully analyze this solution and set out its consultation response but it is vital that the government allocates more money to cushion the impact of the latest and unfair changes to its proposals and ensure all councils have the resources they need to avoid serious cuts to services.’

Kate Ogden, a senior research economist at the IFS, said: ‘With councils’ finances still under pressure from rising demands and costs, the Government may struggle to hold the line that council tax increases beyond the limits will only occur in ‘exceptional circumstances’ and where bills are currently below average.’

He added: ‘Overall, it is pleasing that the Government is finally getting the hang of funding reform.

‘There has been no proper system for allocating funding between councils in England for probably two decades.

‘The new system involves subjective decisions that not everyone will agree with, including the redistribution of funds from wealthier to poorer parts of England.’

The deal announced on Wednesday includes other changes, including allowing councils to collect all additional council taxes from new homes to encourage local growth and home ownership.

The £600 million Recovery Grant, launched last year, will run for the duration of the three-year agreement, aiming to help areas most affected by underfunding.

The new Recovery Grant Guarantee will also protect the senior councils receiving this money, giving them above-inflation increases as they adapt to the new funding system.