Council Tax carries the burden: What the 2025-26 local government finance settlement means for local services

Last week, the UK government announced the 2025-26 Local Government Finance Settlement, a £69 billion package, reflecting a 6.8% cash terms increase on the previous year. This funding boost is intended to help local authorities cope with managing the rising demand for essential services, particularly in social care, waste management, and infrastructure repairs. Notably, £500 million has been set aside specifically for fixing potholes.

For the past decade, local government funding settlements have been characterised by short term thinking, uncertainty, and an increasing reliance on locally raised revenue and one off grants. Councils have faced a succession of single year funding settlements, keeping them in a constant state of financial precarity and forcing them to make reactive, often damaging cuts to vital services.

Even with the 6.8% cash terms increase in the 2025-26 local government finance settlement, the reality is that local authorities have borne the brunt of austerity, with core spending power still lagging behind pre-2010 levels in real terms.

From April most residents in England will their council tax bills increase by around 5%, an average increase of about £108, bringing the total to around £2,280 for a Band D property.

However, for around 2.5 million people living in the six local authority areas of Birmingham, Bradford, Newham, Somerset, Trafford, and Windsor and Maidenhead, the increase will be closer to 10%. These councils are implementing exceptional and hopefully one off increases to avoid bankruptcy.

So what can councils do this year to build community financial resilience? This blog explores local government funding and how we can maximise revenue through smarter data sharing and income maximisation.

Since 2010, the proportion of local government’s Core Spending Power (CSP) from council tax has surged, rising from 36% of core spending power in 2010-11 to around 56% in 2025-26. This shift reflects a major restructuring of how councils fund services, with a growing reliance on local taxation rather than central government grants.

While successive governments have presented council tax increases as a means of providing financial flexibility to local authorities, in reality, it has transferred the burden of funding essential services directly onto residents.

As a result, households are being asked to cross subsidise the growing demand for social care, often without seeing a proportional improvement in local services.

Councils are left in an increasingly precarious financial situation given that the rising share of revenue from council tax has not compensated for the loss of central government funding. Even with the ability to increase council tax by up to 5% annually without a referendum, many councils are unable to bridge the gap between rising demand for services and the revenue they can raise locally.

This financial squeeze has contributed to a wave of councils issuing Section 114 notices, effectively declaring themselves unable to meet their financial obligations. This year’s settlement, including authorisation for six councils to raise council tax by up to 9.99%, highlights the extent of the crisis, as these authorities attempt to stave off insolvency by relying heavily on local taxpayers.

For residents, the impact of this shift is higher tax bills and declining public services – not a great combination. While council tax bills have increased steadily year on year, residents often face the frustration of seeing key local services like libraries, leisure centres, road maintenance, and youth services either scaled back or closed entirely.

The growing reliance on council tax to raise much needed local funds also deepens regional inequalities, as wealthier areas with higher property values can generate more revenue, while poorer areas with lower tax bases face deeper financial struggles.

This regressive funding model places a disproportionate burden on lower income households, further exacerbating the cost of living pressures many are already experiencing. Without a fundamental rethink of local government finance, this pattern is set to continue, leaving councils and communities alike trapped in an unsustainable cycle of rising costs and shrinking services.

Councils can’t afford to wait for a restructured local government finance settlement. In the meantime, they can take action to protect residents by strengthening council tax support schemes, helping people to maximise their income, adopting flexible collection practices and making better use of data.

Income maximisation through targeted benefit take up campaigns offers councils a proactive strategy to boost local revenue while supporting struggling households. With more than £23 billion in benefits and support unclaimed each year many low income residents are entitled to Council Tax Support and other welfare benefits but do not claim them due to lack of awareness, complex application processes, or stigma.

More than £20 million a year in increased Pension Credit has already been delivered across London, and the first national pilot in Wales now launched – clear proof that this approach works.

One in three local authorities now use their administrative data to identify, contact, and support low income households, leading to corresponding increases in local revenue as more residents receive the support they’re entitled to. When households receive the support they were previously missing out on they are less likely to fall into problematic debt, ensuring a more stable income stream for local authorities.

Adopting a successful income maximisation approach can also stimulate local economies, as increased benefit uptake translates into higher household spending power, leading to more robust local businesses and, in turn, stronger business rate revenues for councils.

By aligning financial sustainability with social responsibility, councils can use benefit campaigns as a dual purpose tool to support residents while improving their own fiscal resilience. Find out more and get ahead of next year’s rises by boosting local income.

Questions about GDPR are among the first questions we are asked by local authorities when talking about , and we understand why.

Effective data governance is essential for councils seeking to maximise revenue, improve service delivery, and support vulnerable residents, yet too many local authorities operate with fragmented, underutilised datasets. And fear of data breaches.

Understandably, concerns about GDPR and data breaches can act as barriers. However, well structured data governance frameworks ensure security while unlocking major financial and social benefits.

Our work on driving better use of data across government highlights better integration and analysis of administrative data can unlock significant financial and social benefits. Councils that harness their data to identify low income households missing out on support such as unclaimed Council Tax Support, Discretionary Housing Payments, or Pension Credit can increase benefit take up, reduce arrears, and improve overall financial resilience.

Beyond revenue protection, smarter data use can drive prevention focused policymaking, allowing local authorities to anticipate financial distress, tailor support, and intervene early before families reach crisis point. These benefits can be realised if councils have robust data governance frameworks that ensure secure data sharing, ethical use of insights, and cross departmental collaboration.

By adopting data led strategies, councils can shift from a reactive model that plugs budget gaps and fire fights financial crises to a proactive, preventative approach that strengthens both household and local authority finances.

As local government reorganisation reshapes governance structures, data sharing must be seen as a tool for resilience, not a barrier to be overcome. We’ll continue supporting councils to strike this balance of safeguarding data while unlocking new revenue opportunities.

The newly published 2025-26 Local Government Finance Settlement highlights the persistent challenges facing councils: growing financial pressures, an increasing reliance on council tax, and a continued lack of long term funding certainty.

While the settlement provides a short term boost, it does little to address the underlying structural issues that have left many councils struggling to balance their books.

The rise in council tax as a proportion of core spending power, up by half since 2010, demonstrates how the burden of funding local services has steadily shifted onto residents, with many now facing significant bill increases despite ongoing cuts to public services.

Yet, within this difficult landscape, there are opportunities for councils to strengthen their financial resilience. The increasing use of income maximisation strategies, smarter data sharing, and holistic debt collection offer a way forward, ensuring more residents access the financial support they are entitled to while stabilising local revenues.

By proactively identifying and assisting low income households, councils can prevent financial distress, reduce arrears, and create stronger local economies.

Looking ahead, the challenge for local government remains clear: managing immediate financial pressures while preparing for a still uncertain future.

With a multi year settlement promised from 2026-27, councils need to push for greater certainty, flexibility, and sustainable funding models that go beyond short term fixes.

In the meantime, one in three councils that are embracing data led strategies and income maximisation will be best placed to navigate the financial headwinds, supporting their communities while securing their long term stability.

• How to securely share safeguarding data to prevent harm on Wednesday 26 February. Details and registration here
• The efficiency imperative: driving impact via data driven outreach on Wednesday 26 March. Details and registration here
• Protecting vulnerable consumers in regulated sectors on Wednesday 30 April. Register here
• Harnessing data for regional impact: empowering local leaders to drive change on Wednesday 21 May. Details and register here