Committee Warns Local Government Finance System is ‘Broken’

The Housing, Communities and Local Government Committee has issued a stark warning that the current local government funding system is no longer sustainable – calling for urgent reform to protect vital services and local democracy.

The Committee’s report, The Funding and Sustainability of Local Government Finance, highlights spiralling costs for councils now exceeding £139 billion a year, with demand-led services such as adult social care, SEND provision and homelessness pushing many local authorities to the financial brink.

The Rural Services Network welcomes the Committee’s recognition that current funding mechanisms disproportionately impact councils with higher service demand and limited fiscal flexibility – an issue felt acutely by rural authorities.

The report explicitly acknowledges that rural and urban areas face different funding pressures and recommends that future funding reforms be designed to reflect this. It also urges the Government to review and update the Indices of Deprivation, noting that current measures may not capture hidden disadvantage in rural areas. This echoes long-standing RSN concerns that standard data sets often fail to reflect the reality of rural life.

Other key points relevant to rural communities include:

• Over-reliance on council tax – labelled the most unfair and regressive tax in England. The Committee calls for local authorities to have greater control over valuation and banding decisions.
• Erosion of discretionary and preventative services – such as libraries, roads, and transport, which are essential for sustaining rural communities but are increasingly squeezed out by statutory demand.
• Unfunded mandates – the report calls for the New Burdens doctrine to be strengthened so that new responsibilities are fully funded, and local taxpayers are not left to plug the gap.
• Need for fiscal devolution – the Committee backs replacing ringfencing with an outcomes-based accountability model and ending competitive bidding for core funding.

Importantly, the Committee stresses the need for a clear vision of local government’s role, warning that without this, reforms risk entrenching unfairness for the long term.

Kerry Booth, Chief Executive of the Rural Services Network: "This report powerfully reinforces the key messages of our Delivering for All campaign. Rural councils are consistently being asked to do more with less, all while facing unique challenges in service delivery and often being overlooked in national policy and funding decisions. We welcome the Committee’s recognition that a one-size-fits-all approach simply doesn’t work - and that rural needs must be properly understood and fairly funded if we are serious about national renewal".

RSN Members - If this is an area of interest to you or a colleague, we invite you to attend our Rural Fair Funding session at the RSN National Rural Conference 2025, followed by the Rural Economy and Regeneration session later the same day. These online sessions take place on Monday 15 September.

Bookings are now open for RSN members.

Find out more about this year’s National Rural Conference and secure your place here