Funding Reform Must Deliver for Rural Communities

The latest Housing, Communities and Local Government Committee session held on 7th May 2025, placed funding and sustainability of local government finance under close examination.

Minister of State for Local Government and English Devolution, Jim McMahon MP, alongside Nico Heslop, Director of Local Government Finance, provided evidence on the challenges faced by councils and the government’s approach to financial sustainability.

Acknowledging Pressures but Committing to Reform

Minister McMahon openly recognised the financial pressures facing local authorities, including rising costs in adult social care, children’s services, SEND transport, and temporary accommodation. He acknowledged that these pressures have led to a crisis in local government finance and that neighbourhood services—critical to residents’ quality of life - have suffered as a result.

The Government’s response is focused on building a sustainable financial footing through multi-year settlements and a fundamental review of the needs and resources assessment. This review will consider factors including deprivation, rural service delivery costs, and daytime population increases in urban centres.

Rural Considerations in Funding Reform

Importantly for rural communities, the Minister recognised the need for deprivation assessments to capture hidden challenges in less densely populated areas. He stated:

"With all indices of multiple deprivation, I suppose the only direct instruction politically is that we need to go down to the smallest possible unit to make sure that we pick up deprivation wherever it exists in the country. We do not want to have such a high level of assessment of deprivation that we pick up big clusters, but miss pockets of deprivation that might exist in coastal or rural communities, where deprivation is to be found but the system might not pick it up. The indices that we go on in the super output areas are population sizes of about 1,000. That should pick up the deprivation wherever it exists."

He also directly acknowledged the higher costs associated with delivering services in rural areas, noting:

"Rural councils will say that on an evidence-based assessment it costs more to deliver public services in their areas because of the distance needed to travel from one appointment to another or to empty a bin from one address to the other. Where the evidence base supports the argument being made, we are keen to make sure that the argument is accommodated."

While these commitments are positive, they sit alongside a wider focus on addressing significant urban deprivation, and the balance of future funding allocations remains a critical area for scrutiny.

Financial Support and Reform Timeline

The Government confirmed that the current £69 billion local government settlement includes £5 billion in new money, but rising demand means this remains a bridging measure until a new multi-year settlement is introduced.

A consultation on the funding reform is scheduled to open in mid-June 2025, following the forthcoming Spending Review. Full settlement proposals are expected to be outlined in the autumn, with the aim of ensuring councils are placed on a more sustainable financial footing by the end of this Parliament.

SEND and Rural Transport Challenges

The session also covered the growing pressures on SEND transport budgets - an issue of particular concern for rural councils where long-distance travel is often required to ensure children can access education. The Minister acknowledged these specific pressures but admitted that rebuilding mainstream provision and reducing these costs will take time.

Next Steps

The Rural Services Network will closely monitor the upcoming consultation and spending review to ensure that the specific challenges facing rural councils - such as service delivery costs and hidden deprivation - are fully addressed in future funding reforms.

We encourage our members to share their views once the consultation opens in June. Your experiences and evidence will be vital in ensuring the rural voice is heard.