Council expects disappointing settlement from government after scrapping of £9m Rural Services Grant

Councils across the country are set to receive their finance settlements from central Government, which allocates spending power to local authorities, by Thursday, December 19.

However, with added pressure from changes in national insurance policy, leaders at Lincolnshire County Council believe there is a “clear risk” that it may not receive as much funding as in previous years.

During a meeting of the council’s Executive on Tuesday, Andrew Crookham, deputy chief executive and executive director of resources at LCC, explained that many elements were “up in the air this year” after the government decided to scrap the Rural Services Delivery Grant, stating the funding stream was “no longer fit for purpose.”

With this in mind, he stated that “on the face of it,” this year’s settlement would be disappointing.

This reduction in funding is in addition to rising costs associated with increased demand in adult social care, children’s services and home-to-school-transport.

After the meeting, leader Martin Hill (Conservative) outlined his concerns, stating that the council is currently facing a £30 million loss of income.

He explained: “We’re now waiting for our individual county council settlement from government.

“We are concerned because they have now abolished something called the Rural Services Delivery Grant, which is worth £9 million to the county council.

“We are also concerned about the impacts of the national insurance policy changes, so there will be a £5 million direct impact on our employees, but also we estimate a £15 million impact for all our contractors who provide our services.

“So, there is about a £30 million cost or loss of income to us. The government has made it clear that they are going to give additional money, so we will wait and see how that works out.”

He later highlighted that extra demand for services is creating pressures of around £40 million.

Cllr Hill continued: “The other issue is, of course, that we have extra costs. We always face extra demand, particularly in areas like social care – with more numbers coming in – and home/school transport. There is another £40 million worth of pressures there.

“We will wait and see where we end up with the final settlement, but we are particularly concerned about the loss of the Rural Services Delivery Grant. Although the government has said it will cover it, we’re not confident at this stage it will be enough to fill the gap.”

The council estimates that that even before these new pressures, Lincolnshire is being short-changed by more than £100m a year due to the Government’s funding formula.

Cllr Hill said: “While some additional money has been promised, there is also very significant cause for concern that it will not be enough to cover these huge extra costs.

“(The Rural Services Delivery Grant) was introduced in recognition of the additional challenges rural authorities face in delivering services, and its removal seems like a backward step.

“Instead, the government has said it will focus on ‘deprivation’ in reforming the funding system. There is currently no clarity as to what this means, and we have a real fear that money will be taken from rural communities and given to urban areas – making our unfair deal even worse.

“We need assurances from Government that we will be compensated for these additional costs in this year’s settlement. At present all that appears certain is the Government’s expectation of a five per cent increase in council tax.”

The government will launch a consultation this month on its long-term proposals to fundamentally improve the way the sector is funded, moving away from an “outdated and inefficient approach” – which has seen some councils increasing their level of reserves and others struggling to deliver services and balance budgets – and shifting to a fairer system which matches funding with need.

The government says this major reform, which will be subject to extensive consultation with local leaders, will ensure public money is spent more efficiently on improving services local people rely on through a fairer system which builds on the lessons learned through the previous government’s review of Relative Needs and Resources, better known as the ‘Fair Funding Review’, which highlighted the problem of how councils are funded and the need for change but was delayed and never implemented.

It will be launched alongside a consultation on the Provisional Local Government Finance Settlement for 2025-26, which includes a new £600 million Recovery Grant for areas most in need, an increase to the Social Care Grant by £680 million, a new £250 million Children’s Social Care Prevention Grant and the repurposing of grants to offer better value for money for the taxpayer and deliver better outcomes for local people, including the most vulnerable.

They claim: “Places with a significant rural population will still on average receive around a five per cent increase in their Core Spending Power, which is a real terms increase. No council will see a reduction.” They will be better off this year compared with 2024-2025.

Deputy Prime Minister Angela Rayner said: “For too long councils have been let down by an outdated and inefficient funding system which has led to public services creaking and taxpayers’ money not being spent efficiently.

“Whilst there’s no magic wand to fix what we’ve inherited, we’re taking the necessary steps to fix the foundations of local government by creating a fairer system and ensuring every penny is spent on the services so many people rely on every day.”

The £680m increase for the Social Care Grant will help local authorities address social care pressures, whilst the new £250m Children’s Social Care Prevention Grant will help ensure children stay with their families or in safe loving homes where possible as part of a planned overhaul of the system next year. Legislation will be brought forward to crack down on the profiteering of vulnerable children and ensure local government can deliver safe, loving homes for children in care.

The government says the Budget also set out more than £4 billion of investment in local government – of which £1.3 billion will come through the Settlement – to build new homes, invest in Special Educational Needs and Disabilities and improve homelessness services, and tackle potholes. 

On funding reform, the government says further consultations are planned before the final proposals will be developed, published and again consulted on ahead of the provisional settlement for 2026-2027 – ensuring the views of local leaders are reflected, in another demonstration of the government’s push to reset relationships with councils. 

Implementation of these reforms will take place alongside multi-year funding settlements, the first in 10 years come 2026-2027, allowing local authorities the certainty to plan and invest for the long-term. They added: “The number of funding pots will also be reduced to allow councils to have more flexibility to judge local priorities, to meet the needs of local people, and to decide how best to deliver on national priorities. “

The Provisional Local Government Finance Settlement for 2025-2026 will further maintain the previous government’s referendum threshold for council tax at three per cent with two per cent for the adult social care precept, balancing the need between protecting local taxpayers who are still feeling the impact of the cost of living and funding local public services.  

The government also confirmed it will: provide support to the public sector, including local government, to meet the increased costs of directly employed staff arising from changes to employer National Insurance Contribution (NICs); plans to merge grants and simplify funding; and a commitment to overhauling the local audit system and to hold talks with local government over reorganisation if appropriate. Several grants including the Rural Services Delivery Grant and the Services Grant will be repurposed. But the government says it will ensure the impact of rurality on the cost of service delivery and demand is reflected in the public consultation next year.

Councils will also share over £1 billion to cover existing costs for managing household packaging waste, provide additional funding for new legal duties, and support much needed investment in the waste and recycling industry.