RSN Initial Response: Final Local Government Finance Settlement Published

The Government has yesterday (9th February) published the Final Settlement for Local Government Finance ahead of the debate tomorrow in Parliament.

You can find out more about the final settlement at this link: https://www.gov.uk/government/collections/final-local-government-finance-settlement-england-2026-2027-to-2028-2029

While we wait for the full analysis of the figures from our local government finance experts, we are concerned about the overall additional funding being allocated to urban councils throughout the settlement which we believe could widen the gap between funding for rural and urban councils, leaving rural at a disadvantage.

In the meantime, we have explored the response to the consultation in relation to rural policy and it doesn’t read well for rural councils.

The government has set out how it believes the final Local Government Finance Settlement accounts for the costs of delivering services in rural areas.

Below, we explore what the government says, and what this means for rural councils and communities:

The government states it is committed to accounting for rural service delivery pressures and has adopted several updates recommended by rural areas. This includes introducing a new remoteness factor and adding two journey time adjustments to cost assessments for all services:

• Dispersal (journey times between hub towns)
• Traversal (journey times between households)

These are intended to reflect the additional time required to deliver services in more sparsely populated areas.

What this means:

For the first time, the funding model explicitly recognises that distance and dispersal increase service delivery costs, rather than assuming services can be delivered at urban density. This represents a structural acknowledgement of rural geography, though the scale and financial impact of these adjustments will only become clear through allocations. This however doesn’t take into account any of the additional costs of delivering the vast majority of services due to the distance from markets in rural areas and lack of competition in rural areas.  It also doesn’t include for the need to have additional service centres to ensure geographical coverage.

The government has increased the distance cap in the home-to-school transport formula from 20 miles to 50 miles, recognising that the previous cap unfairly penalised areas where children must travel further due to limited local provision.

What this means:

This change is welcomed as it directly reflects a long-standing rural issue, particularly for county councils covering large geographies. It acknowledges that longer travel distances are often unavoidable in rural areas and should not result in systematic underfunding of transport responsibilities.

Deprivation data has been updated to use Lower Super Output Area (LSOA)-level data, to better capture pockets of deprivation in rural areas that can be masked when data is aggregated at higher geographic levels.

What this means:

This responds to concerns that rural deprivation is often hidden in national datasets. It improves the chances that small, isolated communities with high need are recognised in funding assessments, though outcomes will depend on how heavily deprivation is weighted relative to other factors. This is an area where we need to explore the detail in the settlement to see how rural deprivation has been considered.

A new remoteness adjustment has been introduced into the adult social care formula, based on evidence that distance from major economic centres affects the cost of delivering care services.

What this means:

While welcome, this only recognises rural cost pressures in relation to adult social care – whether it recognises those well enough compared to the costs involved needs further examination.  The additional costs associated with remoteness have been disregarded in all of the other Relative Needs Formula blocks.  This disadvantages rural councils who will face additional costs across service areas which have been ignored by Government.

The government concludes that, taken together, these changes represent a “strong set of proposals” to account for the costs of delivering services in rural communities.

What this means:

The final Settlement marks a clear shift in language and methodology, with rural costs now explicitly referenced across multiple service areas. However for rural councils, this will feel like too little too late.  This was the government’s opportunity to create a fair, transparent funding formula. 

We believe that the Government has missed the opportunity to fairly fund rural services, instead, it continues to rely on outdated data to allocate funding through the Recovery Grant, sets deprivation as the driver of costs of service delivery despite not publishing evidence that it drives additional cost, and relies on the working people in rural communities to fund public services themselves.

We will be publishing a full analysis of the settlement and what it means for rural communities in due course.

RSN’s Delivering for All roadmap has consistently called for:

• Funding formulas that reflect the full cost of rural service delivery, not just travel time
• Better metrics to capture hidden rural deprivation
• Policy design that avoids a one-size-fits-all approach

The changes outlined by government reflect movement in the right direction on metrics and recognition, but they stop short of addressing the structural funding imbalance highlighted in Delivering for All, including higher council tax burdens and lower government-funded spending power in rural areas

The RSN team will continue to update members as further analysis is completed and as councils begin to set budgets for the year ahead.