Executive Summary

Local government in England is not quietly underfunded. It is structurally broken, and the evidence is now impossible to dismiss as isolated mismanagement. Since 2018, at least eight councils have issued a Section 114 notice — the local government equivalent of declaring insolvency, a legal statement that a council cannot balance its books.¹ In 2024/25 alone, central government handed out £1.4 billion in Exceptional Financial Support to 18 local authorities just to let them set a legal budget — up from £75.8 million in 2018/19 at today's prices.¹ This is not a handful of badly run councils. It is a system.

This pillar makes six arguments. First, that council tax — the tax that funds a large share of local services — is calculated on property values from 1991, a base now 35 years out of date, with no ceiling above £320,000 that lets a £400,000 home and a £4 million home pay identical tax.² Second, that adult and children's social care, both statutory duties councils cannot lawfully refuse to fund, have grown from services councils deliver into the service that increasingly is the council — consuming a rising share of every pound raised and crowding out roads, libraries, waste collection, and planning.³ Third, that the Section 114 wave and the quieter, larger wave of emergency government bailouts behind it are the visible symptom of that squeeze, not a coincidence of bad local decisions. Fourth, that the Special Educational Needs and Disabilities (SEND) funding system is the fastest-growing and least-controlled part of the crisis, kept off council balance sheets by an accounting mechanism that has been extended rather than fixed.⁴ Fifth, that the government's Fair Funding Review 2.0 is a genuine, serious attempt at reform — not a token gesture — but its own independent analysis found the funding changes it produces do not actually track with deprivation, despite deprivation being the stated rationale for the reform.⁵ Sixth, that none of this was inevitable: Germany faced a near-identical stale property valuation base, its constitutional court ruled it unconstitutional, and the system was rebuilt. England's council tax base is now older than the one Germany's courts struck down as unfair.⁶

Nobody in this story set out to break the system. The 1991 valuation base was meant to be temporary, revalued periodically like every property tax should be — no government since has found the political will to do it. Councils did not choose to spend more on social care; they are legally required to meet assessed need, and the number and complexity of people needing that care has grown faster than council income has been allowed to. Central government did not set out to create a bailout culture; Exceptional Financial Support exists because the alternative is councils failing to deliver duties they are legally obliged to provide. Each actor is responding rationally to the incentives and obligations in front of it. The result, in aggregate, is a funding system no one designed and increasingly no one controls.

Key Proposals

1. The Honest Diagnosis — A Funding System, Not a Series of Local Failures

The instinctive response to a council collapsing is to look for local mismanagement, and in some cases there was some to find. But mismanagement cannot explain a pattern this wide, this concentrated in time, or this consistent with a structural funding squeeze that every council in England is experiencing simultaneously. Eight-plus Section 114 notices since 2018 sit on top of £1.4 billion in emergency support to 18 further councils in a single year.¹ That is not eight bad councils. That is a system operating at the edge of what its revenue base can sustain, with some councils tipping over first.

The two forces driving this are structural, not incidental: a revenue-raising mechanism — council tax — that has not been meaningfully reformed since 1991, and a statutory spending obligation — social care — that has grown faster than that revenue base for over a decade. Everything else in this pillar follows from those two facts.

2. Council Tax — A Revenue Base Stuck in 1991

Council tax bands in England are still calculated using property valuations from 1991.² The average UK house price then was roughly £55,000; it is roughly £290,000 today — a 5.3-fold increase that council tax bands have never been updated to reflect.² Properties are still taxed according to what they were worth relative to each other thirty-five years ago, an assumption that has drifted further from reality every year a revaluation has been avoided.

The band structure compounds the problem. Band A pays six-ninths of the Band D rate; Band H pays exactly three times Band A — regardless of value above the £320,000 threshold that puts a property in Band H.² A £400,000 terraced house and a £4 million townhouse pay the same council tax, because both sit in the same top band with no further gradation above it. The system is not merely outdated. It is actively regressive at the top end, capping the contribution of the most valuable properties in the country at a level set for a very different housing market.

The average Band D bill in England for 2026/27 is £2,392, up 4.9% on the year before — the third consecutive year of roughly 5% rises.⁷ That average conceals a wide spread driven almost entirely by each council's own tax base rather than the services it provides: an identical Band D property carries a bill of £1,028 in Wandsworth against £2,765 in Dorset, a 2.7-fold difference.⁷

The Institute for Fiscal Studies has repeatedly called for reform of this base, and no government since 1991 has committed to a full revaluation — the political cost of a one-off exercise that visibly increases some households' bills has consistently outweighed the long-term benefit of a fairer, functioning system.⁸

2.1 Regressive Against Current Value, Not Just Outdated

The 1991 freeze is not a neutral error that affects every area equally. Property values have grown at wildly different rates across England since then, and the freeze has locked in the resulting unfairness. Since the mid-1990s, property values in London have grown more than six-fold, against under three-fold in the North East⁹ — so a London household today pays council tax calibrated to a fraction of its property's real value, while a North East household pays tax calibrated much closer to what its property is actually worth now. The system was never designed to produce this outcome. It is simply what thirty years of divergent house price growth does to a tax frozen at a single point in time.

The Institute for Fiscal Studies has directly modelled what a full revaluation onto a proportional, current-value basis would do, and the results cut against the instinctive assumption that revaluation would simply mean "the South pays more, the North pays less" in a crude sense.¹⁰ The biggest bill increases would land in inner London — Hackney (+45%), Wandsworth (+34%), and Lambeth (+30%) — precisely because those are the areas where 1991-based valuations have drifted furthest from current value. The biggest falls would land in areas like Fylde & Wyre (-15%) and the Ribble Valley (-13%) in Lancashire.¹⁰ Distributionally, the same modelling found 24% of the poorest fifth of households would see their bill fall by more than £200 a year, against just 4% seeing a rise of that scale¹⁰ — a revaluation onto current value is not primarily a transfer from rich areas to poor ones in the abstract, it is a correction of thirty years of under-taxation concentrated in the properties, and the areas, that have appreciated the most.

2.2 Why Rural Areas Pay More for Less

Two separate mechanical effects drive much of the regional variance in council tax beyond the valuation freeze itself, and they are easily conflated. Density increases the tax base available per unit of fixed infrastructure cost — a block of flats on the same footprint as a single house can generate several times the council tax revenue of that one house, while the cost of servicing the plot barely changes. Sparsity works the other way: rural residents pay roughly 20% more per head in council tax on average than urban residents, reflecting both a smaller tax base per mile of road or pipe serviced and less central grant relative to the cost of delivering services over a dispersed population.¹¹

That second effect was made worse, not better, by a funding change that took effect from 2025/26: the Rural Services Delivery Grant, which had partially compensated rural councils for the higher cost of service delivery, was abolished and its funding redirected toward a general needs-based allocation weighted more heavily toward deprivation.¹¹ More rural — but on average less deprived — councils lost out as a direct result, even where the underlying cost-to-serve problem the grant existed to address had not gone away.

3. The Social Care Squeeze — When a Statutory Duty Becomes the Whole Budget

Adult social care and children's social care are not discretionary council spending. Councils have a legal duty to meet assessed need in both, and that duty takes priority over every service that is not similarly protected by statute. In 2025-26, councils budgeted £26.7 billion for adult social care and £15.5 billion for children's social care — both up sharply in real terms on the year before, and both still running ahead of budget in-year.³ Total local government revenue spending sits at roughly £138.7 billion once every service is counted³; once education — already its own funding stream and its own pillar in this project — is set aside, social care alone accounts for close to half of everything left.

This pillar's own headline figure — £98 billion of UK local government spending, 3.4% of GDP¹² — uses the same PESA-sourced total as the Public Spending Overview, for consistency across this project. A broader MHCLG accounting of local authority revenue spending puts the total nearer £138.7 billion, but that figure includes the £45.8 billion schools and further education budget already covered under the Education pillar.³ Once that is set aside, the two sources reconcile reasonably closely — the residual difference is the same central-versus-local grant double-counting issue already logged against the Public Spending Overview's own total (see Gap 29 in the Gaps Register), not a separate discrepancy specific to this pillar.

4. The Demographic Trap — Where the Bills Are Growing Fastest Is Where the Tax Base Is Weakest

England's older population is not spread evenly, and it is becoming less evenly spread over time, not more. The gap in typical resident age between the oldest and youngest local authorities in England is 25 years — North Norfolk, at 55.3, against Tower Hamlets, at 30.6.¹³ Over a third of North Norfolk's residents are 65 or older; in Tower Hamlets, it is under 6%.¹³ This is not a snapshot of a stable pattern. The number of people aged 65 and over is projected to grow fastest in exactly the rural and coastal areas that already have the oldest populations today — places that were already old in 2023 are set to see the largest further increases in their older population by 2043, not the smallest.¹⁴ The divergence is widening.

Adult social care is overwhelmingly a service for older and disabled residents, and its cost is the fastest-growing, least discretionary line in almost every council budget (see Section 3). The areas facing the steepest rise in that cost over the next two decades are structurally the same areas — rural, coastal, already-ageing — that saw the slowest property value growth since 1991, and therefore stand to gain the least from a revaluation that redistributes based on current property value alone (see Section 2.1). A funding model calibrated only to property wealth, however fairly revalued, is calibrated to the wrong variable at exactly the moment the real cost driver — age structure — is diverging in the opposite direction from where that wealth is concentrated.

5. The Bankruptcy Wave — What Section 114 Notices Actually Show

A Section 114 notice is a formal statement by a council's chief finance officer that the authority cannot deliver a balanced budget as required by law. At least eight English councils have issued one since 2018, after a sixteen-year gap in which none were issued at all: Northamptonshire (2018, twice), Croydon (three notices between 2020 and 2023), Slough (2021), Thurrock (2022), Woking (2023), Birmingham (2023), and Nottingham (2023).¹

The immediate triggers vary by council, and it would be dishonest to present them as identical. Birmingham's notice followed a specific, well-documented cause: an equal pay liability estimated at £650–760 million, growing by £5–14 million a month, compounded by the failure of a new Oracle ERP finance system that left the council unable to accurately track its own spending.¹⁵ Several other councils — including Woking, Thurrock, and Nottingham — issued notices after commercial property or energy investments funded by council borrowing lost value, a strategy some councils pursued in the 2010s to generate income the funding settlement no longer provided. What every case shares is the same underlying condition: a council operating with no financial headroom, where a single shock — a legal liability, a failed system, a bad investment — was enough to tip the whole budget over, because there was no slack left to absorb it.

The more revealing number is not the headline notices but what sits behind them. In 2024/25, central government paid out £1.4 billion in Exceptional Financial Support to 18 local authorities specifically so they could set a legal budget without issuing a formal notice — compared with £75.8 million in 2018/19 at today's prices.¹ That is an eighteen-fold increase in six years in the cost of quietly keeping councils solvent. The headline bankruptcies are the tip of a much larger iceberg of financial distress that the formal notice count alone does not capture.

6. The SEND Crisis — A Deficit Kept Off the Books, Not Solved

Special Educational Needs and Disabilities funding is the fastest-growing and worst-controlled part of council finances. The nationwide High Needs deficit — the gap between what councils are funded for SEND support and what they actually spend meeting their statutory duty to provide it — already exceeds £3 billion, and the Chartered Institute of Public Finance and Accountancy projects it could reach £8 billion by 2026/27 if unresolved.¹⁶ The National Audit Office has separately concluded the SEND system, as currently funded, is not financially sustainable.⁴

The mechanism keeping this from already forcing a further wave of Section 114 notices is a statutory override: an accounting rule that allows councils to keep their share of the national SEND deficit off their formal balance sheet, so it does not trigger the same legal insolvency trigger normal debt would. That override was due to expire in March 2026. It has been extended to March 2028.⁴ A survey found that without the extension, 53% of councils said they would not have been able to set a balanced budget for 2026/27 at all — rising above 60% within a further two years.⁴

7. Fair Funding Review 2.0 — A Genuine Reform, Honestly Assessed

Unlike the SEND override, Fair Funding Review 2.0 is a real attempt to fix the underlying formula, not paper over its symptoms. It replaces the outdated needs formula used to distribute central government grant to councils, implementing from April 2026 and phasing in over three years to 2028/29, with transitional funding floors to soften the immediate impact.¹⁷ This pillar takes it seriously as a genuine reform, not a token gesture, and engages with it on the evidence rather than dismissing it.

The Institute for Fiscal Studies's own independent analysis of the reform found real winners and losers, some of them large: inner West London boroughs — Camden, Hammersmith & Fulham, Kensington & Chelsea, Wandsworth, and Westminster — face funding falls of more than a quarter if the changes were introduced immediately, and real-terms cuts of 11–12% over three years even after raising council tax by the maximum allowed every year.⁵ Some shire district councils lose heavily as business rates growth they currently keep is redistributed elsewhere, while other urban councils are among the biggest gainers.⁵

The more serious finding is about the reform's own stated purpose. The government has presented deprivation as a central driver of the new formula, on the basis that more deprived areas have greater need. IFS's analysis found that councils in the most deprived 30% of areas see very similar overall funding changes to councils in the middle 40% — a result IFS itself called "somewhat surprising" given the government's own stated rationale.⁵ CIPFA has separately welcomed the reform's closer alignment between funding and assessed need, while warning that the scale of change involved brings real implementation risk.⁵

8. What Other Countries Show Us

8.1 Germany's Forced Reckoning

England is not the only country to have let a property tax valuation base grow stale. Germany's Grundsteuer property tax was, until 2025, still calculated on valuations from 1964 in the former West Germany and 1935 in the former East — even older than England's 1991 base.⁶ In April 2018, Germany's Federal Constitutional Court ruled the system unconstitutional, finding that valuations frozen for that long produced unequal and arbitrary tax burdens between otherwise comparable properties.⁶ The response was a nationwide revaluation of roughly 36 million properties, with the new system taking effect from 2025 and municipalities retaining the local multiplier that lets them set their own final rate on top of the new, current valuation.⁶

The German case is instructive less for its exact mechanism than for what forced the change: a court found that fairness itself required a functioning, current valuation base, and the country carried out a full national revaluation rather than continuing to patch an outdated system. England's council tax base is now three and a half decades old, with no equivalent legal or political reckoning in sight. The lesson is not that England must copy Germany's exact model — property tax design differs meaningfully by country — but that a revaluation this overdue is not a uniquely difficult technical exercise. It is a political choice that has been continuously deferred.

8.2 Two Different Valuation Philosophies — France and Ireland

France and Ireland tax residential property locally too, on two different bases worth noting briefly. France's taxe foncière is calculated on a notional rental value — an estimate of what the property could earn if let, revalued periodically by the tax authority rather than left to freeze for decades.¹⁸ Ireland's Local Property Tax runs the opposite way: it is self-assessed by the owner against current market value, with the state auditing rather than centrally revaluing every property.¹⁸ Both differ from England's approach in the one respect that matters most here — neither has allowed a single valuation snapshot to stand unrevised for thirty-five years. Which mechanism England should adopt is a genuine design question. That some mechanism for keeping value assessments current is normal practice elsewhere is not.

9. The Steel Man — The Strongest Case Against Change

'A council tax revaluation will create political chaos and paper losers everywhere'

This is true, and it is exactly what happened when Wales revalued in 2003 — some households' bills rose, and it was politically uncomfortable. It is also the reason no government since 1991 has done it in England, which is precisely how a stale base survives for thirty-five years. The answer is not to avoid revaluation indefinitely but to pair it with transitional protections — capped year-on-year increases, phased implementation — the same approach the government itself is already using to soften Fair Funding Review 2.0.

'Nationally funding social care will remove local control and just shift costs, not solve anything'

Nationally funding the statutory floor of social care does not mean nationalising its delivery — councils would continue commissioning and running services locally, just without having to fund the legal minimum entirely from a capped local tax base. This mirrors how the NHS itself works: nationally funded, locally delivered. The genuine risk is that national funding without a matching, honestly designed formula simply recreates the current unfairness at a national level — which is exactly why Fair Funding Review 2.0's own formula design matters, and why independent oversight of it is proposed here rather than treating the review as a solved problem.

'A one-off SEND deficit writeoff rewards councils that overspent and punishes those that managed within budget'

This is a fair objection and it deserves a fair answer: the deficit is overwhelmingly driven by rising need — more children being assessed and diagnosed, not simply looser local spending discipline — and the same statutory override the government has already extended twice implicitly accepts this by refusing to force the deficit onto council balance sheets in the first place. A national reset paired with a demonstrably reformed forward formula addresses the unfairness this objection raises without pretending the current formula was ever going to catch up on its own.

11. Proposals for Change

The following represent the evidence-based proposals of this pillar, put forward for public discussion and challenge.

• P1 Carry out a full council tax revaluation in England on current property values, with new bands introduced above the current £320,000-and-above ceiling so the highest-value properties pay in proportion to what they are actually worth, phased in with capped year-on-year increases to limit transitional shock.

• P2 Establish a nationally funded floor for the statutory core of adult and children's social care — centrally funded and demand-linked, with delivery remaining local — so councils are no longer required to fund a legal duty entirely from a capped local tax base at the expense of every other service they run.

• P3 Absorb historic Dedicated Schools Grant deficits centrally as a one-off national reset, paired with a reformed High Needs funding formula that matches funding to actual assessed need rather than a formula inherited from a smaller, less complex caseload.

• P4 Create independent, published oversight of Fair Funding Review 2.0's own stated objectives against its actual modelled results at each implementation phase — testing explicitly for demographic-need alignment, not only the deprivation-weighting shortfall IFS has already identified — so gaps are corrected before the money moves, not audited afterwards.

• P5 Replace the current pattern of crisis-then-bailout with a published, rules-based early-warning mechanism — reserve and debt-ratio triggers that require a public recovery plan agreed well before a council reaches the point of a Section 114 notice or an Exceptional Financial Support application.

• Ensure any redistribution accompanying council tax revaluation is calibrated centrally rather than left to full local retention — full retention of a reassessed tax base would widen the North-South funding gap given how unevenly property values have grown since 1991, the opposite of what a fairness-motivated revaluation should achieve.

• Require any Exceptional Financial Support package to be published alongside the specific structural reforms it is conditional on, rather than issued as an unconditional capitalisation direction that permits deferral without requiring change.

• Commit to honest annual public reporting on local government financial resilience — reserve levels, Section 114 risk indicators, and SEND deficit trajectory by council — independently compiled and directly comparable year to year.

None of this is a mystery. The revenue base is thirty-five years out of date, the statutory duty funded from it has grown faster than that base for over a decade, and the result is visible in council after council. What has been missing is not evidence. It is the political will to revalue a tax nobody wants to be the government that revalues, and to fund a duty nationally rather than let it consume everything local government does. The Generational Reset does not pretend either is easy. It insists both are necessary.

The Generational Reset is a non-partisan, public-interest project. It is not affiliated with any political party, does not accept corporate funding, and publishes all its work under open licence for public discussion and adaptation.

For public discussion. Not affiliated with any political party. | generationalreset.org

The Generational Reset | S1_10: Local Government | For public discussion. Not affiliated with any political party. | generationalreset.org