Rethinking the Numbers: What the New Funding Formula Means for Local Government and Recruitment

The UK government’s long-anticipated Fair Funding Review 2.0, released in June 2025, represents a pivotal moment in the evolution of local government finance. From April 2026, councils across England will begin operating under a fundamentally revised funding framework one designed to reflect contemporary patterns of need, cost, and local capacity. As the 2025 Spending Review and the Local Government Finance Settlement approach, local authorities are preparing for a period of significant transition one that will not only reshape how public services are delivered but also redefine the landscape of local government recruitment and workforce planning.

A New Formula for a New Era

At the core of the reform lies a recalibrated funding distribution model, built around three principal components:

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1. Relative Needs Formula – This assesses the demand for services in each locality, taking into account demographic pressures, socio-economic indicators, and service-specific needs such as adult social care, children’s services, and homelessness support.

2. Area Cost Adjustment – This mechanism accounts for regional variations in the cost of delivering services, recognising that staffing, infrastructure, and operational expenses differ markedly between, say, inner London and rural Cumbria.

3. Resource Adjustment – This evaluates the financial capacity of each council to raise revenue locally, particularly through council tax and business rates, ensuring that authorities with limited tax bases are not unfairly disadvantaged .

The overarching aim of the new formula is to ensure that funding is “more fairly and transparently allocated,” according to a recent briefing from the House of Commons Library . It seeks to move away from historic spending patterns and towards a model that reflects current realities on the ground.

However, while the principles of the new system have been outlined, the precise funding allocations for individual councils remain uncertain. These will be confirmed in the Local Government Finance Settlement, expected later this year. Until then, councils are left to model scenarios and prepare for a range of outcomes some of which may involve significant shifts in budgetary priorities and staffing levels.

Transitional Turbulence: Navigating the Shift

The government has confirmed that the implementation of the new funding formula will be phased in over a three-year period, beginning in April 2026 and concluding by the end of the 2028/29 financial year. This transitional approach is designed to provide local authorities with time to adjust to the new financial landscape, allowing for a more measured shift in budget allocations and service planning.

However, while the phased rollout is intended to cushion the impact, it has also introduced a degree of uncertainty. Many councils are expressing concern about the redistributive consequences of the new model. Authorities in relatively affluent areas those with stronger local tax bases may experience reductions in central government support. Conversely, councils serving communities with higher levels of deprivation and lower revenue-raising capacity are expected to benefit from increased funding.

Yet, the pace of change may not be fast enough to meet the escalating demand for services in these high-need areas. As one council leader recently put it,

“We welcome the principle of fairer funding, but the reality is that need is rising faster than the funding is flowing.”

What This Means for Recruitment: A Shifting Workforce Landscape

The implications of the funding reforms for local government recruitment are both immediate and long-term. As financial resources are redistributed and service priorities evolve, councils will need to rethink how they attract, retain, and develop their workforce.

Key Impacts on Recruitment:

• Increased Demand for Skilled Professionals

  Councils in areas receiving additional funding particularly those with high levels of social need are likely to expand their teams in critical service areas such as adult social care, children’s services, housing, and public health. This will require targeted recruitment campaigns and investment in workforce development.

• Workforce Pressures in Underfunded Areas

  Authorities facing reductions in funding may be forced to make difficult staffing decisions. This could lead to higher workloads, reduced morale, and increased turnover, particularly in roles already under pressure.

• A Shift in Talent Geography

  As funding flows shift, so too may the geography of opportunity. Councils in newly prioritised areas may become more attractive to professionals seeking purpose-driven roles, while others may struggle to compete without additional incentives or flexible working arrangements.

The Local Government Association (LGA) captured this challenge succinctly in its June 2025 briefing:

“The ability to recruit and retain skilled staff is now a strategic priority for councils, not just an HR issue.”

A Word from Whitehall: Acknowledging the Challenge

In recognition of the pressures facing local authorities, the government has pledged over £4 billion in additional funding as part of its 2025–26 finance policy package. This includes the introduction of a new ‘Recovery Grant’, specifically targeted at councils with high levels of deprivation and limited capacity to raise revenue locally .

The policy statement accompanying the announcement acknowledged the scale of the challenge:

“We are taking immediate action to address these challenges. We know that the demand for, and cost of, services has increased significantly – and that this has made the job for councils in recent years much harder.”

While this funding is welcome, many in the sector argue that it must be accompanied by long-term certainty, flexibility, and support for workforce resilience if councils are to deliver on their statutory duties and strategic ambitions.

Final Thoughts

The Fair Funding Review 2.0 represents more than just a technical recalibration of local government finance it signals a fundamental shift in the relationship between central and local government. It challenges councils not only to adapt to new funding formulas but to rethink how they lead, plan, and deliver in a rapidly evolving landscape.

For council leaders, HR directors, and frontline managers, the coming years will demand more than financial prudence. They will require agility, strategic workforce planning, and a renewed commitment to place-based leadership ensuring that services are not only efficient but deeply rooted in the needs and aspirations of local communities.

As the funding landscape shifts, so too must the approach to recruitment and workforce development. The question is no longer simply how much funding councils receive but how effectively they can deploy it to build resilient, capable teams that are fit for the future.