Key Cities plays an essential role in the Government's growth agenda as a leading network representing the UK's urban population. Yet determining how it can leverage Rachel Reeves's Budget announcements to drive further growth remains uncertain.
The budget marks a first step towards strengthening local services and opportunities, as well as achieving the broader financial independence needed across all local authorities. Highlights include a new mansion tax, removal of the two-child cap, fully funded apprenticeships for under-25s, a £5 million commitment to libraries in secondary schools, and the creation of 250 neighbourhood health centres.
For some, new mayoral powers to implement a visitor levy – or ‘tourist tax' – will offer a small but helpful revenue stream. This grants smaller cities in mayoral regions with strong tourism, hospitality or events sectors a new, autonomous source of revenue to fund local growth.
The announcement included a £13bn allocation for metro mayors to direct towards local priorities such as skills, business support, and infrastructure. For smaller cities adjacent to major metropolitan areas – in the North East, West Yorkshire or Greater Manchester Combined Authorities, for instance – this means funds are ring-fenced for regional improvements.
For some, new mayoral powers to implement a visitor levy – or ‘tourist tax' – will offer a small but helpful revenue stream. This grants smaller cities in mayoral regions with strong tourism, hospitality or events sectors a new, autonomous source of revenue to fund local growth.
Meanwhile, Key Cities with a focus on manufacturing, such as Sunderland, or new high-tech/digital clusters, are to benefit from capital investment incentives. The 40% Investment Allowance should make it cheaper for capital-intensive businesses to upgrade equipment and infrastructure. Smaller cities focused on specialist manufacturing or emerging tech, especially AI Growth Zones, will also benefit. More investment in Portsmouth and Plymouth has also been mentioned in relation to the UK's defence spending.
However, more must be done to address the core funding crisis for essential local services and the new cost pressures on local businesses caused by rising labour costs and a high overall tax burden. And long-term success will rely on local leaders' ability to convert the capital investment and devolved powers into sustainable private sector growth that can overcome the national fiscal challenges.
The biggest challenge for Key Cities remains the day-to-day funding for local services. As strict fiscal rules leave little room for increased funding for public services, this means many local councils will continue to face significant financial strain, especially in high-cost areas such as social care, homelessness and SEND (special educational needs and disabilities) provision.
Indeed, funding social care, including SEND, has been identified as the most acute financial pressure facing councils in the coming year. These services accounted for more than a third (36%) of all cited financial pressures in this year's Key Cities Leaders' Survey.
That is why we welcome the Government's announcement to absorb SEND by 2028, as this will take a huge amount of pressure off our councils. Local authorities, particularly those that are not part of large metropolitan regions, are still heavily reliant on council tax revenue to fund SEND services. According to the Key Cities Leaders' Survey, more than 70% of councils plan to raise council tax in 2026, and 60% plan asset sales to cope. A fifth have already cut social care provision.
There are still uncertainties regarding the projected £6bn in additional costs to make this hoped-for change happen, and concerns about the resultant reduction in money for schools, which the Department for Education says will be addressed when it sets out the full reform in the white paper planned for early next year.
Looking ahead, we hope to see continued action from the Government to enable councils to focus on long-term growth. In particular, we look forward to funding and support that reflects real pressures that councils are experiencing.
Councillor John Merry CBE is chair of Key Cities and deputy city mayor of Salford City Council
