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When the Government announced the first multi-year local government finance settlement in more than a decade in February, members of the public could be forgiven for thinking it would be well-received.But, for many rural councils, Fair Funding 2.0 was far from it. The reallocation of funding meant direct cuts to government grants and further reliance on raising council tax to make up the shortfall.Whether it was the announcement of £78bn in funding for 2026-27, with more than £5.6bn in new investment over the next three years, or the security of a multi-year, evidence-based settlement allowing councils to finally plan and budget effectively, it all sounded rosy.But, for many rural councils, Fair Funding 2.0 was far from it. The reallocation of funding meant direct cuts to government grants and further reliance on raising council tax to make up the shortfall.Urban councils will receive 32% more per head than rural councils in government-funded spending power in 2026-27, according to the Rural Services Network.The Local Government Association's (LGA) analysis stated that 22% of shire district councils will see a real terms reduction in core spending power (CSP) in 2026-27, rising to 67.7% over the three-year period of 2025-26 to 2028-29.Chief executive of think-tank Localis, Jonathan Werran, said: ‘A political choice has been made. Labour's urban core are getting their turn, their suck at the sauce bottle. That's got to come at the expense of someone. Guess what? It's the rural and the coastal. It falls entirely on your perspective. It's just downstream of political power and patronage.'During the austerity years in the 2010s, Conservative-led governments were accused of diverting funds from urban areas to those more likely to vote for the party – those more rural.This was encapsulated in 2017 when a leaked recording of then Surrey CC leader and County Councils Network chair, David Hodge, heard him boasting of a ‘gentleman's agreement' with the Conservative Government to help avoid a referendum on raising council tax by 15%.Werran said: ‘I think the trouble with the rural areas is that they don't have an emotive hold on the media or on the mainstream of backbenchers.'Is there any chance of a rural rebellion? Werran doesn't think so: ‘You're not going to see a [Labour leader] George Lansbury-type rates rebellion. I think it's just the local public financial reality.'The problem is both sides are often not talking the same language. Rural councils focus on cuts to government funding while the Government talks in CSP, which includes locally-raised income, such as council tax, on top of government funding.Using the Government's projected CSP changes, which are predicated on the assumption that council taxes will be raised to maximum levels throughout the next three years, many rural councils would do better than they claim.Exclusive analysis of the final settlement by the Institute for Fiscal Studies (IFS) found that the tenth of upper-tier councils with the lowest population density (ie, the most rural) would see their CSP rise by an average of 2.2% above inflation year-on-year – only slightly lower than the tenth with the highest density (ie, the most urban) at 2.7%.The most rural councils would see their CSP rise faster than the second and third most sparse (2.1% and 1.8%) and in line with those in the middle, which average around 2.3% or 2.4%.David Phillips, head of devolved and local government finance at the IFS, said: ‘It's more or less the same across the rural areas and suburban areas. It's the urban areas outside London or in outer London that do well and inner London that loses the most.'On whether the fact these numbers rely on council tax rises was fair, Phillips said: ‘The whole point of this new system was that areas that have smaller tax bases get relatively more grant and areas that have relatively bigger tax bases can raise relatively more themselves and get less grant.'He pointed to how, during the cuts of the 2010s, poorer areas with smaller tax bases did not have the ability to raise taxes to make up for grant funding cuts while wealthier areas did. This, in part, resulted in the most deprived tenth of councils seeing funding fall by 35% over the decade compared with 15% in the least deprived tenth, according to the Index of Multiple Deprivation 2019 (IMD).But Westmorland and Furness Council, England's most sparsely populated upper-tier local authority, believe the current tax base assumptions are wrong.David Hodgkinson, the council's director of resources and section 151 officer, said the Government assumed their annual council tax base would grow by 2.9%, whereas realistic local growth is closer to 0.7%.He said: ‘Over three years, the council taxpayer will be paying 15% more and the Government will be contributing one-third less, meaning that our cash goes down by just under 1% per year.'The Cumbrian council already faces a 32.5% cut in central government funding, from £121.7m in 2025-26 to £82.2m in 2028-29.Hodgkinson said: ‘It does not fully reflect the costs of delivering services in large, rural areas. The formula does not adequately account for the additional costs and complexities of delivering services in areas like ours, with long distances between settings and the service accessibility challenges this poses.'The Ministry of Housing, Communities and Local Government initially put in adjustments for remoteness at the start of the fair funding process but asked for councils to prove its importance to funding. The ministry then claimed, on the balance of evidence, that it was not a big driver for most services but kept it in the formula for social care funding.‘The evidence is really sparse', said Phillips. ‘On a conceptual level, whether more rural areas face higher costs because of lack of competition or not is less clear, because yes, there is less competition in terms of supply, but there is less competition in terms of the demand for those services. How that plays out, we just don't know.'The IFS' analysis of deprivation levels had a much clearer gradient: the least deprived tenth of upper-tier councils will receive an increase in CSP of just 0.2% year-on-year above inflation, compared with 5.2% for the most deprived tenth (IMD 2024).This is partly due to the Government's continuation of the ‘recovery grant', which was initially awarded in 2025-26 as a one-off to help redistribute funding to the more deprived areas that saw larger cuts during the 2010s. Now, it will provide £874.8m in funding by 2028-29.Phillips said: ‘The main issue is that once they did all these spending needs formulas, they still thought, whether for political reasons or not, it's not giving enough to the deprived areas.‘That is where, in effect, money has been channelled to more deprived areas, mostly in more urban areas, that required top-slicing effectively for money that would have gone all across the country, some of which would have gone to those rural areas.'Some of the hardest hit in rural areas are district councils. Phillips said: ‘Far more districts are seeing a decline relative to upper-tier councils. That's partly because the business rates growth they've got is being redistributed. It's partly because most of the increases in spending pressures have been on the upper-tier services.‘The formula suggests they were getting relatively too much compared with the upper-tier councils, whether you agree with that or not, it's all subjective.'That is at the heart of the question. Subjectivity. What is ‘fair funding'? Is it Labour's prioritisation of funding more deprived areas? Is it the belief that wealthier areas should fund their services through higher council taxes?It depends on who is asking.

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Fair Funding: Have rural councils in England really lost out?

By Gabriel Stewart | 26 May 2026

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