New development: How could incentive-based sources of finance fund English local government effectively?

IMPACTThe UK government’s Fair Funding Review will introduce major changes to the allocation of local government funding from 2026. Government policy statements indicate that scope still remains for adjustments to the financial incentive structure of local retention of business rates. The upcoming programme of local government restructuring into unitary authorities is likely to weaken financial incentives still further. This article explores options for further reform that are under consideration by the UK government at the time of writing. It will be of interest to policy development officials in local and central government who are affected by the variable financial health of the sector, and to local government finance officers who are engaging with government in the light of their financial strategies. It will also be of interest to officials in central government and mayoral combined authorities who are exploring options for enhancing fiscal devolution to the mayoral level.ABSTRACTPlanned reforms to the funding system for English local government will constrain the influence of incentive-based finance in favour of a renewed focus on needs assessment. This reflects the balance of financial pressures on English local authorities in recent years. The influence of the Business Rates Retention Scheme (BRRS), the main source of incentive funding, appears muted since its introduction in 2013, and its influence looks set to reduce further. The article explores two alternative uses of incentive funding. One is to refocus it as part of the funding package for large-scale local development or infrastructure projects. The other is to provide a share of business rates funding to England's new Mayoral Strategic Authorities, reflecting their policy responsibilities around economic growth, productivity and infrastructure.