The government has announced reforms to council funding that it says will ensure it offers better value for money, alongside more money for councils to help fix the foundations of local government.

A consultation on the long-term proposals will launch next month, which the government says will fundamentally improve the way the sector is funded and move away from an outdated and inefficient approach, which has seen some councils increasing their level of reserves and others struggling to deliver services and balance budgets.

According to the government the reforms will be subject to extensive consultation with local leaders and will ensure public money is spent more efficiently on improving services local people.

It will be launched alongside a consultation on the Provisional Local Government Finance Settlement for 2025-26, which includes a new £600 million recovery grant for areas most in need, an increase to the Social Care Grant by £680 million, a new £250 million Children’s Social Care Prevention Grant and the repurposing of grants to offer better value for money for the taxpayer and deliver better outcomes for local people, including the most vulnerable.

Overall, local government is expected to receive a real-terms increase in core spending power of around 3.2% and no council will see a reduction in this after taking account of any increase in council tax levels. On average, places with a significant rural population will receive an increase of around 5% in their core spending power.

Deputy prime minister Angela Rayner said: “For too long councils have been let down by an outdated and inefficient funding system which has led to public services creaking and taxpayers’ money not being spent efficiently.

“Whilst there’s no magic wand to fix what we’ve inherited, we’re taking the necessary steps to fix the foundations of local government by creating a fairer system and ensuring every penny is spent on the services so many people rely on every day.”