East Riding Council Warns of 'Significant Financial Risk' from Government Funding Reforms

East Riding Council has voiced serious concerns over proposed central government funding reforms, warning they could have a "significantly adverse impact" on its finances and ability to deliver essential services.

Council leaders claim the changes fail to account for the unique challenges faced by large, rural, and coastal areas, potentially leaving the authority in a "far worse situation" than many other councils.

The government's "Fair Funding 2.0" reforms, which are set to take effect from 1 April 2026, will overhaul how funding is distributed to local authorities across the country and reset the business rates retention system.

According to a council report, these changes present a "significant financial risk" that could lead to a reduction in the funding available for services provided to residents, businesses, and communities. This comes as the council already projects a £3.6m deficit for its 2025-26 General Fund budget, partly driven by increased costs in children's services and staff pay.

Julian Neilson, the council's Director of Finance, described the upcoming financial planning process as "very challenging". He explained the potential impact of the proposed changes:

"Those reforms will change how funding is distributed across local government and will also reset the business rates retention system where local authorities have been able to retain growth in business rates within local areas for the last 12 years which has been a significant benefit within the East Riding.

Whilst the final outcome is still to be decided, the modelling undertaken so far indicates the significantly adverse impact to the council's funding levels and the council's senior leadership is actively developing proposals to mitigate that anticipated reduction in funding going forward. But we are looking at a very challenging financial planning process".

Mr Neilson added that specific funding streams which have historically supported rural and coastal authorities are at risk of being reduced or removed. He said:

"It looks really challenging at the moment.

We haven't had the consultation response from the government. We have responded robustly to that consultation.

Essentially, the fair funding review assesses the relative spending needs across local authorities. It then also looks at the relative resources that local authorities have to meet that spending need.

It is proposed within the consultation that some of the elements of the formula that in the past have helped to support large rural authorities that have a significant coastline are being stripped out.

So particularly around funding for flood alleviation, funding for coastal protection, funding for highways maintenance, funding for home to school transport. So those things are being rolled back to an extent".

He also explained that the reforms are intended to equalise resources nationally but could disadvantage areas like the East Riding due to its tax base and current council tax levels. This, he stated, places more pressure on local taxpayers if services are to be maintained. 

"On the resources side, authorities with large tax bases, which again large rural authorities tend to have where they have a number of principal towns, they're also adversely affected as well because of their additional ability to raise council tax and it is also assuming that councils all raise the same rate of council tax to try and equalize the system nationally. But because our rate of council tax in East Riding is below that assumed level of council tax that we can raise then that again is something that disadvantages us in the potential outcome of that review.

So it is really difficult. It's it's intended to equalize needs and resources across the entire local government system but it does put pressure on on the council locally and on local council taxpayers to contribute more if we are going to maintain services at their current level.

The outcome has yet to be determined. We're waiting to see what the government is going to do. We're expecting a policy statement early November on this which will indicate the direction of travel".

Council Leader, Councillor Anne Handley, echoed these concerns, stating that the government has "changed the goalpost" for councils like East Riding. She expressed worry that despite the council's history of "good bookkeeping," it is now being squeezed by a government that she believes does not understand its rural nature.

Councillor Handley said:

"It is concerning that deficits have arisen despite the continuation of spending control measures. I know that there are works in progress to bring that down. Personally, I mean I'm and the cabinet are concerned about that and I think that due to no fault of our own due to the fact that the way the government are actually doing this and looking at rural areas and actually not taking it into account like they should be doing i.e. coastal flooding and all that sort of thing. They're not actually doing that. They've changed the goalpost for us. So, it leaves us in a far worse situation than lots of other councils around this country

And it's only due to the good bookkeeping that this council has had that we are in a situation much better than most councils in the country.

But I am concerned we do need to pull our belts in and it's not down to it's not anything that we've done wrong. It's due to the fact that e are now being squeezed by a government that does not understand our rurality and how we operate in this area".

The council has confirmed that its senior leaders are working with the Cabinet to develop proposals to mitigate the anticipated funding reduction. A policy statement from the government indicating the future direction of the reforms is expected in early November.