Local authorities will be forced to increase council tax and make further cuts despite some of the ‘positive’ funding commitments in the Spending Review, council chiefs say.

The Chancellor announced yesterday that there will be an additional £3.4bn of grant funding to the sector in 2028-29 compared to 2024-25, a real terms increase in core spending of 3.1% across the Spending Review period.

Rachel Reeves also reiterated Government commitments to multi-year settlements and to simplify funding and announced a £39bn investment in social and affordable housing over the next 10 years.

Cllr Louise Gittins, chair of the Local Government Association, described these announcements as ‘positive’ but warned all councils will ‘remain under severe financial pressure’ and will have to continue to increase council tax and make cutbacks to ‘try and protect services’.

She also said the lack of significant funding for social care was ‘worrying’ and called for ‘urgent clarity’ on how the Government plans to address high needs deficits as part of its forthcoming SEND reforms.

Cllr Tim Oliver, chair of the County Councils Network (CCN), said that much of the increase in core spending power comes from the assumption that local authorities will levy maximum 5% council tax rises each year.

‘Even accounting for these, the sums today fall well short of filling the projected £2.2bn funding gap faced by county and unitary councils next year and consequently further service cuts will be hard to avoid,’ he added.

Cllr Jeremy Newmark, finance spokesperson of the District Councils’ Network, also warned that the newly announced funding will fail to keep pace with the increase in demand on services and will therefore leave ‘crucial preventative services…at risk.’

UNISON head of local government Mike Short said: 'The commitment to ensuring local authority finances are "sustainable" is also refreshing after years of austerity and councils effectively going bankrupt.

'But ensuring that town hall budgets are 3.1% higher by 2029 assumes they will impose annual council tax rises at the maximum level allowed each year.

'That isn't the fairest way to fund local services because the cost falls disproportionately on low-income households.'

For more on how the local government sector has reacted to the Spending Review, check out: Black hole spending review by Jonathan Werran, the chief executive of think tank Localis.