Rural Upper-tier Local Authorities

Caroline Voaden Excerpts

Wednesday 2nd September 2026 Westminster Hall

[Caroline Voaden (South Devon) (LD)]

It is a pleasure to serve with you in the Chair, Ms Barker. I thank my hon. Friend the Member for North Shropshire (Helen Morgan) for securing this important debate.

Before moving to rural South Devon in 2007, I had spent all my life living in and around major cities: Edinburgh, Sheffield and then London. After nearly 20 years living in the rural south-west, I can honestly say that I had previously not understood rural life because I had not lived it. I have since come to realise that the rural-urban divide is possibly one of the deepest divides in our country and one that is too often overlooked, especially by Governments made up of city and urban MPs who simply do not understand the reality of rural communities and fail to see the deprivation that lurks behind the hedgerows.

Those communities are often forgotten when spending decisions are taken despite a set of circumstances that mean we desperately need the Government’s financial backing. Incomes are lower due to the older average age, jobs are often seasonal and low-waged, people in rural areas travel almost twice as far as those in urban areas, and there is often no public transport. Healthcare is a challenge because community services have been cut, hospitals are miles away and hospital transport has all but disappeared. High-speed internet is crucial when services are scarce, yet broadband connectivity lags far behind urban areas. Banks, pubs and post offices are closing, hollowing out communities and increasing rural isolation. As the hon. Members for Camborne and Redruth (Perran Moon), for St Austell and Newquay (Noah Law) and for Truro and Falmouth (Jayne Kirkham)—all of them from Cornwall—have said, the high number of second homes, high house prices and low wages massively exacerbates the housing affordability crisis. In Devon, the full-time salary to house price ratio is 10.6:1—well above England’s average of 8.7:1.

Despite all that, funding is persistently driven into urban areas while rural communities are left behind. The previous Conservative Government forced councils to do more with less. Their policy to force local authorities to use their reserves to subsidise their revenue expenditure was deeply wrong and, as a result, six rural upper-tier local authorities are on the brink of issuing section 114 notices, which would effectively declare them bankrupt.

The current Government have committed to providing multi-year funding settlements for local authorities, which we welcome, but for rural communities the 2026-27 to 2028-29 settlement falls well short. The withdrawal of the rural services delivery grant was a huge blow to councils in Devon, costing about £14 million, and no rural councils benefited from the replacement funding or recovery grant.

The new formulas mean that local authorities in cities will have higher spending power than in previous years while rural shire districts will have less to spend. Under the local government finance settlement for this year, urban councils will receive 32% more per head in Government-funded spending than rural councils. Devon county council will receive £1,056 in core spending power per head compared to Hackney council’s £1,645 or Liverpool city council’s £1,598. It does not cost 50% more to provide services in Hackney or Liverpool than in Devon. In fact, I would argue it potentially costs less because of the rurality.

Furthermore, the Government’s 2026-29 local government finance settlement does not include any explicit support for rural upper-tier authorities. The new formula has included remoteness only as an uplift in the formula for adult social care. As my hon. Friend the Member for Horsham (John Milne) said, a rural child is not easier to service than a rural adult. It is utterly shocking that the Government do not believe that remoteness is relevant to the delivery of any other service, such as school transport or waste collection.

It goes way beyond the additional time it takes to travel. Rural councils have several other considerations that urban councils simply do not have to contend with, including requiring more service centres due to the spread-out population and more professionals to cover visits across a huge rural area. They receive fewer responses to contract tenders, perhaps only getting one from the incumbent provider, which leads to a market with increased prices for services.

There are physical constraints such as needing smaller refuse vehicles, especially on the narrow lanes near where I live in Devon. Those vehicles have to return to base to be emptied more often, and rural areas also need multiple depots for equipment and vehicles. Thus, they need more equipment to service the streets and more drivers.

Pockets of deprivation, often hidden by prettiness, are particularly hard hit. Social mobility for young people living in deprived rural areas is one of the lowest in the country. None of this is considered in the new funding formula outside of adult social care. I urge the Minister to review that.

Quite simply, the new system of allocation does not recognise that the sparse and isolated nature of rural areas drives higher costs for the delivery of essential services, creates challenges in recruitment of staff for key services and requires local authorities to provide a greater public subsidy for the provision of public transport. This is very much in keeping with a Labour Government that have persistently failed to acknowledge that every service is harder to deliver across rural areas.

Let me use Devon to illustrate why this service delivery is so tough. Rural Devon is a drive of over 100 miles from north to south. It would take me 10 hours to walk across just my constituency, which is a fraction of the county, and nowhere near the biggest. I am not sure how Manchesterism will translate to rural areas, but we cannot apply the same principles to a city of 3 million people and villages with just 10 houses and expect to see the same results.

The trajectory for rural councils over the next three years is deeply concerning. The very limited increase in Government funding will require service reductions or significant increases in council tax or business rate income to maintain core spending power. As has been said, rural residents will pay 17% more in council tax per head compared to urban residents this year, yet Government funding will be directed towards urban authorities.

The Government are relying on a regressive council tax to fund services in rural areas that it was never meant to. As a result of this funding settlement, by 2028-29 urban councils will have seen a 20% increase in Government-funded spending power, compared to only 2% for rural councils. How can that be fair? These are not just numbers on a spreadsheet; we are talking about people’s lives. From the growing number of children with SEND who cannot access the support they need to the closing of vital community spaces like libraries and leisure centres, this lack of funding has a real impact on people.

We are concerned by the Government’s decision to allocate additional funding within the local government finance settlement on a need and demand basis. It will jeopardise the sustainability of rural local councils. The Liberal Democrats oppose the three-year local government finance settlement, which does not go far enough in providing a truly fair funding settlement to all local authorities across the board. We urge the Government to provide rural councils with a funding settlement that reflects the true impact of rurality and sparsity of the areas they serve through the application of the fair funding formula.

The ability to provide services to people in my constituency and across rural Devon will only be made worse by the proposal for four unitary authorities recently chosen by the Government for the local government reorganisation in Devon. I urge the Minister to bear with me on this. That proposal from Labour-run Plymouth and Exeter will see those two cities massively expanded, to the great delight of their Labour MPs, and a new urban growth area based around Torbay, leaving a fourth authority—the bits that were left behind when the urban areas were gouged out—stretching 70 miles from Ilfracombe in the north to Salcombe in the south, but 100 miles by road. That authority will have to maintain a road network not dissimilar to the whole of Luxembourg’s with no major town to offer opportunities for growth and regeneration and the most deprived area of Devon to support.

[Helen Morgan]

The point of combined authorities is to derive economies of scale from placing urban and rural areas together. Some of those economies of scale can be driven by the density in the urban area. Does my hon. Friend agree that it makes no sense to split up the urban and rural areas in the way she describes?

[Caroline Voaden]

I absolutely agree. It makes no sense to any of us in Devon. I have spent the entire summer listening to constituents who are deeply distressed about what has happened, which leaves them in a rump rural local authority with no option for economic growth or regeneration.

[Rachel Gilmour (Tiverton and Minehead) (LD)]

As a part-Devon Member of Parliament—the other part of my constituency is in Somerset—I entirely agree with what my hon. Friend is saying. The part of my constituency in Devon is 800 square miles and will form just part of an enormous rural authority. Does she agree that that authority does not have the fiscal power to sustain itself?

--- Later in debate ---

[Caroline Voaden]

I absolutely agree. The Government ignored local voices and went with the proposal that came fourth out of five in a public consultation, but was backed by Labour council leaders and Labour MPs who had the ear of Ministers and wanted to expand their cities. None of my constituents want it. I have spent the whole summer listening to distressed residents, as has my neighbour, the hon. Member for South West Devon (Rebecca Smith). The chosen proposal was a blatant prioritisation of economic growth for the cities of Plymouth and Exeter at the expense of the economic and social cohesion of rural Devon.

How do the Government expect this council to be financially viable when they deem remoteness irrelevant to the delivery of every service except adult social care, and when no one can even work out where the authority could be based? How can rural Devon expect growth in every postcode when there is clearly no consideration of the economic growth potential for rural Devon in the chosen proposal?

The Prime Minister talked yesterday about supporting rural areas and not creating a two-tier country, but the Government have created a two-tier Devon. I urge the Minister to listen to the many Devon MPs and the local people, go back to the drawing board on the reorganisation in Devon, look at the alternative options that were on the table, and pick one that will not leave rural communities struggling even more than they are now. If we are to have any hope of bridging the urban-rural divide, a fair funding settlement for rural councils and local government reorganisation that works for rural areas must be the start. If the Prime Minister wants a political system and economy that works for every person in the country, the Government must change the way they value and recognise rural communities.

--- Later in debate ---

[Jim McMahon]

In a sense, I recognise that there will be differences of opinion, depending on which local authority and what part of the country Members represent, about whether the fair funding review fully picks up all the particular circumstances. There might be more agreement on the sufficiency of local government finance. Whatever the allocation across the board, the fair funding review is intended to distribute it in the fairest possible way and in a transparent way, so that Members and councillors can see where the money is going to.

Since coming to power, the Labour Government have delivered long-overdue reforms to council funding through the first multi-year local government settlement in a decade. In doing so, we have delivered transformational changes to how councils are funded, which the public, our local government partners and Parliament have long called for. We have delivered on our commitment to give councils greater certainty and flexibility over their funding, ensuring that resources are fairly aligned to local need and simplifying the funding landscape by ending wasteful competitive bidding, which we all recognise pits one area against another.

The Government also have a very important role to play as an equaliser for local government income. During the course of the debate, I heard references to the amount of grant that individual councils get, and one grant total being compared with another. I want to be clear that the fair funding review is not intended to give every council the same central Government grant. That grant is intended to act as an equaliser for the system, so that in the end all councils have the resources to deliver the public service need in their local areas, while recognising that there are wide differences in England in the local tax bases of council tax and business rates.

As a result of our reforms, nine in 10 councils will receive funding that broadly matches their assessed relative need by the end of the multi-year settlement, up by about a third before the reforms. We recognise the different drivers in demand for services, the cost of providing them in different places and the different abilities of areas to raise council tax. We are therefore making funding available in such a way as to enable all local authorities to provide the same level of services to their residents.

For rural communities, the 2026-27 settlement was a key step in delivering a fairer system to address the issues that matter to local communities across England. It included recognising local circumstances, including differences in the cost of delivering services between rural and urban areas, and using the best available and most up-to-date data, including the latest indices of multiple deprivation to ensure that deprivation in rural areas is captured accurately. I will explain a bit more on that.

I heard references to the fair funding review not taking account of the differential cost of delivering services in rural areas. To be clear, we account for rural costs through the area cost adjustment, which is applied to all formulas. That adjustment captures the variation in wages, property rates, journey times, and a range of other factors that pick up the local variation that takes place. On top of that, we have a remoteness adjustment in social care. I hear representations that say, “Hang on. If it costs more to deliver adult social care in these areas, then surely children’s services and other services such as waste collection and other things ought to be included, too.” The area cost adjustment picks up that general difference of delivering a service in those areas. There is a balance here. We want a simplified system that can be scrutinised and understood. The more we adapt and change and really drill down on that, the more complicated it becomes, the more it has to be updated and the more that changes. There is always a balance to be had between simplicity, being understood and giving certainty over the multi-year settlement, while recognising the differences at a local level.

[Caroline Voaden]

The Minister says there is an area cost adjustment, and yet the leader of Devon county council says that Devon lost £14 million because of the rural services delivery grant, which was removed. How can those two things be true? If a grant that takes account of the fact that it is more expensive to deliver services in a rural area is removed and the council is £14 million short, the extra cost of rural services delivery has not been recognised.

[Jim McMahon]

We have always taken the view that the rural services delivery grant had, to put it mildly, a weak evidence base to support it. A political decision was made when the coalition Government came in and the grant that was given to largely urban authorities was taken away with almost no notice at all. It was replaced by the rural services delivery grant, but without the evidence base to support where it went to. Whatever criticism is applied to the fair funding review, what cannot be criticised is the evidence base that sits beneath it, because it is the best available data.

We are laying the foundations for reform more broadly. The multi-year local government finance settlement allows for £4.6 billion of additional funding to be available for adult social care in 2028-29, compared with 2025-26, including £500 million for the first ever fair pay agreement. The Government are driving the biggest transformation in children’s social care in a generation, with the families first partnership programme backed by nearly £3 billion of investment over four years, including a historic £2.4 billion over the multi-year settlement. That will support local authorities, police and health partners to provide families with the right support at the right time, shifting the system from expensive statutory provision to early intervention and prevention services.

The Government recognise that the current SEND system is not working for families, children or local authorities, and we have set out plans to reform it, backed by £4 billion of investment over three years, to deliver expertise without the need for statutory processes and embed new practice into the system. We have also heard calls for a solution to SEND deficits. All local authorities with a deficit will receive a grant covering 90% of their high needs-related deficit. The grant is projected to be worth more than £5 billion nationally, and is subject to each local authority submitting and securing approval for a local SEND reform plan.

We recognise the spending pressures from home-to-school transport in recent years, particularly in rural areas. At the fair funding review, we introduced a bespoke home-to-school transport formula that estimates local transport need for pre-16 home-to-school transport, based on pupil numbers and home-to-school distances. Furthermore, following consultation on the design of the formula, the Government increased the distance cap to 50 miles, rather than the originally proposed 20 miles. That change will see only 0.4% of pupil journey distances capped and will avoid unfairly penalising local authorities where children travel further to get to school.

We know that the cost of living and homelessness services are causing challenges too, and that homelessness can present in a unique way in rural areas. That is why we are providing more than £4 billion of funding for homelessness and rough sleeping services over the next three years, including £442 million launched last month, with new flexibility for areas to shape services to meet local need.

The Government are committed to making the changes necessary to transform public services and put local government back on its feet. Realigning funding with need and reforming the services that put pressure on local government will empower local leaders to deliver for their communities in rural areas and right across the country, as we have promised.

Devolution is a live issue for Cornish colleagues and those from other places. I give credit to Members for their representations on behalf of Cornwall and other areas. The truth is that devolution can happen only with local consent. We need areas to come forward, get local partnerships in place, and rally the support of local authorities. At a time of change in local government, when areas are also dealing with local government reorganisation, there is a lot for them to step up to. That is why we have provided support for local government reorganisation areas, as I covered in another Westminster Hall debate this week.

We want devolution to be rolled out to every area, but we recognise that the local partnerships in different areas are at different stages. There is an active discussion, which we should welcome, about what the role of community and neighbourhoods ought to be in the new settlement—devolution should go hand in hand with localism and empowerment—what the role of the local authority is, and what added value above and beyond that can be achieved if areas choose a mayoral model. To be clear, if an area is not ready yet for a mayoral model, the position is not that they cannot have devolution and that more cannot be given. I hope Members and people in local government continue to do what they have always done: rally their local areas.