Herefordshire Council warns that proposed changes to the way in which government funding is allocated will result in significant budget gaps in future years.
This will potentially affect services and support for residents and communities.
Herefordshire Council will face significant challenges in balancing its budget in 2026/27 and beyond if planned changes in the way government distributes funding to local authorities go ahead. The Council has found millions of pounds worth of savings for council tax-payers, while improving key services for residents. However, proposed changes could bring about real impact on communities.
Independent modelling based on the new Fair Funding Review points to a potential funding gap in 2026/27 of around £27.3 million, 11% of the council’s net budget. This will see Herefordshire’s share of national funding dropping below the average for unitary councils in England.
Despite sound financial management and controls around expenditure, the council will need to take decisive action to balance the budget in order to stay on track to deliver on its ambitious plans for Herefordshire.
Councillor Peter Stoddart, Cabinet Member for Finance and Corporate Services, said:
On behalf of our residents, businesses and communities, Herefordshire Council is deeply disappointed by the government’s proposed funding allocation model. We hope that the representations made through the consultation process will have a positive impact on the council’s funding allocation for 2026/27.
The council has a proven track record of financial discipline, delivering savings of over £40 million over the past five years while protecting frontline services and making improvements. These efforts were most recently recognised in the Local Government Association’s Corporate Peer Challenge. The potential £27 million funding shortfall will now require savings and efficiencies over twice those of previous years. And, due to the expected multi-year nature of the settlement in the autumn, this pressure could become more intense over the next three years.
To respond to these challenges, we will look to close any funding gap with combination of further savings, targeted income generation and strategic investments designed to reduce long-term costs, while improving our infrastructure, roads and opportunities for investment and skills - to help attract growth for Herefordshire - all while prioritising services that protect the most vulnerable and deliver the greatest value for money.
Without changes to the proposed formula, our estimates indicate that Herefordshire will receive a disproportionately low share of national funding, despite facing service demands as complex - if not more so - than those of other councils.
Rising demand for adult social care, SEND (Special Educational Needs and Disabilities) services and temporary accommodation, combined with the inherent disadvantages of the funding system, creates an unsustainable gap between funding and expenditure. Unlike some councils that receive government support despite financial failings, Herefordshire could be penalised for its sound stewardship of public resources.
The permanent loss of the £7 million Rural Services Delivery Grant severely exacerbates these pressures, removing a vital funding stream that supported the higher costs of delivering services across Herefordshire’s dispersed rural communities. Without this grant and with no replacement funding, the council faces an even steeper challenge to balance its budget."
Herefordshire is disadvantaged by the way the formula considers the relative needs of its residents and how services are funded. This methodology does not take into account the additional costs of delivering services across a sparsely populated, rural county. It also relies on councils raising more income locally, particularly through council tax.
However, this approach does not reflect the reality for rural counties like Herefordshire. Property prices and the overall number of households in the county are both lower than national averages, limiting additional council tax income.
The government’s formula is also based on the average level of council tax income in England - for a band D property, which is around £2,200 - whereas households in Herefordshire pay an average of £1,969. It also assumes local authorities will increase council tax annually by 4.99%, the maximum permitted without a local referendum.
Councillor Stoddart continued:
Without reform to the funding system, rural councils like ours will continue to face systemic inequities beyond our control. However, in spite of these challenges, we are committed to delivering the best for Herefordshire in everything we do.