English councils to get extra £500m funding to ease financial crisis

Councils in England are to be handed an extra £500m funding boost amid the worsening financial crisis hitting town halls across the country, after Tory MPs had threatened Rishi Sunak with a fresh Commons rebellion.

The additional money is expected to be added to the annual local government financial settlement, sources have told the Guardian, with a statement expected from the levelling up secretary, Michael Gove, as early as Wednesday afternoon.

It comes after more than 40 Tory MPs – including seven former cabinet ministers – wrote to the prime minister demanding more funding to prevent English councils from making deep cuts to services in an election year.

Ministers had last month announced plans for a £64bn package for the 2024-25 financial year, an increase of about £4bn, on the amount a year earlier. However, the additional £500m top-up, first reported by ITV, comes after council leaders and influential backbench Tories warned the settlement was inadequate.

While the extra funding will be welcomed by local government leaders, it falls short of what town hall leaders say is required, after the Local Government Association had argued a figure closer to £1.6bn was required to plug the shortfall in council budgets for the next financial year.

Growing numbers of councils across England are warning they face in effect bankruptcy amid soaring costs and rising pressure on services, compounded by years of austerity-driven cuts and local missteps.

It is understood that Gove had pushed the chancellor, Jeremy Hunt, for a larger increase in the financial settlement of more than £1bn. However, the levelling up secretary’s request was rejected in favour of a smaller settlement.

The chief executive of one of England’s largest city councils, speaking anonymously, suggested the government could have provided the funding boost at an earlier opportunity. “Why didn’t they include this in the autumn statement. What’s changed? It’ll help but it’s not enough,” they said.

Details on the Commons order paper for Wednesday show Gove is due to make a statement to MPs.

The Department for Levelling Up, Housing and Communities declined to comment.