Where councils get their money
The nutshell
A council pays for local services like bins, parks and care for older people. Most of that money comes from three places: council tax on homes, business rates on shops and offices, and grants from the central government.
Every fact on this page comes from official government guidance and non-partisan research. Each source tag — like IfG — opens where a fact comes from.
The basics
What a council pays for
A council runs many local services. It empties the bins, looks after parks and libraries, fixes some roads, and pays for the care of older and disabled people. In 2024 to 2025, councils in England spent about £106 billion on services like these, according to the House of Commons Library.HoC
The three main sources
Most of that money comes from three places. The Institute for Government groups the sources as council tax, business rates and grants from the central government.IfG Council tax is a charge on homes. Each council sets how much to charge, based on the value band of the home.GOV
The tax on shops and offices
Business rates are a charge on places like shops, offices, pubs and warehouses. The local council sends the bill and keeps a share of what it collects.GOV A grant is money from the central government on top of the two local taxes.
How much comes from each
The share from each source changes over the years. The Institute for Government found that in 2024 to 2025, council tax made up about 46 out of every 100 pounds, grants about 32, and business rates about 22.IfG Council tax raises the largest share.
- Council tax is set and kept by the local council, so each area raises money for its own services
- A council keeps a share of the business rates paid by local shops and firms, which links its income to the local economy
- Government grants send extra money to areas with greater need, which helps places that raise less from council tax
- The Institute for Government notes that a council cannot borrow to pay for day-to-day services, so any gap must be met by cuts or by using up reserves
- The Institute for Government records that grants from the government fell after 2010, so councils now rely more on council tax than before
- The House of Commons Library notes that spending needs and the money each council can raise locally differ from area to area, which makes funding hard to set fairly
The deep end6 min
Core spending power
The main measure of a council's money is called core spending power. The House of Commons Library describes it as general funding a council can spend as it chooses, made up of council tax, a kept share of business rates and a grant called the Revenue Support Grant, plus a set of other grants.HoC Local authorities in England spent about £106 billion on services in 2024 to 2025.HoC
The two local taxes
Two of the three sources are local taxes. Council tax is charged on homes and is set by each council for each valuation band, according to GOV.UK.GOV Business rates are charged on non-domestic property such as shops, offices, pubs and warehouses, and the local council sends the bill.GOV A council keeps part of the business rates it collects and passes on the rest, which lets money move between areas.
Why the balance has shifted
The share of money from each source has changed over time. The Institute for Government records that the share of council income from council tax rose from about 34 in every 100 pounds in 2009 to 2010 to about 46 in every 100 pounds in 2024 to 2025, as grants from the government fell over that period.IfG
What is debated
There is debate about whether councils get enough money, and whether the split is fair. The Institute for Government notes that a council cannot borrow to pay for day-to-day services, so any gap must be met by cuts or by using reserves.IfG The House of Commons Library notes that spending needs and the amount each council can raise locally differ from area to area, and a review called the Fair Funding Review is changing how grant money is shared out.HoC