Richmond Council has withdrawn plans to take legal action over government proposals to reform council funding.

The council said the government's latest update on plans to overhaul local authority funding rules show it is likely to avoid the "steep funding cuts" it had expected.

It previously sent a pre-action letter to Secretary of State Steve Reed outlining its grounds for challenging the consultation process for the Fair Funding Review 2.0, which is the government's plan to redistribute funding across local authorities in England from 2026/27.

The authority claimed it expected to lose up to £45million a year, or more than 90 per cent of its current funding under the proposals. It said this would have made it the worst-hit local authority in England by percentage, though the government disputed this figure.

But the council has now confirmed to the Local Democracy Reporting Service (LDRS) that while it is still waiting for details of the review, it is no longer pursuing legal action at this stage.

It said a new finance policy statement from the Ministry of Housing, Communities and Local Government (MHCLG) indicates Richmond is now likely to fall into the category of councils that would receive a cash-flat settlement over the next three years, which means its core funding would not fall during any transition to the new system.

The statement reveals the government plans to bring in changes gradually over three years from April 2026, protect most councils previously facing reductions with a flat cash floor and consider limited council tax flexibility.

The council had been pressing ministers for months to ensure the proposed funding formulae would reflect pressures facing outer London boroughs like Richmond, and that any transition to a new system would be fair and stable.

Lib Dem Council Leader Gareth Roberts said: "This announcement shows our concerns have been heard. We have been absolutely clear with government: Richmond needs a fair settlement that protects essential services for the people who rely on them.

"I'm pleased that ministers have listened and that the most severe cuts originally proposed will now not be applied – it's a significant improvement from what was originally on the table."

'This announcement shows our concerns have been heard,' says Cllr Gareth Roberts (Credit: Richmond Council)

Lib Dem councillor Jim Millard, the council's finance lead, added: "This announcement is a significant improvement on the original proposals and shows the strength of our case to government.

"But it's important to be clear: national funding for councils is still falling, and local taxation is playing an ever-larger role in filling the gap.

"Our focus now is delivering our ambitious transformation programme to protect services and shield residents from steep increases that would otherwise be needed."

MHCLG previously told the LDRS it did not recognise the figure of £45m which the council claimed it could have lost under the proposals.

A spokesperson said: "We are committed to fixing the outdated and unfair funding system so funding finally matches local people's needs and demands on services.

"Our reforms will mean people in areas previously left behind will get the vital public services they deserve from their local council."

The MHCLG is set to publish its response to a consultation it carried out on the review in the coming weeks.