Council leaders have called for reform of local government finance and an end to “short-term” measures after Michael Gove confirmed authorities will receive £500 million in emergency funding for social care.

In a written statement on Wednesday, the Communities Secretary said the extra money would enable councils to provide “crucial social care services for their local communities, particularly children”.

The Government has also increased the “funding guarantee”, which sets out the minimum percentage annual increase in money available to all councils before local decisions on council tax, from 3% to 4%.

“This was a key ask of (lower tier) district councils,” Mr Gove said.

Councils which face challenges supporting dispersed communities will also receive a share of a £15 million increase in the rural services delivery grant, with the Government making a total of £110 million available in 2024/25.

A further £3 million has been allocated to assist councils with levies applied by drainage boards, and funding will be provided for island authorities, such as the Isle of Wight and the Isles of Scilly, which face “unique circumstances”.

The funding package increases the local government finance settlement from a planned £64 billion to 64.7 billion, the statement said.

Explaining the change to the financial settlement, Mr Gove said: “By making progress on the Government’s plan to halve inflation, grow the economy and reduce debt, we now can provide this extra funding to councils to continue to provide vital services to their communities.”

More than 40 Conservative backbenchers recently signed a letter to the Prime Minister, which was organised by the County Councils Network (CCN), warning that without emergency cash, many councils will be forced to cut crucial frontline services and hike council tax in an election year.

District council leaders also held an emergency meeting in Westminster on Tuesday to urge the Government to rethink the settlement due to the rising costs of tacking homelessness.

Finance bosses at seven councils have issued at least one section 114 notice since 2020, with three doing so last year.

The notices are an acknowledgment that the local authority cannot balance its books as required by law and lead to a freeze on non-essential spending on services.

Councils still face difficult choices this year and next, and that’s why councils need a long-term sustainable funding settlement and reform to our statutory responsibilities moving forward

Responding to the announcement, Conservative MP Ben Bradley, who is leader of Nottinghamshire County Council and chairman of the County All-Party Parliamentary Group, said: “Today’s announcement is a culmination of an effective campaign led by the CCN and County All-Party Parliamentary Group which was supported by a large cohort of county MPs from all parts of the country.

“I was delighted so many colleagues signed our letter, which showed the strength of feeling from county MPs.

“An extra £500m for the sector will be strongly welcomed by my parliamentary colleagues and will help us ensure that the worst-case scenarios in terms of service reductions are avoided and valued frontline services are protected.

“Councils still face difficult choices this year and next, and that’s why councils need a long-term sustainable funding settlement and reform to our statutory responsibilities moving forward.”

Shadow levelling up secretary Angela Rayner described the extra funding as “an admission of failure” by “an incompetent and chaotic” Government.

She said: “Yet another sticking plaster over the gaping financial wound the Tories have inflicted on our communities won’t fix the fundamentals. Local councils are stuck in a Tory doom loop, on the frontline of the Tory cost-of-living crisis and forced to fork out millions to pay for the crises in housing and social care, and unable to plan for the future.

“We cannot trust the same party that made this mess to patch it up. Councils of all stripes are on the brink of financial ruin and it is time this Government took responsibility.”

Tim Oliver, CCN chairman and Conservative leader of Surrey County Council, said the additional funding would “go some way” to easing pressures.

He added: “Whilst this extra funding will undoubtedly help us protect valued frontline services, councils, of course, still face difficult decisions when setting their budgets for 2024/25.

“Service reductions will still be necessary for councils in some areas to balance their books, while the majority of councils will still have little choice but to propose maximum council tax rises.”

Calling for a long-term funding settlement, Mr Oliver added there needs to be reform of the system of local government finance and “the way we are expected to provide services”.

Sir Stephen Houghton, Labour leader of Barnsley Council and chairman of the Special Interest Group of Municipal Authorities, said the extra funding would provide short-term help, but would not address the long-term funding gap and need for reform to a “broken” finance model.

He added: “This unprecedented increase before the final settlement shows that there is a growing understanding within the Government about the crisis in local government finances.

“These pressures have been well-documented for some time, so it is disappointing that the funding has only been announced at this late hour.

“More funding will be required to match the current level of demand-led pressures and stabilise the sector.”

Cathie Williams, joint chief executive of the Association of Directors of Adult Social Services, said the extra funding was “much needed” and would be welcomed by people who receive and provide support.

But she added the scale of the pressures on budgets means more needs to be done to enable independence at home, support unpaid carers and address workforce shortages.

Appearing before the Public Accounts Committee as the announcement was made, Catherine Frances, director general for local government, resilience and communities at the Department for Levelling Up, Housing and Communities, apologised for the timing.

Committee chairwoman Dame Meg Hillier said it was “sub-optimal, if I put it politely” as MPs did not have time to “really dig into what the figures mean”.

Ms Frances said: “I’m sorry that we’re having to do this midway through a committee hearing.

“We’ve put this statement out today partly so that councils’ finance officers can start working it through.”