This article applies the portfolio allocation model of government formation to the formation of local government administrations in general, with a particular empirical application to the formation of administrations in British local authorities with hung councils. First, the implications of the portfolio allocation model for the formation of local administrations are discussed. Secondly, this model is operationalized in the context of British local politics, and specific empirical implications are explicitly derived from it. Thirdly, these implications are systematically evaluated against the recent experience of the formation of local administrations in Britain. The results suggest that policy is indeed important in the formation of British local administrations, but that more than a single left–right dimension of financial policy is needed to describe this process adequately.