A Labour raid on council funding to push more money into its heartlands has opened the door to council tax increases across the country, economists warned last night.
Almost half of local authorities will see their funding fall, even if they increase council tax by the maximum amount, under plans revealed yesterday.
The proposals, championed by former deputy prime minister Angela Rayner, will see residents in six council areas face potentially unlimited council tax rises from 2027.
And last night the Institute for Fiscal Studies (IFS) warned it will be hard for Labour to ‘hold the line’ on this – raising the prospect of more councils being given powers to raise tax beyond the current 5 per cent limit.
The provisional Ministry for Housing, Communities and Local Government settlement will see almost £78 billion going to local authorities in 2026-27, rising to around £85 billion by 2028-29.
Under Labour’s new ‘fair funding’ formula, the most deprived 10 per cent of councils will see an average increase in spending per head of 24 per cent, compared to an increase of 6 per cent for the wealthiest areas.
The plan means local authorities in the poorest areas get quadruple the funding of the wealthiest areas over the next three years as money is diverted to Labour regions under threat from Reform UK.
The changes will force more well-off councils, where taxes have been kept low, to increase levies in order to reduce the shortfall.
Six council areas could face potentially unlimited council tax rises from 2027 (Stock photo)
Six councils most affected – Wandsworth, Westminster, Hammersmith and Fulham, City of London, Kensington and Chelsea, and Windsor and Maidenhead – will be given the power to raise council tax beyond the maximum 5 per cent without a referendum.
Kate Ogden, senior research economist at the IFS, said: ‘With councils’ finances still under pressure from rising demands and costs, the Government may find it hard to hold the line that limit-busting council tax increases will only take place in ‘exceptional cases’ and where bills are currently below average.’
Shadow local government secretary Sir James Cleverly said Labour was ‘launching a nakedly political power grab’ while dressing it up as ‘fair’. He added: ‘This is part of Labour’s mission to hike council tax across the board. Hidden behind their rhetoric about supporting local government is a council tax bombshell, with the average family in a Band D home facing a cumulative £1,143 council tax increase across this Parliament.’
The Ministry of Housing, Communities and Local Government argues it is making the changes because, currently, the council tax bill for a £10million house in Westminster can be lower than a family home in places such as Blackpool and Darlington.
Outlining the proposals yesterday, local government minister Alison McGovern said: ‘By choosing not to subsidise very low bills for the 500,000 households in these places, we will provide £250 million more funding for places with higher need.’
