Six councils in and around London have been granted the power to make bigger council tax hikes, after the government slashed their share of funding.
Kensington and Chelsea, Westminster, Wandsworth, Hammersmith and Fulham, City of London, and Windsor and Maidenhead will all be allowed to raise council tax rates by more than 5 per cent for two years, without the need for a residents’ referendum.
It comes after the government shifted funding towards more deprived areas as part of an attempt to make England's funding model fairer. But the Tories have accused the government of wanting to "punish" low-tax councils.
The six councils who have been granted pre-authorisation to exceed the usual council tax limits for two years are each facing reductions in funding, while also being among the councils with the lowest tax rates in the country.
Local government and homelessness minister Alison McGovern on Wednesday told the Commons that the exemption for these areas will “improve fairness, as taxpayers in those councils have the lowest bills in the country, and this year paid up to £1,280 less than the average council taxpayer.”
She added: “It will enable the government to allocate more than £250m of funding in the system more fairly, instead of subsidising bills for the half a million households in those council areas.
“It will also provide greater flexibility for those authorities in deciding how to manage their finances following our reforms.
“The councils will decide on the level of council tax increase to set and whether to draw on the relatively high alternative sources of income from which a number of them benefit.”
But the Institute for Fiscal Studies (IFS) has estimated that Wandsworth and Westminster would need to hike council tax by as much as 75 per cent to balance the books in the wake of the reforms.
As part of the government’s new multi-year funding settlement, which sets out local government finances for the three years up to 2029, English councils will receive almost £78 billion for essential services next year, with more money for deprived areas.
According to the Ministry of Housing, Communities and Local Government (MHCLG), councils will see an increase of 23 per cent in their core spending power compared to 2024-25 by the end of the multi-year settlement.
This can be used to pay for services like bin collections, housing and children’s services.
An updated funding system will also be introduced, which aims to make more money available for areas with the greatest need, with the most deprived 10 per cent of councils seeing a 24 per cent per head boost.
The settlement also includes other changes, including letting councils keep all additional council tax from new homes to encourage local growth and home ownership.
In a statement to MPs, Ms McGovern said councils previously “didn’t have the resources” to tackle deprivation.
“The last decade and a half of austerity impacted every community, but the very worst effects were felt by people living in the most deprived areas, and that was a choice.
“By breaking the link between funding and deprivation, the Tories punished poorer councils”, she added.
But the Conservatives said the changes would "punish councils that keep council tax low" whilst "moving funding to badly-run Labour councils that spend irresponsibly".
Shadow local government secretary Sir James Cleverly added: "Inevitably, councils that lose out will be forced to cut services or raise tax - and with referendum principles scrapped, those hikes will be big.”
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