Council tax bills in southern regions are poised to increase under Labour proposals aimed at redirecting millions in funding towards northern towns and cities. The proposed changes aim to address the current discrepancies which result in households with relatively modest homes in the north paying more council tax than those with multi-million pound properties in the south.
Deputy Prime Minister Angela Rayner is set to announce comprehensive reforms this Friday, which will involve reallocating government grants to support areas identified as having “higher needs”, potentially placing a financial burden on wealthier districts in London and the Home Counties. Hull Hartlepool and Liverpool could all benefit.
Critics have labelled the impending overhaul as a “deeply divisive” strategy that could exacerbate regional disparities and stir up tensions between the North and South, as well as between urban and rural communities. Rayner has criticised the current funding system as “broken down” and argues that it is “unfair” for some of the UK’s most deprived communities to “be asked to pay more for worse services”.
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Highlighting the stark contrast in council tax demands, she cited the example of a standard three-bedroom semi-detached house in Hartlepool facing a higher council tax bill than a lavish ten-bedroom, £80 million mansion located in Westminster.
“People are unfairly being asked to pay more for worse services,” Rayner reiterated.
The upcoming shake-up includes a new Whitehall formula to redistribute grants. This formula takes into account various factors like poverty levels, age demographics, and local housing stock. The change is poised to bring a financial boon to towns in the North and Midlands and could result in funding cuts for wealthier southern boroughs that have traditionally kept council tax low.
Consequently, affluent local authorities may face the tough choice of increasing bills or cutting public services to compensate for the reduced funding.
A senior local government source privy to the plans expressed concern: “There is no doubt at all that it is going to be polarising. For a lot of councils in richer parts of the country, the current system works quite well for them and they’re going to lose funding.”
The Institute for Fiscal Studies (IFS) acknowledges the necessity of the changes but also foresees significant repercussions.
“We would expect urban areas in the Midlands and North to benefit,” IFS representative David Phillips stated. “But the Westminsters and Wandsworths of this world, which set very low council tax, will lose.”
Phillips added that these areas might find themselves in a bind unless the government allows more leeway: “If the referendum limit remains at 5 per cent they will be stuck, so the government needs to give them some flexibility.”
Presently, local councils cannot levy more than a 5 per cent increase in council tax without holding a referendum—a rule Chancellor Rachel Reeves insists on maintaining. Nonetheless, insiders concede that an increasing number of authorities are likely to request exceptional permission to exceed this cap.
In an attempt to cushion the impact, ministers are offering temporary protections for those areas that stand to lose the most, and they’re promising extra aid for rural and coastal communities burdened by higher transport costs. Nevertheless, it’s reported that local authorities are preparing themselves for a financial “bloodbath”, with concerns of potential bankruptcies looming unless more protection measures come into place.
The forthcoming changes to how grants are allocated will see a standard assumption where all councils levy equal tax rates — a policy that seems to disadvantage those districts with historically low taxes. Phillips commented: “Given the focus on equalising for council tax bases, which are much stronger in these leafier places… you’d expect leafy areas to lose out and the more deprived areas to benefit.”
He cautioned Labour against hampering local drive by overextending efforts at redistribution: “If the government goes to the maximalist side… it is making a trade-off to prioritise need over incentives for councils to tackle need and grow their council tax base.”
On the other hand, the Ministry of Housing, Communities and Local Government maintains that fairness is the primary goal. With some councils struggling to maintain basic services while others fare better financially, a spokesperson stated: “Individual councils remain responsible for setting their own council tax levels each year, and the government is clear they should put taxpayers first.”
Officials have stated that the proposed changes aim to prevent the system from “rewarding places that have been able to keep council tax levels low due to stronger tax bases”, and to guarantee “the same level of service regardless of their tax base”.
This controversy comes on the heels of escalating strain on local services, with several councils having declared effective bankruptcy in recent times. There is concern among critics that Labour’s well-meaning plan may just redistribute the financial burden from one region to another.
Losers of Labour’s Council Tax reform plan
Region Expected – Outcome
Westminster, Wandsworth – Likely lose grants, may need tax hikes or cuts
Surrey, Bucks, Herts – Face losing out under new funding formula
Winners of Labour’s Council Tax reform plan
Region – Expected Outcome
Hartlepool, Liverpool, Hull – Likely gain from higher grant allocations
Coastal and rural areas – May receive protection or extra weighting