Council tax rises will ensure local authorities are funded next year, says minster

The new Labour administration will continue with current rules that allow councils in England to increase tax rates by up to 3%, plus an additional 2% for those authorities providing adult social care

A minister has assured that council tax hikes will secure funding for local authorities next year, dismissing Conservative claims of a £2.4bn "black hole".

Communities Minister Matthew Pennycook highlighted the Government's expectation of an extra £1.8bn from council tax in 2025/26, with business rates and new housing funds contributing another £600m. The new Labour administration is set to maintain the current rules allowing English councils to raise taxes by up to 3%, plus an additional 2% for those providing adult social care.

Councils wanting to exceed the up-to-5% cap must get Government approval or hold a referendum. Consequently, the average band D council tax household could see an above-inflation rise of over £100 next year. In response to an urgent question from the Tories, Mr Pennycook told the Commons: "Decisions on the council tax levels to set or whether to hold a referendum to go beyond the referendum principles sits with councils."

He added, "But the Government has been clear that it expects the threshold to be maintained at the current level set by the previous government."

Mr Pennycook also accused the Conservatives of creating a "mess" in local government, noting: "That’s why at the Budget we announced over £4bn in new local government funding, including an additional £1.3bnin the local government finance settlement."

Ministers have announced that the estimated core spending power for local government is set to rise from £64.7bn in 2024/25 to £68.4bn in 2025/26. Shadow communities minister David Simmonds has sounded the alarm, stating: "Answers to parliamentary questions show that the Government is expecting spending power to increase by £3.7bn, funded by grants of £1.3bn."

He then pointed out a concerning gap in funding: "That demonstrates that the Chancellor’s Budget has opened up a £2.4bn black hole in council finances."

In response, Mr Pennycook argued: "The Government is committed to a fair funding settlement for local government. We will set out further details in the usual way in the upcoming local government finance settlement, which will be presented to Parliament."

He also addressed the contentious figure, stating: "On the £2.4bn figure, I’m afraid we simply don’t recognise it. I assume (Mr Simmonds) in his calculations has failed to take account of the over £300m raised in business rates, £300m in additional new houses to come along."

Mr Pennycook went on to explain the sources of the funds: "So it is right that £1.8 billion will be raised through council tax in 2025/26, but as I made clear that is because the Government is clear that we’re maintaining the previous government’s policy on council tax, in line with the OBR (Office for Budget Responsibility) forecast made in March 2024."

Speaking from the Lib Dem benches, Lee Dillon (Newbury) queried the government's position on preserving local amenities with an urgent plea: "Can the minister ensure that councils do not have to close libraries, cut bus routes and reduce road repairs in order to meet the growing demand for the most vulnerable members of our community and despite the announcements in the Budget, will the minister also recognise the LGA (Local Government Association) analysis that actually councils face a £6.9 billion shortfall because of inflation, increase wage demand and demand pressures on local services? "

Dillon raised concerns his party shares about residents facing the tough trade-off of "people are simply paying more council tax for fewer services".

The response from the minister didn't directly address potential closures of libraries or cuts in bus services and maintenance of roads, but did acknowledge "the pressures on local authorities and the burdens placed on households as a result of 14 years in which local government was run down".

Mr Pennycook, while taking a swipe at the Tories saying they had "more front than Harrods", promised to reshuffle priorities, stating: "We’re determined to turn that situation around by providing the headroom that local authorities need to get ahead of some of these challenges that they’ve been facing for many years and that is why the over £4bn in Government funding announced at the Budget – including an additional £1.3bn in the Local Government Finance Settlement – has been so warmly welcomed."

He continued: "We continue to remain committed to the 5% referent cap, that is the right threshold we believe. We’re also committed in terms of protecting the most vulnerable with the single person discount and local council tax support schemes."

Labour backbencher Clive Betts (Sheffield South East) brought up the possibility of councils one day having the autonomy to set their own tax rates. He suggested engaging in "a conversation with councils and the public more widely about whether thresholds at all are appropriate".

Meanwhile, Conservative MP Bob Blackman (Harrow East) questioned whether the Government planned "any plans whatsoever to do a revaluation of properties" to determine current bandings, noting that English property banding is still based on 1991 market values. In response, Mr Pennycook teased but refrained from revealing too much: "He tempts me to discuss the Local Government Finance Settlement ahead of it being formally presented to this House."

He concluded with a cautionary note, saying:"I’m afraid I can’t do that."