Six councils in and around London have been granted special powers to raise council tax above the usual cap without consulting residents, following changes to how local government funding is allocated in England.
Kensington and Chelsea, Westminster, Wandsworth, Hammersmith and Fulham, the City of London, and Windsor and Maidenhead will be allowed to increase council tax by more than 5 per cent for the next two years without holding a local referendum.
The move comes after the government redirected funding towards more deprived areas in an effort to make England’s local authority funding system fairer. However, the Conservatives have accused ministers of seeking to “punish” councils that have historically kept council tax low.
All six councils granted pre-authorisation to exceed the cap are facing reductions in central government funding and are currently among those with the lowest council tax rates in the country.
Local government and homelessness minister Alison McGovern told the House of Commons that the exemption would “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.”
Ms McGovern said the councils themselves would decide how much to raise council tax and whether to rely on “the relatively high alternative sources of income from which a number of them benefit”.
However, analysis by the Institute for Fiscal Studies has warned that some councils could face steep increases if they relied solely on council tax. The IFS estimated that Wandsworth and Westminster would need to raise council tax by as much as 75 per cent to balance their budgets under the new funding model.
The powers form part of the government’s new multi-year local government settlement, covering the three years to 2029. Under the plans, English councils will receive almost £78 billion next year to fund essential services, with a greater share directed towards deprived areas.
The Ministry of Housing, Communities and Local Government said councils’ core spending power will rise by 23 per cent compared with 2024-25 by the end of the settlement period. Funding can be used for services including waste collection, housing support and children’s services.
An updated funding formula will also be introduced, with the most deprived 10 per cent of councils set to receive a 24 per cent per-head increase. Councils will also be allowed to keep all additional council tax revenue generated from new homes, a move designed to encourage development and home ownership.
Ms McGovern said previous governments had left councils without the resources needed to address inequality. “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,” she said.
“By breaking the link between funding and deprivation, the Tories punished poorer councils.”
Conservatives rejected the criticism, arguing the reforms would penalise well-run authorities. Shadow local government secretary Sir James Cleverly said the changes would “punish councils that keep council tax low” while shifting money to “badly-run Labour councils that spend irresponsibly”.
He 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.”
