Triggered by Deputy Prime Minister Angela Rayner’s vision for a more “progressive” redistribution of local council funding, some local authorities in England have requested a massive 25% increase in council tax.
This possible hike has drawn sharp warnings from policy analysts and financial experts alike. Target Group, a respected business process firm, is ringing the alarm bells – saying such a sharp increase could disrupt the property market and place further strain on mortgages, particularly in already expensive areas like London and the South East.
So, what is actually going on and who stands to be affected the most?
The Push for a Progressive Tax Structure
Angela Rayner’s proposed changes are aimed at what she describes as a fairer redistribution of local council funding. In essence, it’s about redirecting resources to underserved areas. The term “progressive” is central here – it implies that wealthier areas, often in the South East of England, would contribute more so that councils in poorer, underfunded regions can receive more support.
On paper, it sounds noble. Who wouldn’t want better-funded schools, healthcare, and public transport in areas that have long been neglected? But as always, the devil is in the details. Critics argue that this shift would disproportionately burden already stretched households in affluent areas. With inflation still biting and mortgage rates elevated, a 25% hike in council tax could be the straw that breaks the camel’s back for many.
Target Group’s Warning – Financial Shock Incoming?
Target Group’s analysis suggests that the planned redistribution could force some councils to raise council tax by over 25%. Their concern isn’t just about higher tax bills, it’s about the wider financial ripple effects.
For homeowners, this increase means higher monthly costs. For property investors, it could mean declining interest in buying homes in affected areas, leading to stagnation in the local housing market. For renters, landlords might offset their increased tax burden by hiking rents.
The potential knock-on effects are significant:
- Higher living costs: Council tax is a mandatory expense. A sudden increase eats into disposable income, especially painful for those on fixed incomes.
- Reduced housing demand: Buyers may hesitate to purchase homes in high-tax areas, fearing future tax increases.
- Mortgage strain: Lenders consider council tax when assessing affordability. Higher taxes could reduce borrowing capacity or increase default risk.
In short, what begins as a well-intentioned policy to fix funding gaps might create new financial fault lines.
Windsor and Maidenhead, A Case Study in Crisis
The Royal Borough of Windsor and Maidenhead has become the poster child for this brewing storm. Facing mounting financial difficulties, the council requested permission for a 25% council tax hike. The rationale? Years of underfunding, increased social care costs, and the weight of emergency financial measures taken during the pandemic have left them cash-strapped.
Their plea was not made lightly. Without this increase, council leaders warned of potential bankruptcy, cuts to critical services, and an overall collapse of local governance.
However, the government stepped in – not with a green light, but with a partial compromise. While the usual council tax cap sits at 4.99%, the government allowed a slightly higher increase, but stopped far short of the full 25%.
The Government’s Dilemma
The central government finds itself between a rock and a hard place. On one side, you have councils teetering on the edge of insolvency. On the other, households struggling with inflation, mortgage pressures, and stagnant wages.
Granting sweeping powers to councils to raise taxes without limits could result in short-term relief for local authorities, but at what cost? Public backlash, a weakening property market, and further erosion of disposable income could follow.
Instead, the government has opted for a cautious middle path by:
- Allowing limited increases beyond the 4.99% cap in exceptional circumstances.
- Provide additional funding where possible, especially for social care.
- Encourage councils to find efficiency savings and explore alternative revenue streams.
While this approach might prevent the most extreme tax hikes, it also means that some councils will continue to struggle, and residents may still see notable increases in their bills, even if not the full 25%.
Local Government Funding in Crisis
Local councils have been under financial pressure for over a decade. Austerity-era budget cuts, rising demand for services (particularly adult social care), and one-off emergency loans during covid have all taken their toll.
According to the Local Government Association, councils in England face a funding gap of over £8 billion by 2028/9:
Without meaningful reform or substantial new funding, they’re left with few options: cut services, borrow more, or raise taxes.
This is the backdrop against which the 25% increase debate is unfolding. It’s not just about politics – it’s about survival.