Proposed Government Scheme: Rich Neighborhoods to Contribute More in Local Property Taxes
In the coming years, local authorities in England are set to experience a significant shift in funding due to proposed reforms. The Institute for Fiscal Studies (IFS) has warned that these changes could lead to council tax increases, particularly in some areas, with inner London boroughs like Lambeth, Southwark, and Wandsworth being among the most affected [1][2].
The reforms, which are scheduled to begin in 2025/26 and continue until 2028/29, aim to create a more equitable funding allocation system that better reflects local spending needs and income-raising abilities [1]. However, this reallocation is expected to create "big winners and losers," with some councils facing funding cuts and others increases [1].
Inner London boroughs, particularly its western parts, are projected to experience the sharpest reductions in funding, primarily due to the new funding formula not fully accounting for London's high housing costs and deprivation, resulting in an underestimation of their true funding needs [1][4].
While the government plans to phase these changes over three years and includes funding floors to limit losses, councils facing reductions may still need to increase council tax to balance their budgets, likely up to government referendum limits (currently 3% plus 2% for social care precept) [1][2][3].
The average council is expected to see an 8% real-term funding boost between 2025/26 and 2028/29 [1]. On the other hand, Yorkshire & the Humber councils are set to see the second-largest real-term increases in overall funding over the next three years, with a 12% increase [1].
Outer London boroughs, such as Enfield, Havering, and Hillingdon, are set to be among the biggest winners from the council tax reforms, with potential real-term funding increases of up to 20% over the next three years [1]. Rural areas may also fare better than expected under the council tax reforms, with the average change in funding for the least densely populated 10% of council areas being in line with the national average over the next three years [1].
Sarah Coles, head of personal finance at Hargreaves Lansdown, suggests that if your area looks set to see a council tax rise, it's a good idea to consider how it might affect you in advance, to make cuts in your budget, or ringfence any pay rise between now and then to deal with the extra cost [5]. She also notes that the reforms could mean fewer unexpected tax hikes but could also lead to a series of unpleasant rises for some areas with historically low council tax [5].
The government is consulting on how people pay council tax, aiming to "make life easier for working people" [6]. They are also considering a reform to the council tax system to allocate more money to deprived areas [6]. A consultation on local authority funding closes on August 15 [7].
[1] - The Guardian [2] - BBC News [3] - The Telegraph [4] - The Conversation [5] - This is Money [6] - GOV.UK [7] - GOV.UK
- The upcoming council tax reforms in England, scheduled from 2025/26 to 2028/29, may influence personal finance as some areas, such as inner London boroughs like Lambeth, Southwark, and Wandsworth, are expected to see council tax increases due to proposed funding changes [1][2].
- The reforms in England's council tax system, which aim to create a more equitable funding allocation, could have a significant impact on business and general-news sectors, as the changes might lead to an increase in costs for individual households, particularly in areas experiencing funding cuts [1][2][5].
