The Labour government is considering significant changes to council tax that could see millions of households across England facing increases of up to 10%.
Removing the Council Tax Cap
Ministers are reportedly developing plans that would allow local authorities to increase council tax beyond the current 5% cap without holding a local referendum. This represents a major shift in how council tax increases are approved and could lead to substantial bill rises for residents in all property bands.
The proposed changes would particularly affect councils in the Midlands and the North, with Whitehall grants being directed toward areas identified as having higher spending needs according to reports from The i newspaper.
A System in Need of Reform
The potential changes come amid widespread criticism of the current council tax system from multiple think tanks and research organisations. The Resolution Foundation has described the existing system as a "dog's dinner", while the Institute for Public Policy Research has labelled it "outdated and regressive."
Stuart Hoddinott, associate director at the Institute for Government thinktank, calls council tax a "deeply broken system." He highlighted the enormous variation in rates across different councils, noting that "in every single tier council that is not Wandsworth and Westminster, the minimum band D council tax rate is £961 in 2025-26 and the maximum is £2,284, while the median is £1,910."
Calls for Comprehensive Reform
Experts are urging Chancellor Rachel Reeves to undertake a wholesale revaluation of the nation's homes rather than implementing partial measures. Helen Miller, director of the Institute for Fiscal Studies (IFS), cautioned that a partial revaluation would only add complexity to an already flawed system.
"How many more decades do we have to be saying we're basing council tax on 1991 valuations?" Miller questioned, emphasising the outdated nature of the current valuation system.
Hannah Peaker, deputy chief executive of the New Economics Foundation, echoed these concerns, stating that "the government should absolutely be rethinking property tax" but warning against doing so in a "haphazard way" that could perpetuate existing inequalities.
Despite the speculation, an MHCLG spokesperson stated: "This is complete speculation. Council tax rises are limited to 5% without a local referendum, and we have not made any decision to change that." The spokesperson also highlighted that the government has made £69 billion available for council finances and intends to fix the "outdated and unfair funding system" inherited from previous administrations.
