England’s Council Tax Increases Capped at 5%

Households in England will see their council tax bills increase by a maximum of 5% starting next April, following the government’s confirmation that it will maintain the existing limit on such rises. Matthew Pennycook, the Communities Minister, informed the Commons that this represented the “right threshold,” citing the financial strains on local authority budgets. Consequently, the typical household can anticipate an increase exceeding £100 on their council tax bill for the upcoming year, an amount that surpasses inflation. Mr. Pennycook stated that the government projects an additional £1.8bn will be generated via council tax during the 2025/26 fiscal year. However, the Conservative party asserted that Labour was responsible for a “black hole” in the financial state of councils. Existing regulations permit English councils that deliver social care services to raise tax rates by a maximum of 5%, whereas other councils are limited to a 3% increase. Local authorities seeking to impose increases beyond these limits are required to obtain government approval or conduct a public referendum. Government data indicates that the average band D council tax established by local authorities in England for the 2024-25 period stood at £2,171, representing a £106 or 5.1% rise compared to the preceding year. The prime minister’s press secretary informed journalists on Wednesday that the 5% limit established by the prior administration “remains the same.” This statement followed Conservative leader Kemi Badenoch’s questioning of Sir Keir Starmer during Prime Minister’s Questions regarding the retention of the cap, a query the Prime Minister avoided directly answering. On Thursday, Mr. Pennycook justified the choice to maintain the cap while responding to an urgent question on the matter in the House of Commons. The minister affirmed the government’s dedication to safeguarding the most vulnerable populations by offering a 25% council tax discount for single-occupant households and through other assistance programs. He further noted that, as a result, over eight million households are not required to pay the full council tax amount. Pete Marland of the Local Government Association (LGA) stated that the “significant financial pressures” confronting local services cannot be alleviated solely by revenue from council tax. He remarked, “It also raises different amounts in different parts of the country – unrelated to need – and adds to the financial pressures facing households.” He concluded, “We need a significant change in our funding to stabilise local government finances so we can deliver the services local people want to see.” Lee Dillon, a Liberal Democrat MP, conveyed his party’s “deeply concerned that people are simply paying more council tax for fewer services.” He pointed out the rising expenses for councils due to inflation, salaries, and the demand for local services, imploring the minister to prevent the closure of libraries, reduction of bus routes, or decrease in road maintenance as a consequence. In reply, Mr. Pennycook stated: “The government certainly recognises the pressures on local authorities and the burdens placed on households as a result of 14 years in which local government was run down.” He further added, “We are determined to turn that situation around,” referencing an additional £4bn in new funding allocated to councils in the previous month’s Budget. While the LGA has expressed approval for the additional council funding, it cautioned that local authorities continue to confront considerable challenges in sectors such as adult and children’s social care and homelessness assistance. The County Councils Network similarly commented that the funds “does not eradicate councils’ funding gap,” implying that they would “have little choice but to raise council tax and still need to take difficult decisions over services to balance their budgets.” David Simmonds, the Conservative shadow communities minister, asserted that the government had created a £2.4bn “black hole” within council budgets. He informed the Commons that “Answers to parliamentary questions show that the government is expecting spending power to increase by £3.7bn, funded by grants of £1.3bn.” He further stated: “Whilst nobody would want to see the [council tax rise] referendum limit scrapped simply to bail out central government, the announcement of the 5% constrains local authorities when it comes to their fundraising.” He questioned: “Will it be our High Streets through increased business rates or will it be other council services through significant cuts that will need to fill their £2.4bn black hole?” Mr. Pennycook disputed this figure, asserting that it failed to consider over £300m generated from business rates and an anticipated £300m from new housing developments. He highlighted that the 5% ceiling on council tax increases had been established during the Conservative government’s tenure and urged the party to specify if they advocated for its removal or reduction.