People are being warned that their council tax bills could rise by hundreds of pounds next year after chancellor Jeremy Hunt announced a major change in his Autumn Budget.
Council Tax is decided by local authorities. But government rules say that councils must hold a local referendum if they want to increase council tax by more than 3 per cent in a year.
As part of his Budget, Mr Hunt has now announced that he will raise this threshold to 5 per cent, making it easier for councils to impose big tax hikes.
READ MORE: The 'stealth' tax hikes announced in Jeremy Hunt's budget and how they affect you
Analysis suggests that nearly all local authorities are expected to hike council tax by 5 per cent annually over the next five years under the plans to raise more money and increase social care funding. Analysis by the Treasury shows that around 95 per cent of councils are expected to hike payments by the full amount permitted.
The move is set to cost households £3.3 billion in 2026/27, rising to £4.8 billion in 2027/28, and the Office for Budget Responsibility (OBR) says it will increase the average Band D bill by around £250 in 2027/28.
Councils have warned that rate hikes will be “extremely difficult” for struggling households. The County Councils Network, which represents 36 mainly Conservative authorities, said they still face “very difficult decisions” amid sky-high inflation and social care costs.
Chairman Tim Oliver also said “some county leaders may be reluctant” to impose 5 per cent hikes “during a cost-of-living crisis considering ratepayers in county areas currently pay the highest bills on average”.
Georgia Gould, the chair of London Councils, said borough finances “remain in a critical condition”, estimating the capital’s councils had a £700 million shortfall for next year before the chancellor’s statement. “Council tax is not the answer to the inadequate funding we’re grappling with," she said. "Council tax rises during a cost-of-living crisis are extremely difficult for the struggling households we’re determined to support. But even if council tax goes up, it could never plug that 700-million funding gap."
Cllr James Jamieson, chairman of the Local Government Association, added: “We have been clear that council tax has never been the solution to meeting the long-term pressures facing services – particularly high-demand services like adult social care, child protection and homelessness prevention.
“It also raises different amounts of money in different parts of the country unrelated to need and adding to the financial burden facing households.”
The chancellor told MPs as he delivered his statement today that he was having to make difficult decisions to ensure a “shallower downturn”. Despite his measures, the economy is still expected to shrink 1.4 per cent in 2023, OBR forecasts reveal.
A majority of households will be worse off as a result of Mr Hunt’s decisions on tax and spending, which will see the cap on energy bills increase and the tax burden rise to its highest sustained level since the Second World War. The chancellor blamed Vladimir Putin’s invasion of Ukraine for a “recession made in Russia”, with the spike in energy prices driving up inflation, but he is also being forced to manage the financial turmoil caused by his predecessor Kwasi Kwarteng’s mini-budget in September.
In an effort to get a grip on the public finances, Mr Hunt has set out plans for almost £25 billion in tax increases and more than £30 billion in spending cuts by 2027-28.
Household energy bills will increase from April, although government help will continue, Mr Hunt said. The energy price guarantee will rise from £2,500 to £3,000 for an average household’s annual energy bill – but Mr Hunt said that would still mean an average of £500 support for every household in the country.
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