Councils warn they will go bankrupt unless they can increase tax | Politics | News
Council leaders have written to Chancellor Rachel Reeves demanding the right to impose higher council tax increases and new taxes such as local tourism levies to prevent “system-wide fiscal failure”. Authorities currently cannot increase council tax by more than 5% without a referendum among local voters, making larger increases virtually impossible. But the Local Government Association (LGA) told Ms Reeves that councils needed “more freedom around local taxes and levies”.
In a presentation ahead of the 26 November Budget, backed by Labour, Conservative, Reform and Liberal Democrat council leaders, the LGA said: “Councils need a significant increase in overall funding to stop the emerging risk of system-wide financial failure and ensure councils can meet demand for the vital services their communities need.”
The Chancellor has warned it comes after a huge rise in the cost of social care and special needs education, with councils facing an £8.4bn funding gap by April 2029. The LGA has warned that authorities now spend around £2 billion each year providing transport for children with special educational needs and disabilities (mostly by taxi) and that costs will rise further if the Chancellor implements his plan to impose VAT on taxis and private hire vehicles.
Ms Reeves was told by the LGA: “The government should undertake a cross-party review of options to improve the system, including broadening the tax base by giving greater freedom on local taxes and levies. This should include a review of council tax, including considering fairness in the system, as well as other sources of council funding.”
This comes after the LGA published a paper calling for an end to the council tax referendum limit and giving councils the power to impose tourist taxes such as local sales taxes, hotel room taxes, payroll taxes and new property taxes.
The average Band D council tax set by local authorities in England for 2025-26 will be £2,280; This represents an increase of £109 or 5.0% on the 2024-25 figure of £2,171. Almost every local authority has mandated the maximum allowable increase.
LGA leader Louise Gittins, Cheshire West Labor leader and Chester Council LGA President, said: “Council costs and demand for services are rising, particularly around children and adult social care, homelessness and SEND home to school transport, leading to significant potential overspending this year.
“The consequences are seen everywhere: fewer neighborhood services, reduced investment in prevention and increased pressure on those who rely most on local support.
“When a system needs emergency rescue operations, it is fundamentally broken.”
A Department for Housing, Communities and Local Government spokesman said: “We are reversing decades of underfunding in councils across England to deliver the high quality public services people deserve.
“We have allocated £69bn for councils this year – a 6.8% increase in cash terms – and we will go further by fixing the outdated funding system so money goes to where it needs it most and introducing multi-year finance deals to give councils stability.”
