Council tax bills could rise by £220, warns IFS

Council tax increases of 3.6 per cent per year will be needed for the next three years just to ensure councils can provide the same range and quality of services in 2024–25.

The Institute for Fiscal Studies has warned that, under current government spending plans, the increase would push up the average annual bill paid by households by £160 by 2024−25, or £77 after accounting for inflation. It also stresses that this will likely be a minimum requirement.

Bigger increases in underlying demand and cost pressures, or top-ups to other budgets (such as schools) which eat into the amount available for grants to councils, could easily push up the necessary council tax rises to five per cent per year, or by over £220 by 2024–25.

The IFS has also reported that the government’s stated ambitions for social care are underfunded and are likely to cost £5 billion a year in the longer term, almost three times the additional annual funding currently allocated over the next three years.

The analysis concludes that relying on council tax alone to deal with funding pressures is unlikely to be sustainable. The IFS projects that an increase of four per cent in April 2022 could still leave English councils facing a £2.7 billion funding gap in 2022–23. Moreover, councils’ forecasts suggest that they will need a further top-up to their budgets over this winter to meet ongoing coronavirus-related pressures.

Council tax increases raise less in poorer parts of the country where more properties are in lower tax bands. For example, increases of four per cent a year would raise £89 per person in cash terms by 2024–25 in the richest tenth of council areas, compared with just £61 per person in the poorest tenth. This would mean there would need to be bigger percentage increases in council tax bills to meet rising costs in poorer parts of the country.

Kate Ogden, a Research Economist at IFS and an author of the chapter, said: “The government has stepped up with billions in additional funding for councils to support them through the last 18 months. It is likely to have to find billions more for councils over the next couple of years if they are to avoid cutting back on services, even if they increase council tax by four per cent a year or more.

“The coming financial year is likely to be especially tough, with the likelihood of at least some ongoing Covid-19-related pressures, and a particularly tight overall spending envelope pencilled in. At the same time, government needs urgently to deal with a local government funding system which is becoming hopelessly out of date, being based on population levels and characteristics in 2013. This results in manifest unfairnesses in the distribution of resources between councils.”