Local tax is expected to raise an extra £1.8bn next year – minister

A rise in council tax will help secure funding for local authorities next year, a minister has said, rejecting Tory claims of a £2.4bn “black hole”.

Communities Secretary Matthew Pennycook said the government expected to raise an extra £1.8bn from council tax in 2025/26, adding that business rates and funding linked to new homes would contribute £600m.

The new Labor administration will continue existing rules that allow councils in England to raise tax rates by up to 3%, plus an extra 2% for authorities providing social care for adults.

Councils wishing to increase tax rates by more than the 5% cap must get the government’s permission or hold a referendum.

This means that the average Band D household on council tax will face a rise above inflation, to the tune of more than £100 next year.

Answering an urgent question from the Conservatives, Mr Pennycook told the House of Commons: “Decisions to set council tax levels or to hold a referendum to go beyond the referendum principles are made by councils.

“But the government has made it clear that it expects the threshold to remain at the current level set by the previous government.”

Mr Pennycook said the Conservatives had created a “mess” in local government, adding: “That’s why we announced more than £4 billion in new funding for local government in the Budget, including an extra £1.3 billion as part of the local government financial settlement.”

Ministers said the estimated core spending capacity of local government would rise from £64.7bn in 2024/25 to £68.4bn in 2025/26.

Shadow Communities Secretary David Simmonds said: “Answers to Parliamentary Questions show the Government expects to increase spending capacity by £3.7bn through £1.3bn of grants.

“It shows the chancellor’s budget has opened a £2.4bn black hole in the council’s finances.”

Mr Pennycook replied: “The Government is committed to ensuring fair funding for local authorities. We will set out further details in the usual way in the forthcoming local government financial settlement, which will be presented to Parliament.

“I’m afraid the figure of £2.4 billion is simply not being recognised. My guess is that (Mr Simmonds) has not taken into account in his calculations the £300 million-plus raised in commercial rates, the £300 million in additional new homes that will come together.

“So it is right that £1.8 billion will be raised through city tax in 2025/26 but, as I have made clear, that is because the government is clear that we are keeping the previous government’s city tax policy in line with the OBR (Office for Budget Responsibility) made in March 2024.”

Speaking from the Lib Dem front bench, Lee Dillion (Newbury) asked: “Can the Minister ensure that councils do not close libraries, cut bus routes and cut back on road repairs to meet the growing demand on the most vulnerable members of our society. communities and, despite the announcement in the Budget, will the Minister also accept the LGA’s (Local Government Association) analysis that councils are in fact facing a £6.9 billion deficit due to inflation, rising wage demands and demand pressure for local services?”

Mr Dillon said his party was concerned that “people are simply paying more council tax for fewer services”.

The minister did not say whether town halls should consider closing libraries, bus routes and cutting back on road repairs, but acknowledged “the pressure on local authorities and the burden on households as a result of 14 years in which local authorities have been under pressure”. “.

Mr Pennycook, who later suggested the Conservatives had a “bigger front than Harrods”, said: “We are determined to turn this around by giving local authorities the space they need to tackle some of these challenges they face. for many years, which is why the more than £4 billion of public funding announced in the Budget, including an additional £1.3 billion in the Local Government Finance Deal, has been so warmly received.”

He added: “We remain committed to the 5% reference limit, which is the right threshold in our view. We are also looking to protect the most vulnerable through single person discounts and local council tax support schemes.”

Labour’s backbencher Clive Betts (Sheffield South East) suggested that in future councils could have the freedom to raise taxes as they wish.

He suggested “talking to councils and the public more widely about whether thresholds are appropriate at all”.

Conservative MP Bob Blackman (Harrow East) asked if the government had “any plans to reassess the property” to determine which groups it falls under.

Currently, property groupings in England are based on 1991 property prices.

Mr Pennycook replied: “He tempts me to discuss the Local Government Funding Agreement before it is formally presented to this House.

“I’m afraid I can’t do it.”