A quiet but consequential shift is underway in how local government is funded in England and for many households, it will be felt most immediately through rising council tax bills. From April, a new funding settlement will allow some councils to increase council tax beyond the usual limits, exposing stark regional divides and raising serious questions about fairness, sustainability and political accountability.
Under normal rules, most upper-tier authorities are capped at a 5% annual council tax rise without triggering a local referendum. Yet this year, seven councils have been granted special permission to exceed that threshold, with increases approaching 9% in places such as North Somerset, Shropshire and Worcestershire (administered by the Liberal Democrats and Reform UK). Elsewhere, areas including Windsor & Maidenhead and Trafford will see rises of around 7.5%, while Bournemouth, Christchurch & Poole face an increase of over 6.7%. These exceptional measures reflect a deeper structural problem: many councils are struggling to balance their books.
At the heart of these changes lies a reworked funding formula, the first major overhaul since 2013. The government argues that the previous system had become outdated and arbitrary, failing to reflect the real needs of different communities. The new model incorporates updated data on deprivation, population trends and councils’ ability to raise revenue locally. In principle, this aims to direct more funding towards poorer, more urban areas.
The contrast between Richmond upon Thames and Rotherham illustrates the scale of the transformation. Richmond, one of the least deprived authorities in England, is projected to see its central government funding collapse from £48.1 million to just £4.7 million by 2028/29. By that point, nearly 90% of its core funding will come from council tax. Rotherham, by contrast, will see its government funding rise by 16%, with less than half of its budget reliant on local taxation.
Ministers insist this redistribution is long overdue. They argue that by the end of the decade, the most deprived areas will enjoy significantly greater spending power than their wealthier counterparts. Analysts, including those at the Institute for Fiscal Studies, broadly agree that reform was necessary. Years of uneven funding had left some councils receiving support that bore little relation to their actual needs.
However, the changes also create clear “winners” and “losers”. Wealthier areas, particularly parts of inner London, face steep reductions in central grants, with some boroughs expected to lose more than half their funding in cash terms over the next three years. While these areas may have stronger tax bases, critics warn that averages can mask deep pockets of deprivation within otherwise affluent boroughs.
The roots of today’s pressures stretch back to the austerity era following the 2008 financial crisis. Between 2010 and the early 2020s, core funding for councils fell by around 30% per person in real terms. Although there has been some recovery, funding levels remain below where they were more than a decade ago. Crucially, poorer councils, more dependent on central grants, were hit hardest and had fewer options to compensate through council tax increases.
Even with the new settlement, serious challenges remain. Social care continues to place enormous strain on local authority budgets. Spending per head on social care has risen sharply over the past decade, driven by an ageing population, rising costs and increasing demand. Meanwhile, funding for other services, from bin collections to road maintenance, has declined in real terms, leaving visible gaps in everyday provision.
Some councils are now being forced into difficult and politically sensitive decisions. In Kensington & Chelsea, for example, support for the most vulnerable residents is being reduced, while premiums on second homes are being introduced to plug funding gaps. In other areas, residents may soon face a combination of higher taxes and diminished services.
The government’s reforms may represent a step towards a more rational funding system, but they do not eliminate the fundamental tension at the heart of local government finance. Councils are being asked to deliver more complex and costly services with limited and uncertain resources. Allowing higher council tax rises may offer short-term relief, but it shifts more of the burden onto households already grappling with the cost of living.
With local elections looming across much of England, voters will soon have their say. Whether they see these changes as necessary reform or yet another squeeze on household finances could shape the political landscape as much as the policy itself.
