Households across England are being warned to brace for higher council tax bills this April, as local authorities finalise their budgets following a major shake-up in how government funding is distributed.
A New 'Fair Funding' Formula Redistributes Cash
The government announced a new three-year financial settlement for English councils this week. For the first time, the core funding allocation is being distributed using a new 'Fair Funding' formula. This system gives greater weight, and therefore a larger share of resources, to councils with high levels of 'deprivation'. Deprivation is measured by factors including local income, employment, health, housing costs, and crime rates.
This shift aims to direct more support to areas with the greatest need, a move ministers say reverses years of austerity. Middlesbrough, Manchester, and Birmingham – among the most deprived local authority areas – are set to see some of the biggest increases in their spending power from April. Several outer London boroughs, including Haringey and Newham, will also benefit significantly.
Winners, Losers, and Rising Bills
While the new formula creates clear winners, it also produces losers. Wealthier areas, such as the central London borough of Kensington and Chelsea and affluent home counties councils like Surrey, will receive a relatively smaller share of the overall pot. Rural councils with lower deprivation scores argue they have been unfairly penalised.
Despite the redistribution, the financial pressure on councils remains intense. Consequently, most local authorities – whether winners or losers in this settlement – are likely to increase council tax bills in April. The maximum rise for an upper-tier authority with social care responsibilities is 4.99%, and many are expected to hit this cap. The era of widespread council tax freezes is firmly over.
Some councils, like the Reform-led authorities that have made lower bills a priority, may try to limit increases. Others, such as Windsor and Maidenhead, are seeking permission to raise tax above 4.99% to bring their historically low rates in line with the national average.
Will This Stave Off a Financial Crisis?
Ministers have expressed hope that the settlement will allow councils to restore services like libraries and youth clubs. However, experts warn that soaring demand for adult social care, homelessness support, and other critical services means most authorities will continue to struggle.
"The council cake may be more fairly divided, but it is not bigger," said Jonathan Carr-West, chief executive of the Local Government Information Unit. "We need greater focus on the most pressing issue facing local government today: getting more money into the system."
The settlement's impact on council finances is mixed. While it may pull some authorities back from the brink, it could push others closer to crisis. Many are struggling to balance their books legally, and exceptional financial support (EFS) – effectively loans to pay for day-to-day services – is becoming more common. Last year, 30 councils received EFS, and speculation suggests up to 100 may apply in the coming months to avoid effective bankruptcy.
In summary, while the new funding formula aims for greater fairness by targeting deprivation, it unfolds against a backdrop of systemic financial strain, making higher council tax bills an almost universal reality for English residents this spring.
