The Labour Party is preparing to overhaul the council tax system by considering a hike of up to 10% across all tax bands, potentially affecting millions of households nationwide. Currently, a 5% cap on council tax increases exists without requiring a local referendum, but government ministers are exploring lifting this limit to provide more funding for local councils.
Whitehall is expected to allocate grants specifically to regions with greater spending needs, including the Midlands and the North. Officials in these areas have indicated a willingness to accept the removal of the cap without holding referendums, although concerns remain that increased council tax alone will not compensate for reductions in overall funding.
The move follows criticism from organizations such as the Resolution Foundation, which called the current council tax system a “dog’s dinner,” and the Institute for Public Policy Research, which described it as “outdated and regressive.” Experts agree the system is in urgent need of reform.
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Stuart Hoddinott, associate director at the Institute for Government, highlights the wide disparity in council tax rates. For 2025-26, band D rates vary significantly from £961 to £2,284 across councils, with a median of £1,910. He noted that councils like Wandsworth and Westminster are exceptions due to their long-term efforts to maintain lower taxes.
Labour’s Chancellor, Rachel Reeves, is being urged to initiate a comprehensive revaluation of property values across the country, replacing the current basis on 1991 valuations, which many experts see as outdated.
Helen Miller, director at the Institute for Fiscal Studies, warns that partial revaluations may complicate the system without solving underlying issues. She advocates for a full review of property values to truly modernize council tax.
Similarly, Hannah Peaker of the New Economics Foundation argues for a bold redesign of property tax to ensure fairness and economic efficiency in funding public services. She stresses that piecemeal changes could worsen existing inequalities.
In response, a spokesperson from the Ministry of Housing, Communities and Local Government dismissed the reports as speculation, reaffirming the current 5% limit on council tax increases without referendums. The spokesperson emphasized that the government has committed £69 billion to support councils and is focused on fixing the outdated funding system to better meet local needs.