Dozens of councils will face bankruptcy or be forced to make drastic cutbacks to frontline services such as street lighting and bin collection, despite raising council tax by the maximum amount each year as a result of the Government’s spending review, town hall leaders have warned.
Last week’s spending review indicated that local authorities would raise council tax by 5 per cent each year over the next three years, which economists said would be the fastest rise in the levy in more than a generation.
But the Local Government Association (LGA) has warned that even with the additional 5 per cent increase in tax, councils in England face a shortfall in funding of more than £8bn by 2028/29, resulting in cuts to services.
The LGA said 30 councils have been given exceptional financial support for this financial year (2025-26). This is effectively an emergency grant to stave off a local authority having to effectively announce bankruptcy – officially called a Section 114 notice.
The biggest authority to put in a Section 114 notice was Birmingham Council in 2023. Bin workers in Birmingham have been on strike since March in a long-running dispute over wage reductions.
Birmingham will receive an extra £180m in exceptional financial support this year, on top of almost £500m last year.
“All councils remain under severe financial pressure. Many will continue to have to increase council tax bills to try and protect services but still need to make further cutbacks,” the LGA said, insisting that council tax is “not the solution for meeting long-term pressures” in the sector.
The body also warned that a 5 per cent increase in council tax “will place a significant burden on households”.
Sir Keir Starmer appeared to shift the blame for the prospect of rising council tax from his Government onto the local authorities themselves.
Pressed by reporters during his visit to the G7 in Canada as to whether the 5 per cent rise was a breach of his manifesto pledge not to raise taxes on “working people”, the Prime Minister insisted: “The first thing is council tax rises are obviously for councils to decide, year on year, which is what they all do.”
The Prime Minister added: “We spent the best part of the first year taking the tough but necessary decisions in relation to… not just our broken economy but everything was broken.
“Year one was cleaning up that mess, stabilising the economy and creating the conditions for the Spending Review. The Spending Review now allows us to show what a difference a Labour government makes and the sort of country that we want to be.”
But the Conservatives claimed that the move was a breach of Labour’s manifesto. Shadow Housing Secretary Kevin Hollinrake said: “Passing the buck doesn’t hide the broken promise.
“Keir Starmer vowed not to raise taxes on working people — now he’s hiking National Insurance and recommending councils slam them with 5 per cent council tax rises.
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“This will leave working households thousands of pounds worse off in this Parliament.”
Last week, the Institute for Fiscal Studies (IFS) said the assumed council tax rises set out in the spending review would result in the fastest rise in council tax since 2001.
IFS director Paul Johnson said that local government in England did “perhaps a little bit better than it might have expected” out of the Chancellor’s statement on Wednesday, but the “sting in the tail” is the assumption that “council tax bills will rise by 5 per cent a year” as part of the funding.
Exceptional Financial Support requests from local authorities: 2025-26
Barnet£55.7m (support agreed in principle)Birmingham£180.0m (support agreed in principle)Note: For support agreed in principle for 2024-25, this has been revised to £490.0m (from £685.0m)Bradford£127.1m (support agreed in principle)Cheshire East£25.3m (support agreed in principle)Note: For support agreed in principle for 2024-25, this has been revised to £17.6m (from £6m)Croydon£136.0m (support agreed in principle)Note: For support agreed in principle for 2023-24, this has been revised to £50.0m (from £63.0m), and for support agreed in-principle for 2024-25, this has been revised to £51m (from £38m)Cumberland£23.439m (support agreed in principle)Eastbourne£2.0m (support agreed in principle)Enfield£10.0m (support agreed in principle)£20.0m (support agreed in principle for 2024-25)Halton£32.0m (support agreed in principle)£20.8m (support agreed in principle 2024-25)Haringey£37.0m (support agreed in principle)£28.0m (support agreed in principle for 2024-25)Havering£88.0m (support agreed in principle)Medway£18.484m (support agreed in principle)Note: For support agreed in principle for 2024-25, this has been revised to £23.171m (from £14.742m)Newham£51.2m (support agreed in principle)£16.0m (support agreed in principle for 2024-25)Nottingham£25.0m (support agreed in principle)Shropshire£26.9m (support agreed in principle for 2024-25)Slough£15.709m (support agreed in principle)Solihull£32.658m (support agreed in principle)£15.615m (support agreed in principle for 2024-25)Somerset£63.0m (support agreed in principle)Note: Provisionally includes revised support agreed in 2024-25, subject to final confirmationSouthampton£89.9m (support agreed in principle)Note: Provisionally includes revised support agreed in 2024-25, subject to final confirmationStoke-on-Trent£16.8m (support agreed in principle)Swindon£14.7m (support agreed in principle)Thurrock£72.0m (support agreed in principle)Note: For support agreed in principle for 2022-23, this has been revised to £130.0m (from £40.0m agreed in February 2024), for 2023-24, this has been revised to £184.0m (from £234.5m agreed in February 2024), and for 2024-25, this has been revised to £96.0m (from £68.6m agreed in February 2024)Trafford£9.6m (support agreed in principle)West Berkshire£3.0m (support agreed in principle)£13.0m (support agreed in principle for 2024-25)Windsor & Maidenhead£41.0m (support agreed in principle)£62.0m (support agreed in principle for 2024-25)Wirral£7.5m (support agreed in principle)£20.0m (support agreed in principle for 2024-25)Woking£74.6m (support agreed in principle)Note: For support agreed in principle for 2024-25, this has been revised to £93.6m (from £95.6m)Worcestershire£33.6m (support agreed in principle)Worthing£2.0m (support agreed in principle)Lambeth£40.0m (support agreed in principle)Source: Ministry of Housing, Communities and Local Government. Feb 2025
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