Labour has granted six areas in and around London the power to make larger council tax hikes after reducing their share of government funding.
Kensington and Chelsea, Westminster, Wandsworth, Hammersmith and Fulham, City of London, and Windsor and Maidenhead will be allowed to raise rates by more than 5% for two years without local voters needing to sign off the move.
The authorities are among those expected to lose out under a move to shift more government cash towards deprived areas from next year.
Ministers say the shake-up will make England’s funding model fairer – but the Conservatives have accused them of wanting to “punish” low-tax councils.
The new system, to be phased in over three years from 2026, aims to shift a greater share of government funding towards councils in England with higher deprivation and a higher share of properties in lower council tax bands.
Labour argues these areas were harder hit when government grants were slashed during the austerity era in the 2010s, and that current funding rules, last updated in 2013, fail to reflect high demand among their residents for council services.
A tweak to the new rules last month was believed to lessen the blow to inner London councils compared with the original proposals, unveiled in June, including by factoring in housing costs when deprivation is calculated.
But the Institute of Fiscal Studies said the six councils granted additional council tax-raising powers were still among those areas facing the largest falls in their share of government funding.
The think tank added that more urban and more deprived areas were set to see much bigger increases overall. It has previously said that outer London boroughs would fare better under the proposals.
The six areas granted additional flexibility over council tax will be able to raise rates by more than 5% in 2026 and 2027 without the usual legal requirement to have it signed off in a local referendum.
The local government department said the areas had been identified because of their “very low” council tax rates, with households in Band D paying between £450 and £1,280 less than the average in England.
No council has ever won a referendum to raise council tax beyond 5% – although councils in precarious financial positions have been granted special permission to do so by the government, increasingly so in recent years.
Residents in Birmingham have seen tax increases of more than 17% to balance the books over the last two years, after facing effective bankruptcy, while Croydon in south London raised its rates by 15% in 2023.
The Conservatives said the funding review would “punish councils that keep council tax low” whilst “moving funding to badly-run Labour councils that spend irresponsibly”.
“Inevitably, councils that lose out will be forced to cut services or raise tax – and with referendum principles scrapped, those hikes will be big,” added shadow local government secretary Sir James Cleverly.
Reform UK said the settlement would leave rural areas behind, “funnelling money towards Labour-dominated London and city councils”.
It comes as the government confirmed the overall level of council funding will go up by £3.9bn next year, 5.8%, assuming that all councils put up council tax by the maximum 5% across the board.
