Labour’s £2.4 billion Council Tax Blackhole

Today at Prime Minister's Questions, Kemi Badenoch has exposed Labour's plot to hike council tax bills across England, despite Keir Starmer once promising to freeze council tax in his first year in government.  

During PMQs, Kemi confronted Sir Keir Starmer with a shocking new Parliamentary Question which revealed that the Treasury could be planning to raise council tax by £2.4 billion across England next year - a potential hike of £143 more a year for an average Band D property's bill.  

In the written Parliamentary Question, tabled by Shadow Levelling Up, Housing and Communities Minister David Simmonds MP, the Conservatives asked Labour how much of the increase in local government spending, announced in the Budget, will come from higher council tax.  

In a response, given by both Chief Secretary to the Treasury Darren Jones MP and Housing, Communities and Local Government Minister Jim McMahon MP, Labour confirmed that local government core spending power would rise from £64,786 million in 2024-25 to £68,459 million in 2025-26 as part of the government's upcoming Local Government Finance Settlement.  

This reveals that core spending power is set to rise by £3.7 billion, but with grants only rising by £1.3 billion, this leaves a £2.4 billion blackhole in local government finances that Labour will need to fill with local taxes.  
 
Such a rise would represent a 6.6% increase in council tax across the board.  

When presented with this bombshell revelation by Kemi Badenoch, who asked the Prime Minister if he will keep the cap on council tax, Starmer refused to answer the question.  

This would just be the latest in Labour's broken promises, after Keir Starmer promised in March 2023 that an incoming Labour government would freeze council tax for a year. 

It also comes after Labour have failed to provide funding to social care providers, to compensate for the cost of their National Insurance increases announced at the Budget. This will in turn pressure councils to hike council tax to foot the bill for their soaring social care costs.  

ENDS

Notes to Editors 

The Budget promised a big increase in council spending   

The Budget Red Book^[1] stated:  

‘2.81 Local government is essential to the running of the country and delivers a wide range of vital services. The government is committed to returning the sector to sustainability through a comprehensive set of measures to support local authorities in England, including: Increasing core spending power by around 3.2% in real terms in 2025-26, with £1.3 billion of new grant funding including at least £600 million new grant funding for social care.'   

‘4.63 The LG DEL budget for 2025-26 will… includes an additional £1.3 billion of new grant funding for local authority services including at least £600 million in new grant funding for social care. Together with council tax flexibilities and locally-retained business rates, this will provide a real-terms increase in total core spending power in 2025-26 of around 3.2%.' 

But Labour don't want to say how much comes from higher council tax  

But new answers to Parliamentary Questions by Conservatives have revealed this is far less generous than it sounds – and how council taxpayers will be expected foot the lion's share of this increase in council spending.   

‘David Simmonds: To ask the Secretary of State for Housing, Communities and Local Government, with reference to paragraph 2.81 of Autumn Budget 2024, HC 295, what the assumptions are on the increase in the percentage Band D level of the (a) social care, (b) police, (c) fire and (d) Greater London Authority precepts in 2025-26 as part of the estimate of the increase in local government core spending power.   

Jim McMahon: Local government core spending power (CSP) is £64,786m in 2024-25, and is forecast to be £68,459m in 2025-26. These figures for CSP are estimates and subject to data changes. Final figures will be published as part of the 2025-26 Local Government Finance Settlement (LGFS). Components of CSP will be confirmed in the 2025-26 LGFS, including council tax referendum principles.'^[2]    

‘David Simmonds: To ask the Chancellor of the Exchequer, with reference to paragraph 2.81 of Autumn Budget 2024, HC 295, published on 30 October 2024, what the assumed local government core spending power in cash figures is in (a) 2024-25 and (b) 2025-26: and what the assumed respective cash figures within that are for (i) council tax, (ii) business rates and (iii) central government grants in each year.   

Darren Jones: Local government core spending power (CSP) is £64,786m in 2024-25, and is forecast to be £68,459m in 2025-26. These figures for CSP are estimates and subject to data changes. Final figures will be published as part of the 2025-26 Local Government Finance Settlement (LGFS). Components of CSP will be confirmed in the 2025-26 LGFS.'^[3]   

Labour have refused to say what the council tax referendum principles will be, or indeed, if there will be any (though the Budget Red Book above refers to ‘council tax flexibilities' which means: council tax rises).    

‘Kemi Badenoch: To ask the Secretary of State for Housing, Communities and Local Government, whether she plans to set a council tax referendum threshold for 2025-26.   

Jim McMahon: Future local authority funding decisions will be a matter for the next Spending Review and Local Government Finance Settlement in which we are engaged.'^[4]   

MHCLG and HMT Ministers are trying to avoid admitting how much of the increase in core spending power is coming from council tax. This is because the amount of extra council tax will be far higher than the increase in central government grants.    

Bigger increases in council tax than government funding   

The increase in council tax can be derived from these Parliamentary Questions. As the House of Commons Library has noted: ‘Local authorities in England are expected to have a total of £64.7 billion to spend in 2024/25, of which about £28.6 billion will come from various grants and £36.1 billion will come from council tax.'^[5]  

This composition of core spending power is set out in detail on the MHCLG website:  

Source: Core spending power table: final local government finance settlement 2024 to 2025.^[6]   

The PQ shows that core spending power will rise by £3.7 billion. But grants are only rising by £1.3 billion. Therefore, the remainder will need to be borne by local taxes. This is a rise in local tax of £2.4 billion.   

What it means in practice   

An increase of £2.4 billion, from last year's £36.1 billion raised from council tax, would mean an across the board increase in council tax receipts of circa 6.6%. Last year, council tax was £2,171 on average Band D bills in England.^[7] If mirrored, a 6.6% rise would mean an increase in bills for ‘working people' of £143 a year.   

If Labour dispute these figures, they should answer the Parliamentary Questions in full that they have avoided: they need to provide full figures for the increase in local tax receipts, and detail their Budget 2024 assumptions on their council tax referendum policy that they have avoided telling Parliament.  HM Treasury will have this data: but Labour Ministers want to hide it for now.    

Timing: The draft Local Government Finance Settlement 2025-26 will be published in mid to late December 2024. The final Local Government Settlement will be published in late January / early February 2025, and the House of Commons will then vote on it, alongside any council tax referendum provisions. Councils will then set their budgets, and post out council tax bills in March, to become payable from April 2025.   

National Insurance double-whammy on top. 

Labour have failed to spell out what additional funding they are providing to local government, including social care providers, for the cost of their National Insurance increases. It is likely that voluntary and private sector providers will receive no funding, but their higher costs will be shunted on to local councils, wiping out the £600 million in grant for social care. This, in turn, will further drive up council tax pressures on councils.    

Labour's fake freeze pledge   

In March 2023, Labour Party leader Keir Starmer said an incoming Labour Government would freeze council tax for a year, pledging: ‘a tax cut for the 99%, for working people who facing a rise in their council tax.'^[8] 

^[1] HM Treasury, Autumn Budget 2024, November 2024, (link). 

^[2] Hansard, 8 November 2024, PQ11925, (link). 

^[3] Hansard, 8 November 2024, PQ 11935, (link). 

^[4] Hansard, 1 August 2024, PQ 1522, (link). 

^[5] House of Commons Library, Local Government Finance Settlement 2024-25, February 2024, p.4, (link). 

^[6] (link). 

^[7] MHCLG, Council Tax levels set by local authorities in England 2024 to 2025 (revised), May 2024, (link). 

^[8] The Guardian, 30 March 2023, (link).