Council tax spike to pay for Reeves spending plans

Council tax will rise at the fastest pace in over two decades, fresh analysis has suggested, after a government document said it expected bills to rise to pay for local services.

The Institute for Fiscal Studies (IFS) has pointed to government documents published shortly after the Spending Review ended suggesting Brits will have to pay more into local governments’ coffers in the coming years. 

The IFS’ Paul Johnson, who described the Chancellor’s speech as “baffling”, told participants in an online event on Thursday morning that a boost in local governments’ spending power came with a “sting in the tail” as calculations were based on the assumption council tax bills would rise by five per cent a year.

“Indeed, if English councils do choose five per cent increases – and most are likely to – bills look set to rise at their fastest rate over any parliament since 2001-05,” Johnson said.

“Here’s another plea to reform council tax. If you are going to increase your reliance on it, surely you are under even more of an obligation to reform it into something more rational.”

A real terms cut in spending on the Home Office yesterday prompted security chiefs and London Mayor Sadiq Khan to raise concerns that police budgets would come under threat.

Khan said the cut would lead to fewer  police officers, despite Labour manifesto pledges stating the government would hire up to 13,000 more officers and other community support workers to improve neighbourhood safety.

Reeves did not rule out council tax hikes in interviews on Wednesday afternoon while Shadow Chancellor Mel Stride accused his opponent of being a “spend now, tax later” administrator.

“It’s clear that tax rises are on their way,” Stride said, echoing economists’ views that Reeves will have to raise taxes later this year by around £20bn to restore her fiscal headroom. 

Tax hike fears

Johnson said Reeves’ commitment to her “iron-clad” fiscal rules suggested that the Treasury will have to identify new effective tax policies, adding that an extension to a freeze on income tax thresholds would be less politically controversial while yielding some £9bn. 

“Reeves is now going to have all her fingers and all her toes crossed, hoping that the OBR will not be downgrading their forecasts in the autumn,” he said.

“[An extension to income tax thresholds is] certainly not a progressive thing to do. It also brings more and more people into higher rates of tax.”

“All of the other ways of raising significant sums of money are politically uncomfortable.