You are using an older browser version. Please use a supported version for the best MSN experience.

Council tax to rise by up to £435 for millions of homeowners, warns Budget small print

Mirror logo Mirror 28/10/2021 Emma Munbodh

Some households could see their council tax bills rocket by up to £400 in the next five years, under measures buried in the Chancellor’s Budget small print.

The Office for Budget Responsibility (OBR) said it expected the total amount raised in council tax to be a third higher in 2026/27 than it was in 2019/20.

It said receipts will be £12.1billion higher in 2026/27 than seven years earlier. This is equivalent to around £435 extra per household.

Last year, councils were able to put up bills by a huge 5% - although the actual average rise was 4.4%, taking the average Band D bill to £1,898.

On Wednesday, the Treasury said local authorities would be able to increase bills by a maximum 3% without having to hold a local referendum, with 1% of this going to social care.

It could mean local authorities increasing costs by £57 in April - potentially taking the average to £1,955.

This is on top of the 1.25% National Insurance rise to pay for health and social care.

But the Budget small print has also warned council tax could rise even higher than 3% per year.

A row of colourful houses © Getty Images A row of colourful houses

The small print says 3% rises are "assumed" - but warns the final allocations will only be set by the government by a later date.

And IFS economist Ben Zaranko warned: “Some cuts to some council services seem highly likely if central government doesn’t provide additional funding.”

He said grant funding would rise by a “sizeable” £1.6bn next year but is then frozen after that - forcing three-quarters of any spending increases to come from council tax.

The Treasury's Red Book, published alongside the Budget, stated: “To ensure that all local authorities have access to the resources they need to deliver core services such as children's social care, road maintenance and waste management, the referendum threshold for increases in council tax is expected to remain at 2 per cent.

“In addition, local authorities with social care responsibilities are expected to be able to increase the adult social care precept by up to 1 per cent per year.

The OBR said: "Net council tax receipts continued to rise in 2020/21 despite the pandemic (by 6 per cent) and are expected to continue to rise at similar rates across the forecast period.

"By 2026/27, we expect receipts to be £12.1billion (33 per cent) above their 2019/20 level.”

James Jamieson, the chairman of the Local Government Association, said: "It is disappointing that the Chancellor has not provided additional funding to address existing pressures on adult social care services and not increased public health funding. We remain concerned that the money allocated to social care from the Health and Care Levy will not be enough to fund reforms.

"The potential rise in local government core spending power over the next three years will be dependant on councils increasing council tax by three per cent per annum."

Sunak also warned inflation could reach 4% by Christmas – meaning the cost of essential goods will be that amount higher by December.

The Office for Budget Responsibility warned it could even reach 5% if supply chain bottlenecks and staff shortages prove more persistent than expected, triggering a 30 year rise in inflation.

To tame inflation, the Bank of England is being prompted to raise its base interest rate from its record low of 0.1 per cent to 3.5 per cent by 2023, the OBR added.

This would take interest rates to a level not seen since 2008 in a welcome move for savers.

Are council tax prices already out of control? Let us know your thoughts on the potential rise:

However, it would hammer households on variable mortgages.

In the OBR's worst case scenario, anyone currently paying a 4% interest rate on a 25-year £150,000 mortgage would see their monthly bill shoot up by more than £300 if their rate increased in line with the Bank rate.

Paul Johnson, director of think tank the Institute of Fiscal Studies, said: “The coming year will be a difficult one for living standards. For example, for middle earners, rising inflation and tax rises mean their real take-home pay is set to fall by around 1 per cent.”

For the average middle-income household, this would see them pocketing £180 less per year in real terms.

Under OBR's most likely forecast, inflation will peak at 4.4 per cent in the spring, and will return quickly to the Bank of England's 2% target as pandemic pressures ease and energy prices stabilise.


More from Mirror

image beaconimage beaconimage beacon