A crisis is looming for councils – but you won’t hear about it in this election

The Institute for Fiscal Studies has warned of the looming crisis facing local authorities, and the worrying silence on the issue in the election campaign. Some councils, such as Thurrock and Birmingham, have effectively gone bust. The concern now is that many more will find themselves in financial difficulties, while all will face what the Local Government Association calls a “chasm” between rising demands and stagnant or even declining real-terms revenues.

“Cuts to some council services are likely unless spending pressures abate, even with big increases in council tax and especially in more deprived areas,” the IFS said. “Councils in the most deprived areas, often Labour-controlled, are likely to face the most difficult funding situation.”

No. The most acute pressures are coming from an ageing population with the need for adult social care, plus a rise in the number of children with special educational needs (Send). Local authorities are responsible for children and adult social care residential placements, special educational needs support and temporary accommodation for the homeless. As these demands must be met, the money left over for potholes, parks and libraries comes under extreme and unsustainable pressure. Under all three parties, central government has tended to ignore this, or even exacerbate it by starving councils of money.

The IFS calculates that if council tax increases by 5 per cent a year in the next parliament – in line with the maximum allowed over the past two years without a local referendum – the average band D annual rate would be around £600 higher in April 2029 than now. The real-terms increase in council tax bills (averaging just over 3 per cent a year with inflation at 2 per cent, would be the highest since the 2001–05 parliament when they averaged 6 per cent a year).

Through many years of wilful neglect of the system, and a decade during which Conservative-led central governments escaped the electoral consequences and responsibility for deep cuts in public services by forcing local councils to implement them and take the blame. It’s also true that most local authorities simply don’t have a large enough local tax base to maintain basic services, and have always needed central government subsidies; the system is inherently flawed. The old rates system, based on a national “rateable value”, was archaic and unfair but the poll tax – sorry, “community charge” – that replaced it was even worse. At present, council tax is an unhappy compromise. Cuts in central funding mean that council tax now generates 57 per cent of local authority funding compared to 15 per cent from government grants. Councils also only retain up to half of the business rates revenue raised from firms in their area, with the remainder retained centrally by the government and used to provide grant funding for local authorities.

As the IFS reminds us, neither of the main parties has much to say, so the only indisputable fact is that whoever wins the next election will have to oversee an increase in council tax and some further deterioration in services, including core responsibilities in housing, education and social care. The IFS notes that there is “no indication of whether the next government would prioritise council funding, as has been the case since 2019, or cut it by more than average, as was the case in the 2010s”.

The Conservative manifesto is silent on the subject and ministers are equally sketchy, relying on the usual panacea of “eliminating waste” to make the sums add up. Labour is a little more explicit in the sense that they refuse to rule out a rise in council tax, with deputy leader Angela Rayner remarking that the party had no plans to do so “at the moment”. Perhaps more encouragingly they are committed to “multiyear funding settlements and end wasteful competitive bidding. We recognise good jobs deliver better services that local communities can rely on. Labour will provide capacity and support to councils, and will overhaul the local audit system, so taxpayers get better value for money.” However, there’s no suggestion as to how generous these settlements will be. Having in effect adopted Jeremy Hunt’s public spending plans, and with the pledge not to raise income tax, national insurance or VAT, there’s unlikely to be much help coming from the centre.

What Keir Starmer and Rachel Reeves might do if a whole range of local authorities end up going bankrupt in the next few years has, as the IFS complains, not been explored by anyone. (Similar arguments also apply to the increasingly financially stressed universities.)

They were last reviewed on any scale in 1990, and relative prices within and between local authority areas have obviously shifted a good deal since then. So a revaluation exercise would make things a little fairer, although of course council tax has little relation to household income. Some extra revenue might be forthcoming, but shuffling properties between relative price bands wouldn’t necessarily yield a transformational amount.

The downside is that any change would inevitably create angry, noisy and resentful losers who’d punish any government that tried this on at the ballot box, while the beneficiaries will be generally ungrateful. The traumatic experience of the poll tax in 1990, which led to riots and helped bring down Margaret Thatcher, has inoculated all parties from attempting radical change. Indeed the last politician to even consider a reform was David Miliband, then a minister in the Blair government, who kicked it so far into the long grass it was lost after the coalition took over in 2010, never to be seen again. Revaluation is simply too toxic for anyone to touch.