Council Tax Reform

Sarah Dyke Excerpts

Wednesday 19th March 2025 Commons Chamber

[Mr Brash]

Certainly, the last 14 years—I note that none of the Conservatives are here—shifted the settlement away from areas of deprivation to more affluent areas. That has had an incredibly punitive effect.

Council tax in Hartlepool represents 9% of median gross pay. Here in Westminster, it is just 2%. Someone can live in a multimillion-pound property in London and still pay less council tax than someone in a terraced house in Hartlepool. It is not right. It is not fair. It must change. An outdated system based on 34-year-old property values can never deliver fairness and has widened regional inequalities.

[Sarah Dyke (Glastonbury and Somerton) (LD)]

Sixty-six per cent of Somerset council’s budget goes to fund social care. That budget is funded through the taxes raised on property based on prices from 1991, as the hon. Member has set out. Does he agree that that is archaic and unfair, and that we should enact real reform to the way we fund local authorities?

[Mr Brash]

I absolutely agree and I will come to social care later in my speech, so I will pick up that point then.

--- Later in debate ---

[The Minister for Local Government and English Devolution (Jim McMahon)]

I congratulate my hon. Friend the Member for Hartlepool (Mr Brash) on securing this Adjournment debate on the important issue of council tax. I am grateful for the work and research that he and the all-party group have put into their argument for council tax reform.

The Government take seriously the issue of how councils are funded, and the impact on local taxpayers. Council tax is an important part of the funding that councils require to deliver a range of over 800 vital services. For 2024-25, council tax makes up over half of councils’ core spending power. Individual councils are responsible for setting their own level of council tax, taking into account their local circumstances. Indeed, council tax is the balancing item in the local council budget.

As my hon. Friend will know, the ability to raise revenue from council tax is determined by the number of domestic properties within a local authority area, and by the value of those properties in 1991. That means that places with a high number of more valuable properties are often able to raise more than an area with lower-value properties, despite setting the same or commonly a lower level of council tax. However, as he said, the Government have ruled out a revaluation of council tax in this Parliament. That means that we must find other ways to address the discrepancies in tax-raising ability through other means.

The last Conservative Government committed to improving and updating the way in which councils are funded, through the fair funding review, but that work was not delivered. We will make good on that commitment and implement long-awaited funding reforms through a multi-year settlement in 2026-27—the first in over a decade. We have recently consulted on the proposed objectives and principles for local government funding reform. In that consultation, we propose to update the way we account for council tax in determining local authority funding allocations, so that future allocations more effectively account for the differing ability to raise council tax income across the country.

As my hon. Friend has pointed out, that means that somewhere like Hartlepool, where the tax base is weaker because of the high number of homes in bands A to C, will not be treated the same as an authority in the south-east that has a high number of homes in bands E to H and therefore has greater council tax revenue-raising power. That will be part of a wider set of changes to improve the approach to funding allocations within the local government finance settlement by ensuring that they reflect an up-to-date assessment of need and, importantly, local resources. Those funding reforms are part of a comprehensive set of reforms for public services to fix the foundations of local government. That will be done in partnership with the sector and on the principle of giving forward notice and certainty to allow time for councils to plan for the future.

Although the Government recognise the arguments in favour of council tax revaluation and reform, there are currently no plans to reform council tax in this Parliament, as I have said. Significant changes to local government structures, governance, accountability, audit, standards and financing are taking place alongside an ambitious programme of devolution and, of course, local government reorganisation. I say that because we cannot overstate the amount of change taking place in a very short time within a system that has been left quite fragile, as my hon. Friend will know, after 14 years of mismanagement by the previous Government.

[Sarah Dyke]

Somerset council is in the position of having to raise council tax this year, but a recent external assurance review reported that a significant proportion of the council’s budget shortfall was attributable to decisions taken by the previous Conservative Administration, who recklessly froze council tax for a record six-year period. In the light of the pressures on councils across the country, will the Minister commit to giving us a timetable for reform so that councils can plan well ahead and deliver essential services?

[Jim McMahon]

That is an important point. In a sense, we can draw up a fairer and more balanced system, and build more security into it. What a system can never do is accommodate every localised decision and how it presents. In the end, there has to be local checks and balances, and that must come through the ballot box. It sounds as if voters in the hon. Member’s area have cast that judgment.

We are committed to reform and to moving at pace, but we recognise in doing that that the system is fragile. We are undertaking reform of the business rates system and revaluation, and a lot of devolution deals will come forward where intricated settlements are being worked towards, which will be important. All that, of course, rests on local government being strong and stable enough to support it. We completely recognise all the issues around adult social care, children’s services and temporary accommodation, which mean that councils are being overwhelmed. There is £69 billion available through the funding allocation this year, £5 billion of which is new money, and for the first time ever there is £600 million through the recovery grant, which is about bridging to the multi-year settlement. We have recognised the urgency and depth of the crisis that many councils find themselves in, but we are also honest in saying that it will take more than seven months to repair 14 years of harm. We are getting on with the job, and we are determined to get it right.