Council Tax Overhaul: What the Budget Changes Mean for You
Council tax bills could be set for their biggest shake-up in decades as Chancellor Rachel Reeves considers major reforms to help repair public finances. With income tax increases off the table, the government is exploring ways to make property owners of expensive homes in England pay more through council tax adjustments.
The proposed changes come as critics describe the current system as a 'dog's dinner' due to outdated property valuations that create stark regional inequalities. Remarkably, households in Blackpool currently pay more council tax than residents in some of London's wealthiest boroughs like Kensington.
How Council Tax Works Today
Local authorities in England fund approximately a quarter of their services through council tax, with the remainder coming from government grants and business rates. The system operates through eight bands (A-H) based on 1991 property values, despite average house prices having more than quadrupled since then.
Annual increases are capped at 4.99% for councils with social care responsibilities and 2.99% for those without. This has created significant disparities, with the typical band D property in the north-east facing bills of £2,425 annually - £444 more than the Greater London average of £1,981.
Stuart Hoddinott, associate director at the Institute for Government, describes the system as 'deeply broken', noting that current rates reflect decades of inconsistent decisions by local authorities rather than modern property values.
Proposed Reforms: What's on the Table
Two main approaches are being considered by the Treasury. The first involves doubling council tax for bands G and H properties, which the Institute for Fiscal Studies estimates would raise £4.2 billion by 2029-30. For an average band G property, this could mean an additional £3,800 annually, taking total bills to £7,600.
However, Tax Policy Associates warns that over three-quarters of this revenue would come from band G households, affecting 'comfortably off but not necessarily super wealthy' families living in properties valued between £750,000 and £1.5 million.
The second option involves a form of 'mansion tax' targeting the most valuable 300,000 properties across bands F, G and H, with thresholds likely set between £1.4 million and £1.5 million. This would disproportionately affect London, where 44% of band H properties are located.
Regional Impacts and Fairness Concerns
The reforms would significantly shift tax burdens toward London and the southeast, where property values have increased most dramatically since 1991. David Fell of Hamptons estate agency notes that a band H home in Wandsworth currently pays just £1,995 annually, while similar properties in Surrey face bills up to £4,965.
Lucian Cook of Savills warns that doubling rates for top bands risks 'creating a sharp divide in charges' between properties at the top of band F and bottom of band G, particularly problematic given the outdated valuations.
The Institute for Fiscal Studies emphasises that properties in top bands don't reflect current values but rather what was expensive in 1991, concluding that a comprehensive revaluation is long overdue to address these fundamental inequalities in the system.
