The government has authorised five London local authorities to increase council tax by more than the standard national limit over the next two years, a move set to impact hundreds of thousands of households.
Which Boroughs Are Affected and Why?
Special permission has been granted to the boroughs of Kensington and Chelsea, Westminster, Wandsworth, City of London and Hammersmith and Fulham. These councils will be allowed to raise their rates above the normal five percent annual cap in both 2026 and 2027.
The decision stems from two key factors. Firstly, these five areas currently have the lowest council tax rates in the capital. Band D households in these boroughs pay between £450 and £1,280 less than the average equivalent bill in England. Secondly, they will face significant cuts in central government funding next year, as ministers shift financial focus towards more deprived areas.
Government Aims for 'Fairness' in Funding
Local Government and Homelessness Minister, Alison McGovern, addressed the House of Commons this week, stating the exemption was designed to ‘improve fairness’ within the system. She explained that the change would enable the reallocation of more than £250 million in funding more equitably.
‘It will enable the government to allocate more than £250m of funding in the system more fairly, instead of subsidising bills for the half a million households in those council areas,’ McGovern stated. ‘It will also provide greater flexibility for those authorities in deciding how to manage their finances following our reforms.’
The final decision on the exact percentage increase will rest with each individual council. They must also consider whether to utilise other relatively high sources of income available to them. Notably, the Institute for Fiscal Studies has predicted that councils like Wandsworth and Westminster might need to raise council tax by as much as 75 percent to compensate for the impending funding reductions.
Broader Implications and Wider Exemptions
This policy shift highlights the ongoing financial pressures on local authorities across the UK. While the spotlight is on these five London boroughs, the exemption also extends beyond the capital. The local authority for Windsor and Maidenhead has similarly been granted the power to increase its council tax by more than five percent.
For residents in the affected London boroughs, the era of notably low council tax bills is coming to an end. The coming months will reveal how each council balances its budget, with households bracing for potentially sharp increases from April 2026.
