Analysis by the Institute for Fiscal Studies (IFS) suggests Angela Rayner’s plans to overhaul how local government funding is allocated would leave some councils in central London and the Home Counties grappling with budget cuts of up to 19 per cent.
But the changes will still create clear winners and losers.
Unless allowed to raise council tax beyond the current 5 per cent cap, services such as bin collections, road maintenance and social care may be scaled back, the IFS said.
Under the proposed system, councils in the north and Midlands – particularly the East Midlands – would see funding rise.
The IFS said Camden, Westminster, Wandsworth, Kensington and Chelsea, and Hammersmith and Fulham could each see real-terms cuts of 11 to 12 per cent by 2028–29, even with annual 5 per cent council tax increases.
If the reforms were implemented all at once, without protections known as “funding floors”, inner London’s loss would be more profound still – a 19 per cent drop.
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She added: “The changes will sting for those councils that are assessed to currently receive too high a share of the overall funding pot.”
Outside the capital, the East Midlands is forecast to see the most significant gains, with average increases of 15 per cent by 2028–29. Yorkshire and the Humber follows with 12 per cent. By contrast, councils in the South East are set to receive just 7 per cent more.
Similarly, in the South East, some upper-tier councils like Surrey and Wokingham face significant funding cuts, but several shire districts, including Crawley and Worthing, stand to gain.
Despite the intention to help deprived areas, the report found councils covering the most deprived 30 per cent of neighbourhoods will, on average, receive similar increases to those in middle-income areas. The IFS said this was partly due to technical changes in how needs are assessed.
The IFS warned that the reforms, if not reviewed regularly, could create similar imbalances in the future. David Phillips, an associate director at the institute, said: “To avoid such large changes in another decade or two’s time, these reforms cannot be a one-off.”
What are Angela Rayner’s council tax reforms?
The Government is proposing changes to the funding system for local councils in England, which it claims will improve fairness and better represent each area’s needs.
Under the plans, councils will be funded according to the costs of providing local services such as social care, children’s services, road maintenance, and fire services. The proposals also take into account factors like local wage levels, property prices, travel costs, and the remoteness of the area.
The reforms will look at how much councils can raise through council tax, assuming they set their rates at the national average. This means councils that can raise more will get less funding from the Government, while those with less ability to raise money will get more support.
To avoid sudden significant changes, the Government will phase in the new funding over three years, gradually adjusting council budgets. They will also put limits on how much funding some councils can lose each year.
Spending needs and councils’ ability to raise money will be updated every few years to keep the system fair and up to date. This is meant to ensure cash is better matched to the real demands and costs local councils face.
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