IFS: Council tax hike is looming over Brits

Brits are facing the prospect of further tax hikes down the line that will intensify the cost of living crisis already squeezing household finances.  

Council tax could have to rise by as much as five percentage points per year for the next three years, according to the economic think tank the Institute for Fiscal Studies (IFS).

Under the government’s current spending plans, councils across England will lack the necessary resources to deliver the same quality and coverage of services provided before the pandemic, the IFS warned.

As a result, councils will have to hike tax rates to plug the funding gap, which could add £220 to annual household bills.

Kate Ogden, research economist at the IFS, said: “The coming financial year is likely to be especially tough, with the likelihood of at least some ongoing COVID-19-related pressures, and a particularly tight overall spending envelope pencilled in.”

Lingering costs related to dealing with the fallout of the pandemic, in addition to extra demand for social care services, will leave councils asking for more money.

Council tax increases are likely to hit the poorest households the worst due. This is due to poorer areas of the UK typically yielding lower council tax receipts, meaning the government is likely to increase taxes by a relatively higher rate compared to richer parts of the country.

The warning comes as Brits are in the teeth of a cost of living crisis. Soaring energy costs and a wider inflation upsurge has been triggered by supply chains buckling under the weight of a resurgence in global demand.

The government’s decision to hike national insurance 1.25 percentage points will not yield enough funding to tackle the social care crisis, the IFS said. The think tanks estimate the social care system will need nearly three times more funding each year than the government has currently ear marked. 

Cllr James Jamieson, chairman of the Local Government Association, said: “Councils need certainty over their medium-term finances, adequate funding to tackle day-to-day pressures and long-term investment in people and transforming places across all parts of the country to turn levelling up from a political slogan to a reality that leads to real change for people’s lives.”

A government spokesperson said: “The Government has allocated more than £12 billion directly to councils since the start of the pandemic – with more than £6 billion available to spend as they see fit – recognising that councils are best placed to deal with local issues.”

“We have also taken historic action to fix the social care crisis – the Health and Social Care Levy will raise £12 billion a year to fund the NHS and social care.”

“The Spending Review will continue to focus on supporting jobs and delivering the public’s key priorities.”