Everything You Should Know About Council Tax Hikes

Millions across England, Scotland and Wales are preparing for yet another Council Tax hike this April as councils struggle with mounting financial pressures. Despite government pledges of extra funding, many warn of severe budget shortfalls, risking cuts to essential services. With some areas imposing hikes of up to 10%, higher bills are inevitable. 

So what exactly is Council Tax, how is it calculated and where does the money go? More importantly, what happens when councils can’t balance their books? Whether you own, rent or invest, understanding them is important for dealing confidently with rising local taxes.

What is Council Tax & Who Pays It?

Council Tax is a mandatory charge on properties in England, Scotland and Wales. It is set by local authorities to fund public services like rubbish collection, street lighting, libraries and care services.

Generally, anyone over 18 who owns or rents a home must pay Council Tax. But there are exceptions and discounts. For example, people living alone get a 25% reduction, and properties occupied solely by students are exempt. Discounts are also available for households with disabled members.

Most people pay their Council Tax in 10 monthly instalments, starting in April, with no payments due in February and March. Northern Ireland operates differently, using a domestic rates system instead of Council Tax.

How Much Will Council Tax Increase By?

In April, councils responsible for social care can raise Council Tax by up to 4.99% without needing a local referendum. Smaller councils without social care duties can increase bills by up to 2.99%.

The government has allowed six councils to exceed the 4.99% cap on Council Tax hikes in the Tax Year 2025/26. Bradford Council, for example, can implement a 10% hike; Newham and Windsor and Maidenhead can jack up bills by 9%; and Birmingham, Somerset and Trafford can bump up rates by 7.5%.

How is Council Tax Calculated?

The amount you pay depends on your property’s Council Tax band based on its value. In England and Scotland, bands are determined by the property’s 1991 market value, and Wales uses 2003 prices. Northern Ireland’s system is based on 2005 values. You can check your property’s band online.

Council Tax bills also include additional charges, or levies, to fund services like adult social care, police and fire services. Some cities with mayors like London and Manchester add separate levies to cover other local services. Northern Ireland is considering changes to its domestic rates system to increase payments from higher-value homes starting in April 2025.

What Does Council Tax Pay For?

Council Tax funds a wide range of local services like rubbish collection, street lighting, libraries, parks, youth clubs and care services.

According to the Local Government Association (LGA), 61% of council spending in 2023-24 funded children’s services and adult social care, up from 52% in 2013-14. This has left less money for other services, putting additional pressure on councils.

Where Else Do Councils Get Their Money?

About half of local authority funding comes from Council Tax. Councils also generate income through charges for services like parking, swimming pools and planning applications, as well as from commercial investments. The rest comes from business rates and central government grants.

The Labour Party has promised an additional £2 billion in central government funding for English councils starting in April 2025, including £700 million on top of the £1.3 billion announced in October’s Budget. £515 million of that has already been allocated to offset rising National Insurance contributions for employers.

The government is also consulting on redirecting more funds to deprived councils in England from 2026 as part of a broader overhaul of council financing. This comes after years of dwindling central government funding for local authorities in England—down 10.2% between 2009-10 and 2021-22—while councils have been left to contend with rocketing inflation, expensive energy costs and a rising National Living Wage.

What Happens When Councils Go Bust?

Councils cannot technically go bankrupt, but if they cannot balance their budgets, they can issue a Section 114 notice, which restricts new spending and often triggers service cuts such as fewer bin collections or dimmed streetlights.

Before 2018, only two councils had issued such notices but 12 have done so since. Birmingham City Council, for example, declared a £760 million deficit in 2023 following similar crises in Woking, Thurrock and Croydon.

The LGA estimates that one in four English councils could face collapse in 2025-26 or 2026-27. Some councils, like Middlesbrough, are receiving “exceptional financial support” to tackle their budgets including permission to borrow money for day-to-day spending.

What If You Can’t Pay Your Council Tax?

If you’re struggling to pay, don’t ignore the issue: councils can take legal action to recover unpaid taxes. Instead contact your council to explain your situation. Depending on your circumstances, you may qualify for a reduction or exemption.

Empty Homes Face Higher Premiums

In a bid to fix housing shortages, some councils are slapping higher premiums on empty homes. East Staffordshire Borough Council, for example, plans to boost its Council Tax premium on empty properties by up to 300%. Homes vacant for more than one year but less than five will face a 100% premium, and those empty for over 10 years will see a 300% surcharge.

The council hopes the measure will encourage owners to bring empty properties back into use.

Conclusion

As council tax bills climb, many households will feel the pinch.  And with councils under increasing pressure, the debate over how to fund local services is likely to intensify.

Despite additional government funding offering some relief, that may not be enough to prevent further cuts to vital services.