Why is Angela Rayner shifting the council tax burden from north to south?

Independent

20-06-2025

When Angela Rayner took over her department, the first thing she did was to delete 'levelling up' from its name. But she insisted that she was committed to the idea behind the phrase, and now she is about to announce a change in local government funding to prove it.
The new funding formula is expected to allocate money from central government according to local needs, including population, poverty and age, with extra weighting for rural and coastal areas with higher transport costs.
The effect will be to force local councils in London and the home counties to put up council tax. Many of them are expected to increase tax by the maximum 5 per cent a year for several years, and more than before will ask Rayner for permission to hold a local referendum on an increase greater than 5 per cent.
Councils in the north, the Midlands and east London, on the other hand, may be able to cut their council tax, or at least increase it by less.
Is this fair?
Labour argues that the Conservatives have fiddled the funding formula for 14 years, resulting in artificially low council taxes in places such as Westminster and Wandsworth – former Tory councils that attracted disproportionate media coverage in local elections. In the end, this attempt to cook the books could not hold back the electoral tide, and Labour won control of both councils in 2022.
Clobbering those councils is going to make it harder for Labour to retain control, so it could be argued that Rayner is motivated purely by wanting to rebalance the national distribution of resources according to need.
The new system will probably be fairer than the current one, if not perfectly fair, but any attempt to adjust local government funding throws up winners and losers – and the losers always make more noise than those who quietly pocket their gains.
How quickly will the change happen?
Even if the change were totally fair in principle, any sharp fall in central government funding and big increase in council tax is likely to cause hardship. That is why Rayner is expected to adjust her new formula by putting a limit on how much any council's income from central government can fall in a year.
David Phillips, of the Institute for Fiscal Studies, says: 'It's been 20 years since we've had an effective system to allocate funding between councils so it is out of whack and the changes are going to be big.' That means any changes will probably be phased in over several years.
What could possibly go wrong?
If Rayner delivers a funding system for local government that is more closely aligned with local needs, she could deliver more radical policy substance than the Conservative slogan of 'levelling up' ever managed.
But Phillips points out a philosophical problem. The more the government tries to redistribute resources from 'leafier places' to deprived areas, the more 'it is making a trade-off to prioritise need over incentives for councils to tackle need and grow their council tax base', he says.
If councils receive more funding the higher their indicators of deprivation are, there is a danger of perverse incentives for them to keep those indicators high.
Shouldn't council tax be revalued from scratch?
Of course it should. It is based on notional property values in 1991 (in England; in Wales the reference date is 2003), so it is hopelessly out of date. But revaluation would produce even more dramatic individual winners and losers than changing funding for whole council areas.
Rayner's redistribution is already what Sir Humphrey would describe as 'very brave, deputy prime minister'; a full revaluation would be several times braver – in other words, a guaranteed political disaster.
The most that is likely to be politically feasible would be to revalue council tax for more expensive properties, such as the one in 20 UK homes currently on the market for more than £1m. A similar policy, called a mansion tax, was considered by the coalition government – George Osborne and the Liberal Democrats wanted it but David Cameron vetoed the idea, saying the Tory party's donors wouldn't wear it.
Given that Rachel Reeves, the chancellor, is likely to be looking for new sources of revenue in the autumn Budget, this may be an option. She did rule out a mansion tax before the election, but I don't think it has been mentioned since. Look out for even greater 'fairness'.