'Fair funding finally within sight'

Posted on July 15, 2025

Full council tax equalisation will have a huge impact for the most deprived areas, but for the sector to be able to work with Government as a partner an increase to the overall funding pot is crucial, says Sir Stephen Houghton.

The proposals included in the Fair Funding Review 2.0 consultation will create a fairer funding system for local government and should be strongly welcomed by the sector.  

The most significant improvement on the current system would be the proposal to fully equalise council tax receipts. Indeed, it was very welcome to read the statement in the consultation that the Government ‘has an important role as an equaliser for local government income'. 

Full equalisation will have a huge impact for the most deprived areas because the amount of council tax in the system has increased significantly since 2013/14, and the last time there was equalisation it was done at the lower level of 85%, rather than 100%. This will move hundreds of millions of pounds to the most deprived areas, improving services and providing vital support for the most vulnerable and in need communities. 

The ability to raise council tax varies widely across the country. There are stark variations in the distribution of property bandings across the country. In Hull and Blackpool, around 90% of properties are Band A-C, whereas in Westminster fewer than 20% of properties are Bands A-C and there are thousands of the very highest banded properties. This means the ability to raise council tax income is significantly higher. This has allowed places like Westminster and Wandsworth, alongside a very high income from other sources such as parking, to set a very low level of council tax. This is not a policy choice open to many of the most deprived communities, whose local residents are also far less able to pay this regressive tax.  

This has created the absurd situation where an average family house the North East has a higher council tax bill than a multi-million-pound mansion in Westminster. While there are clear arguments for major reforms to council tax, including potentially replacing it with another tax, the most important short-term goal should be to make the current system as fair as possible. The proposals set out in the consultation are a major step to making this the case. Alongside a full reset of business rates growth, the end to the New Homes Bonus and the new Children's Services formula, they will result in a fairer system overall.  

The consultation also invites views on a proposal to project council tax levels during the settlement period. As the consultation states, doing that would ensure that ‘places less able to raise tax locally are not left behind'. This could be easily done on the stable historical records and would create a fairer system and reduce the risk of cliff-edges whenever there is an update to the system.   

While the redistribution within the settlement is very welcome, the funding levels set out at the Spending Review in June will mean that the sector remains under severe pressure, with funding very tight for local government over the next three years. Councils play a major role in preventative work, saving money and reducing demand for other key public services. We also play a crucial role in driving economic growth. Any additional funding for local government would be well spent and deliver significant benefits to the Government's growth mission as well as improvements in other key services, such as the NHS.  

We welcome the Government's view of local government as a partner; however, in order for local government to provide this support, an increase to the overall funding pot at the upcoming settlement is crucial. 

 Cllr Sir Stephen Houghton, Chair of the Special Interest Group of Municipal Authorities (SIGOMA) 

You can access the full article in the MJ here.