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Councils warn they’ll STILL go bust or slash companies regardless of Angela Rayner signing off inflation-busting tax rises – with Labour city halls allowed largest hikes

Councils are warning they are in a perilous financial position – and might still be forced to slash services – despite being granted inflation-busting tax rises.

Deputy Prime Minister Angela Rayner has signed off on council tax hikes beyond normal thresholds this year for millions of households.

Six councils in England have been granted permission to increase council tax beyond the established annual 4.99 per cent cap.

Windsor & Maidenhead Borough Council had a request to be allowed a 25 per cent increase rejected – but will be able to impose a 8.99 per cent rise.

Newham Council in east London has been granted the same dispensation, while Bradford Council is being permitted 9.99 per cent.

Birmingham City Council, Somerset Council and Trafford Council can increase the levy by 7.49 per cent.

Most other town halls are thought to be planning increases at the maximum 4.9 per cent. Bradford, Newham, Birmingham and Trafford are all under Labour control.

Ms Rayner, the Housing, Communities and Local Government Secretary, said the Government had ‘not taken lightly’ the ‘difficult decisions’ to green-light council tax rises way above the current CPI rate of inflation of 2.5 per cent.

Tory leader Kemi Badenoch accused PM Sir Keir Starmer of ‘another Labour broken promise’ after he said in 2023 he would have frozen council tax for a year if he had been in power.

And there were claims, despite the huge tax increases, that some councils could still be forced to cut local services to stave off going bust.

As well as the permission for above-normal council tax rises for a string of town halls, Ms Rayner also announced councils will have access to more than £69billion in funding this year.

This is a 6.8 per cent increase in cash terms compared to 2024-25.

But Louise Gittins, chair of the Local Government Association, said: ‘Extra money for councils next year, including compensation for employer national insurance contributions increases, will help meet some of the cost and demand pressures they face but still falls short of what is desperately needed to cover them all.

‘This financial year therefore remains extremely challenging for councils of all types who now face having to increase council tax bills to bring in desperately needed funding next year yet could still be forced to make further cuts to services.’

She added: ‘Councils also recognise that having to increase council tax places yet more financial burden on households.

‘We remain clear to Government that it is not the answer to meeting the long-term pressures facing high demand national services.’

Barry Lewis, finance spokesperson for the County Councils Network (CCN), said the local government finance settlement announced by Ms Rayner was ‘disappointing’ and ‘sets up a difficult twelve months for those authorities’.

He added: ‘Compounding this is the increase in the national living wage and employers’ national insurance, with the costs of these policies outweighing any additional funds made available in this finance settlement for county and unitary councils.

‘Consequently, more than four in five CCN members say they are in a worse position than before the Autumn Budget and this finance settlement, and one third say their service reductions next year will now be severe.

‘Considering there is very little fat left to cut from many of these services already, a further reduction will have a material impact on our residents.’

Deputy Prime Minister Angela Rayner has signed off on council tax hikes beyond normal thresholds this year for millions of households

Deputy Prime Minister Angela Rayner has signed off on council tax hikes beyond normal thresholds this year for millions of households

Windsor & Maidenhead Liberal Democrats, who are in control of the local council, hit out at the Government’s decision to reject the request for a 25 per cent tax hike.

They said an 8.99 per cent rise ‘will be more affordable for residents’ but means the council’s financial situation ‘will not improve this year’.

‘This is because RBWM (Royal Borough of Windsor and Maidenhead) will still need to spend the equivalent of the originally proposed 25 per cent increase and will now have to fund the difference by further increasing our borrowing,’ their statement said.

‘The effect of this will be to increase our debt and consequently increase our borrowing cost in the coming year and beyond. This situation is unsustainable.’

They added: ‘For their own reasons, Labour have decided to force us to borrow more, increasing debt and costing residents more in the medium term.

‘Increasing debt does not resolve the council financial situation but does allow us to set a balanced budget for one year.

‘This decision from Labour defers the full resolution of the council’s financial situation to the future.

‘This will necessitate further above cap increases in future years, increases debt and creates a massive a financial burden on residents in the future.’

Somerset Council said its 7.49 per cent increase ‘will not raise enough money to fill the gap’ in its budget and would ‘again be reliant on a capitalisation direction’.

‘This is a form of one-off assistance offered last year which allows councils to sell assets or borrow money and use the proceeds to fund the budget gap and the day-to-day running costs,’ they added.

Trafford Council leader Tom Ross said: ‘We understand the financial pressures that many of our residents are facing and we have not made the decision to seek to increase council tax lightly.

‘However, we have no option if we are to get the council on a firmer financial footing, ensure we have a plan to rebuild our finances and to address the structural financial deficit.’

Bradford Council leader Susan Hinchcliffe said: ‘This decision to request a one-off increase in council tax beyond the usual 4.99 per cent was not taken lightly.

‘None of us want to see an increase in council tax when other bills are also rising but we have a responsibility to make sure the council’s finances balance.’

Kate Ogden, senior research economist at the Institute for Fiscal Studies, said: ‘Overall, 2025–26 will continue the trend of substantial above-inflation increases in funding for English councils.

‘Unfortunately, their costs have also been outpacing inflation, and with a tighter outlook for funding from central government looming from 2026–27 onwards, tackling the demand and cost drivers impacting councils’ budgets is becoming increasingly urgent.’