Now Council Tax is forecast to rocket: Homes may face 5% increases for the next three years

Council task could rise by up to five per cent each year for the next three years in order to pay for long awaited social care reforms.

The Institute for Fiscal Studies (IFS), a think-tank, warned that under current Government spending plans, a rise of at least 3.6 per cent would be needed each year just for town halls to keep services running at pre-pandemic levels.

However, researchers said this would likely be a minimum requirement, with extra costs and demand potentially pushing bills to rise by up to five per cent each year until 2024/25.

IFS said that social care reforms announced by the Government last month are underfunded and would cost £5billion annually in the long term – almost three times the additional funding so far allocated over the next three years.      

The stark warning comes in a pre-released chapter of the IFS green budget, the rest of which will be launched closer to the planned Budget and spending review later this year. 

‘The Government has stepped up with billions in additional funding for councils to support them through the last 18 months, it is likely to have to find billions more for councils over the next couple of years if they are to avoid cutting back on services, even if they increase council tax by four per cent a year or more,’ Kate Ogden, a research economist at IFS and an author of the chapter, said.

The Local Government Association (LGA) said councils need an extra £8billion by 2024/25, largely due to an ageing population that means more will need social care [Stock image]

The Local Government Association (LGA) said councils need an extra £8billion by 2024/25, largely due to an ageing population that means more will need social care [Stock image]

The Local Government Association (LGA) said councils need an extra £8billion by 2024/25, largely due to an ageing population that means more will need social care [Stock image]

‘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.

‘At the same time, Government needs urgently to deal with a local government funding system which is becoming hopelessly out of date, being based on population levels and characteristics in 2013.

‘This results in manifest unfairnesses in the distribution of resources between councils.’

The IFS said that council tax rises alone would not be enough to deal with the pressure, with a £2.7 billion funding gap in 2022/23 even with a  four per cent increase on bills in April 2022.

The £5.4billion allocated over three years for social care reform ‘is unlikely to be sufficient to meet the Government’s stated aims in full’.

David Phillips, an associate director at IFS and another author of the chapter, said: ‘The funding announced by Government so far is unlikely to be enough to meet all of its objectives, in either the short or longer term.

‘Without sufficient funding, councils may find themselves having to tighten the care needs assessments further in order to pay for the care cost cap and more generous means-testing arrangements.’

The Local Government Association (LGA) said ministers would not be able to rely on council tax rises alone. 

‘Councils continue to face severe funding and demand pressures that will stretch the local services our communities rely on to the limit,’ James Jamieson, LGA chairman, said.

‘Securing the long-term sustainability of local services must therefore be the top priority in the spending review.

‘The significant financial pressures facing local services cannot be met by council tax income alone.

‘Councils are particularly alarmed that the Government’s solution for tackling social care’s core existing pressures appears to be solely through the use of council tax and the social care precept.’

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.’

What are the higher costs coming down the track for Britons over the coming years? 

National insurance rise – from April 

The rates of national insurance are due to be pushed up by 1.25 percentage points from April, in a move that will cost households hundreds of pounds. 

The move will raise £12billion a year, which will initially go on bailing out the NHS and clearing backlogs after the pandemic. However, in the longer term it is meant to be used for social care.

Boris Johnson has promised that no-one will pay more than £86,000 towards their care costs. However, that does not include accommodation and some other costs, with fears of a ‘postcode lottery’ as local authorities set different rules.  

Initially the hike will look like a NI rise on pay slips, but later it will be billed a ‘health and social care levy’. 

Ministers insist it is fairer than other tax options because it falls on business as well as individuals.

To raise the equivalent amount in income tax would require an increase in individuals’ tax of 2 percentage points.

A typical basic rate taxpayer earning £24,100 will contribute £180 in extra NI in 2022/23.

A higher rate taxpayer earning £67,100 will contribute £715. For the first time, the NI will be charged on people working over the state pension age of 66.

Universal credit – £20 uplift ends 6 October 

The Government introduced a temporary £20 increase to universal credit payments in response to the pandemic in April last year, but the scheme is set to officially end on 6 October. 

Close to six million people currently claim universal credit, almost double the three million before the pandemic, with almost 40 per cent of them classed as being in employment. 

Thanks to the boost, a single person aged 25 or over has gone from earning £317.82 to £409.89 a month, a difference of £23 a week or £1,104.84 a year.

In that case, the £23 a week boost made up more than a fifth of the amount they were paid. 

Citizens Advice has warned that a third of people on universal credit will end up in debt when the uplift is removed, with the average shortfall set to be of around £50 a month. 

Research by another charity, Turn2us, has found that over half of people on universal credit will struggle to pay their bills when the cut comes into effect, with a further one in four unable to afford their rent or mortgage payments. 

‘Due to the way Universal Credit is tapered as earnings increase, it’s not just a case of people picking up an extra couple of hours of work to help fill the gap, instead they will likely have to make tough decisions about what to pay for and what to cut from the household costs,’ notes Laura Suter, head of personal finance at AJ Bell.

‘Anyone who will be hit by the cut should check they’re getting all the benefits they’re entitled too – Citizens Advice is a good first port of call for help navigating the system.’   

Thomas Lawson, chief executive at Turn2us, said: ‘The £20 per week cut to Universal Credit was already going to leave many families struggling to keep up with the cost of living. 

‘This, now combined with a sudden surge in energy prices, could spell disaster and plunge thousands more people into financial insecurity or even poverty; especially those of us whose financial resilience has been worn away by the pandemic.’

Green revolution – coming years 

Homeowners are set to be hit with a new environmental tax on gas as ministers try to force them to abandon the fuel in favour of green alternatives.

Climate change levies currently added to domestic electricity, which average £159 per year, are expected to be axed and new payments added to gas to entice people to replace their central heating boilers and cookers.

The move is intended to encourage the take up of heat pumps and other electric alternatives as they seek to make the UK net zero for carbon emissions by 2050.

Ministers insist the change will mean no overall increase to bills and could help increase the take-up of electric cars as it become cheaper to charge them at home.

However critics doubt that will be the case, and the change comes at a time when UK gas prices have hit a record high.

Mr Johnson has also pledged to make all the UK’s electricity supplies ‘green’ by 2030, although again the government argues this will cut prices for households rather than increase them. 

Stamp duty holiday – already over

The full stamp duty holiday came to an end in June, with the nil-rate band – the portion of a property purchase buyers don’t need to pay stamp duty on – reduced from £500,000 to £250,000.

The tax break, which saved buyers up to £15,000 on their house purchases up until then, was cut back, with the maximum saving currently capped at £2,500. 

But from the 1 October, that went too, as the nil-rate band will revert to the normal £125,000.

Stamp duty has been blamed for pushing house prices higher over the past year, with many experts anticipating a drop in demand, and hence prices, after its end. 

And demand did indeed fall off a cliff between June and July, with the number of property transactions plummeting by 63 per cent, according to official figures from HMRC. 

But many believe prices will hold up well in the coming months thanks to cheap mortgages and demand continuing to be driven by people looking to relocate to larger homes in the countryside in the wake of the pandemic.

‘While there is likely to be a surge of property purchases pushed through before the deadline and a small drop in the month after, the early signs are that the property market isn’t headed for a large crash – particularly while borrowing is still so extraordinarily cheap,’ Suter said.

VAT reduction – already over  

The reduced VAT rate on food and soft drinks for hospitality businesses was introduced during the pandemic to help out struggling pubs and restaurants, and has been extended a couple of times. 

However, it will now come to a close at the end of the month – and could see businesses hike prices to customers.

On 30 September 2021 the current 5 per cent reduced rate will rise to 12.5 per cent, which will last until 31 March 2022, when it will rise back to the old standard rate of 20 per cent.   

‘Many hotels and restaurants decided to keep this reduction for themselves rather than pass it on to customers, to help shore up their finances post-pandemic,’ said Suter.

‘With food and energy costs rising it has provided a cushion for businesses and may have helped them put off increasing prices. 

‘But once the rate shoots back up it will be another squeeze on margins for businesses and means we’ll probably see higher prices when going out to eat or booking a trip away.’

Energy price cap – from October 1

On top of seeing much of Government support scrapped, many families and businesses are also facing rising energy bills thanks to the energy price cap.  

Some 11 million households on their suppliers’ default energy tariffs will see an increase of £139 a year to £1,277, while bills will also increase by £153 to £1,309 a year for 4 million pre-payment meter customers.  

The increased bills will start from 1 October and last for the following six months until the cap is reviewed again.

‘Usually you’d be far better off getting off your provider’s standard variable tariff and locking in a fixed-rate deal, but the energy market is so barmy at the moment that no one is offering a fixed deal for a cheaper price than the energy cap,’ Suter says.

‘This means everyone needs to face up to rising energy bills, just as we head into the colder months.

‘If your deal has ended you need to weigh up whether you want to secure a fixed-rate deal now, at a higher cost than your current price, with the expectation that you’ll be protected from rising energy prices. 

‘Or you can stick with the energy price cap rate and gamble that recent gas price rises end soon.’

Households struggling to pay their bills can also contact their supplier or ask for help from a debt advice charity.   

Rising inflation and food costs

Inflation fears were fuelled again this month, when the headline CPI rate recorded its largest jump ever in August to 3.2 per cent – with the Bank of England predicting it could soar above 4 per cent by the end of the year. 

Contributing to the rise was a jump in the price of food and drinks, partly as a result of the supply chain crisis gripping the country.

Food and non-alcoholic drink prices rose 1.1 per cent between July and August, and by 0.3 per cent over the year, according to the latest figures by the Office for National Statistics. 

The average price of a pint in the pub across the country could soon pass £4, the ONS said. 

Last year, the average household spent £277 a month on food expenses, but the latest inflation reading suggest this could increase to £285 a month this year, according to analysis by Royal London. 

‘Anyone who has been to the supermarket recently will have noticed that their weekly bill has been rising,’ said Suter. 

‘A combination of shipping issues, driver shortages, supply chain issues and a leap in demand have all lead to a spike in prices – in July we saw the largest monthly rise in food costs. 

‘While you can’t directly combat rising prices, you can reduce your food bill. There are lots of offers out there for using online grocery delivery services for the first time, which can get decent discounts on a shop. 

‘Or you can go back to the old fashioned methods of sticking to your list, meal planning and budgeting.’

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