Councils in London and the South East face having funding slashed as ministers are accused of ‘fiddling’ the system to prop up Labour heartlands.
A new funding formula in England will see central cash diverted to the most ‘deprived’ areas, heaping pressure on better-off authorities that have previously managed to keep bills under control.
Five London authorities with ‘historically low’ council tax levels will have the 5 per cent cap on increases removed for the next two years, as ministers urge them to charge more.
Other town halls that currently have below average levies are being told they can apply for ‘exceptional’ permission to break the long-standing limit.
Overall, English councils will receive £78billion for essential services next year as part of a new multi-year funding settlement, which sets out local government finances for the three years up to 2029.
According to the Ministry of Housing, Communities and Local Government (MHCLG), councils will see an increase of 23 per cent in their core spending power compared to 2024-25 by the end of the multi-year settlement.
This can be used to pay for services like bin collections, housing and children’s services.
The Tories condemned Labour’s plan as ‘fiddling’ the figures, accusing the Government of a ‘nakedly political power grab’.
But local government secretary Steve Reed said: ‘This is a chance to turn the page on a decade of cuts, and for local leaders to invest in getting back what has been lost – to bring back libraries, youth services, clean streets, and community hubs.
‘Today we’re making sure every community has the funding they need to succeed.’
An updated funding system aims to make more money available for areas with the greatest need, with the most deprived 10 per cent of councils seeing a 24 per cent per head boost.
Details of the settlements for specific councils are due to be announced later on Wednesday.
County and district councils – many of which are already teetering on the brink of bankruptcy – have already warned they will face huge pressure to hike levies in order to make ends meet.
The Government argues that some councils benefit disproportionately from the existing system, enabling them to build up financial reserves while others ‘struggle to cope’.
Unveiling the new system last month the Ministry for Housing, Communities and Local Government (MHCLG) said ‘taking account of the differing ability to raise funds’ would mean ‘all local authorities will be able to provide the same level of service to residents’.
The five London authorities having the 5 per cent cap on increases waived are Wandsworth, Westminster, Hammersmith and Fulham, City of London, Kensington and Chelsea, and Windsor and Maidenhead.
MHCLG said 500,000 households in these areas already have ‘very low bills’, with a typical Band D paying between £450 and £1,280 a year less than the average for England.
The funding reforms are part of a wider effort to ‘fix the foundations of local government’ under the Government’s plan for change.
This includes consolidating grants, reducing bureaucracy and enabling councils to invest in prevention to tackle the root causes of rising costs through reforming children’s social care and a new homelessness and domestic abuse grant, the department said.
Tendring, Blackpool, Rotherham and Hastings are among the areas highest on the deprivation rankings that will help dictate funding.
Is it fair for wealthier areas to face higher council tax to fund services in more deprived regions?
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Senior Tory MP Sir James Cleverly, the shadow local government secretary, said: ‘Labour say they want to make local government funding ‘fair’, but are instead launching a nakedly political power grab.
‘The Government is fiddling the funding model to punish councils that keep council tax low and moving funding to badly-run Labour councils that spend irresponsibly.
‘Inevitably, councils that lose out will be forced to cut services or raise tax – and with referendum principles scrapped, those hikes will be big.
‘This is part of Labour’s mission to hike council tax across the board. Hidden behind their rhetoric about supporting local government is a council tax bombshell, with the average family in a Band D home facing a cumulative £1,143 council tax increase across this Parliament.
‘Under Labour, ordinary people are paying more for less. Only the Conservatives will keep tax on the family home down and ensure residents get a fair deal across the country.’
A Labour source said: ‘The days of Rishi Sunak shovelling money to Tunbridge Wells then bragging about it at garden parties are over.
‘Deprivation is now back at the heart of council funding. The places that were devastated by Tory austerity will get the support they need to get back on their feet.
‘This is the difference a Labour Government makes.’
The settlement announced on Wednesday also includes other changes, including letting councils keep all additional council tax from new homes to encourage local growth and home ownership.
The £600 million Recovery Grant introduced last year will continue throughout the three-year settlement, which aims to help areas hit hardest by underfunding.
A new Recovery Grant Guarantee will also protect upper-tier councils receiving this money, giving them above-inflation increases while they adapt to the new funding system.
