Councils warn Rachel Reeves they could go bankrupt unless they can increase local taxes

Council leaders have written to Chancellor Rachel Reeves demanding the right to impose higher council tax increases and new charges such as local tourism taxes, to avoid "system-wide financial failure". Authorities are currently unable to raise council tax by more than 5% without holding a referendum of local voters, effectively making bigger increases impossible. But the Local Government Association (LGA) has told Ms Reeves that councils need "more freedoms on local taxes and charges".

In a submission ahead of the November 26 Budget, backed by Labour, Conservative, Reform and Liberal Democrat council leaders, the LGA said: "Councils need a significant increase in overall funding to stem the emerging risk of system-wide financial failure and to ensure that councils can meet demand for the vital services needed by their communities."

It follows a huge increase in the costs of social care and special needs education, and councils are set to face a funding gap of £8.4 billion by April 2029, the Chancellor was warned. Authorities now spend nearly £2 billion every year simply on providing transport for children with special educational needs and disabilities - oftebn by taxi, and the costs will increase further if the Chancellor goes ahead with her reported plan to impose VAT on taxis and private hire vehicles, the LGA warned.

The LGA is told Ms Reeves: "The Government should undertake a cross-party review of options to improve the system including widening the tax base by giving more freedoms on local taxes and charges. This has to include a review of council tax, including consideration of fairness in the system, alongside other council funding sources."

It comes after the LGA published a paper calling for an end to for council tax referendum limit, and for councils to be given powers to impose local sales taxes, tourist levies such as hotel room taxes, payroll taxes and new property taxes.

The average Band D council tax set by local authorities in England for 2025-26 will be £2,280, which is an increase of £109 or 5.0% on the 2024-25 figure of £2,171. Almost every local authority imposed the maximum increase allowed.

LGA chair Louise Gittins, LGA Chair, Labour leader of Cheshire West and Chester Council, said: "Council costs and demand for services are soaring - especially in children's and adult social care, homelessness, and SEND home to school transport - leaving significant potential overspends this year.

"The consequences are visible everywhere. Fewer neighbourhood services, reduced investment in prevention, and growing pressure on those who rely most on local support.

"When a system relies on emergency bailouts to function, it is fundamentally broken."

A Ministry of Housing, Communities and Local Government spokesperson said: "We're turning the tide on decades of underfunding in councils in England so we can give people the high-quality public services they deserve.

"We've made £69 billion available this year for councils - a 6.8% increase in cash terms - and will go further by fixing an outdated funding system so that money goes to places that need it most, and introducing multi-year finance settlements to give councils stability."