Households in Birmingham could face a council tax rise of nearly £200 on average next year following the effective bankruptcy of the city.
The Chancellor Jeremy Hunt is expected to use the Autumn Statement to allow councils to raise council tax by nearly 5 per cent but residents in Birmingham could see their bill go up by 10 per cent.
Senior local government sources have told i that Birmingham City Council, which issued a Section 114 notice in September and is now run by Government-appointed commissioners, is in talks with the Government over an additional rise in the household tax.
Should the council win the right to increase council tax by 10 per cent, residents on the average Band D payment could see their annual bills rise £190.57 to £2,096.30.
A household on the lowest Band A bill would still pay an additional £127.05 a year, bringing their total bill to £1,397.53. Owners of homes in the highest Band H will would pay an additional £381.15, bringing their annual payment to £4,192.60.
Councils are limited to a rise of up to 4.99 per cent but can seek larger rises via a referendum of local people or by seeking “special consideration” from the Government.
Earlier this year Slough Council, which declared a Section 114 notice in 2021, was given permission by the Government to put up council tax by 10 per cent.
A senior figure in local government said: “While the Chancellor is likely to extend the ability for councils to raise council tax by just under 5 per cent, there are councils who have, in the past, requested the Government to allow them to make bigger rises due to specific financial difficulties.
“I understand Birmingham has approached the Government to raise council tax by 10 per cent or more and that we’ll hear about whether or not that request has been successful in the coming weeks.”
Birmingham, Europe’s largest council, fell into financial difficulties following equal pay claims totalling £760m, plus the £100m cost of a new IT scheme.
It was the seventh council to declare a section 114 notice in three years.
Birmingham residents are unlikely to be the only households paying a substantial increase in council tax.
Another local government source added: “We expect almost all, if not all, local councils to raise council tax by the 4.99 per cent allowed, meaning everyone in the country can expect bills to rise by an average of £120 per household.
“At a time when local councils are suffering a funding gap in the billions there’s little choice for any of them to do anything other than cut spending on public services as well as raising council tax bills.”
Another council that has been in financial difficulties is Kent County Council (KCC), where the authority’s external auditor has warned that it faces a potential Section 114 notice unless it makes savings of £86m by the end of its current financial year.
While looking to secure cuts in spending, the council is not seeking to raise council tax by the referendum limit of 4.99 per cent. However, Kent does not rule out seeking permission from the Government should its financial situation worsen further.
Peter Oakford, deputy leader of KCC and Cabinet member for Finance, Corporate and Traded Services told i: “Raising Council Tax in Kent by more than the maximum 4.99 per cent is not something that we are currently considering, and we are not in discussions with Government or asking for special consideration on increases above the referendum limit.
“KCC wants to avoid putting extra financial burden on our residents during what are already very difficult times.
“However, our finances are under very significant pressure, as we endeavour to keep critical frontline services running in the face of sharply rising costs and increasing demand.
“If urgent savings are not identified, from spending reductions and increased income, in order to ensure that we balance the budget in the remainder of this financial year, no measures can be totally ruled out.”
Pete Marland, chairman of the Local Government Association’s resources board, said: “Councils remain firmly in the eye of the inflationary storm and severe funding and demand pressures mean that council finances are under pressure like never before.
“None are immune to the risk of running into financial difficulty and others have already warned of being unable to meet their legal duty to set a balanced budget and are close to also having to issue Section 114 notices.
“The easy savings have long since gone. Councils are being faced with tough decisions about cutting valued services, increasing council tax and fees and charges during a cost-of-living crisis.”
A spokeswoman for Birmingham City Council said: “Our budget consultation process is yet to take place and therefore that we can’t comment on speculation.”
A spokesman for the Department for Levelling Up, Housing and Communities said: “Our last financial settlement for councils meant that local authorities saw an increase in Core Spending Power of up to £5.1 billion or 9.4 per cent in cash terms in 2022/23. This demonstrates how we are standing behind councils up and down the country to make sure they can continue to deliver vital services for local people.
“Councils are ultimately responsible for the management of their own finances. However, we stand ready to speak to any council that has concerns about its ability to manage its finances or faces pressures it has not planned for.”