MPs warn of “broken” link between council tax and quality of services

English councils are being asked to deliver more services than ever but without adequate funding to do so effectively, MPs on the Housing, Communities and Local Government Committee have said, while calling for radical changes to council tax and auditing.

Details: 23.Jul.2025

Their report, The Funding and Sustainability of Local Government Finance, said the link between paying taxes and the quality of council services was “broken” leading to growing dissatisfaction among residents, which risks undermining trust in local democracy.

The committee found the financial crisis in local government had been worsened by widespread cuts to preventative services.

Council tax had become “the most unfair and regressive tax in use in England today”, and although the report stopped short of calling for full revaluation it said individual councils should be permitted to do this for their areas.

MPs called on the Government to give local authorities powers to define council tax property bands, set the rates for those bands and apply discounts.

No revaluation has been made since council tax was launched in 1991 with its still-existing bands.

Committee chair, Labour’s Florence Eshalomi, said: “Government in England is overcentralised. The current financial pressures on local government are also driven largely by mandatory, high-cost, demand-led services, such as social care and SEND, where councils have little control over these needs.

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"Councils are trapped in a straitjacket by central government, with local authorities lacking the flexibility or control to devise creative, long-term, preventative solutions which could offer better value-for-money.”

Ms Eshalomi said reform of council tax should be a greater priority for the Government, and in the long-term HM Treasury should devolve tax-setting powers to local authorities, such as for tourist levies.

Devolving powers to local level “must be part of any fix to the local government finance system”, with central government ringfencing of funding replaced with a rigorous outcomes-based system of accountability,

The report said councils lacked adequate warning of financial problems because ”local audit has been in a state of crisis for many years” with a backlog up to seven years recorded in 2023.

It said the government had adopted most of the committee’s earlier recommendations on this and if local audit could be made to work again it would ”be a vital component in the system of early warnings that can alert the Government to issues of concern and areas of financial distress”.

Further reforms were though needed as “significant resources are still spent to comply with requirements that were written for the private sector and that do not apply to public sector bodies like local authorities”.

Cllr Pete Marland, chair of the Local Government Association's Economy and Resources Board and Labour leader of Milton Keynes Council, said: “This report provides further evidence that local government finances remain in a fragile position.

"Greater financial certainty and a simpler funding system are important. However, all councils remain under pressure and face having to increase council tax bills to try and protect services at the same time as making further cutbacks.

“A sustainable, long-term financial model for local government must lead to all councils having adequate resources to meet growing cost and demand pressures.”

Mark Smulian