Council tax bills are set to rise at their fastest rate for two decades in the wake of Rachel Reeves’ spending review, according to the head of the Institute for Fiscal Studies.
Paul Johnson said that local government in England did “perhaps a little bit better than it might have expected” out of the Chancellor’s statement on Wednesday, but the “sting in the tail” is the assumption that “council tax bills will rise by 5% a year” as part of the funding.
The core spending power of councils is set to increase by 2.6% a year from next year, and “if English councils do choose 5% increases – and most almost certainly will – council tax bills look set to rise at their fastest rate over any parliament since 2001-05”, Mr Johnson said on Thursday.
On Wednesday, Ms Reeves said that ministers will not be “going above” the 5% annual increases in council tax.
She told ITV: “The previous government increased council tax by 5% a year, and we have stuck to that. We won’t be going above that.
“That is the council tax policy that we inherited from the previous government, and that we will be continuing.”
The biggest winner from Wednesday’s statement was the NHS, which will see its budget rise by £29 billion per year in real terms.
Ruth Curtice, the chief executive of the Resolution Foundation, has said that Britain is turning into a “National Health State”.
Overnight, the think tank said Ms Reeves’ announcements had followed a recent trend that saw increases for the NHS come at the expense of other public services.
Ms Curtice said: “Health accounted for 90% of the extra public service spending, continuing a trend that is seeing the British state morph into a National Health State, with half of public service spending set to be on health by the end of the decade.”
Defence was another of Wednesday’s winners, Ms Curtice said, receiving a significant increase in capital spending while other departments saw an overall £3.6 billion real-terms cut in investment.
The Institute for Fiscal Studies (IFS) made similar arguments about “substantial” investment in the NHS and defence coming at the expense of other departments, although Mr Johnson warned on Wednesday the money may not be enough.
In his snap reaction to the review, Mr Johnson said: “Aiming to get back to meeting the NHS 18-week target for hospital waiting times within this Parliament is enormously ambitious – an NHS funding settlement below the long-run average might not measure up.
“And on defence, it’s entirely possible that an increase in the Nato spending target will mean that maintaining defence spending at 2.6% of GDP no longer cuts the mustard.”
Ms Curtice added that low and middle-income families had also done well out of the spending review “after two rounds of painful tax rises and welfare cuts”, with the poorest fifth of families benefiting from an average of £1,700 in extra spending on schools, hospitals and the police.
She warned that, without economic growth, another round of tax rises was likely to come in the autumn as the Chancellor seeks to balance the books.
She said: “The extra money in this spending review has already been accounted for in the last forecast.
“But a weaker economic outlook and the unfunded changes to winter fuel payments mean the Chancellor will likely need to look again at tax rises in the autumn.”
Speaking after delivering her spending review, Ms Reeves insisted she would not have to raise taxes to cover her spending review.
She told GB News: “Every penny of this is funded through the tax increases and the changes to the fiscal rules that we set out last autumn.”
