Tax by tax, spend by spend

Council tax

This Forecast in-depth page has been updated with information available at the time of the March 2024 Economic and fiscal outlook. We are aware of a technical issue with our tableau charts across the site. Access the data from our March 2024 forecast supporting spreadsheets directly.

Council tax is levied on residential property on an annual basis, based on the value of that property.

In 2024-25 we estimate that council tax will raise £46.9 billion (net of any discounts and reduction schemes). That represents 4.1 per cent of total receipts and is equivalent to around £1,620 per household and 1.7 per cent of National Income.

To calculate council tax, properties are assigned to one of eight bands, A to H, dependent on their assessed value on 1 April 1991 (2003 for Wales). Rates paid for each band are a fixed proportion of the band D rate, which is determined by each local authority. Discounts are available for single person households, and some other households, while others are exempt. In addition, council tax reduction schemes are available to people on low incomes: in England these schemes are uniform for pensioners, but vary between local authorities for other households.

Council tax funds around a quarter of total local authority current spending, and is the largest element of ‘local authority self-financed expenditure’ (i.e. that which is not financed by various grants from central government). In our forecast we effectively assume that all council tax revenues are spent, so council tax is broadly neutral for borrowing as it is offset in our spending forecast. (There is a small difference between the two due to local authority spending financed by council tax receipts being recorded on a cash basis and receipts being recorded on an accrued basis in the National Accounts.)

  Forecast methodology

Forecast process

The OBR commissions forecasts of council tax receipts from the Department for Levelling Up, Housing and Communities (DLUHC) for each fiscal event. The forecasts start by using local authorities’ in-year estimates for receipts in the current year, with forecasts for growth in the council tax base and increases in levels being applied to that starting point. We provide DLUHC with economic determinants and other assumptions that are used to generate the tax forecasts. These forecasts are then scrutinised by OBR staff and the Budget Responsibility Committee.

Forecast models

Council tax receipts are forecast by predicting yearly percentage increases in council tax levels as well as the council tax base. Growth in the council tax base is relatively stable, with changes determined by government policy or our policy-neutral assumptions for the years beyond which policy is currently explicitly set.

The English council tax (cash) receipts model involves three steps:

  • First, we estimate the size of the tax base. The council tax base is the total number of band D equivalent dwellings liable for council tax after discounts, exemptions and premia (the total number of dwellings on the valuation list is subject to a range of discounts and exemptions that reduce the effective tax base). A series of simple assumptions underpin the forecasts for the different discounts and exemptions, aside from the forecast for the localised council tax reduction scheme, which is linked to our forecasts for relevant Department for Work and Pensions (DWP) benefit caseloads. The tax base calculations use four underlying data sources: council tax base data; our economy forecast assumption for the rate of dwellings growth; our forecasts for relevant DWP benefit caseloads; and assumptions around average reductions per claimant, based on recent trends. The model works by forecasting each of the separate components and then combining these to arrive at the overall percentage growth in the tax base.
  • The next step is to forecast growth in council tax levels. Typically, DLUHC council tax levels forecasts are informed by known referendum principles and announcements in the media (relevant in our spring forecasts) and/or by examining trends in recent behaviour (for example, the extent to which authorities have made use of the flexibilities in uprating policy available to them and how much scope they have to utilise these flexibilities in future years). For the years in which firm policy is not currently set, our policy-neutral assumption is that levels will grow by 4.8 per cent – consistent with a 5 per cent rate increase principle (in line with our CPI inflation forecast, as per current government policy) multiplied by an assumed 95 per cent uptake.
  • The council tax requirement and local authority forecasts for the current year (published by DLUHC) are used as sources for total receipts in the jump-off year, with the forecast growth rates for the base and levels applied to this starting point. Overall council tax receipts are calculated by growing this starting point in line with growth in the base and levels forecasts.

The receipts forecasts for Scotland and Wales are both based on what authorities in these countries have announced for the year ahead and simple assumptions about base and levels growth thereafter.

To convert the cash receipts forecast onto an accrued basis consistent with the ONS treatment, we add a council tax accruals adjustment forecast (based on a simple model of recent trends). Council tax net receipts (shown in a supplementary table on our website) are arrived at by adding a forecast of Northern Irish domestic rates to the accrued receipts forecasts for Great Britain.

Main forecast determinants

The main determinants of our council tax forecast are those related to the tax base:

  • Growth in the number of dwellings – used to determine the rate of growth of the band D equivalent housing stock that is eligible to pay council tax.
  • Relevant DWP benefit caseloads – a factor used to determine assumptions around the rate of growth in spending on one of the key discounts and exemptions: namely, the localised council tax reduction scheme.

Main forecast judgements

There are 343 local authorities in England alone, so gathering intelligence on each individual local authority is not feasible. We rely heavily on historical trends and departmental and sectoral expertise to try to determine likely future behaviour. The most important judgements in our council tax forecast are:

  • Effects of central government policy – this involves judgements around the extent to which local authorities will take up the full flexibilities offered by new government policy on, for example, uprating limits (e.g. the referendum limit or additional funding for adult social care in England).
  • Growth in the council tax base – this involves judgements about the number of taxable properties, particularly the growth in groups eligible for exemptions – for example, trends in student numbers and the rate of second home ownership. The effects of localised reduction schemes is an area of significant uncertainty, as they vary in scope and generosity across authorities. Assumptions on the reduction scheme are linked to our forecasts for relevant DWP benefit caseloads.

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  Previous forecasts

The relative stability of the tax base means larger forecast-to-forecast revisions have tended to reflect changes to central government policy on uprating – e.g. the decision to allow councils to raise taxes without the need for a referendum by up to 5 per cent. The main uncertainty in the base forecast is the extent to which growth will change due to localised reduction schemes (which vary in scope and generosity across authorities and are still evolving).

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  Policy measures

Council tax-related policy measures are not always reported on the Treasury’s policy ‘scorecard’ at Budgets and other fiscal statements, in part because they are often close to neutral for borrowing because they affect both receipts and local authority spending.

Since our first forecast in June 2010, governments have announced 10 scorecard policy measures affecting our forecast for council tax. The original costings for these measures are contained in our policy measures database and were described briefly in the Treasury’s relevant Policy costings document. For measures announced since December 2014, the uncertainty ranking that we assigned to each is set out in a separate database. For those deemed ‘high’ or ‘very high’ uncertainty, the rationale for that ranking was set out in Chapter 3 (previously Annex A) of the relevant EFO. These policy costings include:

  • A one-year freeze to council tax levels in 2011-12 announced in Budget 2010.
  • An increase in council tax to fund adult social care, phased in from 2016-17 and announced in November 2015, which allowed authorities with social care responsibilities to raise council tax at a faster pace, in order to meet some of the costs associated with adult social care.
  • Autumn Statement 2022 announced new referendum limits for council tax with a core referendum principle of 3 per cent rate increases for all local authorities, and an additional 2 per cent Adult Social Care (ASC) precept for local authorities with responsibility for social care.
  • In Spring Budget 2023, the Government allowed three councils facing significant budgetary pressures to increase their tax rate above the 5 per cent limit without a referendum for 2023-24. Since then, four councils were also allowed waivers to the council tax referendum limits in 2024-25.

In addition, there have been several policy changes that governments chose not to report on scorecards. These include:

  • An increase in the police authority referendum principle threshold, announced in March 2019. This raised the amount by which English police and crime commissioner authorities are able to increase council tax without the requirement of a local referendum (from £12 to £24 a year).
  • Central government policy capping the year-to-year percentage increases in council tax levels. This included strict caps and then the requirement for authorities to hold local referendums on increases above a certain level (and subsequent changes in these referenda limits – for example, in our March 2018 forecast).
  • Additional funding for adult social care, announced in Spring Budget 2017, allowing faster council tax rises to finance higher local authority spending on adult social care. This change provided authorities with additional flexibility to increase council tax levels to fund adult social care more quickly than was previously permitted under the original policy (announced in November 2015): instead of being capped at increases of 2 per cent a year above and beyond ‘core’ increases, this change permitted upper-tier authorities to increase council tax levels by an additional 3 per cent a year in 2017-18 and 2018-19 (within the constraint of being limited to a maximum increase of 6 percentage points over the period 2017-18 to 2019-20).
  • In the 2022 Spring Statement the Government announced £2.9 billion of funding to pay for its £150 council tax rebate. For direct debit payers the rebate is deducted automatically, for others it relies on them being contacted by their council and “invited to make a claim”.

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