Thousands of London’s poorest residents will have to pay council tax for the first time due to the extent of the cash crisis in the capital’s town halls.
At present, many pensioners and the worst-off working age Londoners are exempt from paying any council tax due to the extent of their poverty.
But 15 of the 33 boroughs are looking to make changes to their “council tax reduction schemes” as they desperately try to curtail their spending amid a series of major financial challenges, The Standard has learned.
These include the fear of not being fully reimbursed by the Government for the impact of Chancellor Rachel Reeves’ hike in the amount of National Insurance paid by employers, and an inflation-busting hike in the London living wage.
The soaring cost of providing temporary accommodation – which costs London councils a total of £4m a day – and a 10 per cent hike in the cost of paying for Freedom Passes to provide older Londoners with free travel will also drain town hall coffers.
The vast majority of the 33 boroughs are expected to increase their share of council tax bills by 4.99 per cent from April, though Newham is seeking an exceptional 9.99 per cent hike to avoid going bust.
Islington and Tower Hamlets have both announced plans for a 4.99 per cent increase. This would add about £60 to average bills in Tower Hamlets and about £72 to average bills in Islington.
Tower Hamlets is giving school uniform grants as part of its spending.
Kaya Comer-Schwartz went from Islington council leader to Sir Sadiq Khan’s deputy mayor for policing and crime (Islington Council)
Islington – whose last two Labour leaders, Richard Watts and Kaya Comer-Schwartz, have been recruited by London mayor Sir Sadiq Khan to top jobs at City Hall – also announced plans to cull 10 per cent of its workforce over the next three years, at first by not replacing departing staff and cutting agency workers.
Islington Council said: “To ensure that the council can continue to provide frontline services to those that need them most, the budget proposes a 10 per cent reduction in the council’s staff count over the next three years – starting with a 2.5 per cent reduction this year through vacancy management and reducing agency spend – alongside changes to ensure the organisation runs as efficiently as possible.”
Sir Sadiq is due to announce later on Wednesday his draft council tax “precept” for the Greater London Authority that is levied on households across the capital.
At present it is £471 but is likely to approach £500 for a benchmark band D home – increasing the number of boroughs that issue total demands in excess of £2,000 a year.
Boroughs have set their own council tax reduction schemes since 2013. The amount of help they provide to poor pensioners is refunded by the Government but councils have to fund the exemptions to working-age residents from their own resources.
In boroughs such as Camden, where there are 85,000 “financially vulnerable adults”, this equates to the town hall effectively getting no council tax from about 17,350 properties.
But, under an apparent tightening of its eligibility rules, the number of properties in Camden that will pay no council tax will reduce by more than 1,000 to the equivalent of 16,222 properties from April.
In Sutton, the proposed changes to its scheme will mean that every household – other than those occupied by the poorest pensioners – will be required to pay at least five per cent of their council tax bill.
A briefing to Sutton councillors states: “A survey of other London Boroughs has found that 15 local authorities (just under half of all London boroughs) are looking to make changes to their council tax reduction scheme in 2025/26 to help address the financial challenges faced by the majority of London boroughs.”
Tower Hamlets said the amount it generated in business rates had fallen as a result of commercial properties being revalued downwards or being vacant. An increase in student properties – which are exempt from council tax – also reduced its income.
It said the increase in the London Living Wage, from £13.15 to £13.85 an hour, “will trigger adult social care pressures for councils”, in addition to an annual 2.5 per cent pay rise for council staff.
Tower Hamlets says its council tax reduction scheme “will remain unchanged” for 2025-26, “meaning residents with the lowest incomes will continue to pay no council tax at all”. More than 20,600 Tower Hamlets residents are exempted from council tax under the scheme.
Hammersmith and Fulham also plans to retain its council tax benefit scheme in full, “with 100 per cent support available to those on the lowest incomes”.
Sutton spends £14.5m on its council tax exemption scheme – £9.5m for about 7,700 working age households and the remainder on pensioner households.
It will move to a “more targeted scheme” that reduces the overall cost. This will include capping the discount available at the band C council tax rate and removing the 100 per cent exemption, “meaning every household will pay at least five per cent council tax, including those out of work and on a disability benefit”.
Richmond also plans to change its council tax benefit scheme, as most working-age residents receiving the maximum discount will move to universal credit.
As a result, the council tax benefit will be banded – which is expected to result in about 355 households being “adversely affected”.
Richmond currently spends £13.2m a year on the scheme, providing help to almost 8,000 pensioners and working-age residents.
A Richmond council document said: “There are 15 London Boroughs (excluding Richmond) planning to make changes from April 1, 2025.
“Eight of these are already banded schemes, with seven looking to reduce the cost of their schemes.
“The remaining seven are means-tested schemes, with two proposing to move to banded schemes. Six out of seven of these are proposing to increase levels of contribution to reduce the cost of their schemes.”