How could council tax change in budget – and who would be hardest hit?

Council tax is one of the biggest outgoings for many households – so reports of a shake-up that could add thousands to some annual bills are causing concern.

After abandoning a plan to increase income tax in the budget, Rachel Reeves is expected to rely on several smaller tax-raising measures to repair the public finances.

Of the ideas still on the table, one is some form of “mansion tax” that gets the owners of expensive homes in England to pay more.

A number of scenarios have emerged. One simply doubles council tax on properties in England’s top two bands (G and H). Another involves revaluing homes in the three highest tiers (F, G and H) and applying a surcharge to the top 300,000 by value across these bands.

Any such measure is likely to be very unpopular with those footing the higher bills, with the Financial Times reporting on Thursday that Reeves is facing pressure to scale back her plans from backbenchers whose seats would be hardest hit.

As council tax is a devolved matter, all of the figures in this article apply to England. However, any changes made by the chancellor could see other nations follow suit. Bills and bandings vary in Scotland and Wales, while Northern Ireland has a rates system.

How does council tax work?

The main sources of income for local authorities are government grants, business rates and council tax, with the latter funding about a quarter of total spending on services.

Rates are set locally, but annual rises are capped at 4.99% for councils with responsibility for social care services – and 2.99% for those without.

It applies to residential properties, and increases in cash terms depend on their council tax band, which are based on 1991 property values graded into eight tiers from A to H.

Back then, homes in band D would have been worth between £68,000 and £88,000 – rising to a range of £160,000 to £320,000 for those in band G. The highest tier, H, covers properties above that.

For properties built since then, the government’s Valuation Office Agency estimates how much the property might have sold for in 1991 based on similar homes in the area, and assigns a band on that basis.

These valuations bear little relation to modern Britain, as the average house price has more than quadrupled over the past three decades. With even bigger increases across London and the south-east, critics say the tax has become a turbocharger of inequality.

The typical property in England is worth £293,000 today, with those in band G valued anywhere between £750,000 and £1.5m.

You can check which council tax band your property is in on the Gov.uk website.

Why is council tax ripe for reform?

Even for a tax, council tax is unpopular. The Resolution Foundation memorably described it as a “dog’s dinner”. Out-of-date valuations that dictate bands enable the authorities with the most property wealth to charge the lowest rates.

The Institute for Public Policy Research has labelled it “outdated and regressive” – highlighting the fact that properties in all bands of London’s upmarket Kensington pay less council tax than those in Blackpool.

According to the Chartered Institute of Public Finance and Accountancy, the north-east is England’s highest-paying region, with the typical band D property facing annual bills of £2,425. That’s £444 more than Greater London, which has the lowest average at £1,981.

Stuart Hoddinott, associate director at the Institute for Government thinktank, calls it a “deeply broken system”. Not only are underlying property values no longer grounded in reality, but the rates being charged in 2025 are the “result of lots of decisions taken by every council in every year over the last few decades”.

He gives the example of two local authorities that start with identical band D rates of £1,000 in 2010. Council X implements a 5% increase every year between 2010 and 2025 – taking annual bills to £2,079. By contrast, council Y, which only hikes its rates every other year, would see its residents pay just £1,477.

“In every single tier council that is not Wandsworth and Westminster, the minimum band D council tax rate is £961 in 2025-26 and the maximum is £2,284, while the median is £1,910,” Hoddinott said. “So there is a huge range of rates that councils charge. Wandsworth and Westminster are unusual because they have made a concerted effort to hold down council taxes over a long period of time.”

So what about the plan to double rates?

The FT reported last week that one of the simplest ways to raise cash is to double council tax on band G and H homes. This would be a big money spinner, with the Institute for Fiscal Studies (IFS) estimating it would raise £4.2bn in 2029–30.

In a local authority that set its band D rate at the 2025–26 England average, band G and H properties would attract an additional £3,800 and £4,560 a year respectively in council tax – taking their total bills to £7,600 and £9,120, the IFS says.

While many support a push to make council tax fairer, Tax Policy Associates estimates that more than three-quarters of this £4bn would come from band G households, as there are far more properties in this price range.

“That means families in £750,000 to £1.5m homes would see their council tax double – an average rise of around £4,000,” it says in its analysis, adding that people living in band G homes are likely “comfortably off” but not necessarily “super wealthy”.

The thinktank added: “We should expect in many cases people living in band G homes to earn £100,000 plus. For those just in this bracket, that means £67,000 after tax (more if it’s a dual income household). A £4,000 tax increase is significant for them.”

The IFS also points out that properties in the highest bands are not those that are worth the most today, but those that were expensive in 1991.

“Properties in areas such as London (where average house prices are around seven times higher than in April 1991) are underrepresented in top bands and properties in areas such as the north-east (where average prices have increased only fourfold in the same period) are overrepresented,” it said, concluding that a “revaluation is long overdue”.

Lucian Cook, head of residential research at Savills, says doubling council tax paid by the top two existing bands risked “creating a sharp divide in charges between properties at the top of band F and those at the bottom of band G, which is likely to go down badly, particularly if this is based on outdated valuations”.

Such a move would substantially push the tax burden on to London and the south-east, where asset values have risen fastest. This would hit “asset-rich but cash-poor middle-income households hardest”, Cook said.

What about the ‘mansion tax’?

This week, The Telegraph reported that Reeves is working on a £600m “mansion tax”. The newspaper said the Treasury intends to revalue 2.4m of the most valuable properties across bands F, G and H.

The most expensive 300,000 would then be charged the new levy, with estate agents suggesting that the threshold would be properties worth between £1.4m and £1.5m.

This policy would have big implications for Londoners as 44% of all band H properties are in the capital, along with a quarter of band G and 22% of band F.

A “mansion tax” would represent a fundamental shift in the way property is taxed and be “more akin to a wealth tax”, said David Fell, lead analyst at estate agency Hamptons. “While homes bought a generation or more ago have seen above-inflation increases in value, those bought more recently may be worth less than what their owners paid, having also handed over six-figure stamp duty bills.”

About 87% of homes liable to pay the mansion tax will be in the capital, and many of these will be in local authorities where council tax rates are artificially low, Fell added. “A band H home in Wandsworth pays £1,995 per year in council tax, while a home in the same band in Surrey pays up to £4,965.”