By Andrew Hill
What happened to residents’ right to vote on ‘excessive’ council tax increases? What does this have to do with councils in financial crisis? This article explores the curious case of the missing council tax referendum…
Everywhere you look, local councils are in distress. News stories follow the same formula: A council in England says it is ’on the verge of bankruptcy’ because of the increased cost of Special Educational Needs or adult social care, the sky-rocketing interest payments on loans, unanticipated loss of income on major projects, and so on. The council then proposes to solve the problem by increasing council tax for the next financial year by exactly 4.99%. Articles typically then mention that any council tax increase higher than 5% triggers a referendum in law.
The concept of a referendum on council tax became law in the Localism Act 2011. The Conservative Minister at the time, Eric Pickles, said that “councils have to defend their budget decisions and bill increases to the local electorate instead of Whitehall.” Some queried whether this undermined democratic representation. Would turkeys really vote for Christmas? They also wondered: might this make people want referendums on other things too?
This law gave us all the right to ‘veto excessive council tax.’ It is this single word – ‘excessive’ – that forms the legal basis of a referendum, and the heart of this article. Under the Local Government Finance Act 1992, the Secretary of State annually lays before Parliament what are known as the ‘Referendum Principles’ for the next financial year. This document expressly identifies conventional categories of authority (‘unitary’ ‘fire,’ ‘police’ etc). The Secretary of State then adds specific paragraphs stating for each category what the word ‘excessive’ means as a percentage increase for that given year. Crucially, this percentage increase can be different for each category (See Figure 1 below). The local authority must then set their budget and council tax increase, stating whether any proposed increase in their local council tax is ‘excessive’ by reference to this list. In the past this was uncontroversial and basically meant that there was one category for most conventional councils. You could describe this as a national threshold which triggers referendums. Extra payments were then added to bills over time to cover adult and children’s services, so the overall threshold became a little higher over time.
Let’s take an example in which the annual referendum principle was set at, say, 2% for the category of unitary council. Council tax increases in that year would thus be ‘excessive’ for unitary councils nationwide if any council had proposed more than a 1.99% rise. If they asked residents for a 2.5% increase (so the theory goes) then that council would have triggered a mandatory referendum.
iPaper, 27.01.25
Tax referendums in practice
In fact, only one referendum has ever taken place, in 2015 (on a proposal to increase the Bedfordshire Police precept by 15.8%). Perhaps unsurprisingly, 69.5% voted against the increase, and a lower tax was ultimately implemented. Surrey Council got close to holding one – asking for a 15% increase to be approved by popular vote but the referendum was abandoned for unclear reasons.
In 2015, the Audit Commission was shut down, removing a significant level of scrutiny and comparability across local government finance and audit. In the following years, a slow-motion but seemingly inevitable financial tsunami in local government crept up and councils toppled. Thurrock, Slough, Croydon, even Birmingham all effectively went bankrupt. Government Commissioners (people sent in by Westminster to take control of the running of all or parts of the council) usually claimed that the only way out of their financial crises was to increase council tax above the ‘excessive’ cap.
Redefining ‘excessive’ – bespoke definitions of local authorities
The government had a dilemma: How do you have a national threshold that triggers referendum, but local exceptions? Fortunately, there was a handy legislative loophole: The Secretary of State was entitled to add additional categories of councils at will to the annual referendum principles list. And there was no actual statutory prohibition saying that it had to be a big category. So the Secretary of State duly created a new category every time they wanted to give a bespoke local increase. For example, in 2023-24 he created a new category of council that had just one entry – Croydon. This category-of-one defined ‘excessive’ increases in council tax to mean 15% exclusively for Croydon. Slough and Thurrock, meanwhile had a category-of-two to themselves defining ‘excessive’ to be 10%.
Figure 1: Referendum Principles 2023-24
So an increase of 15% in Croydon, or 10% in Slough, would now be defined to be ‘excessive’ and trigger a referendum while in most English councils only 5% would be defined to be ‘excessive’. The concept of a referendum was therefore reduced by government from a single clear national percentage to an ever-expanding postcode lottery with bespoke local threshold percentages. Every time a referendum would potentially be triggered, the Secretary of State made a new category and the troubled council could lawfully raise taxes without triggering the so-called ‘right’ to a referendum. In 2024-25, Woking, Birmingham, Slough, and Thurrock were made additional exceptions. All, of course, are technically bankrupt and are under special government intervention.
Daily Mail, 27.01.25
What about democracy?
This raises huge questions about democracy. How can it be right to raise expectations that citizens will have a say in the level of council tax, but then use legal loopholes to ensure they never happen? Perhaps you can hide this when it is just one or two ‘rogue’ councils, but far more than that are struggling to produce a balanced budget. The Local Government Association has warned that 1 in 4 councils report fears of an imminent need for an Exceptional Financial Support from government in the next two years. The draft version for 2025-26 Referendum Principles shows no postcode-based categories yet, but the trend is undeniable. More and more councils asking to be the ‘exception’ to the single national rule for council tax rise referendum destroys the concept of being an exception. Large bespoke vote-free rises could become the norm.
The campaigning news website Inside Croydon launched several successful petitions.but the 15% council tax rise was imposed anyway. Perhaps the government was relieved that there was no sign of revolt such as we saw with the poll tax.
In a democracy, if you are given a right to a referendum when your own council loses financial control, but you then find that this supposed right can always be taken away in practice, then what do you conclude? The referendum principles categories are adjusted each year in such an artificial manner that we do really appear to live in a world of ever-shifting goalposts, whether we like it or not.
Windsor and Maidenhead: A case in point
This question of what is ‘excessive’ now faces its ultimate test: the Royal Borough of Windsor and Maidenhead (hereafter RBWM). RBWM has around £200m in debts after a combination of one-sided property deals, low council tax, accounting errors, and political opportunism. The council now wants a 25% increase in council tax. Windsor MP Jack Rankin drew gasps from the Parliamentary chamber as he challenged Keir Starmer at Question Time to reject this increase. The PM responded that he was “right to raise this issue,” clearly mindful of public fears around council tax, and reminded the house that working people need fair taxation.
So, does this mean that this year’s “referendum principles” will include a unique new category for the Royal Borough of Windsor and Maidenhead with a 25% ‘excessive’ level? On one hand, maybe not; Slough was invited to add up to 10% per year over several successive years, so the sums accumulate without arriving as one huge-hit. It is still a big number for most, and masks the long-term rise. On the other hand, councils are required to balance each budget and RBWM has said it can only do this with one big tax increase.
This Government has pledged to merge some councils in a major reorganisation, outlined in December’s White Paper on English Devolution. Consequently, local Maidenhead councillors revealed recently that the government had insisted that RBWM only provide it with ‘one year’s worth’ of plans. It is unclear how that affects this unenviable choice between one huge hit or several large hits.
Actually, the most surprising thing about RBWM is that it has NOT declared a Section 114, which would generally signal bankruptcy. Its officers therefore claim to have ‘acted lawfully’ at all times, despite (as councillors point out) multiple admissions of accounting errors and unrepresentative accounts with what they call (strangely) ‘negative reserves’. In the case of this council Secretary of State Angela Rayner not only has to decide whether to allow a frightening 25% increase, but also whether to allow this massive rise for a council that claims that nothing unlawful has happened. Every other council that got its own bespoke category of ‘excessive’ was formally and publicly in ‘bankruptcy’- but not RBWM.
This begs a moral hazard question: If one non-bankrupt council like RBWM is allowed to avoid the national referendum threshold, then could not other non-bankrupt councils similarly follow suit with requests to also be considered ‘exceptional’? Each new council would note the lesson that the government will ultimately bail them out (at residents’ expense) regardless of whether they formally declare bankruptcy or not. They may think to themselves: why bother declaring bankruptcy with all that messy social stigma and reputational harm if there is an easier way out? The government will have to weigh up all of this urgently in the next few weeks.
Giving with one hand, taking with the other
The postcode lottery of ‘excessive’ council tax levels matters at any time but is largely overlooked when only a handful of councils are bust. As the headlines show, we no longer live in that world.
For many of us, this is baffling and undermines our confidence in law. We read the newspaper stories and cannot understand why the referendums do not happen. It certainly is in the power of the Secretary of State to defeat the promise of a referendum with the invention of an indefinite number of bespoke categories, but is that really in the spirit of the law? Parliament’s will should surely be respected. If you give with one parliamentary hand what you take with the other governmental hand, then did you ever really have the right?
A legal challenge to this practice would likely be difficult to mount. But it is conceivable that creating this legitimate expectation of a referendum, only to consistently pull the rug, could be an assault on democratic rights. Maybe it is time for the Secretary of State to propose an enforceable system that truly protects the right to proportionate rises in taxation.
Were the previous Government wrong to give residents the right to veto excessive council tax increases? We will probably never know, because they also made sure to add rights for ministers to define the question out of existence every time it arises in practice. Some might call that ‘excessive’!
Andrew Hill LLB helps residents and councillors around the UK to analyse democratic deficits from a legal perspective, building on knowledge shared generously by groups such as the Citizen Auditor Network. For more information on how to be involved in this network please email info@researchforaction.uk.