Chancellor Rachel Reeves faces a last-minute revolt from Labour MPs over proposed "mansion tax" plans ahead of the Budget this week, as the government unveils a new funding system that will redirect billions of pounds from suburban areas to deprived urban regions. London MPs are pushing for a higher threshold on the annual percentage levy targeting high-value homes, warning of potential voter backlash.
Labour backbenchers are engaged in ongoing negotiations over the shape of the mansion tax proposals. London MPs are adamant the annual percentage levy should apply only to properties valued over £2 million, which would affect fewer than 150,000 homes. One Labour MP told the Financial Times: «There are a lot of talks taking place on this and we've been told that the levy will not kick in for homes costing £1.5million. 'It will be higher than that.'»
The lower £1.5 million threshold could affect 275,000 homes. Another Labour MP questioned: «Do they literally want to lose every seat in London?» The mansion tax comes as Reeves prepares for a new round of tax increases to address an estimated £40 billion hole in public finances.
New funding formula announced
The government has announced the results of its Fair Funding Review, designed to reform central government funding for local authorities based on deprivation data and local need. The changes will provide a £5 billion boost for local services over the next three years, with individual council allocations to be published in December.
Communities Secretary Steve Reed said: «We are reforming the funding system that led to regional divides, postcode lotteries, and substandard public services for too many people. Our changes will make sure cash going to councils is shared out in a fairer way that follows needs. We want every family to benefit from our Plan for Change, and fairer funding means people will soon be able to see and feel the difference in their own local area.»
Winners and losers
The reform is expected to benefit councils in Greater Manchester and other deprived areas that have "lost out over the last 14 years" since the austerity years. An Institute for Fiscal Studies analysis suggests inner London boroughs could be the biggest losers, while metropolitan districts including Manchester could be among the biggest gainers. The IFS estimated a combined £2.1 billion reduction for 186 councils and an increase of the same amount for 161 others.
Eamonn O'Brien, leader of Bury council, welcomed the changes: «I welcome these changes because they do reinstate that really important link to deprivation among several other factors. It will hopefully recognise that in areas of deprivation, demand is greater and that's what we've been calling for since the austerity years. We are hopeful that these changes will result in more money coming into Bury council and neighbouring districts across Greater Manchester which have lost out over the last 14 years.»
Nick Peel, leader of Bolton council, said: «We welcome that the government has finally grasped the nettle on this, funding has become very complex. It needed a complete reset. They're saying a deprivation and needs based formula will be at the centre of this. I would absolutely urge them to stick very firmly to that line. It's authorities like Bolton and equivalents that have suffered the most during austerity. It's not about 'it's our turn' it's about redressing the balance.»
Bitter backlash from counties
The County Councils Network accused the government of backtracking on funding commitments to rural areas. Steven Broadbent, the network's finance spokesman, said: «This seriously undermines the principles of the review, with this arbitrary measure not consulted on. This raises questions whether this review has been evidence-led and transparent.»
He warned: «The fair funding review was already extremely challenging for many county areas, with some councils set to lose out substantially. [...] Our analysis has shown that county and rural taxpayers are already set to foot the bill for the reforms, with 33 of our councils facing a real-terms reduction in funding unless they increase their council tax by 5 per cent per annum over the next three years. Today's changes will mean the pressures facing county and rural councils and taxpayers have only intensified.»
Jeremy Newmark, finance spokesman for the District Councils' Network, stated: «Instead of delivering the essential financial reform and fiscal devolution that are needed, the Government is merely reallocating an already inadequate funding pot.» He added: «While it is of course legitimate for ministers to use areas' deprivation as a factor in determining services, it would be ironic, unfortunate and counterproductive if this led to an increase in deprivation outside of the biggest cities. Money is being diverted from many rural and non-urban councils, and those doing the most to build homes and grow local economies.»
Government sources have downplayed fears of abolishing the current five percent council tax increase limit without a local referendum, but ministers are considering relaxing the cap for a small number of central London authorities. Earlier this year, six local authorities in England were granted permission to raise council tax by up to ten percent.
Note: This article was created with Artificial Intelligence (AI).
