Executive Summary

Local government in England is broken, not just quietly underfunded, and the evidence can no longer be dismissed as isolated mismanagement. Since 2018, seven councils have issued a Section 114 notice, ten notices between them. A Section 114 notice is the local government equivalent of declaring insolvency: a legal statement that a council cannot balance its books.¹ In 2024/25 alone, central government gave £1.4 billion in Exceptional Financial Support to 18 councils just so they could set a legal budget, up from £75.8 million in 2018/19 at today's prices.¹ This is not a handful of badly run councils. It is the system.

This pillar makes six arguments. First, council tax, which pays for a large share of local services, is based on property values from 1991, now 35 years out of date, with a top band that starts at £320,000 in 1991 values and has no ceiling above it, so a home worth around £1.5 million today and one worth ten times that pay the same.² Second, adult and children's social care, legal duties councils cannot refuse to fund, have grown from services councils provide into what increasingly is the council, taking a rising share of every pound raised and squeezing out roads, libraries, waste collection and planning.³ Third, the wave of Section 114 notices, and the quieter, larger wave of emergency bailouts behind it, are the visible symptom of that squeeze, not a coincidence of bad local decisions. Fourth, funding for Special Educational Needs and Disabilities (SEND) is the fastest-growing and least controlled part of the crisis, kept off council balance sheets by an accounting rule that has been extended rather than fixed.⁴ Fifth, the government's Fair Funding Review 2.0 is a real, serious attempt at reform, not a token gesture, but independent analysis found that its funding changes do not track deprivation, even though deprivation is the reform's stated rationale.⁵ Sixth, none of this was inevitable. Germany had a similarly stale property valuation base, its constitutional court ruled it unconstitutional, and the system was rebuilt. England's base is younger than Germany's was when its court ruled, but at 35 years it is heading the same way, and England, unlike Germany, has never revalued at all.⁶

Nobody in this story set out to break the system. The 1991 valuations were meant to be updated periodically, as every property tax should be, but no government since has found the political will. Councils did not choose to spend more on social care; they are legally required to meet assessed need, and the number and complexity of people needing care has grown faster than council income has been allowed to. Central government did not set out to create a bailout culture; Exceptional Financial Support exists because the alternative is councils failing to deliver services they are legally obliged to provide. Each player is responding rationally to the incentives and duties in front of it. The result is a funding system that nobody designed and that increasingly nobody controls.

Key Proposals

1. The Diagnosis: A Funding System, Not a Series of Local Failures

The instinctive response when a council collapses is to look for local mismanagement, and in some cases there was some to find. But mismanagement cannot explain a pattern this wide, this concentrated in time, and this consistent with the funding squeeze every council in England is facing at once. Ten Section 114 notices across seven councils since 2018 sit on top of £1.4 billion in emergency support to 18 more councils in a single year.¹ That is a system operating at the limit of what its revenue can sustain, with some councils tipping over first, not seven bad councils.

Two forces drive it, and both are built into the system: a way of raising revenue, council tax, that has not been meaningfully reformed since 1991; and a legal spending duty, social care, that has grown faster than that revenue for more than a decade. Everything else in this pillar follows from those two facts.

2. Council Tax: A Revenue Base Stuck in 1991

Council tax bands in England are still based on property values from 1991.² The average UK house then cost roughly £55,000; it costs roughly £270,000 today, about a five-fold increase that the bands have never been updated to reflect.² Properties are still taxed according to what they were worth relative to each other thirty-five years ago, an assumption that has drifted further from reality every year revaluation has been put off.

The band structure makes it worse. Band A pays six-ninths of the Band D rate; Band H pays exactly three times Band A, however much a property is worth above the £320,000 (1991 value) threshold for Band H.² With prices up roughly five-fold, that threshold now corresponds to around £1.5 million on average, more in London and less elsewhere. A £1.5 million house and a £15 million townhouse pay the same council tax, because both sit in the top band with nothing above it. The system is regressive at the top, not just out of date: it caps the contribution of the most valuable properties in the country at a level set for a very different housing market.

The effect also shows up in household income. The ONS's analysis of the effects of taxes and benefits finds that council tax is the one direct tax that works against the progressivity the rest of the system delivers: in 2023-24 it took 5.7% of the gross income of the poorest fifth of households, against 1.5% for the richest fifth.⁷ (Taxes on spending, such as VAT, are also regressive measured against income, as the Tax Avoidance pillar discusses.) Scotland shows a partial, working way to narrow this without a full revaluation. Its 2017 reform raised the multipliers for Bands E to H by between 7.5% and 22.5%, taking its Band H-to-Band D ratio from 2x, the same as England's today, to 2.45x: a real if modest correction achieved entirely by changing multipliers rather than waiting to pay the political cost of a full revaluation.⁷

The average Band D bill in England for 2026/27 is £2,392, up 4.9% on the year before: the third year running of rises of about 5%.⁸ That average hides a wide spread driven mostly by each council's own tax base rather than the services it provides: an identical Band D property pays £1,028 in Wandsworth and £2,765 in Dorset, a 2.7-fold difference.⁸

The Institute for Fiscal Studies has repeatedly called for reform, and no government since 1991 has committed to a full revaluation. The political cost of a one-off exercise that visibly raises some households' bills has always outweighed the long-term benefit of a fairer system that works.⁹

2.1 Unfair Against Current Values, Not Just Out of Date

The 1991 freeze is not a neutral error that affects every area equally. Property values have grown at very different rates across England since then, and the freeze has locked in the resulting unfairness. Since the mid-1990s, property values in London have grown more than six-fold, against less than three-fold in the North East¹⁰, so a London household pays council tax set against a fraction of its home's real value, while a North East household pays tax set much closer to what its home is worth now. Nobody designed this outcome. It is simply what thirty years of uneven house price growth does to a tax frozen at one point in time.

The Institute for Fiscal Studies has modelled what revaluation onto current values would do, and the results cut against the instinctive assumption that revaluation simply means "the South pays more, the North pays less".¹¹ Under a straight revaluation, which keeps today's bands and the ratios between them, the biggest average bill increases would fall in inner London, in Hackney (+45%), Wandsworth (+34%) and Lambeth (+30%), because those are the areas where 1991 values have drifted furthest from current ones. The biggest falls would come in Fylde and Wyre (both -15%) and the Ribble Valley (-13%) in Lancashire.¹¹ These figures assume central government adjusts its grants to each council to offset the change in its tax base. Without that adjustment the changes are much smaller (Hackney about +5%, Fylde about -5%), as the box below explains.¹¹ Going further, to bills proportional to value, the same modelling found that 24% of the poorest fifth of households would see their bill fall by more than £200 a year, against just 4% seeing a rise of that size.¹¹ Revaluation is not, in the abstract, a transfer from rich areas to poor ones. It corrects thirty years of under-taxation concentrated in the homes, and the areas, whose values have risen most.

2.2 Why Rural Areas Pay More for Less

Two separate effects drive much of the regional variation in council tax beyond the valuation freeze, and they are easily confused. Density increases the tax base available for each unit of fixed infrastructure cost: a block of flats on the same footprint as a single house can raise several times the council tax of that one house, while the cost of serving the plot barely changes. Sparsity works the other way. Rural residents pay on average roughly 20% more per head in council tax than urban residents, reflecting a smaller tax base for each mile of road or pipe to be serviced and less central grant relative to the cost of providing services to a spread-out population.¹²

A funding change from 2025/26 made the second effect worse. The Rural Services Delivery Grant, which had partly compensated rural councils for the higher cost of providing services, was abolished, and its funding redirected into a general needs-based allocation weighted more heavily toward deprivation.¹² More rural, but on average less deprived, councils lost out as a direct result, even though the higher cost of serving them that the grant existed for had not gone away.

3. The Social Care Squeeze: When a Legal Duty Becomes the Whole Budget

Adult and children's social care are not optional council spending. Councils have a legal duty to meet assessed need in both, and that duty comes before every service that does not have the same legal protection. In 2025-26, councils budgeted £26.7 billion for adult social care and £15.5 billion for children's social care, both up sharply in real terms on the year before and both still overspending during the year.³ Total council day-to-day spending in England is roughly £138.7 billion once every service is counted³; set aside education, which has its own funding stream and its own pillar in this project, and social care alone takes close to half of what is left.

This pillar's headline figure of £239 billion of UK local government spending in 2024-25, about 8.3% of GDP¹³, is HM Treasury's total local government spending, day-to-day and capital, across all four nations (PESA 2025, Table 7.4). It includes spending on schools, social care and other services that the Education, NHS and Welfare pillars also discuss, so it is not additional to the £1,283 billion total in the Public Spending Overview. It is the same money, viewed by who spends it rather than what it is for (see Gap 29 in the Gaps Register). A narrower MHCLG figure of £138.7 billion covers only English councils' day-to-day spending, and itself includes the £45.8 billion schools and further education budget covered in the Education pillar.³ (This headline previously read £98 billion; no PESA line matches that figure, and it was corrected on 14 October 2026.)

4. The Demographic Trap: The Bills Are Growing Fastest Where the Tax Base Is Weakest

England's older population is not spread evenly, and it is becoming less evenly spread, not more. The gap in median resident age between England's oldest and youngest council areas is 25 years: North Norfolk, at 55.3, against Tower Hamlets, at 30.6.¹⁴ Over a third of North Norfolk's residents are 65 or older; in Tower Hamlets it is under 6%.¹⁴ This is not a stable pattern. The number of people aged 65 and over is projected to grow fastest in exactly the rural and coastal areas that already have the oldest populations: places that were already old in 2023 are set to see the largest further rises in their older population by 2043, not the smallest.¹⁵ The gap is widening.

Adult social care is mainly a service for older and disabled residents, and its cost is the fastest-growing and least optional line in almost every council budget (see Section 3). The areas facing the steepest rise in that cost over the next two decades are largely the same rural, coastal, already-ageing areas that saw the slowest growth in property values since 1991, and so stand to gain least from a revaluation that redistributes on current property values alone (see Section 2.1). A funding model set only by property wealth, however fairly revalued, is tied to the wrong variable just as the real driver of cost, the age of the population, is moving in the opposite direction from where that wealth sits.

5. The Bankruptcy Wave: What Section 114 Notices Show

A Section 114 notice is a formal statement by a council's chief finance officer that the council cannot deliver the balanced budget the law requires. Seven English councils have issued one since 2018, ten notices between them, after an eighteen-year gap since the last (Hackney, in 2000): Northamptonshire (2018, twice), Croydon (three notices between 2020 and 2022), Slough (2021), Thurrock (2022), Woking (2023), Birmingham (2023) and Nottingham (2023).¹

The immediate triggers differ from council to council, and it would be misleading to present them as the same. Birmingham's notice had a specific, well-reported cause: an equal pay liability estimated at £650–760 million and growing by £5–14 million a month, made worse by the failure of a new Oracle finance system that left the council unable to track its own spending accurately.¹⁶ Several others, including Woking, Thurrock and Nottingham, issued notices after commercial property or energy investments funded by council borrowing lost value, a strategy some councils pursued in the 2010s to raise income their funding settlements no longer provided. What every case shares is the same underlying condition: a council with no financial room to spare, where a single shock (a legal liability, a failed system, a bad investment) was enough to tip the whole budget over, because there was no slack left to absorb it.

The more revealing number sits behind the headline notices. In 2024/25 central government paid £1.4 billion in Exceptional Financial Support to 18 councils specifically so they could set a legal budget without issuing a formal notice, against £75.8 million in 2018/19 at today's prices.¹ That is an eighteen-fold increase in six years in the cost of quietly keeping councils solvent. The headline bankruptcies are the tip of a much larger iceberg of financial distress that the count of formal notices does not capture.

6. The SEND Crisis: A Deficit Kept Off the Books, Not Solved

Special Educational Needs and Disabilities funding is the fastest-growing and least controlled part of council finances. The national High Needs deficit, the gap between what councils are funded for SEND support and what they actually spend meeting their legal duty to provide it, already exceeds £3 billion, and the Chartered Institute of Public Finance and Accountancy projects it could reach £8 billion by 2026/27 if nothing changes.¹⁷ The National Audit Office has separately concluded that the SEND system, as currently funded, is not financially sustainable.⁴

What stops this from already forcing a further wave of Section 114 notices is a statutory override: an accounting rule that lets councils keep their share of the national SEND deficit off their formal balance sheet, so it does not trigger insolvency the way ordinary debt would. The override was due to expire in March 2026; it has been extended to March 2028.¹⁸ An LGA survey of council chief finance officers found that without the extension, 53% of councils said they could not have set a balanced budget for 2026/27 at all, and 79% say they will not be able to balance their 2028/29 budget if the override ends then with nothing to replace it.¹⁸

7. Fair Funding Review 2.0: A Real Reform, Fairly Assessed

Unlike the SEND override, Fair Funding Review 2.0 is a real attempt to fix the underlying formula rather than cover up its symptoms. It replaces the outdated formula used to share out central government grant to councils, starting in April 2026 and phasing in over three years to 2028/29, with transitional funding floors to soften the immediate impact.¹⁹ This pillar takes it seriously as a real reform, not a token gesture, and engages with it on the evidence.

The Institute for Fiscal Studies' independent analysis found real winners and losers, some of them large. Inner West London boroughs (Camden, Hammersmith & Fulham, Kensington & Chelsea, Wandsworth and Westminster) would face funding falls of more than a quarter if the changes came in immediately, and real-terms cuts of 11–12% over three years even after raising council tax by the maximum allowed each year.⁵ Some shire district councils lose heavily as business rates growth they currently keep is redistributed, while other urban councils are among the biggest gainers.⁵

The more serious finding concerns the reform's own stated purpose. The government has presented deprivation as a central driver of the new formula, because more deprived areas have greater need. The IFS found that councils in the most deprived 30% of areas see very similar overall funding changes to councils in the middle 40%, a result the IFS called "somewhat surprising" given the government's stated rationale.⁵ CIPFA has separately welcomed the reform's closer match between funding and assessed need, while warning that the scale of change brings real implementation risk.⁵

8. What Other Countries Show

8.1 Germany's Forced Reckoning

England is not the only country to have let its property tax valuations go stale. Germany's property tax, the Grundsteuer, was until 2025 still calculated on values from 1964 in the former West Germany and 1935 in the former East, even older than England's 1991 base.⁶ In April 2018 Germany's Federal Constitutional Court ruled the system unconstitutional, finding that valuations frozen for so long produced unequal and arbitrary tax bills between otherwise comparable properties.⁶ Germany responded with a national revaluation of roughly 36 million properties, with the new system taking effect from 2025 and municipalities keeping the local multiplier that lets them set their own final rate on top of the new valuation.⁶

The German case matters less for its exact mechanism than for what forced the change: a court found that fairness itself required a working, current valuation base, and the country carried out a full national revaluation rather than keep patching an outdated system. England's council tax base is now three and a half decades old, with no equivalent legal or political reckoning in sight. The lesson is not that England must copy Germany's model, since property tax design differs a lot between countries, but that a revaluation this overdue is a political choice that keeps being put off, not an unusually hard technical exercise.

8.2 Two Other Approaches: France and Ireland

France and Ireland also tax homes locally, on two different bases worth a brief note. France's taxe foncière is calculated on a notional rental value, an estimate of what the property could earn if let, revalued periodically by the tax authority rather than left frozen for decades.²⁰ Ireland's Local Property Tax works the other way: owners assess their own property against current market value, and the state audits rather than revaluing every property centrally.²⁰ Both differ from England in the one way that matters most here: neither has let a single valuation stand unrevised for thirty-five years. Which method England should adopt is a real design question. That keeping valuations current is normal practice elsewhere is not in question.

9. The Steel Man: The Strongest Case Against Change

'A council tax revaluation will cause political chaos and create losers everywhere'

True, and that is what happened when Wales revalued in 2003: some households' bills rose, and it was politically uncomfortable. It is also why no government since 1991 has done it in England, which is exactly how a stale base survives for thirty-five years. The answer is not to avoid revaluation forever but to pair it with transitional protections, such as capped annual increases and phased introduction, the same approach the government is already using to soften Fair Funding Review 2.0.

'National funding for social care will remove local control and just shift costs around'

Funding the legal minimum of social care nationally does not mean nationalising its delivery. Councils would keep commissioning and running services locally, just without having to fund the legal minimum entirely from a capped local tax base. That mirrors how the NHS works: funded nationally, delivered locally. The real risk is that national funding without a matching, carefully designed formula simply recreates today's unfairness at national level, which is why Fair Funding Review 2.0's formula design matters and why this pillar proposes independent oversight of it rather than treating it as solved.

'A one-off write-off of SEND deficits rewards councils that overspent and punishes those that stayed within budget'

This is a fair objection and deserves a fair answer. The deficit is overwhelmingly driven by rising need, with more children being assessed and diagnosed, not simply by looser local spending. The government has implicitly accepted this by extending the override twice rather than forcing the deficit onto council balance sheets. A national reset paired with a visibly reformed formula for the future addresses the unfairness this objection raises, without pretending the current formula was ever going to catch up on its own.

11. Proposals for Change

These are the evidence-based proposals of this pillar, put forward for public discussion and challenge.

• P1 Carry out a full council tax revaluation in England on current property values, adding new bands above the current top band (£320,000 and over in 1991 values) so the most valuable homes pay in proportion to what they are actually worth, phased in with capped annual increases to limit the shock.

• P2 Fund the legal core of adult and children's social care nationally, linked to demand, with delivery staying local, so councils no longer have to fund a legal duty entirely from a capped local tax base at the expense of everything else they do.

• P3 Absorb historic Dedicated Schools Grant deficits centrally as a one-off national reset, alongside a reformed High Needs funding formula that matches funding to actual assessed need rather than a formula designed for a smaller, simpler caseload.

• P4 Set up independent, published oversight of Fair Funding Review 2.0, checking its stated objectives against its modelled results at each phase. It should test explicitly whether funding matches the needs of ageing populations, not only the shortfall on deprivation the IFS has identified, so gaps are corrected before the money moves rather than audited afterwards.

• P5 Replace the current cycle of crisis then bailout with a published, rules-based early-warning system: reserve and debt-ratio triggers that require a public recovery plan to be agreed well before a council reaches a Section 114 notice or applies for Exceptional Financial Support.

• Make sure any redistribution that accompanies council tax revaluation is set centrally rather than leaving all the revenue with local councils. Full local retention of a revalued tax base would widen the North-South funding gap, given how unevenly property values have grown since 1991: the opposite of what a revaluation meant to improve fairness should achieve.

• Require every Exceptional Financial Support package to be published alongside the specific reforms it depends on, rather than issued as an unconditional permission to borrow that allows delay without requiring change.

• Commit to clear annual public reporting on councils' financial resilience (reserve levels, Section 114 risk indicators and the SEND deficit for each council), compiled independently and comparable from year to year.

None of this is a mystery. The revenue base is thirty-five years out of date, the legal duty it pays for has grown faster than that base for more than a decade, and the result is visible in council after council. What has been missing is not evidence but the political will to revalue a tax no government wants to be the one to revalue, and to fund a duty nationally rather than let it consume everything else local government does. The Generational Reset does not pretend either is easy. It insists both are necessary.

The Generational Reset is a non-partisan, public-interest project. It is not affiliated with any political party, does not accept corporate funding, and publishes all its work under open licence for public discussion and adaptation.

For public discussion. Not affiliated with any political party. | generationalreset.org

The Generational Reset | S1_10: Local Government | For public discussion. Not affiliated with any political party. | generationalreset.org