Angela Rayner’s plans to funnel more government money to deprived regions could lead to big council tax increases for homeowners in wealthy areas, experts have warned. Many councils in the south – including London and the Home Counties – face deep cuts to their budgets under the reforms being brought in by the Deputy Prime Minister.

By contrast, those in the Midlands and North can expect to see large increases, as ministers seek to address perceived unfairness in funding levels across the country. A report published by the Institute for Fiscal Studies (IFS) indicates that up to a quarter of councils in England will see a drop in government funding, creating big “winners and losers”. Wealthy areas with historically low council tax rates will have less money to spend on vital public services such as rubbish collection and care for the elderly. The IFS researchers say these councils will now be forced to hike council tax rates to address the shortfall in funding.

Rachel Reeves may need to raise taxes in the autumn (Image: Getty)

The report’s author Kate Ogden said: “The Government should consider giving highly affected councils which currently have low council tax rates greater flexibility to bring their council tax bills up to more typical levels to offset funding losses.”

The IFS also predicted that Sir Keir Starmer‘s own council – Camden in north London – will be hit by the changes when inflation is taken into account.

Overall spending will fall for 186 councils and rise by the same total sum for 161. One in ten will see a fall in total funding, while one in ten will see an increase of 10% or more.

The government’s total spending on local authorities will remain the same, as the reforms are rolled out over a three year period from 2026/27 to 2028/29. London will get just an 8% rise in funding over the course of the next three years.

Outside the capital, the main beneficiaries of the reforms will be the East Midlands (22%) and Yorkshire & the Humber (19%), with the South East seeing a 13% increase.

A spokesman for Angela Rayner‘s Ministry of Housing, Communities and Local Government said it was “taking decisive action to reform the funding system so we can get councils back on their feet and improve public services”.

Meanwhile, the National Institute of Economic and Social Research says the Chancellor Rachel Reeves will need to raise taxes in the autumn to meet her self-imposed borrowing rules. The government is on track to miss the target it has set itself by £41.2 billion, according to the think tank.