Households face even more council tax after a decision to allow cash-strapped town halls to increase their bills by 5 per cent

Households are having to pay even more council tax after cash-strapped town halls were given the freedom to increase their bills by more than usual.

Local authorities usually have to hold a referendum if they want to increase rates by more than 5 per cent – the equivalent of £110 more for most families next year.

But under the reforms announced yesterday – which the Tories warned would also include more funding for “Labour strongholds” – local governments in dire financial difficulties will be able to impose higher annual increases without giving residents the right to vote.

Local Government Minister Jim McMahon said: “If a local council in need of exceptional financial support considers additional council tax increases to be crucial to maintaining financial stability, the Government will continue to consider applications for tailored referendum rules.”

Last year, four councils that effectively declared bankruptcy were allowed to raise interest rates above the usual 5% limit under tailor-made arrangements. Birmingham and Woking ultimately opted for 10% increases, while Slough opted for 8.5% and Thurrock 8%.

Under the new rules, more town halls will be able to apply to exceed the limit because 19 of them received “exceptional financial support” this year, a type of bailout that allows them to sell assets and borrow money to balance the books. Elliot Keck, head of campaigns at the TaxPayers’ Alliance, said last night: ‘The lifting of referendum restrictions on some councils will impact millions of people across England.

“For too long, irresponsible town halls have been bailed out without ensuring proper democratic accountability.

The Tories pointed out that Sir Keir Starmer, when in opposition last year, called for a freeze on council tax

Last year, Birmingham and Woking finally settled on 10% increases, while Slough (pictured) settled at 8.5% and Thurrock at 8%.

“Ministers should insist that local authorities wanting to impose a cap on taxpayers ask for more money, not demand it.”

Sources insisted the government was taking the same approach as previous administrations.

The Tories pointed out that Sir Keir Starmer, when in opposition last year, called for a council tax freeze. Tory Communities spokesman Kevin Hollinrake said: “Labour has broken another promise, this time to freeze council tax.

“First they raised National Insurance contributions, which means higher costs for councils and lower wages for their workers, and now they allow councils to increase council tax by around £110 a year, in direct breach of Keir Starmer’s pledge not to increase it for a ‘one penny’.

“If you thought Labor had stopped taxing you, think again.”

There are also concerns about changes in the way local government funds are distributed, as a result of which rural residents will lose to urban residents.

The Department of Housing, Communities and Local Government is phasing out the Rural Services Grant worth £104m last year.

Instead, a £600 million ‘recovery grant’ will be given to the poorest areas of England, with wealthier areas left out of help.

Local authorities usually have to hold a referendum if they want to increase rates by more than 5 per cent – the equivalent of £110 more for most families next year

In its local government finance policy statement, the ministry said: “The grant is intended to be highly targeted, which means not all authorities will receive it. It will face head-on the combination of soaring demand… and the fact that many of these councils have become less resilient following significant cuts to central government funding in 2010.

Council services in England will receive £4 billion from Whitehall in 2025-26, of which £1.3 billion will be provided as part of the local government financial settlement.