Soaring Council Tax Could Strain Borrowers in London and southeast Says Target

22 July 2025

Target Group, a Tech Mahindra company, is warning lenders to brace for increased borrower arrears ahead of proposed local authority funding reforms – which could drive council tax increases of over 25 per cent in parts of London and the southeast.

Last month Angela Rayner set out plans for a “progressive” redistribution of local authority funding. The government’s “fair funding review,” led by Rayner, the deputy prime minister, aims to redirect funding to areas with greater needs, primarily in northern England.

This could slash government grants for wealthier councils, with eight London boroughs – including Camden, Hammersmith & Fulham, and Wandsworth —facing significant shortfalls.

One council has said it faced a £30.1 million shortfall in 2028-29 highlighting that a 1 per cent increase in council tax would raise £1.1 million – meaning it would have to raise taxes by 27.4 per cent to cover the cost.

Melanie Spencer, growth director at Target Group, part of Tech Mahindra, said:

“It’s early days but if these reforms proceed as planned, some boroughs could lose more than 70 per cent of their current government grant. Lenders should be deeply concerned the government’s proposals could leave local authorities in the position of having to ramp up council taxes by more than a quarter. Borrowers in those local authorities won’t have budgeted for this. And this could well be the thin end of the wedge. If councils across the south east and south west of the country start having to put up council tax by more than 25 per cent, borrowers in those areas are going to find themselves very stretched.

“We are calling on lenders to ensure their collections teams are in good enough shape to be able to handle a potential surge in arrears. Lenders need to focus on using data intelligently to identify borrowers who may be starting to struggle and early engagement with people who have started to slip into arrears. The cost-of-living crisis is far from over and the support lenders offer will need to be targeted and timely. Lenders will need the right systems in place to manage processes proactively. Early contact and remediation are key to keeping repossession a last resort and achieving better outcomes for borrowers and lenders alike. That requires investment in systems.”

While council tax can only be raised by 5 per cent without a local referendum, every year the government gives special permission to a number of authorities to increase it further without consulting residents.