A prominent Labour-controlled authority in west London has cautioned that it may need to impose a 150% increase in council tax on residents to sustain existing services following substantial reductions in central government funding under a newly implemented financial settlement.
Hammersmith and Fulham council's cabinet determined in a report scheduled for publication on Monday that such an increase would add £29.11 per week to the bills of Band D households in 2027/28. The council is losing more than half of its government grant under the government's "fair funding" review, a framework introduced to redistribute resources from wealthier areas to those most severely affected by previous austerity measures.
The funding reduction could represent as much as 40% of the council's £222 million annual budget, according to the council's own assessment. Government ministers have justified the review by arguing that local authorities with historically low council tax levels will see their Whitehall grants reduced, compelling them to raise bills toward national averages to compensate for shortfalls.
Hammersmith and Fulham, alongside Westminster, Kensington and Chelsea, Wandsworth, City of London, and Windsor and Maidenhead councils, have been granted exemptions from the standard 5% council tax cap for the coming year to address budget deficits resulting from the cuts. A Band D household currently pays £1,519 annually, which includes the £510.51 surcharge set by the Greater London Authority.
In a document reviewed ahead of Monday's publication, Rowan Ree, the cabinet member responsible for finance and reform, stated that the council faced
"the biggest financial challenge in living memory"under the new funding formula. Government funding to the council will fall from £150.5 million in 2025/26 to £72.4 million over the next four years, representing a reduction of more than half.
What are the three scenarios the council is considering?
The council has modelled three potential tax increase options to address the funding gap. A 100% increase in the Hammersmith and Fulham council tax element—raising the Band D charge to £2,018 annually—would leave a budget shortfall of £46.1 million and mean a weekly increase of £19.40 for Band D households. A 125% increase would bring the Band D charge to £2,270.25 per year, leaving a £20.6 million shortfall and requiring a weekly rise of £24.25. The most severe scenario, a 150% increase, would set the Band D charge at £2,522.50 annually and would broadly balance the budget on current assumptions, translating to a £29.11 weekly increase.
Why is the council facing such severe cuts?
The fair funding framework, established under Labour's administration, was designed to redirect resources from affluent rural areas to urban councils hit hardest by austerity. Ministers contended that the changes would establish a fairer system recognising the additional needs and weaker tax-raising capacity of councils in economically disadvantaged areas.
However, Hammersmith and Fulham's Labour councillors argue they have maintained low bills through aggressive cost management in a borough containing significant areas of deprivation. They point to their Upstream London economic growth strategy, which they claim has attracted more than £6 billion in investment and created 17,200 jobs. The council also noted it is eligible for £34 million in transitional funding over the three-year settlement, with protection set at 95% of its 2025/26 core spending power in 2026/27.
London boroughs affected by the formula have raised concerns that flawed deprivation measures risk undermining the government's stated objective of ensuring funding follows genuine need. In August, Conservative leaders from Kensington and Chelsea, Westminster and Wandsworth councils wrote to Andy Burnham urging a reconsideration of the proposals.
How does this compare to other affected councils?
Hammersmith and Fulham is not alone in facing severe financial pressure. Wandsworth Council has proposed a record 94% council tax increase for Band D properties, rising from £1,020 to nearly £1,978, citing £84 million in government funding cuts. According to the council's own assessment, neighbouring Wandsworth and Westminster have warned of possible rises reaching as high as 188% and 200%, respectively.
The situation has prompted significant political response. Conservative leader Kemi Badenoch instructed lawyers to challenge the government funding cuts after Wandsworth's announcement, signalling growing cross-party concern about the formula's impact on specific councils.
What is the government's position?
A spokesperson for the Ministry of Housing, Communities and Local Government stated that
"Local authorities decide the level of council tax they wish to set, but we are clear that in doing so they should put taxpayers first. We've made over £78bn available for council finances next year, with the majority of money unringfenced so local leaders can decide how best to spend on their local priorities."
The government's final settlement assumes councils will raise Band D tax in line with referendum limits and intends to set no referendum principles for the six named authorities in 2027/28 and 2028/29, effectively removing the cap for these councils.
What happens next?
Hammersmith and Fulham is expected to launch a consultation on council tax options and potential service cuts. The council must reach a decision on any increase by December. The cabinet report due Monday will outline the council's financial position and the range of scenarios it is considering to bridge the funding gap.
The council's 2026/27 budget was previously approved with a combined 4.99% increase to its council tax element and social care precept, bringing the Band D borough charge to £1,009 before the Mayor's precept. The scale of the projected 2027/28 increases represents a dramatic acceleration from this level.
