The Impact of Rising Council Tax Rates on Businesses

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A controversial 4.99% increase in Cornwall Council Tax for the 2025/26 fiscal year has been blamed on a multi-million pound shortfall in central government funding.

The county’s draft budget, drawn up in November 2024, has been approved amid claims by council deputy leader David Harris that the “worst case scenario” is coming true, with the increase necessary to protect frontline services.

Spending planned for the year ahead includes an extra £22 million on care for children and adults and £173 million to repair school buildings and create new school places. The 4.99% Council Tax increase will include a 2% levy to fund adult social care.

Councillor Harris has accused the government’s funding system of being “unfair and urban-biased” after the previously announced £105 million Rural Services Delivery Grant was “repurposed”, leaving Cornwall without the £5.3 million aid councillors had anticipated for 2025/26.

The government’s one-off £600 million Recovery Grant went almost entirely to metropolitan urban councils and again, Cornwall received nothing, despite the belief £2.7 million would be allocated from the fund. Although a larger social care grant than anticipated was received, Cornwall ended up with an overall shortfall of £6 million.

When the draft budget was calculated in November, councillors had hoped Cornwall’s precarious financial situation might be alleviated by the announcement of a Provisional Local Government Settlement on 18th December, but Mr Harris said this had made the situation “even more unfair”.

How can this affect your business?

The impact of council tax on businesses is both direct and indirect. Council Tax and business rates are local authorities’ biggest sources of income, with central government having a considerable degree of control over both.

Historically, rising Council Tax rates have often led to local councils increasing business rates too in an attempt to compensate for tax revenue shortfalls. This can mean increases in operational costs for firms, especially those with a large local workforce or premises. When local residents struggle with a higher cost of living, it can impact the availability of local labour, as people have higher wage expectations, with small businesses being unable to compete financially with larger rivals.

Higher personal Council Tax burdens can also affect consumer spending, as having less disposable income can cause a potential decline in consumer spending on non-essential goods and services. Sectors relying on local spending can suffer a more significant impact. This could be particularly damaging for businesses in retail, hospitality and entertainment sectors, who may experience reduced footfall.

Tax increases can also give the perception of Cornwall being a less affordable area, with any price hikes having the potential to impact tourism and attract new business. If tax increases become a regular occurrence, this could have long-term negative implications for trade in Cornwall, as repeated rises can drive up the cost of doing business, ultimately leading to relocations or closures after an already challenging five years since the Covid pandemic.

Financial planning for businesses

With the economic climate remaining fragile, businesses need to be proactive to mitigate the impact of tax increases by adopting practical strategies. Take steps to review your budgets, adjust prices and explore more efficient operational models. Always bear in mind, it's crucial to balance cost saving strategies with maintaining customer satisfaction.

Commissioning the services of an accountant in Cornwall is something businesses might consider to help them navigate through these stormy waters. Studies have revealed nine in ten UK businesses are battling higher costs than they were 12 months ago, with the price of fuel, energy, transportation and employee retention being the main drains on resources. Around one quarter of small businesses are struggling with cashflow and fear they may not last through 2025 unless they can do something about it.

DL Accounts can provide expert financial advice, helping small businesses to adjust their budgets, improve efficiency and access local financial support. If you’re considering using tax services in Cornwall, from a reliable accountant, please don’t hesitate to contact us to find out what we can do for you.