Five London local authorities are preparing for a major change to council tax rules from April 2027 as the Government's local funding reforms put pressure on borough budgets, with construction consequences already emerging in Wandsworth's housing programme.
Westminster, Wandsworth, Hammersmith and Fulham, Kensington and Chelsea and the City of London are the five London authorities covered by the Government's intention not to set normal council tax referendum principles for 2027/28 and 2028/29. No common tax increase has been imposed on the five councils, and their individual positions differ substantially.
The Barbican Estate and surrounding City of London buildings. The City of London Corporation is one of five London authorities affected by the Government's council tax flexibility from 2027/28. Image: London Construction Magazine.
Five London authorities fall outside normal tax limits
The final Local Government Finance Settlement explanatory note names Westminster, Kensington and Chelsea, Hammersmith and Fulham, the City of London and Wandsworth alongside Windsor and Maidenhead as the six authorities for which the Government intends not to set council tax referendum principles in 2027/28 and 2028/29. For most London boroughs, the Government's normal framework combines a 3 per cent core referendum principle with a 2 per cent adult social care precept. Removing those principles from the five London authorities means increases above the normal level could be set without triggering the referendum mechanism. It does not require councils to increase bills by any particular amount.
The Government has said the authorities were selected because they have comparatively low council tax and are receiving transitional income protection while the funding system moves towards its new Fair Funding Assessment. Its consultation documents state that “decisions on council tax levels are a matter for local authorities”. That distinction is central to the current London debate. Figures appearing across the five authorities range from formal financial planning assumptions to consultation scenarios and warnings about the scale of funding gaps. They should not be reported as though five large tax increases have already been approved.
Wandsworth has already cut five housing schemes
Wandsworth provides the clearest evidence so far of revenue pressure feeding directly into construction decisions. The council's latest financial planning information says Government funding will fall by £84m a year by the end of the settlement period and that, under current assumptions, a Band D council tax bill would need to rise by £958 in 2027/28. That increase has not been approved. Wandsworth says the final 2027/28 tax level will go through its formal budget process in February 2027 and Full Council approval in March.
The construction impact is already more concrete. Wandsworth's September Spending Review decisions stopped planned new-build housing schemes at Ashburton and Lennox estates, Fitzhugh Estate, Tyneham Close and Lavender Hill. The council will also not proceed with the planned conversion of Morella Road into self-contained homes.
The earlier capital review said removing the five new-build schemes avoided approximately £77m of future Housing Revenue Account borrowing and about £5m a year in debt costs. The final review also reduced planned borrowing by £39m in the General Fund and £80m in the Housing Revenue Account. This sits against a national policy direction that is asking councils to play a larger role in affordable housing delivery. London Construction Magazine recently examined how the £39bn Social and Affordable Homes Programme is shifting more delivery towards councils, while individual authorities are simultaneously having to test whether their own projects remain affordable to finance.
The five councils are not in the same position
The latest evidence does not support treating the five London authorities as one financial case.
| Authority | 2027/28 council tax position | Construction or capital position |
|---|---|---|
| Wandsworth | £958 Band D increase shown in current financial planning; final rate not yet approved. | Five planned new-build housing schemes stopped; General Fund and HRA borrowing reduced. |
| Hammersmith & Fulham | No 2027/28 percentage confirmed; council says it will consult taxpayers on its options. | Approved 2026-30 capital programme totals £452.2m; no blanket cancellation of that programme has been confirmed. |
| Kensington & Chelsea | No 2027/28 percentage confirmed. Council is challenging the funding settlement. | Council says it faces more than £100m of funding loss over four years; project consequences remain scheme-specific. |
| Westminster | No 2027/28 rate confirmed. Its February 2026 budget statement said it did not then plan to use the additional flexibility. | Major housing and public-realm investments remain in the capital programme; no blanket construction halt has been announced. |
| City of London | No 2027/28 rate confirmed; separate discussions with Government over bespoke funding arrangements have continued. | City Fund pressure is increasing, but no authority-wide cancellation of the capital programme has been confirmed. |
Hammersmith and Fulham is the latest authority to warn residents about the scale of the change. The council says the funding reduction could be equivalent to as much as 40 per cent of its £222m annual budget and that efficiency savings alone will not close the gap. It has not yet published a confirmed 2027/28 council tax percentage. The construction exposure is substantial. Hammersmith and Fulham's approved four-year capital programme totals £452.2m, comprising £135m of General Fund capital expenditure and £317.2m within the Housing Revenue Account.
The programme includes investment in the council's 12,000 homes, development of 298 dwellings including 218 affordable homes, completion of the Civic Campus, school upgrades and continuing pre-restoration works at Hammersmith Bridge. The programme also relies on several different funding sources, including grants, Section 106 and Community Infrastructure Levy receipts, capital receipts, reserves and borrowing.
Revenue cuts do not automatically cancel housing capital
For the construction supply chain, the accounting distinction is important. A reduction in a council's general revenue funding does not automatically remove the same amount from its Housing Revenue Account or cancel an approved capital programme. The HRA is a separate landlord account supported principally by housing income, while capital schemes can be financed through borrowing, grants, developer contributions, asset receipts and other capital resources. A £1 reduction in General Fund revenue therefore cannot simply be translated into a £1 reduction in council construction expenditure.
Revenue pressure can nevertheless change whether projects remain deliverable. Borrowing creates future interest and repayment costs, councils need staff and professional resources to prepare and procure schemes, and discretionary capital projects compete with statutory services for financial capacity. Wandsworth's decision to remove projects specifically to reduce future borrowing shows how that connection can operate in practice. This is particularly relevant while around £5bn of London's new affordable-housing programme remains to be allocated. Grant funding can improve scheme viability, but councils must still provide development capacity, land, design work, procurement and, in many cases, their own funding alongside external support.
Westminster and Kensington figures need careful reading
Westminster illustrates why headline percentages must be separated from approved policy. The council's February 2026 budget statement acknowledged that it was one of the authorities being given additional flexibility for 2027/28 and 2028/29, but said at that point that it had not requested the flexibility and had no plans to use it.
Westminster was simultaneously budgeting major capital investment, including £174m for 300 homes and a health and wellbeing hub at Lisson Grove, £96m for housing and specialist accommodation at 291 Harrow Road and £34m for Regent Street public realm works. Later illustrative figures about the scale of tax increases needed to close funding gaps should therefore not be presented as an approved 2027/28 council tax rate unless Westminster formally changes its position through the budget process.
Kensington and Chelsea has taken a different route. Its current Fairer Funding Review consultation says more than £100m will be removed from its budgets over four years, equivalent to more than 40 per cent of what the council describes as its controllable budget. The authority approved a 4.99 per cent council tax increase for 2026/27, but a rate for 2027/28 has not yet been set.
The City of London is different again because council tax forms a relatively small part of its funding base. City Corporation finance papers say the Fair Funding and business-rates changes create a material future City Fund pressure, while discussions with Government over a bespoke funding arrangement have continued. That makes direct percentage comparisons with residential boroughs potentially misleading.
What contractors should watch next
The immediate construction risk is therefore not a single London-wide cut to council capital spending. It is a series of authority-by-authority decisions about borrowing, project viability, estate programmes, regeneration, housing development and discretionary capital investment as the 2027/28 budgets are assembled.
London's wider housing market already has a substantial gap between funded ambition and physical delivery. LCM's latest housing delivery analysis found that funding, viability, regulation and procurement continue to determine whether schemes actually reach construction rather than remaining in the pipeline.
The next confirmed milestones will come through the individual councils' 2027/28 budget processes. Wandsworth says its final council tax proposal will be determined in February and approved by Full Council in March 2027, while Hammersmith and Fulham is preparing consultation with residents. Until those decisions are taken, tax planning assumptions, Government funding calculations and illustrative scenarios should remain clearly separated from approved council tax rates and confirmed construction cuts.
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Expert Verification & Authorship: Mihai Chelmus Founder & Editor, London Construction Magazine | Construction Testing & Investigation Specialist |