Revealed: the council that spends more on pensions than it collects in tax

Yahoo

31-05-2025

Cash-strapped local authorities are spending more than half of their council tax revenue on staff pensions, a Telegraph investigation has found.
The Shetland Islands council puts the equivalent of 111pc of its council tax haul into staff pensions, while councils in Hackney, South Oxfordshire, Newcastle-under-Lyme and the Orkney Islands all shell out more than half.
Another 19 fork out the equivalent of at least a third of what they take in.
Together, the 24 councils have stuffed almost £3bn into staff pensions over the past five years – but still hiked their tax rates by an average of over 7pc for 2025-26.
As rates soar to record levels and second home owners are hit with double premiums, Telegraph Money can reveal:
12 Scottish, nine English and three Welsh local authorities now shell out more than a third of their council tax on staff pension contributions – with the total bill exceeding £730m a year.
60 councils spend at least 20pc of what they collect.
The Local Government Pension Scheme already pays 2.3 million retirees and another five million current and former workers are building up generous, inflation-linked pensions.
It comes after nine in 10 areas across England endured the maximum 4.99pc council tax rise last month, with parts of Scotland and Wales slapped with even higher increases.
Local authority funding comes from multiple sources, including government grants, but tax receipts represented more than half of English councils' core spending power last year, according to the Institute for Fiscal Studies.
The Local Government Pension Scheme for England and Wales is one of the world's largest funded schemes, with 6.7 million members and £390bn in assets. Scotland's scheme has another 639,000 and assets of £60bn.
Together, they pay retirees £15bn a year in inflation-linked, guaranteed pensions for life. Employers pay an average contribution of 19.8pc of salaries for staff pension in England and Wales and 17.5pc in Scotland.
Now, following a series of Freedom of Information requests, The Telegraph can reveal the true cost of the generous schemes – and how much of your council tax is used to fund them.
Nigel Farage, Reform leader, said: 'For all the talk of debt, for all the talk of interest rates, for all the talk of local, county and national budgets, the real elephant in the room is public sector pensions.
'What is happening is a microcosm of an even bigger national problem. These will present big challenges for Reform in the councils we're in control of.'
The Shetland Islands council reported the highest percentage of contributions paid compared to council tax collected with 111pc. Its pension costs of £74.9m over the past five years dwarfed the £67.7m it collected from ratepayers.
In March, council officials said the council's major spending commitments and millions in borrowing repayments would lead to cuts to everyday services.
Orkney Islands council was also near the top of the list after spending the equivalent of 58pc of council tax.
The highest in England was Hackney council, which collected £415.2m in council tax between 2020 and 2024 and paid £243.3m, or 59pc, into staff pensions. It has yet to release its 2024-25 figures, but confirmed in November it would need to make savings of £67m by 2028.
South Oxfordshire district council received £43.8m over the past five years, but spent £25.2m, or 58pc.
Blaenau Gwent county borough council, at 39pc, was the highest in Wales after taking in £176.9m and spending £68.5m.
A total of 60 local authorities have spent more than a fifth of the council tax they collected on pension contributions since 2020-21.
Among the 24 that spent over a third, the average council tax increase for 2025-26 was 7.5pc. It ranged from 1.99pc in Newcastle-under-Lyme to 15pc on the Orkney Islands.
Birmingham council, which effectively filed for bankruptcy and announced £300m in cuts over two years, spent more than £100m a year, equivalent to 29pc of its council tax.
The figures come as homeowners and renters battle soaring council tax rates across the country.
Almost half of properties in England now face bills of at least £2,000, while the number of households on the hook for a £5,000 bill has quadrupled.
Six councils were also granted permission for exceptional increases by Angela Rayner, with Labour-run councils in Bradford and Newham hiking rates by 9.99pc and 8.99pc respectively. Increases in Scotland and Wales were even higher.
Second home owners have also been hit after more than 200 local authorities brought in a 100pc council tax premium from April 1, enabled by rules introduced under the Conservatives.
Telegraph analysis found that 2,000 second home owners in popular holiday hotspots could face bills of £10,000 or more across both their residences. The average second home owner will now see their tax bill rise 77pc to £3,672 in 2025-26.
John O'Connell, of the TaxPayers' Alliance, said: 'Local taxpayers are fed up with seeing more and more of their cash being used to prop up gold-plated pensions that most could only dream of.
'Households across the country are still reeling from the latest round of council tax rises and authorities are cutting back key services. All the while, those working in local councils are sitting pretty on defined benefit nest eggs that are all but non-existent in the private sector.'
Despite the amounts paid in by councils, the Local Government Pension Scheme remained almost £6bn in deficit at its last valuation. Of 87 individual schemes, 26 still didn't have enough money to pay their retirees.
There were hopes that councils would be able to cut their contributions following the next round of valuations, due later this year. However, experts fear this is now less likely after Donald Trump's announcement of global tariffs hit investment markets.
Andy King, of wealth manager Evelyn Partners, said the 'huge divide' between public and private sector pensions raised questions over affordability and fairness for taxpayers.
He said: 'A lot of council tax payers will be surprised at just how much of their continually rising bills go towards funding pensions, rather than into local services. The scheme is hugely more generous than private sector pensions, and local government staff may not know how good it actually is.'
A Local Government Association spokesman said: 'The Local Government Pension Scheme [LGPS] can help encourage people to develop a career in local government. With pay often lower in local government than comparable private sector roles, the LGPS can mitigate that while occupational pensions, like the LGPS, can help public sector workers avoid needing welfare benefits in retirement.
'The LGPS is the most robust public sector pension scheme. Compared with other major public sector pension schemes, the employer contribution rates in the LGPS are also generally much lower.'
A Hackney council spokesman said: 'Council tax income is just one of many funding sources that form our £1.9bn budget this year and help us deliver over 800 services that our residents rely on.'
Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more.