26th August 2026
There is a point at which individual increases in household costs stop being individual problems and become something much bigger.
A £100 increase in the annual energy bill may be manageable. A modest rise in the mortgage rate may be manageable. A council tax increase may be manageable.
But when all three arrive together, the effect can be very different.
That is the financial squeeze facing many households as we look towards the next round of council tax decisions, while energy prices remain uncertain and the direction of interest rates has become less predictable.
For households trying to plan their finances, the problem is not necessarily one dramatic increase. It is the accumulation of several smaller pressures.
Highland Council's financial position makes the council tax question particularly important locally.
For 2026/27, Highland Council agreed a 7% council tax increase, comprising a 5% increase for core services and a further 2% linked to the Highland Investment Plan. At the same time, the Council identified a substantial financial gap and set out savings and income-generating measures intended to help balance its finances.
That doesn't automatically mean that another 7% increase will arrive in 2027/28.
However, the Council's medium-term financial planning has previously assumed that council tax could rise by 5% for core services, with another 2% associated with the investment programme, subject to the annual budget decision.
That makes another sizeable increase a possibility rather than something that can simply be dismissed.
The reason is straightforward.
Highland Council faces many costs that are difficult to reduce quickly. Education and social care account for a large proportion of its spending, while wages, energy, transport, contracts and other operating costs continue to put pressure on budgets.
Adult social care is particularly challenging because demand can increase while the cost of providing care rises at the same time.
There is little political or practical appetite for simply cutting essential services to balance the books.
That leaves councils with three broad choices: reduce services, obtain more funding from central government or raise more money locally.
In reality, they are likely to use a combination of all three.
Council tax therefore becomes an increasingly important source of additional income.
The difficulty is that the ability of households to absorb higher council tax is not unlimited.
This is especially true when other household costs are already under pressure.
Energy is perhaps the most obvious example.
Ofgem has announced that the household energy price cap will rise by 4% in October, taking the typical annual bill to £1,723. The increase is being driven largely by higher wholesale energy costs.
That is important because energy prices do not operate in isolation.
When energy becomes more expensive, it affects household bills directly but also increases costs throughout the economy. Transport, manufacturing, food production, retail and hospitality all face higher costs.
Businesses may respond by increasing prices, while employees may seek higher wages to compensate for the higher cost of living.
That creates a difficult problem for the Bank of England.
Bank Rate is currently 3.75%, but the prospect of continuing energy-price pressure makes the next interest-rate decision much less straightforward than it appeared earlier in the year.
If higher energy costs feed into broader inflation and inflation expectations, the Bank may decide that interest rates need to remain higher for longer.
A further increase to 4% cannot be ruled out if the inflation data deteriorates sufficiently.
For mortgage borrowers, this matters enormously.
Someone with a fixed-rate mortgage will normally be protected until the end of the fixed period, but those coming to refinance could face higher borrowing costs if market interest rates rise.
Tracker and variable-rate borrowers can be affected more quickly.
And mortgage rates can rise before the Bank of England actually increases Bank Rate because lenders respond to expectations in financial markets.
That means the household can be squeezed even if the official Bank Rate remains unchanged.
Consider what this could look like in practice.
A household might face a higher energy bill in October. A few months later, its fixed mortgage could come to an end and have to be refinanced at a higher rate. Then, around the same period, the local council could announce another increase in council tax.
None of these increases has to be enormous.
Together, however, they could make a noticeable difference to the household budget.
And this is where the debate about council tax becomes more complicated.
From the Council's perspective, additional council tax income may be necessary to maintain services and finance long-term investment.
From the household's perspective, council tax is simply another bill.
Both statements can be true at the same time.
There is also an important distinction between the headline percentage increase and the actual amount paid.
A 7% council tax increase does not mean that household expenditure rises by 7%. It means the council tax charge itself increases by 7%.
For a household currently paying £2,000 a year, another 7% would mean approximately £140 more over the year.
That is around £12 a month.
On its own, that may not sound dramatic.
But £12 here, £20 there and another £50 or £100 elsewhere can gradually consume the spare money that a household once had available for emergencies, savings or discretionary spending.
This is particularly significant for people living on fixed incomes.
A household with a salary that increases by several percentage points may be able to absorb some of the pressure.
A pensioner or someone whose income changes very little has far less flexibility.
The same issue applies to small businesses, although their situation is different.
A business does not pay council tax on its commercial premises in the same way a household does; business rates are the relevant property tax. But the same inflationary pressures that affect council finances also affect businesses.
Energy, wages, insurance, borrowing costs, transport and supplier prices can all rise together.
For a business operating on a narrow margin, another increase in any major overhead can be significant.
This is why the financial pressures facing households, councils and businesses should not be considered separately.
They are connected.
Higher energy prices increase costs throughout the economy.
Higher inflation makes it more difficult for the Bank of England to reduce interest rates.
Higher interest rates increase borrowing costs.
Higher wages and other costs increase the cost of providing public services.
Councils then face pressure to increase income.
Households therefore find themselves potentially paying more for energy, mortgages and local government services at the same time.
There is, however, one important reason why we should not assume the worst.
Highland Council's eventual council tax decision will depend on its financial position at the time, the settlement it receives from the Scottish Government and the savings and efficiencies it manages to achieve.
A better-than-expected funding settlement could reduce the pressure for a large council tax increase.
Equally, if inflation falls, energy prices decline and interest rates continue downwards, the pressure on household finances could ease.
The problem is that none of those outcomes can be guaranteed.
The Council also has ambitions for a major long-term investment programme. That creates a further tension between investing for Highland's future and keeping today's bills affordable.
Investment in roads, buildings, housing, schools and infrastructure can be justified as necessary for the region's long-term prosperity.
But somebody has to finance it.
The danger is that long-term investment commitments can collide with short-term household affordability.
This is why the next Highland Council budget will deserve close attention.
The question should not simply be whether council tax is going up.
It should be why it is going up, what the additional money will finance, how much of the increase is genuinely needed to maintain existing services, and how much is being used to finance new ambitions.
There is nothing inherently wrong with increasing council tax if the money is needed and the services being provided justify the cost.
But transparency becomes increasingly important when households themselves are under financial pressure.
Britain's cost-of-living debate has often concentrated on individual prices.
Energy bills.
Food prices.
Mortgage rates.
Council tax.
Insurance.
Fuel.
Each is discussed separately.
But households do not experience them separately.
They arrive through the same bank account.
That is why the coming months could be particularly revealing.
If energy prices remain elevated, inflation stays stubborn and interest rates fail to fall as expected, households could face a period in which several major costs rise at once.
For Highland households, another council tax increase would then become more than a local government financial decision.
It would become another part of a much wider national affordability problem.
The real question is therefore not simply "Can households afford another council tax increase?"
It is whether households can absorb another increase while everything else is becoming more expensive too.
That is the triple squeeze: energy, borrowing and local taxation.
And unlike a single large bill, it can be surprisingly difficult to see just how much it is costing until the money has already disappeared from the household budget.