Full-time, fully registered students are currently exempt from paying council tax, and Councillor James Coles reassures me that both locally and nationally, “the intention is never to ask students to pay council tax”. What does require attention, however, is the impact of this exemption on local finances; something Councillor Coles and his colleague Councillor Peter Allen have been campaigning to address.
When investigating the local impact of this policy, the Liberal Democrat councillors found it was contributing to a funding gap of around £21.3 million which is more than the council’s budget cuts in the same year.
The scale of the gap raises a larger question: how did it grow in the first place?
In theory, the Government compensates local councils for lost council tax revenue through grant funding. But the formula used to calculate that compensation had not been updated since the 2013/14 financial year, and continued to determine how much Newcastle received until recently.
Few cities could afford to turn down an extra £30 million a year.
The problem is that the circumstances of 2013 look very different from those of 2025/26. Councillor Coles said, “The number of students has increased across the city, but so has council tax, so the funding gap has only increased.” Indeed, student households have more than doubled, rising from 6,006 in 2013/14 to 12,492 in 2024/25, according to Newcastle City Council. Yet the formula used to reimburse councils remained frozen for more than a decade.
As things currently stand, following lobbying efforts both locally and nationally, the funding formula has been recalculated, meaning that Newcastle will receive additional government support. After operating at a significant deficit for over a decade, the city will begin seeing compensation that more accurately reflects its student population - a definite win for the lobbying campaign. While this represents a positive step forwards for Newcastle, the financial pressure on the city remains significant.
I wanted to gain a better understanding of the impact that the funding gap is having on Newcastle City Council and the wider city. Are any services being cut or put under significant strain as a result of the gap, for example? Councillor Coles tells me that “It's not so much what services are cut or strained as much as the fact that the class N exemption means that if those student properties were occupied by non-students the city would have around £30 million a year more to spend.”
It seems that the consequences of a national policy are being felt hardest at the local level.
Few cities could afford to turn down an extra £30 million a year. Yet Newcastle faces rising financial pressure, with Labour proposing a 4.99% council tax increase in April 2026 alongside workforce reductions, according to the Local Democracy Reporting Service. If the Government does not fully close the funding gap (which Councillor Cole says that they most likely won't) the short-term response will be higher taxes and potentially increased HMO licensing fees. “It was never realistically going to be the whole amount,” he said, “but when we've had years of spending cuts anything that goes in the opposite direction is a win.”
If the central government does not fully compensate councils for student exemptions, the financial burden remains in the hands of local councils, landlords, and most importantly - its residents. As we know, residents are facing proposed council taxes and cuts in the 2026-27 budget. It seems that the consequences of a national policy are being felt hardest at the local level.
Importantly, this is not a debate about making students pay council tax, nor is the council seeking direct financial contributions from universities. Newcastle University has been consulted on the matter, while council relationships with both universities seem very positive. “The issue of financial contributions hasn't come up, and nor do I think it should,” Councillor Coles said.
“On the whole the benefits to the city [from the universities] are clear either from employment or increased economic activity.” The issue is whether the central government properly funds the policy decisions it makes.
Local residents have also been a part of the discussion, and are largely “very supportive”. But what about the student population?
If students are central to the cause of the funding gap their perspective matters here, too. Students may not pay council tax - and few seem to argue that they should. But they are not separate from the communities that they live in, and their quality of life is shaped by the financial capacity of the city itself. Students and residents in Newcastle have had a complex relationship, particularly for those living in Jesmond, but the desire to live, work, and study in a thriving city is largely shared.
None of this diminishes the enormous economic and cultural contribution students make to Newcastle, of course. Ultimately, though, the long-term sustainability of university cities depends on maintaining services that are not under constant financial strain.
The question here is fairly simple: should the cities that educate students bear the financial cost of doing so? If university education is a national priority, then funding the places that make it possible must be one too. Otherwise, the cost of hosting tens of thousands of students each year will continue to be measured in the strain placed on the cities they call home and not the otherwise significant contribution of students to the city.