A ‘race to the bottom’ to freeze tax

Figures provided by councils responding to an LGC survey suggest average council tax rises for 2010-11 across England could be around just 1.6% – nearly half the 3% increase posted this year – with experts calling the move a “race to the bottom”.

Of the 81 councils that provided a figure, 34 revealed they are set to freeze or cut their rates. Freezes are planned across the local government spectrum from large metropolitans like Manchester City Council, to a raft of London boroughs and district councils, such as Cherwell DC.

The modest increases come despite significant income streams such as interest on reserves and fees and charges drying up because of rock-bottom interest rates and the recession.

But with inflation forecast to remain low for the foreseeable future, a general election looming and the recession hitting residents, councils are making efforts to keep rises to a minimum.

The significance of a potential sub-2% rise is underlined by the pattern of rises over the past decade. Department for Communities & Local Government statistics show council tax increases in England have ranged from 2.6% to 12.9%, with the average council tax bill rocketing from £697 in 2000-01 to £1,175 in 2009-10.

“We are in a race to the bottom,” said Professor Tony Travers, director of the Greater London Group at the London School of Economics.

“I would expect the national average to be between 1% and 2% and, because there are local elections, I would not be surprised if the average in London was below zero,” he added.

Prof Travers pointed out that while minimal council tax increases might be popular with residents, they could leave local government more susceptible to harsher cuts from Whitehall.

“The more local authorities prepare for the worst, such as mid-year cuts, the more likely, perversely, it is that an incoming government might feel councils could easily take more cuts,” he said.

Worcestershire CC director of finance Mike Weaver, formerly president of the Society of County Treasurers, said: “Council tax changes have to be seen against the general economic background.

“We may see some short-term modest upward pressure on inflation over the next few months but by next spring forecasters are predicting a significant easing in prices.”

However, not every council will be rubber-stamping a record low increase come February. Eight councils said they expected to boost their council tax by 4.5% or more, six of which were districts and two metropolitans. One district council finance director, who responded but did not produce a figure, said he was unsure what the figure would be, but it would be “as near to the cap as possible”.

Shadow chancellor George Osborne last year pledged to freeze council tax for the first two years of a Conservative government. He said that if a local authority was able to hold its council tax at 2.5% or less, central government would supply the cash to reduce it by a further 2.5%, representing a freeze or a cut.

Last year, 71% of respondents to LGC’s survey said their tax would rise by more than 3%. And 9% of those surveyed predicted rises of over 5% – potentially triggering capping.v

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