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Council tax capping must be abolished

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The average council tax increase this year looks set to come in well below 2%. It will be the lowest since council tax emerged from the ruins of the community charge in 1993.

There now appears to be competition to set lower and lower tax rises. The government’s threat of capping has meant authorities simply move slightly ahead of this threatened, increasingly restrictive, intervention.

Shadow chancellor George Osborne is still promising to reward authorities that hold their council tax increases to 2.5% or less with grant to cut the rise to zero.

The way things are going, he might find himself paying out £500m worth of grant for no reason.

Indeed, the new grant might allow councils to increase their spending slightly while delivering a zero council tax.

Allowing the government to use the threat of capping to produce lower and lower rises is a threat to the longer-term strength of local revenues

Tony Travers

The publication of a report by community secretary John Denham’s local government ‘value for money taskforce’, led by Sir Steve Bullock and Sir Richard Leese, has coincided with this year’s council tax-setting season. There is, in parallel, a growing sense that councils, led by Birmingham, are getting ready for austere times.

The taskforce’s report is clearly intended to help ministers pursue the argument that spending cuts need not lead to frontline service cuts. Councils will be expected to appoint joint managers, work with other public service providers and deliver efficiency savings by any means possible. Ministers need to be able to say “these cuts needn’t happen” as and when they begin to bite.

Efficiency savings have, it is reported by the government, been delivered by local authorities at the rate of 2.5-3% per year for the whole of the period since 2005-06.

Other things being equal, if 3% or even 4% per year efficiency savings continued to be delivered in each year from 2010-11, then cuts to funding of broadly the same percentage would, in theory, produce a ‘no real terms growth’ outcome.

It would be a serious test for the robustness of the efficiency process if a government dared to argue such a case could, in reality, be achieved.

At a national level, tax rises and spending reductions are inevitable if the government’s deficit is to be halved by 2014-15. Against this background, the shrinkage of council tax increases looks slightly odd.

Surely council tax could be allowed to take a bit of the strain as grants are cut? Income tax, national insurance and VAT might need to be increased substantially to cut the deficit.

Why not council tax? Allowing the government to use the threat of capping to produce lower and lower rises is a threat to the longer-term strength of local revenues.

Capping must be abolished for the sake of cutting the deficit.

Tony Travers, Director, Greater London Group, London School of Economics

  • 2 Comments

Readers' comments (2)

  • I would be happy to see capping go under any Government but this one - unless they were prepared to be even handed with grants to councils. It is all well and good for the Government to hoodwink the council taxpayer with the often repeated 'We fund 75% of local government spending'. That may be the truth in their eyes, but not in mine. The Government grant is very politically skewed. Some of the council tax payers in some parts of the country are funding their council to the tune of 78% - more than a reversal of the Government figure. Much of this is down to a grant of less than two per cent when according to the Government the average is 4%. From these figures, one can only assume that the Government considers everyone in the low grant areas to be rich and everyone in the high grant areas to be poor. Because I happen to live in a Shire county and my two bedroomed house falls into Band E, is it fair that a similar property in another part of the country should fall into band A or B?
    So, these hard pressed councils with low grant (mainly Conservative controlled) would continue to be squeezed by unfair Government grant. To cover the services demanded by central Government. They would have little choice left to them but to increase council tax to unacceptable levels.
    What would be the result of this? The electorate would see the low rises in council tax in the Government heartlands and with propaganda spewing out of Whitehalll blame the councils.
    All very clever stuff, I just hope, that if the unacceptable happens, the public will see through the duplicity of the present Government.

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  • I should have added to the above that if my County received the same grant as those receiving the higher grants, we would be expecting a dividend!

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