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
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