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FINANCE - WAR FOOTING

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As John Prescott beats his chest in an attempt to rein in the big spenders, how will councils react? Jon Hanlon rep...
As John Prescott beats his chest in an attempt to rein in the big spenders, how will councils react? Jon Hanlon reports

A black cloud of uncertainty has descended on those 14 councils for whom the spectre of capping looms.

Six councils and one fire authority are in line to be capped this year and seven authorities could have their spending powers limited next year, in what is seen by some as a thinly veiled government threat not to mess things up before a possible 2005 general election.

Perhaps unsurprisingly, David Curry, former shadow local and devolved government secretary and Conservative MP for Skipton and Ripon, is one of the most vociferous critics of the capping threat.

He says: 'The whole exercise has been a sort of war dance for deputy prime minister John Prescott, with a view to the next general election. He has been beating his chest, but it has not made any difference because around 300 councils have still set their council tax in high single figures.

'It is impossible to achieve low single figures and the current problems with council tax are totally and utterly due to central government incompetence.'

He says the problems have been caused by the government's pledge to increase spending on education, combined with changes to the spending formula which give the false impression that councils are receiving more funding than before. Mr Curry's view that the threat of capping is just the beginning of a long-term project to clip the wings of councils and stem public disquiet over rising council tax bills is echoed elsewhere.

Tony Travers, director of the London School of Economics' Greater London Group, suggests the effect of capping this year will be tiny in terms of public spending, but would act as a warning to keep council tax down next year. He says: 'Capping this year would have a minuscule effect on council tax bills and an even more minuscule effect on councils' overall spending. It would therefore have a minuscule effect on public spending and the economy so it really is all about next year and the run up to the next general election.

'Ministers are saying there should be increases of just 3% next year so it is about playing a long psychological game around council tax rises in April 2005, when they will expect very low increases.

'The implication is that these councils have behaved in such an appalling way that the entire edifice of council tax and public spending control is under threat, when in fact it accounts for less than some other forms of taxation. Council tax is a highly visible, accountable tax, so a lot of this debate is about symbolism.'

An ODPM spokesperson admits the effect of capping could be tiny in some cases, but adds: 'We decided on a comprehensive set of principles and criteria, and there are some authorities that fall just inside that. The effect in these cases may well be minimal and I am sure this is something they will want to raise in their responses to us.'

The government is clearly willing to listen to authorities' arguments against capping but the doomsayers fear that ministers will be forced to take action to stem rising council tax bills.

Mr Travers adds: 'If they do not cap anyone this year, it would suggest they are simply crying wolf. The position at present is very similar to the previous government's approach when they used selective capping and local government was heavily constrained.'

Enfield LBC finance director Mark McLaughlin says the threat of capping is a response to high-profile public concerns about rising council tax bills. He says: 'I think this reflects the panic over the public reaction to council tax increases. It has become a big issue and it would be dangerous to underestimate its importance.

'Local authorities are being capped on the one hand and asked to spend more money on the other.'

Some commentators suggest the government is using capping to avoid having to tackle the thorny issue of council tax, and the Liberal Democrats are using the issue as a central plank of their local government election campaign. A party spokesperson says: 'The unpopularity of council tax springs from its basic design fault: its unfairness. Most significantly, the banding system puts a ceiling on what the richest pay and a floor under what the poorest pay. The problem is exacerbated by the inefficient tax benefit system and the fact that your home's council tax band is totally unrelated to your income.'

Local government finance consultant Rita Hale says the benefits system should be improved to help those who are 'nearly poor' but face large council tax bills. However, she says the tax is successful in so far as collection rates are high and it is broadly progressive.

Whatever the future of council tax, the seven authorities that face in-year capping have three weeks to respond and the government can expect some robust comments, both from those that see it as a futile exercise in trimming the budget and those facing significant budgetary cuts.

At one end of the scale are authorities such as Telford & Wrekin Council, which has to axe£31,000 from its budget but would face re-billing costs of nearly six times that amount; while there are others which face massive cuts and the possibility of hundreds of job losses.

Ms Hale says: 'The issue of council tax capping is really serious. The fact that re-billing would cost so much more than the savings in some cases begs the question of whether the cuts are worth making.'

The government has always maintained the right to cap authorities, but many felt the threat had all but disappeared as capping legislation gathered dust for nearly a decade. However, the new threat is unlikely to pass without casualties and will certainly act as a warning to councils across the country to keep costs down while delivering improved services.

Capping case study: Hereford and Worcester fire authority

Hereford and Worcester Fire Authority faces nearly 200 job losses if the government goes ahead with plans to cap its budget.

The authority fails to meet the ODPM's capping criteria, which state that the budget increase should be less than 7%, council tax increase below 13% and Band D council tax increase£53 or less. The government is therefore asking the authority to slash£2m from its bill. However, this would mean the loss of around 200 jobs, including 140 firefighters, according to Worcestershire CC's director of financial services Mike Weaver.

There would be an additional re-billing cost of£600,000, bringing the total to 10% of the authority's£26m budget - all of which would have to be made this financial year.

Mr Weaver says: 'We do not think what [deputy prime minister] John Prescott is doing is in the public interest because so many jobs would have to go. A£2m cut in council tax is worth just£7.62 a year off council tax bills. We do not think it is worth taking the risk of having fewer firefighters to save this amount.'

The plans to cap Hereford and Worcester Fire Authority come at a crucial time because employers are trying to reach an agreement on pay and conditions.

The authority's response to the ODPM says: 'If [John Prescott] pursues his proposal, the authority will not be able to deliver the modernisation agenda as intended. This will have serious implications for the verification study being conducted as part of the Fire Service Pay and Conditions Agreement.

'The authority will also have difficulty in providing an adequate response to terrorist incidents, including public mass decontamination, as it will not have the resources required to utilise the new vehicles and equipment recently provided by the government.'

The report outlines the dramatic effect that budget cuts would have on the authority's resources, including a reduction in the size of the brigade by a fifth over just a few weeks.

It adds: 'There are heightened probabilities of deaths and injuries from the consequences of the proposals. Corporate risk increases enormously because of the failure to meet statutory obligations.'

The threat of a breakdown in the pay talks, higher levels of death and injury and the long-term decline of services are just a few of the arguments that suggest Mr Prescott will have a difficult decision to make.

Capping hitlist

Authorities targeted for capping this year

Herefordshire Council; Nottingham City Council; Telford & Wrekin Council; Torbay Council; Fenland DC; Shepway DC; Hereford & Worcester Fire Authority

Authorities targeted for capping next year

Cumbria Police Authority; Northamptonshire Police

Authority; West Mercia Police Authority; Bedfordshire Fire Authority; Durham Fire Authority; Essex Fire Authority; Nottingham Fire Authority

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