Chancellor George Osborne’s Budget pledge to freeze council tax next year might have played well with the pro-Conservative press but it has given local government a real problem.
The lack of detail in the Treasury’s red book left local authorities wondering if they were facing another cost burden in addition to their drastically shrinking grants.
Mr Osborne first suggested that a Conservative administration would freeze council tax back in 2008. But previous incarnations of the proposal included financial aid to offset any freeze - an assumption many councils worked into budgeting plans.
The party’s localism green paper, Control Shift, said: “Councils will have to hold the rate of rise in council tax to 2.5% or less; and central government will correspondingly undertake to make a payment equal to 2.5% of that council’s council tax - so that bills can be frozen in each such council for the two-year period.”
Times have changed since then. In addition to reducing the proposal to a one-year freeze in the Budget, the promise of cash was also conspicuously absent.
The Budget said: “The government will work in partnership with local authorities to implement a freeze in council tax in England in 2011-12.
“The government will clarify in due course the terms under which local authorities that commit to freeze or reduce their council tax will be compensated.”
The Treasury assumed a resulting loss of revenue to authorities of 2.9% - the average of the three years’ most recent council tax increases, which equates to £625m.
Overall, the mood music from the Department for Communities & Local Government appeared to be encouraging, despite a lack of detail.
Junior local government minister Andrew Stunell told an LGC/New Local Government Network conference last Thursday that councils would not be “left out of pocket”.
Reinforcing Mr Stunell’s point, a DCLG source told LGC: “Two and a half per cent was from Control Shift, so that gives you a good sense of where they are coming from.”
However, many in the market were less convinced. Conservative councillors privately questioned why ministers would hand councils as much as a 2.5% rise when so many had frozen, or cut, their rates without such an incentive this year.
Local Government Information Unit chief executive Andy Sawford also questioned whether a blanket approach was appropriate.
“My understanding is that the arrangements are going to be more nuanced. DCLG will probably say they don’t have the money to carry out the original plans, so instead there will be individual negotiations between local authorities and ministers,” he said.
“There might even be some councils that say they do not want the money; however, those that do will have to set out very good reasons as to why they should get it.”
Questions also lingered as to how the Conservatives would weave their other council tax-related policies around the freeze. Control Shift proposed to scrap Whitehall capping powers and “give local residents the power to veto high council tax rises via a local referendum”.
Deloitte partner Mark Lawrie pointed out that these policies were hard to square.
“You cannot have a referendum where residents could theoretically vote to raise the council tax and have a national freeze.
“They might bring the referendum model in at a point where they are relaxing such constraints on authorities in the future,” he suggested.
DCLG figures published last week revealed about 25% of local government’s revenue expenditure is funded through council tax. Councils will want to know exactly what they can rely on in the way of additional funding sooner, rather than later.