The government’s hopes of securing a nationwide freeze in council tax levels next year are unlikely to be realised, exclusive LGC research suggests, with a significant minority of councils unconvinced by ministers’ offer to the sector.
More from: Full take-up of council tax freeze unlikely
According to the first survey of council finance directors on the issue, the less generous terms on which funding is being offered, equivalent to a 2.5% rise, has left one local authority in five considering turning the proposal down.
A small minority of councils (4%) are likely to reject the deal outright and increase council tax while another 16% are undecided, according to responses from 146 council finance directors.
Meanwhile, almost half of councils planning to take up the grant believe doing so will force them to implement larger increases or cut services the following year.
Asked to make a projection of their council’s plan for tax levels in 2012-13, 79% of the respondents said they would accept the freeze, but many said that would lead to higher levels of council tax increase in 2013-14.
The survey, which was conducted on condition of anonymity, showed no clear split along party lines, with two Conservative-controlled councils among the six saying they intended to turn down the offer of the government grant.
Two-thirds of those councils undecided about the offer were also Conservative-controlled authorities.
Brighton & Hove City Council, which was recently won by the Green Party, is one council which has been open about its plans to increase council tax next year.
Jason Kitcat (Green), cabinet member for finance, said LGC’s survey results were “just the tip of the iceberg” and predicted more councils would reject the government’s offer.
“The rising numbers of councils across the country coming out and rejecting this government gimmick is just the tip of the iceberg as it is clear alarm is spreading in town halls across the country. Unlike previous years this grant is only available for one year and so any decision to freeze council tax this year would mean town halls would have to find more money next year which is of course delaying the problem.
“The latest figures show that it would cost us £5m over two years and leave council tax further behind inflation so that future increases would be even higher which is not in the best interests of our residents and this city.”
As exclusively reported by LGC last month, councils face a difficult choice because the £805m grant to fund a 2012-13 council tax freeze is being offered for one year only, unlike the package for the 2011-12 freeze. This package included £700m of funding each year between 2011-12 and 2014-15 to fund the permanent damage to the council tax base resulting from the freeze.
LGA Liberal Democrat group leader Gerald Vernon-Jackson told LGC at the time it was “not an offer that many councils can seriously consider taking up”.
He predicted that local authorities would increase 2013-14 council tax by more than originally planned in response to the funding ‘cliff edge’ produced by the one-off deal, and LGC’s survey suggests this is indeed a serious concern.
The finance director of a Conservative-controlled district that intends to accept the grant said: “Financially it makes no sense, but politically members feel they’ve no choice. It means that increases in 2013-14 will be higher in order to recoup the loss of income.”
The chief financial officer of a Labour-controlled district that is set to take the grant said: “This reduces council tax baseline and local authorities are already having to manage significant reductions in grant funding.”
Counties face a particularly tricky decision with all-out elections scheduled to take place in May 2013, just as council tax bills for 2013-14 land on voters’ doormats.
Despite this, it was counties that expressed the greatest interest in taking up the freeze, with 92% reporting they intended to take the grant.
Paul Kent, president of the Society of County Treasurers and Dorset CC’s chief financial officer, said: “It’s going to be very hard for councils to explain why they didn’t take the grant, because they’d rather charge residents a 2.5% increase now.”
Of the 95 authorities that offered further details of the impact of the freeze on tax levels in 2013-14, 29% said it would result in a larger increase than planned and 18% said they would need extra savings or service cuts.
Ten councils claimed they would have to budget for a council tax increase of 5% that year.
Mr Kent said the knock-on effect “makes members think more carefully about what they want to do, but a freeze still gives the taxpayer a year’s grace”.
Responses to the government’s offer also depended on where the council was.
Authorities in London and the south-east were the most likely to accept the government’s offer. The north-east was the region least likely to accept the grant (67%). The north-west (71%) and the east Midlands (73%) were the next least positive.