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Penalties for councils caught in levy trap

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Ministers plan to punish councils whose local levying bodies push their tax rises through the 2% referendum ceiling, by imposing legal curbs on their increases next year.

The curbs would be introduced in new legislation and would mainly affect metropolitan councils with transport and waste authorities that set large increases in levies.

A government source has told LGC that councils that breach the 2% threshold this year as a result of levy payments would have the following year’s threshold level reduced on a 1:1 basis.

“Ministers will include the new legislation in the audit bill,” the source said.

The breach occurs because the Department for Communities & Local Government told councils to exclude the levies paid to bodies providing services such as transport and waste when calculating referendum trigger points.

The threat of further restrictions on local government’s council tax raising powers comes after Manchester City Council and Rochdale MBC set out proposed council tax increases of 3.7% and 3.5% respectively. Neither council will trigger a referendum because of current exclusion rules.

Cabinet papers from Manchester show its 3.7% increase is made up of a 7.4% increase in levies and a 2.4% reduction in the council tax retained by the council.

As previously reported by LGC, metropolitan authorities have argued against the exclusion of levies from the calculation because the method results in variable referendum trigger points for those councils subject to large levy charges.

However, DCLG now appears to be reconsidering its decision to exclude levies from the calculation, with the source saying next year’s calculations could “include precepts”.

Assuming the national threshold next year is also 2%, such a move would leave Rochdale with a referendum trigger point of around 0.5% in 2014-15 as the 1.5% increase above the threshold is reversed the following year.

Senior local government sources told LGC that an announcement on council tax had been planned for earlier this month, around the time that Rochdale’s 3.5% increase was picked up by national newspapers. This was then put on the back burner until an unstated later date.

DCLG is also considering introducing new accountability and transparency requirements for the levying bodies involved.

A DCLG spokeswoman said: “This government has introduced a series of initiatives to increase openness on local government spending and to protect local taxpayers’ from unwanted tax rises.

“There is scope for further steps. We are considering the potential for further measures to increase the transparency and accountability of unelected levying bodies.”

As well as council tax increases above the threshold which do not require a public vote, the exclusion of levies has left other councils triggering referendums below 2%.

Sefton MBC said in November that it could trigger a referendum with a 0% increase because of a decrease in its transport levy.

For full details of councils’ plans for council tax next year visit LGC’s blog.

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