Council Tax Conundrum
After feeling rather hard done by over the past few weeks as first the Liberal Democrats and then the Labour Party more or less ignored Local Government at their party conferences the Conservatives have sought to redress the balance and then some in the first few days of their conference. What’s more, announcements about council tax, waste and the right to buy have come before Mr Pickles has even had his moment in the conference spotlight.
Despite being pleased about the rightful focus on local government, alongside the many other important issues discussed, over the past few days the local government announcements have left me feeling a little conflicted. The policy on weekly waste collection was ridiculous and the policy on right to buy and house building is a classic ‘devil is in the detail’ announcement. Which leaves council tax and on this I can’t help but feel a little let down.
First the positive news:
- The Government is providing local councils with over £800 million. This money is new money.
- Many councillors were feeling very twitchy about raising council tax this year and it is entirely possible that a 2.5% increase is more than many councils would have got had the decision been left to the councillors.
So far so good.
However, let’s not pretend that a 2.5% increase makes much of a difference to the council budget.
(Here comes the science bit)
The council budget is made up of council tax, Government grant (derived from business rates) and various fees and charges. Council tax makes up only between 20% and 50% of the council budget (depending on where the council is) so at best the money from Mr Osborne will provide local councils with a 1% increase in their budget for the year. Not to be sniffed at but not a game changer when the cuts are anywhere between 10% and 20%.
Despite the above it would be wrong to criticise this gesture just because it is a small one. There are however, real reasons that we should question it:
It seems that the money is a one off. Mr Osborne suggested that the money was being provided from an under spend. It is therefore almost certain it won’t be repeated next year. This matters.
Last year, the Government provided councils with £650m per year for four years. The Government made this money reoccurring in order to protect the council tax base of the local authorities. Mr Osborne has not done this.
This means that next year each local authority will need to raise council tax by 2.5% just to get back to where they are this year (filling the £800m gap left by this money not being reoccurring). To provide an increase (to match inflation or other cost increases) in the budget would require a tax increase well above 2.5% and that is probably politically untenable.
The raise this year is also below inflation which will hurt local authorities (although I doubt many politicians would have gone over 2.5%).
Add this together and it means that most local authorities will need to find extra cuts next year as a result of not being allowed to raise council tax this year.
Getting extra money from Government is always welcome but I fear that the announcement today will just leave local government in a worse hole one year from now with more cuts needed and a population even less tolerant of the tax increases needed just to keep local government running.
One other thing: We still don’t have full facts about this cut but I am a little worried that some of the £800m ‘found’ by Mr Osborne might need to come from Local Government itself. Certainly, the allegation has been made by Heather Wakefield and rumoured on twitter so can’t be discounted quite yet.
I’m withholding judgement but right now am feeling deeply sceptical about something which could be a good news story. Remember, all that glitters is not gold.
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