Headlines: February 25th, 2010

There is a warning that Council Tax increases of 16 per cent could be needed next year if central government grants are frozen. The Director of the New Local Government Network, Chris Leslie says the less than two per cent increases for the coming year have been made possible by the ‘generous increase’ in grant which could be the last for five years.

The Chartered Institute of Public Finance has predicted an average tax rise of 1.8 per cent while the Local Government Association is estimating a 1.6 per cent increase. Mr. Leslie said that was due in part to the pre-election period but more likely to be attributable to the 4 per cent rise in grant.

Council Tax raised only about a little more than a quarter of total local authority spending, he said, and the grant was the key determinant of tax increases. “If grant is frozen, or cut as predicted in the years ahead, then councils have little choice but to place this burden disproportionately on the shoulders of the council tax payer,” Mr. Leslie explained.

Labelling the system of local government finance ‘antiquated’, he added: “The ‘gearing ratio’ means that for every pound of grant withheld, council tax needs to rise by four pounds to compensate,” and he continued: “If next year the Treasury decides to freeze central grant to councils, we might be facing council tax increases of 16 per cent in that single year to counteract the loss of revenue, unless councils act decisively to generate further internal efficiencies to compensate”.

He urged political parties and people in general to recognise that the grant to councils was a key priority in future reviews of spending and that cuts across the board would have serious consequences for tax payers.