19 September 2003
Gordon Brown's special adviser has admitted council tax is the key issue facing the 'balance of funding review', as a storm of protest broke out over a ministerial threat to cap rises next year.
Stewart Wood, a member of the chancellor's council of economic advisers and an expert on local government, told Public Finance that the Treasury recognised there were widespread concerns with aspects of the funding regime and was committed to finding solutions. Currently, 75% of authorities' funding comes from Whitehall.
His comments came as local government minister Nick Raynsford provoked accusations of betrayal from town hall leaders when he declared he would use reserve powers to stop authorities imposing excessive council tax hikes in 2004/05.
Wood, who spoke to PF following the launch of a pamphlet by the New Local Government Network think-tank, said the government accepted the need for a proper examination of the 'gearing effect'.
'We wouldn't have set the review up if we weren't serious about recognising the problems of balance in the funding system,' Wood added.
Gearing has been a long-standing complaint of local government leaders, who say it means that a 1% increase in an authority's spending leads to a disproportionate 4% increase in its council tax. It is one of the principal explanations put forward for the inflation-busting council tax rises of recent years.
But Raynsford's declaration on September 15 was a clear signal that the government's patience has snapped. His statement spelled out that the government was even willing to renege on its commitment not to constrain the activities of top-rated authorities.
It came as the Association of London Government published research claiming that the council tax revaluation, due to be finished by 2007, could see bills soar by 15%.
Raynsford told MPs: 'In exceptional circumstances I do not rule out the possibility of capping authorities categorised as "good" or "excellent".'
Condemnation from the Labour-controlled Local Government Association was swift. Vice-chair Sandy Bruce-Lockhart warned it could destroy trust in the government.
'Nobody expected government to start threatening to renege on specific commitments. If this approach becomes the norm, councils would simply lose faith in talk of partnerships with Whitehall, and the damage to central and local relations would be very hard to repair,' he said.
Dennis Reed, chief executive of the Local Government Information Unit, which counts 150 authorities among its members, accused the government of being 'disingenuous'.
He added: 'It should be for local voters to determine at the ballot box their verdict on the decisions of their town hall.
'Ministers should encourage this by focusing on the more important and inter-related issues of reforming the balance between central and local funding of local authorities and the council tax.'
PFsep2003
