10 December 2004
Town hall leaders are warning that the £1bn cash injection promised by Gordon Brown does nothing to tackle the underlying pressures on council tax bills, which could still soar in future years.
The Local Government Association has hailed the funding package announced by the chancellor in his Pre-Budget Report as a 'significant victory'. But LGA chair Sir Sandy Bruce-Lockhart said that, even with the extra money, many councils would remain under severe financial pressure. He said the problems would only get worse in subsequent years, and raised the spectre of cuts to services.
'Many authorities, especially district councils, after they have squeezed out efficiency savings, will have no option but to cut valuable environmental and community services,' he said. 'The money won is a one-off and doesn't help address the fact that the burden on council tax is unsustainable.'
Brown pledged the extra funding for English councils in an attempt to stave off large council tax increases next April, just before an expected general election in May. The LGA had been warning since October that authorities were facing a £1bn funding gap that threatened average council tax rises of 10%.
The chancellor pledged £125m in new money for English local authorities, and said that Whitehall ministries would hand over £512m from their existing departmental budgets. In addition, £330m would be generated by releasing some ring-fenced funding and ensuring that fees for activities such as licensing and planning cover authorities' costs.
But Brown made it clear that he would not tolerate large council tax rises in 2005/06,
saying he had acted 'in order that English council tax rises will be substantially below last year's 5.9% rise'.
Local government minister Nick Raynsford later gave details of the overall provisional finance settlement for local government.
Total formula grant for English councils will increase by 5.6% to £49bn in 2005/06. Overall funding will rise by 6.2% to £60.1bn. This comprises £26.71bn of revenue support grant, £18bn in business rates, £4.35bn in police grant, and £11.05bn in specific grants.
The settlement sets the grant floors at 4% for top-tier authorities and 2.5% for district councils, fire and police authorities. Ceilings have been abolished to help authorities with rapidly growing populations. Instead, the floor will be funded by scaling back the grants of all authorities receiving more than the minimum rise.
Raynsford said all councils should set tax increases of less than 5%, substantially lower than the 2004/05 level. He promised to crack down on transgressors but stopped short of saying they would automatically be capped.
'We used our reserve capping powers for the first time last year to deal with excessive increases. We are prepared to take even tougher action next year than we did in 2004/05 if that proves necessary,' he said.
But Chris Clarke, leader of the LGA Liberal-Democrat group, said: 'Ministers' annual last-minute whip-round to curb council tax increases is crisis mismanagement. It will leave people facing double-inflation increases on council tax, which is already too high and the unfairest tax of all.'
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