Councils on hit list face capping threat

15 Jan 04
The government is planning a crackdown against 31 councils on a secret Whitehall hit list identifying those likely to set inflation-busting council tax increases, as the issue dominated the political agenda again this week.

16 January 2004

The government is planning a crackdown against 31 councils on a secret Whitehall hit list identifying those likely to set inflation-busting council tax increases, as the issue dominated the political agenda again this week.

Public Finance has learned that local government minister Nick Raynsford will imminently fire a shot across the bows of the councils, which have been tracked down by officials from press reports and 'grapevine gossip'.

He has drafted a letter, a copy of which PF has seen, warning them that he is ready to use capping powers to face down any attempt to set a rise that exceeds 'low single figures'.

The letter, which was due to be sent out as PF was going to press, makes clear that the government is determined to prevent a repeat of the double-digit hikes of recent years, which last year saw bills soar by an average of 12.9%.

It is being sent to all authorities believed to be planning increases above 5% for 2004. 'Council tax payers in your area would find it hard to understand how such an increase could be justified. The government has delivered another good settlement for local authorities,' the letter states.

'We will be looking very closely at final budgets and council tax rises for next year, and we will not hesitate to use our capping powers if that proves necessary.'

There is widespread acceptance that ministers are not bluffing, and one local government source predicted to PF that more authorities would be receiving copies of the letter in the coming weeks.

The issue has been rising up the political agenda in recent months – a pensioners' demonstration is planned in London for January 17 – and there is a growing consensus that the tax is no longer sustainable in its current form.

The Local Government Association has this week published proposals, agreed by all the political parties, outlining reforms it would like made to the funding regime for councils.

Its paper, which was due to be discussed at a meeting of the Balance of Funding review on January 15, calls for a 'reformed and more equitable' property tax.

This call has already been heard by the government, which has launched a revaluation of the council tax bands by 2007 that should lead to the reclassification of many properties in a larger number of bands.

There have also been suggestions recently that the government is willing to consider a system of regional property bands, although there has been no official confirmation of this.

The LGA is calling for a return to local control of the business rates, which has been a long-cherished dream of town hall leaders everywhere.

But Prime Minister Tony Blair has already indicated that he is not keen on the idea, and privately senior local government figures concede they are unlikely to get more than the business growth incentive scheme set out in the 2003 Local Government Act.

Most controversially of all, the LGA paper calls for a gradual move towards a local income tax. This could be done, it says, either by assigning a proportion of national income tax revenue to be distributed among councils, which would allow the government to control the tax rate, or by going straight to a system of locally determined taxes.

The paper estimates that this package of measures would reverse the current balance of funding, where around 75% of authorities' money comes from central government, so that just 25% originated from Whitehall.

Sarah Wood, the LGA's new director of economic and environmental policy, told PF that over the coming months the organisation would conduct extensive modelling exercises to test the impact of the proposals at regional and local level.

While she refused to be drawn on the prospects of ministers accepting the LGA proposals, she said the government had accepted the need to reform the system.

'No change is not acceptable to the general public, and ministers know that. There is a real clamour from the public over this issue and they are not going to let this die away,' she said. 'The LGA needs to build on that in an evidence-based way.'

Earlier in the week, on January 12, the Liberal Democrats unveiled their plans to scrap council tax and replace it with a local income tax collected by the Inland Revenue.

Under the scheme, authorities would set their own rate, although the party estimates it would average about 3.75%. There would be a personal allowance of at least £5,000 and no local tax would be levied on income over £100,000. The LibDems claim 70% of people would pay less than they do currently.

Party leader Charles Kennedy condemned council tax as 'deeply regressive'. He added: 'Local income tax is a fair, efficient, tried and tested method of local taxation. It is already used in many other countries around the world and works very well.'


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