26 November 2004
Ministers will give councils extra financial support but will couple it with widespread capping to avoid big council tax increases in an election year, local government insiders believe.
Town hall leaders are confident that next month's provisional revenue support grant settlement will contain some new money to stave off tax hikes before an expected May 2005 general election. The continuing delay in setting a date for the settlement, usually announced in mid-November, has reinforced that conviction.
But senior local government figures believe the extra cash will be accompanied by a tough capping regime reminiscent of the 'crude and universal' approach taken in the 1990s.
'I think there will be some new money and a lot of smoke and mirrors,' one told Public Finance. 'Then the attitude will be "we've given you extra help so don't say you can't keep bills down".'
That was apparently confirmed when Nick Raynsford said this week that the government expects 'significantly lower' council tax increases in 2005/06 than the 5.9% average achieved this year.
'If local authorities do not heed this message, we are prepared to take even tougher capping action next year than we did for 2004/05,' he added.
The Local Government Association warned last month that a £1bn funding gap, including £300m in pensions liabilities, £225m for statutory waste duties and £200m for social care responsibilities, would result in an average 10% hike in council tax.
When he announces the settlement, Raynsford is expected to outline a package of measures to significantly ease the pressures on authorities, although it will not plug that gap.
Funding floors, used to guarantee authorities a certain level of grant, will be raised. This will help district authorities, which are particularly vulnerable to tax hikes because of previous poor settlements. Ceilings are likely to be altered to help authorities with growing populations.
Government departments have been told to ease the burdens placed on councils and pass on unspent allocations. Authorities' debts, such as the transitional funding provided for fire services, are likely to remain uncollected.
These measures, together with a cash injection similar to the £340m made last year, will take some of the pressure off authorities.
Sarah Wood, the LGA's director of economic and environmental policy, said that to reduce the average council tax increase by one percentage point, £180m of new funding is required.
'If there is some realism about what low council tax means, authorities will do their best to deliver as low an increase, with as few cuts to services, as possible,' she added.
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