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Council Tax Set to Rise
By Rory MacLean
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It’s called the "gearing effect" and it explains why even though your council tax may increase by a large amount, there might be little impact on the services provided by the local authority.
The reason is that central government provides around 80 per cent of the money local authorities need; the other 20 per cent is provided by council tax. That means in order to increase the overall spend by 1 per cent, council tax has to increase by several per cent.
Today’s survey by the Chartered Institute of Public Finance and Accountancy for Today shows that effect in action.
The average Band D property in England and Wales would see the bill increase by 8.1 per cent, up £72 to £963. That’s the biggest cash rise since the council tax was introduced in 1993. In Scotland the rise is a more modest 4.5 per cent.
There is however, a wide variation amongst authorities.
Sedgefield in County Durham, Tony Blair’s constituency, has the highest Band D bill: nearly £1200. Wandsworth, in London, the lowest: £402. Wellingborough is increasing its bill by 17 per cent while Liverpool, once the highest charging authority, has actually cut its demands by 3 per cent.
Local authorities have a number of areas where they need to spend money that they say is not forthcoming from central taxation.
In addition, police authorities say that their pay deal has not been fully funded by the government, leaving a shortfall of around £370 million.
Education authorities report a similar situation over the teachers’ pay settlement:
the gap is £380 million.
There's also pressure on social services, particularly over increasing numbers of children who are coming into local authority care. The numbers are up 18 per cent this year in England and Wales. There's also some pressure in Scotland.
In Birmingham the Social Services Department has a £5 million funding gap. The gearing effect means that, in order to find that money from the council tax, the tax would have to increase by 2 per cent, or there would need to be savings.
The Conservatives have not been slow to accuse the government of "stealth taxes" by switching the burden for public services from central to local government. But although the government has always been prepared to see council tax rise by more than the rate of inflation, the picture is more complex.
There has been a steady rise in the use of ring-fenced grants to local authorities, which leave the councils no leeway in how the money is spent. These are satisfactory from the government’s point of view because they ensure cash is directed at key objectives.
In education, for example, specific grants have increased from around £256 million in 1997 to around £3.6 billion in the coming year. However, local authorities say these grants don't allow the local flexibility that's needed to deal with issues like the increase in spending on social services for children.
The government is committed to reducing the use of specific grants, but there is as yet no specific target for this. Ministers deny charges of stealth taxes and point to a 20 per cent in real terms increase in the money councils have been given over the last five years.
The government is also suggesting that people in areas where there are particularly large increases should be asking some searching questions of their local councillors.
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The average band D bill will rise by
£72 |
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Some band D bills have risen to £1200. |
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The council have to pay some of the wage increases for teachers. |
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