A gift horse for council tax

This year’s council tax for 2011/12, is not actually a ‘freeze’ but a 2.5% increase, funded centrally.
Using the old adage that it is never wise to look a gift horse in the mouth, those councils which do will rapidly realise that their tax base has been eroded to the extent of whatever increase they might have imposed, had it not been for the bung from the Government, meaning councils’ tax base in 2012/13 will be the same as 2010/11.
Nor is there much science about it. If a council freezes its council tax, it will receive a grant equivalent to a 2.5% increase in its 2010/11 Band D figure. Anything above a freeze negates that grant, so a council would need to be pretty foolhardy to ask its residents to cough up when the Government had been so generous.
Had it not been for the £650m bung, what would have been the likely increases? It is fair to say that most councils – as they did last year – would have tried to stick to about 2.5%, even though this is below inflation.
They are well aware of the difficulties their residents face, and there are also local elections in 280 councils in May. In Wales, where there has been no central funding – but also assembly elections – rises are 3%, so little different than in England.
Of concern, however, is what happens next year, and whether chancellor George Osborne will be prepared to cough up another £650m to prevent rises.
In the past, council tax rises provoked a tug of war between central and local, as our columnist Nick Raynsford will testify from his time as local government minister under Tony Blair – although Mr Osborne, as he showed by putting up VAT, is not himself averse to the idea of raising taxes.
His £650m bung to keep council tax at standstill has certainly averted a major public relations disaster this year, both for the coalition and for local government.
To have services cut and council tax increased at the same time would have been a bridge too far for the public. But long-term questions about funding local services, especially in the light of soaring care bills, remain so far unanswered.