As the post-Christmas January haze begins to clear, the number of stories in the local government trade press about council tax increases are becoming more and more visible. 

This week alone, we have been reading about political turmoil in Brighton as the Labour and Conservative groups oppose the Green party’s proposal to hold a council tax referendum.  In addition, Derbyshire CC and Essex CC have set out increase plans to increase council tax to address their budget shortfalls.

The case for raising Council tax is clear.  After a four year freeze, major restructure programmes and cost cutting exercises, the pain continues.  The Leader of Derbyshire CC, Cllr Anne Western, summarises this very effectively:

“Freezing council tax this year will only make next year more painful because we’ve got to make cuts every year for the next five years. We’re putting our own house in order to make savings by scrutinising spending, reviewing senior management and selling off redundant land and buildings, but it’s not enough to meet the £157m shortfall.”

There is however concerted pressure from Central Government to abstain from raising local taxes.  In 2013, additional grant funding was pledged from the Treasury to enable councils to continue the freeze until the 2015/2016. 

Unfortunately, it is not this clear cut.  Accepting central government grant funding will ultimately lead to a loss.  While the grant may subsidise the money a council can hypothetically raise through a tax hike, it forces the council tax baseline to remain at the same level year on year.  In subsequent years, when an authority chooses to increase council tax, they will lose out when compared to the amount they could have raised from regular annual increases.

As with many of this Government’s local government policies, this is another example of top down localism.  There is a financial crisis at the heart of local government and encouraging authorities to freeze council tax may appear to be in the taxpayers’ interest, but it does not resolve the deep cuts to the sector.  Funding has to be raised from somewhere and the consequences of not raising council tax is likely to be further closures of local government services.  A consequence that many politicians may find harder to bear than an incremental tax rise.



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