Vir Cantium

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Darling’s Stealth Council Tax Bombshell

Buried away in Wednesday’s budget speech was the latest waffle about efficiency savings – part of the government’s attempts well thought out strategy to shave a micron or two from cut the deficit. £11bn was the figure.

Part of those plans was £2.3bn from the Department of Communities and Local Government (DCLG).

Part of DCLG’s figures is £2.1bn from “local government efficiencies”. Now where have we heard that terminology before? Oh yes, it’s the fudge that is being used to pay for a major chunk of the costs of “free” home care for the elderly. In that case, it would be achieved by imposing extra duties and costs on councils without fully funding those responsibilities. In the case of the £2.1bn announced on Wednesday, it will simply be a case of reducing the amount of cash that central government gives to councils.

As anyone familiar with these things knows well, when the government says something will be paid out of “local government efficiencies” it means only one thing: it’s going on your Council Tax. If a council could find the required level of efficiencies, they would probably rather use it themselves, either to spend on other services or reduce/mitigate the level of Council Tax.

So, put bluntly, £2.1bn from “local government efficiencies” means £2.1bn on your Council tax … on top of the £250m (at least) to pay for “free” home care (assuming the bill survives and resurfaces in the next parliament).

Let’s grab ourselves an envelope, turn it over, and work out what this could mean:

All in all, the total funding handed down to English local authorities (“Aggregate External Finance”) is around £76bn.

What does £2.1bn of £76bn give us? 2.8%. Typically, central government funding accounts for around three-quarters of authorities’ income, so a 2.8% cut in funding would gear up to an 8.4% increase in Council Tax if Labour win the General Election.

But perhaps we shouldn’t be so unfair to the Labour government (and please allow me to pause while I clean the keyboard after typing that.)

Included in that £76bn is the hefty £31bn Dedicated Schools Grant (DSG), which makes up a goodly chunk of your local school’s income. Can’t see Labour cutting that, can you? In fact, once you add in other various streams of education money, that’s £36bn which Labour would have to cut and so “seriously harm our childrens’ futures” or whatever they would accuse us Tories of if we did the same. Funnily enough, though, Ed Balls’ Department of Schools, Children and Families has mentioned “finding efficiencies” of £950m from schools, but if that’s a cut in DSG then it shouldn’t have a direct effect on council tax, so we’ll ignore it for our purposes.

So, we’re then left with finding £2.1bn efficiencies out of £40bn in local authority funding – 5.25%, or around 16% on Council Tax.

Ah, there’s one final thing, though, which gives us our back-of-fag-packet worst-case scenario:

That total funding of £76bn above is made up of grants very different in nature.

There’s Formula Grant, which is just the “general” grant handed down to councils (and includes the redistribution of business rates). Then there’s a myriad of specific, or “ring-fenced” grants made because Whitehall doesn’t trust councils to do their job, which apparently is to be a good obedient branch of central government (yes, I know Margaret Thatcher started all that – so that’s one of the rare things she did wrong). The current list of specific grants ranges from the predictable “Ethnic Minority Achievement” and “Sure Start, Early Years and Childcare” grants to the mysterious “Think Family” grants and sinister sounding “Rule 2” grants (for police authorities).

Then there’s Area Based Grants, which aren’t ring-fenced, but strong hints are dropped about what you should do with them.

All these specific and area-based grants are just passing through DCLG on their way to town halls, so I don’t know if DCLG could actually touch them, which means that were really down to the £29bn of formula grant that is actually within the direct remit of DCLG.

£2.1bn out of £29bn is a 7.2% cut. Gear that up and you have a near 22% hike in Council Tax. Ouch. That should make setting the capping level interesting.


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