Vir Cantium

I'm right, you know …

How the Council Tax Freeze Could Become to a Quick Thaw

Among the (intentional) headline-grabbers at last week’s Conservative Party Conference was the underwhelming news of the council tax freeze being extended for a second year; news that had been known to local councillors and council officers for some months already.

Puddle

Council tax freeze ... and for next year?

However, it now seems that all was not quite what it seemed, and that the announcement is indeed a surprise to local government, and not in a good way.

The nasty surprise was tucked away, as they so often are, in the smallprint, in the notes at the bottom of the Treasury’s media release.

If an authority sets its basic amount of council tax (i.e. its Band D council tax) in 2012-13 at a level which is no more than its basic amount of council tax in 2011-12, it will receive a one-off grant equivalent to a 2.5 per cent increase.

Did you spot it? “One-off grant” – words so inoccuous they passed by deadline-watching journos.

“So what?”, you may ask. It means, quite simply, that the residents of any council taking advantage of the extra money to freeze their council tax could be facing a stinging double hike in the tax in 2013. Let me explain….

This current year’s freeze was funded by money that was given as an increase in the annual (recurring) grant to councils. This makes sense, since council tax is a recurring annual revenue stream. It would be like someone saying they’ll protect you from next year’s increase in your fuel bills by paying you an ongoing regular annual income equivalent to the increase in next year’s costs.

Now suppose someone made that same promise, but to do it they would give you a pile of cash equal to the extra costs next year, but that was it. For that next year, all would be well. The following year, though, you would still face not only the higher prices from the year just gone (which had been offset by that pile of cash), but also the following year’s increase. While you have been protected from the increase in year one, you now face a double whammy because the gift only lasted for that one year. All that it has done is put off the inevitable, so now you have to pay for both increases at the same time.

And so it has turned out to be with the money for the second year’s council tax freeze. Like this year, it will be paid to councils bringing their budgeted increases to 2.5% or less, but if they want to avoid the ‘bounce-back’ in council tax next year, they actually will have to cut their budgets to a 0% increase anyway, before getting the grant.

As a proponent of low taxation, I don’t necessarily see that as a bad thing. However, Osborne and Pickles are playing the same media game as Labour by suggesting that the freeze has been extended for another year when, in fact, all that is being offered to councils is a reward grant for keeping the tax down, by their own devices, for a second year running.

Perhaps more damning, it is the sort of faux-localism which was so beloved of Labour, complete with the moral blackmail of raising the public’s expectations.

I’ve nothing against tax cuts – one form of fiscal stimulus that actually works – put please, Eric Pickles, call a spade a spade; it’s what northerners are meant to be renowned for isn’t it?

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