Local Government Minister Grant Shapps writes to John Healey MP regarding the council tax referendums rules.
The Rt Hon John Healey MP
House of Commons
Thank you for your letter of 6 February to the Rt Hon Eric Pickles MP. Your letter has been passed to me to reply. The analysis you offered is familiar from briefing put round by SIGOMA: but it is technically flawed. My officials have, over the last week or so, been in touch with officers in various authorities in South Yorkshire, who have raised similar concerns.
The flaw in the argument is most easily exposed by reference to your illustration in which you say: “An illustration shows the problem. If the basic amount of council tax of a local authority (which includes levies) is £100 million, and it decides to raise its council tax by what is understood as the maximum amount allowable without a referendum - 3.5 per cent - then an extra £3.5 million of funds would result.” This interprets the legislation, and the 3.5 per cent principle proposed by the Government, as if it has set a threshold in the overall amount of council tax that an authority may raise without triggering a referendum. It has not. The legislation requires the principle to be expressed in terms of the increase in Band D council tax which an authority would have set if, when calculating that amount, it left out of account the amount of levies issued to it in both the years being compared. This adjusted Band D amount is called the “relevant basic amount of council tax”.
This figure is calculated by dividing council tax requirement (adjusted to exclude levies) by council tax base. Clearly, if a levy issued to an authority is substantially reduced, the actual council tax requirement would be expected to fall, and the actual basic amount of council tax (the normal band D amount) would also fall. The relevant basic amount of council tax would however be unaffected, since it excludes the cost of levies in both years.
If, instead of taking the burden of a levy off taxpayers when that levy is reduced, an authority chooses to increase its own expenditure to “soak up the slack”, the relevant basic amount will rise, and may even breach the 3.5 per cent principle - even though the actual Band D change is below that figure. A referendum would then be required, and I am entirely happy that this outcome is justified.
The concept of “relevant basic amount” is only significant in the context of the determination by a local authority of whether it is setting a council tax which will trigger a referendum. For all other purposes, the natural definition of basic amount of council tax (i.e. the actual Band D amount) - which includes the cost of levies - continues to apply as it has for many years. You will, I am sure, appreciate that the legislation was framed in this way so that a referendum would not be triggered by the actions of a levying body over which the authority to which a levy is issued may have no control at all. The focus of that concern has usually been in terms of increases in such levies: but there is, I believe, no problem about the application of the legislation where a levy is reduced.
Grant Shapps MP