A new ‘local tax lock’ that allows people a vote to stop council tax going up if their local authority refuses to freeze bills and hike the tax by more than 3.5 per cent was hailed by Local Government Secretary Eric Pickles today as a radical extension of direct democracy.
Council tax has more than doubled since 1997 and despite the huge public finance pressures the Government has taken unprecedented steps to fund £675m for a second year bill freeze.
If councils agree to the freeze local taxpayers living in an average Band D home in England could once again save up to £72 in council tax.
Councils that do not take up the freeze and instead seek to increase council tax above the 3.5 per cent level, proposed by Government today, will trigger a referendum. If the local electorate vote against that increase the local authority will have to revert to a council tax level that is compliant.
The Localism Act abolishes Whitehall capping in England and puts local referendums in its place. Parliament will be asked to endorse the final vote threshold before councils set their annual budgets in the spring.
Eric Pickles said:
Since 1997 people have seen their council tax more than double, pushing typical bills to £120 a month. We are getting to grips with this with another council tax freeze deal and by radically extending direct democracy over big bill increases with a new local tax lock.
Councils have a moral obligation to help hard-working families and pensioners with the cost of living. If they want to hike taxes on their local residents above 3.5 per cent they’ll now need to get a direct democratic mandate to do it.
The Government also set out today its provisional second year funding settlement for English local authorities as announced a year ago. Councils will have an average spending power of £2,186 per household at their disposal.
£27.8 billion will be distributed in 2012-13 in a fair and sustainable way across all parts of the country - rural and urban, metropolitan and shire. It will give more weight to areas with the highest levels of assessed need. For example, the average spending power per household in Hackney will be £3,050 compared with £1,537 in Windsor and Maidenhead reflecting the fairness of the settlement.
Overall the average spending power reduction for councils in 2012-13 is expected to be limited to just 3.3 per cent or £75 per household, less than last year’s comparable figure of 4.5 per cent.
The 2010 Spending Review set out the Government’s plans to tackle the deficit and return the public finances, including local government, to a sustainable footing. Councils accounts for a quarter of all public expenditure.
Local Government Secretary Eric Pickles added:
Every corner of the public sector has to help pay off the deficit including local government, which accounts for a quarter of all public spending.
The second year of our fair and sustainable settlement will mean councils still have on average £2,186 for every household they serve, enough to safeguard the most vulnerable, protect taxpayers’ interests and the front-line services they rely on.
New financial incentives and powers for councils will mean they are well placed to find the necessary savings without salami slicing services - they have already started to show what can be done to increase efficiency, reduce overheads, shop smarter and fight fraud.
In the coming year councils will have access to new financial measures including over £430m of match funding under the New Homes Bonus, up to £1 billion in Community Infrastructure Levy, a General Power of Competence and in future years the potential to increase revenue from business rate retention.
Councils will also benefit from the £2.4 billion Regional Growth Fund, the £500m Growing Places Fund and the Housing Strategy investment in social housing.
Notes to editor
- The Coalition Agreement committed the Government to relinquishing control over excessive council tax increases and giving that democratic power directly to local communities. This was legislated for through the Localism Act. Government has today published the council tax level principles it is proposing for 2012-13. No equivalent principles are being proposed for town and parish councils for 2012-13, although they may in future years. Council tax increases would trigger a referendum, if they exceed:
- 3.5 per cent for most principal authorities
- 3.75 per cent for the City of London
- 4 per cent for the Greater London Authority, police authorities, and single purpose fire and rescue authorities.
2. The final principles for 2012-13 will be set out in a Report for the approval of the House of Commons early next year, at the same time as the final report on the Local Government Finance Settlement.
3. The Government’s £675m council tax freeze offer for 2012-13 means that if councils take up the offer available local taxpayers in England living in an average Band D home could again save up to £72 on top of this year’s equivalent saving compared to a five per cent rise in council tax. This builds on the current freeze offer, taken up by all eligible councils, boosting funding over four years to £3.3 billion. In order to meet our 2010 Spending Review Control Totals and to adhere to the Local Government Finance Act 1988 the second year of the grant for councils that froze or reduced council tax in 2011-12 is now within the 2012-13 settlement. Details of the council tax freeze offer are here: www.communities.gov.uk/news/newsroom/2028954.
4. Spending power data by Local Authority for 2012-13 can be found here: www.local.communities.gov.uk/finance/1213/spendpwr.xls (external link). The ‘per household’ figures are calculated using total spending power and the number of dwellings by Council Tax Band for each administrative area in England. The counts are calculated from data for England extracted from the Valuation Office Agency’s database on 12 September 2011.
5. Total Formula Grant for 2012-13 will be £27.8 billion, of which an estimated £23.1 billion of business rates will be redistributed, Revenue Support Grant £477 million and Police Grant, £4.2 billion. Ministers have taken a progressive and fair approach to calculating how the grants will be allocated with more money going to those areas of the country that have the highest levels of dependency on grant. A plain English guide to cut through Whitehall jargon and the sheer complexity of the current system is available here: www.local.communities.gov.uk/finance/1213/simpguid.pdf (external link).
6. The Government has:
- Focused resources in a way that insulates those areas of the country most dependant on central government funding by creating four separate grant bands to group councils into the settlement mitigates the effects of year to year changes, based on the extent to which different councils are reliant on government funding. These bands or ‘floors’ set the limit for their reductions and thereby protect councils against the sharper grant reductions they would otherwise have faced. This is a fairer and more progressive system than in the past.
- Provided a transitional grant of £20 million for 2012-13, on top of £96m last
- Devolved more power and financial control to local areas to manage reductions in line with the priorities of their residents, protect key frontline services, protect the local taxpayer, reduce burdens and drive efficiencies.
7. Technical data for the 2012-13 Local Government Finance Settlement can be found here: www.local.communities.gov.uk/finance/1213/grant.htm (external link).
8. There will now be a short period of statutory consultation on the settlement which runs to 16 January. Ministers will then finalise their proposals and the settlement for 2012-13 will be debated in Parliament in early February in time for councils to set their budgets for next year.
9. The Chancellor announced in the Autumn Statement that the early education entitlement for two year olds will be expanded to cover around 260,000 children by 2014. In recognition of the increased costs of this expansion, additional funding will be included in the Early Intervention Grant in 2012-13. Extra funding amounts to £73m nationally, in addition to the £223m that was previously announced.
10. In addition to the Police Core Settlement was published by the Home Office today and revenue funding in 2012-13 have remained unchanged. The Olympic safety and security budget has been prioritised for 2012-13. The precept, which police authorities will set for 2012-13, will not be affected by the election of Police and Crime Commissioners in November 2012.
11. Average Band D council tax and percentage change between 1993-94 and 2011-12 are shown below:
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