To ask the Secretary of State for the Environment, Transport and the Regions what is the estimated effect on aggregate local authority costs, in a full year, of (a) a rise in interest rates from 6 per cent. to 7.25 per cent. and (b) a rise in inflation from 2 per cent. to 2.75 per cent. [17968]
I estimate that English local authorities currently hold about £5 billion in variable rate debt, on which additional interest payments of about £62 million would arise if interest rates rose by 1.25 per cent. generally.Further, if authorities undertake new borrowing of £2 billion a year, broadly in line with the issue of new credit approvals, then a 1.25 per cent. rise in interest rates would increase interest payments on this new borrowing by £25 million.Local authorities currently hold around £10 billion in bank deposits and other short term investments and might therefore earn additional interest of up to £125 million, if rates rose by 1.25 per cent.The additional costs or income arising from the increase in interest rates will tend to be offset over time by compensating changes in Housing Revenue Account subsidy and Revenue Support Grant paid to local authorities by central government.As far as the effect on local authority costs of a rise in inflation is concerned, I refer the hon. Member to the answer I gave to him on 24 November 1997,
Official Report, columns 367–68.
To ask the Secretary of State for the Environment, Transport and the Regions (1) what would be the average effect on band D council tax of a national increase in local authority costs of £300 million, assuming (a) that this cost is spent equally between authorities according to the number of dwellings chargeable for council tax, (b) that there is no increase in central Government grant and (c) that the average gearing ratio applies in council spending; [17958](2) what would be the effect on band D council tax for each local authority in England of a national increase in local authority costs of £300 million in 1997–98, assuming
(a) that this cost is spread equally between authorities according to the number of dwellings chargeable for council tax and (b) that there is no increase in central government grants. [17959]
An increase of £300 million in the amount required from council taxes for England is equivalent to an increase in the average band D council tax of £18.37. I have today placed in the Library estimates of the effect on band D council taxes for each local authority area of an increase of £300 million in the amount required nationally from council taxes, assuming that this amount is spread equally between billing authorities according to the estimated number of chargeable dwellings in each area.