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Council Tax Capping

Volume 448: debated on Thursday 29 June 2006

On 27 March I made a statement to the House on council tax capping. In this, I set out the action that the Government proposed to take, under the Local Government Finance Act 1992, against two local authorities which had set excessive budgets for 2006-07 according to the principles that I announced, 27 March 2006, Official Report, columns 567-69. Those two authorities were York city council and Medway borough council, which were both “designated”, with a view to capping them in year. I am making a statement today about the decisions on both cases.

York and Medway were given 21 days in which to challenge the maximum budgets the Government proposed to set them in 2006-07, and to provide the information we had requested. Both authorities challenged their proposed maximum budgets and I met delegations from each of them to hear their cases in person.

The vast majority of authorities now appreciate the seriousness with which the Government view the need to protect council tax payers against excessive increases. The average band D council tax increase in England for 2006-07, without the council-tax element of the Olympics, is 4.2 per cent. (with the Olympics, it is 4.5 per cent.). Over 99 per cent., of authorities have responded well to our message and have not set excessive budgets. Despite the fact that the principles which the Secretary of State used to determine excessiveness were tighter this year than last, only two authorities exceeded them by more than trivial amounts.

I can now announce how my right hon. Friend, the Secretary of State for Communities and Local Government, intends to proceed, having carefully considered the representations York and Medway have made, both orally and in writing, and having taken into account all relevant information. These decisions have been based not only on the individual cases of these particular councils, but also on the need, as a matter of public policy, for authorities to restrain the demands on their council-tax payers.

In putting forward their challenges, neither authority has, in the Secretary of State’s view, presented strong arguments as to why an excessive increase was necessary, or demonstrated that the pressures identified acted disproportionately upon them to any significant extent compared to other authorities. We intend therefore to take action in both cases.

After careful consideration, we have decided to cancel the designation of the two authorities and to “nominate” them instead with a proposed notional budget for each authority at the level of the maximum budget originally proposed when they were designated. For York city council, the proposed notional budget for 2006-07 is therefore £97,484,000 and for Medway Borough Council £148,101,000.

By nominating the authorities in this way, the councils will be able to avoid re-billing for this year, but it reduces their capacity to increase council tax in the subsequent year and beyond. The notional budgets which we propose setting will be used in future capping comparisons. The authorities will have their budget increases next year measured against the notional budgets rather than their actual, higher budgets. This will provide their council-tax payers with extra protection next year.

We are writing to both authorities today informing them of these decisions. Each authority will have 21 days from receipt of the notification of nomination in which to challenge its proposed notional budget. The Secretary of State will, of course, consider any challenge that they make fully and carefully.

The Government are continuing to deliver on their promise to take action against excessive council tax increases. By 2007-08, Government grant for local services will have increased by more than the rate of inflation for 10 years in succession. That represents an increase of 39 per cent., in real terms since 1997.

The Government have already made it clear that they expect an average council tax increase in England of less than 5 per cent., in 2007-08. Authorities should remain in no doubt that the Government will not hesitate to use their capping powers to deal with excessive increases in future years, including requiring them to rebill, if this proves necessary.