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Council Tax

Volume 508: debated on Thursday 25 March 2010

This statement concerns council tax and the action the Government propose to take in relation to authorities that have set excessive budget requirements for 2010-11.

Yesterday my Department released figures showing that the average band D council tax increase in England next year will be 1.8 per cent.—the lowest ever average increase. This is welcome news for council tax payers and has been made possible by concerted action by both Government and local authorities.

The Government have ensured that all authorities overall have benefited from good grant increases during the current three-year settlement period, with above inflation grant increases in all of the years of the current three year settlement—including an increase of 4 per cent. overall in 2010-11. This, combined with rigorous enforcement of the “new burdens doctrine” and action to cap excessive council tax increases in previous years, has helped ensure that 2010-11 will see the lowest average increase in council tax since its introduction in 1993-94.

Local government has also played its part. It is clear from the figures that most authorities have behaved responsibly and taken into account the effect of their 2010-11 increases on council tax payers. A number of authorities have frozen or reduced their council tax. In many cases, they will have made tough choices about local priorities and delivered efficiency savings to do this. I commend these authorities for working hard to keep demands on council tax payers to a minimum.

Nevertheless, it is important to ensure that council tax payers are protected from excessive increases. All authorities are aware that the Government are prepared to use its capping powers to achieve this. In my statement to the House on the provisional local government finance settlement made on 26 November 2009, I made clear we would take action against excessive rises where necessary. I restated this in a letter to all local authority leaders dated 9 December 2009.

Where council tax payers are faced with excessive increases it is right that we should once again take action to protect them. I am therefore setting out for the House the action that we are proposing.

Our capping principles are that an authority’s 2010-11 budget requirement is excessive if:

the amount calculated by the authority as its budget requirement for the financial year 2010-11 is more than 3.5 per cent. greater than the authority’s budget requirement for the financial year 2009-10; and

the amount calculated by the authority as its band D council tax for the financial year 2010-11 is more than 4.5 per cent. greater than the authority’s band D council tax for 2009-10.

An authority must exceed both the budget requirement principle and the council tax principle to be subject to capping action.

Two authorities—the police authorities of Greater Manchester and Nottinghamshire—have exceeded these principles.

The action the Government have decided to take against these authorities is to cap both in advance for 2011-12. The Government are minded to propose a maximum budget requirement (“a cap”) for 2011-12 for each authority at a level which is equivalent to a council tax increase of around 4.5 per cent. for each of the financial years 2010-11 and 2011-12.

The statutory process involved is that at this stage the Secretary of State “nominates” the authorities under section 52D of the Local Government Finance Act 1992 (“the Act”) and decides whether to “designate” them in advance for 2011-12 under section 52L of the Act. In due course, the Secretary of State will designate the authorities under section 52M of the Act and propose a cap for each authority for 2011-12.

This action means that the authorities will not need to undertake rebilling in 2010-11, but council tax payers in those areas can be reassured that action is being taken to restrict these authorities’ council tax increases in 2011-12.

My officials are writing to both authorities today to inform them of their nomination and of the Secretary of State’s decision to designate them in advance for 2011-12. However, the authorities will not be designated and informed of their proposed caps for 2011-12 until later in the year. This will be at around the same time as the provisional local government finance settlement for 2011-12 is announced. At that point, the authorities will have 21 days in which to challenge their proposed 2011-12 caps and raise any specific issues which they feel justify a different capping level. Any challenge will be carefully considered before a final decision is taken on the capping level for 2011-12.

If an authority accepts its proposed cap for 2011-12 without challenge, a notice can be issued to the authority confirming its cap. Otherwise, a draft order will be laid for the approval of the House before any 2011-12 cap can take effect.