Local authorities feel the squeeze as Labour acts to cut council tax rises

The government has announced a one-off increase of £637m for
local authorities for 2005-6.

The investment – including £125m of new money from the
Treasury and £512m redirected from other government
departments – is being seen as a pre-emptive strike to avoid
council tax hikes in the run-up to an anticipated May general
election.

Announcing the money alongside the relaxing of targets aimed at
freeing up a further £333m of council funds, local government
minister Nick Raynsford linked the move to councils keeping tax
rises in 2005-6 to below 5 per cent. “We used our reserve capping
powers for the first time last year to deal with excessive
increases,” Raynsford reminded councils. “We are prepared to take
even tougher action next year.”

The Local Government Association welcomed the money but warned it
would not tackle underlying funding pressures and could lead to
even larger council tax increases in future.

LGA chair Sandy Bruce-Lockhart predicted that, with the enforced
2.5 per cent efficiency savings across the board, some councils
would still be forced to cut services to avoid capping. However, he
welcomed the government’s removal of grant “ceilings”, which in the
past had put a maximum limit on grant increases, disadvantaging
councils in areas with rapidly growing populations.

Grant “floors”, however, will remain. Liverpool Council, set to
receive the minimum 4 per cent rise for councils with education and
social services responsibilities for 2005-6, expressed
disappointment at being promised less than cities such as
Birmingham and Manchester “despite having the same
challenges”.

The Local Government Information Unit warned that failure to meet
in full the £1bn cost of additional pressures imposed on
councils by government departments identified by the LGA in October
would still leave some councils in a dispute about capping next
spring.

The Office of the Deputy Prime Minister also published last week
its amendments to councils’ 2003-4 budgets, taking into account
revisions to population data and errors.

The result is a significant shift in funding away from the shire
counties towards inner and outer London boroughs. The ODPM plans to
add in or deduct any differences in councils’ 2005-6 allocations in
April. Among the hardest hit will be Surrey and Lancashire, which
stand to lose more than £2m each.