MONEY COMMENT
Large Council Tax Increases On The Way

By Cliff D'Arcy
March 6, 2003

In "The Burial of the Dead", TS Eliot wrote, "April is the cruellest month" and, as far as our finances are concerned, he was spot on.

Earlier this week, we wrote about hanging on to as much of your money as possible in Eight Ways To Pay Less Tax. We also covered the 1% increase in National Insurance Contributions in Your Pay Cut Arrives Next Month.

Alas, next month, there's more bad news for our wallets. Our council tax bills are set for their biggest increase since the tax replaced the infamous community charge ("poll tax") eleven years ago.

The bill for the average Band D household in Great Britain is going up by around £116 (12%) to £1,080 - that's about a tenner a month more. Last year, the average band D bill across Britain was £964, so this will be the first time that the average bill has topped a grand, and the first double-digit percentage increase.

Next month's increase is exactly twice the previous largest raise (1998: £58; 8.4%) and is likely to hit many of us hard. For example, in London, more than half of all council tax bills will be over £1,000 - eek!

One problem is that councils get 75% of their income from central government and 25% from council taxpayers. So, a £1 increase in spending over a council's government grant requires an extra £4 from council taxpayers.

Bills will rise most in England (up 12.9%), far more than in Wales (10%) and Scotland (4%). This is because a change in the formula used to calculate government grants will mean more money for councils outside of the South East.

All councils are due to receive an above-inflation increase in their government grants (again, for the first time), however, most English councils outside of the North and Midlands are at the lower end of the 3.5% to 8% range of increases.

This has fuelled accusations of prejudice against councils in the South East and a bias towards the traditional Labour heartlands. Also, on average, London Labour councils are getting higher grant increases (5.6%) than Conservative councils (3.7%), which suggests possible political wheeler-dealing.

There is talk that the government will use its powers to cap over-spending councils' budgets, but it cannot do this to councils with a "good" or "excellent" rating from the Audit Commission. This means many councils that are planning above-average increases will avoid capping. For example, I feel sorry for the unfortunate council taxpayers of Wandsworth (up 45%, admittedly from a very low base) and Croydon (27%)!

To be fair, rises of this size are almost inevitable, given the big increases in public spending on education and social services, plus higher pay rises for local government employees. Read more in this detailed report from the Chartered Institute of Public Finance and Accountancy.

Our councils have until next Tuesday, 11 March, to agree their budgets, after which point our bills will start arriving. If you think a bigger council tax bill is going to hurt your finances, visit our Living Below Your Means discussion board for tips on trimming your household budget.

Read our All-In-One Guide To Your Home.