Council tax rises capped at 5%

Council tax rises in England should be less than 5% next year after the government pumped ?1bn into local authority finances, the local government minister, Nick Raynsford, said today.

Announcing a 5.6% increase to ?49bn in central government grants to councils for the next financial year, Mr Raynsford told MPs that the combined funding measures should result in "significantly lower increases next year" than the 5.9% average council tax increase posted this year.

The total package of support from the government in terms of grants and business rates was increased by 6.2% to ?60.1bn, including revenue support grants, business rates, police and specific grants.

Mr Raynsford also noted a number of freedoms of responsibilities which could help pump prime local funding, such as the local authority business growth incentive scheme, which allows authorities to retain a proportion of growth in business revenue through improved local regeneration.

New prudential borrowing powers, and freedoms to trade and to charge for discretionary services could also help the local government economy, coupled with the regulatory changes to pension contributions proposed today.

Mr Raynsford said the headline 6.2% increase demonstrated the government's "continuing commitment both to local government and to council tax payers".

Ministers would not hesitate to use their powers to cap rises proposed by councils which they believed to be excessive, in light of a "very good" funding settlement, he warned.

"Given this substantial investment, we expect to see lower council tax increases next year. Average council tax increases in England in 2005-06 should be less than 5%.

"We used our reserve capping powers for the first time last year to deal with excessive increases. We are prepared to take even tougher action next year than we did in 2004-05 if that proves necessary. High council tax increases are a thing of the past," he said.

The provisional settlement will see grant 'floors' - the minimum baseline grant increases councils can expect - at 4% for authorities with education and social services responsibilities, and 2.5% for district councils.

Fire authorities will receive minimum increases of 2.5% and police authorities 3.75%.

However, Mr Raynsford will have delighted councils by announcing the government's decision to abolish the 'ceilings' on grants for the highest yielding councils, which have to date been set to level out the disparities and fund the guaranteed minimum for councils which would otherwise lose out.

Instead, floors will be financed by scaling back grant increases from all councils benefiting from grant levels above the set floors for different councils.

The provisional settlement followed an earlier announcement by the chancellor, Gordon Brown, of extra cash to help relieve funding pressures on councils.

He promised ?125 of 'new' money and another ?330m that will be freed up from a reduction in ring-fenced funding and other obligations.

But the real controversy surrounds the ?512m being reallocated from Whitehall departments, with senior civil servants thought to be furious at the order to cut spending as part of a deal to avoid council tax rises in the run-up to polling day.

The Local Government Association (LGA) welcomed the extra cash as a "significant victory" but warned that many of the funding pressures still remained and could lead to even larger council tax increases in future years because the real extra cash, worth ?637m, was a "one-off".

The Conservative chairman of the LGA, Sir Sandy Bruce-Lockhart, said that unless the money was put into base funding for local government, the burden would switch back onto the council tax payer in 2006-07 and in future years.

"The struggle for some individual councils to keep council tax down will be hard - and many authorities, especially district councils, after they have squeezed out efficiency savings, will have no option but to cut valuable environmental and community services," he said.