Minister gets tough on council tax rises

Councils that fail to keep council tax increases down will face "even tougher" capping action than this year, the local government minister, Nick Raynsford, warned today.

Mr Raynsford issued the threat of more severe treatment for local authorities which set their council taxes above the 5% increase threshold in light of this year's "good" provisional funding settlement, at a Local Government Association finance conference today

This year, the government capped six local authorities and three police and five fire authorities. While five councils were forced to issue new bills to residents for lower council tax in-year, the remaining authorities face the prospect of intervention when they set their budgets for 2005-06.

Mr Raynsford recited the main points of last week's proposed funding deal for councils, which offered a 6.2% overall increase in central government grants, worth ?3.5bn, and a 2.1% reduction in ringfenced funding, down to 9%. Earlier the same day, the chancellor, Gordon Brown, also announced a one-off ?1bn package to help councils stave off high council tax rises.

Highlighting a 33% growth in funding since Labour returned to power, Mr Raynsford also signalled other provisions announced for local authorities, including a reduction in red tape through reduced planning obligations and form-filling, new prudential borrowing powers (which allow local authorities to borrow money for capital projects without the need for permission from the government), and a proposed reduction in inspections by the Audit Commission.

Mr Raynsford acknowledged the financial duties placed on councils through requirements to introduce equal pay for council staff within three years, together with pension pressures.

But he warned that in light of this year's settlement, there would be no excuses for councils failing to adhere to low single figure council tax increases.

"High council tax rises must be a thing of the past," he said. "I hope it will not be necessary, but if any local authorities fail to budget prudently, and impose unreasonable council tax increases we will take even tougher capping action next year than we did this year. This applies to all authorities, including police and fire authorities."

Mr Raynsford was unrepentant over his decision to cap councils earlier this year, after being confronted by a member of Fenland council, one of the five authorities forced to undertake a costly rebilling of residents earlier this year following capping.

Asked whether he regretted his decision, Mr Raynsford replied. "You did not choose to set low single figures, and I certainly do not regret the decision to cap. "

Moves to shift the annual settlement to a three-year cycle to give councils more budget stability would be out to consultation next week, Mr Raynsford added.

Asked by a member of the audience whether the government planned to make "one-off" additional funding to stave off high council tax rises an unofficial part of its routine when announcing the settlement, Mr Raynsford said it was a necessary stop gap measure until the review by Sir Michael Lyons recommends a way to secure a sustained funding basis that would remove the need for "short term additions".

· The conference also saw the launch of a detailed analysis on implementing the LGA's proposed combination option of taxes, announced earlier this year.

The LGA sees a mixture of taxes as the solution to the 'gearing effect' caused by councils' reliance on government for the bulk of its funding.

The implementation paper sets out a reversal of the central-local funding split, with councils generating 75% of all future funding through a mixture of taxes, including a reformed council tax, a proportion of income tax transferred to local authorities, business rates collected and kept locally, and a basket of smaller taxes and charges. The remaining 25% would be funded by central government grants.

The LGA will submit its report on implementation to the Lyons inquiry.