Q&A: council tax increases

So what were the big findings?
The study lent some credence to claims by councils in London and the south-east that the new finance system introduced last year to determine grant distribution was partly to blame for the rises. The rejigged system had an explicitly redistributive aspect to it, which led to the northern Labour heartland receiving an average 6% extra, compared to 4.5% in the supposedly affluent south-east, in a bid to reduce deprivation and poverty. The report confirmed a "clear association" between the size of grant increase a council received and their increase in council tax, and called for greater transparency on how these grants are calculated.

Was this year's council tax debacle down to central government, then?
The commission lays the responsibility for the high rises on a number of different factors, including cost pressures such as pay and pension increases, compounded by the 1% rise in national insurance contributions which came into force this year. Increasing pressures on services - such as more old people to care for - also contributed. Council attempts to meet national government priorities, however, also took their toll. But ultimately, the "fundamentally flawed" way grants are distributed, left local authorities with a theory-practice gap between what they needed to spend, and what they received. The balance of funding regime, whereby 75% of funding cascades down from government with the remaining quarter raised locally by councils, is identified as the other glaring faultline, which is in dire need of an overhaul according to the spending watchdog.

Are councils' actions vindicated by this report?
Only partly. The report dismisses conspiracy theories that claim council tax rises were politically motivated, citing "no causal relationship between budget and council tax increases and the political parties running the councils". "Those that received lower grant increases generally increased council taxes more than those that received higher grant increases," it said. Nevertheless, councils could have done more to keep council tax down, the report insist, describing the increases as "justifiable", but "not in all cases, unavoidable". Authorities without an electorate to worry about, such as police authorities, tended to hike their rates more than those directly accountable to voters. Moreover, the reduced threat of capping at the time gave councils fewer reasons to consider savings and cuts in services to make ends meet.

Now we know the causes, what is going to change in the future?
Several things are in the offing which should affect things in the longer term. The government already recognises the problems with the existing balance of funding and is currently undertaking a review to propose a way forward., which is expected to report in April. The deputy prime minister, John Prescott, and local government minister, Nick Raynsford, have also made repeated, strong threats that council tax rises deemed excessive and "unreasonable" next year will be capped, which councils are urged to take seriously. Meanwhile, the Local Government Act 2003 has enshrined powers enabling local authorities to reduce council taxes for low income groups where they see fit. But a recent attempt by Kent county council to peg increases for pensioners next year was quashed after it emerged that the act does not give local authorities the powers to raise everyone else's council tax as a way to fund the scheme.

Will any of this change anything for next year though?
It may help. However, the provisional local government finance settlement, which determines the grant distribution councils can expect from government, was announced earlier this month and signalled a less generous deal than the last round, with an average 4.7% increase for councils, down from 5.9% last year. District councils have fared worst, facing an average increase of only 2.5%. Calculations by the local government sector show this settlement will lead to 13 councils spending their entire grant increases on schools - leaving nothing else for other services. Overall, half of all councils with responsibility for education will spend more than 75% of their total increase on this one service. This is because the education secretary, Charles Clarke, insists that big increases in his schools budget have to be passed directly to head teachers, a practice called "passporting", which forces councils to find extra funds for other services from the council tax. On the plus side, the government has reduced the amount of "ringfenced" grants it distributes to particular services - a funding mechanism that prevents the money being used for anything else. This will allow a little more scope for councils to move their money to where it is most needed.

What does this all mean for next year's council tax rises?
Increases of 8 to 9% are rumoured, but the true figures will only be known after budgets are set early next spring. Double digits are widely expected to be met with a capping measure, although for now the The Office of the Deputy Prime Minister insists it has not established the threshold increase which will trigger government intervention. Councils will be left guessing.