COUNCIL TAX LIMIT 2

In spite of ministers' reassurances, the logic of Labour's strategy is eventually to give local authorities the right to set business rates themselves, to make up the shortfall if council taxes are, as Mr Raynsford hints, capped. In this respect, the Government's instinct to fleece has blinded it to a vital trend, tax receipts have failed to respond to the Chancellor's hefty tax rises of the past few years and are now well behind his forecast. Mr Micawber would have recognised the unhealthiness of a Government budget in which spending has been rising 4% in real terms, while the economy is growing at only half that rate. It is not "other sources of revenue" that the Government should be seeking, it is new ways of cutting spending.

Local authorities could be forced to hold referendums if they wish to impose council tax rises twice the rate of inflation, under plans being considered by the government. The idea reflects the alarm in Whitehall at the unpopularity of hikes in council tax, which local authorities tend to blame on central government. Nick Raynsford, the local government minister, conceded that ministers were having to consider a range of options to deal with anger, and the threat of protests, at bills with increases averaging nearly 13% in English councils over the last year.

Mr Raynsford said, "We have given generous grant increases to all local authorities. This year was the first time ever that every local authority in England got an above inflation grant increase so we are expecting authorities to budget prudently and to come in with reasonable tax increases. Many did, but obviously, unfortunately, a significant number did not." Since 1997, grants to local authorities had increased by 25% in real terms, compared with 7% in the last four years of the previous Tory administration, he said.

The government did not expect local authorities to automatically heap the cost of new services on to the electorate, he said. He cited Conservative-run Wandsworth as an example of a council which had increased its council tax up by 45%, but which had cut the rate by 25% in the previous election year.
"There are many other councils that have had the same grant levels which have come in with inflation or even below inflation increases and if it is possible for some to budget prudently, we expect all to do so," said Mr Raynsford.

Asked if the government was considering making local authorities ask permission in a referendum for rises that were more than twice the rate of inflation, the minister said, "Obviously we have to look at a range of different options, but there are no specific proposals at the moment. It may be an option in the future, but it is not a specific option at the moment. What I am concerned to do is sent a message to all local authorities - the government will continue to provide generous increases in grant to fund local services." But, he added, "We cannot fund everything ..."

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