District faces steep Council Tax increase

COUNCIL Tax is likely to rise by about five per cent in each of the next two years, but the increase – at least at Huntingdonshire District Council – could be steeper after that in subsequent years. For now, HDC is likely to set the increase in its precep

COUNCIL Tax is likely to rise by about five per cent in each of the next two years, but the increase - at least at Huntingdonshire District Council - could be steeper after that in subsequent years.

For now, HDC is likely to set the increase in its precept at 4.9 per cent, following Whitehall hints that anything above five per cent would be capped. But HDC gets only about 10 per cent of the total Council Tax take.

Cambridgeshire County Council, which is under severe budget pressure as a result of overspends on its adult social care budget, takes £4 out of every £5 (80 per cent) to spend on schools, social services, roads and libraries, and is also likely to need to be nudging five per cent to avoid wholesale cuts in services.

The other 10 per cent of the tax is shared between the police and fire authorities - also under heavy financial pressures - and parish councils, which vary widely in the amount they take.

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Ironically, because they never face capping, some councils have been able to double their precepts in recent years with impunity, usually to fund major new community amenities, such as village halls. Once such spending is out of the way, parish precepts may actually reduce.

Typically, for a similar band of property in the district, towns have the highest tax - and the best amenities - followed by the larger villages, such as Brampton, Sawtry and Bluntisham. Some parishes are so small that they have no parish precept at all, nor any amenities.

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HDC's cabinet is to recommend the five per cent strategy to the full council this afternoon (Wednesday), although the budget - and therefore the level of Council Tax for 2007/08 - will not be decided until February.

By then, the Sir Michael Lyons' report on the future of local authority funding should have been published, and a new Government Bill will be imminent. Lyons is expected to suggest alternative ways for councils to raise money to fund local services.

He is thought unlikely to suggest a return to local authorities setting business rates. However, allowing councils to charge for business services by giving them discretion over a small proportion of non-domestic rates is a possibility.

HDC finance managers are assuming that one or other of Council Tax and budget requirement will be capped at five per cent. So beyond the two-year Council Tax limit, HDC is planning to peg its budget requirement at five per cent instead.

Most of councils' everyday spending is funded by Government grant (Revenue Support Grant, normally set in December for the following financial year) and Council Tax, but that can be supplemented by using revenue reserves. But they must still leave enough in the pot in case something unexpected happens.

The difference between net spending on the one hand and income-plus-reserves on the other is the budget requirement. If you stop subsidising the budget from reserves, you have nowhere to go other than the Council Tax payer or service cuts. Hence the risk of higher Council Tax increases.

But councils also have 'capital reserves', money set aside for major local investments that retain value as community assets and as real estate.

In HDC's case its recent capital assets arose from the £80million sale of its council housing stock to HHP (now Luminus) in 2000.

Half of that money has already been spent, notably on contributions to social housing and on grants to poor people to help them overcome disabilities and stay in their own home. Withdrawal of a huge chunk of Government support for 'disabled facilities grants' - which the council is bound to pay to qualifying residents - puts more pressure on Council Tax.

For every £1million capital spend, the council's income from interest reduces by about £250,000. When it gets just £6.5million from taxpayers, that single item accounts for four per cent of the money we pay HDC. By year three, at the same level of spending on DFGs accounts for 10 per cent of our contributions. But a lot of the most vulnerable people benefit.

By 2008/09, the whole £80million will have been spent on social housing, DFGs and the council's £24million new headquarters and depot - and some sleight of hand in the early years of this century when some of the money was spirited into revenue reserves to prevent Council Tax increases.

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