This report is an attempt to clarify the real issues behind the council tax rises in 2003/04. We believe that a better common understanding of the issues will ensure a more serious engagement between politicians at a national and local level about how they should be addressed. We also believe this will lead to a more informed public engagement with issues affecting council tax rises.
The average increase of 12.9 per cent in council taxes in 2003/04 was the highest since council tax replaced the poll tax in 1993/94. It was 4.7 per cent higher in 2003/04 than 2002/03.
The increases were caused by a variety of factors, but there were two principal reasons. First, spending by councils went up by more than had been allowed for in the grant settlement. Second, the effect of the grant regime - whereby 75 per cent of funding comes from central government - was that each 1 per cent councils added to spending above amounts allowed for in the grant settlement increased council tax by 4 per cent.
Different councils respond to spending pressures in different ways, with some managing budget increases by reducing spending and increasing charges and others using council tax increases as the main way of funding spending pressures. Councils as a whole also reduced their use of balances, partly in response to external expectations that councils would maintain balances at a prudent level.
Auditors will consider risks relating to authorities' budget-setting processes as part of their audit work for 2004/05; and there will be increased emphasis on cost effectiveness in future rounds of comprehensive performance assessment.
But the study also found that there are fundamental problems with the way council tax operates. Small changes in spending - up or down - can have a big impact on council tax rises. There is a lack of accountability through the grant system - with councils making decisions on how money is spent but central government providing 75 per cent of the funding. And the system is too complex for local citizens to understand. This report makes recommendations for changes in the short to medium term.
Included in this report:
- Main factors underlying the 12.9 per cent average increase nationally
- Why did the increases vary so much?
- Why did we see such high increases in 2003/04?
- Messages