Twin Suffolk district councils Babergh and Mid Suffolk took council tax decisions yesterday which set them on different tracks.
Babergh decided to increase its council tax by 3.5% while Mid Suffolk chose to freeze its demands after a lively debate. Babergh has no overall political control and Mid Suffolk has a Conservative majority.
Last year a referendum on a full merger of the councils was lost (a majority of Babergh voters were against). But the integration (we have had joint refuse collections for some time) of services and administration goes ahead.
So both councils had similar advice on which to base their decisions. After a strong debate, Mid Suffolk decided to take community secretary Eric Pickles’s shilling.
The government has offered a one off grant, equivalent to a 2.5 per cent tax rise, this year to councils that freeze their demands. That means that a 3.5 increase results in a 1 per cent rise in spending power.
And any rise of more than 3.5 percent would trigger a costly referendum.
A report from the joint management board to the Executive Committee of Mid Suffolk in January suggested that accepting the Government’s offer could result could higher rises in the future.
Like all local government finance it is a complicated issue, but that report puts the issues as clearly as as I have seen anywhere. Here is the relevant section (full report):
• Earlier in the year, the Government announced its intention to offer local authorities a grant to enable council tax to be frozen again in 2012/13. The grant will again be equivalent to a 2.5% increase in council tax but will only be a one-off (whereas the 2011/12 grant is for 4 years).
• Unlike 2011/12, not all councils are likely to take the grant due to the ‘knock on’ financial implications in future years of only receiving a one-off grant. Although the main options appear to be to either take the grant or increase Council Tax by 2.5% (or slightly more), it is important to understand the impacts in future years of different percentage increases in 2012/13. A further announcement has been made that any Council Tax increase of more than 3.5% will be subject to a local referendum.
• A 2.5% increase equates to £3.78 a year for a Band D property (3.5% = £5.29). If the one-off Government funding is accepted, that will have the same overall impact on the 2012/13 budget as a 2.5% Council Tax increase.
The reasons for having a Council Tax increase in 2012/13 and not accepting the Government’s grant of £136,000 are as follows:
• As the Government grant is a one-off, that amount would then have to be added to the savings that are required in 2013/14
• A 2.5% increase in Council Tax just to stand still in 2013/14 would then be needed
• A 5% Council Tax increase would be needed in 2013/14 or subsequent years to ‘catch up’, but this would be subject to a local referendum, which would be costly
• Not increasing the Council Tax by 2.5% in 2012/13 would mean that there is a lower tax base for future years and the £136,000 is lost each and every year in the future – unless that can be recouped through higher than normal increases in subsequent years, either as indicated above or by gradual year-on-year phased increases e.g. of around 0.8% a year over 3 years.
Suffolk County Council and Suffolk Coastal District Council have also decided to freeze their taxes. But every council tax payer in the county faces increases because the police authority precept is increasing by 3.75 per cent and many town and parish councils are pushing up their shares (average rises of nearly 4 per cent in Mid Suffolk).