Fear over council tax rises

By Mike Johnson BBC Radio 4's Money Box

If you believed everything you read in the papers - you would be getting pretty worried about your council tax bill right now.

Headlines about a 16% rise over the next two years are thanks to a fair bit of confusion following the Chancellor's pre-budget report.

Gordon Brown now thinks local councils will raise much more than previously thought in council tax over the next 18 months.

Around £3.5bn more, in fact, by 2004.

"Devastating effect"

Conservatives have jumped on the figures as evidence of the onward march of yet another Labour stealth tax.

Shadow paymaster-general Stephen O'Brien is suitably indignant.

"It will have a devastating effect on household finances," he says.

"The government is planning an increase in council tax of 16% over the next two years.

"That is £100 for every council tax payer and three times the rate of inflation."

But that is not quite the whole story.

Steep increases

The Treasury has been quick to point out that Gordon Brown is not actually predicting final bills - just how much money councils are expected to receive.

So any rise could also be down to things like an increase in the number of single households, and more effective collection.

And around half of it we know about already. It actually includes last April's increase, which led to a rise of about 8% in council tax bills.

But away from all the political hype, it still seems a fair bet council tax payers should brace themselves for steep increases to come.

Public sector pay

The fire service strike has focused national attention yet again on the issue of public sector pay.

Councils are already warning residents they will have to foot the bill for any wage increases this winter through council tax next spring.

"Councils are certainly under real pressure," says Neil Kinghan, director of economic policy at the Local Government Association.

"Public sector wage settlements are important in local government.

"Most local government expenditure goes on wages and salaries.

"If there is a significant increase in teachers' pay, or pay for other local government workers, that means council tax payers meeting part of the costs."

Funding

And the pressure on some councils is about to build even more.

Next Thursday, the Government is expected to announce big changes in the way it pays local councils.

It is likely to mean more cash for poorer urban areas in the north of England - but less for the prosperous shires in the south.

They will have to make up any shortfall through council tax in April 2003.

Revaluation

And in an effort to distribute the council tax burden more fairly, the Government is planning to revalue properties in England and Wales.

It will not increase the overall amount councils get. But it is likely to mean bigger bills for properties whose prices have risen faster than average since the last revaluation, when Council Tax first began in 1991.

"It is quite possible for an individual householder to find their council tax bill doubling," says Tony Travers, local government specialist at the London School of Economics.

The full effects of the revaluation will not be known until after the next election.

That is likely to be to the Government's advantage - given that marginal voters in the southern shires helped propel it to power.

The message? Do not panic just yet - but stand by for bigger bills and more uncertainty in the years to come.

BBC Radio 4's Money Box was broadcast at 12pm on Saturday, 30 November 2002.