Page last updated at 02:07 GMT, Saturday, 7 February 2009

Council funds facing rate squeeze

Council tax bill
The Bank of England base rate is at a historic low

Council budgets are under growing pressure due to Bank of England cuts to interest rates, the Local Government Association has said.

It says councils across England expect the base rate cut to 1% will leave them more than 600m a year worse off.

They rely on the interest earned on money they have invested to supplement income from council tax, government grants and charges for some services.

It says it hopes for a return to a "more balanced and sustainable rate".

The councils' investment income is expected to drop sharply as a result of the historically low base rate.

Newcastle City Council, for example, has annual investments of more than 200m and estimates it will lose more than 1m for every half-a-percentage point drop in interest rates.

Last week's cut, the fifth in a row by the Bank of England, means the base rate has fallen by four percentage points since September.

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SEE ALSO
UK reduces interest rates to 1%
05 Feb 09 |  Business
Council tax bills 'to rise 3.5%'
19 Jan 09 |  UK Politics
Council tax rises 'under control'
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