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Last Updated: Thursday, 25 March, 2004, 18:55 GMT
Q&A: Council tax rises
Above-inflation rises in council tax bills for bands B and D have been announced by the government, despite continuing protests over large increases.

Coins and a calculator
Council tax is a predictable form of revenue for the government
The BBC's John Andrew looks at the controversial move.

Q. Why is the average rise in council tax much lower than last year's average - have councils taken note of John Prescott's threat to cap their spending?

The repeated threats of capping have certainly concentrated minds and many councils revised their figures downwards after they had been to see the local government minister Nick Raynsford.

But, as well as this pressure, the government's also thrown more money at councils.

The chancellor came up with an extra 760 million in grant.

Politically, the government simply could not afford a repeat of last year's disastrous average rise of nearly 13%.

Q. What affect have pensioner protests had?

The government has every reason to fear pensioners.

Generally, they are more likely to vote and a series of marches and high-profile court cases have only added to the perception that the council tax is unfair.

It was no surprise Gordon Brown pulled a council tax rabbit out of the hat by giving pensioners over 70 an extra 100 to help with their bills.

The question is whether this really is just a one-off or will need to be repeated next year ahead of a likely General Election.

Q. Has the government managed to increase grants to local government this year?

Yes, every council has had an above-inflation increase in grant, but councils point out that the cost of many services is rising much faster than inflation.

Take private residential care for the elderly, which the Local Government Association say has gone up by as much as 30%.

This year, however, the chancellor added extra cash to the grant settlement, amounting to some 760 million - roughly what councils were asking for.

Q. Why do local councils say they are faced with no choice but to put up council tax?

Council tax demo
Source: Office of the Deputy Prime Minister

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Because once they have got their government grant, there is very little else to turn to for revenue - especially when grant accounts on average for 70% of their income.

This produces a "gearing effect" so that every 1% increase in spending, without any further grant, triggers a 4% increase in council tax.

It is one of the things that the review of local government funding is looking at.

One way to stop council tax bearing all the burden of extra spending would be to return the business rate to local control.

But the CBI is strongly opposed to this.

Q. Why do local government and central government always blame each other when there is a shortfall in funding?

You will never hear a council say it has got enough government grant or a minister say that there is no room for efficiency savings!

But this battle has intensified because of the big imbalance of funding mentioned above.

If councils depended less on government grant they might have less cause to moan and the government would not end up taking most of the blame for big council tax rises.

Q. Strength of feeling against the council tax system seems to be growing - will the government eventually be forced to abolish it altogether?

The days of the council tax in its present form are certainly numbered, but I would say it is unlikely the government will want to abolish it altogether.

That is because property taxes, however regressive, are an easy-to-collect and predictable form of revenue.

Most countries that have a basket of local taxes invariably include a property tax.

The most likely outcome is a reformed council tax with more property price bands at the top and bottom-to make it more progressive.

The review is also studying a hybrid tax composed of council tax and some element of local income tax.

It will report in the summer on options to make local taxation fairer.

The BBC's Annita McVeigh
"The government believes it's been fair with grants to councils"

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