Council tax pledge is only tinkering

The Tories have pledged to freeze council tax rises, to be paid for by a reduction in consultancy fees and possibly a cut in public sector recruitment advertising.

Graham Dines

The Tories have pledged to freeze council tax rises, to be paid for by a reduction in consultancy fees and possibly a cut in public sector recruitment advertising. Political Editor Graham Dines looks at the potential popularity of such a move

FOR the second time in 12 months, Shadow Chancellor George Osborne has had Tory conference delegates on their feet, cheering to the rafters a populist tax cutting measure.

Last year in Blackpool, Mr Osborne said the Tories would raise the threshold before inheritance tax was payable to £1million. This time in Birmingham, he announced a freeze in council tax increases which will effectively save householders living in average Band D properties £200 over two years.

The amount of cash residents would save, when compared to their total spending on utility and essential bills, is small beer. But as a signal of intention, it would be dangerous for the move to be brushed aside by the other parties as a mere gimmick.

Nothing raises the hackles of householders more than council tax. It is resented especially by pensioners and others on fixed incomes because the increases demanded by county and district councils each year are way above inflation, the annual rate of which is used by the Government to fix pensions and benefits.

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It was three years' ago when average council tax smashed through the £1,000 mark. In 1997, the last year in which the Tories were responsible for fixing council tax grants to local authorities, the average Band D bill was £688. This year, the figure stands at £1,374, an increase of 100%.

However, wages, pensions and benefits have not doubled, leading to anger at just why councils heap vast increases onto their residents.

Councils cite a reduction in grants from central government, rampant inflation in goods and services bought by councils, above inflation pay rises for teachers and other staff, and more services imposed on them by the government such as funding free bus fares for pensioners.

George Osborne is dismissed by opponents as a super rich, glib lightweight. Certainly he and his wife are minted and it's true he has the air of an arrogant public schoolboy.

But he does have the knack of knowing just what householders want, and that's why he is so trusted by David Cameron to deliver spending and taxation policies which will appeal to swing voters in the key marginals.

The Tories deny its new plan would lead to cuts in essential front line services. But with rising costs affecting councils, particularly in regard to adult social care, the council tax freeze could be used as an excuse by some councils to slash spending.

The new policy will work like this. In the first two full years in office, a Conservative government would offer this deal to councils in England:

If a council can keep its council tax bill rise to 2.5% or below, then the Treasury will provide sufficient additional resources out of savings made from consultancy and advertising budgets to fund a further 2.5% reduction in council tax.

Councils which accept this offer will be able to offer their constituents a complete freeze, or even reduction, in council tax for two years in a row.

Each council in England would be free to accept to reject the contract. Councils that reject it will be free to set their own council tax levels, subject to the previously announced policy of a local referendum if those increases are excessive.

Under Labour's spending forecasts, council tax is due to rise by 5% each year. If the Tory plan was enacted next year, it would save average households £70 in the first 12 months and £140 in the second year.

The likelihood of a General Election in 2010 means that if the Tories win, the new policy will come into effect on April 1 2011 and last two years.

A council tax freeze will be paid for by slashing Government spending on consultants, which currently runs at £1.8billion. But the NHS, schools and the police will be exempted.

There will also be a clampdown on Government advertising through the Central Office of Information, currently amounting to £391million. That will be clawed back to £163nillion by capping the budgets of Whitehall departments, although the Tories are known to be concerned at the volume of public sector - central and local government, charities and NGOs - recruitment advertising and investigations are taking place on the viability to stopping newspaper adverts and switching it on-line.

Explaining his new policy, Mr Osborne said: “I wanted to demonstrate that the Conservative Party can offer something to the many, many millions of families that are struggling at the moment, households for whom a rise in council tax at this time is a real blow.”

He said councils would be able to keep to the 2.5% target. “I think there's plenty of opportunity in local government - as there is in central government - to find savings.

“I think this is exactly what the country wants to hear at a time of enormous anxiety.”

Council tax was brought in by John Major's government to replace the poll tax which itself took over from domestic rates. But the unrelenting increases imposed year after year by all forms of local government as well as police authorities have led to campaigns calling for its reform.

The Liberal Democrats proposed to abolish the tax and replace it with a local income tax of an extra 3p in the pound. But while this has the virtue of taking out of the tax pensioners with no income, it would mean every working person in a house would have to pay through increased taxation, a move which has unfortunate echoes of the poll tax. In Scotland, the nationalist government is seeking plans to adopt a variation of the Lib Dem proposal within the next few years.

The Osborne plan is certainly novel. But it would only last two years and then councils would be free to carry on as now, subject to control by referendums.

And it does not solve the underlying problem of what to do with council finance in the long term.

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