Councils in Chancellor's firing line

IT'S been a “tough year” for the economy - and local councils have become victims of the Chancellor's wrong economic forecasts. Political Editor Graham Dines looks at Gordon Brown's spending priorities and the impact on council tax.

IT'S been a “tough year” for the economy - and local councils have become victims of the Chancellor's wrong economic forecasts. Political Editor Graham Dines looks at Gordon Brown's spending priorities and the impact on council tax.

IT was a good day to slip out bad news. In a deliberate ploy, the Government announced its funding for councils next year on the same day as the Chancellor's Pre-Budget Report, knowing it would be overshadowed by a welter of Treasury spending statistics and forecasts.

Year after year there is anger among householders at the constant above inflation increases in council tax. There are certain to be more cries of anguish next March, especially from pensioners and others on fixed incomes.

Three years ago, soaring council tax bills went through the roof when the Government diverted cash from authorities in the south of east of England and gave it to the midlands and the north.

Last year, realising the enormity of the electoral consequences of doing that again, councils were given a more generous settlement and then given one off multi-million pound payments in a deliberate bribe to the voters.

No such luck this year. The Chancellor announced an additional £813 million funding for local government over the next two years. The cash - £305 million in 2006 and £508 million in 2007 - will be reallocated to local authorities from Whitehall departments.

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However, the amount fell well short of filling the £2.2 billion “black hole” in council finances which the Local Government Association has predicted for next year alone.

It will take weeks for local authority treasurers to digest the fine detail of the settlement but initial forecasts are that householders are facing increases of more than twice the rate of inflation to pay for education, social care, roads, libraries, consumer protection and emergency services.

The Treasury contributes the bulk of cash to pay for council spending, with the remainder coming from council tax. As the Government reins back on its largesse, the burden falls on householders, even though council which threaten to hike bills way above inflation are likely to face being capped by Deputy Prime Minister John Prescott.

Councils this year have been caught up in the general malaise of the British economy, which the Chancellor by his own admission, has had a “tough year.”

Gordon Brown has been forced to slash his estimate of growth in the current financial year to 1.75% - half the figures he had predicted in his March Budget, just weeks before voters went to the polls.

Mr Brown insisted in the Commons yesterday that the economy had remained stable, despite higher energy prices, slower house price rises, and heavy extra costs to beat the threat of terrorism.

The country remained on course to beat its inflation target of 2% - an indication that the Government will not tolerate county and district councillors jacking up council tax bills which would have a major impact on the cost of living.

He proudly pointed out that employment stands at 28.8m, the highest in Britain's history. What he didn't say was that many councils, including Suffolk county, have said they may have to make staff redundant if they are to balance their books following a far from generous settlement from the Government.

Mr Brown blamed a "virtual doubling' of world oil prices for the difficulties the economy had encountered. But he sought to sweeten the pill with a £2 billion raid on the profits of the North Sea oil companies to fund a package of assistance for pensioners while enabling him to freeze duty on petrol and diesel.

“The task of this Pre-Budget Report is to meet and master the global economic challenge, making the critical decisions to secure Britain's long term economic future,” he told MPs.

Mr Brown was able to dish out some more cash despite the problems facing the economy. There'll be £135m for counter terrorism and security, £580m to fund the armed forces in Iraq and Afghanistan, and a boost in shared equity schemes to allow young people to get on the housing ladder.

With an eye on today's > outcome of the Tory leadership election, he said the probable winner David Cameron's plan to share the proceeds of economic growth between spending and tax cuts would mean a cut of £12bn. In Government spending.

However, the Shadow Chancellor George Osborne - who is almost certain to keep his job if David Cameron wins today - hit back, declaring: “This is a Chancellor forced into the humiliation of admitting he got it all wrong. This is a Chancellor who is past his sell-by date.

“This is a Chancellor who is holding Britain back.”

Should Mr Brown indeed be “holding Britain back,” he'll have nowhere to hide if, as is almost certain, he's Labour's leader and Prime Minister at the next General Election.

For eight and a half years, he's been known the Iron Chancellor, a man who delights in the “prudent” when it comes to his stewardship of the economy.

His forecasts have hit a hiccough. All may not be lost, as he insists. Perhaps most significantly, the Chancellor called for continued wage restraint, and said the Government would keep public pay under control.

The first to feel the impact will by National Health Service workers, who have been offered a rise of just 2%. The Bank of England is closely watching the next pay round for signs of whether inflationary pressures due to higher oil prices will spread throughout the economy.

The last thing Gordon Brown or the country needs is a winter and spring of industrial unrest just to prove how tough he really is.

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