Elliott Keck is Head of Campaigns for the Taxpayers’ Alliance.
Real terms increase. We’ve all become acutely conscious of what that means, given the painfully persistent nature of inflation. People are seeing more money come in. Savers are benefiting from interest rates not seen in years. Workers are receiving pay rises beyond what most are used to. Yet for as long as pay and interest rates are being outstripped by inflation (not to mention the impact of interest rates on mortgages), then in real terms households will continue to feel poorer.
The UK’s taxation system is making things worse and there is no greater culprit than council tax. New research from the TaxPayers’ Alliance has found that council tax has soared by 79 per cent in real terms since its introduction three decades ago. In cold hard numbers that means that the average Band D levy now stands at £2,065, a nominal increase of more than 200 per cent.
We heard a lot ahead of the new financial year about the enormous financial pressures on councils this year in particular due to rising inflation, which outstripped even the increased referendum cap of 5 per cent (3 per cent for councils without social care responsibilities). The County Councils Network produced analysis suggesting that £1 billion of savings would be needed to balance budgets. Across the board Town Hall bosses cited the impact of rising prices.
But this is the boy crying wolf. It is absolutely the case that councils are suffering from inflationary pressures. It’s also the case that the cap on rates won’t be enough to account for these pressures. But a 79 per cent increase in real terms since 1993/94 can only mean one thing: that the norm for the last 30 years has been inflation-busting increases.
And there have been a lot of increases. In the past 30 years there have been a total of 9,462 individual council tax increases, compared to just 404 freezes and 363 cuts. A remarkable 244 councils (57 per cent of the total) have never decreased council tax. Time after time, these hikes have been inflation busting. Take 2020, when inflation sat at 1.5 per cent (those were the days). County, unitary, metropolitan and London councils saw an average tax rise of 3.9 per cent in that year. District councils saw an average rise of 3.3 per cent.
There is no denying financial pressures on councils. Central government grants were cut by 37 per cent from 2009/10 to 2019/20. Demand on services, particularly social care, increased. Something had to give, so the argument goes.
But that misses a few key parts of the puzzle. Since 2020/21, councils’ core spending power, a measure of the total revenue available to them (including council tax, government grants and retained business rates) have been recovering both in real terms and real terms per capita, according to the Institute for Fiscal Studies. Government grants are back on the rise and now stand at £58.3 billion, slightly above the £57.9 billion in 2009/10. Without council tax increases, local authorities still would have received an extra £3.1 billion in spending power compared to the previous year. There is money coming in. But there is a problem with how it’s being used.
Councils continue to use their resources poorly. Whether it’s six figure golden goodbyes, pointless diversity initiatives, or foreign jollies to real estate conferences, there is still fat left to trim. Our latest Town Hall Rich List found 2,759 officials receiving over £100,000 in 2021/22. Millions have been spent on failed City of Culture applications. As of 2021, 75 per cent of all councils have declared a climate emergency with varying target dates spawning an endless process of consultations. These projects and schemes all represent time and money that could be devoted to delivering services for residents at value. Or there’s the property speculation, that has left more than a few councils scrambling to remain afloat.
And finally, despite all the talk of financial pressures, according to the Local Government Chronicle, local authority reserves now stand at £34 billion, with £27.9 billion of this belonging directly to councils (the rest is distributed among combined authorities, fire services, police forces and national parks). This is up from just shy of £24 billion before the pandemic. Councils will argue they need this cash for a rainy day. Well if this isn’t a rainy day, what on earth is?
So councils have options. They could draw down some of these record reserves, scrap the pet projects, show restraint on top level salaries and tackle waste. If they do, then when 40 years of council tax comes around, that 79 per cent figure might be looking a little better.