The case for letting council tax rise

We have now been primed for so many tax rises that Thursday’s autumn statement will inevitably come as some form of relief. Whatever Jeremy Hunt announces is sure to be milder than the possibilities fed to us over the past few weeks. But there is one suggested tax rise which is far too mild, and far too reasonable. Local authorities, it has been floated, may be allowed to put up their council tax bills by up to 5 per cent without having to put it to the public in a referendum (a referendum which, needless to say, would swallow up a good slice of any extra revenue gained).

Five percent would amount to a sharp rise in council tax compared with recent years. For the past few years councils have not been allowed to put up their bills by more than 3 per cent without having to hold a referendum. Yet for most of that time inflation has been 2 per cent or less. The Consumer Prices Index currently stands at 10.1 per cent. Therefore, a rise in council tax bills of 5 per cent would still amount to a real-terms cut of 5 per cent.

Should we expect councils to be careful with their money, and should they have to bear their own share of public spending cuts? Certainly, and no one should take too much notice of councils which claim there is ‘no fat left to trim’. Any organisation can find savings if pressed hard enough, and it doesn’t take long to find examples of waste in local government – we could start with Sadiq Khan’s £25,000 grants to boroughs who want to ‘decolonise’ their street names.

Yet government does impose a cost on councils which is one of the fastest-rising areas of public spending: care. Care costs are soaring for reasons beyond the control of county and borough councils, such as the rise in the costs of the living wage. Moreover, the number of elderly people requiring care is growing sharply, with the population of over-70s growing at around 2 per cent a year. Yet councils are expected to cover all these extra costs with council tax revenue that is not even allowed to grow with inflation.

Central government does not have such a problem of revenues failing to keep pace with inflation. True, wages are not currently rising with inflation, which impacts on real-terms revenue from income tax. Yet the failure of tax thresholds to rise with inflation is dragging more people into the tax system and into the upper rates of income tax. Many other tax revenues are burgeoning with higher inflation: VAT receipts have been boosted by higher prices in the shops and especially from higher fuel prices.

So why be so mean and tell councils they can only raise council tax by half the rate of inflation? It isn’t just loony left councils that are in trouble from rising care bills – Conservative-controlled Kent and Hampshire councils have warned that they face bankruptcy. One consequence is going to be more people stuck in NHS hospitals because councils cannot afford their care bills in the event of them being discharged. That will cost taxpayers far more.

I always thought that one of Jeremy Corbyn’s more sensible policies was to establish a national care service which would centralise the funding of old age and adult social care – and leave county, borough and local councils to concentrate on local things like looking after the roads and waste disposal services. If the government were prepared to go down that route, council tax bills could then be cut.

If the government wants to continue to fund social care from council tax it should look at introducing extra council tax bands. Why are owners of multi-million pound mansions still only sent council tax bills equivalent to three times those of the meanest hovel? Surely, it would not be unreasonable – indeed, it would be far fairer – to realign council tax so that bills are more proportionate to the value of a property.

In filling its fiscal black hole the government has been forced to look for extra revenue – as well as spending cuts. Council tax is one area where there is some genuine scope to raise extra revenue without being unfair to anyone.