Chancellor Jeremy Hunt has announced a likely 5% hike in council tax, as well as swinging public spending cuts, as part of a dramatic Autumn Statement.
Mr Hunt today confirmed that he has lifted the threshold for council tax increases permitted without the need for a local referendum, from a total of 3% to 5%. If exercised by most councils, it could increase the average Band D Council Tax level above £2,000 for the first time.
‘This will give local authorities greater flexibility to set council tax levels based on the needs, resources and priorities of their area, including adult social care,’ Treasury documents state.
Until today, town halls were limited to council tax rises of just 2% annually before the need for a local vote, plus a further 1% allowed for authorities with social care responsibilities. From April 2023, town halls will now be allowed to increase council tax by 3%, with a further 2% available for authorities providing social care.
The Institute for Fiscal Studies (IFS) estimates the reforms will raise an additional £590m in council tax annually across local government – contributing vital new cash to troubled council coffers.
LGA chairman James Jamieson said: ‘It is good that the Chancellor has used the Autumn Statement to act on the LGA’s call to save local services from spiralling inflation, demand, and cost pressures.’
But Mr Jamieson said councils still needed more cash to protect key services in the long-term.
‘We have been clear that council tax has never been the solution to meeting the long-term pressures facing services - particularly high-demand services like adult social care, child protection and homelessness prevention. It also raises different amounts of money in different parts of the country unrelated to need and adding to the financial burden facing households,’ he added.
Financially, Mr Hunt’s council rax reforms fall short of the £1.25bn annually that would have been raised through the now-scrapped health and social care levy from 2023.
While most of the proposed levy was due to go to health services in the first few years, the original idea was that it would be used to raise funding for soaring social care costs over the long-term.
Mr Hunt has, however, promised new money for social care. He confirmed a two-year delay to the ‘Dilnot reforms’ including lifetime caps on social care costs, the additional grant funding from which he estimates at £1bn in 2023/24 and £1.7bn in 2024/25.
Confirming the delays to social care reforms, Mr Hunt’s detailed Treasury analysis states he had ‘heard the concerns of local government’.
In total, the Treasury estimates the combined new grant funding, council tax rises and other measures will provide the social care sector with an additional £2.8bn in 2023/24 and £4.7bn in 2024/25 – allowing for an extra 200,000 social care packages over the two-year period.
Some £600m will be distributed in 2023-24 and £1 billion in 2024-25 through the Better Care Fund to ‘get people out of hospital on time into care settings, freeing up NHS beds for those that need them,’ Mr Hunt said.
The Autumn Statement also revealed that the Barnett Formula will provide an extra £1.5bn to Scotland between 2023-25. Wales will receive £1.2bn over the same period, while Northern Ireland’s Executive will receive an extra £650m.
On personal taxation, Mr Hunt confirmed that the 45pm Income Tax threshold will in future be applied to all employees earning £125,000 or more annually. The threshold is currently set at £150,000.
The National Living Wage is also set to increase to £10.42 for many workers.
However, Mr Hunt’s statement avoided many direct references to where billions of pounds of public spending cuts are likely to fall. Instead, he has effectively parked the issue of Whitehall department cuts until the next Spending Review period, with departmental budgets likely to be adversely affected by inflation in the interim.
He told the House of Commons: ‘So we are going to grow public spending – but we’re going to grow it more slowly than the growth of the economy.
‘For the remaining two years of this Spending Review, we will protect the increases in departmental budgets we have already set out in cash terms. And we will then grow resource spending at 1% a year in real terms, in the three years that follow.
‘Although departments will have to make efficiencies to deal with inflationary pressures in the next two years, this decision means overall spending in public services will continue to rise, in real terms, for the next five years.’
