Government approves above-inflation council tax rises

The Guardian has reported that the government has approved for above-inflation council tax rises, which is expected to generate an additional £2 billion in revenue. The article can be read here, and in summary:

  1. Council Tax Rises Approved: The government reportedly gave approval for above-inflation council tax rises, with officials in Michael Gove’s levelling up department expecting the maximum possible 4.99% increase to be applied in April. This measure is anticipated to bring in £2 billion in additional revenue.
  2. Financial Strain on Councils: Councils across the country are facing financial challenges, and the proposed council tax increases are seen as a response to the financial strain. There are concerns about bankruptcy among local authorities, and the additional revenue is deemed necessary to sustain local services.
  3. Impact on Households: The council tax rises are expected to add about £100 to a typical Band D council tax bill, putting additional financial pressure on households. This comes at a time when inflation is already at 4%, and the Chancellor, Jeremy Hunt, is expected to announce budget cuts in March.
  4. Chancellor’s Priorities: Jeremy Hunt, the Chancellor, stated that his priority in the upcoming Spring Budget is to build on economic progress and drive further growth. The aim is to relieve pressure on families and generate revenue for public services.
  5. Conservative Party’s Polling Position: The Conservative Party is reportedly trailing about 20 percentage points behind the opposition Labour Party in opinion polls. Potential budget cuts are speculated to include areas such as tax thresholds, child benefit, and inheritance tax.
  6. Concerns About Regressiveness: Local government leaders and experts, including David Phillips from the Institute for Fiscal Studies, warn that raising council tax disproportionately affects the poorest households. They argue that while council tax forms a larger share of monthly outgoings for poorer families, other direct taxes have not been reduced.
  7. Emergency Funding for Social Care: Last week, Communities Secretary Michael Gove confirmed £500 million in emergency funding for social care. The extra funding is intended to support councils in providing crucial social care services, particularly for children.
  8. Funding Guarantee Increase: The government has increased the “funding guarantee,” ensuring a minimum percentage annual increase in money available to all councils before local decisions on council tax. It has been raised from 3% to 4%.
  9. Contingent on Council Tax Rises: Almost half of the £4.5 billion boost in core spending power for local government is contingent on the assumption that every local authority applies the maximum allowable council tax rise. If frozen, the package would match the current rate of inflation.
  10. Government’s Response: The government spokesperson emphasizes that councils are responsible for their finances and set council tax levels. However, there is a call for councils to be mindful of cost-of-living pressures, and the government aims to protect taxpayers from excessive council tax increases through referendum principles.

In summary, the approval of above-inflation council tax rises has implications for households, with concerns about regressiveness, and it is viewed as a measure to address financial challenges faced by local councils.

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