Council tax: what is it and why is it another bill that’s rising?

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By Helen Brain
Department of Accounting, University of Birmingham

Local government finance is in the headlines again, with the County Council Network reporting three quarters of councils will increase council tax by the maximum in April. Here we look at what councils do and why council tax is rising. The focus is on England; arrangements vary in the devolved administrations.

What do councils do?

We all know that councils empty our bins, look after our local parks and fix holes in the roads. But what else do they do?

Local authorities in England provide hundreds of services, many of which they have a legal duty to provide. These include services relating to education, housing, waste collection and planning.  They also have significant environmental health (think food safety, noise and air pollution) and public health responsibilities – they are responsible for most sexual health services and services for reducing drug and alcohol misuse.

Some of the most important statutory duties carried out by councils everyday are for the care of the elderly, vulnerable and disabled. Indeed, social care spending for adults and children accounts for the largest share of council revenue spending (around 50% in 2019-20) (Comptroller and Auditor General, 2021).

Councils also have the power, but not the obligation, to provide discretionary services. For example, sport and recreation, economic development and youth services.

The range and breadth of activities carried out by local government means every one of us is affected by local government activity. It matters to us all.

Where does the money come from to fund all this activity?

Most local authority funding comes from three sources:

  • council tax (approx. 50% in 2019-20)
  • business rates (a tax on business premises) (approx. 27% in 2019-20)
  • grants from central government (approx. 23% in 2019-20)

(Institute for Government, 2020).

So, what is council tax?

Council tax is a tax charge that residents of domestic property must pay to their local authority to help fund their activities. Each home in England is assigned to one of 8 valuation bands, and this determines how much must be paid. The higher the value of the home, the higher the band it is assigned to. So, if you have a more expensive property, you will pay more.

The assignment of homes to these bands is based on an estimate of what the property would have sold for on 1 April 1991. There has been no revaluation for council tax in England since the tax was introduced in 1993.  Such a revaluation is likely to prove unpopular with householders who may find themselves with a higher bill – and what government wants to be responsible for that?! But that’s a discussion for another day.

Council tax is run by local councils, called billing authorities. They issue the bills and collect payment.  Depending upon the local government structure where you live, there will also be ‘precepting authorities’ that receive a share of the council tax collected by the billing authority. So, for example, if your billing authority is a district council, then they will also collect council tax on behalf of other local government bodies, including the County Council and the Fire and Rescue Authority.

When they set the council tax each year, local authorities must determine if the proposed increase is ‘excessive.’  If it is, they must hold a local referendum and obtain a ‘yes’ vote to go ahead. The Secretary of State determines the thresholds for excessiveness. For 2023-24, authorities with social care responsibilities will trigger a referendum if they propose a rise of 5% or above (5% being the 2023-24 threshold).

Why is council tax rising?

Councils have been significantly affected by the public finance austerity measures since 2010.  Research showed that councils experienced a 49.1% reduction in funding from central government from 2010/11 to 2017/18, which resulted in a 28.6% real-terms reduction in ‘spending power,’ when demand for services was rising (Comptroller and Auditor General, 2018). ‘Spending power’ includes the other income that local authorities have available to spend, such as council tax, which lessens the impact of the cuts.

Councils are required by law to run a balanced revenue budget and are not allowed to borrow money to fund day-to-day spending. They have employed many strategies for dealing with the financial pressures posed by funding cuts, including efficiency savings, cutting discretionary services, using reserves, and generating commercial income. The role council tax plays in local authority finance has grown in the period of austerity. In 2009-10, council tax was about a third of local authority income, but by 2019-20 it represented a half (Institute for Government, 2020).

Then of course, there is the impact of Covid. According to the National Audit Office (2021), government support to local authorities during the pandemic did avert financial failure, but the financial position of many authorities is of concern.

Not all authorities have been affected equally by the funding cuts or by Covid, but it is safe to say there has been a detrimental impact across the board.  In the face of rising demand for services and inflationary pressures, many councils see no alternative than to go for the maximum council tax rise in a bid to balance the books.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the University of Birmingham.

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