Analysing inflation-busting council tax rises

by Jeremy Hutton, policy analyst at the TaxPayers' Alliance

This year, households across Britain have once again been subjected to inflation-beating rises in council tax. In England, the average annual rate of tax on a band D property is now a colossal £1,817. In Scotland, it is £1,301 and in Wales it is £1,696. That is an annual increase of £68, £58 and £76 respectively.

Some council leaders I have spoken to think this is a trivial amount (often comparing the rise to the cost of a cup of coffee every week), but it’s not. The tax burden is at a 50-year high and many households are struggling to pay their bills every month. Any increase in council tax has a huge impact. Many don’t feel that the cost of a daily takeaway coffee is trivial. To a family dedicated to saving every penny, that can have a big impact on their household finances. With every tax rise, taxpayers have less freedom to spend their money how they see fit. In some cases, a council may be taxing away their residents’ Monday morning cuppa, so that a council can spend the money on their own tea or coffee. Whether it’s a pound or a penny, this money matters.

Looking at our council tax heat map, you can see that some councils have little hesitation in taking much more than a cup of coffee. Some of the figures are striking. Until the coronavirus crisis hit, Warwick council had been planning on a massive 30 per cent hike in council tax - to pay for a radical climate emergency action plan - which would have added £59 to the already increasing average annual council tax bill. Bearing in mind Warwick is a district council, this would be in addition to any increases by the county council which are not represented in the map - a bumper rise. 

The district council with the next biggest increase is Mendip, whose 8.3 per cent hike looks positively tame by comparison. This is over five times the national rate of inflation (1.5 per cent) and about three times the average wage growth (2.8 per cent). It dwarfs even this year's large 6.2 per cent increase in the national living wage. As our research has shown, Mendip ratepayers have already seen a real terms increase of 65.3 per cent in their bills between 1997 and 2007.

Heading north of the border, Scots have almost unanimously received big increases in their council tax, approaching five per cent. Residents in Renfrewshire will be particularly hard hit, having to pay an extra £117 this year. And how does the council spend their hard-earned money? £4,300 went on paying celebs to turn on Christmas lights. Out of the 32 Scottish councils, 20 of them have increased council tax by 4.84 per cent, despite the announcement of a 3 per cent cap. In truth, however, this cap was in so-called 'real terms'; the actual limit was 4.84 per cent. In reality, just four Scottish councils honoured the 3 per cent commitment.

In Wales, council tax is uncapped and taxpayers have received similarly high increases. Of the 17 British councils imposing the highest increases on residents in cash terms, 16 of them are in Wales. In cash and percentage terms Newport leads the race, with a 6.9 per cent council tax increase. That’s equivalent to an extra £96.20 per year for local band D households. We’ve successfully campaigned against double-digit council tax rises in Wales before, when Powys council sought to introduce a 12 per cent hike. We exposed wasteful spending by the authority which led to a smaller rise.

Returning to England, increases seem particularly stark in the south west. South Hams council, for example, will raise council tax by 5.26 per cent. The average increase in the councils west of Taunton meanwhile is 4.2 per cent. This uniformity of across the board rises in Devon and Cornwall is out of step with the mixed pattern seen throughout the rest of England. Elsewhere, Northumberland takes the crown of the highest council tax bill in England, whilst Westminster is again the country’s lowest. Readers might remember Northumberland council as the one which provided a bumper payout of £370,000 to their outgoing chief executive Steve Mason. 

Some areas of the country are consistently poorly served by their councils, regardless of political changes. As we noted in our 2019 council heat map, councils that ranked high in the Town Hall Rich List roughly correlated to Labour’s ‘red wall’ of safe parliamentary seats in the north. With the general election last year seeing many of these seats change hands, this data reveals that the ‘red wall’ has still been hit by council tax increases higher than in surrounding areas. It remains to be seen if coming local elections (now postponed to next year) will see more competitive councils, with tax bills falling as a result. 

A further difference is clear when comparing predominantly rural district councils to other types of councils. District councils have, on average, only raised council tax by 3.3 per cent. Metropolitan councils meanwhile have raised council tax by 3.8 per cent on average and unitaries by 3.9 per cent. County councils, not featured on this map, have also raised them by 3.9 per cent, according to the Ministry of Housing, Communities and Local Government. 

So although it is very common to hear of councils citing adult social care as the reason behind tax rises, in the cases of district councils (which make up nearly half of all English councils) this is largely not the case. With a few rare exceptions, it is metropolitan, county and unitary authorities who are delegated this responsibility. Despite not being responsible for social care, all but two of the remaining district councils have raised council tax. Social care responsibilities simply do not explain why most district council tax rises are over double the rate of inflation, despite bearing no statutory responsibility for this service. Had the council tax requirement for district councils risen by inflation alone, taxpayers would have been saved £55 million of tax hikes this year.

Tax hikes hit hardest in times of extreme economic turmoil. Despite the devastating effect of the coronavirus crisis on many household incomes, local authorities raced ahead with council tax rises regardless. Councils should have acted in the interests of their residents and frozen council tax. Some did get it right though, with Basildon, Corby and Chorley councils all to be congratulated for freezing taxpayers’ rates this year. 

Well remunerated town hall bosses should immediately look at how they can make savings to avoid tax hikes. Starting with their own sky-high salaries would be a good start.  After that, there is no shortage of places where savings can be found. Handily, here are a myriad of suggestions from my TPA colleague, Harry Fone. Simple savings like sharing services and embracing video conferencing can do wonders for keeping bills down and ensuring every penny is reaching frontline services.  Cutting waste and keeping down rate rises would certainly be popular, with our landmark polling last year showing that more than three quarters of those polled supported a cap on council tax rises.

These inflation-busting tax rises also raise the question of why council finances have remained in such a parlous state for so long. Certainly, the current reliance on government handouts only ‘rewards incompetence’, because councils which frequently suffer from financial mismanagement can always fall back on the government to bail them out later. The TaxPayers’ Alliance has long argued that council finances should be made more sustainable. The 2020 Tax Commission proposals recommended that councils be allowed to set local sales taxes, local income taxes and gain increased control over business rates, with national taxes falling commensurately. This would give councils a real stake in making local residents wealthier and better nurturing local businesses, as well as directly providing the funding necessary to maintain and improve town centres.

Eradicating waste remains key to putting an end to burdensome tax increases. Britain needs a fully-fledged reform of local authority finance that does away with this expensive form of council tax firefighting. We’ll certainly keep producing these council tax heat maps, to make sure someone is holding these council bosses’ feet to the fire.