Chancellor Jeremy Hunt could allow town halls to increase annual bills

Council tax is ‘set to soar’: Chancellor Jeremy Hunt eyes up plans to allow town halls to increase annual bills more than 2% per year in Treasury war on spending

• Council tax bills could soar under new  plans to ease pressure on public finances
• Chancellor could relax cap that allows town halls to increase annual bills by 2%
• Move wouldn’t directly go to Treasury but could shift funding to local authorities

Council tax bills could soar next year under government plans to ease the pressure on public finances.

Chancellor Jeremy Hunt is looking at relaxing the decade-long cap that currently allows town halls to increase their annual bills by just 2 per cent a year for their core services.

Although the move would not directly raise money for the Treasury, officials believe it could allow Mr Hunt to squeeze central funding to local authorities, as they would then be able to make up the difference from local council tax payers.

A government source told the Daily Mail the idea was being examined as ‘an option’ as ministers scramble to find £50billion in tax rises and spending cuts by the time of the Budget on November 17.

‘It doesn’t bring in money directly, but if it goes ahead it would allow the Treasury to provide less money centrally,’ the source said. ‘It’s an option that is being looked at.’

Chancellor Jeremy Hunt is looking at relaxing the decade-long cap that currently allows town halls to increase their annual bills by just 2 per cent a year for their core services

The plan could allow local authorities to impose the first double-digit hikes in council tax for more than ten years.

Some ministers are resisting the move, arguing that it would pile pressure on families already facing the worst cost of living crunch in decades. But councils are pushing for the freedom to set their own bills without constraint, saying their ability to provide core services is being eroded by inflation.

The Local Government Association (LGA) has warned ministers councils face a £3.4billion funding gap next year ‘just to maintain services at pre-Covid levels’.

In a submission to the Treasury, the LGA said that to fill the gap using council tax alone, bills ‘would have to increase by well over 10 per cent next year’. The organisation, which represents councils across England and Wales, said rises on this scale would be ‘neither sustainable nor desirable’.

Despite this, it called for the current cap on council tax rises to be ‘abolished’ to give them the power to raise more cash to ‘protect or improve local services’.

Under current rules, councils have to win a local referendum if they want to raise council tax by more than 2 per cent. In recent years they have also been permitted to levy a ‘precept’ for social care of between 1 and 3 per cent. Last year, total average bills rose by 3.5 per cent. The Treasury is now looking at options to increase the percentage rise at which authorities are required to win a referendum. The current 2 per cent cap could be raised to 5 per cent or more, although ministers are nervous about scrapping it.

With the social care precept also likely to stay, bills could rise by 8 per cent or more next year.

The plan could allow local authorities to impose the first double-digit hikes in council tax for more than ten years

An 8 per cent rise on an average Band D bill of £1,966 would cost households an extra £157 next year. Council tax referendums were introduced by the coalition government in 2012 following years of inflation-busting rises under the previous Labour government.

Although several councils have threatened to break the annual cap, only one referendum has been held. In 2015, the Bedfordshire Police and Crime Commissioner Olly Martins proposed a 15.8 per cent increase in the police precept to fund the employment of 100 more officers. But the idea was rejected by local voters. Mr Hunt has been limited in his search for £50billion in tax rises and spending cuts after the Tory manifesto pledged not to raise the main rates of income tax, VAT and national insurance – a main sources of government income.

Treasury sources have indicated a four-year freeze in income tax thresholds will now last for six years. The windfall tax on energy firms will also be increased from 25 per cent to 30 per cent and extended from three years to five.

But the Chancellor is also looking at raising a range of smaller taxes, such as dividend tax and air passenger duty.

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