Moody’s report points to increase in council tax referendums

Local authorities are likely to have to increase council tax levels above thresholds which would trigger local referendums due to decreases in central government funding, according to ratings agency Moody’s.
In a report into local government finance in England, the agency said that the number of local authorities increasing council tax levels is rising each year, with 164 proposing rises of more than 1.5 per cent in 2014-15.
This compares to a figure of just 62 two years previously.
The report said: “Those local authorities that did increase council tax for 2014-15 tended to increase them by as much as they could without requiring a referendum.
“As central government funding continues to decline and spending pressures increase, particularly in areas related to social care, we may see councils needing to increase rates above the threshold level or find other sources of local revenue.”
Under the Localism Act 2011, a council setting a council tax increase above 2% would be required to hold a binding referendum among its voters.
Moody’s said: “This cap puts further pressure on councils as it limits their flexibility to respond to funding cuts. Thus far, no local authority has resorted to a referendum to increase council tax.”
The number of councils deciding to freeze council tax has also fallen from 100 per cent of councils in 2010-11 to just 61 per cent last year.
Moody’s found that local authorities in the London area have continued to freeze council tax the most frequently.
It said that the average increase of 0.9 per cent for 2014-15 disguised differences among local authorities, some of which have been able to absorb central grant cuts better than others.
Central government funding still accounts for the largest share of UK local authority revenue (63 per cent  in 2012-13), but Moody’s said that local authorities’ ability to compensate through their own sources of revenue was limited.
It said: “Central government funding will have fallen by a quarter in real terms between fiscal years 2010-11 and 2014-15 as part of the UK government’s ongoing austerity measures.
“Moreover, the 2013 Spending Review indicated that the local government resource budget would be reduced by another 10% through 2015-16. This decline in grants puts strain on local government budgets as own source revenues remain limited.”