The great Council Tax Reduction Scheme caper

What fun we have been having with the Council Tax Reduction Scheme. First we had the government telling us that they are only going to provide, on average, 90% of the funding that district councils need to make up the difference between the previous amounts of council tax benefit and the new Council Tax Reduction Scheme (CTRS). So the majority of district councils have had no choice but to reduce benefit entitlement in order to make the scheme affordable.

And we’re not allowed to change the benefits of pensioners, who form a large chunk of benefit recipients in the districts. That makes the non-pensioner benefit recipients having to take more than the 10% hit to make the numbers add up.

As every district council treasurer grapples with their own scheme we’re seeing a multitude of different schemes replacing the single national scheme – another postcode lottery for the benefit recipients.  And we’ve all had to figure out how to do that before the statutory deadline of January 31.  But the problem was made worse with the announcement at late notice of a transitional grant which each district has had to decide how to apportion to parishes – also well before January 31 for most parishes to tell us what their precept is.  After all we can’t expect them to tell us their precept without them knowing how much grant they’re getting. So we’ve had to get the grant out, having come up with the methodology for it, which is a whole blog in itself.

The big political difficulty will be that any parish councils (which include town councils) who haven’t had the time to understand all this may have set the same precept as last year which in their eyes shouldn’t cause them any problems. They might be in for a rude awakening this month when their residents receive their council tax bills. Every bill has to show changes in the various components of the tax – county and district if it is two tier, unitary if not, police and parishes as well. So we are expecting some parish councils to show possibly even double figure council tax increases. If they aren’t prepared for that they are going to get a lot of complaints saying why the hike and the parish council clerk could struggle to explain what has happened.

That is not even the biggest problem in this whole story though. We are all clear how much grant each district has been given for 13-14. To give an idea of the magnitude, the larger of my two councils has got £246,000 to be divvyed up for the parishes; my smaller district has £200k. We’re fairly medium sized districts so £225k is the average amount we are talking about.

But because of the other reforms that are going on the government aren’t giving us that money in one sum. Approximately 40% (say, £90k) is provided within the spending baseline (for us that is a couple of million or so for each council). Then 60% of it (£135k) is in Revenue Support Grant (RSG). But from 14-15 onwards the government is not going to be identifying the equivalent of that £200-250k that they are giving councils to pass on to the parishes.

The government is implying that every council is going to get this money forever and have been asked by lobby groups the question to the effect of ‘We’ve heard a rumour that you are going to be reducing this council tax reduction scheme grant from 14-15 onwards’. The government has come out on record as saying no, we’re not. In all other contexts they use words to imply, not state, that these amounts are being paid indefinitely, but they have specifically said that they are not going to identify the amounts separately as part of the local government settlement from 14-15 onwards.

All we do know from the government is what our spending baseline is for year one and year two. Because it is index linked as part of the local retention of business rates scheme even I accept that for the foreseeable future and long term that baseline won’t go down. So I should assume that my 40% will carry on forever because my spending baseline is the same or slightly higher each year.

However, the RSG that my councils get in year two is 23% reduced compared to year one. The government has indicated that we expect our RSGs to go down every year after year two. So I have a real problem with just assuming that the 60% of the grant amount for the council tax reduction scheme will carry on being provided from year two onwards. I’m thinking hang on, if these substantial RSG reductions carry on, at some point in years six to ten of my long term plan my RSG is going to disappear altogether. Some commentators are already speculating that will be the case. Surely the government can’t argue that when it reaches zero, that it would have been minus £135k if it wasn’t for the 60%!

Therefore, common sense and prudence tells me that I can’t assume my RSG in year two onwards really includes that 60%. The fact that the government won’t identify it from year two onwards means that no-one can prove or disprove that that money is in or out. Furthermore there was a conspiracy theory that the indicative figures for the spending baselines and RSG were already set last Autumn in the run-up to the settlement before the government had decided what it was doing in terms of the council tax reduction scheme. So these really hardcore cynics are suggesting that the baseline and RSG figures that we are receiving haven’t been changed at all to take into account this CTRS grant but it was a good wheeze at the last minute for the government to say the money was built into the numbers. I haven’t tested this conspiracy theory but it’s very telling of the mounting distrust of government that such theories spread so readily.

The conundrum every district treasurer has got is: what do you assume you are going to be paying out to parishes after 13-14? The towns and parishes are going to be increasingly lobbying us through 13-14 asking how much we’re giving them next year. In my medium term financial plan I am showing how much I am paying out as CTRS in year one, but have to come up with how much I am putting in for years two, three, four and five. I had to come off the fence and give an opinion on that.

We’ve got no choice but to pay it out in year one because the amounts have been identified, but some treasurers are saying we should show zero for year two onwards. What that would mean in practice is your towns and parishes would in some cases have an astronomical % increase in council tax for 14-15.

Some treasurers are just accepting the government’s position and choosing to show the full £200-250k going out every year for the next five years. Then there are some treasurers, of which I am one, saying ‘I can’t argue with the 40% in the spending baseline which is in there and not going down. However because RSG is going down in such big steps I can’t say for certain to my politicians that we are receiving real cash of 60%. So I am recommending that we only show the 40% each year. That’s going to give us a huge backlash from the parishes and towns. It’ll hit in the run up to next year’s budget we’ll come under huge pressure. The government is bound to say it is fully funded so the parishes and towns will want to know what is going on.

A more immediate problem for me is that one of my councils has said they understand the argument, we will go with it for the time being; whereas the other of my councils has chosen a different political solution. They want to try and minimize the impact on the towns and parishes but enable them to become self sufficient gradually. So they are going to give all of the grant in year one, intend to give 80% in year two, 60% in year three, 40% in year four, 20% in year five and by year six we won’t pass any money over. So it’s clever stepping down and being more generous in the early years. Then toward the end of the medium term they’ll get a bigger backlash because they’re not even giving the 40% out.

District treasurers up and down the country are facing this and hundreds of parishes will be lobbying for both certainty and consistency: I can’t believe even in six months time that we are still going to have this much uncertainty because there will be huge political pressure on the government from towns, parishes and districts to sort it out. You can’t have different districts doing such different things with their parishes. The government will have to come clean and either identify the amounts from year two onwards or re-think it from scratch. We have to hope that that will be the case because at the moment it’s chaos.

The amounts of money here are relatively paltry to district councils! But the political storm threatens to smash this particular government teacup. And some councils do not have the financial resources to simply ‘throw money at the problem’.

There are an increasing number of districts at minimum reserves with increasing financial pressures and it will be these poorest districts that won’t be able to fund 100% of these amounts for their parishes without demonstrable additional government grant. That’s £200,000-£250,000 of an already reduced amount of money that they have to give to the parishes. It’s another fresh hit on areas that are already suffering. So those poor districts aren’t going to be able to say that they will fund the parishes. They’ll have no choice but to give early indications to their parishes not to expect 100% and they will face that backlash.

If anyone has the ear of government and hears which way they are going to go I’d love to hear about that. It’s not right that this is becoming a postcode lottery but that is how this is turning out. And the growing likelihood of parishes having referenda for council tax increases of more than 2% would simply compound the situation. We’ll have to keep that one for next time.

Steve Bishop is Strategic Director for South Oxfordshire and Vale of White Horse District Councils