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Birmingham set to risk Eric Pickles’ wrath by imposing 2% council tax rise

Birmingham set to risk Eric Pickles’ wrath by imposing 2% council tax rise

🕔20.Jan 2014

Birmingham is set to join scores of local authorities in defying Communities Secretary Eric Pickles by approving a two per cent council tax increase.

Mr Pickles is offering a cash grant to town halls in return for freezing bills over the next two years.

But Birmingham says the grant will fall effectively cost the city council £1.7 million a year because it falls short of the extra revenue that could be generated by raising council tax bills by two per cent.

A meeting of the city council’s controlling Labour group on Saturday January 18 debated plans for a two per cent rise without voting on the proposal – it would be the first increase in Birmingham council tax bills for three years.

The final decision almost certainly depends on reaction from the Government.

Mr Pickles has indicated that councils wishing to implement high tax increases must have their proposals approved at a local referendum. The threshold at which a referendum becomes mandatory is currently any increase above two per cent.

However, faced by a growing cross-party rebellion among local authorities determined to address acute financial problems by raising as much money as possible from council tax, Mr Pickles may decide to lower the threshold, possibly to 1.5 per cent.

That would almost certainly put paid to Birmingham’s planned two per cent rise since the cost of holding a referendum is estimated at £500,000.

According to a leaked letter to cabinet colleagues, Mr Pickles is intent on targeting councils that set council tax increases close to the current two per cent maximum level in order to avoid having to hold a referendum. He described such councils as “democracy dodgers”.

A two per cent increase would cost Band D payers £22 a year and generate about £5 million for Birmingham City Council, a relatively minor amount given the £100 million-plus spending cuts package proposed by Labour for 2014-15.

Mr Pickles announced a further two years of frozen council tax earlier this year with £1.8 billion of grants for local authorities. He claimed that the cash would reward households with frozen council tax bills for the entire five year lifetime of the Tory-Lib Dem coalition, a package worth £1,100 for average properties.

The conundrum facing Birmingham is set out in the council’s budget consultation booklet: “Central government has offered a grant to those councils that freeze their tax at current levels. But if we take this grant rather than increase council tax, we would end up with about £1.7 million less each year each time we accept the grant.

“So if we accept the grant in 2015-15 and 2015-16, the cumulative gap would double to £3.4 million per year. In addition, we don’t know whether the grant will continue into later years and this risk amounts to nearly another £7 million per year if we accepted the grant in each of the next two years.

“So, accepting this grant rather than increasing council tax by two per cent each year would make our financial problems worse.”

A year ago, the Labour group in Birmingham backed away from a planned council tax increase at the last minute in its first budget since regaining power in 2012. Council leader Sir Albert Bore reluctantly accepted Mr Pickles’s grant and approved a freeze for the third successive year.

Before 2011-12, with the council under Conservative-Liberal Democrat control, council tax bills rose by 1.9 per cent for five years in a row.

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