George Osborne left Britain a legacy of soaring council tax bills

Yahoo

17-02-2025

The majority of local authorities are expected to raise council tax bills by the maximum permitted amount of 5pc in April – with many applying for rights to raise the levy even higher.
A 5pc increase alone would send bills for the average Band D home above £2,500 in 21 areas – up from four last year, according to analysis by the TaxPayers' Alliance pressure group.
Yet taxpayers increasingly feel like they are getting less and less for their money, with some authorities cutting bin collections to just once a month – a symptom of decline in their fiscal health.
If you're looking to appoint blame, Keir Starmer's Government may make for an easy target – but in reality, the issue dates back to cuts spearheaded by George Osborne 10 years ago.
Following the Conservative party's victory in the 2010 general election, the former chancellor wasted little time in launching his own assault on public spending – a period of austerity that crippled public spending and investment lasting almost a decade.
Just months after the election, Mr Osborne announced that local authority funding would be cut by 27pc over the following four years, along with 'a massive devolution of financial power' that would see councils gain more responsibility over where money was spent, and cuts were made.
The former chancellor also made good on a promise he made to give local authorities the ability to freeze council tax for two years, between 2012 and 2013. In exchange for freezing council tax, local authorities would receive additional funding – but in retrospect, this has proved to be a costly error for councils that took the deal.
'On the face of it, it sounds like a very good idea – and I imagine he thought it was a fantastic idea when he delivered his speech promising to lower the cost of living – but there were two huge problems,' says Joanne Pitt, senior policy manager at the Chartered Institute of Public Finance and Accountancy (CIPFA).
'Firstly, council tax is cumulative. If councils raise council tax by 3pc or 5pc each year, their base council tax increases. If you do not increase council tax for two years, and other councils do, you fall behind permanently. It was an incredibly short-termist view, and councils are still paying for it.
'Secondly, freezing council tax across the board is a poor way to allocate limited public sector funds. If you look at who benefits from a reduction in council tax payments, it is not the poorest in society. If your policy objective is to help people in poverty, the figures do not work – it is too little across too broad a patch. People who do not need the support end up benefiting.
'If you combine that with the austerity over the following eight or nine years, it is a hell of a lot to come back from.'
Faced with more control over their spending and a significant blow to their budgets, several councils set about plugging the gap by investing some of the remaining money they had, plunging funds into everything from fine art to property, with the hope of beating cash returns and boosting their coffers.
The results have been disastrous, to put it mildly.
Between 2016 and 2019, local authorities collectively spent £3.1bn on office developments, £2.3bn on retail property including shopping centres, and nearly £1bn on industrial property, according to the National Audit Office (NAO) – which marked a 1400pc increase on the previous three years.
The Covid pandemic that immediately followed saw their value plunge, as the post-pandemic shift to homeworking depressed prices of office buildings.
Desperate for cash and unable to hold out and ride the ups and downs of their investments, councils sold £1.4bn of assets last year, despite analysts warning it was the worst possible time to do so.
After a series of failed investments – predominantly in solar farms – the local authority of Thurrock, Essex, accumulated debts of £1.5bn and was forced to declare bankruptcy in 2022. Its residents will see their council tax payments jump by 8pc from April.
Croydon Borough Council, which declared bankruptcy in both 2021 and 2022, has total capital borrowings of almost £2bn. It borrowed £545m over three years to invest in housing and commercial property, including a £200m loan to its own housing development arm Brick By Brick. After posting losses every year, Brick by Brick collapsed in 2022.
In December 2023, Nottingham City Council became the latest local authority to declare bankruptcy. One of the council's most notable failings was its decision to launch Robin Hood Energy in 2015, taking on the major energy suppliers in a highly competitive market. At one point, the firm boasted former Labour leader, Jeremy Corbyn, as a customer.
Unfortunately, this was not enough for Robin Hood Energy to ever turn a profit, and it collapsed just five years after its inception. Leaked documents estimate a £38m cost to local taxpayers.
But while these instances make for effective cautionary tales – and have landed taxpayers in some local authorities with heftier tax bills – they are in the minority, says Ms Pitt, who has 25 years of experience advising local governments.
'Very few local authorities have actually done that, and those have hit the headlines. But you have over 300 of them, and the vast majority did not do that. Most organisations make sensible, pragmatic investment decisions within a prudent borrowing environment, but there are absolutely some outliers.'
It is not just giving councils both Conservative and Labour more freedom to invest the limited cash they have that has seen things go awry for so many local authorities.
The austerity pushed on councils by Mr Osborne saw funding cut from vital programmes, such as Sure Start, which invested in early learning and family support programmes. Between 2010 and 2022, funding for Sure Start dropped by over two thirds and over 1,300 centres closed their doors.
Community programmes were lifelines for young families, improving health and education standards, and therefore work prospects later in life. Sure Start reduced the likelihood of young people ending up in youth custody by a fifth, according to research from the Institute for Fiscal Studies.
The effects of crippling cuts to these schemes – while saving the Government money in the short run – are now being seen, with councils forced to pick up the tab and hike taxes in turn.
By cutting spending on local people early on in their lives, councils are forced to pay more when they are older.
With the adult social care bill for adults projected to top £17bn by 2030, according to the County Councils Network (CCN), councils that fell behind in the 2010s due to austerity and tax freezes have been overwhelmed. Tax rises appear inevitable.
Ms Pitt adds: 'Ten years or so of austerity have taken their toll. Grants that councils received from the Government were reduced, which affected deprived areas more, as they couldn't raise council tax as much and raised their own income.
'You've got massively rising demand for schemes which support schools with special educational needs. More children are surviving that would have been born prematurely, which is fantastic – but that individual will need millions of pounds of help over their lifetime.
'As they go through the system, they become adults, and our funding system does not keep up with that sort of medical technology and the demand.
'Local authorities cannot afford those types of costs, because you've also got huge numbers of adults coming into the system in need of social care.
'If you have a high number of dependent adults and children, you cannot control your costs. You can't just say you've reached your limit.'
Instead of taking advantage of historically cheap borrowing rates and building infrastructure and investing in communities so that Britain may reap the rewards of growth and lower taxes for years to come, George Osborne had other ideas.
Ambrose Evans-Pritchard put it best, writing in The Telegraph in 2022: '[Austerity] both lowered the growth trajectory of the economy and slowed the organic fall in the debt ratio, and was therefore futile in every respect.'
For a country desperate to find its way to healthy economic growth six years on from austerity, rising council tax may be just the tip of the iceberg.
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