The pandemic has highlighted the exposure to changes in the economy councils face when collecting council tax and funding its services.
Bedford Borough’s portfolio holder for finance, Cllr Michael Headley (LibDems, Putnoe Ward) told Wednesday’s (January 12) full council meeting that before 2013, the government essentially paid councils for residents who were claiming council tax benefit.
“But now, the council tax support comes off the amount we collect,” he said.
“So this exposes the council’s income to much greater swings caused by changes in the economy.
“These economic swings and shocks were previously being absorbed by the
government.
“Up until the pandemic, this potential for volatility hadn’t really materialised, as
unemployment levels had generally been slowly improving over that period of time,” he added.
Cllr Headley explained that the pandemic meant there was much greater uncertainty about the level of unemployment that would be faced in the years ahead.
“Thankfully, the levels that we experienced were not as high as the OBR [Office for Budget Responsibility] forecasts feared,” he said.
These were the forecasts that the council used when the council tax base was set last year. Unemployment in Bedford was lower than this forecast, which resulted in the announcement at the recent executive committee (January 5) of an estimated council tax surplus of over £4 million.
“Obviously, that was the best data available, albeit with a lot of uncertainty involved,” Cllr Headley said.
“This year again we’ve looked at the OBR unemployment forecasts, they are more stable and lower than last year or be it a higher level than the pre-pandemic period.
“So we’ve used these forecasts of unemployment in looking at next year’s tax base, which actually means that the tax base is higher than the one we set last year because of that change,” he added.
“I would want to emphasise really this level of risk of significant variation has been built into these decisions that have been taken ever since 2013. It’s just it really didn’t manifest itself until the pandemic.
“But it could equally occur other times in the future caused by any other economic swing or shock that we face.
“This direct exposure to the economy from changes also to business rates as well as the council tax is a risk that previously didn’t exist and now local authorities from up and down the country are exposed directly to that risk,” he said.
To calculate the tax base for an area, the number of dwellings in each council tax band is adjusted to take account of any discounts, premiums or exemptions.
The resulting figure for each band is then multiplied by its proportion relative to Band D (from 6/9 for Band A to 18/9 for Band H) and the total across all eight bands is calculated.
