Council Tax Freeze Doesn’t Add Up

2:46 am - September 30th 2008

by Unity    

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George Osborne has designs on becoming the next Tory Chancellor of the Exchequer and that raises certain expectations. An understanding of economics would, of course, be pretty useful but, as a bare minimum, you’d expect him and his advisors to be able to deal with a bit of basic mathematics…

Unfortunately, mathematical ability seems to be in very short supply in Tory ranks and, to make matters even more embarrassing for George, its his headline conference announcement, a two-year ‘freeze’ in council tax rates, that simply doesn’t add up…

Here’s how the Tory’s website span Osborne’s announcment…

George Osborne has announced a two-year freeze in council tax in order to help families cope with the rising cost of living.

This measure will save a typical Band D household over £200, and millions of families will benefit.

If only that last statement, about saving a typical Band D household over £200, were actually true…

Let’s do the numbers, and we’ll use two different sets of figures – the current average Band D bill for England, which weighs in at £1373 for 2008-9, according to the DCLG’s figures, and the most expensive Band D rate in England, which is actually Tony Blair’s old stamping ground of Sedgefield, with a precept of £1613.

As for the other important figures, this year’s average Council Tax increase came in at 3.9% and we can’t be 100% whether this will be introduced with immediate effect in the event that the Tories win the next genera; election, in which case Osborne’s two year freeze will run from 2010-2012 or whether it will start in the April following a Tory win, in which case we’re looking at 2011-13.

So lets start out with the current average for Band D and an average 4% increase per year between now and 2013 and figure out how Osborne’s freeze is really going to be worth…

Year Bill Inc % £ inc
2008-9 £1,373.00 4.0% £54.92
2009-10 £1,427.92 4.0% £57.12
2010-11 £1,485.04 4.0% £59.40
2011-12 £1,544.44 4.0% £61.78
2012-13 £1,606.22 4.0% £64.25
Inc 2010-12 £121.18
Inc 2011-13 £126.03

Oops – that’s only £126 for the average family living in a Band D property and paying full council tax, not the ‘over £200’ the Tories are claiming.

Mmm… what about the good folks of Sedgefield, who’re currently paying more than anyone else in England, how do it look for them?

Year Bill Inc % £ inc
2008-9 £1,613.00 4.0% £64.52
2009-10 £1,677.52 4.0% £67.10
2010-11 £1,744.62 4.0% £69.78
2011-12 £1,814.41 4.0% £72.58
2012-13 £1,886.98 4.0% £75.48
Inc 2010-12 £142.36
Inc 2011-13 £148.06

Well that’s a little better, but its still not £200… I wonder how much council tax would have to increase to give us George’s £200 saving over 2 years?

Year Bill Inc % £ inc
2008-9 £1,373.00 6.0% £82.38
2009-10 £1,455.38 6.0% £87.32
2010-11 £1,542.70 6.0% £92.56
2011-12 £1,635.26 6.0% £98.12
2012-13 £1,733.38 6.0% £104.00
Inc 2010-12 £190.68
Inc 2011-13 £202.12

So for the average Band D council tax payer, you’ll just about clear a £200 saving from George’s freeze provided your council tax increase between now and 2012-3 is 6% and the Tories cover the full increase from 2011-2013 – and if you live in Sedgefield…

Year Bill Inc % £ inc
2008-9 £1,613.00 6.0% £96.78
2009-10 £1,709.78 6.0% £102.59
2010-11 £1,812.37 6.0% £108.74
2011-12 £1,921.11 6.0% £115.27
2012-13 £2,036.38 6.0% £122.18
Inc 2010-12 £224.01
Inc 2011-13 £237.45

…you will get over £200 saving with the 6% increase per annum whether or not George starts his freeze in 2010 or 2011 (5% per annum would leave you just short at £182 for 2010-12 or £191 for 2011-13).

Except, that not quite how George’s scheme is going to work…

The costs for the council tax freeze will be shared between local and central government.

Any council that makes savings to keep its annual council tax increase to 2.5% or below will receive additional money from central government to reduce council tax bills by a further 2.5%.

So what George is going to cover is only a 2.5% per annum increase over the two years of his freeze, not the minimum 6% necessary to deliver a £200 saving per household, and that has rather an unfortunate impact on the numbers, as you’ll see if we look at an average Band D household, with a uniform 6% increase in council tax for the next two years and the Tory tax freeze kicking in immediately on winning an election in 2010.

Year Bill Inc % £ inc
2008-9 £1,373.00 6.0% £82.38
2009-10 £1,455.38 6.0% £87.32
2010-11 £1,542.70 2.5% £38.57
2011-12 £1,581.27 2.5% £39.53
Inc 2010-12 £78.10

Only £78 eh? Maybe George thinks Sedgefield in a bit more ‘typical’ than the average…

Year Bill Inc % £ inc
2008-9 £1,613.00 6.0% £96.78
2009-10 £1,709.78 6.0% £102.59
2010-11 £1,812.37 6.0% £108.74
2011-12 £1,921.11 2.5% £48.03
2012-13 £1,969.14 2.5% £49.23
Inc 2011-13 £97.26

That’s a little disappointing, isn’t it? The Tories are promising £200 and yet even in Sedgefield in a best case Tory scenario of a steady 6% increase for three years prior to the freeze the best you’re looking at is saving £97.

So, what kind of council tax increases would the good citizens of Sedgefield have to swallow over the next 2-3 years in order for George’s generosity to amount to a £200 saving?

Well, if you only give him the two years and bring in freeze in 2010, assuming the Tories will the election then the nunbers look like this…

Year Bill Inc % £ inc
2008-9 £1,613.00 60.0% £967.80
2009-10 £2,580.80 60.0% £1,548.48
2010-11 £4,129.28 2.5% £103.23
2011-12 £4,232.51 2.5% £105.81
Inc 2010-12 £209.04

Yep, two years of council tax increases at 60% per annum and you’ll get your £200 saving off George, but if you give him an extra year to get his feet under the table at the Treasury then…

Year Bill Inc % £ inc
2008-9 £1,613.00 35.0% £564.55
2009-10 £2,177.55 35.0% £762.14
2010-11 £2,939.69 35.0% £1,028.89
2011-12 £3,968.58 2.5% £99.21
2012-13 £4,067.80 2.5% £101.69
Inc 2011-13 £200.91

You’ll just about clear £200 on a 35% a year increase over the three year period prior to the freeze coming into effect…

…and the stench of bullshit has suddenly become rather overpowering.

Of course, the other element of Osborne’s con here is that this freeze is conditional on local authorities keeping council tax increases down to a maximum of 2.5%, and only 19 councils did that last year, of which 16 were either within the Greater London area or a Metropolitan council. Of course, the Tories aren’t going to shout about the fact that it’ll be councils in rural areas who’ll take the major hit in terms of cutbacks in services if they try to hit the 2.5% target that Osborne’s laying down as the qualifying mark for this scheme.

Finally, a bit of playing around with big numbers indicates that the £1.5 billion estimated cost of this freeze in council tax is based on an assumption of an average 5% increase over the next three years with Osborne’s scheme kicking in in April 2011 – using government figures for the total amount of council tax to be collected in England this year, that’s the set of figures of spits out £1.5 billion in savings if the scheme goes ahead.

Based on those figures and using the current precepts for the council which is closest to the current average (Bath and North Somerset) gives a total saving for Band D council tax payers, over the two years promised by Osborne, of only £80, while Bands A & B, where you’ll find most of the families earning £20,000 who Osborne claims not to want to tax to pay ‘the bonuses of the banker earning £2 million pounds’, will net estimated ‘savings’ of £54 and £63 over the two years of the scheme.

So much for £200 then…

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'Unity' is a regular contributor to Liberal Conspiracy. He also blogs at Ministry of Truth.
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Reader comments

It would be an interesting thing to see the figures George is working from, as he is obviously working on quite high inflation rates and council tax rises. In that sense good work on pointing that out. But your analysis of savings at 2.5% are pretty irrelevant to the point at hand.

Don’t you need to count the first year of the freeze twice? Because over the 2 years you aren’t paying the second increase once, but you aren’t paying the first increase twice, if you see what I mean.

I’ve actually been a little generous to Osborne in allowing for his 2.5% ‘freeze’ to go year on year rather than as a static figure.

That actually inflates the projected ‘saving’ over 2 years, although not by that much.

Good point Jono. If I have a council tax bill of £1500 and it is set to increase by 4% each year I would end up paying £1560 in the first, and £1622 in the second. Over all, if I’m still only paying £1500 then I have saved £60+£122 or £182. This is more accurate than Unity’s calculation of such an event saving only £122. However to reach the £200 saving that means the average band D tax will have to reach £1650ish, and that is a 17% or so rise in 2-3 years.

That’s no doubt how Osborne got to £200, but that’s only a hypothetical saving because the first increase doesn’t go on, in real terms the saving is only 5% not the 6.25% cumulative saving.

However, on the other side of the balance sheet, local authorities will be left with a 6.25% hole in the council tax receipts if the scheme comes to an end after two years as their cost increases will be cumulative.

I should add that if Osborne wants to give people a £100 a year tax cut, it would be simpler to raise the personal allowance by £500 over and above the rate of inflation.

No doubt there are simpler ways to do it, but it doesn’t quite have the same impact as making a statement about council tax, a move which both recognises that it’s a tax people don’t like and marks this Tory party as one not afraid to see that it’s own past policies aren’t popular. Far from labour ever having sorted the Council tax issue, they ran with it…and now it is the Tories (and Lib Dems) who are making the positive sounds about dealing with it….again, not Labour, the party you’d probably expect to make things more equitable if they were truly the party they claim to be.

However, going back to your other comment. In real terms the saving is whatever the council would have ended up increasing their taxes by. If you go on the averages then the saving is at least a 4% saving each year. The 2.5% doesn’t come in to the “saving” calculation at all, it’s irrelevant to it. If my council was going to increase my council tax by 10% one year, and 5% the next, and I started on £1000 p/a then I would save £255 or 11% of what would have been my tax bill for those two years. Equally these people on a hypothetical average of £1650 in 2010 would save £200 and thus almost 6% of what they would have spent given an average tax rise of 4%. There’s nothing hypothetical about it, other than that it’s based on projections…which in all honesty makes *any* party’s claims on future economic policy hypothetical.

All of which is fairly irrelevant, the only question is how Osbourne gets to the figure of £1650ish average Band D tax rate by 2010-11 and thus how that may effect the £200 figure. If it’s slightly less than that, so be it, but it is still a saving to people. Now you do have a point about where taxes would go after this “freeze” period, and it should really be quite terrible if council tax has to be hiked quite sharply to account for costs…but then all of this assumes that we are heading down a road where costs in themselves are not going to be brought under control, and where pay rises are just going to be given to the public sector with little thought to the economy.

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