Over the last few days, Councils across Wales have been debating and agonising over what level of Council Tax to levy in 2009-10. Its not been easy. On the one hand there's the desire to deliver good public services and the advice of officers to raise the necessary money. But there's also the knowledge that their constituents will be living on lower incomes in the coming year and cannot afford increases beyond inflation. Personally, I believe inflation will be around 1% through the relevant year, so an increase in Council Tax of 2% seems entirely reasonable. Where I live in Powys, the Council opted for an increase of 3%. This is going to mean difficult decisions for councillors. But nothing compared with what I expect it to be over the next few years. Tomos Livingstone has written a good piece in today's Western Mail on the background to this issue, though relating it to the National Assembly.
Britain is in a place that she hasn't been before. Our Government is borrowing (and printing) money as if there's no tomorrow. But there is a tomorrow, and this money has to be repaid. Even worse, some of the capital funding anticipated in future years in being rushed forward to bolster what's called the financial stimulus. So that's another financial hole down the road. The Chancellor of the Exchequer will have no option but cut back public spending significantly, probably from 2010 onwards - irrespective of which party forms the Government. The Pre-Budget Report projections are now fantasy, and the revisions we will hear in Darling's budget speech in March are going to be horrific.
Since the Assembly 'block grant' (as calculated by the Barnett Formula) is about 5% of the Chancellor's budget allocated to devolved services. So the cutbacks will feed directly into the Assemby's budget. And it gets worse. The Social Security budget is bound to explode as a result of the recession, and that isn't devolved - so there will be even less money for the services that are. And if Obama demands a bigger contribution from Britain towards the war effort in Afghanistan, the Defence budget will grow above inflation as well. And when the Assembly Government is faced with a huge hole in its spending plans, guess where it will find itself forced to cut back most to balance its 'impossible' budget. You got it - local government. The instinct will be to raise more tax - and the only way that the Assembly Government can raise taxation is indirectly, through the Council Tax. And it gets worse. Because only a relatively small percentage of council spending comes from the Council Tax element of Council funding, gearing will exaggerate the impact on Council Tax bills.
Next time we have one of our Conservative 'team meetings' here in Montgomeryshire, we will hopefully have a debrief on last week's Council Tax debate. I'm going to be saying that we've seen nothing yet, and its time to have a root and branch look at Council spending. And its time to start thinking about it now.