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English Regions Rich and Poor Defy Cameron Caps on Local Taxes

March 12, 2012

A broken basketball net is seen in a playground in the South Bank area of Middlesbrough. Photographer: Matthew Lloyd/Bloomberg

A broken basketball net is seen in a playground in the South Bank area of Middlesbrough. Photographer: Matthew Lloyd/Bloomberg

Two of the richest and poorest parts of England are defying the government over a freeze on local taxes as they try to maintain funding for services.

Middlesbrough, a town in northeast England with Britain’s highest unemployment rate, and Surrey, a county in the southeast with a third of Middlesbrough’s proportion of benefit claimants and 55 percent higher wages, said they will increase council tax in April. They turned down offers of compensation from Prime Minister David Cameron’s administration to leave the levy unchanged, saying such a move now would leave them worse off in the future.

While the two municipalities represent a minority balking at the freeze, they show how the biggest austerity measures in a generation are affecting areas at different ends of the economic spectrum. The U.K. accounts for about a third of the budget cuts taking place in the 10 largest European Union countries between 2010 and 2015, according to the International Monetary Fund.

“I accept that these difficult issues must be dealt with robustly, and I am on record as agreeing with many of the measures implemented by this government,” Middlesbrough Mayor Ray Mallon, an independent, said in a speech before the local council approved the increase on March 5. “But I do not accept the rationale put forward by the government in relation to the proposed council-tax freeze. It is, to say the least, financially illogical.”

Middlesbrough will lift council tax, which helps fund the bulk of local services including garbage collection, libraries and community care, by 3.5 percent. Surrey is putting up bills by 2.99 percent, it said in a statement last month.

Signing Up

As of Feb. 24, 306 of 421 municipalities in England decided to freeze or reduce local taxation, according to the latest tally from the Department for Communities and Local Government.

“A minority of out-of-touch authorities that seem unwilling to accept our offer should face up to the fact that it is unnecessary and it will hit hard-working households in the pocket,” Eric Pickles, the secretary of state for communities, said in a Feb. 27 statement. “Residents will spot that many neighboring councils are able to offer to freeze.”

Middlesbrough and Surrey encapsulate the disparity between England’s former mining, steel and shipbuilding heartlands in the north and the more prosperous regions around London.

A town of 140,000, Middlesbrough has a jobless rate of 15.1 percent, and 23.6 percent of its population receive state financial support, according to data from the Office for National Statistics from the second quarter of 2011. In Surrey, 3 percent of people are out of work and 7.4 percent get aid.

Ten-Year Costs

Middlesbrough council was offered 1.25 million pounds by the government in compensation for the freeze on bills for the next financial year, Mallon said. Officials calculated that would cost the town 20 million pounds over 10 years because of the rebasing of the tax take for future increases.

Surrey, the commuter region south of London with a population of about 1.1 million, also opposes the freeze after being offered 14 million pounds for a year.

“Not every council is in the same position and one size doesn’t fit all,” Surrey Council leader David Hodge, a member of Cameron’s Conservative Party, told BBC radio on March 1. “By taking the government grant we would have created a black hole of 70 million pounds in five years, wiping out our road- maintenance budget for two years.”

Budget cuts at local level will average 28 percent over four years, the Local Government Association said. It’s the second consecutive year of the tax freeze, which all councils implemented in the financial year that ends in March, Pickles’s office said.

“Because the scale of the cuts is so big and so little has taken effect, the question is, when people see the whites of the eyes of the cuts, will the government stick to its guns?” Stuart Adam, an economist at the Institute for Fiscal Studies, said by telephone from London last week.

To contact the reporter on this story: Rodney Jefferson in Edinburgh at r.jefferson@bloomberg.net

To contact the editor responsible for this story: Tim Quinson at tquinson@bloomberg.net


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