Council tax freeze may mean local authorities face ‘challenging’ year – expert

Councils could face a “really challenging” year depending on how the Scottish Government funds its council tax freeze, an economist has suggested.

David Phillips of the Institute for Fiscal Studies (IFS) said the freeze, announced by Humza Yousaf in his speech to the SNP conference, would be of little benefit to those on the very lowest incomes.

The Scottish Government has said it will “fully fund” the freeze to ensure local services can continue.

However, Cosla has reacted with anger at the freeze, saying the decisions should have been left to councils.

It comes after the Scottish Government identified a £1 billion spending shortfall next year, which could almost double within three years.

Mr Phillips said local authorities were already feeling financial strain, even under the assumption they would be able to raise taxes by 5%.

He told the PA news agency: “Even with a 5% council tax rise, we thought that councils could need to make cuts to quite a range of services next year, given rising pressures for social care services.

“Even if the Scottish Government fully funded a 5% equivalent, next year would still be very tough for Scottish councils.

“Of course if they only fund 2% or 3%, that makes it really challenging.”

While detailed figures around the council tax freeze are not yet available, he estimated that funding to compensate a 5% increase would be about £150 million.

However, councils may also have been expecting additional income from new tax bands on expensive properties, he said, potentially adding on as much as £100 million.

In terms of who would benefit the most from the freeze, many of those on the lowest incomes receive council tax reduction schemes.

As a percentage of income, those on lower to middle incomes benefit the most while, in cash terms, the richest households gain the most as they tend to live in more expensive properties.

Mr Phillips said: “The poorest don’t really gain at all, lower middle incomes gain the most in percentage terms, highest-income households gain the most in cash terms.”

Meanwhile, economists at the Fraser of Allander Institute published a blog post with their own analysis of the council tax freeze and other policies in the First Minister’s speech.

They said the council tax freeze would cost £148 million by itself, assuming councils would have followed the increase from the previous year.

The decision not to increase multipliers for the higher-band properties could cost another £183 million, they said.

The blog post said: “How much of the shortfall is covered by the First Minister’s funding pledge will be the subject of a negotiation process with Cosla, and we’ll need to wait to see how it plays out.

“But, ultimately, it could lead to councils having less spending power than was expected if the definition of fully funded is in dispute.”

The Scottish Government has said local authorities received a 3% real-terms increase to their resources in the current financial year and funding decisions would be made as part of the budget in December.