The end of January saw the publication of the 2021-22 Scottish budget. Alongside a range of fiscal measures aimed at curbing the spread of COVID-19 and protecting the Scottish economy, cabinet secretary for finance, Kate Forbes also announced £90m to compensate councils that choose to freeze council tax next year.
The provisions offer the equivalent of a 3% increase in council tax as reimbursement to local authorities should they keep council tax rates at 2020-21 levels. It’s a concept that we’ve seen implemented before and one that is effective at preventing rises in household bills. While the move will surely be welcomed by Scottish residents experiencing hardship, council tax freezes can only be temporary, with implications for council finances to follow.
What impact will this new policy have on Scottish council finances? In the first year, there is no immediate impact – it’s an attractive short-term measure for both councils and residents. However, the long-term impact is where things get more complicated. Assuming this policy is wound down in 2022-23, local authorities that opt for a freeze will be left with lower council tax rates and, by extension lower council tax income than neighbouring authorities that elected to increase their rates. By deferring the option to increase council tax, councils essentially forego their yearly opportunity to raise more income. Should the policy stay in place for subsequent years, the financial implications will only grow.
The budget announcement is a helpful lifeline for councils not wishing to pass additional financial burdens onto their residents, but this comes at the cost of reduced council tax income in the future.
While there is no right or wrong answer around council tax freezes it’s an attractive option for Scottish authorities and one that many will want to consider in the current climate.
Joanne Pitt is local government policy manager at the Chartered Institute of Public Finance and Accountancy (CIPFA)