Huge rise in council tax predicted: Reforming local government could put pounds 100 a year on bills. Ngaio Crequer reports

COUNCIL TAX payers are intended to foot the bill for the cost of abolishing their own councils, according to a confidential memo from the Department of the Environment.

This would mean huge increases in council tax bills for many of the 12 million council tax payers in English counties, who would be paying for local government re-organisation for at least four years. It could mean an extra pounds 100 on average council tax bills in any one year.

In a separate confidential document, DoE officials say the transitional costs of re-organisation could amount to pounds 1.2bn. The best DoE estimate so far produced for ministers is that the average cost per county will be 'around pounds 29m'. The memo, dated last month, is a request for advice from legal counsel on how to treat the costs.

It says: 'Ministers' initial view is that these costs should be borne by local people who stand to gain from the benefits of reorganisation in the future. The department therefore proposes to allow authorities either to meet these costs from council taxes or to allow the costs to be charged to capital and covered by borrowing for up to 3 years. The borrowing would be met either from capital receipts from asset sales or future revenue savings.'

The memo asks counsel whether 'in the absence of any disregard for reorganisation costs in the capping regime, the principles would be open to successful challenge'.

The Local Government Commission for England is drawing up proposals aimed largely at dismantling the two-tier system of county councils and district councils, and replacing it with all-purpose authorities. Already the commission has made draft proposals, in the first tranche of the review, for replacing 74 councils with 24 new authorities.

Costs will include reorganising services, making some staff redundant, recruiting others, transferring assets, holding elections and implementing new computer systems.

The department says that transitional costs will in general occur in the year immediately preceding the change or in the year following 'but may, exceptionally, continue into the second, third and fourth years after change'.

Robin Wendt, Secretary of the Association of County Councils, said last night: 'We have always been clear that the transitional costs will be immense. One way or another these costs must be paid for by the council tax payer. People must be given the opportunity to say whether this price for reorganis ation is worth paying for. It might mean another pounds 100 on council tax bills for people in the counties.'

Jack Straw, the shadow environment minister, said last night: 'This is typical of government duplicity. They have said nothing about this in public.'

It was up to government to fund a policy which required councils to make changes, he said.