Council tax up 11% to fund Budget give-away

TAX cuts expected in this week's Budget are to be paid for partly by rises in council tax of as much as 11 per cent - nearly four times the rate of inflation.

A letter from William Hague, Secretary of State for Wales, to a Labour MP says the Government expects bills to rise by 11 per cent in the principality next year.

Public Finance magazine, which will publish excerpts from the letter tomorrow, calculates that on a similar basis, council tax bills will rise on average by 5 per cent in England and by 8 per cent in Scotland. The present rate of inflation is under 3 per cent.

Labour frontbenchers last night accused the Chancellor, Kenneth Clarke, of planning to take away with one hand what he would give with the other. A leading academic expert on local government said that lower income tax and higher council tax were "a straight trade-off".

Pressure on Mr Clarke to relax capping restrictions could result in even higher bills next year. Council tax bills also outstripped inflation last April - by an average of 5.2 per cent in England, with Wandsworth in London increasing charges by 26 per cent. Frank Dobson, Shadow environment spokesman, said that by the Government's own admission, council tax-payers will be charged pounds 2.8bn more in 1998 than they were in April this year. That is the equivalent of 1.5p on the standard rate of income tax, Mr Dobson said.

He added: "Once again the Budget will mean that there are big council tax rises and cuts in services. Local people will be forced to pay more for less".

A copy of Mr Hague's letter was sent to John Morris, Labour MP for Aberavon, who asked him why Welsh councils were apparently expecting an 11 per cent rise in bills.

The minister replied: "The planned increase in council tax takes account of the fact that for historic reasons council taxes in Wales are on average 40 per cent lower than those in England. I believe that over time local authorities in Wales should raise a higher proportion of their income from council tax."

A spokeswoman for the Welsh Office said the 11 per cent figure was a "forward projection" and could be altered by the Budget.

Mr Morris described the settlement as "utterly disastrous" for Wales; Mr Hague had had "the torture implements of the Treasury applied to him", he said.

Tony Travers, director of a local government research centre at the London School of Economics, said: "Council tax will be allowed to rise much more than the rate of inflation and that will help keep down the Government's contribution. That helps the Government to reduce national taxation.There is a straight trade-off."

The possibilities for this week's Budget include reductions in the standard rate of income tax, a widening of the 20p band, or a increase in the thresholds at which people move on to higher tax bands. Relief for the stagnant housing market, however, is thought unlikely.

Mr Clarke is expected to announce deep cuts in public spending, particularly on capital projects. These may be assisted by new announcements of the Private Finance Initiative.

Tony Blair, the Labour leader, yesterday warned Mr Clarke against any "gimmicks, tricks or sleight of hand" in Tuesday's Budget. He said the Budget "is the last throw of the dice for the Tories and it is clear there will be large-scale tax cuts".

n Mr Clarke is to make huge cuts in overseas aid in this week's Budget, despite repeated ministerial assurances that it would increase.

The cuts, expected to amount to around pounds 130m, will effectively cancel out a large part of the British public's voluntary giving to the world's poorest people - at a saving of just one-fifteenth of a penny off the basic rate of income tax.

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