The Treasury manages public spending within two ‘control totals’ of about equal size:

  • departmental expenditure limits (DELs) – mostly covering spending on public services, grants and administration (collectively termed ‘resource’ spending) and investment (‘capital’ spending). These are items that can be planned over extended periods.
  • annually managed expenditure (AME) – categories of spending less amenable to multi-year planning, such as social security spending and debt interest.

Within resource DELs (RDEL) are grants that finance local authority spending, in particular the Revenue Support Grant from the Ministry for Housing, Communities and Local Government (MHCLG) and the Dedicated Schools Grant from the Department for Education (DFE). This spending is factored into our DELs forecasts. Local authorities are also able to finance spending through local sources – notably council tax and business rates. This spending is accounted for in our AME forecast. We call it ‘local authority self-financed expenditure’ or ‘LASFE’. Council tax is the largest element of this, making up 65 per cent of current LASFE and around a quarter of total local authority current spending, including that financed by grants, in 2019-20. Given the way we forecast it, council tax is broadly neutral for borrowing as it is offset in our spending forecast. (There is a difference between the two – less than £1.0 billion a year – due to local authority spending financed by council tax receipts being recorded on a cash basis and receipts being recorded on an accrued basis in the National Accounts.)

In our latest forecast, we expect council tax receipts in 2019-20 to total £36.3 billion (on an accrued basis). That would represent 4.5 per cent of total receipts and is equivalent to £1,300 per household or 1.7 per cent of national income. Cash spending financed by council tax receipts is expected to be £35.5 billion. That would represent 4.2 per cent of total public spending and is also equivalent to £1,200 per household or 1.6 per cent of national income. Further detail on all aspects of our local authority spending forecast are available in supplementary tables published alongside each Economic and fiscal outlook on our website.

  • Latest forecast

    Our latest fiscal forecast was published in March 2019. Council tax receipts are set to increase by less than 0.1 per cent of GDP by 2023-24. An initial increase by 2019-20 reflects several government policy decisions, including changes to police authority referendum limits and the lifting of the Scottish cap announced in January 2019. The subsequent upward effect on council tax receipts as a share of GDP is partially offset from 2020-21 by a faster growth of nominal GDP.

    More detail on our latest forecast and how it was revised relative to our previous forecast in October 2018 was provided in paragraphs 4.98 to 4.99 of our March 2019 EFO.

    Expand to read the extract from our March 2019 EFO

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  • Latest monthly data

    On an accrued basis, council tax receipts follow a smooth pattern throughout the year. This reflects the way receipts are estimated by the Office for National Statistics (ONS). While council tax is most often paid in ten-month cycles with a two-month gap at the end of each fiscal year, the ONS apportions accrued receipts evenly across the year consistent with the underlying activity that generates the council tax liability. The focus of our forecast is on the end-year position, with in-year data used to inform the starting point for the forecast.

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  • Forecast methodology

    Forecast process

    The OBR commissions forecasts of council tax receipts from the Ministry for Housing, Communities and Local Government (MHCLG) for each fiscal event. The forecasts start by using local authorities’ in-year estimates for receipts in the current year, with forecasts for growth in the council tax base and increases in levels being applied to that starting point. We provide MHCLG with economic determinants and other assumptions that are used to generate the tax forecasts. These forecasts are then scrutinised by OBR staff and the Budget Responsibility Committee.

    Forecast models

    Council tax receipts are forecast by predicting yearly percentage increases in council tax levels as well as the council tax base. Growth in the council tax base is relatively stable, with changes determined by government policy or our policy-neutral assumptions for the years beyond which policy is currently explicitly set.

    The English council tax (cash) receipts model involves three steps:

    • First, we estimate the size of the tax base. The council tax base is the total number of Band D equivalent dwellings liable for council tax after discounts, exemptions and premia (the total number of dwellings on the valuation list is subject to a range of discounts and exemptions that reduce the effective tax base). A series of simple assumptions underpin the forecasts for the different discounts and exemptions, aside from the forecast for the localised council tax reduction scheme, which is linked to our forecasts for relevant Department for Work and Pensions (DWP) benefit caseloads. The tax base calculations use four underlying data sources: council tax base data; our economy forecast assumption for the rate of dwellings growth; our forecasts for relevant DWP benefit caseloads; and assumptions around average reductions per claimant, based on recent trends. The model works by forecasting each of the separate components and then combining these to arrive at the overall percentage growth in the tax base.
    • The next step is to forecast growth in council tax levels. Typically, MHCLG council tax levels forecasts are informed by known referendum principles and announcements in the media (relevant in our spring forecasts) and/or by examining trends in recent behaviour (for example, the extent to which authorities have made use of the flexibilities in uprating policy available to them and how much scope they have to utilise these flexibilities in future years). For the years in which firm policy is not currently set, towards the end of the forecast (years 2020-21 onwards), our policy-neutral assumption is that levels will grow by 1.9 per cent – consistent with a 2 per cent principle (in line with our CPI inflation forecast, as per current government policy) multiplied an assumed 95 per cent uptake.
    • The council tax requirement and local authority forecasts for the current year (published by MHCLG) are used as sources for total receipts in the jump-off year, with the forecast growth rates for the base and levels applied to this starting point. Overall council tax receipts are calculated by growing this starting point in line with growth in the base and levels forecasts.

    The receipts forecasts for Scotland and Wales are both based on what authorities in these countries have announced for the year ahead and simple assumptions about base and levels growth thereafter.

    To convert the cash receipts forecast onto an accrued basis consistent with the ONS treatment, we add a council tax accruals adjustment forecast (based on a simple model of recent trends). Council tax net receipts (as shown in a supplementary table on our website) is arrived at by adding a forecast of Northern Irish domestic rates to the accrued receipts forecasts for Great Britain.

    Main forecast determinants

    The main determinants of our council tax forecast are those related to the tax base:

    • Growth in the number of dwellings – used to determine the rate of growth of the Band D equivalent housing stock that is eligible to pay council tax.
    • Relevant DWP benefit caseloads – a factor used to determine assumptions around the rate of growth in spending on one of the key discounts and exemptions: namely, the localised council tax reduction scheme.

    Main forecast judgements

    There are 353 local authorities in England alone, so gathering intelligence on each individual local authority is not feasible. We rely heavily on historical trends and departmental and sectoral expertise to try and determine likely future behaviour. The most important judgements in our council tax forecast are:

    • Effects of central government policy – this involves judgements around the extent to which local authorities will take up the full flexibilities offered by new government policy on, for example, uprating limits (e.g. the referendum limit or additional funding for adult social care in England).
    • Growth in the council tax base – this involves judgements about the number of taxable properties, particularly the growth in groups eligible for exemptions – for example, trends in student numbers and the rate of second home ownership. The effects of localised reduction schemes is an area of significant uncertainty, as they vary in scope and generosity across authorities. Assumptions on the reduction scheme are linked to our forecasts for relevant DWP benefit caseloads.

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  • Previous forecasts

    The relative stability of tax base means larger forecast-to-forecast revisions have tended to reflect changes to central government policy on uprating – e.g. the imposition of referenda limits lowered receipts relative to our earlier forecasts, while the introduction of additional funding for adult social care raised receipts relative to our more recent forecasts. The main uncertainty in the base forecast is the extent to which base growth will change due to localised reduction schemes (which vary in scope and generosity across authorities and are still evolving).

     

     

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  • Policy measures

    Council tax-related policy measures are not always reported on the Treasury’s policy ‘scorecard’ at Budgets and other fiscal statements, in part because they are often close to neutral for borrowing because they affect both receipts and local authority spending.

    Since our first forecast in June 2010, the Coalition and Conservative Governments have announced ten scorecard policy measures affecting our forecast for council tax. The original costings for these measures are contained in our policy measures database and were described briefly in the Treasury’s relevant Policy costings document. For measures announced since December 2014, the uncertainty ranking that we assigned to each is set out in a separate database. For those deemed ‘high’ or ‘very high’ uncertainty, the rationale for that ranking was set out in Annex A of the relevant Economic and fiscal outlook. These policy costings include:

    • A one-year freeze to council tax levels in 2011-12 announced in Budget 2010.
    • An increase in council tax to fund adult social care, phased in from 2016-17 and announced in November 2015, which allowed authorities with social care responsibilities to raise council tax at a faster pace, in order to meet some of the costs associated with adult social care.

    In addition, there have been several policy changes over that Governments chose not to report on scorecards. These include:

    • Scottish government policy to lift the cap as reported in March 2019. This allows Scottish local authorities to raise council tax by up to 4.79 per cent in 2019-20.
    • An increase in the police authority referendum principle threshold as announced in March 2019. This raised the amount English police and crime commissioner authorities are able to increase council tax without the requirement of a local referendum (from £12 to £24 a year).
    • Central government policy capping the year-to-year percentage increases in council tax levels. This included strict caps and then the requirement for authorities to hold local referendums on increases above a certain level (and subsequent changes in these referenda limits – for example, in our March 2018 forecast).
    • Additional funding for adult social care, announced in Spring Budget 2017– allowing faster council tax rises to finance higher local authority spending on adult social care. This change provided authorities with additional flexibility to increase council tax levels to fund adult social care more quickly than was previously permitted under the original policy (announced in November 2015): instead of being capped at increases of 2 per cent a year above and beyond ‘core’ levels increases, this change permitted upper-tier authorities to increase council tax levels by an additional 3 per cent a year in 2017-18 and 2018-19 (within the constraint of being limited to a maximum increase of 6 percentage points over the period 2017-18 to 2019-20).

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