10 per cent council tax hike considered as solution to council's financial crisis

Somerset Council has suggested a 10 per cent hike in council tax, to combat its financial crisis.

The authority published new proposals on Monday 8 January, which include being given 'special financial flexibilities' by the Government and hiking tax, to plug a 108 million pound funding gap and avoid going bankrupt.

Details, which are set to be considered on Monday 15 January, show Somerset Council is facing cost pressures of £108.5 million in 2024-25, an annual increase of 20 per cent.

The council faces joining a growing number of authorities that have issued a section 114 notice declaring their inability to balance the books.

In November 2023, it said the funding gap is in large part due to an expected increase of £70m in the cost of adult social care.

Among saving measures which the council’s Liberal Democrat leader Bill Revans described as “heartbreaking”, the council could end funding for discretionary services such as theatres, leisure facilities and five recycling sites.

In addition, Somerset plans to use £36.8 million of reserves and surpluses from local taxes to reduce the funding gap to £37.9 million.

The report gives the council’s leadership three options for covering the remaining shortfall.

The council could increase council tax by 10 per cent, which is double the percentage currently permitted annually without a local referendum and requires dispensation from the Department for Levelling Up, Housing and Communities.

This hike would generate £17.1 million and must be combined with securing a “capitalisation direction” for £20.8 million from the department, which allows receipts from the sale of assets to be used for everyday spending on services.

If the council tax rise is rejected by the Government, Somerset Council must request a capitalisation direction to cover the full £37.9 million.

If either request is rejected, the report says: “This will force the section 151 officer to use his statutory powers and issue a section 114 notice”.

Somerset would then become the eighth council since 2020 to declare effective bankruptcy and the sixth since the beginning of 2022.

Somerset Council was established as a unitary authority in April 2023 after the district councils in the southern part of the ceremonial county were abolished, largely in a bid to cut costs.

Councillor Revans echoed warnings from other local government leaders in insisting the model of local government finance is “broken” and said Somerset had also been hampered by a “historically low” council tax rate.

He added: “This is what a financial emergency looks like. No decision has been made, but all of these savings and the 10 per cent council tax increase are unprecedented actions that have to be considered if we are to steer this authority through a period of extreme pressure.

“Officers have done as we have asked and left no stone unturned. The result is a set of options, many of which are unpalatable – some heartbreaking – that no one would want to take forward.”

In response, a spokesperson for the Department of Levelling Up, Housing and Communities said: “Councils are ultimately responsible for their own finances and for setting their own council tax, but we remain ready to talk to any concerned about its financial position.

“We recognise they are facing challenges and that is why we have announced a £64 billion funding package to ensure they can continue making a difference, alongside our combined efforts to level up.”