Hounslow Council Dips into Reserves to Avoid Spending Cuts

Government blamed for tax bills rising by maximum

Cllr Shantanu Rajawat says 'tough decision' taken to raise tax to protect services
Cllr Shantanu Rajawat says 'tough decision' taken to raise tax to protect services

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February 16, 2024

Hounslow Council says that it has been forced into increasing tax bills from this April by the maximum allowed due to government policies but that its budget means there will be no cuts to key services.

A budget report to be presented this month to the council cabinet and then the full council will include a recommended 4.99% rise in council tax for the 2024-25 financial year.

At a press conference this Tuesday (13 February) the borough’s leader, Shantanu Rajawat, said that measures had been taken to ensure cuts to services would not be required despite a challenging economic climate.

He said that the council had explored every option before considering cuts to services and had “taken the tough decision” to raise taxes instead. The rises include a two per cent increase in the Adult Social Care precept as well as a 2.99 per cent general increase in Council Tax – which is the largest increase the council can introduce without hosting a local referendum.

The leader said of the decision, “We understand that any increase in tax will be frustrating, but the blame lies with the government,” adding, “14 years of reckless government has left society broken.”

In a statement the local Labour Party added, “Tory Government managed decline has brought public services to crisis point, with a wave of damage being caused by an absent Government unwilling to reform and invest in key policies such as health, social care, asylum and housing.”

Councils including Hounslow were facing a ‘perfect storm’ of increasing demand and high inflation the Cllr Rajawat said, with over 50 per cent of all council spending going towards adult and child social care. However, even with the hikes this will not sufficiently cover the budget deficit requiring the council to dip into its cash reserves to the tune of £10.5m.

Some of this money comes from reserves built up in the General Fund which, since July 2022 as part of the One Hounslow Financial Strategy (OFHS), were supposed to go towards capital financing costs and treasury management including funding the council’s ambition to reach net zero.

However, much of the planned capital investment that this money was earmarked for has been delayed and a sharp increase in interest rates has increased the incentive to keep the cash and generate income from the return.

The budget is recommending the removal of the ringfencing policy for General Fund activity within the capital financing costs and treasury management budget which is estimated to provide a £7.5 million contribution which will cover about half of the savings needed to cover the funding gap from this year. Increased revenue from parking and other fines on motorists is providing a significant proportion of the extra funding needed with the contribution from cuts to services relatively small.

The council says, that despite the withdrawal from the General Fund, it still has ‘headroom’ for capital investment of £75 million over the life of the current OHFS.

Cllr Rajawat added that it was fortunate that they have managed their money well over the years making it possible to use the reserves without any concern of having to declare section 114 – effectively announcing bankruptcy – which has become too common among local authorities as economic pressure begins to mount.

As for many other councils, particularly in London, housing is providing additional pressure on finances. Hounslow says it has a housing backlog of just under 4000 people with the number likely to increase as demand rises. In response, Cllr Rajawat says the council plans to buy 1000 new homes and build another 1000.

In an attempt to incentivise landlords to re-enter the rental market, the budget proposes the extension of charging an Empty Homes Premium of 100 per cent council tax on properties that have been unoccupied and substantially unfurnished for between one and two years which will come into effect from April 1, 2024.

It also plans to introduce a new premium for second homes in the borough. This Second Homes Premium consists of a 100 per cent extra charge on council tax to properties that are unoccupied and furnished which will come into effect from 1 April, 2025.

Cllr Rajawat stressed that council tax rises and dipping into the reserves were part of a wider strategy that would make costly services cheaper in the long run. “We don’t want to cut services, you actually lose a lot of knowledge and you don’t want to be in that position again where you are rebuilding knowledge.”

Instead of cutting local services, the council is aiming to transform them, by decentralising them into smaller more concentrated community hubs. The leader says that ‘taking services into locality’ will help residents access services in key areas of the borough.

“The transformation of services is vital,” the councillor added. The plan aims to increase efficiency and help reduce costs while giving residents a more direct say in the services provided to them.

Peter Thompson, leader of the Conservative Group, “It’s really disappointing to see that, once again, Hounslow Council and Sadiq Khan are passing the burden of a maximum council tax increase onto local residents. The Mayor found an extra £500 million for his pre-election spending spree but, instead of using that money to limit Council Tax bills, he’s giving tens of millions to his friends in the transport unions. Hounslow Labour claims this is a ‘no cuts’ budget, but we’ll all have less money in our pocket because of their latest Council Tax raid coupled with Sadiq Khan’s shameless pre-election spending splurge.”

The budget is set to be discussed and voted upon by the council’s cabinet on 20 February and, if approved, the recommendation will be put forward to be discussed at the full council meeting on Tuesday 27 February.

Written with contributions from Rory Bennett – Local Democracy Reporter


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