Budget: Osborne set to encourage council tax freeze

The government will press ahead with plans to encourage a council tax freeze in England next year, it is understood.

The move is expected in Tuesday’s Budget to soften the anticipated blow of harsh spending cuts and tax rises.

Chancellor George Osborne warned on Sunday that Britain was “on the road to ruin” unless the deficit was cut.

But shadow foreign secretary David Miliband warned the government was set “to put Britain in danger of being a slow-growth Japan-style economy”.

The Conservative manifesto proposed a two-year council tax freeze paid for “by reducing spending on government consultants and advertising”.

That plan involved providing extra funding to councils who proposed only small council tax increases, so they could then freeze them.

It is not entirely clear yet how the coalition government’s plans would work, or how much it will cost.

The council tax initiative is one of a series of “good news” measures trailed ahead of a Budget which Mr Osborne said would set out a four-year plan to slash the UK’s deficit by cutting spending and increasing taxes.

He said tough action was “unavoidable” – if not, he said: “We will find higher interest rates, businesses going bust, unemployment rising and our living standards declining. I am not prepared to put up with that.”

But as well as the council tax freeze – and the decision to axe Labour’s plan to raise more money from a National Insurance increase – the Budget will also provide a partial National Insurance exemption for new firms based outside the south-east of England.

Other measures known to be included in Mr Osborne’s statement at 1230 BST (1130 GMT) will be a levy on banks and an increase in non-business capital gains tax.

The capital gains tax would rise despite a free market think tank, the Adam Smith Institute, warning it could actually cost the government as much as £2.48bn in lost revenues as people opt not to sell assets.

Mr Osborne refused to say whether the proposed crackdown on public sector pay would include a multi-year freeze, or confirm newspaper reports that welfare payments may be frozen.

But he announced that former Labour cabinet minister John Hutton had agreed to head a commission looking into the future of public sector pensions.

The commission is set to produce an interim report by September with a full set of recommendations for next year’s Budget – recommendations which seem set to lead to increased contributions for scheme members.

Prime Minister David Cameron has already suggested public sector pay and pensions will be hit, saying the deficit could not be dealt with by “just hitting either the rich or the welfare scrounger”, and said the Budget would be when “the rubber really hits the road”.

Senior Tories and Lib Dems signed off the Budget on Friday with Mr Cameron, Mr Osborne, Deputy Prime Minister Nick Clegg and Chief Secretary to the Treasury Danny Alexander all present.

Discussing the cuts to be announced in the Budget, Sir Steve Bullock, chairman of Local Government Employers, said: “All authorities are facing very, very difficult decisions in the coming months…

“There will be intense scrutiny of how this comes. It makes things very difficult in terms of how we prioritise our services.”

Shadow chancellor Alistair Darling said the Conservatives were “using the current circumstances” as an excuse to make “ideologically driven” cuts they had planned anyway and said they were “using” the Lib Dems “as cover”.

And Mr Miliband, one of the contenders to be Labour leader, said: “There is a very heavy responsibility on the government here.. for this government to put Britain in danger of being a slow-growth Japan style economy is a grave dereliction of duty.

“It is very, very important indeed that voices are raised again senseless cuts, unfair cuts that endanger not just our society but our economy as well.”

General secretary of the TUC, Brendan Barber, said the chancellor’s approach “is based on a series of myths. Deep urgent cuts are not needed, and run the risk of the double dip – especially now much of Europe has signed up to the same deficit fetishism.”

Bob Crow, general secretary of the Rail Maritime and Transport union, said he feared the coalition Government was planning to hit pay, jobs and pensions in the public sector as part of cuts and called for an emergency meeting of the TUC to plan a campaign of industrial and political action.

Meanwhile business organisation, the CBI, called for changes to strike ballots laws so they could only go ahead if 40% of a balloted workforce supported action, as well as a simple majority of those voting.