Eric Pickles, the communities secretary, is facing opposition from the home secretary, Theresa May, and the Liberal Democrats over plans to force all councils and police authorities to hold a council-wide referendum if they propose a council tax rise of more than 1%.
At present, councils are free to raise council tax by up to 2% without being required to stage a referendum. No council has taken the option, although the Green party in Brighton was planning to do so at one point.
The new threshold would leave councils facing real-terms cuts in their budgets due to inflation. Pickles had wanted to cut the referendum trigger to 1.5% for 2014-15 but pulled back.
He is planning to announce the lower threshold for 2015-16 on Wednesday, the same day as the local government finance settlement, but May has warned that police budgets are already under serious strain and it would cost police and crime commissioners £1.1m to stage a referendum if they wished to raise the police precept by more than 1%.
In a letter to the Conservative and Labour heads of the Local Government Association, seen by the Guardian, the Lib Dem Treasury chief secretary, Danny Alexander, writes: “While some Conservative colleagues in the coalition government favour leaving the cap at the level that it is, other Conservative colleagues have argued in favour of lowering the threshold to 1%. In practice, this would mean that even the smallest rise in council tax would result in local authorities having to hold a referendum.
“Lowering the threshold is a change of policy that puts an unnecessary further constraint on local authorities. While I would strongly argue for local authorities to protect taxpayers from rises in council tax, nevertheless this is a choice that should rightly be made by local authorities and not be imposed centrally.
“The Liberal Democrats have long believed in devolving power to the most local level, on the principle that the best decisions tend to be made by those closest to the people those decisions effect. It is for this reason, that the Liberal Democrats in the coalition government will not support proposals to lower the referendum threshold.
“Because of the state of the public finances, we are having to ask a lot of local authorities, who, by and large, are rising to the challenge of cutting expenditure while protecting important public services.
“Lowering the threshold will put unnecessary further pressure on local authorities and the much needed services they provide.”
Pickles believes the threshold can force councils to look even harder for efficiencies because they are likely to be defeated in a referendum by voters opposed to extra pressure on their finances.
Although Pickles did not cut the threshold last year, he changed how council tax increases were calculated to include bodies such as local waste disposal authorities, integrated transport authorities and local government pension authorities.
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