For the second year in a row, councillors have voted to reject the government’s offer of a grant to freeze council tax.
Luton Borough Council’s share of domestic rates will go up by two per cent from April 1, with a Band D property paying £1,207 a year, up from £1,183.
But the rise will only bring in an extra £1.05 million for the authority, because most of the town’s properties are in tax bands A, B or C, and an above average number of people receive the single person discount.
Officers said the council should not accept the government grant, because while a rise would remain in the council tax base for the future, the grant may not be available in coming years, leaving a huge financial hole to make up.
The authority already needs to find £49 million of savings over the next three years.
Its revenue support grant from the government will be £63.9 million this year, compared to £86.1 last year, but it will be now be keeping nearly half of its business rates income, which should bring in £31 million this year.
This change has been designed to make councils focus on business growth in their area.
The new budget was approved by Luton’s executive committee last week.
Councillor Robin Harris, in charge of finance, told the meeting a significant number of savings were in the budget, including the loss of at least 40 jobs on top of the 459 redundancies that have taken place to date.
An additional £2.34 million is included to meet increasing demand for adult social care services, particularly mental health, drug and alcohol care.
Cllr Harris said: “We acknowledge that the government’s provisional grant settlement for 2013/14 announced in late December represents a temporary reprieve for Luton compared with the proposals in its summer consultation.
“We will however be substantially £7 million worse off in the following two years.
“The government’s new funding arrangements are a real game-changer for Luton. I am therefore recommending that we need to face up to the ongoing budget challenge now rather than delay the inevitable and have to deal with a much bigger problem next year.”
The proposed budget will go before full council on Wednesday night.