Millions set for council tax increase as black hole in local government pensions hits £60billion

Millions face higher council tax and cuts in services because the black hole in local government pensions has soared to £60billion.

Figures obtained under freedom of information show councils’ pension deficits have nearly trebled thanks to the recession.

Council tax bills in April next year will depend in part on a calculation of the size of the pensions black hole, due to take place this March.

The last survey in 2007 found that the deficit was as high as £23billion. A total of 83 out of 87 town halls were in the red on that occasion.

Black hole: Pensioners, pictured protesting in 2003, will be especially hit

Since then one in ten funds has conducted a new valuation which show deficits have grown by more than 280 per cent on average – in part due to stock market falls.

If this is replicated across all pension funds, next year’s valuation by the Government’s accountant will show a deficit of more than £60billion.

Since the scheme is part-funded by employer contributions – in effect money from taxpayers – homeowners could be left to carry the can.

The black hole is equivalent to £2,608 for each of the 23million council tax-paying households in England and Wales. The Government has written to town hall chiefs warning that council taxes may have to increase.

To avoid a big tax rise, councils may not be forced to ensure pension pots are 100 per cent funded. They also plan to raise the size of individual employee contributions and cap taxpayer contributions.

But the Liberal Democrats, who uncovered the figures, said such measures will only delay the crisis.

Work and pensions spokesman Steve Webb also warned pensioners could be worst hit by tax rises.

‘A failure to set aside enough money and run the scheme responsibly means millions of people could be faced with bleak service cuts or council tax hikes,’ he added. ‘Thanks to ministers sticking their heads in the sand many vulnerable people will suffer.’

A spokesman for the Department for Communities and Local Government said the figures were ‘pure speculation’.