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Council tax bills 'could rise for millions because of national insurance hike'

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Councils could have to raise local taxes to cope with the national insurance hike to fund social care, Treasury officials have suggested.

Senior civil servants confirmed that government departments will be reimbursed for any extra spending needed to pay staff with higher employer national insurance contributions, at a reported cost of £2 billion.

But the compensation will only cover 'directly employed' workers such as teachers.

As it stands, bodies which use contractors will be left to foot the bill themselves.

This will hit councils particularly hard as they outsource a large proportion of services, such as bin collections and parking wardens.

The disparity emerged at a hearing of the Commons public accounts committee - a cross-party group of MPs who scrutinise public spending - on Monday.

Asked if councils would be reimbursed for the extra cost of employing contractors, Cat Little, the Treasury's chief of public spending, said only that 'all direct employees of the public sector will be compensated for'.

Under further grilling, she admitted she 'cannot commit' to compensation for outsourced workers and 'cannot confirm' whether local authorities would get compensation if it were needed to stop them hiking council tax.

Ms Little added that officials will 'look at the consequences' councils face before next month's budget, which will lay out the 1.25 percentage point national insurance rise in more detail.

Prior to the revelation, councils were already said to face pressure to raise their tax rates as soon as next year due to the way the government plans to spend the money raised from the National Insurance hike.

Most of the funds will be used to plug shortfalls in the NHS over the next two-and-a-half years, after which social care will receive a larger proportion.

Since social care services are mainly run by local authorities, they are likely to need extra cash.

Ministers privately believe council tax rates will need to rise at least five per cent on average, the Telegraph reported last week.

Backbench Tories have urged Boris Johnson to reconsider the hike, which is opposed by trade union leaders and business chiefs alike.

The Trades Union Council followed the Labour party in calling for social care spending to be funded by an increase to capital gains tax, while the Confederation of British Industries said higher taxes will stunt economic growth.

After refusing to set out his party's alternative to the levy for several days, Labour leader Sir Keir Starmer accused Mr Johnson of 'hammering working people' and said the tax on investments would be fairer.

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