A London council announced today that it is planning to give each of its taxpayers a one-off £50 payment to help out during the current economic gloom.

Kensington and Chelsea council said that the “efficiency dividend” would come out of its £5.4m savings pot from the current financial year.

Despite the West London borough’s budget surplus, council tax will increase by 3.2 per cent from April. The same month that the pay-out will be made - ensuring that bills do not rise for the first month at least.

Merrick Cockell, the Conservative council’s leader, said said: “The £50 dividend has three great merits: it pays the same to all residents liable for council tax, thereby giving proportionately more help to those on the lowest incomes; it focuses the help in April, when it might be most needed; and it can provide a stimulus to the local economy if, as we would hope, those who spend it will do so locally. Others will choose to save; perhaps those who least need this rebate will help local charities.”

The measures will go before Kensington and Chelsea’s full council in March for approval.

Both the council and the Local Government Association said they were not aware of any other authority which had introduced such a system, although the LGA said a number of councils were looking at ways of helping people.

An LGA spokesman said: “Councils know that people are going through tough financial times at the moment and are doing a whole range of things to give them the help, support and advice that they need.

“At this time of repossessions and redundancies, even more people need the vital support that only councils can provide.

“Town halls are taking decisive action to protect local people and businesses from the worst effects of the recession.

“They are helping to keep people in their own homes, offering support to the unemployed and helping small companies stay afloat.”

Matthew Elliott, chief executive of the TaxPayers’ Alliance, said: “This is a welcome move from the council, and more local authorities should follow their lead.

“The fact is that council tax is too high and there are plenty of savings to be made.

“Councils should take any and every opportunity to give back surplus money, and then make the savings permanent through tax cuts in future years.”

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