There is a great irony to local government finance. Local authorities cannot go bankrupt because they have tax-raising powers. But in reality, they can’t raise taxes.
Financed through an increasingly diverse but dwindling array of Government grants, council tax and centrally-set business rates, local authorities have little leeway.
In recent years, council tax has been held down by central Government rules. It’s no longer capped per se, but held down to a threshold beyond which it requires a referendum. Now, the Treasury has started to go one step further, adding an adult social care precept to its fiscal announcements – effectively raising council tax from Whitehall.
As austerity takes its toll, and pressures continue to surge, local government has made its cuts and has little leeway left.
For localists, fiscal devolution is the answer. Giving councils the power to make their own decisions on raising – or lowering – their income. It was the starting point of business rates devolution, but ultimately, council tax and business rates are not rising fast enough to keep up with social care demand.
So what does local government want? In a small snapshot survey of chief executives, The MJ, with the support of the Institute of Fiscal Studies (IFS) and the Chartered Institute of Public Finance and Accountancy, asked what they wanted to see.
Unsurprisingly, our survey was keen on devolution. Two-thirds of our respondents said it would be the best way to meet the funding gap, while just a third wanted to see more central Government grant.
All of our respondents said there should be fiscal devolution across the whole country, not just on a place-by-place basis.
It seems local government favours the more familiar property taxes over radical new approaches to its finances. When it comes to devolving existing taxes, 83% of our survey wanted to see business rates devolved, and 72% suggested stamp duty.
While there was marginal support for income tax – which the IFS has said would be the easiest tax to localise – VAT and corporation tax, no one wanted to see national insurance used to fund local services.
When it came to new taxes, almost all our respondents (94%) wanted to see a vacant land tax and there was widespread support for tourism taxes (78%). Just over a third of our chief executives supported a sales tax or workplace/customer parking levies, while 42% said they would like a refuse tax.
There was massive support in our survey for council tax revaluation (94%) as property values slip further and further away from their 1990 base rate. Three-quarters of our respondents said they would like to see council tax rates under local control, while nearly two-thirds wanted devolved control of tax discounts, and nearly two-thirds wanted to see all aspects of council tax controlled locally.
Just over a third of our respondents said they would like to see council tax banding localised.
When it comes to the stalled rollout of business rate relocalisation, three-quarters of our survey wanted to see 100% of the rates back in local control, while 15% wanted to see 75% rate retention. One in 10 thought we should return to a centralised system of business rates.
But perhaps most surprisingly, 68% of our chief executives said they would rather see a national care service. As local government buckles under the weight of social care costs, it seems the appetite for localism and fiscal devolution is outweighed by fears that the burden of care will swallow up all the resources.
