Sticking your head above the parapet to suggest changes to council tax is a risky business, says Chris Leslie. But if we can’t have a serious debate, local government will be the loserWhen the press recently reported that the New Local Government Network was advocating a ‘£6,500 super council tax threat to middle England’, for a split second, I wondered whether our head of policy and author of our Pacing Lyons report, Dick Sorabji, had been getting carried away with himself. Of course, the reality of NLGN’s proposals go nowhere near this scaremongering. But it is an instructive lesson about the pitfalls of even daring to enter the debate about reform of local government finance. We don’t propose new taxes. We don’t even propose allowing localities to vary tax rates. We have been cautious on business rates, proposing de-nationalisation to the local government family to decide how to distribute this revenue equally, because of the risk of unfairness if revenues are simply localised in one step. We have even said council tax must be revenue-neutral, with other measures to take away the upward pressures on this one source of independent funding over time. So why the furore? Quite simply, we proposed retaining council tax and reforming it to make it fairer and enduring, because a residential property tax must remain a cornerstone of local finance. Routine revaluations – we suggest every five years – are essential. And there is a clear need to modestly improve the progressiveness of council tax. Reforms should help a greater number of those currently paying above their fair share on band A, with a split to create a less-expensive band for those living in the lowest-cost properties, and a division of band H at the higher end. A move from an eight-band system to a 10-band system is reasonable and overdue. Council tax needs to change, but this is only one small facet of a £100bn question. Tackling the issue of council funding requires a whole-system cultural shift. First, we need to find ways to mature local government so it can grow out of the habit of grant dependency, always looking to central government for a formula tweak, and always blaming some ‘big brother’ for its financial position. Central grant needs to be gradually displaced by direct existing revenue streams, whose destination should transfer from the national pot and instead be routed locally. Great care is needed to ensure the revenue streams chosen provide roughly the same quantum of funding from area to area, whether rich or poor, north or south. So, while we reject adding a penny on income tax, because wealthy areas would net more revenue than poorer communities, we do advocate transferring the revenue generated at present by the 10p starting rate of income tax – roughly £200 from every person in work. This would mean that councils would net broadly the same revenue, regardless of whether their residents are highly paid or on modest wages. We call this a ‘tax-as-grant’ (TAG) approach, where allocating revenues can offset the need for central government grant. Taking this step would move local government to the second stage, less dependent on a central government grant and instead, forced to predict long-term trends in revenues rooted in the real world, in the local economy, in environmental trends – in short, developing the responsibilities and competence of local democracy. Some central grant will always be necessary for deep-rooted resource equalisation purposes, and we also recommend a £10bn performance grant to incentivise efficiency and local performance. If we can’t have a serious debate without frenzied accusations, then local democracy, as a whole, will be the loser. n Chris Leslie is director of the New Local Government Network. Copies of Pacing Lyons are available at www.nlgn.org.uk
