I predict a riot! The story of local government finance…..

The NLA’s local government expert – Gavin Dick – gives us the lowdown on local government finance

In council chambers up and down the country, local politicians will spend the next few weeks standing up and forcefully extolling how active they are in protecting front line services, how unfair central government cuts are, and perhaps most vigorous of all will be their explanation of how they are doing their very best for local communities.

In many local authorities you could cut and paste the speech from successive councils from every year of the last 20.

In that time waste services have moved to alternatively weekly (if you are lucky) and pot holes have appeared in most roads.

Why are they so active? It’s budget time of course!

Everything is local – even death and taxes

All taxation is contentious; local taxation especially so. Council Tax, arguably, makes matters worse as it is both a property and person based taxation system. You’ve only got to look at the history of Council Tax, with its roots in riots and unrest, to see it originated as a fudge – and has barely improved in 25 years.

Never-the-less, bills for 2018-19 will be dropping on the doormats in the coming months.

Lessons from history

In 1981 a green paper was published called The Alternatives to Domestic Rates, this paper was a follow up to a commitment made in the 1974 Conservative Party Manifesto to review the local rates system.

Against a backdrop of local government clashes with Westminster in the 1980’s over funding levels (central government wanted a 25 per cent reduction in expenditure), the necessity for change became apparent.

Illegal budgets – ignoring the Government’s caps – sprang up and rate capping began to be introduced. Famously this led to Neil Kinnock to notably point out that a Labour Council had resorted to “hiring taxies to scuttle around a city handing out redundancy notices” as they did not have the money.

The Government believed that the problems were caused by a lack of democratic accountability.  This meant that they had a decision to make, centralise control and tax, or make local accountability the way forward, with tax set locally. The winner was local accountability, resulting in the introduction of the Community Charge. This meant that a flat tax would be paid by all adults with the usual exceptions.

The Community Charge was quickly rebadged the Poll Tax, which accurately summed up its nature. With no-one overseeing the implications, it soon became the vehicle for every extra cost which could be levied.

The public reaction is a matter of public record.

After the riots over the Community Charge which contributed to the removal of Mrs Thatcher, the new Prime Minister, John Major, knew he had to resolve the issue and turned to Tarzan himself.

The Era of Council Tax

Michael Heseltine quickly came up with the all new Council Tax, which was (and still is) based on property and persons.  With a pending election, this was quickly adopted and along with the local government settlement grant has become the funding mechanism for local government.

Under the Blair and Brown years, no change was made to the local tax system, local authorities were able to increase tax year on year and services could be ring fenced. New ideas required new money, in turn increasing Council Tax.

Likewise central government habitually did not give enough for services which local authorities wished to deliver, leading again to increases in Council Tax.

With central government placing more and more obligations on local government which would ultimately have to be met by the council tax payer, taxes increased. This resulted in Council Tax doubling over those years. In some local authorities the increase amounted to more than 18 per cent in a single year.

In a bit of a Pickle

Going full circle, the Conservatives returned to the scene of the crime in 2010 and Sir Eric Pickles, when he took over responsibility, froze Council Tax and restricted increases with referendums required if the local authority wished to impose an increase of more than an agreed percentage. In effect he nationalised Council Tax.

One such referendum has been held by Bedfordshire Police and Crime Commissioner but this was rejected by 70- 30 per cent at the ballot box. No other council has had the courage (or been foolish enough) to test voters’ willingness to increase Council Tax beyond the pre-set cap.

The Coalition Government, elected in 2010, reduced the settlement grant. This has altered local authorities’ outlook. Leading to a search for every possible way to increase the money they receive from the tax payer. Perhaps unsurprisingly, private landlords have become a soft.

Properties vacant whilst undergoing repairs have seen Council Tax levied at 200 per cent. At the same time during change-over of tenants landlords are increasingly receiving Council Tax bills for single days, or in some cases even fractions of single days.

What’s next?

The funding of local services is a question which central government has avoided tackling. The Poll Tax riots, and political ramifications associated with the Community Charge, cast a long shadow in British politics.

In England the housing bands and values (used to set Council Tax) are based on 1991 property prices. When Wales reviewed the property bands in 2003 – 1 in 3 properties went up at least one band.

It is inevitable that any change in the rest of the country will result in increased bills, which is never politically acceptable.  In 1997-98 the average council tax bill for a band D property was £688; today it is £1591. The future does not look like this inflation will slow down, with a current government aim to remove the Local Government Settlement Grant, with Business Rates expected to make up the shortfall.

In the coming weeks, as budgets are set, we will see our bills increase, a county or unitary local authority cannot increase council tax by more than 6 per cent without a referendum, a district council is limited to 3 per cent without going to the polls – but 3 per cent will still be felt!

With precepts for parish councils and for fire and police council tax will be increasing and local authorities will be chasing for every penny.

Council Tax is increasing and no alternative is being proposed.

Land and property tax anyone?????




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