Commission proposes tax sharing for ‘self-sufficient’ local government

Councils could end their reliance on central government funding by sharing their tax income between themselves, according to the interim report of the Independent Commission on Local Government Finance.
The report, released today, revealed the commission’s initial findings, based on responses from councils and other interested parties.
It said that data from the Local Government Association indicates that by 2018/19 local government could become self-sufficient if it retained and redistributed the total amount of local taxes it collects.
According to the authors: “There are four advantages for central government arising in local self-sufficiency.
“It would be exempted from the ceaseless lobbying from special interest groups for more money, it would provide a powerful incentive for local authorities to take the lead in meeting key national objectives such as growing the economy and reducing welfare dependency, it would stimulate the ambition and entrepreneurialism of local government and it would provide stable and predictable funding for local authorities.”
But there was acceptance that it would be difficult to satisfy both the demands of fast-growing and prosperous councils and more deprived areas in devising a tax redistribution system.
It said: “At one extreme, equalisation removes the incentive to grow the local economy because any additional income through new businesses or other revenue sources would be shared out with areas that are struggling to grow.
“At the other extreme, the absence of any equalisation would leave areas of high deprivation unable to provide basic services.”
Redistribution within separate geographical areas could work better than the current system of limited business rate redistribution, it said, and could encourage strategic working between authorities.
The commission also said it had received feedback criticising the current requirement to hold a referendum for tax increases of 2% or more, which respondents felt “undermines local democracy, discourages local communities from taking a rounded view of local needs and priorities and unfairly penalises councils with historically low tax levels”.
The commission also heard views that councils should be given the power to revalue council tax bands.
Commission chairman Darra Singh, partner at consultancy firm Ernst and Young, said: “The current outdated and unfair system of council tax has been identified as one of the major obstacles to the reform of local government finance. This is an inherently unfair tax and the lack of revaluation for the last 23 years has exacerbated that unfairness.”
However, responding to the report, communities secretary Eric Pickles said: “We completely disagree with the report’s proposals to increase council tax.
“Revaluation and higher council tax bands would mean soaring tax bills for hard-working people, as the 2005 council tax revaluation in Wales showed.”
The commission report also said that some submissions had expressed frustration about the current government’s approach to localism.
It said: “City Deals have been welcomed as a move in the right direction, but it is felt that major European cities should not have to spend months negotiating relatively modest concessions from ministers which fall a long way short of councils’ ambition to drive their economies and improve their communities and services.
“The bidding process and drawn-out negotiations contrast sharply with the speed, breadth and ambition of the cross-party devolution offer to Scotland.”
Pickles said: “This government has delivered significant decentralisation of power and finance to local communities. There is real scope to go further in England and do more.”
The final report of the commission is set to be published next year.