Westminster called on to consider widespread tax reform for local government

A chorus of demands for local government finance reform rang out this week – with separate calls for business rate, stamp duty and council tax changes.

Chancellor George Osborne’s devolution drive appears to have fuelled, rather than whetted, the appetite in the regions for more financial powers.

A new report by think tank Centre for Cities this week welcomed last month’s Spending Review announcement of business rate devolution to local authorities, but said the move does not go far enough.

It said: “The devolution of business rates is a step in the right direction, giving cities more control over a growing tax base and more incentives to support and attract new businesses to the area, as well as the expansion of existing firms.

“But there remains a risk that the devolution of business rates alone – particularly in its current form – will not provide a strong enough growth incentive to generate significant additional funding for UK cities.”

It called for the government to extend the “reset periods” for business rate redistribution levels which are intended to prevent gaps developing between the richest and poorest authorities.

It added that the government should also devolve the £10bn generated in stamp duty in England to local authorities.

In addition, the Centre for Cities called for changes to allow councils to raise council tax without a referendum.

In Scotland, the Commission on Local Tax Reform this week recommended the complete abolition of council tax, saying that it currently costs middle income households 4% of their income on average, compared to 2% for the average highest income households.

It said that taxes on property, land and income have the revenue raising capacity to match resources raised by the present system.

Broadening the local tax base could include environmental, resource, sales or tourist taxes, it said.

But it concluded that “there is no one ideal tax but we have shown that there are ways of designing a better tax system. There is now a real prospect of beginning a programme to make local taxation fairer – more progressive, more stable, more efficient and more locally empowering.”

Complaints relating to local tax inequity were also made by the British Property Federation (BPF) this week, which claimed that “reducing the burden” of business rates could unlock 4,000 jobs and £1.7bn of development in the next five years.

It argued that approximately three quarters of any increase in business rates is transferred to landlords as business occupiers push for lower rents.

Ion Fletcher, director of finance policy finance at the BPF, said: “The government’s desire to maintain a high level of income from business rates, although understandable, means we are missing out on opportunities to provide new jobs, skills and growth in various sectors of the economy, not least construction and retail.”

Photo (cropped) by Gordon Wrigley, Flickr.