Bill's Comment Page

Ten councils may be 'capped'

The Guardian is reporting that 10 councils, accused by the government of raising their council tax rates too much this year, are going to be 'capped'. One's first reaction might be to say "well that's good, isn't it?", when in reality the truth is very probably a lot more complicated.

From the Labour government's point of view it makes a good 'sound bite', specially as we will probably have a general election during 2005 (although one is not required until mid-2006). The government contends that they have provided increased central government funding to local government, sufficient to meet realistic levels of expenditure, whereas councils plead that they are now responsible for services such as education and social services which have added to their core expenditure, without being fully funded. There are also other factors to take into account; the way that annual over- and under-spends by local government are treated when calculating central funding grants for succeeding years and changes in local government boundaries and responsibilites in certain regions (for example 'unitary' status). Where does the truth lie?

Possibly there is some truth in both arguments, but the basic problem is that the way local government is funded is bizarre. Local taxes ('Council Tax') provide only around a fifth of local expenditure on average, with the balance being provided from grants given by central government - this is what the 'capping' relates to. This has several effects: it gives central government an effective stranglehold on the way local governments run their parts of the country; it distances elected local government officials from financial responsibility for the consequences of the policies they are elected on.

One could say, well why not make local government fully responsible for funding its own expenditure and for getting its electors to vote for tax policies required to raise the necessary money, whilst reducing central government taxation to compensate. Even I, though, as a committed advocate of small government, would be chary of taking this to its ultimate cconclusion, because it seems to me necessary for a 'United Kingdom', or any kind of unified state, that social policy must be broadly similar across the whole country and funding local expenditure solely from local taxation would inevitably mean that poorer parts of the country would see their own standards drop, or that wealthier citizens in some parts of the country (who might be better represented in local government than their poorer counterparts for various reasons) might choose to keep local taxes in their areas low, because as a property-based tax they would be more likely to benefit.

There have been suggestions that the basis of raising local taxation should be income rather than property - I suspect this would at least partially rectify the problem of regional imbalance, but there would still require to be significant funding from central government to rectify the remaining regional inequalities. However, there should still be room for a reduction in central government tax levels to compensate, but I wonder whether this would be fully implemented. Whilst governments talk about their desire to devolve powers downwards, the practical result is often that what is devolved is responsibility, not the powers necessary to meet adequately those responsibilities. Central governments do not, generally, wish to devolve effective power in any way - that is the root of this whole problem, and the reason why the government may be following its current course of action.