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Council Tax
Yorkshire Post - 12
March 2007
The annual Council Tax punch-up is here again. Government threatens town halls with “capping” if the increase is more than 5 per cent. Councils protest that this means they have no choice but to cut services. The little bunch of pensioner Council Tax refusniks prepare for “martyrdom” by refusing to pay the increase.
The Taxpayers Alliance fulminates against local authority salaries, pointing out that 11 council chief executives earn more than the Prime Minister (£186,429) and that 578 local authority staffers are paid more than £100,000. A Yorkshire council, Kirklees, is proposing to freeze bills for pensioner households not already receiving benefit.
Council Tax bills averaged £688 for a Band D property in 1997-8. Ten years later the average is set to be between £1,250 and £1,300 – pretty well double.
What has gone wrong? How is it that a tax which had been introduced in the wake of the poll tax fiasco, and aroused barely a flicker of controversy in its first decade of life, has became such a rallying cry for protest and anger?
The answer can be given in just two words: Gordon Brown. In Labour’s first term, when the party was desperate to shed the image of a tax and spend party, public spending was kept firmly under control. After 2001 the Government started to pour money into public services, especially council-run services like education. It demanded huge increases in spending but failed to provide Whitehall funding to cover the increases. Councils had only one place to go for the missing millions: the Council Tax payer.
The Council Tax therefore came under pressure it was never designed to sustain. Whilst business rates, “nationalised” by the Tory Government, were linked to inflation, Council Tax had no such constraint. Back in 1994 business rates provided 28 per cent of council income and the Council Tax 21 per cent. Today business rates provide only 20 per cent and Council Tax 26 per cent. In a nutshell businesses have had a very easy ride compared with the ordinary taxpayer and citizen.
The Government has backed off from trying to “modernise” the system. The tax is still based on the value of houses. Property is put into one of eight bands ranging from up to £40,000 at the bottom (Band A) to £320,000 (Band H) at the top. The tax levied varies between each band according to a fixed formula. The Government abandoned a revaluation of property in England in the face of forecasts of huge tax increases and political disaster. This means that a new house built today is given the Council Tax value it would have had in 1991!
When in trouble play for time; set up an inquiry; head for the long grass. That is one of the oldest political adages in the book. Enter stage left Sir Michael Lyons, former Chief Executive of Wolverhampton, Nottinghamshire and Birmingham Councils, acting chairman of the Audit Commission –watchdog over local government and the health service- and general Government Fire-fighter.
In July 2004 John Prescott and Gordon Brown commissioned Sir Michael to head an inquiry into local government funding. A year later they added the role as well as the funding of local government to his remit. We are promised the much-delayed report within a week or so to coincide with Gordon Brown’s last budget.
Will it deliver the golden key to free councils (and the Government) from imprisonment? Around Westminster and Whitehall it is difficult to detect much bated breath. The original front-runner was to give business rates back to local councils, but this prospect has faded because the Government needs the cash from business rates to redistribute between councils, especially now that education funding now by-passes councils and goes direct to schools.
What about adding new bands – perhaps a couple of super-bands to bring in more revenue at the top of the property ladder? Well, it might squeeze a bob or two extra from Madonna or Gwyneth Paltrow but it would look pretty incongruous without a general revaluation. Sir Michael has floated the idea of a tourist charge of “bed tax” – incurring the powerful enmity of the tourist industry from couples with a couple of rooms for B&B to hotel chains. The green lobby argues for a special tax on waste to encourage good environmental behaviour.
Will the report move towards the Liberal Democrat nostrum of a local income tax, as a supplement if not a replacement of the Council Tax? Given the vehemence of previous Government denunciations of local income tax (which would hit households with multiple earners in particular) and the tightness of Gordon Brown’s upcoming comprehensive spending review that might not make Sir Michael flavour of the month with the new regime.
Sir Michael has done a good job of lowering expectations: he is generally expected to favour incremental reforms rather than a big bang. Meanwhile all the financial pressure are upwards – deals with unions to achieve “single status” between male and female council workers are unravelling under legal challenge; an ageing populations puts more pressure on social services; NHS pressure may blow back into local authority care budgets; and green agendas a likely to breed more cost and more regulation.
In any case proposals are likely to take years to introduce. We are a long way from hearing the last shot in the Council Tax wars.
© Yorkshire Post
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