Supplementary memorandum by Nicholas Boles,
Director, Policy Exchange (LGR 26(a))
OUTLINE OF THE PRINCIPLES OF A GOOD LOCAL
FINANCE SYSTEM
1. The local finance system should ensure
that local authorities have the power and responsibility to raise
locally most of the funding for the services which they provide.
— no less than 50% of local revenue
should be raised through locally determined taxes and charges
in all authorities, and most local authorities should be raising
75% of revenue from locally determined taxes and charges.
2. Local government should have more than
one tax at its disposal: "One club golf does not work".
— having just one local tax puts undue
strain and pressure on that tax and can undermine the stability
of local government service provision;
— it is also highly unusual by international
standards.
3. The basket of taxes available to local
government should be no less buoyant than those available to national
government.
— buoyant taxes rise automatically
with national income and inflation. Council tax does not;
— buoyancy is crucial for stability
and local finance systems should mirror the stability afforded
to national systems which rely on buoyant taxes such as income
tax and corporation tax.
4. Fairness requires that the basket of
taxes available to local government should be progressive wherever
possible.
— council tax penalises the asset rich
and the income poor (eg pensioners);
— council tax is regressive.
5. The collection of any new local taxes
should "piggy back" as much as possible on existing
collection/administration systems.
— any new local taxes should avoid
the cost of additional bureaucracy.
6. The basket of local taxes should include
a form of property tax: "Buildings don't move".
— property provides a secure asset
base;
— property taxes are easy to administer
and collect.
7. Local government should have greater
freedom to introduce and vary charges for local services.
8. Local government should have greater
freedom to borrow on capital markets within minimal prudential
restrictions that guard against over-indebtedness.
— local authorities should have the
freedom to use appropriate sources of finance to fund capital
investment whether from central government, banks, bonds or leasing;
— local authorities should take the
necessary measures to minimise their costs of borrowing, eg, through
getting credit ratings, or offering security.
9. Methods of equalisation should focus
on tackling extreme differences in overall local spending needs,
and the capacity to raise taxes locally, BUT should not seek a
level of precision which implies Whitehall second guessing each
authority's response to local spending requirements.
10. The local government finance system
should strive for maximum transparency in regular budgeting and
involve local people in major financial decisions as much as possible.
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