Memorandum by the Surrey Tax Action Group
(STAG) (LGR 05)
1. This submission is given under these
headings: Summary, Introduction, Set questions answered, Why local
tax?, Principles for adoption, and Conclusion which points to
a constitutional running sore. It is sent with the support of
is-it-fair groups around the United Kingdom.
SUMMARY
2. The present system is recognised to be
flawed and discredited. It is undemocratic because inexplicable,
unfair because ignorant of the ability to pay out of income, and
nationally divisive because grants are perceived to be stealthily
redistributed. There is a better way offering greater local freedom
within unavoidable national strategic considerations and financial
control.
3. In a constitutional context a new system
is needed, designed to provide a natural curb on the unchecked,
wasteful tax and spend tendencies of the local political class.
4. The constitution of the Balance of Funding
Group seems weighted in favour of the Local Government Association
whose open-ended tax and spend attitudes are contrary to those
of citizen subscribers.
5. The stated principle of local tax for
local services is false, unattainable and unnecessary.
6. There is little point in specifying the
balance between centrally provided revenue and local supplement
without first defining for all to understand what is delegated
to local authorities and what is done as agent for central government.
7. Grant preponderance with equalisation
and redistribution destroy any money link between council tax
and local service costs. The effect of business rates compounds
this.
8. Council tax can be abolished and consolidated
within national income and value added taxes. If a property tax
is demanded it should be moderate and unified nationally much
as business rates have been.
9. The formula grant system can be abolished
and replaced with the recognised alternative of assigned revenues
attracted by application with corporate plans backed up by track
records of performance.
10. Accountability can become a more rigorously
defined process and with simpler systems better "words and
numbers" consultation can take place for measured response.
INTRODUCTION
11. The present system involving local government
structure, grants procedure and council tax is officially "unsustainable".
It is complex, opaque, inequitable and unintelligible. It is therefore
undemocratic because inexplicable. Any system which brutally,
apparently unexpectedly and without notice causes tax to increase
with wide national variations to the degree experienced in 2003-04
and now 100% in under 10 years in Surrey, and 20-25% in just two,
is worthy of contempt and intolerable. This is particularly so
when it is accompanied by conflicting explanations from within
government and suggestions of manipulation. There is more than
enough documentary evidence covering the several unsuccessful
attempts to reform local government finance culminating in the
Balance of Funding Group brief, and the Audit Commission report
on the 2003-04 experience. Council tax invoices might well have
a note under "amount due" saying on behalf of the Authority
Financial Director: "Don't ask me to explain how this tax
is calculated and it is not the price of local services."
12. As just one example of the degradation:
It has been unpleasant to witness the recent hypocrisy of those
calling for low single-figure council tax percentage increases
without calling for the cut in spending that this requires.
13. We have been let down. It is our hurt,
fear and powerlessness which make us angry. The local political
class has not represented us in this respect and now dash our
hopes and reveal their true bias by seeing the answer as nothing
more than "adequate" grants from central government
and more freedom to tax locally.
SET QUESTIONS
ANSWERED
14. "What is the purpose of government
grant in ensuring adequate local government revenue?" Just
that presumably. Supposedly it is to be the main source of money
to pay for local government operations. The term "adequate"
is meaningless both in terms of measurement, recognition of limitations
on finite resources, a clear idea of "locality" and
responsibility levels, and actual revenue purpose. The system
has self-evidently failed.
15. "Is the current balance between
centrally and locally raised revenue appropriate?" It is
known not to be. The gearing distorts so as to leave council tax
payers exposed to "book balancing" imposition. It worryingly
implies that tinkering is all that is necessary. There is no visible
link between it and responsibility levels.
16. "Is the Council Tax a viable and
adequate source of local revenue?" No. It does not recognise
ability to pay and its valuation basis is out of date. It is clumsy,
capricious and unpredictable due to the magnified effect of the
arithmetical outcomes of the academically constructed, synthetically
formulaic, and complex grants system. This is compounded by attempts
to limit the damage with ring-fences, floors, ceilings etc and
redistributive equalisation. On top there are other factors such
as the unbalancing effect on council tax of the inflation limit
on business rates and their unequal return to the tax raising
areas. There is thus no credible link between council tax locally
and local services.
17. "Should businesses contribute directly
to local services?" Only where terms can be freely negotiated
to be of mutual advantage.
18. "What other taxes might be acceptable?"
None.
19. "Should there be a ceiling on local
government expenditure and taxation, and if so how should controls
operate?" There should be no local government taxation as
such. Local expenditure should find itself naturally limited within
the finite financial resources obtainable under the principles
and revenue acquiring processes stated below.
20. "To what extent does central government
control or influence contribute to local government expenditure
and taxation?" Central government controls and influences
local government expenditure almost completely because:
20.1
Almost all local activity is as required by
law, and
20.2
The cost of its provision is according to methods
of working also laid down by law or according to defined standards.
These are framed by authoritative bodies uninhibited by the economical
imperative. The ideal and desirable wins over the necessary and
affordable. According to public choice theory bureaucrats are
no more motivated by selfless service than any other group.
WHY LOCAL
TAX?
21. Age-old managerial techniques for delegation
while keeping financial control operated in eg industrial conglomerates
have not been learnt in government. The idea that local taxation
is necessary for local accountability is a dishonestly propounded
fallacy. Ability to pay is personal and not geographical so why
localise it? If we are here paying income tax and VAT in Surrey
why is this not sufficient? Local personal identification with
local services is not possible without a direct contractual price-like
link to those services. Moreover, if local conditions and therefore
costs vary these are likely to be equalised by any re-distributive
systems, again so as to destroy any local money-link. Any locally
raised earnings related tax would be costly and infringe privacy.
See also 23.2 below.
22. Neither is local revenue raising necessary
for accountability. Public "words and numbers" information,
consultation and accountability ought to be for:
22.1
local services: for choices, standards and spending
but not revenue raising beyond charges; and
22.2
nationally: for revenue raising and use of taxes,
by adopting the annual report and accounts practice that is required
of all institutions, including local authorities, but not yet
central government.
PRINCIPLES FOR
ADOPTION
23. It is necessary to design a replacement
system which is simple, transparent, economic in operation, certain
and fair. To achieve this the following principles should be observed:
23.1
The locality, responsibility of each service
and level of government should be clearly defined. For example
the NHS is a local service as much as is education. The type of
authority, management structure and to whom it is accountable
should be clear to all. Until this is done there is no sense in
specifying the balance between centrally provided revenue and
local supplement.
23.2
No authority for setting taxes should be given
outside central government and the national parliament wherein
lies the responsibility for national financial control and for
upholding the integrity of the national currency.
23.3
Bodies defined as above should be allowed to
apply, with rolling plans, for revenue assignment from the taxes
collected for the Treasury. Performance against those plans should
be taken into account in succeeding revenue provisioning. Failure
to get all the revenue applied for will be required to come under
the principle of "that's life". This would encourage
economy and allow local freedom and initiative within unavoidable
natural limits. It would also encourage initiatives for other
revenue sources.
23.4
Local charges to supplement revenue from taxes
should be permitted by law to the extent that they are voluntary
because avoidable and price-like eg tolls, parking charges. Commercial
arrangements freely negotiated should be permitted by law given
that a normal contract would apply and mutual advantage would
accrue.
CONCLUSION
24. Reform must recognise the growing unfairness
and imbalance between on the one hand the people, and on the other,
the combined weight of central and local government, with waste
estimated at between £50 billion (Taxpayers Alliance) and
£70 billion (European Central Bank), final salary pension
shemes and all. Must the "localism" versus "centrism"
debate go on for ever while the "poor bloody infantry"
pay the price? And we are hearing LGA wishes for yet more "buoyant"
local taxes.
25. Without the successful achievement of
change to national control over, and accountability to citizens
for simple and basic taxes, the problems we are experiencing will
continue as will the undeniable contempt for the political process,
evidenced by for example low public participation in elections.
The design process should embrace "outsiders" as well
as academics and "insiders"; elegance and complexity
exclude us. Such change, if intelligently designed, transparent
and with better public information and consultation, would ease
collection and enhance local freedom of action and democracy.
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