Select Committee on Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Written Evidence


Memorandum by Mr Colin Aiken (LGR 06)

1.  SUMMARY

  1.1  Council Tax (CT), in its present form has come to the end of its acceptable life and needs to be replaced, in full, with a new fairer system. At the heart of this new system must be the core principle that the amount of tax paid by the individual must be based on the individual's ability to pay from their disposable income.

  1.2  A property based tax is outdated and causes hardship to the many. Asset rich cash poor, low and/or fixed income individuals and families are hardest hit. It enforces reliance upon benefits and is a regressive tax. The underlying assumption that the value of the property in which an individual resides reflects their ability to pay is invalid.

  1.3  The current system is being manipulated for political reasons and is now being used as a "stealth tax". Many people now consider that there is positive discrimination against those who live in the south. This is wrong and is an abuse by Government.

  1.4  Only those responsible for the property (owners and tenants) are liable to pay CT. However, everyone within the community is entitled to benefit from the services provided eg police service, fire service and local amenities such as parks, libraries and sport facilities.

  1.5  Annual rises in CT have always exceeded RPI. Since its introduction in 1993, CT has increased by 112.6% (source ONS). The year 2003-04 saw an average rise of 12.9%! This is unacceptable and caused uproar and protests across the country. Government imposed increases in spending must be supported by equally appropriate increases in the level of Government funding.

  1.6  A fairer and more cost effective system of local authority funding is possible by using the existing systems of Income Tax (IT) and VAT. If the basic and higher rates of IT were increased by 2% and VAT by 1.5%, then Council Tax could be completely abolished. Some of the benefits of this are:

    —  Every qualifying individual would contribute, and this contribution would be based on their ability to pay.

    —  IT and VAT are accepted and easily understood.

    —  They are both difficult to avoid (no arrears).

    —  Established methods of anti fraud/avoidance and collection already exist.

    —  Cheaper to administer and collect (cost saving to be passed on to the tax payer).

2.  WHAT IS THE ROLE AND PURPOSE OF GOVERNMENT GRANT IN ENSURING ADEQUATE LOCAL GOVERNMENT REVENUE?

  2.1  Government grants should provide sufficient funding that allows local governments to meet their spending commitments in full without placing unreasonable demands upon their local council tax payers.

  2.2  Central Government dictates approximately 80% of local government spending. This should be fully covered by grant.

  2.3  The application of Resource Equalisation must be ceased.

  2.4  The amount of grant should be sufficient enough to ensure that any increases in council tax bills is limited to no more than the annual rate of inflation.

3.  IS THE CURRENT BALANCE BETWEEN CENTRALLY AND LOCALLY RAISED REVENUE APPROPRIATE?

  3.1  Due to the application of Resource Equalisation, which is a euphemism for redistribution, the answer will be either "yes" or "no" depending on where in the country you reside.

  3.2  For the south, the answer is definitely "no". The people who live in the south are discriminated against as funds are redistributed to favoured areas in the midlands and north. Effectively, people in the south are taxed twice for their local services.

  3.3  The balance of revenue raised should be split 80/20: the 20% to be raised locally. As mentioned in paragraph 2.2, Central Government must fund, in total, all dictated spending costs.

4.  SHOULD BUSINESSES CONTRIBUTE DIRECTLY TO LOCAL SERVICES?

  4.1  The return of business rates, in full, to local authorities is considered highly desirable by many. Potential benefits are:

    —  Closer bond between business and local government.

    —  Can be used to offset council tax in full (the total amounts raised are the same. Source ONS).

    —  Local government would have a greater incentive to attract new businesses into the area.

  4.2  Not all areas are the same though and this brings with it a new set of issues to deal with. For example, rural areas with low levels of businesses versus urban areas with high levels of businesses. The business rate income would be hugely different.

  4.3  Additional bureaucracy and costs of collection would be incurred. These could be largely mitigated if council tax was abolished.

  4.4  It has to be recognised that potential conflicts of interest could become an issue, particularly if business leaders and local government officers are one and the same.

  4.5  The CBI is very much against this (source BoF Minutes 8 January 2004, paragraph 2). It says "Locally set business rates did not work before. Business had to invest major time and effort in the system but input to local consultation had little impact on the level of rate set. The system resulted in significant costs to business with no discernable benefits. Instead the relationship between business and local authorities was damaged—the legacy of this has been significant. The frustration of business with this system led to lobbying for change."

5.  IS THE COUNCIL TAX A VIABLE AND ADEQUATE SOURCE OF LOCAL REVENUE?

  5.1  The answer to this question is quite clearly "No".

  5.2  It is not viable because:

    —  80% of local authority spending is dictated by Central Government but they do not provide funds to cover this cost in full.

    —  Resource Equalisation discriminates against those living in the south.

    —  Government abuse the system by using it as yet another "stealth tax".

    —  It does not take into account an individual's ability to pay.

    —  Being based on property value, it does not reflect an individual's position of wealth.

    —  Only property owners and tenants are liable to pay this tax, whereas all local residents benefit from the services provided.

    —  Council Tax is a regressive tax which, in turn, deepens the benefit trap and adds to the benefit bill, given that the great majority of those receiving benefit live in homes in the lowest bands.

    —  The gearing effect causes excessive upward movement in the amount levied, year on year.

  5.3  The adequacy of council tax varies across the country. In areas that benefit from Resource Equalisation then the answer is probably "yes". However, this is based on a false situation. Due to Resource Equalisation, people in the south are not only paying for their own local services, but also part-financing the cost of local services in the midlands and the north.

  5.4  The mindset of local government must change. It is too readily accepted that costs and spending must always rise, year on year, with no regard to inflation. This was clearly laid out in the recent Audit Commission report where they found that the average 9% increase in spending, whilst justifiable, was not always unavoidable.

  5.5  Due to the abuse of the Council Tax system, many decent, law abiding citizens now treat it with contempt. In response to the unacceptable increases, many have refused to pay, and others continue to do so. Court cases highlight this fact. It is sad that Government has turned its own electorate against itself.

6.  WHAT OTHER LOCAL TAXES MIGHT BE ACCEPTABLE? (EG A CONGESTION TAX, WORKPLACE PARKING TAX, TOURIST TAX, EARNINGS RELATED TAX OR SALES TAX)

  6.1  The short answer to this question is "none". We have an opportunity for change here. Change for the better. To even consider introducing yet more taxes is beyond belief. People want less regulation and bureaucracy, not more.

  6.2  This question clearly stems from the announcement made recently by the LGA. After all the furore and protests over the last year, in response to the disgraceful increases in CT for the year 2003-04, it was disappointing, to say the least, that the LGA has even considered more taxes.

  6.3  The suggested raft of new taxes clearly demonstrates that the LGA have either not listened to the electorate, or are contemptuous of their wishes. It clearly demonstrates and proves beyond all reasonable doubt that the LGA do not represent or care for the views of the electorate.

  6.4  The suggestion of:

    —  a reformed property tax with more bands;

    —  relocalisation of business rates;

    —  26% of national income tax or the equivalent as Local Income Tax;

  plus

    —  local vehicle excise duty;

    —  local sales tax;

    —  local stamp duty on property transactions;

    —  land value taxes;

    —  tourist (bed) taxes;

    —  more charges for services;

    —  charges for utilities street works;

    —  local congestion charges;

    —  "green taxes";

  beggars belief.

  6.5  The introduction of any of the suggestions in 6.4 would result in some of the following:

    —  duplication of bureaucracy;

    —  more red tape;

    —  inflation (higher prices);

    —  increased collection costs (more staff, more "non jobs", more benefit costs);

    —  legal theft (tax on house sales); and

    —  more waste (money raised would be spent on collection costs, not for the benefit of the local community).

  6.6  It is a sad reflection on the leaders who put forward these suggestions. With all due respect, it shows how entrenched attitudes are, that there exists a clear lack of vision and the opportunity for real change has not been grasped.

  6.7  Two very basic questions have not been asked:

    —  Do people want all these taxes?

    —  Can the people afford to pay any more new taxes?

  I suggest that the answer to both of these questions is "No", based on the very many discussions I have had with those who would be affected.

  More importantly though, before even getting to the thought of new taxes, was the following even considered:

    "How can we cut our costs in order to make better use of our funds?"

7.  SHOULD THERE BE A CEILING ON LOCAL GOVERNMENT EXPENDITURE AND TAXATION, AND IF SO, HOW SHOULD CONTROLS OPERATE?

  7.1  Of course there must be limits to expenditure funded by taxation. You cannot spend more than the taxpayer can reasonably afford to pay. However, the bulk of local government spending is dictated by Central Government, and can be as high as 80%.

  7.2  Central Government must fund properly all demands it imposes on local authorities for spending. National policies and standards have to be delivered into the local areas by the local authorities as agents for Central Government. They have no choice, unless they want to incur fines.

  7.3  Any local spending over and above that specified in 7.2 should be restricted to no more than the annual rate of inflation. The taxpayer does not have limitless funds.

  7.3  Local authorities should continue to draw up their budgets, and then consult with the local people regarding the acceptance of these. A representative group of tax payers could exist within each district. These groups would have the power to challenge and change budgets where they do not represent the wishes of the local people.

  7.4  At County level, setting the budget can be agreed during public meetings. The electorate would be involved, have the opportunity to give their input, recommend changes and finally vote on the acceptance.

  7.5  This approach has key benefits:

    —  councillors remain accountable for the budget;

    —  the electorate are involved and engaged in the decision making process;

    —  better understanding of spending needs and requirements is achieved;

    —  any increases in costs are already agreed and accepted before they are announced; and

    —  trust and respect between the electorate and councillors is improved.

8.  TO WHAT EXTENT DOES CENTRAL GOVERNMENT CONTROL OR INFLUENCE CONTRIBUTE TO LOCAL GOVERNMENT EXPENDITURE AND TAXATION?

  8.1  This question has already been answered in previous answers throughout this document.

OTHER RELEVANT TOPICS

9.  ATTITUDES MUST CHANGE

  9.1  There is a false belief by local councillors/officers that in order to be locally accountable, then they must have tax-raising powers. Local councillors/officers are accountable to the local community for the way they execute their duties. See paragraphs 7.3-7.5.

  9.2  How the funding is provided that allows LAs to carry out their duties is a completely separate issue.

  9.3  There exists a lack of trust between Local and Central Government. This results in protection of position which becomes paramount. Furthermore, it creates a culture of blame between Central and Local Government. For example, the débâcle of blame over council tax increases last year, and particularly, the effect it had on schools. The electorate knew exactly who was responsible and both Local and Central Government lost credibility and trust with the electorate by deliberately playing the blame game.

  9.4  There also exists a lack of trust between the electorate and both Local and Central Government. To consider giving LAs even more tax-raising powers would be unacceptable to the electorate.

Colin A Aiken



 
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