Memorandum by Somerset County Council
(LGR 18)
1. Somerset County Council is pleased to
submit this paper as written evidence to the Committee's inquiry
into local government revenue.
WHAT IS
THE ROLE
AND PURPOSE
OF GOVERNMENT
GRANT IN
ENSURING ADEQUATE
LOCAL GOVERNMENT
REVENUE?
2. In any fair society, government grant
should be used to distribute funding fairly between authorities,
taking account of differences in need and available resources.
However Somerset's experience is that the Government's assessment
of needs is flawed and, as a result, grant is distributed away
from areas like Somerset where spending has been historically
low, into other areas where spending has been historically higher.
Spending is not a proxy indicator of need (it could well be that
spending is higher because of inherent inefficiencies or because
of a higher standard of service for example). However this was
the fundamental philosophy behind the Resource Equalisation seen
as part of the 2003-04 Grant Settlement.
3. To add insult to injury this equalisation
came on top of many years of Somerset losing grant under the "Area
Cost Adjustment". Under this, funding was transferred into
other so-called higher cost areas based on a formula based on
wage levels. Not only was this statistically flawed it resulted
in funding being taken away from "poorer" areas into
subsidising services in "richer areas"—a perverse
process by anyone's standards.
4. The use of specific grants, passporting
and hypothecation are particularly problematic issues and the
County Council view is that these should only be used when:
— the local authority is administering
mandatory grants
— there is a desire to encourage experimentation
or a new function is being introduced
— formula grant distribution would
be patently unfair
IS THE
CURRENT BALANCE
BETWEEN CENTRALLY
AND LOCALLY
RAISED REVENUE
APPROPRIATE?
5. No. In Somerset central government funds
about 63% of net spending, leaving 37% to be met by Council Taxpayers.
Although the total share is less than the national figure of 25%
(Because of Somerset's historically poor level of funding) it
is still too high. If local democratic renewal and greater community
involvement are to be achieved, it is essential that local authorities
have financial autonomy and accountability.
6. The position is further exacerbated where
central government seeks to influence how funds are spent locally.
What is needed is a fundamental shift in the balance between local
and central tax raising towards a situation where significantly
more than half of local authority spending is financed locally.
SHOULD BUSINESSES
CONTRIBUTE DIRECTLY
TO LOCAL
SERVICES?
7. We would support the return of non-domestic
rates from being a national tax to a local tax. This would help
correct the balance of funding and would enhance the relationship
between local authorities and their local businesses.
8. We also believe that consideration should
be given to the balance of funding that is supported by the business
community. For illustration, between 1997 and 2004 Somerset County
Council's share of business rate income increased from £98
million to £132 million—an increase of 35%. However
over the same period Council tax has had to increase from £82
million to £169 million—an increase of 106%. That figure
will be typical for all councils—not just Somerset where
in fact our council tax increases have been held below the average.
The government guarantee that increases in business rates would
not exceed inflation needs to be reviewed. The increases paid
by local electors through the council tax have increased by more
than inflation and it is our contention that hard-pressed council
taxpayers are having to subsidise business. This cannot be fair
and the situation needs to be corrected whether or not business
rates are re-localised.
IS THE
COUNCIL TAX
A VIABLE
AND ADEQUATE
SOURCE OF
LOCAL REVENUE?
9. The County Council challenges the view
that a proportion of the local tax raising capacity should be
based on a property tax or taxes.
10. Council Tax has always been an unfair
tax particularly because it takes no account of ability to pay.
Now, as well as being unfair, for many it has become simply unaffordable.
It is also a poor tax in that it does not raise funding from all
those who should contribute either because they have a democratic
interest in the council services or because they receive council
services. Furthermore, council tax is not a buoyant tax and so
has not been able to cope well with the levels of increases in
recent years. We believe that there is a compelling argument for
the abolition of the council tax and we believe that evidence
submitted to the Balance of Funding Review supports this.
WHAT OTHER
LOCAL TAXES
MIGHT BE
ACCEPTABLE?
11. Alternatives successfully operate in
other countries, particularly local income tax.
12. Other specific taxes (such as a sales
tax, congestion tax or a tourism tax) can make significant contributions
to income generation and they may also be used positively to influence
behaviour (eg congestion tax). However, these cannot be seen as
a substitute for a more radical correction of the balance of funding
through the introduction of local income tax and the re-localisation
of the business rate.
13. We understand that the work undertaken
by CIPFA for the Balance of Funding Review demonstrates that local
income tax is a realistic option. We do not doubt that it would
require extremely detailed planning and preparation and the time
necessary to achieve this but the County Council believes that
the replacement of council tax by local income tax is the best
way forward
TO WHAT
EXTENT DOES
CENTRAL GOVERNMENT
CONTROL OR
INFLUENCE CONTRIBUTE
TO LOCAL
GOVERNMENT EXPENDITURE
AND TAXATION?
14. At present local democracy is being
undermined and local authorities are in danger of becoming mere
agents of central government. School "passporting" is
a good example of this. It is usually the case that the more local
a decision is made, then the better is that decision. Indeed this
principle underpins much of Government policy, including the Regionalisation
agenda. The present high levels of prescription that are embedded
in grant settlements is not only detrimental to good local governance
but also is bound to result in lost opportunities on financial
efficiencies.
15. We are concerned also on the Government
view that, in effect, referenda should be held to support council
tax increases. The County Council is committed to consultation
wherever that is appropriate and the attached report summarises
the results of our consultation on the budget for 2004-05. This
consultation was a key part of our budget making process but we
fail to see how a local authority can effectively provide services
if it is dependant on the results of annual referenda. The attached
report is submitted as evidence to support this view.
CONCLUSION
16. The County Council has always been active
in lobbying for change in Local Government Finance. We welcome
this inquiry and would very much welcome the opportunity to submit
oral evidence.
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