Local government finance is a paradoxical issue.
On the one hand, it is complex to the point of incomprehensibility. Yet, on the other, it has the capacity to destroy prime ministers and induce terror in the most powerful government in the developed world.
No wonder Sir Michael Lyons took very great care to explain what he was doing at every stage of his recently published inquiry.
This inquiry – including Nick Raynsford’s precursor study – lasted more than twice as long as the 1974-76 Layfield Committee. Lyons’ main report covers 394 pages, compared with Layfield’s 315. Such is official inflation.
In fairness, the business of government has become significantly more challenging in the 30 years since Layfield put pen to paper. The public are less deferential and take little on trust.
Such attitudes among the electorate demand greater detail and explanation from official reports than in the past. The high-octane salience of council tax made Lyons’ job even more awkward. Moreover, he had a wider remit.
It is important to keep Lyons’ proposals separate from the government’s response to them. Working within the limits of realpolitik, his report suggested: retaining council tax; abandoning capping; a full council tax revaluation; the possibility of additional tax bands; a supplementary business rate; incentives for councils to build up their tax base; fewer specific grants; new smaller revenues (such as a tourist tax); and a continuation of work towards a local income tax.
Lyons also said that the council tax benefit system should be made to work more effectively. This was clearly as much as he and his team believed the Treasury might, just, tolerate.
The report also included good material about ‘place shaping’ — the need for councils to work with a full range of local organisations and service providers to deliver a decent quality of life for their residents.
But it is the local government finance proposals, which were the original focus of the study, that will be seen as the key test of the possibility of reform.
Local government minister Phil Woolas’s official response was hugely revealing.
Capping will stay. There will be no revaluation in England for the foreseeable future. A tourist tax was rejected. The supplementary business rate was welcomed, as was the suggestion that the benefit system should be improved. And that’s it.
The heavily constrained space in which Lyons – rationally – chose to work left little room for a radical reform of local government funding.
The government’s instant response suggested that even the modest proposals were far too threatening. The electorate, in the government’s view, wants low annual council tax increases based on 1991 valuations and little more. Any wider view of the constitution or of the health of local democracy has been abandoned.
Britain has, by international standards, a powerful and ruthlessly centralised government. Parliament is, in theory, sovereign. Yet all this concentrated power, especially in 10 and 11 Downing Street, is paralysed by the threat of modest reform to local authority taxation. The impotence of central government, as far as this issue is concerned, is tragic.
What lessons can be learned from this comprehensive lack of nerve? The most important conclusion is that if a British government wishes to change the way people pay tax, a case will have to be clearly articulated well in advance of even a discussion about reform.
The Opposition will aggressively attack any tax change by pointing to any ‘losers’. This is precisely what happened once it became possible to work out the impact of the changes to income tax rates announced in the recent Budget.
Local taxation is lethally more visible than PAYE income tax. If there are to be changes to it, such as a revaluation or new council tax bands, it will be necessary to spell out just why they are taking place and, most importantly, how such change contributes to improved ‘fairness’.
The failure to revalue means that up to 3 million households are paying too much council tax. The plight of these invisible losers is rarely discussed. People in a £25m home, on average, pay just three times as much in council tax as those in one costing £50,000. Does this honestly make sense?
Politicians have made no effort to sell any reforms of local taxation. Perhaps they now believe they are so mistrusted their intervention would make matters worse.
If so, it will be increasingly difficult for any government to sell any public policy change, ever. If local government finance is too hot to handle, how many other issues will follow it into the ‘impossible to reform’ category? If this happens, the whole basis of democratic government will have been destroyed.
