Councils angry as funding reform stalled until 2005

22 Jul 04
Council leaders claimed this week that major reform of the local government finance system could be 'kicked into the long grass' as ministers announced a further inquiry after the 15-month Balance of Funding review.

23 July 2004

Council leaders claimed this week that major reform of the local government finance system could be 'kicked into the long grass' as ministers announced a further inquiry after the 15-month Balance of Funding review.

Sir Sandy Bruce-Lockhart, chair of the Local Government Association, said there was no possible reason for delaying a government decision on reform following publication of the review's report on July 20. 'If the government can't make a decision before the council tax is set again, the chances are they may well put it aside,' he told Public Finance.

There was profound disappointment in town halls that the government's response to the review was to commission a further 12–18 month independent inquiry. Sir Michael Lyons, deputy chair of the Audit Commission, will lead the investigation and will report by the end of 2005.

The timetable will ensure that any painful decisions on council tax reform will be delayed until after the next general election.

However, the review group did conclude that: 'There are strong arguments for shifting the balance toward more local funding.' It recommends that council tax should be retained but reformed, with a fairer system of council tax benefit as part of the package. The only way to address the balance of funding issue, where 80% of funding comes directly from central grant, would be to supplement council tax with either relocalised business rates or a local income tax.

The review group, chaired by local government minister Nick Raynsford, gives three options for reforming business rates. The first is to relocalise the business rates, which the Treasury and the powerful business lobby are against. It also suggests lifting the current inflation cap on rate increases and allowing a small retention of rates while expanding policies such as Business Improvement Districts.

Both Raynsford and Lyons rejected accusations that the review was designed to stall any decisions. 'This debate has been going on since Layfield. We've had 25 years of work on this already, another 12 to 18 months doesn't seem unreasonable,' Lyons told PF.

Raynsford, although clear that the government would have to endorse any conclusions from Lyons, said the inquiry could feed into the ten-year plan for local government.

The LGA said it would push for an early decision from government while the Local Government Information Unit warned of another council tax crisis next year.

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