20 February 2004
Radical reform of the council tax is on the way but it will be at least 12 months before a replacement system is drawn up and the details finalised, Public Finance has been told.
Ministers recognise the tax has become increasingly 'socially unjust and politically unsustainable', say sources close to the government, but speculation that plans for a new charge combining a levy on property with a local income tax will be published within weeks are 'nonsense'.
Instead, the Balance of Funding review will publish a 'menu' of options in the summer, which will indicate how the government intends to tackle the problems with the tax that have made it such a political hot potato in recent months.
In particular, it will outline how to relieve the financial pressure on pensioners living on low incomes in high-value homes, which has provoked angry 'grey power' demonstrations around the country.
When the review panel's conclusions have been published, further research will be commissioned and the final outline of the new system will be decided in light of those findings.
This timetable would take the government through to the other side of the next general election, if, as predicted, it is called for May 2005. 'This issue will be dealt with by the government in the third term,' the source told PF.
Council tax increases in England averaged 12.9% in 2003/04, and a survey of authorities published on February 18 suggested that councils are planning rises averaging 7% next year.
Ministers are so worried by voters' fury at soaring bills that they have now threatened to cap 65 authorities that are planning increases above 5%.
Local government minister Nick Raynsford has called in 11 authorities for meetings this week, and more may follow.
Despite this, senior local government figures said they would be'very surprised' if Raynsford pre-empted his own review by publishing reform proposals before its work had finished.
Sarah Wood, director of economic and environmental policy at the Local Government Association, spoke to PF immediately after attending a meeting with senior Office of the Deputy Prime Minister officials on February 18 to discuss the issue.
'Nobody I spoke to has been working on anything to be published in the next few weeks, and these are the people who would be writing it,' she said. 'If they were, they would have answered me in civil service language. I trust them on this.'
Professor Gerry Stoker, chair of the New Local Government Network (NLGN) and a member of the review team, said meetings had been scheduled until September.
He added that all options, including changes to the business rates, were still being actively considered. 'I don't think any ship has left the harbour yet,' he told PF. 'But if the government wanted to give a clearer steer in the direction it wanted to go, I don't think that would be unhelpful.'
The pressing need for council tax reform was due to be highlighted by former Cabinet minister and leading Blairite Stephen Byers at an NLGN conference on February 19.
The ex-local government secretary planned to say that the present tax system is 'unsustainable' because the retired and the poor are subsidising businesses.
In advance of his speech, Byers released figures, obtained from the House of Commons library, showing that the proportion of council funding provided by business has fallen from 30% to 24% since 1993, while council taxpayers' contribution has risen from 23% to 29%.
'The poorest 10% pay over four times more of their income in council tax than the richest 10%. The burden is nearly twice as great as for the average person,' Byers was expected to say.
Council tax has also begun to rise up the political agenda in Wales, where Welsh Assembly Finance and Local Government Minister Sue Essex has launched a consultation on the balance of funding in the principality.
Essex said she would pass on the findings of the consultation to the Raynsford review.