By Richard Johnstone | 3 February 2014
Labour will consider reforms to council tax as part of its commission on town hall finances, shadow local government minister Andy Sawford has revealed.
In an exclusive interview, Sawford told Public Finance that any local authority ideas for raising money through the changes to the tax base, such as banding, would be examined ahead of the next election.
As part of Labour’s local government innovation taskforce, launched last September, Sawford is undertaking a review of council finances, looking at revenues and Whitehall funding alongside public service reforms.
‘There are issues around the council tax base in terms of the number of houses in different bands and the nature of the banding system,’ he said.
‘We are not proposing, at this stage, a different broad local tax. But what we are saying is that council tax – historically a way that local authorities could themselves determine a particular revenue stream – clearly became very difficult over time because it was going up and up.’
Although it would be ‘wrong at a time when people are feeling stretched to put council tax up’, there could be reforms.
‘There has got to be some change if we are not to see the poorest people in the country particularly impacted by the cuts, in terms of the loss of very significant services to them,’ he said.
For example, Sawford said, there had been above-average government cuts in 29 of the 30 communities with the highest black and minority ethnic populations. These included eight where cuts had been at double the national average
Councils should come forward with suggestions to the commission, which would be considered as part of Labour’s work to ensure local needs are reflected in future settlements, he said.
This was something Sawford claimed the coalition had abandoned after its own finance changes.
‘What the government has done has clearly reduced the extent to which deprivation is reflected in the final settlement,’ he said.
‘This recent experiment has been the departure from an accepted needs-based approach to local government finance, so we would be about putting that back at the heart of the financial settlement.’
As part of Labour’s focus on fairness, the coalition’s flagship local government finance changes – part-localisation of business rate growth to town halls and the New Homes Bonus – would also be up for review.
Sawford said he supported the principle that authorities receive a share of business rate growth, but the incentive had been offset by the government’s austerity programme.
‘It’s actually a bit of a double whammy for some communities that have the biggest cuts in grant but the least ability to raise business rates,’ he said. ‘That’s actually been made more difficult by these cuts, rather than being incentivised by the business rates. One has outweighed the other.’
Labour would look to achieve a better balance between local rates retention and grants. ‘We ought to have a look at this over the next 18 months with a view to maintaining some kind of incentivisation in the system, but one that works for all parts of the country.’
An examination of the New Homes Bonus would also be undertaken, he said, as there was evidence the policy was both unfair and ineffective.
A number of local authorities have said the top-slicing of council funding to pay for the NHB had hit poorest areas hardest, and Sawford said there had been an ‘unfair swipe’ of resources.
Responding to the comments, Jonathan Carr-West, the chief executive of the Local Government Information Unit, said that at some point a government would have to reform council tax, which is based on 1991 valuations.
‘Given the shift in property values over more than 20 years, there is no doubt that council tax’s relation to its original reality is a very distorted one.’
Labour should conduct a local government finance review where ‘nothing was off the table,’ Carr-West told PF.
‘We talk about reform of council tax, but we talk about that as being something central government will do to local government. We don’t talk about freeing up local government to determine how property tax works locally.
‘We talk about reforming the system of business rate redistribution, but we don’t talk about allowing councils to vary the rates, as they can do in the US and other places.
‘These aren’t necessarily the answer, but they are all things that work in other places and we should at least think about here.’
