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Centre for Cities said the government’s commitment to a new era of devolution provided the opportunity to address the lack of fiscal autonomy which lay at the heart of councils’ financial fragility.
It called for the power to set council tax rates to be devolved to local and combined authorities to ensure levels are proportionate to the local area, instead of being anchored at band D on a national basis.
The move would bring the UK’s fiscal structure more in line with that of international peers, the thinktank said, noting that the share of total tax take collected locally was far lower in the UK than in the rest of the G7 and among the lowest in the OECD.
It would also improve the incentive for councils to build houses, as they would be able to fund services by growing their tax base.
Major reforms to the council tax system would also see it become more progressive while keeping local authority revenues neutral, the thinktank said.
Annual council tax revaluations would address the anomaly of house prices having increased by 372% since the last revaluation, which took place in 1991, while the introduction of three council tax bands – one at the bottom and two at the top - would reflect the reality of property values.
Centre for Cities estimates that 68% of households in England could have their annual council tax bill reduced by at least £494 if council taxes were set locally and at more progressive rates.
“Councils have no power to spread the tax burden progressively among local residents but plans to widen devolution to all of England offer the chance to change that,” it said.
“By making council tax more progressive, local authorities can reduce taxes for most households in a fiscally neutral way – without losing any tax revenue,” it said.
Devolution has been a major focus of the government’s early announcements, with an assertion in the King’s Speech that greater devolution in decision-making was a key driver of economic growth.
An English Devolution Bill is on the cards to give new powers to metro mayors and combined authorities, supporting local growth plans to bring economic benefit to local areas.
Andrew Carter, chief executive of Centre for Cities, said the time was now right to pursue fiscal devolution.
“Government should take the opportunity to give places more power over how taxes are collected locally at the same time as it plans to widen devolution of transport and budgeting powers,” he said.
“The fragmentation of local authorities and their lack of autonomy over their own revenues are major contributors to local government’s financial instability.
“These are issues affecting councils across the country, so we need a nationwide reset that neither hiking council tax on everyone nor extra central government grant can provide.”
