THE SLOW DEATH OF COUNCIL TAX

First Published BY: The Guardian

There is a solution to Council Tax hikes: put up the business rate, says Peter Hetherington

Councils in England should have entered 2012 with a renewed sense of optimism. 

Frequently sidelined, ignored and attacked by ministers for inflation-busting Council Tax increases they were lauded by the Audit Commission last year for a "marked improvement" in performance over the past 12 months

The second comprehensive performance assessment (CPA) showed that almost two thirds of the biggest authorities were generally in a good state of health - a year after the commission showered praise on the best councils and noted that, when gauging efficiency and value for money, they stood comparison with the best private businesses.

At any other time, the government - which, after all, instituted the complex and expensive CPA process - might be joining James Strachan, the commission chairman, in proclaiming the "excellent news". Instead, the praise was grudging.

Local and regional government minister Nick Raynsford, are in a belligerent mood and preparing to - let's be blunt - wield the axe on authorities daring to post Council Tax increases above "low" single figures. Raynsford says it's a near certainty that some budgets will be capped.

In local government, 12 months seems an eternity. Last year, ministers were promising councils extra freedoms and flexibilities in return for decent CPA ratings. Some at the margins have been delivered, a few strings to Whitehall severed, while an innovation forum, embracing ministers and councillors, has been mulling over what further powers might be devolved from the centre to the council chamber. 

But everybody knows there is one sticking point in a key area which dare not speak its name: finance.

The method of funding local government is in a mess, bordering on chaos. Ministers have known about this since Labour came to power (and lost the last election) - which is why, last year, Nick Raynsford changed the formula governing the system that allocates government grants and the uniform business rate (together accounting for three quarters of council spending) to councils.

In political terms, this has only made matters worse for the government; a slight shift in resources from the south to parts of the Midlands and the north produced an almighty outcry and, according to another Audit Commission report last month, ministers were at least partly responsible for Council Tax rises this financial year.

The revised formula sent out all the wrong signals to marginal middle-England, the places where elections are won and lost. These days it has moved south from the West Mid lands, and parts of the north, to Hertfordshire and Kent - the very areas hammered by the marginal shift in resources.

Downing Street was not amused - especially after leaked reports from a Cabinet sub-committee last year showed Prescott insisting, under pressure from No 10, that nothing be done to penalise this important constituency by giving the impression that the north was getting more at the expense of the south.

Over the past few weeks the government has responded with almost £800m extra for town and county halls - barely a month after agreeing the annual Whitehall grant settlement - to keep average increases in the next financial year close to the low single figures. It will be a hard task.

The deputy prime minister knows that the current system, broadly in place since the poll tax was scrapped, is unsustainable. He told the Guardian as much last month. Then he acknowledged that a review currently under way and chaired by Raynsford (with the help of up to 20 experts from local government, finance, academia, unions, and business) will have to be "deeper than the relationship between central and local government."

Revealingly, he added: "I do not think the Council Tax will live up to that kind of review. I am trying to manage a difficulty that has been brought about not just since some pensioners have been kicking up [about Council Tax rises this year]. The whole way local authorities are financed is not good enough."

Councils need additional sources of funds and more revenue-raising powers. The problem is that the most sensible reform, namely addressing "underfunding" from business rates will be ruled out of order by Downing Street and probably by the Treasury because the business lobby will not wear any change.

Yet a recent report by Maureen Wellen, assistant director of local government finance and policy at Cipfa, the professional body for council finance officers, shows that in just over 10 years the contribution made by ordinary Council Taxpayers has increased by a third, while the share paid by business has fallen significantly.

This is because governments have pegged any increases in business rates to inflation - at a time, says Wellen, when the needs of local government have risen faster than inflation (pay rises, for instance, outstrip inflation).

There is one obvious conclusion from her analysis. Businesses are getting cut-price property taxes, while householders pick up the tab.

READ WHAT: ERIC PICKLES ‘SECRETARY OF STATE’ SAYS ABOUT OVER-CHARGED COUNCIL TAX.

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