Local Government Revenue - Reviews and Reports

The Balance of Funding Review

Following the huge Council Tax increase of 2003 (12.9% average) the Government appointed Nick Raynsford MP to head up the Balance of Funding Review.

The Government set up the Review in response to local government concerns that the present balance of funding was a problem.  It had been argued that it undermined local authority accountability and gave rise to the 'gearing problem'.  The overall aim of the Review was to look at all aspects of the balance of funding, review the evidence and consider reform options, setting out the pros and cons of each.  Its aim was not to consider ways of increasing local government revenue, but rather to examine the case for changing the balance of funding between central and local sources, which is currently about 75% central to 25% local.

The Review took place between April 2003 and July 2004.  Isitfair submitted written evidence to the Review and despite several requests to meet with Nick Raynsford, he refused to do so.  Meeting council tax payers was clearly beneath him.

The Review made a number of recommendations, the two key ones being:

1. Council tax should be retained but reformed.  It has important advantages as a local tax; for example, the yield is predictable and there is a high collection rate.  However, it will need reform to address its impact on those on low incomes and the impact of revaluation.  Further work will be needed on the options for such reform.  A fair and effective system of Council Tax Benefit (CTB) will be a vital component of a reformed council tax package.  Improvements to CTB and measures to improve take-up need not wait for structural reform of council tax.
2. The only way identified by the Review to achieve a major shift in the balance of funding is supplementing a reformed council tax with either re-localised business rates or a local income tax (LIT) or a combination of both.  None of these options would be easy and further work would be required.  In keeping with the approach adopted throughout the Review, the aim should be to avoid significant changes to the overall liabilities of taxpayers.

The key points to note are:

1. The retention of the present system
2. Impact of revaluation (why only consider those on low incomes?)
3. CTB is seen as the answer to all problems (it isn't)
4. Negative attitude to the reform of council tax
5. Avoid significant changes to the overall liabilities of taxpayers

With regards to the last point, this was also used prior to the revaluation in Wales.  What actually happened there was that the overall council tax liability increased as more properties were re-banded upwards, as opposed to downwards.  This outcome was the opposite to what Ministers had predicted would happen.  They claimed that the revaluation would be 'revenue neutral'.

Another point to note is that by just looking at the 'overall liabilities of taxpayers' allows for variances between different areas.  It is already well documented how funding has been moved from the South to the Midlands and the North.  It is clear that this situation will continue, and become worse, but not 'significantly', whatever that means.

All Government papers relating to this review may be accessed via this link.

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