Isitfair a Nationwide Campaign Calling for the Reform of Council Tax

www.isitfair.co.uk

 

Council Tax and Central Government Grant                                                Michael Boon, October 2010©

 

Central Government Grants

 

•        Council Tax is unfair in the sense that people in very similar financial circumstances pay very different amounts of Council Tax.  This is mainly dependent upon which Local Authority they live in. 

 

–        While the use of property values is not ideal to determine what share of the burden any household should pay, it does work reasonably well within each Local Authority

 

–        However, it does not work at all well between different Local Authorities.

 

-                 This is because the shape of the income distribution is different from the shape of the property price distribution – and there are many Local Authorities where the price of properties, and hence their banding, is out of line with both average and median incomes.

 

•        Council Tax bears very little relationship to council spending - the highest spenders often have the lowest Council Tax, and vice versa.

 

On this basis, it would make more sense to base any Central Government grants to Local Authorities on the basis of the incomes of the residents of those Authorities, than basing them on property prices.

 

Any change from the present system would probably have to be gradual, so as to avoid any sharp shocks to those who would lose out.  However, we note that the previous government did not take this into account when they changed the system for 2003-04 and onwards!

 

Referenda and Council Tax Benefit

 

•        In general, Isitfair members have reacted positively to the proposals for requiring referenda to approve “excessive” Council Tax rises.

 

•        However, we are concerned that those who do not pay Council Tax will find it in their interests to vote for  “excessive” rises which don’t cost them a penny – but which such “excessive” rises will allow them to receive extra Local Authority services at other people’s expense.

 

–        There are two ways around this problem.  First, one could restrict voting in such referenda to those who actually pay Council Tax.  Second, we could abolish 100% Council Tax benefit and ensure that everyone pays something towards the cost of local services.  This would help to reduce the Central Government fiscal deficit!

 

-                 It seems a little strange that Central Government, which finances Council Tax Benefit, should allow Local Authorities to charge “excessive” Council Tax where there are large numbers of recipients of Council Tax Benefit in an Authority!

 

-                 In this context, it would seem sensible to pay any CTB according to some “approved” or average value for properties in a particular band.  This would give those residents in receipt of CTB an incentive to vote for more frugal Local Authorities.

 

However, there are some problems with any use of the electoral system to restrict Local Authority spending:

 

•        An examination of local election results has shown that there is no statistically significant difference in terms of council tax rises between councils where there is a change in control and councils where no change of control occurs.

 

–        This is true both for council tax rises prior to the election and those subsequent to it

 

•        There is no statistically significant correlation between the balance of funding in a local authority and the turnout at local elections for that authority

 

•        Local authority spending is almost entirely determined by central government.  Local authority spending can be predicted by a statistical model whose only inputs are parameters entirely determined by central government

 

–        As a result, council tax is largely determined by central government also

 

•        Before referenda are likely to work, there needs to be much more Local autonomy then there is at present.

 

–        We note that the predictions of very local spending, (i.e. by District Councils), are less accurate than the predictions of total Local Authority spending, (i.e. including County Councils, Fire and Police Authorities), on the residents of those districts.  Smaller authorities appear to be more responsive to local concerns, and less controlled by central government than larger authorities


 

•        In general, there appears to be a common problem associated with highly progressive tax systems.  Those who pay (say) only 25% of the cost of the services that they receive still get a very good deal even if those services cost twice as much as they ought to!  They therefore have an incentive to vote for such services – however inefficiently they might be provided.  Obviously, this leaves others to pick up the tab for inefficiency

 

–        Council Tax is often thought to be a regressive tax.  However, on the national scale, it would appear to be mildly progressive at incomes below the median and mildly regressive on higher incomes.

 

–        Making Council Tax more progressive, (for which many people argue), would actually increase the unfairness of the system – sine the unfairness affects those poor people living in Local Authorities which receive very little by way of government grants but where low banded property is very scarce.