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Council Tax is used to contribute to the funding of local services. It generates  about 25 billion pounds a year and makes up about a quarter of local authority financing with the rest of the money provided by central government grants and redistributed national non domestic rates. Local authority spending is used to pay for services such as education, housing, refuse collection and disposal, highways, social services, environmental health, libraries and cultural services, planning and economic development. Council tax is the only form of taxation which is currently under local authority control. Government grants are determined by central government, and non domestic rates are collected by billing authorities and are distributed to councils on a per capita basis. Because council tax is the only form of taxation controlled locally, additional spending has to be financed by increases in council tax and due to the gearing ratio this is believed to distort local accountability. If council tax contributes 25% to the amount of money available to pay for local services then a 1% increase in spending results in a 4% increase in council tax. Many taxpayers are unaware of the gearing ratio and do not see a connection between increases in tax and increases in spending on local services.  They are asked to pay 4% more but only see a 1% increase in spending. The gearing effect reduces transparency and the problem is especially controversial when there are large increases in council tax, for example the average 12.9% increase in 2003 – 2004. It has therefore been argued that local authorities should be able to control a greater percentage of their income, with some suggesting that it should be at least 50%. Possible sources of additional locally controlled revenue include a local income tax and a return of business rates to local control. It is argued that accountability will be enhanced if councils have greater control over local taxation decisions.

 

 

 

 

 

 

 

 

 

 

 


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