PAYING FOR

LOCAL GOVERNMENT

 


 
 
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In 1986 the conservative administration produced a green paper entitled Paying for Local Government which was concerned with increasing local democratic accountability. The government said it was necessary to find a method of local authority funding that reduced the gap between those who use, vote for and pay for local services. It was argued that the existing system had three fundamental weaknesses, connected with business rates, the impact of grants and the unfair burden of domestic rates on householders. The government was concerned that under the present arrangements, businesses could be heavily taxed to fund excessive local authority spending.  Business rates made up sixty percent of the local tax receipts but businesses could not vote and therefore were unable to influence local authority decision making. Business rates were variable and unpredictable and increases had implications for investments, prices, pay and employment. People may be affected by these without knowing how they have arisen. It was suggested that business rates should not be a local tax and instead there should be national non domestic rate poundage determined by central government. The poundage would be linked to inflation to make rate bills more predictable. Receipts would be pooled and redistributed to local councils according to the number of adults in each authority. Therefore they would continue to be used to pay for local spending. There would be a revaluation of non domestic premises and a new valuation list published in 1990. Transitional arrangements would also be put in place to facilitate the change. With regard to grants it was argued that the existing arrangements were complicated and unstable and that the connection between local services and the money residents paid for them was obscured by the grant system at   that time, but it was essential for local accountability that the link should be  clear to people. Because of this the government proposed to bring in a grant structure consisting of two parts. In order to compensate councils for differences in needs between them there would be a needs grant. In addition to this there would be a standard grant which would decrease the local tax bill of each adult by a standard amount. For each year the grants would be set in advance and this would make the position clear to local authorities. The government maintained that their proposals on the grant structure and on business rates would make the link between changes in local spending and changes in the bills that people received as clear as possible. For every local authority all additional spending would have to come from local domestic taxes and any savings would also benefit local taxpayers.

The green paper also contained major proposals with regard to changes in domestic taxes. It was pointed out that although thirty five million people in England were entitled to vote in local elections only eighteen million people were directly responsible for paying rate bills, and three million of these had their entire bills paid through housing benefit. There were many councils where over half the local electorate paid no local tax.  If people don’t have to pay local tax they may not be very concerned about restricting local spending and might even want the council to increase the amount it spent. Although changes to social security arrangements would mean that all ratepayers would have to pay at least a certain percentage of their rates, it would leave seventeen million people eligible to vote in local elections that did not have to pay anything at all for the local services that they used. Pensioners living alone and single parents would still have to pay as much as households with four working occupants. Rates are property taxes and the government argued that they were unpopular because the entire rates burden was paid by too few people, and more people should be required to pay local taxation. The government considered alternative forms of local taxation such as local income tax and sales taxes and saw difficulties with these. It preferred the use of a flat rate community charge, regarding this as giving every adult an interest in the spending decisions of councils and it would be connected more closely with people’s use of the services provided by local authorities. It was recognized that financial help would have to be given to people on low incomes, as it had been with the rating system. Community charge levels would be determined by individual local authorities and the result of the reforms should be that the same bills would be set for the same standard of local services in every authority. Because there would be major changes in the in the way tax burdens are distributed between different areas, transitional and safety net provisions would be put in place. The government said that increases in the amount of money spent by local authorities would have to be raised from the community charge and this would create a clear link between higher charges and higher local taxes. The implementation of the reforms would mean that some people who did not pay anything at all would have to pay local taxes. Households with single occupants who were paying more than a fair share of local taxes under the rates system would be paying less under the community charge, and many of these were some of the poorest members of society. It was suggested that for most people the changes in the amount of tax they had to pay would be modest and would be manageable with regard to their earnings. The proposals contained in the green paper would constitute the most comprehensive reforms to local authority funding of the twentieth century, ultimately leading to the introduction of the poll tax. ( see also 1986 green paper)

 

 

 

 

 

 

 

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