The Localist Agenda: Rethinking Tax Strategies

Localism

Elijah Pryor sets forth an alternative, ‘localist’ agenda for the British tax system.

Since the introduction of council tax in the 1990’s under the Conservative government (in response to the unpopular ‘poll tax’ that meant some households were paying largely above their original tax bill), the size or value of a property has been the main determinant of each household’s rate. The underlying problem is not only that Council tax is an outdated method of tax collection, but it also penalises those with a marginally increasing income, a decreasing income or an income that remains similar year to year. The ‘National Non-Domestic Rate’ of property tax has also severed the relationship between local councils and local businesses, meaning a reduction in empathy for local development: replaced by centralised decision-making on local issues.

The ‘council bands’ are set according to the value or size of a house, with the problem being that house owners with properties valued over “band H”  ̶  the most expensive band  ̶  will not have to pay more for the greater value in their property. Therefore, those with high-end property values are often unaffected by council tax when compared to those in low-end properties, where a greater degree of income is siphoned off to paying council tax. The need for reform is growing, perhaps even to the extent of abolishing this regressive tax. A local income tax could replace the council tax. Admittedly, past governments were worried about the complexity of setting up the local rates on income. However, central government has not vested enough interest or resources into providing a considerable debate into the introduction of local income tax.

…central government has not vested enough interest or resources into providing a considerable debate into the introduction of local income tax.

Local government expenditure, both short and long term, was heavily regulated by central government during Thatcher and Major’s years in office. When Labour was elected to the executive role, council tax reform was ignored despite calls for progressive taxation, however the limitations of spending and borrowing by local councils was somewhat decreased by New Labour’s ‘Local Government Act 2003’. This allowed greater financial autonomy to councils. Examples include the relaxation of portions of debt repayments through means of ‘capital receipts’, and the push for more grants for local governments. Although greater financial freedom can be said to have led to a disproportionate distribution of expenditure on services in some authorities, this would lead to health and education services with lesser long term expenditure when compared to cultural spending. Furthermore, funding from the centre to local governments still had requirements attached; these requirements would mean that councils would not have the ability to direct the budget into services that they felt needed extra capital investment. Another issue with New Labour’s control of budget and grant distribution is that local councils must predict their total expenditure for services, this could lead to a shortfall in budget total for services, meaning the council must do one of two things:

1. Reduce spending on a particular service resulting in a loss of jobs and/or funding,
2. Increase the rate of local tax and suffer communal backlash.

Additionally, this would also mean that a need for an emergency increase in expenditure on services could be undermined by the faulty assessment of council needs by central government, whereas if local government had the ability to raise and spend in areas of the communities need, this would eliminate the issue of funding predictions.

The debate regarding whether or not local government should be allowed ‘complete’ devolved powers of calculation, collections and spending of taxes in their areas has lasted for decades. The UK has a greater degree of the state’s budget funded through national taxation means when compared to local taxation. The strong economies of Germany, Denmark and Sweden allow for a greater degree of local taxation. The UK continues to allow a taxation system that effectively ignores much of households/individual’s income and wealth, instead relying upon narrow options for tax collection such as council tax.

The UK is one of the most centralised countries in Europe and has experienced numerous economic crises, which has resulted in mounting debt over the last 67 years, so why carry on in this manner? The three main parties laud the concept of bringing decision-making to a more local level, but every time they set targets and make changes, it always seems to reinforce the importance of central government, and thus leading to failure of localism!

Elijah Pryor is a student at the University of Brighton and President of the University Political Society. He is an admirer of Libertarian/Marxist literature and a supporter of political decentralisation (in the Marxist sense).

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