Local Government funding is broken

I reckon the very title of this blog-post would have been a little controversial, amongst some quarters, several months ago ... but now, in February 2015, I doubt if anyone seriously contests the fact that local government funding is broken?


Even the Scottish Government have now openly admitted as much:

"Scottish Ministers consider the current Council Tax system as a whole to be unfair and are committed to consulting with others to develop options for a fairer and more progressive local tax, based on ability to pay, later in this Parliament."


Indeed, back in November, their 'Programme for Government' included this:

"A range of plans to be introduced over the next year will help to create a new, fairer and more prosperous society First Minister Nicola Sturgeon announced today.

Ms Sturgeon presented the ‘Programme for Government’ to Parliament and said that “the biggest investment we can make in Scotland’s future is in our people.”

The policy and legislative priorities include:

• An independent commission to report on fairer alternatives to the council tax by Autumn 2015"

And the accompanying documentation outlined some further details:

"The Scottish Government will invite our local authority partners to work with us to convene an independent commission to examine alternatives to the existing Council Tax system that would deliver a fairer system of local taxation to support the funding of services delivered by local government. We will seek the involvement of all political parties in this commission which will commence in early 2015 and report in the Autumn.

In conducting its work, we will expect the Commission to engage with communities across Scotland to assess public perceptions of the emerging findings and to reflect this evidence in its final analysis and recommendations."


And as I'm sure regular readers will be aware, this is the very same Government that is currently bemoaning the level of taxation-control that the Smith Commission has proposed for Holyrood --- claiming that, "less than 30 per cent of our taxes will be set in Scotland."

Well --- as things stand at the moment, right across Scotland, just 18% of local income is raised through local taxation with the remaining +80% coming from central government.

Getting that local taxation-control up to 30% seems but a distant dream for Local Government; a level that our Holyrood Government is decrying for its own tax-raising abilities.

And frankly, a cursory glance at other European countries indicates that most empower their main tier of local government with at least c50% tax-control.


This whole issue has been given much serious consideration, very recently, by the Commission on Strengthening Local Democracy; which published a substantial report on all of these issues back in August 2014 ...

... I'll repeat some of it's pertinent conclusions below (the full report can be accessed here):
 

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- PRINCIPLES FOR STRONGER DEMOCRACY IN SCOTLAND

Our aim is not to promote more, or less, taxation and spending: it is simply to make sure that the decisions about these issues are made locally. Real local financial powers would allow communities to reduce tax and spending if they wanted to, not just to raise it. That would be their choice where currently they have no choice at all. We also entirely accept that national grant support will always be necessary to equalise variable local tax bases, variable costs of providing services, and variable patterns of need and demand.

We therefore believe that reducing the scale of local governments and making all local services locally accountable are necessary preconditions of a more vibrant, participative, local democracy. However on its own, that does not transform democracy in Scotland either. The right of individuals and communities to local democracy needs legislative expression through a clear duty in law to support and resource participation in decision making. Democratic innovations such as deliberative assemblies, participatory budgeting and citizen scrutiny of public services should also become the standards by which this is delivered in Scotland.


- CREATING LOCAL TAX AND SPENDING CHOICES

The most singular limitation on local democratic choice identified by the Commission is the lack of fiscal powers at local level. This seriously limits the tax and spend choices available to local citizens, and with no real choice available to communities it also holds back their participation.

The Commission therefore recommends:

• That local people should decide on levels of local taxation in relation to the services they want; it is completely inconsistent with a strong local democracy for this to be determined or enforced nationally.
• That local government should have full local control of the whole suite of property taxes (Council Tax; Business Rates; Land and Property Transaction Tax) and the freedom to use these in ways that suit local circumstances.
• That local governments, accountable to local people, should have a general competence to set and raise new taxes, subject only to not duplicating taxes already set elsewhere.


- KEY FINDINGS

The Commission sees all of these options as having merits, individually and in combination. Giving local communities the democratic power to look after their own financial affairs is fundamental to local democratic choices and participation, stimulating economies, and bring new thinking and capacity to bear on improving outcomes. We therefore recommend that:

• the minimum requirement of any options for change is that together they would be capable of raising at least 50% of income locally
• local government should have full local control of the whole suite of property taxes (Council Tax; Business Rates; Land and Property Transaction Tax) and the freedom to set these in ways that suit local circumstances
• local people should decide on levels of local taxation in relation to the services they want; it is completely inconsistent with a strong local democracy for this to be determined or enforced nationally
• where there is a clear community will to do so, local governments should have a general competence to set and raise new taxes that are suitable to the needs of the local community
• all of the above options for reform, singly and in combination, are fully reviewed. We recommend that the criteria of sufficiency, efficiency, equity and transparency are central to that assessment


- IN SUMMARY

None of these proposals are a way of imposing new financial burdens on unwilling communities. Culturally, we need to get past any idea that local financial choice means higher taxes. Instead, for the first time, local tax transparency would allow local people to see what their taxes pay for and give them the choice to pay less or more. The local electorate, not national politicians, would be in control and hold their representatives to account.

Central grants would need to reduce to rebalance any transfer of national taxes, for example, to the local level, and any local taxes would require clear local agreement and oversight, including the use of local referenda.

Equalisation will also have to be transparently addressed in all of the above options in order to assure communities that strong local democracy would not result in them losing out. Our view is that a sensible and planned approach can find that balance; after all, other modern democracies have already managed to do so.


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For me, there is a huge amount to be commended in the summary points above.

I certainly hope that the Independent Commission on local finance options, promised by the Scottish Government, reads this recent report very carefully ...

... why re-invent the wheel?