Replacing Council Tax with a local income
tax
Minister considers options
The Government has confirmed that replacing Council Tax with a
local income tax is among options being considered by ministers in
a review of how local government should be funded in the future.
The proposal - a flagship policy of the Liberal Democrats -
emerged following consultation during the Summer on local
government finance that found that -
- the current system is generally seen as unaccountable due to
complexity, lack of clear responsibility for services, and
central government control;
- Council tax in current form and at current levels is becoming
unaffordable for those on fixed incomes, and is not buoyant
enough.
- Reformed council tax (rebanded, revalued, more progressive)
and local income tax are both popular options ? some would like
both.
Local Government Minister Nick Raynsford, who chairs the Balance
of Funding Review Steering Group which is looking at local
government funding, has already admitted that recent council tax
rises have reached "the limit of acceptability" and said in
Parliament today that that the option of replacing council tax with
a local income tax is "worthy of consideration."
The Steering Group will meet again in January, with a final
report due later next year.
Balance of Funding Review
- The Balance of Funding Review is an examination into the
balance of funding for local government - how much money is
raised centrally and how much locally - and the pros and cons of
different options for the sustainable funding of local government
in the long term.
- The Review Steering Group is chaired by the Rt Hon Nick
Raynsford MP, Minister for Local Government. It contains
representatives from local and central government, business,
academia, the unions and professional bodies.
- The Review started in April 2003 and is due to report in
summer 2004.
- The Review has commissioned further evidence on the pros and
cons of various options, including reform of council tax, local
income tax and re-localisation of business rates.
- The fact the Review is hearing evidence on different options
is not an indication that the Government favours any of these
options.
Local Government Finance Settlement - Announced 29 January 2004
- For the second year running, every local authority will
receive at least an above inflation increase in Government grant
with many getting substantially more.
- Local government formula grant will rise by 5.5% to ?2.4
billion, with specific grants taking the overall increase to ?3.7
billion or 7.3%.
Local Government Minister Nick Raynsford said:
"This year's grant to councils is a substantial investment which
will further help councils to deliver improvements in the services
they provide while keeping to reasonable council tax increases.
"Formula grant to local authorities will increase by ?2.4
billion or 5.5%. On top of that, specific grants take the overall
increase to ?3.7 billion or 7.3%. For the second year running every
local authority will receive at least an above inflation increase
with many receiving substantially more. This means that we will
have increased grant to councils by 30% in real terms since 1997.
"Given this significant extra investment and the scope for
efficiency improvements, our view is that local authorities can and
should deliver council tax increases next year in low single
figures. I hope we do not have to cap authorities. But make no
mistake; we are prepared to use our capping powers on any authority
if that proves necessary."
Statement by Minister for Local Government Nick Raynsford - 16
January 2004
"I fully understand that many people are concerned about council
tax and they have a right to make their views known. Further
increases of the scale we saw last year cannot be justified when
central Government financial support for local authorities is
increasing significantly.
"Government has invested an extra ?3.7 billion or 7.3% on a like
for like basis in grant for local authorities for 2004/05. For the
second year running every local authority will receive at least an
above inflation increase with many receiving substantially more.
This means that we will have increased grant to councils by 30% in
real terms since 1997.
"Given this significant extra investment and the scope for
efficiency improvements, our view is that local authorities can and
should deliver council tax increases in low single figures
in 2004/05.
"We hope we do not have to cap authorities. But make no mistake;
we are prepared to use our capping powers on any authority -
including police and fire authorities - if that proves necessary.
"All council taxpayers on low incomes, including pensioners, are
entitled to Council Tax Benefit. Not everyone who is entitled to
the Council Tax Benefit however is taking advantage of it.
"The Government is working on measures to help promote the
take-up of Council Tax Benefit. We also plan to remove the current
restriction on Council Tax Benefit for those people living in Band
F, G or H properties from April 2004.
"In the longer term, the Balance of Funding Review is looking at
whether the balance between locally raised revenues and central
government grants should be changed. This includes examining
council tax reforms and other ways for funding local government.
The review is due to report this summer. "
Revaluation 2007
- We have repeatedly said that we have no plans to change
council tax bands, or the ratio between them, before the 2007
revaluation. The suggestion that house price rises will affect
council tax bills next year is nonsense.
- Council tax revaluation is not about increasing overall tax
revenue, but about achieving a fairer distribution. We want to
ensure that we have all the tools in place to make the
revaluation as fair as possible. Powers to change banding
structures and ratio will ensure that we are able to do this.
- It is far too early to say what the effect will be on
individual council taxpayers. This will depend on actual property
values nearer the time and decisions yet to be taken on council
tax banding and ratios.
- The suggestion that council tax bills will rise next year for
larger properties as we plan to change the ratio is not true. We
have no plans to change the ratio before revaluation in 2007.
Council Tax Setting
- Local authorities, not central Government, determine the
level of council tax. Every local authority has a responsibility
to its own taxpayers and electors.
- Last year, every local authority received a higher than
inflation increase in funding from central Government, so had
little justification for raising council taxes to the extent that
some did.
- The Government is clear that the current trend in council tax
rises is not sustainable. Although we are not capping council
taxes for 2003/04, local authorities should be aware that we are
prepared to use our targeted capping powers in 2004/05. In
exceptional circumstances, we do not rule out the possibility of
capping authorities categorised as 'good' or 'excellent' in the
current and future Comprehensive Performance Assessments.
- Billing authorities (this means councils which send out
council tax bills, like district councils and London boroughs -
not county councils) have been granted new powers under the Local
Government Act to create local discounts and exemptions from
council tax bills. This could include giving householders
affected by flooding a discount or exempting them from the tax
entirely. This power could also be used to offer a council tax
discount to pensioners.
- The powers came into effect on 18 November 2003, without the
need for any further action by the Government. So discounts could
be offered for bills issuing in 2004/05 if that is what billing
authorities decide.
- This is a local power for local authorities to decide on if
they think it's in the best interests of their area. They do not
require the consent of central Government to use this new power.
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