Today’s muted council tax forecasts demonstrate once and for all that local democracy in Britain is neither local nor democratic. Householders will be relieved to learn that only 12 councils plan to raise taxes next year by more than 5 per cent. But they should also beware: the lid that ministers have rushed to place on council tax in the run-up to the election will soon blow off again.
Until three years ago, the Government happily used council tax rises as a stealth tax, blaming increases on profligate local authorities. When the bills started to rise in double-digits, however, voters laid the blame firmly at central Government’s door. With councils dependent on the Treasury for four fifths of their funding, it looked as though Whitehall was forcing local authorities to spend beyond their means on national priorities such as social security and education.
Central grants to councils increased, but they did not keep pace with the increased burdens of national insurance, pension fund debts and policy aims.
Determined to avoid the spectacle of householders protesting in an election year, ministers have resorted to an extraordinary combination of threats and cajolery to bring local authorities to heel. The Chancellor laid the ground with his decision in November to reallocate £512 million from other government departments to keep council taxes down. Nick Raynsford, the Local Government Minister, has repeated his threat to cap councils that raise taxes too high. For their part, many councils have become concerned that government enthusiasm for “new localism”, devolving power to alternative bodies, might strip them of important functions. All but the most rebellious have fallen into line. That the majority of the rebels are Conservative-controlled may in itself be something of a pre-election gambit, but it does not mask the bigger problem.
The fact is that Britain has one of the most centralised systems of local government finance in the world. Councils typically raise only 20 per cent of their funds locally, and depend on the Treasury for the rest. Local authorities’ dependence on fixed Whitehall grant means that they have to increase tax by about 4 per cent to fund a 1 per cent increase in their budget. Council tax rises thus reflect, and magnify, the pattern of government spending. If Government insists on minimising tax rises, the services that suffer first will be those that are truly local, such as parks and street cleaning, over which authorities have discretion. So much for democracy. True local accountability is impossible when there is such a gap between what authorities spend and raise locally. And voters will not impose restraint if they correctly divine that the council is not fully in control of the bill.
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What next? The much-vaunted Lyons inquiry will not report until the end of this year, but ministers seem to favour retaining the existing system and raising taxes on higher-value properties. What is certain is that council tax will soar when homes are revalued and tax bands are modified in 2007. The Liberal Democrats predict rises of £300 or more in 60 regions, hitting houses that have gained most in value.
There will be no true local democracy until the bulk of local council revenue is raised, spent and determined locally. Politicians can talk all they like about neighbourhoods and “localism”, but handouts from London do not good neighbours make.