Responding to COVID-19: insight, support and guidance

Death, taxes, and a case for reform

30-04-2019

By Rob Whiteman, CIPFA CEO

Local government has undergone a series of rapid transformations over the last decade. On the one hand, councils are operating in an environment of intense pressure, slashed budgets, and soaring demands. On the other, there are broader societal and technological shifts taking place. Services are now expected to be provided online, and councils operate within a new age of social media and a 24/7 news cycle. This is vastly different to how they worked even a decade ago. But what has been much slower to change is how councils are funded, even as central funding plummets.

But change is in the air. Debate is raging around fair funding, and authorities are agitating over what measures matter most when it comes to creating a balanced system. Although there appears to be unanimous support for the shift towards a simpler system away from the 120 indicators which are currently used to make funding allocations from central to local government – and create greater transparency – there are still issues to be nailed down. The dropping of deprivation as an indicator of demand, and therefore funding, is a core concern for many authorities. Another is the age of the data being used to inform these reforms, which is pulled from the 2011 UK census. But looking beyond the data and these ongoing debates on fair funding, one important area where the discussion has been quieter is council tax.

Recently we went out to local authorities in our annual council tax survey, and for the most part the headlines around the country were the same, whether you look to BBC, the Telegraph, or the Independent. Focusing on the rise, which this year is 4.5% for Band D properties in England, and how much would be coming out of the pockets of households. But there is a wider debate to be had around whether council tax is fit for purpose in the first place. Benjamin Franklin said some 300 years ago that the only things certain in life are death and taxes. But one key difference between the two is that while for the most part we cannot choose when we pass to the next life, there is certainly opportunity to change how we might pay our tax. 

Council tax forms a core part of how local authorities are funded and by virtue of its transparent nature, ease of calculation and collection has become a core pillar of funding. Yet, its history in reality is relatively short, introduced in just 1993. It replaced the short-lived and widely unpopular poll tax, which was criticised for its disproportionate effect on the poor. At the time of its introduction, council tax could be viewed as progressive, with more expensive properties taxed at higher rates. However, the valuations on which the band system are based are now almost 27 years old, and with house prices rising rapidly in that time, they can hardly be seen as reflective of reality.

A key cause for concern is the uneven spread of council tax across the tax base, which exacerbates inequalities to the detriment of broader issues in our society. Council tax is now viewed by most commentators to be highly regressive, with increases having the greatest effect on those residents least likely to be able to afford it. If council tax is to remain viable in the long term, the status quo must shift. This could at least include giving local authorities the power to set rates locally, based on up to date property values, and able to ensure a properly funded council tax support scheme is used to meet the needs of its lowest income residents. As it stands, the shifting of benefits and the withdrawal of the council tax rebate is causing a host of issues, with some households who had in the past not been liable to council tax now either unable or unwilling to make contributions.

Recently we released the ‘case for reform’, a publication which lays out some of the many options for changes to council tax. This has come as the Institute for Fiscal Studies also puts their voice into the fray, with their own powerful analysis on the effects of recent changes to council tax support. But whether there will be the political will to make real change to our tax system, and importantly, changes which are grounded in facts rather than fantasy, remains to be seen. Every year though the need will grow. As finance professionals in the public sector, we will be seeking to provide the evidence, the expertise, and above all the insight on which a more progressive and sustainable system can be built, as it should be remembered by all that there is one other core certainty in life. Change.

Find out more on CIPFA’s website.

This article first appeared in Public Finance Magazine. 

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