Raising Council Tax won’t fix local government

This article originally appeared in Tribune.

A decade of austerity has decimated local authority funding and left many councils in crisis – but hiking regressive Council Tax isn’t a real solution. Ahead of the today’s budget statement, CLES’s Rachel Bentley and Victoria Bettany have written for Tribune explaining why.

This week’s Budget will be make or break for councils across the UK. It’s set to be a true test of whether the government really cares about the poorest in our society, or whether it’s content to continue passing off responsibility entirely to local authorities, whose capacity to help has been diminished by a decade of austerity.

Optimism is thin on the ground after the government proceeded with removing the £20 Universal Credit weekly uplift last month, despite widespread outcry. The Joseph Rowntree Foundation estimates the loss will push half a million more people into poverty, including 200,000 children.

In total, the loss of the uplift will remove £6 billion from our local economies. In its place, the government is touting just £500 million in grants to local authorities to help the poorest survive the winter, despite the fact that there are 343 local authorities in England alone. The maths simply doesn’t add up—rather like Thérèse Coffey’s suggestion that people could just work a couple of extra hours a week to restore their finances.

“What is immoral is condemning children to live in poverty”

Covid-19 has laid bare the damage caused by austerity. Frontline workers and councils across the country are crying out for more funds to meet ever-increasing demands on public services. At the Conservative Party Conference last month, Rishi Sunak defended the Universal Credit cut by saying that more borrowing to fund current needs is immoral, but plenty of economists would disagree. What is immoral is condemning children to live in poverty. So is striving to balance the books on the backs of the poor, low-paid, and young, through regressive tax hikes like the National Insurance increase coming into effect next spring.

Removing an estimated 10 percent of the income of the hardest-off through the Universal Credit cut is also immoral. Doing this during a health and economic crisis on the cusp of winter when food and fuel prices are rising is beyond the pale. These actions will further deepen inequality in communities across our country—the exact opposite of what Boris Johnson’s ‘levelling up agenda’ professes to tackle.

“we need a frank conversation about the erosion of local government”

If we are serious about levelling up, we need a frank conversation about the erosion of local government capacity to bolster social resilience. Across the UK, local councils are being asked to do more with less. The 50 percent cut in funding to local authorities since 2010-11 has severely hampered their capacity to support their communities to generate their own wealth.

Moreover, the impact of the cuts is undermining our democracy itself. Local government in the UK is no longer perceived by either Westminster or the public as a constitutional entity; instead, it is seen as a delivery mechanism.

This must change. Local government matters. We all have a better chance to flourish when local places can meet local needs, but right now local authorities are constrained by the inertia in Westminster which is compounded by a lack of funding and resources.

“current levels of funding are not set in stone”

It is imperative that we remember that the current levels of funding are not set in stone — they can and must be raised to respond to increasing demand. Relying on councils to be more creative with what little they have left, rather than providing adequate resources, means local people and places inevitably lose out. If councils can’t meet current needs, there’s no way they can play their part in tackling existential threats like the environmental crisis.

A Council Tax rise has been mooted by Westminster as a solution to these budget shortfalls. These extra funds for hard-pressed councils will merely serve as a sticking plaster for what has been lost through austerity, and are likely to have conditions on how they are spent dictated by the centre. Council Tax is a highly regressive tax, based on outdated property values, and will further squeeze the budgets of the poorest households.

Under the current system, somebody living in a Band A terraced property in Blackpool can expect to pay roughly the same amount of Council Tax as somebody living in a Band D terraced property in Kensington and Chelsea—around £110 per month. But for the average price of a terraced home in Kensington and Chelsea, you could buy 40 in Blackpool, and have a bit of change left over. The system is grossly unfair.

“revenue raising processes for local authorities are […] unfit for purpose and in urgent need of review”

Other revenue raising processes for local authorities are similarly unfit for purpose and in urgent need of review. Like Council Tax, Business Rates are flawed, unfair, and outdated in the digital economy. Competitive bidding processes—like the Towns, Levelling Up, and Community Renewal Funds—exacerbate rather than address economic divides, all the while pushing the blame for our broken economic system down to local government.

These processes suck valuable time and energy into form-filling for Whitehall, to little benefit. They can also leave unsuccessful local areas with nothing, despite mounting needs.

This broken system has forced local authorities to pursue strategies that do not build local wealth. In some cases, such as through build-to-rent apartment blocks funded by overseas investors, they even facilitate the extraction of wealth from a place. Councils accept these extractive schemes to meet their housing targets and secure Council Tax revenue, despite the harm they cause. We explore this in our latest publication with URBED.

“a harmful temporary plug”

Rishi Sunak previously promised Council Tax reform, but he now looks set to authorise an increase, in an attempt to plug the yawning gap in social care finances. Even at this time of intense need, he seems unwilling to engage with tough decisions around fiscal responsibility, opting instead for a harmful temporary plug.

We must demand fairer taxes, appropriate local settlements, and an equitable distribution of funding for local governments and the devolved nations. The fair funding review for local government originally promised in 2019 is long overdue. When it is published, we need to see a commitment to reverse the 50 percent funding cuts and a move towards fairer revenue raising.

Proposals like a proportional property tax, allocating a share of income tax revenues, or a local corporation tax all have merit, but reform of revenue raising alone is not enough—there must be more devolution of power to enable councils to meet residents’ needs, and through this, restore trust in local democracy.

Voices from across the political spectrum recognise that the financing model for local government is broken. At the most basic level, the local government finance system must enable local authorities to meet the needs of local people without harming those on the lowest incomes.

“local authorities are striving to make the best of a bad situation”

It’s hard to be optimistic in this climate, but local authorities are striving to make the best of a bad situation, and many are having a positive impact even while the screws are turned by national government, by adopting progressive strategies like community wealth building. Nonetheless, it’s going to be a tough winter ahead—and it’s incumbent on all of us to press for a fair funding settlement and proper reform of the tax system, which is failing us and our local authorities.