A short- and long-term plan for local government funding
John Morton, of Mid Fife & Glenrothes CLP, sets out the stark reality of the Council Tax freeze in Fife and elsewhere, and suggests an immediate plan and a longer-term way forward.
“It would be open to the Council to reject the council tax freeze that the Scottish Government wishes to impose for the 9th year with no alternative in sight. Although the much trumpeted Commission on Local Tax Reform reported before Christmas, it turned out to be yet another fudge and made no clear recommendations for an alternative. Even if a decision on a suitable alternative system of funding local government is taken after the Scottish Parliament elections in May, then it will probably be a number of years before it can be fully implemented. In the meantime councils across Scotland face continued cuts in their grant and increasing pressure on services.
If Fife was to reject the freeze and chose to increase council tax to provide additional funding for local services, then the Scottish Government would impose a penalty by withholding £4.6m in grant to the Council. If it was to choose this option, the Council would have to increase the council tax sufficiently to offset this penalty whilst still bringing in a worthwhile level of additional income, at the same time balancing this against the need to ensure that any increase was affordable, taking into account the effect of allowances and the council tax reduction scheme that are in place to mitigate the impact of the council tax on lower income households.
As can be seen from the table below, a 7.51% increase would bring in over £7m after the penalty had been taken into account and would cost the great majority of households under £2 per week.
Band £ Value Weighting 745 A Up to 27,000 6/9 801 56 1.08 7.51% 870 B 27,001-35,000 7/9 935 65 1.26 7.51% 994 C 35,001-45,000 8/9 1,068 75 1.44 7.51% 1,118 D 45,001-58,000 9/9 1,202 84 1.62 7.51% 1,366 E 58,001-80,000 11/9 1,469 103 1.97 7.51% 1,615 F 80,001-106,000 13/9 1,736 121 2.33 7.51% 1,863 G 106,001-212,000 15/9 2,003 140 2.69 7.51% 2,236 H Over 212,000 18/9 2,404 168 3.23 7.51%
Increase in Council Tax yield: £11.715m
Less penalty for breaking Council Tax freeze: £-4.600m
Net increase in Council Tax available to offset £7.115m”
The above is an extract from the budget proposals for Fife. Various questions come to mind:
- Is the penalty figure (£4,600,000) a fixed amount, or would it vary with the size of increase?
- Would it be possible for the Council to introduce additional “bands”, or is that currently “reserved” to Holyrood?
- Would it be possible for the Council to alter the weightings attached to bands, or is that currently “reserved” to Holyrood?
- Would it be possible for the Council to introduce a differential increase (e.g. 5% for band A, ranging to 10% for band H), or is that also “reserved” to Holyrood?
- Could the Council replace the entire system by a charge levied directly proportional to the valuation of the property?
Assuming the answer to questions 2 to 5 is “No, the Council could not do this”, then we have a suggestion for a fairly straightforward, quick to enact and immediately effective piece of legislation to give local authorities power over such matters – certainly as regards 2 and 3.
Longer term, question 5 needs addressed. When Council Tax was introduced, very little private domestic property had a value much in excess of £200,000. That has not been the case for over a decade now, with an increasing proportion of private property being valued at over £500,000. It is obviously unreasonable that those who can afford such property should only be charged the same as if it was worth less than half as much; and while additional “bands” could be used as a temporary stop-gap, the longer term must see a system more closely tied to the actual valuation of property.
In addition, the current system actually raises tax on people, not property, with the occupiers of a property each being responsible for paying the band rate for that property. This is not right: the charge should be levied on whoever – or whatever – actually owns the property. It would then be up to that individual or organisation to levy a suitable contribution from the occupiers to cover the amount. This, for instance, would provide an incentive for people and bodies that own a number of properties to actually rent them out, rather than holding them empty. It would also discourage “holiday home” ownership.
Another consideration is that the Council Tax only covers “domestic” properties, not commercial properties. The latter are still subject to a value-based payment (the Business Rate), but the money thus collected does not go to local authorities, nor do local authorities have any control over how much it is. It would seem sensible to devolve all of this back to local authorities. The amounts thus raised would replace the bulk of local authority funding, which comes from central government, thus rendering local authorities far more self-sufficient, in control of their own finances and, thus, far better positioned to make a suitable “business case” for loans required for major developments and such like.
The role of central government in local authority finance should be restricted to one of balance. That is, central government should be able to claim a certain proportion of the money raised by local authorities, which it would then redistribe back to those local authorities according to need. This “central government precept” should not be a great percentage – maybe 10% to 20% at the most – and should always be fully redistributed back to local authorities. The idea of this precept is that there are certain areas where quite low rates would cover everything, due to the high property valuation, and others where the reverse is true. A fairly straightforward redistribution rule would be one based on actual population, although factors like sparsity of population (involving the need for a higher spend on communications – roads etc. – than the per capita norm) should also feature.
As well as the value of property, the potential value of property should feature. That is, for instance, a field of, say, 2.5 hectares has no great value as it stands – yes, a reasonable sum for agricultural or leisure purposes, but that’s it. However, if the said field happens to be in a zone classified as “residential” or “commercial” (rather than “leisure” or “agricultural”), its potential value is considerably higher. It may be appropriate for such fields to be subject to a rate at least partly dependent upon their potential value, rather than their actual present value. This would encourage commercial organisations to actually develop such fields as they may possess, rather than allowing them to lie empty. Obviously, if there’s no real prospect of a “residential” or “commercial” development, the owner should be able to ask the Council to reclassify the field as “leisure” or “agricultural”, which, of course, would automatically cause any residential or commercial planning permission for it to lapse.
As regards the immediate problem facing Fife, a council tax increase of 22% should cover the shortfall, without having to make any significant cuts. But why should the burden of maintaining services thus fall so disproportionately upon “domestic” users rather than “business” users? Not only that, but a similar increase would be needed, according to current Scottish Government plans, for the next 3 years. Frankly, what is currently being planned makes the entire notion of local democracy meaningless. If things don’t change significantly during the course of this year, it might be seriously worth considering the resignation of every Labour councillor in Scotland, with no Labour candidate standing in any on the ensuing by-elections. It really is that bad, that pointless, unless there’s a change in outlook at Holyrood.