Labour must do more than just tinker with council tax

It is remarkable that it has taken Labour five years to begin to address some of the iniquities of the local government grant system.

The announcement in December of the allocations for 2003/4 met with predictable complaints from some southern councils but in reality the attempt to shift resources from more affluent areas to deprived ones is still far too timid.

It is, of course, easier to make these changes when there is extra money around and the generosity of this year’s settlement, a well above inflation 5.9 per cent rise, has allowed the local government minister, Nick Raynsford, to shift a bit of money northwards. The new system, he says, is much fairer because it uses up to date statistics to measure various indicators of deprivation.

The extra cash has, to some extent, muted the opposition which has mostly, of course, come from Tory councillors. The opposition was bought off by the fact that Raynsford promised that no council would get any less than a 3 per cent rise in its grant, a clever move but one which means that the funds available for redistribitution were limited. In sum, therefore, the south east received an extra 4.5 per cent compared with the Midlands which got 7.1 per cent. Of course there were individual councils which did rather better but overall the shift has been relatively small. Indeed, leaked Cabinet papers in the summer rather gave the game away as they referred to John Prescott insisting that any big shift of resources northwards would be politically unpalatable.

None of this quite stopped Sandy Bruce-Lockhart the leader of Kent County Council which got a mere 3.9 per cent rise, protesting that the government had stolen resources from his council. In fact, Bruce-Lockhart and his colleagues probably realised that they got off lightly. During the battles over ratecapping and the wider issue of council funding in the 1980s, Labour councils sometimes faced cuts in the absolute amount of money they received in grant, something that clearly Labour did not dare to implement through fear of causing uproar in the shires.

Indeed, Raynsford has not really exploited the strong position which the rare event of having lots of extra cash has offered him. In reality, the new system, formula spending share, is not that different from the old standard spending assessment with which we have lived since the 1980s. Sure, the data is apparently more accurate – though Westminster has complained that many of its residents did not bother to register in the census on which much of the information is based – and some of the more ridiculous measures have been scrapped, but the system retains the same basic methodology leading to fiercesomely complex calculations which are bound, ultimately, to create unfairness.

In fact, with a bit of visionary thinking, Raynsford could have devised a clever way of helping both the more affluent councils and allaying their fears about facing the choice between imposing sharp council tax rises and making deep cuts in services.

The present council tax was really always a stop gap measure introduced by the Major government in 1993 after the departure of Mrs Thatcher to quickly replace the poll tax. However, to save face, rather than returning to the old rates system, something new had to be cobbled together and therefore the banding system was created with, crucially, a very low upper limit. The fear, of course, was that the affluent house owners of properties with very high rateable values would have faced very high tax rises and Major was wary of alienating them, ignoring the fact that, of course, they had received amazing tax bonanzas with the creation of the poll tax seven years previously.

The council tax is, of course, far less progressive than the old rates system and a Labour government with a greater readiness to address inequality than this one would have moved towards the recreation of a local tax system based on rateable values. Such a change would not always be progressive – some poorer people live in big houses – but, overall, it would not only give more affluent councils a greater income.

Moreover, it would have the bonus of damping down some of the overheating in the housing market. Having to pay higher rates would deter people from moving up the housing ladder too fast and encourage those living in property that is too large for them to sell up. Indeed, the prospect of Daily Mail articles about old ladies being forced to leave their properties may be the reason Labour has shied away from this reform, but that has left it unable to do more than tinker with the edges of the crazy local government finance system.

Shares