Changes to how local government is funded will entrench inequality

By Bernadette Meaden
April 2, 2018

Lord Porter, the Conservative chair of the Local Government Association recently said, “many councils are now beyond the point where council tax income can be expected to plug the growing funding gaps they face.”  And yet, radical changes introduced by George Osborne will soon leave councils much more dependent on what they can raise through council tax.

As the IFS says in a recent report on adult social care, “The government plans to abolish general grant funding for councils from 2020, meaning councils will depend on council tax and business rates for the vast majority of their general funding.”  

This is such a radical and far-reaching change it is remarkable that it has received little media coverage or public debate. The implications for the poorer areas of the UK are sobering.

Currently councils rely on a combination of council tax, business rates, and grant funding from central government. As the IFS went on to explain, “Historically, these grants were allocated in a way designed to compensate councils for the negative correlation between local tax bases and local spending needs.” In other words, richer areas gave a helping hand to poorer areas, via the Treasury. There was an element of redistribution involved in the grants from central government. In future, says the IFS, "councils could find themselves with revenues that differ significantly from their spending needs. This is because there is now less redistribution between councils".

Councils will be allowed to keep what they raise through business rates instead of sending it to the Treasury, but clearly this will benefit some areas far more than others.

When George Osborne announced this radical policy in 2015, Ed Cox of the IPPR North warned, “Unless we retain some redistributive mechanism, there is a significant risk it will starve poorer areas of crucial support and allow wealthier ones to collect all the riches.” 

Government appears to have done little to allay these fears, as only last month Public Finance reported the Association of Directors of Children’s Services saying ‘it was “worrying that funding for essential local government services will be based on an area’s ability to raise funds via business rates and council tax, which would mean areas with the highest levels of deprivation but lowest tax bases would raise the least money from these sources."

The government says the aim of these changes is “to provide councils with stronger financial incentives to grow their local economies”. It’s curious how, in Conservative thinking, tackling disadvantage using a financial incentive almost always involves taking money away. Just as taking £30 a week from people unfit to work was presented as an incentive to get a job, so councils with high levels of deprivation will have support withdrawn, as an incentive to grow their economies. What could possibly go wrong?

And as if this ‘tough love’ for poorer areas were not bad enough, the tax councils will be forced to fall back on, council tax, is an extremely regressive, unfair tax, which takes a far greater proportion from the incomes of the poor than it does from the incomes of the rich.  The Resolution Foundation recently called for its abolition, laying out in great detail exactly how unfair it is. They explained that “Very different property values in different areas of the country mean that higher-value areas (in which a greater share of properties are in top bands) can set council tax lower…this drives much lower effective council tax rates in the South of England than elsewhere.” This enables the government to portray Conservative Councils as more efficient, as their council taxes tend to be lower, when in fact the unfair design of the tax simply works better for wealthier areas, which tend to vote Conservative.

The poorest areas and households are taxed more heavily than their richer neighbours. This is vividly illustrated by the fact that, “Buckingham Palace attracts a council-tax bill of £1,400 a year, around the same as some flats in Bradford”. People living in the most expensive properties in Kensington and Chelsea (homes to millionaires and billionaires) pay £2,124.04 whilst in Newcastle they pay £3,542.42.

So these changes to the way local government is funded seem guaranteed to exacerbate and entrench inequality, breaking the redistributive connections between poor and rich parts of the country. Prosperous areas have plenty of scope to raise their relatively low council tax rates. Poorer areas, desperate to maintain vital services, will inevitably be compelled to raise their already higher council taxes on hard-pressed residents.

It’s not a fair way to run a country.


© Bernadette Meaden has written about political, religious and social issues for some years, and is strongly influenced by Christian Socialism, liberation theology and the Catholic Worker movement. She is an Ekklesia associate and regular contributor. You can follow her on Twitter: @BernaMeaden





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