» Tuesday, March 2, 2004

Local Government Finance Reform

Asked the current position on local government finance reform, the Prime Minister’s Official Spokesman (PMOS) said that the Balance of Funding review was currently underway and was due to report later this year. Asked if the Prime Minister had ruled out the idea of introducing a local income tax, the PMOS said that the Prime Minister had expressed his view recently both in the House of Commons and in an interview with the News of the World. His words spoke for themselves.

Briefing took place at 15:45 | Search for related news


  1. Well, something’s got to give, as they say. (Ignore, for a moment, any Hollywood imagery that arises from that sentence; I wasn’t inferring that you’ll suddenly see Blair standing naked down your hallway, screaming.)

    Perhaps decentralisation to this extreme isn’t the Government’s cup of tea. However, it would quickly and succinctly raise the importance of local government through the roof, and have the side-effect of making local government more accountable for its spending (and management of that money) than today’s political clime, where it is all too easy for local governors to blame the government.

    If central government is responsible for enforcing budgets in local regions, then central government will continue to take the blame for it when it goes wrong. You can take a million angles around that central fact, but so long as people perceive the control being in Downing Street, then people will blame Downing Street when they perceive a lack of control in that spending and management.

    In terms of pure politics, decentralisation of the tax regime has to be the best option. I can’t imagine it’s workable technically – not unless you imagine hundreds of code monkeys implementing each new set of tax laws every year in little replicas of the revenue’s computer systems every year, not to mention the sheer overhead of duplicating so much workload – but it sure looks like good political sense.

    Comment by Gregory Lightyear — 3 Mar 2004 on 12:16 am | Link
  2. While decentralization of taxation through implementing a local income tax sounds like a perfect political tool in the ways mentioned by the previous commentor, I see little economic benefit of such action. It certainly shifts the blame away from the central government, and potentially empowers (at least it APPEARS to empower) local democracy; but will it lead to even greater inequality between areas?

    I’m not sure – but it sounds like a reason for implementing a local income tax will be to allow regions to set their own levels of taxation; or else, what exactly is the point?

    – Economies of scale: It appears to me that duplicating the functions of Inland Revenue in local councils will be a waste of resources. Local councils do have similar bodies dealing with council tax, but expecting them to deal with a local income tax would require even more resources leading to even greater bureaucracy.

    – Spillovers: The competition between councils in different areas may be destructive, lead to even greater inequalities between areas. I think this is a problem considering that many costs and benefits spillover fron one area to another. For example, if council A decides to charge a lower income tax to certain income brackets than council B, wouldn’t that (eventually) lead certain groups to move out of an area?

    Are there any purely economic arguments to having a local income tax?

    Comment by m — 3 Mar 2004 on 12:52 am | Link
  3. (Wait a minute.. Just read that local income tax is to replace council tax.. Next time will read more before commenting :P)

    Comment by m — 3 Mar 2004 on 12:57 am | Link
  4. Kill the council tax. It’s killing me and many others. I had to pay more council tax than income tax a few years back, it’s just not a fair system.

    Comment by Goo Ree — 3 Mar 2004 on 1:24 am | Link
  5. m– I think the idea of the local income tax is that it would be collected and disbursed by the Inland Revenue. Far from replicating the functions of the Revenue in each local council, in fact it would mean that councils would need less bureaucracy because they would have no need for a tax-raising function. (Of course, it would make the tax return a bit more complicated….)

    The normal arguments in favour of local income tax are, as I understand it:

    – Unlike property taxes, it’s a progressive tax.

    – Most council income already comes from central government anyway, so why not simplify?

    – It gives councils a direct financial incentive to encourage prosperity in their territory.

    Comment by Chris Lightfoot — 3 Mar 2004 on 9:08 am | Link
  6. How about:

    "It gives councils a direct financial incentive to stop building affordable housing"?

    Due to the geographically stratified nature of the nation that we live in, there will be a natural tendency for local taxation to be regressive; local income tax in West Bromwich is going to have to be at a much higher rate than in Tatton to get the same level of total funding.

    Comment by Sam Tudor — 3 Mar 2004 on 9:52 am | Link
  7. That’s a good point, and one I hadn’t thought of. When I said "progressive" above, I should have made clear that that description applies only within a single authority.

    (Obviously a local income tax would need to be accompanied by a redistributive policy so that wealthier areas could subsidise poorer, as happens now with Council Tax.)

    Comment by Chris Lightfoot — 3 Mar 2004 on 10:21 am | Link
  8. What exactly did Tony say in his words which spoke for themselves? They dont very well speak for themselves when absent… is this likely to happen?

    Comment by Lodjer — 3 Mar 2004 on 11:27 am | Link

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