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17 November 2003
News Release

New research traces causes of council tax crisis

New research on local government funding to be published by the Local Government Information Unit (LGIU) shows why the Government and local councillors face a council tax crisis.

Rita Hale Associates undertook the major study for the LGIU, which highlights trends in local government finance since the 1980s. There are some stark findings:

Central diktats: Of the new money available for local government services since 1997, a high proportion has been earmarked by central government for particular uses such as education funding. For example, specific grants in England for education rose from less than £250 million in 1997/98 to over £3.5 billion in 2003/04. This has meant that local priorities have been overruled.
Lag in central funding: Central government's direction over spending priorities has not been fully supported by funding from Whitehall. This further distorts spending across local services and places more upward pressure on the only tax available to local authorities: the council tax. For example, in 2003/04, 79 per cent of English local authorities planned to 'overspend' in education, as measured against central government funding earmarked for schools. Meanwhile, 59 per cent of councils planned to underspend on highways.
Council tax crisis: Whitehall's failure to fully fund its spending priorities has caused an upward pressure on the council tax. This resulted in an average 13 per cent increase in English and Welsh council tax bills in 2003/04. With the Local Government Association (LGA) pointing to an £800 million local government spending gap to fill for 2004/05, another large average council tax increase looks likely. With councils raising only a quarter of their revenue locally, this has resulted in the 'gearing effect', where a small change in a council's spending, or in central government grant distribution, causes disproportionately severe swings in council tax bills. With the council tax being widely seen as regressive, especially affecting those on low incomes just above benefit entitlement levels, this has caused much of the present concern over the council tax and much publicity about referendums, non-payment campaigns, temporary special discounts, council tax benefit take-up and the reform of local taxation. The Government, meanwhile, has threatened to use powers to cap councils, but is less clear about what local services it would want them to cut as a result of such a move.
Local government falls behind: In the years since 1990-91, planned spending on the National Health Service rose by 140 per cent. However, local government spending in England rose by 130 per cent despite being subject to similar inflationary pressures to the NHS. With the £69.5 billion spent on services delivered through local government accounting for a quarter of total public spending in England in 2003/04, this gap represents a significant sum of money.
Business rates escape: In 1989-90 the National Non-Domestic Rate covered 31 per cent of local authority spending. By 2003/04 this figure had fallen to 22 per cent. This reflects the falling proportion of spending borne by the Business Rate within the new local government funding since 1997.

Dennis Reed, Chief Executive of the LGIU, said: "This research helps clear some of the fog of complexity that surrounds our unsustainable local government finance system and explains the present air of crisis over council tax levels.

"It is vital to move the current debate beyond the blame mentality. Those who rely on local services and who worry about being dragged into the dependency and red tape of means testing by spiraling council tax bills need policy makers to understand the problems and have the will to act. I hope that this research will assist this process."

ENDS

For further information contact:

Kevin Morton	Tel. 020 7554 2858	Mobile: 07958 314846	E mail: kevin.morton@lgiu.org.uk
Mary Wimbury	Tel. 020 7554 2845	Mobile: 07958 521344	E mail: mary.wimbury@lgiu.org.uk

Notes to Editors

1. The Local Government Information Unit (LGIU) is Britain's foremost independent local democracy think tank, campaigning to extend local authority best practice, freedoms and responsibilities. Recent initiatives have included the Commission on Local Governance and the LGIU is working to influence the debate on local government modernisation. The LGIU and its sister organisations The Education Network (TEN) and the Democratic Health Network (DHN) provide research, policy briefings, information, advice, training and lobbying services to local authority and trade union affiliates. Previous LGIU news releases and statements can be viewed at www.lgiu.gov.uk .

2. The research by Rita Hale Associates will be published by the LGIU in January 2004.