Scotland Finance

Funding local government


Paul O’Keeffe reports back from our recent budget day breakfast in Glasgow.

LGiU Scotland’s breakfast seminar on local government funding on Wednesday 16th December – budget day – was doubly timely, coming just two days after the publication of the Commission on Local Tax Reform’s report calling for an end to the Council Tax.

Ken Gibb, director of Policy Scotland, University of Glasgow, and director of the What Works Scotland research programme, was well placed to lead the Glasgow seminar. Professor Gibb had undertaken research for the Commission on Local Tax Reform about different funding systems across the globe.

He said that when compared internationally, Britain has a narrow and inflexible taxation system for local government, with just one flawed local tax in the form of the Council Tax, alongside non-domestic tax rates.

Professor Gibb explored the lack of proportionality of the Council Tax which can see those with properties in lower bands and lower incomes paying a higher proportion of their income in Council Tax than those with higher banded properties and higher incomes.

“The fact that there’s been no general revaluation [of property values] since 1991 has reduced the credibility of the tax,” Professor Gibb said.

So how should you approach funding local government?

“There are three dimensions, they need to be worked on together,” explained Professor Gibb. They were: “funding, function, and geography”. He noted that the limited remit of the Commission stopped it from taking that approach. The seminar had no such restrictions and ranged widely over the issues.

Professor Gibb is a supporter of a property tax with regular revaluations as part of the mix of local government taxation. He argued that as a fixed asset, property is easier to tax. And there is the potential for a property tax to deal with wealth inequalities.

There were also opportunities for a more radical approach for local government funding, where local taxes were designed for a specific geographical area. So, for example, Edinburgh could potentially create taxes designed to benefit from its tourism.

Following on from the previous week’s debut LGiU Scotland event in Edinburgh, the function of local government and its relationship with central government was also discussed.

“Some of the services are so tightly controlled, why are they under our control?” asked one local government officer, pointing to “social work as so prescribed.”

What are core services; what’s the right service level and who benefits were seen as key by attendees.

“Right across the UK, there are examples of services being consigned to the history book,” one councillor said. “What is the service settlement you have with your community?”

There was general agreement in the seminar of what was an issue at the heart of the function and funding question: how to convince a public used to the Council Tax freeze about the monetary value of what local government does and getting them to pay for it explicitly in the form of local taxation.

Richard Kerley of the Centre for Scottish Public Policy, who was in attendance said: “We still haven’t cracked that issue [in local voters’ perceptions]: public services cost money.”

So how will this play in the Holyrood elections in May? Will we see clear and firm commitments on alternatives to the Council Tax? “I wouldn’t expect too much in the manifestos,” said one local government watcher. “It’s the whole winner loser thing. Losers will be crying the loudest.”

Professor Gibb worried that political and time pressures could lead to a situation he described as what happened with the creation of the Council Tax as the replacement for the Community Charge (Poll Tax). “A quick fix, done badly; that won’t get done what needs doing.”

A warning from history to policy makers and manifesto writers as they grapple with the place and funding of local government going into an election year.