JUST IMAGINE! Following the general election in March 2013, the new Conservative government introduced a Municipal Finance Bill which, though revolutionary, was so straightforward that it passed through all parliamentary stages with very little debate and duly received the Royal Assent within three months of its First Reading, to become the Municipal Finance (Consolidation) Act 2013.
Ever since the last World War, fierce controversy surrounded the old rating system. It was politically regressive; determined by notional property valuations irrespective of household income and always out of date, therefore requiring periodic revaluations which made rich local authorities richer and the poor poorer. Meanwhile, business rates did as much as town planning to drain the life-blood out of our town and city centres by effectively subsidizing out-of-town development with free car-parking and far lower rateable values per square foot.
Nobody could agree on a substitute for domestic rates, which derived from the Scottish ‘Cess’ and Victorian Parish Relief. They had been disastrously replaced by the Community Charge (‘poll tax’) which was soon replaced by the council tax that in turn had to be alleviated by widespread reliefs and allowances – and was even threatened with (partial) replacement by some form of local income tax that would have licensed Town Halls to pry into every household’s financial affairs. But for the sudden scrapping of the whole bureaucratic juggernaut by the new single-party Tory administration, flush with reforming zeal, the wrangling and demonstrations could have continued indefinitely.
Yet the end actually proved an anti-climax. That is so often the case, like the abolition of slavery or of capital punishment – a suggested reform is first greeted with outrage and dismissed as unthinkable, then fought over for generations as the nation is divided by the issue, with martyrs and irreconcilable factions on both sides, until the reactionaries are shocked into silence by a fait accompli and the new regime is put into operation, leaving almost everybody wondering why so much of their lives had been wasted arguing about it.
Accordingly, in 2014, while the country was distracted by the referenda on Scottish Independence and on withdrawal from the EU, Town Halls dismantled and cleared out their ramshackle rating and council tax machinery, and the modern era of local authority financing was at long last established. There was trouble with the trades unions, of course, because of the thousands of job losses among council employees and in HMRC, but – after the uproar accompanying previous years’ budgetary cuts – the media and public could not get very excited over that.
Administratively there was no great upheaval. For every year since the 1960’s the major spending departments – Health, Defence, Education, Home Office, Work & Pensions, etc. – have embarked on their ritual round of negotiations, led by the respective Cabinet Ministers (although most of the in-fighting is conducted by the corresponding teams of civil servants), each claiming as large a slice as possible of the cake that the Chancellor has baked. The only difference under the new municipal finance regime was that the club had a new member, represented by the Minister for Local Government, pitching and parlaying with the rest for the highest attainable share. Until half a century earlier, there had been such a Ministry of Cabinet rank, often tied with Housing; so resurrecting it was a fairly straightforward administrative exercise. (Compared to the fabrication of ‘Defra’ or the mélange of Culture, Media & Sport, it was child’s play.)
The immediate benefit of this innovation was sheer transparency. Politicians, the media and the public at large were for the first time made fully conscious of, and horrified by, the actual global cost of local Government.
The popular superstition that local government services were largely covered by council tax and business rates was shattered. They were all confronted by the stark fact that the Exchequer had for ages been doling out more than 80% of local authorities’ budgets by block grants and all manner of subsidies and subventions; that all the disputes, the propaganda and the riots had been about less than 20% of what councils spent. Both central and local government had always suppressed this fundamental truth, in order to minimize the apparent cost and to sustain the self-importance of councillors and the delusion of local democracy.
Most of local authorities’ finance from the Exchequer – the block grants and subsidies, etc. – was specifically allocated, so councils never had much real control over their budgets. Where they did enjoy absolute control, however, was over civic and bureaucratic profligacy and waste, which was so difficult to detect or even to notice owing to this fundamental fudging of the sheer scale of central government funding.
Since 2014, therefore, the Ministry of Local Government has simply taken its slice of the national cake and divided it among local authorities throughout the UK. The portions for local authorities in Scotland, Wales and Northern Ireland are transferred “wholesale” to Holyrood, Cardiff and Stormont for them to distribute “retail”, having made whatever adjustments are necessary to reflect their respective domestic economic policies.
The Ministry’s apportionment among local authorities nation-wide was worked out according to a formula; basically per capita but capable of numerous modifications and allowances taking into account geographic, demographic and economic factors – regional development grants, etc. This formula is kept under constant review and adjusted annually. Just as the whole country knows its precise budget for local government, so does each local authority, just as transparently – and so does every voter.
Of course, behind the scenes as well as quite brazenly, every council has been lobbying the Ministry for a larger share – that’s the nature of politics and competition is healthy. In the same way that Ministers in Cabinet fight the Treasury for the largest possible share, so local authorities fight the Minister and so, in due course, do the various spending departments of every council fight internally, if they are doing their job.
Three considerations are vital. First, everything is out in the open – all the figures are known. Second, each council, having been presented with a fixed sum, is then very largely free to determine how it is spent. Third, that freedom is subject to the need for the electorate’s approval. For the Act required that each year every authority must call a General Public Meeting (or series of Meetings) at which not only the Accounts and Report for last year but also a Budget for the coming year are presented, debated and approved, qualified or amended.
Yes, there are numerous budgetary constraints, but the principles are clear. Yes, too, most commitments undertaken by councils extend from one year to the next and many extend through two or more years; so there are various transitional provisions. Essential functions and special projects are underwritten for as far ahead as necessary, but – as with any large company – these ongoing activities do not disrupt production of annual accounts or preparation of budgets. Again, the principle is clear: within those constraints and while providing for those essential functions and special projects, budgetary control is exercised by Ministerial prescription at the outset and by popular mandate in the final event.
The Town and County Meetings are packed and vociferous. Everybody realizes that if they approve a new Civic Centre costing £10 millions, that’s £10 millions less for rubbish collection and recycling; while £1 million increase in ex-Councillors’ and Officers’ pensions means £1 million less for a homeless shelter. Consequently local democracy, previously so apathetic, became rampant. Voting at the last municipal elections across the country exceeded general election levels. Major employers are regularly giving advice. Businessmen and women are serving as non-voting Committee Members. Local quangos have been abolished and Taxpayers’ Associations have gained control of many councils, defeating the political parties controlled from London. The transformation of local democracy has in turn had a revitalizing effect on national politics. Voters have acquired the habit of taking decisions. Active participation at municipal level – the rediscovery that councillors are accountable to the electorate – has led to revitalization of parliamentary constituency associations.
Equally spectacular has been the increase in prosperity resulting from growth in industrial investment and commercial expansion thanks to elimination of liability for rates. House-building is one obvious beneficiary.
The direct savings to the public – businesses and households – from abolition of domestic and business rates, amounts to tens of billions of pounds annually, in addition to the billions of pounds saved by officialdom in costs of administration locally and nationally – and in addition also to the vast, unquantifiable savings in professional fees (valuation surveyors, lawyers and accountants) as well as corporate, executive and individual time and expense.
Of course, allocating a share of the Treasury’s cake meant baking a correspondingly bigger cake, which meant increased national taxation. But the net increase directly attributable, after crediting the huge savings, was a fraction of the gross amount of business rates and council tax collected in the last full year of the old regime. (The estimates are still being worked out by the Office of National Statistics, and are bound to be contested, but will certainly be less than 60%.) Besides, that net increase in national taxation was a tiny fraction of the massive, incalculable benefits to democracy, the economy and sheer efficiency in administration.
For every business, was relieved, at a stroke, of a seemingly permanent handicap. Furthermore, every home and every business was relieved of a crippling preoccupation, which had always impaired companies’ performance and families’ wellbeing.
“In the interests of security…..of fairness and social justice…..of health and safety…to comply with EU regulations……” the State is forever adding to restrictions and the burdens of bureaucracy, increasing its power over the people. The notion of abolishing a centuries-old form of taxation was anathema. Vision and courage were required of the new administration, after thirteen years of socialist rule and four uneasy years of coalition, to lump business rates and council tax together under the single heading ‘local government finance’, and to answer the question “But how will you replace them?” with “We won’t!”
Furthermore, by dispelling the madness of Council Tax – based on notional house prices which were in turn determined by fluctuations in mortgage interest rates that had nothing whatever to do with property valuation – the way was opened to a cure for the British economy’s fundamental affliction; i.e. the system of house-purchase itself, which is likewise governed by variable mortgage finance. But the cure for that is another subject.
There are other areas which are overdue for clearance, where again ‘The Zero Option’ could well be exercised. Why not get rid of National Insurance Contributions, which have nothing to do with insurance but are retained merely to disguise the real rate of income tax – imposing a tax on employment and yet again supporting armies of bureaucrats and parasitical professionals? So many candidates are ripe for the chop, but the double-headed monster of council tax and business rates must come first.