The Zero Option: repairing local government's afflictions

The Zero Option: repairing local government's afflictions

by Vivian Linacre
article from Friday 31, March, 2017

LOCAL GOVERNMENT in Britain, both north and south of the border, has always been afflicted by three apparently insoluble problems:  (a) to devise an efficient, equitable system of funding between the institution and the electorate, (b) to ensure local authorities’ democratic operation by engaging active public participation, and (c) to reconcile (a) and (b).  For over four hundred years, while vagrants and vagabonds had to be dealt with, tolls collected, licences granted and parish relief administered, towns’ and counties’ fiscal and managerial burdens grew until they had to become regularised nationally by statutory local authorities with designated responsibilities.  But then these local authorities became susceptible to political control, until the essential function of councils – to manage their affairs economically, with minimal personnel, and represent the ratepayers’ interests independently of central government – became subordinate to local implementation of central government’s policies, or opposition thereto, according to party label.  They then had every impulse and incentive to expand political, bureaucratic and economic power for the benefit not only of their authority in competition with its neighbours, nor only for the electoral benefit of their party but also for the benefit of their individual prospects as professional councillors and officials. 

Hence continual inflation of revenue to meet the ever-rising expenditure required to fulfil the scale of their ambitions – the ‘visions’ and ‘aspirations’ proclaimed for their greater glory – which until recently the authorities assumed would meet with popular rejoicing.  But this insatiable expansion and brazen self-interest, echoing the explosion in scope and power of central government and the   insatiable public sector, is predictably proving counter-productive, as local electors are at last rebelling: faced with mounting bills for council-tax, in spite of an ever-more acute housing shortage, and with ruinous increases in business rates in spite of ever-more High Street closures.  So how did this need for a revolution in local government financing come about?

Ever since World War II, fierce controversy has surrounded the old rating system, which was based on notional property values that are divorced from reality; always out of date and so requiring periodic ‘revaluations’ that make rich local authorities richer and the poor poorer.  Costs of administration and professional fees, including for continual appeals, aggravated the growing public resentment and alienation. Meanwhile rising business rates redoubled the effects of town planning in draining the life-blood out of central areas by subsidising out-of-town development and imposing inequitable burdens on small businesses.   

The system was forever broke but nobody has known how to fix it properly.  Neither Westminster nor Holyrood has ever accorded the issue a high priority, despite its compelling concern to every householder and shopkeeper. Government at both levels has effectively given up, the political parties failing even to mention the topic in their manifestos for the 2015 general election and with no sign of any proposals for 2020. Besides, the parties and media have been overwhelmed by a disjointed succession of elections and referendums, ever since the European parliamentary elections in May 2014, followed by the first Scottish Indyref only four months later, then the UK general election eight months thereafter, resulting in the EU referendum thirteen months later, leaving the British electorate poll-axed – ground between Brexit and the SNP demand for Indyref2 – with no political will nor active public interest in the archaic, vexatious  question of overhauling local property taxation.  Why bother, when there is no incentive for Councils to change the system and the electorate will never understood it anyway, and when councils have grown accustomed to treating both domestic and business rates as a piggybank which enables them to raise the poundage quietly by 1 or 2p to yield the extra few millions to cover a budgetary shortfall or pay for some electorally desirable vanity project? 

But in face of house-price inflation and the huge new investment market for renting, the absurdity of banding capital ‘values’ as a basis for council tax can no longer be denied, nor can the devastating consequences of the new business rates taking effect in April 2017, which must compel political recognition that a model of property taxation deriving from Elizabethan Poor Law, Victorian Parish Relief and the Scots Cess is incompatible with 21st century economics and social structures. 

But no change is possible so long as the universal presumption prevails that we have only two options, either reform or replacement, because agreement will never be reached on either.  Years and millions have been wasted producing reports from commissions and inquiries that could not produce any worth-while results, neither by tinkering with a system so fundamentally defective, conceptually so flawed, nor by proposing a substitute for the status quo where local government bodies and agencies represent such powerful interests.  All businesses pay taxes, so why this inefficient, irrelevant, punitive, bricks-and-mortar form of extra tax, from which online and offshore businesses are exempt?  

Meanwhile the old system of domestic rates was disastrously replaced by the community charge (‘poll tax’), to be replaced by the present regime, which was so badly devised that, whereas in England & Wales responsibility for valuation and administration was taken over by HMRC, in Scotland it was jealously retained by local authorities, which are now agitating for a slice of income-tax revenue as a top-up.  Such a shambles is beyond reform.  Clearly, all rateable assessments are merely sophisticated forms of taxation, just as any replacement would have to be; so why not scrap the lot and simply replace the revenue within the existing taxation system – nett of the huge savings immediately achieved?

Since polls at local council elections in England are just as high as in Scotland, collection of rates by local councils cannot be justified as an exercise in democratic control.  More democratic control is needed over the spending rather than over the raising of taxes.

Besides, council elections are increasingly regarded as tests, not of confidence in performance of statutory services and promotion of local interests but in support for the national political parties at Westminster and Holyrood as represented here by their respective groups of elected members.  But there is no distinctively Lib Dem policy on potholes in the streets or Conservative view on waste-recycling or Labour position on opening hours for public libraries or SNP line on sex education; nor were there ever distinctive party policies on domestic or business rates, other than ways of collecting and spending as much money as politically feasible.  For it’s only about money, and whether that derives from the local electorate or from central government is immaterial.

The timing is perfect.  A draft proposal can be prepared by a non-party group of supportive economists, administrators and parliamentarians for publication before this year’s end, to launch a six months process of consultation, culminating in production of a prototype ‘White Paper’ by next year’s end, for the purpose of wider consultation and public debate, leading to cross-party adoption in campaigning for the general election in 2019-2020 after conclusion of Brexit.  It will no doubt be exploited by both sides of the Indyref2 debate as another pretext for delay and urgency respectively. 

Yes, the bureaucrats and unions will howl in protest and obstruct the process all the way.  Yet the end is likely to prove something of an anti-climax, as is so often the case with revolutionary reform:  e.g. female franchise, Brexit, the abolition of slavery, of capital punishment, compared to which this proposal is extremely trivial, yet will have to go through a similar sequence.  First the suggested reform is greeted with outrage and dismissed as unthinkable; then it is fought over, with martyrs and irreconcilable factions on both sides, until the reactionaries are shocked into silence by a virtual fait accompli as the new regime shakes down, leaving everybody (but those who are completely out of touch) wondering why so much of our lives had been wasted arguing about it.

So by 2022 a ‘Municipal Finance Bill’ might be introduced with all-party support which, although revolutionary, could prove so straightforward as to pass through every stage in both Houses within five months of its First Reading to Royal Assent, fixing an effective date for abolition of business rates c.2027 and of domestic rates (council tax) c.2030, beyond the ensuing UK and Scottish Elections.  This legislative programme could be accelerated by the media’s enthusiastic support and business organisations’ impatience as generations of resentment and frustration explode, provoking a flood of recommendations on every aspect, from national bodies as well as from interested parties in the private sector, pouring into affected government departments and individual MPs.  From all of that, the principle most likely to emerge is that every local authority will receive each year, directly from central government, a block grant for it to spend as its electorate decides. 

At a stroke, council tax and business rates are abolished, with two transformational consequences: (a) billions of pounds in savings for the benefit of every business and household in the country:  (b) revitalisation of active public interest in local affairs.   In the second part of this article, to follow next week, I shall explain what the benefits of this approach could be.

©Vivian Linacre FRSA FSA (Scot) was a Fellow of the Rating & Valuation Association (1989), Founding Member of the Society of Property Researchers (1983); Founding Member of the British Council of Shopping Centres (1984); and Chairman of the Scottish Appeal Committee, UN International Year of Shelter (1987). 


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