Time to make councils self financing?

In the space of a day something incredible happened: taxpayer distrust of local government hit a new low as it was revealed, with each drip of information a new smack to council credibility, that dozens of councils had invested considerable amounts of your money in failing Icelandic banks.


After the initial shock set in that councils were stashing away taxpayers’ money, the question was asked to me time and time again – why wasn’t this money spent or given back to taxpayers’ in council tax reductions? 


The bizarre system of local government finance has surely allowed this to happen.  Your council tax on average accounts for only a quarter of local government spending.  At the end of the year the government takes all your taxes and redistributes it in local grants, easily open to political manipulation.  Your council gets the grant and if they fall short to fund their spending plans, your council tax goes up accordingly.  Then the cycle goes on again…


Amid the quagmire, therefore, councils are free to stow cash away and still plead poverty and increase your taxes.  This, very clearly, has to end now it’s widely known that not all of our money taken in tax goes to services.


As tempting as it is to tear into incompetent council leaders and the government, oh and we will nonetheless, the system will still remain broken.  The complex granting mechanisms will still continue and councils will remain free to do as they want with our money, taking more and more year on year.


The solution mooted by Douglas Carswell MP and the Euro-MP Dan Hannan in their superb new book ‘The Plan’, is to make councils self financing.  They move that we abolish VAT and turn it into a locally-set local sales tax, ending the current council tax regime.  This makes sense, firstly, because the amount taken in VAT equates to the same as government spends on local government.  Furthermore, tax competition across counties and metropolitan cities would drive taxes down because businesses and consumers will go where the lowest cost is.


But the most vital, crucial element to making councils self financing is that your councillors will be entirely accountable for their actions.  Nowadays, when they put their foot in it, they shift the blame to central government or elsewhere.  With self-financing, the buck stops at the leader’s office.  When your borough over-spends, hikes your taxes or hordes money meant for services or tax cuts – you know who is to blame and you can chuck them out at the next election.  Now doesn’t that make it an incredibly tempting idea?

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