TPA responds to IFS report on council tax

by Harry Fone, Grassroots Campaign Manager

A new report released by the Institute for Fiscal Studies (IFS) has analysed funding for local authorities and made a series of recommendations. Few would challenge the IFS' argument that the present funding model is unsustainable and alternative solutions must be sought.

As many TaxPayers’ Alliance (TPA) supporters know, council tax has increased substantially in recent decades. In England there has been a 57 per cent real terms rise between 1997 and 2017 and the average Band D council tax bill is now a whopping £1,750. Council tax rose at an average of 4.5 per cent in England, and in every local authority in Scotland, Wales and Northern Ireland in April 2019. Recent polling commissioned by the TPA revealed that 83 per cent of working class voters demand a cap on council tax rises. It is a hated tax and MPs would be wise to start taking this issue seriously.

Following a parliamentary debate sponsored by Mark Pawsey MP, I analysed some of the ways councils are plugging gaps in their finances. However, a long term solution must be found, particularly regarding the funding of adult social care. A funding gap of £1.5 billion is estimated in 2019-20, which could rise to £3.5 billion in 2024-25.

From next year, local authorities will be able to raise council tax by up to 2 per cent (any higher and a referendum will be needed to approve it) plus a further 2 per cent for adult social care. The IFS says this is not sufficient and has called for a new “local income tax”  set at 1 per cent to plug the funding gap. They estimate it would raise £6 billion in new revenue for councils. Indeed in our landmark report, The Single Income Tax, we suggested a “Local Income Tax” as part of a revolutionary overhaul of local authorities’ spending power:

“The 2020 Tax Commission recommends cutting local authority grant funding so that they raise 50 per cent of their spending power locally. This would allow further cuts in national taxes while giving local authorities new powers to raise necessary revenue: a Local Income Tax; a Local Sales Tax; and decentralisation of on-domestic rates. Individual councils would be able to establish different revenue mixes, although there would be specific protections, at least initially, to ensure those tax-raising powers are not abused.”

More local tax powers could help align government spending with local priorities tailored to local circumstances. But the IFS’ conclusion that the answer lies in a new nationwide tax neutered of its local control misses the point and would leave taxpayers in England with a new 'English income tax'. Particularly concerning is the risk that their proposal could raise overall tax bills at a time when the tax burden is already at a 50-year high. Local taxes should not be introduced purely with the aim of raising revenue.

So what should be done?

In an ideal world, the next government would simply adopt all the proposals in The Single Income Tax. But until that happens there are a number of ideas that won’t leave taxpayers out of pocket. Firstly, in the short term, local authorities should crack down on waste and inefficiency. The TPA is inundated with media requests for comments on local authorities wasting money. They splash cash on everything from bumper pay rises for council fat cats to failed energy companies and shiny HQs they can’t afford. That’s before the numerous TPA reports that expose more profligacy. Our recent findings on council press officers demonstrated there is still plenty of fat left to trim from council budgets.

Secondly, business rate reform is long overdue. As the IFS report points out councils are set to move from retaining 50 per cent of business rate revenues to 75 per cent in the next few years. We would like to see more revenue raised locally and would warmly welcome councils having far greater control over business rates. The future secretary of state for Ministry of Housing, Communities & Local Government should get their skates on and implement a clear timeline for this policy.

Thirdly, but by no means least, is ensuring better value for money when it comes to adult social care. Back in April we launched a report with the health secretary Rt. Hon Matt Hancock MP that laid out how to make savings of billions of pounds in social care. Embracing technology in the social care sector could save £5.9 billion annually by improved productivity from accelerated automation. More than enough to plug an estimated £4.4 billion funding gap in 2023-24. 

The IFS rightly identifies there are serious problems when it comes to local authority funding but opts for the wrong solutions. Raising taxes is not only unpopular; it does nothing to encourage councils to tighten their belts. Whatever your political views, we should all be able to agree that wasteful spending by councils is completely unacceptable. Add to this business rate reforms and the use of technology in social care and tax rises can be avoided. Westminster politicians often forget how unpopular council tax is. They will soon feel the ire of taxpayers if they choose tax rises to fund avoidable budget shortfalls at local or national level.