The Political Economy of Local Tax Reform

This think piece reflects on local government finance debates and suggests approaches to reform. It concludes that rational progressive reform that empowers local government and its taxpayers must be multi-stage.

Summary

This think piece reflects on local government finance debates and suggests approaches to reform.

Debates about local government and its funding stretch back at least to the introduction of rate rebates in the 1960s, the Layfield Commission in the 1970s, the poll tax in the 1980s and the council tax ‘solution’ in the 1990s. Twenty-five years on from Heseltine’s hybrid property and personal tax, its failings are exposed. The Scottish Government and COSLA sponsored an (almost) all-party Commission on Local Tax Reform (CLTR) reporting in autumn 2015 with the intention that the parties will promote reform in their manifestos for the spring 2016 Scottish election.

At the heart of the long-running debate over local government finance is the essential relationship between local government and national government (originally to London and now largely to a devolved Edinburgh). This is fundamentally about centralism versus local autonomy and relative degrees of each. The precise form of the tax and its operation is in a sense, a subordinate question.

A key theme of this think piece is why has it been so difficult to find a lasting solution to the local government question and also, relatedly, why is it so hard to reform local tax in a constructive way that takes the poison out of the issue?

It concludes that rational progressive reform that empowers local government and its taxpayers must be multi-stage. Reforming local taxes and ending the freeze is but the first stage. We do need to tackle functions and spatial boundaries too. But the goal should embrace greater autonomy and responsibility for finance locally and that this should include a property tax element though a modest income tax supplement could work alongside it. Transition, phasing and low income protection are all essential; as is regular general revaluation of any land or property element. The easy route will be the reformed council tax route but this would be a missed opportunity.