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AUDIT COMMISSION CONFIRMS NEED FOR 'A LITTLE MORE ACTION' ON COUNCIL FINANCE

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Local democracy thinktank the Local Government Information Unit (LGIU) today welcomed findings by the Audit Commiss...
Local democracy thinktank the Local Government Information Unit (LGIU) today welcomed findings by the Audit Commission, to be published tomorrow, that show that the imposition of central government priorities on town halls was the main cause of council tax increases averaging almost 13 per cent in 2003/04.

The Audit Commission's conclusions are consistent with findings in recent research commissioned by the LGIU, undertaken by finance consultants Rita Hale Associates. This traced trends in local government finance back to the 1980s and looked in more details than the Audit Commission's study into the root causes of the present council tax crisis. In addition to finding that Whitehall direction over council spending imposed an upward pressure on the council tax, the LGIU research also found that others factors, such as the falling proportion of local funding coming from business rates and the systematic long term underfunding of local government services, have also contributed to the rise in council tax bills.

Dennis Reed, chief executive of the LGIU, said: 'These Audit Commission findings provide a useful snapshot of the present situation in local government finance. It is consistent with research commissioned by the LGIU into the long-term trends in town hall funding since the 1980s that set the scene for the current council tax crisis.

'All of the experts can't be wrong. It will no longer be tenable to portray local authorities as responsible for excessive council tax increases. It is now vital to move the current debate beyond the blame mentality.

'Councillors around the country are again facing a miserable choice between high council tax rises or service cuts. They will probably choose a combination of both, boxed in by an unsustainable finance system and a regressive tax.

'Those who rely on local services and who worry about being dragged by large council tax increases into the dependency of means testing need 'a little less conversation, a little more action' f rom the government on the reform of local government finance and the council tax.'

Notes

1. The research by Rita Hale Associates, to be published by the LGIU in January 2004, highlights trends in local government finance since the 1980s. There are some stark findings:

* Central diktats: Of the new money available for local government services since 1997, a high proportion has been earmarked by central government for particular uses such as education funding. For example, specific grants in England for education rose from less than £250m in 1997/98 to over £3.5bn in 2003/04. This has meant that local priorities have been overruled.

* Lag in central funding: Central government's direction over spending priorities has not been fully supported by funding from Whitehall. This further distorts spending across local services and places more upward pressure on the only tax available to local authorities: the council tax. For example, in 2003/04, 79 per cent of English local authorities planned to 'overspend' in education, as measured against central government funding earmarked for schools. Meanwhile, 59 per cent of councils planned to underspend on highways.

* Council tax crisis: Whitehall's failure to fully fund its spending priorities has caused an upward pressure on the council tax. This resulted in an average 13 per cent increase in English and Welsh council tax bills in 2003/04. With the Local Government Association (LGA) pointing to an £800m local government spending gap to fill for 2004/05, another large average council tax increase looks likely. With councils raising only a quarter of their revenue locally, this has resulted in the 'gearing effect', where a small change in a council's spending, or in central government grant distribution, causes disproportionately severe swings in council tax bills. With the council tax being widely seen as regressive, especially affecting those on low incomes just above benefit entitlement levels, this has caused much of the p resent concern over the council tax and much publicity about referendums, non-payment campaigns, temporary special discounts, council tax benefit take-up and the reform of local taxation. The government, meanwhile, has threatened to use powers to cap councils, but is less clear about what local services it would want them to cut as a result of such a move.

* Local government falls behind: In the years since 1990-91, planned spending on the National Health Service rose by 140 per cent. However, local government spending in England rose by 130 per cent despite being subject to similar inflationary pressures to the NHS. With the £69.5bn spent on services delivered through local government accounting for a quarter of total public spending in England in 2003/04, this gap represents a significant sum of money.

* Business rates escape: In 1989-90 the National Non-Domestic Rate covered 31 per cent of local authority spending. By 2003/04 this figure had fallen to 22 per cent. This reflects the falling proportion of spending borne by the Business Rate within the new local government funding since 1997.

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