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By Kerry Lorimer ...
By Kerry Lorimer

The local government finance system is fundamentally flawed, according to a damning report by the Audit Commission into this year's record council tax increases.

Widespread public anger over this year's average 12.9% increase has raised doubts over the viability of the tax, which is currently the subject of a high-level review chaired by local government minister Nick Raynsford.

But the commission's report, which blames deep-rooted problems in the system for recent hikes, represents a further nail in the coffin for council tax.

Central to the commission's critique is the 'lack of transparency' in how government calculates its level of grant to councils.

Other underlying problems include the system's complexity, which deters council taxpayers from becoming involved in the decision-making process, and the apparent absence of a relationship between decisions to spend and increases in local taxation.

The result is a lack of accountability in the system, said the commission.

One of the main pressures on council budgets is the expectation that they should spend to meet national policy priorities, such as increased funding for schools, it added.

Seen in this light, the report said, the 9% average increase in local spending was 'justifiable but not in all cases unavoidable'.

There was also 'insufficient countervailing pressure' on councils to minimise council tax rises. This was partly because councils felt the threat of capping had been reduced, but mostly because after a number of councils indicated they would impose double digit increases, a 'herd instinct' encouraged others to follow suit.

The Local Government Association welcomed the report as further evidence councils had been made scapegoats for high tax increases, and that an overhaul of the existing system is urgently required.

Sir Jeremy Beecham (Lab), LGA chairman, said: 'The evidence speaks for itself. This report nails on the head any belief that councils have been frivolous, careless or pol itically motivated when taking hard decisions on council tax and spending on vital services.

'The commission agrees with our belief that the system is ripe for reform.'

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