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Reacting to last week's announcement from the Liberal Democrats pledging to scrap council tax, the New Local Govern...
Reacting to last week's announcement from the Liberal Democrats pledging to scrap council tax, the New Local Government Network thinktank said that only reform of council tax, devolving taxes to local government and de-nationalisation of business rates will make local government finance fair and progressive.

Head of policy Dick Sorabji said the Lib Dem proposals - which would see council tax scrapped and replaced with a local income tax - failed to appreciate the need for fundamental reform of how local government is financed.

He also raised concerns that a system of local income tax would be more regressive than council tax, saying: 'The simple transfer of income tax raising powers to local government risks changing a progressive tax into a regressive one. Every 1p rate raises far more in wealthy areas than in poor communities. Relying on this type of local income tax could force the poorest to pay the highest tax rates. This is still more worrying because under the old Liberal Democrat proposals there was no upper limit on the income tax rates that could be charged.

'Under a system of local income tax, it is wholly likely that affluent areas would benefit and poorer areas suffer. It would allow richer areas with high levels of employment to recoup much more than poorer areas with low employment. Under the Lib Dem proposals there are also no safeguards to ensure that levels of local income tax can be capped, meaning that in theory the tax could be set by an inequitable amount.

'The Liberal Democrats are right to focus on the benefits of local taxes, but not local income tax.'

NLGN advocates a new system of taxes as grant (TAG) - where tax rates are set nationally but tax revenue from the locality is retained locally. It says the following top rate of taxes should be retained:

The 1% rate of stamp duty land tax on the first band of£60,000 to£150,000.

The 10p rate of income tax

The first 10p of the 50p duty per litre set by the Treasury

Vehicle excise duty

Funding streams to local government would be increased from two to eight, meaning that local councils would be less reliant on increasing council tax as a way of increasing revenue. It would also allow councils to be more targeted in how they spends income on local priorities.

The think tank advocates that:

Council tax should be retained but should be revalued every five years.

Council tax capping should be abolished.

Bands A to H for the cheapest and the most expensive houses should be split into two new bands.

The values at which different bands apply should be varied by region.

The future of local government funding, including whether or not council tax should be retained, is currently being investigated by Sir Michael Lyons on behalf on the government. The Liberal Democrats have announced that they will await the findings of the Lyons Inquiry 'with interest'.

Dick Sorabji commented: 'Michael Lyons has an exceptional opportunity to fundamentally reform local government finance and it is right that political parties should digest his findings before making firm commitments on council tax'.

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