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‘How is England funded? Badly and unequally’

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When most people hear about an NHS birthday bonanza that the prime minister has committed to funding through a ‘Brexit dividend’, they take it on face value.

We may occasionally read about implications for Scotland, Wales and Northern Ireland. But we seldom ask about how that funding is distributed within England. Recent research from the British Academy suggests that we should.

Treasury figures show that in 2016-17 London received public spending of over £10,000 per head, the highest in England and 14% of the UK total. By comparison, spending is around £8,100 per head in the South East, £8,160 in the East of England, and £8,280 in the East Midlands.

This disparity in spending within England is set to get worse because of changes to local government funding.

In the past, councils got most of their money from central government which undertook some redistribution. Now the grant from central government is being phased out. Councils are to be self-sufficient, funding themselves primarily through council tax and locally-retained business rates.

The aim of the policy is to incentivise growth, but recent surveys show many councils are struggling to make ends meet and expect things to get worse. As Aileen Murphie from the National Audit Office shows in our latest publication, Governing England: Devolution and funding, there is no correlation between areas with high needs for things like social care and their ability to raise high tax bases.

As councils’ reliance on both council tax and business rates increases, business rates are being re-examined. But council tax remains untouched despite three major criticisms.

First, it is set according to the value of a property in 1991. Second, it takes no account of taxpayers’ ability to pay. And it is paid by the occupier, not necessarily the owner.

To take the first point, council tax is set according to the value of a property on 1 April 1991. Any property built since then is then given a nominal valuation for that date. The top bracket includes any property valued at or above £320,000 in 1991 – yet the average price of property in London peaked at nearly £500,000 in July 2017.

The rising property market and its impact on the lives of residents show a re-examination is needed to ensure that paying for public services is fair and efficient. The need to set council tax according to the ratio on a band D property reduces a council’s flexibility at a time when charging more for more expensive property may be beneficial.

Council tax is not levied according to the ability to pay, and many poor areas pay higher rates than wealthier areas. London has the highest property prices, average salary, and public spending per head in the country, but the lowest average council tax rates.

Many of the authorities with the lowest council tax yield per head are in London, with boroughs like Wandsworth averaging £274, while the Isles of Scilly yields £757. This shows the lack of correlation between wealth and yield per head.

As mentioned, council tax is paid by the occupier, but is set according to the value of the property. It may be paid by a renter who does not own that property, or perhaps any. Council tax may be the only tax paid by one person according to the wealth of another.

But taxing one person based on what someone else owns could be seen as unfair. While some have raised the prospect of raising additional revenue via revaluation – as happened in Wales – this may lead to a rise in rates being passed on to the residents, with no account taken of their ability to pay.

Even talking about council tax is seen by many as politically impossible because some will lose out and they will be vocal. That is to be expected. But current pressures offer a chance to debate how public finances are raised and distributed.

Councils fear for their ability to deliver vital services. The costs of social care are increasing with an ageing population and the ‘Brexit dividend’ for the NHS is likely to mean the demise of the promised shared prosperity fund to help to poorest regions of the country.

Now is the time for politicians to show leadership and accept that examining council tax must be an option. The British Academy stands ready to assist.

Martin Rogers, policy adviser, public, British Academy

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