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OPINION - THE TEN PRINCIPLES OF A GOOD LOCAL FINANCE SYSTEM

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Does anyone know what has happened with the government's Balance of Funding review? We haven't heard a peep from it...
Does anyone know what has happened with the government's Balance of Funding review? We haven't heard a peep from it since April.

In the meantime, those of us afflicted by a unhealthy interest in local government finance have had to content ourselves with the spectacle of local government minister Nick Raynsford - the government's happy capper - wielding the axe with grim relish. I don't know what they put in the water at the ODPM, but it seems to turn genial and liberally minded ministers into control freaks.

At Policy Exchange/Localis we are staging the Alternative Balance of Funding Review with Tony Travers and the New Economics Foundation. Although we come from different places on the political spectrum, we have found it remarkably easy to agree on a set of principles that should guide the reform of the local government finance system. But then we have not been drinking the tea supplied by the ODPM.

-- The local finance system should ensure councils have the power and responsibility to raise locally most of the funding for the services that they provide. All councils should be raising at least 50% of local revenue from locally determined taxes and charges and most of them should be raising 75%.

-- Local government should have more than one tax at its disposal because 'one-club golf does not work'. Having just one local tax puts undue pressure on that tax and can undermine the stability of service provision.

-- The basket of taxes available to local government should be no less buoyant than those available to national government. Local government needs to be able to rely on some taxes that rise with GDP and inflation.

-- Fairness requires that the basket of taxes available to local government should be progressive wherever possible.

-- Collection of new local taxes should 'piggy back' as much as possible on existing systems.

-- The basket of local taxes should include a form of property tax because 'buildings don't move'.

-- Local government shoul d have more freedom to introduce and vary charges for local services.

-- Local government should have greater freedom to borrow on capital markets within minimal prudential restrictions that guard against over-indebtedness.

-- Methods of equalisation should focus on tackling extreme differences in local spending needs, and the capacity to raise taxes locally. It should not seek a level of precision that implies Whitehall second guessing each authority's response to local spending requirements.

-- The local government finance system should strive for maximum transparency in regular budgeting, and involve local people in major financial decisions as much as possible.

Do let us know if you agree.

Nicholas Boles

Director, Policy Exchange and Localis

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