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What do the cast of Eldorado have in common with the way councils are financed?

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LGC’s essential daily briefing.

What does the band Right Said Fred have in common with the cast of Eldorado?

Answer: They all rose to public prominence (some greater than others, granted) in 1992 – the same year that the council tax system was introduced.

Like the set of Eldorado the creaking council tax system has remained untouched. But while Eldorado was cancelled after just one series, the council tax system remains the same as it was and after more than a quarter of a century in the sun it is showing its age.

Despite property prices rocketing, especially in London and the south-east, the top band of council tax applies to properties deemed to be worth £320,000 or more in 1991. But because there haven’t been any revaluations since then millionaires and billionaires are in many cases paying similar amounts to those who have struggled to get on the property ladder.

Successive governments, possibly fearing another backlash akin to the poll tax riots, have dodged the issue. But now that austerity-squeezed councils are more reliant than ever on their council tax income to fund important services the issue is reaching a critical point.

Dan Bates from Pixel Financial Management recently wrote an analysis on LinkedIn which showed that “council tax is now, by some way, the main funding source for local government accounting for almost 60% of spending power in 2018-19”.

The Financial Times’s chief economics commentator Martin Wolf argued as recently as last month to introduce a “radical reform” to the system. “Tax should be levied in proportion to value. Where reform would impose hardship on housing-rich, income-poor elderly households, one could capitalise the tax and then levy it upon death,” he said.

This builds upon work from the Resolution Foundation, published last month, which argued a system with regional, and possibly even localised, variations could raise an extra £7.4bn a year.

“Supposing that almost half of this was used to halve stamp duty rates on primary residences, this would still leave £4.2bn to help address the UK’s health and social care challenges,” the report said.

Yet the system does not reflect property prices in an area (and the financial capability of those who live in those houses). As such, disparities occur. Arguments about how the social care precept – an extension to council tax ringfenced for social care services – does not necessarily provide the most funding in the areas with the greatest need have been repeatedly well made in LGC and elsewhere.

The message is still not getting through, though. Or at least ministers are holding their hands over their ears in the hope this will all just go away – a bit like the reforms to the way adult social care services are funded.

Westminster City Council sought to break the deadlock on this discussion at last year’s Conservative party conference which culminated in the council asking its wealthiest residents – those in Band H properties - to pay double their usual amount of council tax. Any money raised will be spent on youth clubs, extra support for rough sleepers, and services aimed at helping to tackle isolation and loneliness among not just the elderly but all age groups.

Crucially the scheme was voluntary. At the time Nickie Aiken (Con), Westminster’s leader, said: “The law does not allow us to raise council tax for just one band. If we raise council tax we must do so for everyone – from the lowest to the highest bands. The voluntary Westminster Community Contribution offers a fair way for those who want to contribute more to do so.”

Yesterday the Guardian reported how just 2%, or 350 of the 15,600 wealthiest households in Westminster’s Band H properties, had willingly stumped up the extra cash.

Speaking to the Guardian, Laura Gardener, a researcher at the Resolution Foundation, said Westminster’s scheme was “admirable” but the weak take-up “demonstrates the need to change the rules so that more money can be raised from mega mansions”.

In March when LGC interviewed Martin Reeves, finance spokesman for the Society of Local Authority Chief Executives & Senior Managers, the conversation briefly drifted on to Westminster’s initiative.

Stopping far short of endorsing the voluntary scheme as a potential national prototype Mr Reeves did, however, say he would “applaud” any council for being “more progressive” and any attempt to get more people to understand how services are funded.

While it looks like the Westminster experiment has not worked as well as some might have hoped, there might be others in the sector who are not so saddened by that. A successful voluntary model could have helped to let the government off the hook on this issue as ministers could, once again, put the onus on individual councils to decide whether to introduce similar schemes in their areas (and, remember, few areas have anything like the property prices of Westminster).

But without a vibrant voluntary scheme to point to, the pressure should now fall back on the government.

If ministers are to truly transform this regressive system they need to do it in a way that brings the public along with it. That will not be easy but a failure to do so will be even worse than sitting through re-runs of Eldorado and will have far graver consequences. 

By David Paine, acting news editor

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