tag:theconversation.com,2011:/uk/topics/council-tax-19445/articlesCouncil tax – The Conversation2024-03-15T17:34:40Ztag:theconversation.com,2011:article/2242852024-03-15T17:34:40Z2024-03-15T17:34:40ZLevelling up is not working as promised – our research shows why<p>The UK parliament has heard findings that <a href="https://theconversation.com/levelling-up-four-problems-with-boris-johnsons-flagship-project-176386">levelling up</a> – arguably the Conservatives’ flagship policy agenda – is beset by critical delays. In a report published on March 15, the <a href="https://publications.parliament.uk/pa/cm5804/cmselect/cmpubacc/424/report.html">public accounts committee</a>, parliament’s expenditure watchdog, has said that, as of September 2023, local authorities had spent only £1.24 billion of the £10.47 billion the government promised to tackle regional inequality across the UK. </p>
<p>Crucially, the committee has found that the government has nothing in place to measure this policy’s impact in the long term. In other words, as has been pointed out, there is <a href="https://www.theguardian.com/politics/2024/mar/15/no-compelling-examples-of-what-levelling-up-has-delivered-watchdog-finds">“no compelling evidence”</a> that levelling up has achieved anything.</p>
<p>The levelling up agenda was launched in the Conservative party’s 2019 manifesto to highlight – and overcome – the economic plight of the UK’s former industrial heartlands, particularly in the north and the Midlands. The subsequent <a href="https://assets.publishing.service.gov.uk/media/62e7a429d3bf7f75af0923f3/Executive_Summary.pdf">white paper</a> published by the Department for Levelling Up, Housing and Communities (DLUHC) in 2022 said the economic prize was potentially enormous: “If underperforming places were levelled up towards the UK average, unlocking their potential, this could boost aggregate UK GDP by tens of billions of pounds each year.” </p>
<p>The disconnect between this prosperity-led rhetoric on local authority funding and the reality could not be starker. Since 2010-11, local authorities have experienced a <a href="https://www.local.gov.uk/about/news/funding-gap-growing-councils-firmly-eye-inflationary-storm#:%7E:text=Councils%20are%20facing%20an%20%E2%80%9Cinflationary,spending%20power%20since%202010%2F11.">27% real-terms cut</a> in core spending power due to reduced central government funding. <a href="https://www.instituteforgovernment.org.uk/explainer/local-authority-section-114-notices">Eight of the 317 English local authorities</a> have effectively declared bankruptcy since 2018. </p>
<p>Our <a href="https://www.cipfa.org/cipfa-thinks/insight/addressing-regional-inequalities">research</a> compares how local authorities in England and <a href="https://theconversation.com/other-countries-have-made-progress-in-levelling-up-heres-how-the-uks-plan-compares-176405">other countries</a> are addressing regional socioeconomic inequality. We have found that English councils are struggling to invest for the long term, because of a lack of ongoing funding and insufficient staff. </p>
<h2>Where local government income comes from</h2>
<p>Compared to many other countries, local authorities in England have fewer powers to raise revenue. In <a href="https://www.instituteforgovernment.org.uk/explainer/local-government-funding-england">2019-20</a> council tax was the biggest source of local authority income (52%), followed by business rates (27%) and government grants (22%). </p>
<p>These government grants include the <a href="https://commonslibrary.parliament.uk/which-areas-have-benefited-from-the-levelling-up-fund/">£4.8 billion levelling up fund </a>, designed to invest in local infrastructure that has, as the white paper put it, “a visible impact on people and their communities and will support economic recovery”. </p>
<p>They also include the <a href="https://www.gov.uk/government/publications/uk-shared-prosperity-fund-prospectus/uk-shared-prosperity-fund-prospectus">UK shared prosperity fund</a> and <a href="https://www.gov.uk/government/collections/towns-fund">the towns fund</a> (which consists of <a href="https://www.gov.uk/government/publications/town-deals-full-list-of-101-offers">town deals</a> and the <a href="https://www.gov.uk/government/collections/future-high-streets-fund">future high streets fund</a>, and is accessible to local authorities in England only).</p>
<p>A first challenge to note is that since Brexit, local authorities no longer have access to European Union (EU) funds. The central government funding that has replaced it is less generous. <a href="https://www.ippr.org/articles/the-shared-prosperity-fund-what-can-we-learn-from-government-s-plan-to-replace-eu-funds">Analysis</a> by the Institute for Public Policy Research suggests that the UK Shared Prosperity fund represents a 43% drop in funding compared with EU economic development money for UK nations and regions.</p>
<p>Further, local authorities also now have to compete against each other to access crucial funding. The levelling up fund might be delivered at a local level but funding is not guaranteed. </p>
<p>Councils have to <a href="https://theconversation.com/the-levelling-up-bidding-process-wastes-time-and-money-heres-how-to-improve-it-198638">bid</a> to competitive funding pots. Only a handful of bids are successful, when scored against nationally designed success criteria.</p>
<p>What’s more, this competitive model is predicated on short-term, project-based funding pots. Our research shows, however, that for local authorities to best respond to the needs of their constituents, they need long-term funding. We found that in the US, Cleveland’s flagship city project is based on a 20 to 30-year timetable. </p>
<p>Leipzig, meanwhile, has benefited from consistent long-term funding from the German government and the EU. It took 15 years of high levels of funding for unemployment to start declining in Leipzig and a further 15 years to reduce it further closer to the national average. Leipzig’s council’s <a href="https://www.jrf.org.uk/how-do-cities-lead-an-inclusive-growth-agenda">long-term approach</a> to planning and designing housing stock and shopping areas has improved local retail options and access to jobs for residents.</p>
<p>By contrast, challenges created by the <a href="https://www.constructionnews.co.uk/buildings/6bn-meridian-water-project-delivery-under-review-13-02-2023/">impact of inflation and rising interest rates</a> have forced Enfield council, in England, to scale back its 20-year, £6 billion regeneration project, Meridian Water. This is despite the project’s aim to create 10,000 homes and 6,000 jobs paid at least at the London living wage. </p>
<h2>How political change affects local government funding</h2>
<p>In England, local authorities often struggle to deliver their visions for economic development because of the sheer frequency of institutional change at regional level across electoral cycles. </p>
<p>In 2010, the incoming coalition government <a href="https://researchbriefings.files.parliament.uk/documents/SN05842/SN05842.pdf">abolished</a> the regional development agencies Labour had instituted in 1997. In 2011, these were <a href="https://www.gov.uk/government/publications/2010-to-2015-government-policy-local-enterprise-partnerships-leps-and-enterprise-zones/2010-to-2015-government-policy-local-enterprise-partnerships-leps-and-enterprise-zones">replaced</a> with local enterprise partnerships, which, in turn, <a href="https://www.lgcplus.com/politics/devolution-and-economic-growth/government-will-end-support-for-leps-04-08-2023/">were scrapped</a> by Rishi Sunak’s government in 2023.</p>
<p>Additionally, the DLUHC <a href="https://committees.parliament.uk/publications/43820/documents/217384/default/">has changed the rules</a> midway through the bid process. Thus 55 councils spent an average of £30,000 bidding in round two for funds they could not win because a rule change meant that those which had been successful in round one were no longer eligible to bid again. Roughly £1.6 million was squandered through this lack of transparency.</p>
<p>We have also found that English councils suffer from a lack of consistent, expert staffing. Compared to the international cities we have studied, they are not able to properly monitor and evaluate their efforts. </p>
<p>In South Yorkshire, for example, although stakeholders recognise the importance of monitoring and evaluation, short-term and insufficient funding has meant mechanisms to do so have not been built in from the start of levelling up projects.</p>
<p>In January 2024, the <a href="https://www.gov.uk/government/publications/simplifying-the-funding-landscape-for-local-authorities/simplifying-the-funding-landscape-for-local-authorities">DLUHC began a pilot programme</a> to test how the government could distribute funding to local authorities in a simplified, streamlined way, in order to give them greater spending flexibility. </p>
<p>Establishing a single funding pot across government departments for local authorities would indeed enable them to better respond to local needs, in the long term. </p>
<p>Councils know the strengths their local areas have and the challenges they face. They need the financial and organisational resources to meet them.</p><img src="https://counter.theconversation.com/content/224285/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Abigail Taylor received funding for this work from CIPFA and from the University of Birmingham. Abigail acknowledges Jeffrey Matsu, Chief Economist at CIPFA as a co-author of the research underpinning this article.</span></em></p><p class="fine-print"><em><span>Anne Green received funding for this work from CIPFA and from the University of Birmingham. Anne acknowledges Jeffrey Matsu, Chief Economist at CIPFA, as a co-author of the research underpinning this article.</span></em></p><p class="fine-print"><em><span>Hannes Read received funding for this work from CIPFA and from the University of Birmingham. Hannes acknowledges Jeffrey Matsu, Chief Economist at CIPFA as a co-author of the research underpinning this article.</span></em></p>English councils have neither the ongoing funding or the staffing needed to effectively deliver on the government’s economic development promises.Abigail Taylor, Research Fellow, City-Region Economic Development Institute (City-REDI), University of BirminghamAnne Green, Professor of Regional Economic Development, University of BirminghamHannes Read, Policy and Data Analyst, University of BirminghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2190612023-12-13T12:41:19Z2023-12-13T12:41:19ZWhy Nottingham and Birmingham will be followed by more cities running out of money<figure><img src="https://images.theconversation.com/files/564325/original/file-20231207-21-6sh63s.jpg?ixlib=rb-1.1.0&rect=25%2C44%2C2438%2C1610&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Nottingham town hall.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/nottingham-united-kingdom-april-11-2017-1072145219">trabantos/Shutterstock</a></span></figcaption></figure><p>Almost a fifth of England’s council bosses <a href="https://www.ft.com/content/82a841b1-fec7-4ed9-bfae-cfbb537c6b38">have warned</a> they are running out of money so badly that they will become effectively bankrupt this year or next. <a href="https://www.local.gov.uk/about/news/section-114-fear-almost-1-5-council-leaders-and-chief-executives-after-cashless-autumn">A report</a> by the Local Government Association also indicates that nearly half think they will not be able to ensure the delivery of essential services from 2024 to 2025.</p>
<p>Some councils have already run out of funds. <a href="https://www.bbc.co.uk/news/uk-england-nottinghamshire-67380096">Nottingham</a> and <a href="https://www.bbc.co.uk/news/uk-england-birmingham-67053587">Birmingham</a> councils were the latest to issue what are known as “section 114 notices”. These notices mean a council’s expected income is not enough to cover what it plans to spend – and that it cannot find a solution by itself.</p>
<p>And while councils cannot actually go bankrupt in the same way that a person or private business can, the act of issuing a section 114 is a very serious issue. It means all spending, other than providing statutory services such as adult and children’s social services, is immediately suspended. </p>
<p>This means no money for new contracts or projects on transport, waste, planning, leisure or culture.</p>
<p>As a result, the council is placed into a relationship with the government which is something more akin to a company going into administration. The organisation is effectively led and managed by commissioners appointed by the government. </p>
<p>In the most serious cases, these commissioners can end up taking over all responsibility for an authority. In Northamptonshire in 2018, they <a href="https://www.bbc.co.uk/news/uk-england-northamptonshire-56488909">recommended the abolition</a> of the county council and a complete overhaul of local government in the county, with eight councils being replaced by two new ones. </p>
<h2>Notice period</h2>
<p>Reasons for issuing a section 114 notice can vary. In Croydon, Slough, Thurrock and Woking, <a href="https://www.theguardian.com/society/2023/aug/28/at-least-26-english-councils-at-risk-of-bankruptcy-in-next-two-years">they came</a> after commercial investments went wrong, leaving these councils with insurmountable debts and liabilities. (The government had previously <a href="https://www.local.gov.uk/sites/default/files/documents/Reforming%20revenues%20-%20options%20for%20future%20financing%20of%20local%20govt.pdf">encouraged local authorities</a> to innovate their revenue streams.)</p>
<p>Meanwhile, the large councils of Birmingham and Nottingham appear to have been the victims of longer-term issues. Worryingly, these are problems experienced by local authorities across the country, which may be why so many council leaders have been telling the Local Government Association that they are pessimistic about their financial futures. </p>
<p>All have been subjected to policies of austerity since 2010, meaning <a href="https://www.researchgate.net/publication/353096749_The_impact_of_austerity_measures_on_local_government_funding_for_culture_in_England#:%7E:text=The%20Conservative%20and%20Liberal%20Democrat%20coalition%20government%20introduced,down%20by%20almost%2050%25%20%28Rex%20and%20Campbell%2C%202022%29.">major revenue losses</a> from central government. At the same time, their ability to raise local income through council tax has repeatedly <a href="https://www.ft.com/content/a02f6864-1329-44d4-8ae2-f20579e9498c">been capped</a>. </p>
<p>Meanwhile, rising inequality in <a href="https://www.versobooks.com/en-gb/products/20-inequality-and-the-1">income</a> and <a href="https://www.health.org.uk/publications/reports/the-marmot-review-10-years-on">health</a> mean demand for services – particularly from the poor and vulnerable – have persistently increased. </p>
<p><a href="https://irep.ntu.ac.uk/id/eprint/49333/1/1778793_Dom.pdf">Our own research</a> shows that demand on local authorities for social care, welfare, housing support and homelessness services has consistently increased since 2010. At the same time, expenditure on all other services has decreased. </p>
<p>Add to this the recent unprecedented rises in interest rates and inflation, and you have the fundamental factors behind what has happened in Birmingham and Nottingham. </p>
<p>While there were other specific financial challenges in both cities, it is the impact of these fundamentals that suggests the inevitably of <a href="https://irep.ntu.ac.uk/id/eprint/42059/1/1400099_Murphy.pdf">more section 114 notices</a> coming soon. </p>
<figure class="align-center ">
<img alt="Aerial view of rooftops." src="https://images.theconversation.com/files/565261/original/file-20231212-27-l32g01.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/565261/original/file-20231212-27-l32g01.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/565261/original/file-20231212-27-l32g01.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/565261/original/file-20231212-27-l32g01.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/565261/original/file-20231212-27-l32g01.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/565261/original/file-20231212-27-l32g01.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/565261/original/file-20231212-27-l32g01.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Council tax payers will see services reduced.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/aerial-view-rows-back-terraced-houses-2252003529">Clare Louise Jackson/Shutterstock</a></span>
</figcaption>
</figure>
<p>Yet, concerns about the financial sustainability and organisational resilience of local authorities are not new. There have been <a href="https://www.gov.uk/government/publications/local-authority-financial-reporting-and-external-audit-independent-review">independent reviews</a>, government <a href="https://committees.parliament.uk/work/7943/financial-distress-in-local-authorities/">select committee reports</a>, and the creation of a “<a href="https://www.cipfa.org/services/financial-resilience-index">financial resilience index</a>” – all of which have alluded to growing problems. </p>
<p>The international accountancy firm Ernst & Young, which carries out local government audits, recently established a <a href="https://www.room151.co.uk/funding/concern-and-uncertainty-scale-of-budgetary-challenge-at-local-authorities-highlighted-in-ey-survey-of-s151-officers/">“confidence barometer”</a> that showed 72% of local authorities are “reducing funding in areas that are long-term priorities, to meet short-term budget pressures”. </p>
<h2>Selling up</h2>
<p>Back in 2001, when monitoring of local authorities was introduced, the UK government’s express objective was “<a href="https://www.tandfonline.com/doi/full/10.1080/03003930.2016.1171755">turnaround and recovery</a>”. The clear aim was returning a struggling local authority to a sustainable financial position, while keeping service provision intact. This happened through working constructively with those authorities, and commissioning help from national improvement agencies and other councils. </p>
<p>Since 2019, however, a change in the law meant many local authorities were able to fund frontline services by <a href="https://www.theguardian.com/society/2023/sep/21/15bn-of-public-assets-sold-by-english-councils-since-2010-amid-budget-shortfalls">selling land and buildings</a> – a plan reportedly adopted by <a href="https://www.thebureauinvestigates.com/stories/2019-03-04/sold-from-under-you">dozens of councils</a>.</p>
<p>We have also seen <a href="https://www.theguardian.com/society/2022/oct/28/exclusive-councils-set-to-cut-services-across-country-to-meet-32bn-budget-shortfall">reductions in the quality and quantity</a> of services, <a href="https://www.bbc.co.uk/news/uk-politics-55354832">raising of council taxes</a>, and – as a last resort – <a href="https://www.bbc.co.uk/news/uk-politics-56018438">borrowing from</a> central government. </p>
<p>The UK response to local authorities in financial distress has in effect moved from strategic turnaround and continuously improving public services to imposing <a href="https://www.room151.co.uk/treasury/croydon-to-dispose-of-over-50m-of-assets-to-help-deal-with-debt-burden/">fire sales</a>, asset stripping, and <a href="https://www.thurrock.gov.uk/budget-planning-and-proposals/budget-2024">reducing services</a>. This is clearly not a sustainable solution to an issue that needs to be addressed urgently.</p><img src="https://counter.theconversation.com/content/219061/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Murphy is affiliated with Nottingham Trent University and has previously been a CEO of a local authority and a Senior Civil Servant between 2000 and 2009. </span></em></p>The most vulnerable citizens will pay a heavy price.Peter Murphy, Professor of Public Policy and Management, Nottingham Trent UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2129122023-09-06T14:07:42Z2023-09-06T14:07:42ZBirmingham’s bankruptcy is only the tip of the iceberg – local authorities across England are at risk<p>The city of Birmingham has <a href="https://www.theguardian.com/society/2023/sep/05/birmingham-city-council-financial-distress-budget-section-114">issued</a> what is known as a <a href="https://www.publicfinance.co.uk/news/2023/09/birmingham-issues-s114-notice">section 114 notice</a>. This signals that the council is unable to balance its budget, due to lack of financial resources. </p>
<p>That the largest local authority in Europe and the second largest city in the UK should effectively declare itself bankrupt should come as no surprise. More than a decade of austerity in English local government has squeezed local councils to their utter financial limits. </p>
<p><a href="https://www.gov.uk/government/collections/final-local-government-finance-settlement-england-2023-to-2024">Government grants</a> are expected to total £61.7 billion in 2023-24. That represents a £1.9 billion (3.2%) increase in real terms over 2022-23 budget data. </p>
<p>However, this recent reversal in local government funding is not enough to offset the <a href="https://www.instituteforgovernment.org.uk/explainer/local-government-funding-england">decade-long cuts</a> to government funding. In July 2023, the <a href="https://obr.uk/frs/fiscal-risks-and-sustainability-july-2023/">Office for Budget Responsibility</a> flagged local borrowing as “at risk”. And the National Audit Office has predicted that <a href="https://www.nao.org.uk/reports/financial-sustainability-of-local-authorities-visualisation-update/">more is to come</a>. Due to the cost-of-living crisis, the rising need for social care and the continued impact of the pandemic, there is less money and ever greater <a href="https://www.publicfinance.co.uk/news/2023/08/huge-costs-are-stifling-councils-lga-warns?utm_term=&utm_medium=email&utm_source=Adestra">need</a>. </p>
<p>Our <a href="https://theconversation.com/what-happens-when-your-local-council-goes-bankrupt-185539">research</a> shows <a href="https://insol.azureedge.net/cmsstorage/insol/media/document-library/books/when-liquidation-is-not-an-option-a-global-study-on-the-treatment-of-local-public-entities-in-distress.pdf?utm_campaign=1259736_LPEs%20Book&utm_medium=email&utm_source=INSOL%20International&dm_i=4WAM,R00O,4HZCIK,3C0KS,1">how fragile</a> England’s local government funding system is. </p>
<p>Councils do have <a href="https://www.instituteforgovernment.org.uk/explainer/tax-and-devolution">limited revenue-raising powers</a> to finance current expenses. Despite this, local authorities across the country have long relied on their <a href="https://www.publicfinance.co.uk/news/2023/08/councils-face-tough-reserve-position-despite-overall-balances?utm_term=&utm_medium=email&utm_source=Adestra">reserves</a>, selling property assets, <a href="https://www.publicfinance.co.uk/news/2020/07/birmingham-tops-latest-round-council-covid-19-allocations">one-off grants</a>, high-risk <a href="https://www.publicfinance.co.uk/news/2023/09/bcp-auditors-raise-serious-concerns-over-financial-viability?utm_term=&utm_medium=email&utm_source=Adestra">investments</a> and cheap borrowing for “regeneration projects” simply to stay afloat.</p>
<h2>What happens when councils go bankrupt</h2>
<p>Local authorities in England cannot be legally liquidated. Instead, when all other remedies have proven ineffective, the chief financial officer issues a <a href="https://www.legislation.gov.uk/ukpga/1988/41/section/114">section 114 notice</a>. This bars all new expenditure for a period of 21 days, except for those that safeguard vulnerable people and statutory services. </p>
<p>Issuing this notice signals that the council is unable to bring under control its future expenditure. At the end of this prohibition period, leaders must then decide what to do. These measures generally include cuts to services, increases to local taxation and the sale of property and other assets.</p>
<p>If the external auditors agree with the turnaround plan, this is sent to the national government for approval, before being implemented by elected officials of the local authority or by independent commissioners appointed by the government. </p>
<p>When no agreement can be reached, the Department of Levelling Up, Housing and Communities intervenes. In 2021, <a href="https://www.gov.uk/government/news/government-acts-to-tackle-failure-of-croydon-council">Secretary of State Robert Jenrick</a> appointed a panel to take over from councillors in <a href="https://www.theguardian.com/society/2022/nov/22/croydon-council-declares-effective-bankruptcy-for-third-time-in-two-years">Croydon</a>, in order to ensure that the council would meet its “<a href="https://questions-statements.parliament.uk/written-statements/detail/2023-07-20/hcws985">best value duty</a>” as required by the Local Government Act of 1999. </p>
<p>Section 114 notices are the last resort. Until 2018, these were very rare – the last council to have issued one was the London Borough of Hackney in 2000. Since 2018, however, five councils have issued section 114s: <a href="https://www.northantslive.news/news/northamptonshire-news/two-years-after-northamptonshire-county-4209584">Northamptonshire</a>, Croydon (in <a href="https://www.theguardian.com/society/2020/nov/13/how-covid-19-pushed-croydon-over-the-edge-into-bankruptcy">2020</a> and <a href="https://www.theguardian.com/society/2022/nov/22/croydon-council-declares-effective-bankruptcy-for-third-time-in-two-years">2022</a>), <a href="https://www.slough.gov.uk/downloads/file/2040/slough-s114-notice-2-july-2021">Slough</a>, <a href="https://www.thurrock.gov.uk/sites/default/files/assets/documents/section114-notice.pdf">Thurrock</a> and <a href="https://www.publicfinance.co.uk/news/2023/06/woking-issues-section-114-notice">Woking</a>. <a href="https://www.coventry.gov.uk/news/article/4744/letter-to-secretary-of-state-for-levelling-up-housing-and-communities">Coventry</a> has warned it might have to follow suit. </p>
<p>Birmingham officials have cited a <a href="https://www.publicfinance.co.uk/news/2023/06/council-reveals-ps100m-cost-flawed-it-system-adoption">new IT system</a> (£100m) installed in 2022 and hosting the 2022 Commonwealth Games (£184m) as triggers for its current dilemma – costs that in themselves are not sufficient to justify the notice. More problematic is the <a href="https://www.publicfinance.co.uk/news/2023/06/birmingham-drastically-cut-spending-after-uncovering-ps760m-equal-pay-cost">£760 million debt</a> for which the council became liable in July 2023, when the bill of an equal-pay ruling by the UK Supreme Court, <a href="https://www.supremecourt.uk/cases/docs/uksc-2012-0008-judgment.pdf">dating back to 2012</a>, became clear. </p>
<p>In response to this new bill, <a href="https://www.bbc.com/news/articles/cd1wnxp9ny1o">Prime Minister</a> Rishi Sunak ruled out government aid to the city, saying it was “not the government’s job to bail out the council for its financial mismanagement”. However, the governance and accounting issues in Birmingham mirror those experienced by all the English authorities that have declared themselves bankrupt in the last five years.</p>
<h2>A flawed system</h2>
<p>Austerity has seen Birmingham suffer the consequences of debilitating cuts to its government <a href="https://www.birmingham.ac.uk/schools/business/research/research-projects/city-redi/wm-redi/theme-6/insights-into-birmingham-city-councils-revenue-funding-and-spending.aspx">funding</a>. Between 2010/11 and 2019/2020, the city’s total income fell by 17%, leading the council to find savings of £736 million. The need for local services, meanwhile, has spiralled, with the population increasing by 7.5%. </p>
<p>Tensions with council staff, in particular in relation to <a href="https://www.theguardian.com/uk-news/2017/jul/28/birmingham-refuse-collectors-strike-runs-into-second-month">waste collection</a>, led to an extended strike in 2017. Concerns over the council’s financial management subsequently saw the finance chief, Clive Heaphy, resign in 2020. </p>
<p>Yet, in 2021, the Chartered Institute of Public Finance and Accountancy <a href="https://www.birmingham.gov.uk/news/article/893/councils_financial_management_praised_in_new_cipfa_report">reported</a> that the city had made good progress. </p>
<p>Following the recent cases of Thurrock and Woking issuing section 114 notices, the Department for Levelling Up, Housing and Communities decided to launch an inquiry into the effectiveness of financial reporting and audit system in local authorities.</p>
<p>Recently, in May 2023, Birmingham’s council leader, Ian Ward, refused to resign, despite <a href="https://www.bbc.com/news/uk-england-birmingham-65614938">a leaked internal report</a> by the Labour party showing a general dysfunctional climate in the local authority. This led to an independent governance review. </p>
<p>Here too, Birmingham is not alone. It takes years for financial issues to become so serious as to justify the issue of a section 114 notice. Governance problems have been widely reported as the underlying cause for <a href="https://committees.parliament.uk/publications/6777/documents/72117/default/">Croydon</a> issuing, to date, <a href="https://www.instituteforgovernment.org.uk/comment/croydon-council-section-114">three section 114 notices</a>. </p>
<p>Local taxpayers have much to be worried about. Distressed local councils often have to increase local taxation to balance their books. To wit, Croydon’s record 14.99% <a href="https://news.croydon.gov.uk/croydon-sets-2023-24-budget/#:%7E:text=Full%20Council%20has%20approved%20a,expects%20all%20councils%20to%20levy.">increase</a> in council tax rates. </p>
<p>Vulnerable people too bear the brunt of this. Public services are reduced to the most essential ones. Local workers are dismissed through <a href="https://www.localgov.co.uk/Resignation-scheme-begins-in-Birmingham--/57827">voluntary</a> or <a href="https://www.bbc.com/news/uk-england-berkshire-61818756">mandatory</a> redundancy schemes. </p>
<p>And the impact is not limited to the local community. Taxpayers across the country end up contributing towards rescuing local authorities. </p>
<p>In May 2023, the cross-party levelling up, housing and communities parliamentary committee <a href="https://committees.parliament.uk/publications/40145/documents/195720/default/">criticised</a> the government’s competitive funding system. Councils have to bid for access to government funds, in a system which is fragmented and resource intensive. </p>
<p>In prioritising low-priority projects over long-term investment, the government’s <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1052708/Levelling_up_the_UK_white_paper.pdf">levelling-up agenda</a> is failing to comprehensively address the problems facing local authorities. </p>
<p>At least 26 more councils, including <a href="https://www.localgov.co.uk/Stoke-on-Trent-Council-at-risk-of-bankruptcy/57857">Stoke-on-Trent</a>, <a href="https://www.publicfinance.co.uk/news/2023/08/kent-curtail-non-essential-spending?utm_term=&utm_medium=email&utm_source=Adestra">Kent</a> and <a href="https://www.theguardian.com/society/2023/aug/09/yorkshire-council-warns-of-budget-crisis-as-deficit-reaches-47m">Kirklees</a>, are deemed at risk of bankruptcy in the next <a href="https://www.theguardian.com/society/2023/aug/28/at-least-26-english-councils-at-risk-of-bankruptcy-in-next-two-years">two years</a>. Without thorough local finance reform – and a government invested in protecting local government at the service of local people – more could fall. </p>
<p><em>This article was amended on September 7 2023 to correctly state that it discusses England’s local government funding system, and not the UK’s, as was previously stated.</em></p><img src="https://counter.theconversation.com/content/212912/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>More than a decade of austerity in English local government has squeezed councils to their utter financial limits.Yseult Marique, Professor, University of EssexEugenio Vaccari, Senior Lecturer, Royal Holloway University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1795262022-03-30T13:56:47Z2022-03-30T13:56:47ZApril will be cruel to UK households, but the economy’s problems are much longer term<figure><img src="https://images.theconversation.com/files/455222/original/file-20220330-5634-13gr6fl.jpg?ixlib=rb-1.1.0&rect=33%2C33%2C2462%2C1627&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/carpet-bluebells-woods-hampshire-uk-44817520">Shutterstock/Jane Rix</a></span></figcaption></figure><p>The poet <a href="https://www.poetryfoundation.org/poems/47311/the-waste-land">TS Eliot</a> famously proclaimed April to be the “cruellest month”. Writing after surviving a pandemic – the Spanish flu of 1918 – he was referring to the familiar (often misguided) sense of hope that traditionally accompanies the arrival of spring.</p>
<p>From an economic perspective, April 2022 looks like it will be especially cruel. For despite the seasonal flowers and fairer weather, the cost of living crisis casts a gloomy cloud over millions of UK households. </p>
<p>Many face a <a href="https://www.mirror.co.uk/news/uk-news/how-much-national-insurance-increase-26140493">huge rise</a> in national insurance contributions. Personal tax allowances begin a <a href="https://www.reuters.com/world/uk/britain-freeze-personal-tax-thresholds-until-2026-2021-03-03/">four-year freeze</a>, which will not be altered in line with inflation, and will drag more workers into higher tax bands. </p>
<p>April will also see the arrival of council tax bills that are likely to have gone up <a href="https://www.lgcplus.com/finance/exclusive-over-two-thirds-of-councils-to-raise-council-tax-by-maximum-permitted-05-01-2022/">much more</a> than in recent years. And while some people will be offered a <a href="https://www.standard.co.uk/news/uk/council-tax-rebate-april-energy-bills-often-2022-b980786.html">£150 rebate</a>, overall the UK tax burden is set to rise to its highest level in <a href="https://inews.co.uk/opinion/rishi-sunak-tax-cutter-ukraine-covid-inflation-made-choice-1509761">over 70 years</a>. </p>
<p>Added to this is the UK’s <a href="https://www.reuters.com/world/uk/inflation-hits-30-year-high-uk-households-start-buckle-2022-02-22/">highest level of inflation</a> in over 30 years. One contributing factor will be a 54% increase in the domestic energy price cap in April, meaning a rise of nearly £700 for the average household. The war in Ukraine and the <a href="https://inews.co.uk/news/russia-makes-direct-threat-cut-off-gas-pipeline-europe-retaliation-against-sanctions-1503596">associated threat</a> to oil and gas supplies from Russia to Europe are also likely to push wholesale energy prices even higher. </p>
<p>There have <a href="https://www.prospectmagazine.co.uk/science-and-technology/successive-uk-governments-have-neglected-energy-security-and-we-are-now-paying-the-price">long been concerns</a> about UK energy security and supply. Yet poor policy choices and inaction over the last decade in particular have meant the UK is left with some of the lowest <a href="https://www.theguardian.com/business/2021/sep/24/how-uk-energy-policies-have-left-britain-exposed-to-winter-gas-price-hikes">energy storage capacity</a> in Europe. Moreover, the fragmented UK energy market is itself a product of <a href="https://www.theguardian.com/commentisfree/2021/nov/24/uk-energy-sector-public-ownership-bulb-collapse">ill-conceived privatisation</a> reforms in the 1980s and 1990s. In contrast, the French state-owned energy supplier, EDF, has had to restrict the current rise in heating bills to a <a href="https://www.edf.fr/en/edf/exceptional-measures-announced-by-the-french-government">mere 4%</a>.</p>
<p>April then, looks pretty grim for many households, and politically quite dangerous for the government. As we saw after the financial crisis of 2008, governments presiding over falling living standards don’t tend to survive very long. And the UK’s economic performance over the last 12 years has been poor. </p>
<p>Over the last decade, UK economic growth has been anaemic. Between 2010 and 2019 and before the pandemic hit, GDP per capita growth averaged <a href="https://www.theguardian.com/commentisfree/2019/nov/16/strong-economy-tories-weak-labour">under 1.2%</a> a year in the UK - less than half of what was achieved in the decade preceding the financial crisis. In addition, average real wages have <a href="https://www.independent.co.uk/business/realterms-weekly-pay-is-lower-than-before-2008-financial-crisis-b2015511.html">yet to recover</a> from the financial crisis, and are expected to <a href="https://www.resolutionfoundation.org/app/uploads/2022/03/Living-Standards-Outlook-2022.pdf">remain below</a> their 2008 level until at least 2026. This is the <a href="https://www.tuc.org.uk/blogs/17-year-wage-squeeze-worst-two-hundred-years">longest squeeze</a> on UK incomes in over 200 years. </p>
<p>Added to this, Brexit has been a drag on the UK economy since the 2016 referendum, with sterling, trade and investment falling significantly. By the time the UK left the EU in January 2020, <a href="https://ukandeu.ac.uk/expecting-brexit/">the hit to GDP</a> had been of the order of 2%-3%. </p>
<p>Lost trade and growth means Brexit is expected (<a href="https://www.theguardian.com/commentisfree/2022/jan/31/covid-easy-scapegoat-economic-disruption-brexit-biting">by the Tony Blair Institute</a>) to mean a net cost to the Exchequer of around £30 billion a year – around the same sum to be collected by all of the <a href="https://www.theguardian.com/commentisfree/2022/jan/31/covid-easy-scapegoat-economic-disruption-brexit-biting">recent tax rises</a>. Meanwhile, the UK suffered the <a href="https://www.nbcnews.com/news/world/u-k-economy-slumps-record-10-percent-2020-after-covid-n1257600">largest economic contraction</a> of the G7 nations as a result of COVID. </p>
<h2>Lessons learnt?</h2>
<p>Politically, then, the cost of living crisis should be an open goal. Labour’s shadow chancellor, Rachel Reeves, made much political capital over the Conservatives’ economic record in her <a href="https://www.theguardian.com/politics/live/2022/mar/23/spring-statement-2022-rishi-sunak-poorest-families-likely-to-be-worst-hit-by-impact-of-ukraine-war-live-updates">spring statement response</a>. Yet just offering to be more competent on the economy than the government is not enough. </p>
<figure class="align-center ">
<img alt="Freight containers bearing EU and UK flags." src="https://images.theconversation.com/files/455253/original/file-20220330-23-1rzsbu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/455253/original/file-20220330-23-1rzsbu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=359&fit=crop&dpr=1 600w, https://images.theconversation.com/files/455253/original/file-20220330-23-1rzsbu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=359&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/455253/original/file-20220330-23-1rzsbu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=359&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/455253/original/file-20220330-23-1rzsbu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=452&fit=crop&dpr=1 754w, https://images.theconversation.com/files/455253/original/file-20220330-23-1rzsbu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=452&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/455253/original/file-20220330-23-1rzsbu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=452&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Brexit drags on.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/freight-containers-european-union-united-kingdom-1845125299">Shutterstock/Lightboxx</a></span>
</figcaption>
</figure>
<p>Labour needs to set out a compelling and positive vision as to how it will seek to shape the UK economy. So far, there has been very little in terms of an alternative economic strategy, save for advocating a “<a href="https://www.independent.co.uk/business/labour-plan-to-buy-british-not-about-slapping-a-flag-on-procurement-reeves-b1877867.html">buy British</a>” state procurement policy.</p>
<p>This is reminiscent of former prime minister Harold Wilson’s “<a href="https://www.ft.com/content/3573bd46-99e7-11df-a0a5-00144feab49a">I’m backing Britain</a>” campaign of 1968, which sought to encourage UK workers to become more productive and consumers to buy British goods. The campaign quickly fizzled out, and a similar policy today is fraught with difficulties. It is inherently a protectionist stance, likely to <a href="https://theconversation.com/why-labours-buy-british-plan-is-not-going-to-succeed-163995">contravene World Trade Organization rules</a> and lead to retaliatory trade barriers. </p>
<p>Labour also wishes to stick to the Brexit deal, under the slogan “<a href="https://www.indy100.com/politics/keir-starmer-labour-make-brexit-work-b1953466">Make Brexit Work</a>”. But the evidence suggests Brexit is acting as a <a href="https://ukandeu.ac.uk/research-papers/manufacturing-after-brexit/">slow drag</a> on the UK economy, adding substantial red tape, costs and delays to British business. </p>
<p>Yet Labour has never been a leader on the European question; since the 1950s, it has left it to the Conservatives to determine the direction of travel. But a failure to change the narrative means that a future Labour government is unlikely to be able to deliver on its own objectives. </p>
<p>Indeed, if Labour does assume power after the next election – and its most likely route is as a <a href="https://www.electoralcalculus.co.uk/blogs/ec_govtform_20220104.html">minority government</a> – it will inherit a failing economy <a href="https://www.theguardian.com/business/2022/mar/13/incessant-crises-show-old-economic-model-is-running-on-empty-financial-crisis-covid-inflation-war">not too dissimilar</a> to the one it took over in 1974. What followed back then was a period of <a href="https://www.omfif.org/2021/10/repeat-of-70s-in-store-as-uk-heads-towards-stagflation/">stagflation</a> – and two cruel decades of relatively high inflation and chronically high unemployment.</p><img src="https://counter.theconversation.com/content/179526/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Bailey receives funding from the Economic and Social Research Council's UK in a Changing Europe programme.</span></em></p><p class="fine-print"><em><span>Phil Tomlinson currently receives funding from the Engineering and Physical Sciences Research Council (EPSRC) for the Made Smarter Innovation: Centre for People-Led Digitalisation. </span></em></p>A month when the cost of living crisis will be harshly felt.David Bailey, Professor of Business Economics, University of BirminghamPhil Tomlinson, Professor of Industrial Strategy, Deputy Director Centre for Governance, Regulation and Industrial Strategy (CGR&IS), University of BathLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1028142018-09-10T13:35:14Z2018-09-10T13:35:14ZHigh streets are being strangled by council tax and business rates – here’s how to save them<figure><img src="https://images.theconversation.com/files/235593/original/file-20180910-123113-19dqqxo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/bracknell-uk-august-11-2013-empty-248778991?src=9B6xlydQq3PwsxaOuqRa8Q-2-8">Lucie Lang/Shutterstock.</a></span></figcaption></figure><p>BHS, Carpetright, Homebase, House of Fraser, HMV, Maplin, Marks & Spencer, Mothercare, New Look, Toys R Us, Woolworths: a decade ago this list wouldn’t have looked out of place in the store guide of a well-appointed shopping centre. Today, it reads more like a wall of remembrance commemorating casualties suffered in the ongoing battle between the internet and the high street.</p>
<p><a href="https://theconversation.com/there-is-hope-for-the-high-street-heres-how-to-transform-it-99242">These victims</a> have either folded completely, been taken over or closed a substantial number of stores in attempts to save cash. And while the growth in online shopping with sites such as Amazon is undoubtedly a big factor in the decline of the high street, it’s by no means the only one. </p>
<p>At the moment, the law on business rates means large and small retailers have to pay sums of money in local taxation, which are disproportionate to their earnings, or even the value of their premises. This is having a significant effect on the financial strength of high street chains. Indeed, <a href="http://www.pressreader.com/uk/the-week/20180818/281586651439739">it’s been reported</a> that House of Fraser’s £4.62m business rates bill for its store on Oxford Street in London is the same as <a href="https://www.independent.co.uk/news/uk/home-news/amazon-corporation-tax-bill-uk-halves-profits-rise-jeff-bezos-a8475716.html">Amazon’s total corporation tax bill</a> in the UK for 2017. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/235587/original/file-20180910-123119-efju9n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/235587/original/file-20180910-123119-efju9n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/235587/original/file-20180910-123119-efju9n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/235587/original/file-20180910-123119-efju9n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/235587/original/file-20180910-123119-efju9n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/235587/original/file-20180910-123119-efju9n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/235587/original/file-20180910-123119-efju9n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Doesn’t come cheap.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/londonengland-december-162016-christmas-lights-decorations-544558120?src=_hPH1TUGuLf4AKRb3pUi2w-1-17">Pajor Pawel/Shutterstock.</a></span>
</figcaption>
</figure>
<p>The current system dates back to 1990, when a tax burden <a href="https://www.legislation.gov.uk/ukpga/1988/41/contents">was imposed</a> on all non-residential properties in England. The rate was set by central government on a yearly basis, based on the rental value of a business property with relief available to smaller businesses.</p>
<p>But central government recently began <a href="https://www.bbc.co.uk/news/business-43632000">increasing business rates</a> – and bills don’t always reflect a property’s current value. Even where there have been cuts to the business rates, these weren’t always in proportion to drops in a property’s <a href="https://www.bbc.co.uk/news/business-43632000">rental value</a>. </p>
<p>As a result, some businesses are finding it harder and harder to make ends meet. In 2017-18, councils reportedly sent bailiffs to <a href="https://www.independent.co.uk/business/uk-firms-struggling-money-business-rates-81000-a8508901.html">222 business premises</a> every day, to recover <a href="https://www.localgov.co.uk/Councils-sending-bailiffs-to-200-firms-every-day-over-unpaid-business-rates/45904">unpaid business rates</a>. </p>
<h2>Time for change</h2>
<p>Things need to change, for local retailers to stay in business and absorb losses caused by competition from online shopping and <a href="https://www.gov.uk/government/news/national-living-wage-workers-set-for-600-pay-rise-from-1-april">increases in the minimum wage</a>. Business rates must be reformed: a new system should give local councils more power to change the amount due – to better reflect a business’ annual profits (or losses) – while at the same time limiting central government’s ability to adjust the rates.</p>
<p>But even this won’t be enough to revive high streets in towns and cities across the UK. For the past decade, councils have themselves <a href="https://www.nao.org.uk/report/financial-sustainability-of-local-authorities-2018/">suffered severe cuts</a> to their budgets, as part of the UK government’s programme of austerity. To combat this, councils are being allowed to retain a greater proportion of the business rates <a href="https://www.local.gov.uk/topics/finance-and-business-rates/business-rates-retention">collected in their areas</a>. This policy aims to encourage councils to do more to help local businesses prosper, potentially so that they, in turn, can contribute more to council coffers. </p>
<p>But as businesses find it more and more difficult to pay these increasing bills, this policy is unlikely to be effective. More fundamental reform is needed, and the UK government must find alternative methods to improve the financial situation of local councils. This could mean giving local authorities other ways to raise their own revenue, or strengthening partnerships between private companies and councils, so that they can share the costs of providing basic services. </p>
<h2>A new arrangement</h2>
<p>But there may be a simpler option still: rather than charging businesses higher rates to make up the shortfall in central government funding, local authorities could place the burden on their wealthiest residents. The current system of council tax sees residents paying an amount to their local authority, based on their property’s value. </p>
<p>One of the biggest problems with the current system is that the council tax bands are based on property values from 1991, and are therefore <a href="https://theconversation.com/hard-evidence-five-maps-that-prove-its-time-to-reform-council-tax-in-england-53991">hopelessly out of date</a>. According to The Guardian’s economics editor, Larry Elliott, this <a href="https://www.theguardian.com/commentisfree/2018/aug/02/scrap-council-tax-redistribute-wealth-fix-housing-market">could mean</a> that someone living in a home worth £100,000 in 2015-16 faces an effective tax rate five times as high as someone living in a £1m property, with residents in very valuable properties enjoying lower rates, at the expense of the council.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/235598/original/file-20180910-123113-1sg63o7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/235598/original/file-20180910-123113-1sg63o7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/235598/original/file-20180910-123113-1sg63o7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/235598/original/file-20180910-123113-1sg63o7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/235598/original/file-20180910-123113-1sg63o7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/235598/original/file-20180910-123113-1sg63o7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/235598/original/file-20180910-123113-1sg63o7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">House prices in Islington have shot right up.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/angel-london-uk-january-2018-facade-788490928?src=n0ggoNtbNIF3Iy-VLyldww-1-21">Drima Film/Shutterstock.</a></span>
</figcaption>
</figure>
<p>When you factor in <a href="https://www.winkworth.co.uk/articles/30-years-of-house-prices#close">rising house prices over the last 30 years</a>, it’s clear that in practice the current system of council tax <a href="https://www.theguardian.com/commentisfree/2018/aug/02/scrap-council-tax-redistribute-wealth-fix-housing-market">does not tax wealth</a>. But there are <a href="https://theconversation.com/council-tax-reform-is-long-overdue-so-how-do-we-do-it-45534">several possible alternatives</a>, including a land value tax – which is based on the value of the land only, rather than the property that stands on it – or a local income tax, factoring in a household’s yearly earnings. </p>
<p>Prominent Oxford economist, <a href="https://www.economics.ox.ac.uk/materials/working_papers/4660/housing-debt-and-the-economy-a-tale-of-two-countries.pdf">John Muellbauer</a>, advocates a system which imposes a standard per-square-metre charge on land. This system would ensure a more proportionate charge on wealth, since those who can afford bigger houses would pay a higher level of tax than those in smaller properties. </p>
<p>Of course, property size is not always an indicator of wealth: homeowners who bought decent sized houses 30 years ago would have done so at a much more affordable rate. In such circumstances, property taxes <a href="https://www.economics.ox.ac.uk/materials/working_papers/4660/housing-debt-and-the-economy-a-tale-of-two-countries.pdf">could be deferred</a> until the sale of the house. There’s also the case of luxury apartments to consider – which might take up little space but still be worth a great deal – but further measures could be incorporated to ensure that this new system is fair and proportionate. </p>
<p>Alongside <a href="https://www.theguardian.com/commentisfree/2018/aug/02/scrap-council-tax-redistribute-wealth-fix-housing-market">other benefits</a>, this new system would at least allow councils to draw revenue from those who can afford it – such as more wealthy homeowners – and ease the stranglehold on struggling businesses and retailers, by lowering business rates.</p><img src="https://counter.theconversation.com/content/102814/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Stanton does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Councils are facing their own revenue crisis – and local businesses are paying the price.John Stanton, Senior Lecturer in Law, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/805682017-07-10T09:43:26Z2017-07-10T09:43:26ZHigher housing taxes could tackle inequality between young and old<figure><img src="https://images.theconversation.com/files/177099/original/file-20170706-26465-152hbe7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">via shutterstock.com</span></span></figcaption></figure><p>House prices are now so high, particularly in the south of England, that <a href="https://www.jrf.org.uk/sites/default/files/jrf/migrated/files/young-people-housing-options-full_0.pdf">fewer than a quarter</a> of young people under 30 are able to buy homes – and most of these need help from their parents. Renting privately, which is often both expensive and insecure, hardly provides an attractive alternative. </p>
<p>Fixing the dysfunctional housing market is key to levelling the growing inter-generational inequality between the young and the old in Britain. I propose that one way to help do this would be to make substantial changes to the way housing is taxed – including the introduction of a capital gains tax on the sale of all homes – rather than just second ones – and reforms to make council tax fairer. </p>
<p>Home ownership among young adults is in <a href="http://www.independent.co.uk/news/business/news/home-ownership-young-people-halved-20-years-renting-housing-market-latest-rental-prices-income-a7489881.html">rapid decline</a>. Unless this changes, the millennial generation are likely to be the first generation since the children of the Edwardian era to do worse than their parents across a range of areas in their lives. At the same time, our already flatlining levels of <a href="http://www.independent.co.uk/news/uk/home-news/britain-divided-society-social-mobility-commission-alan-milburn-a7811386.html">social mobility</a> will decline.</p>
<h2>Age-related inequality</h2>
<p>In my new book, <a href="http://www.palgrave.com/gb/book/9783319585468#aboutAuthors">The Crisis for Young People</a>, I examined the trends in inter-generational inequality in areas including education, employment and welfare. I found that age-related inequalities are increasing in all areas affecting young people – but that the gaps between millennials and previous generations are starkest in housing. </p>
<p>My analysis of data from <a href="https://www.understandingsociety.ac.uk/">UK Household Longitudinal Study</a> and its predecessor, the <a href="https://www.iser.essex.ac.uk/bhps">British Household Panel Survey</a>, showed that the proportion of 18 to 34-year-olds owning homes has declined from 46% in 1991 to just 25% in 2013, while the proportion living with parents or renting privately has risen sharply. As the graph below shows, the decline in home ownership has affected all occupational groups among young employees.</p>
<p><iframe id="ZCIcB" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/ZCIcB/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>The effect of family background on the chances of home ownership has also increased. My research shows that young people from professional families were 1.4 times as likely as those from semi-skilled and unskilled families to own a home in 1991. In 2013 they were 2.4 times as likely to do so. </p>
<p>Home ownership proved to be a major route to social mobility for the many of the baby boomer generation. According to the government’s own <a href="https://www.gov.uk/government/publications/fixing-our-broken-housing-market">data</a>, average house values in the south-east of England rose £5,000 more than average earnings during 2015, which means that many home owners were making more from their home (on paper at least) than from their job. For the millennials this route has virtually disappeared. </p>
<p>Government efforts to create a boom in private house building will not solve this problem. Britain does not have a deficit of housing. There are <a href="http://www.dannydorling.org/books/allthatissolid/">more rooms per person</a> than ever before and more than a million more homes than households. The problem is that they are often in the wrong place, selling at the wrong prices and being bought by the wrong people – such as by investors and landlords rather than home seekers. </p>
<p>The shortage is in genuinely affordable homes – and this will not be corrected through the building of new homes for private sale since developers have an interest in keeping prices high. The only solution is to provide more social housing and mixed-tenure housing (in which homes are available for rent or purchase), while bringing down the price of privately owned housing through changes in taxation policy.</p>
<h2>Capital gains tax on all house sales</h2>
<p>People’s main homes are currently immune from capital gains tax. But I believe that the most effective way to bring down house prices would be to impose capital gains tax on the profits from the sale of all private homes, just <a href="https://www.gov.uk/capital-gains-tax/what-you-pay-it-on">as it is</a> on the sale of other assets worth more than £6,000. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/177155/original/file-20170706-18727-9tjx8x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/177155/original/file-20170706-18727-9tjx8x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/177155/original/file-20170706-18727-9tjx8x.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/177155/original/file-20170706-18727-9tjx8x.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/177155/original/file-20170706-18727-9tjx8x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/177155/original/file-20170706-18727-9tjx8x.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/177155/original/file-20170706-18727-9tjx8x.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Currently, capital gains tax is not imposed on the sale of a person’s main home.</span>
<span class="attribution"><span class="source">via shutterstock.com</span></span>
</figcaption>
</figure>
<p>According to Nationwide Building Society <a href="http://www.housepricecrash.co.uk/indices-nationwide-national.php">data</a>, average house prices rose by over £100,000 during the seven years prior to the 2008 crash. I estimate that people who owned homes during this period saw their collective property wealth rise by well over £1 trillion, even after discounting for inflation and home improvement costs. Since the under-35s owned less that 4% of this housing stock, this represented a potential transfer of assets from future (young) home buyers to (older) owners of a sum greater than annual GDP at the time. </p>
<p>Had capital gains tax been imposed at 30% on the profits of sales of all private properties between 2010 and 2015, I calculate that it would have raised about £24 billion per year for the exchequer, close to what England spends on secondary schools. </p>
<h2>Making council tax fairer</h2>
<p>Imposing capital gains tax on all home sales might encourage older people not to sell their homes and so create a dearth of properties for sale. The solution to this is to reform council tax so that people pay more for the privilege of living in expensive houses. Those currently owning homes worth over £7m pay <a href="https://www.jrf.org.uk/sites/default/files/jrf/migrated/files/1577-local-tax-benefits.pdf">only three times</a> what those in houses worth one hundredth of this amount pay. </p>
<p>Properties should be revalued and the council tax bands increased so that the tax is more proportionate to the value of properties. At the same time government should waive stamp duty – the tax currently <a href="https://www.gov.uk/stamp-duty-land-tax/overview">levied</a> on all house sales over £125,000 – for retired people, so that older people are encouraged to downsize to free up more family homes.</p>
<p>The UK’s private rental market, one of the most unregulated in Europe, is not fit for purpose and also needs major reforms. Rents are too high in many cities, quality often poor – and security for tenants almost non-existent. A new Housing Act could re-establish fair rent tribunals in big cities, provide longer notice periods for tenants, and make it mandatory for all landlords to be licensed and for councils to inspect their properties on a regular basis.</p>
<p>Restoring the protections afforded to private tenants in the 1970s, when baby boomers were young, would be a step towards reducing inequality between today’s generations. Re-establishing “fair rents” would be another step, since lower rents would help young people today to save to buy homes, as the majority of their parents’ generation did.</p><img src="https://counter.theconversation.com/content/80568/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andy Green receives funding from the Economic and Social Research Council for the Centre for Learning and Life Chances (LLAKES).</span></em></p>The case for introducing capital gains tax on the sale of all homes.Andy Green, Professor of Comparative Social Science Director of ESRC Research Centre on Learning and Life Chances in Knowledge Economies and Societies (LLAKES), UCLLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/539912016-02-17T17:12:16Z2016-02-17T17:12:16ZFive maps that prove it’s time to reform council tax in England<figure><img src="https://images.theconversation.com/files/111831/original/image-20160217-20129-wn5e5m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/vicki_burton/8564626703/sizes/o/">vic_burton/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>As local authorities set out their budgets for the year, council tax is set to rise in many regions across England. Councils in <a href="http://www.bbc.co.uk/news/uk-england-lancashire-35556317">Lancashire</a>, <a href="http://www.coventrytelegraph.net/news/coventry-news/revealed-council-tax-bill-rise-10899620">Coventry</a>, <a href="http://www.bbc.co.uk/news/uk-england-cornwall-35588685">Cornwall</a> and <a href="http://www.bbc.co.uk/news/uk-england-surrey-35538873">Surrey</a>, among <a href="http://www.itv.com/news/west/2016-02-17/council-tax-increases-what-you-need-to-know/">others</a>, have agreed to hikes of up to 4%. But while council tax will be crucial to help local authorities absorb cuts from central government, there are <a href="https://theconversation.com/council-tax-reform-is-long-overdue-so-how-do-we-do-it-45534">serious doubts</a> as to whether the levy is fit for purpose. </p>
<p>First introduced in 1993, council tax is imposed on properties to help pay for local services, council wages and administration. In general, how much council tax people pay depends on which “band” their property falls into. These bands are allocated by property value, ranging from A (the lowest value) to H (the highest value). But here’s the catch: in England, council tax bands are still based on property values from 1991. </p>
<p>I decided to map out the differences between 1991 council tax valuations and today’s house prices, to see whether the tax is as <a href="http://www.ifs.org.uk/comms/comm123.pdf">regressive</a> and arbitrary as <a href="http://npi.org.uk/publications/council-tax/council-tax-reform-age-localism-why-councils-should-take-lea/">some suggest</a>. </p>
<h2>The big housing boom</h2>
<p>Let’s begin with some numbers. If your house was worth £50,000 in 1991, it would now be worth about double that, if it had risen in line with inflation. If this had occurred uniformly across the country, it wouldn’t be a problem – but we all know that this didn’t happen. Instead, house prices rocketed, particularly in London and the south-east. For example, in 2014 the average price in Burnley was £85,000 (up 166% since 1995), while in Kensington and Chelsea it was £1.2m (up 558%). </p>
<p>The fact that some prices have risen more than others is a major issue, because it means the amount we pay in council tax is increasingly detached from the relative value of our properties. In other words, those whose properties have risen disproportionately in value are paying less than their fair share of council tax. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/110437/original/image-20160205-18308-hsokpz.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/110437/original/image-20160205-18308-hsokpz.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/110437/original/image-20160205-18308-hsokpz.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=500&fit=crop&dpr=1 600w, https://images.theconversation.com/files/110437/original/image-20160205-18308-hsokpz.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=500&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/110437/original/image-20160205-18308-hsokpz.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=500&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/110437/original/image-20160205-18308-hsokpz.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=628&fit=crop&dpr=1 754w, https://images.theconversation.com/files/110437/original/image-20160205-18308-hsokpz.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=628&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/110437/original/image-20160205-18308-hsokpz.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=628&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">House Price Growth, 1995 to 2014.</span>
<span class="attribution"><span class="source">ONS</span></span>
</figcaption>
</figure>
<p>Looking at average house price growth in the top and bottom 25 local authorities in England since 1995, we can see that prices have gone up across the board – but there is now a much bigger gap between the richest and poorest areas.</p>
<p>With a little help from colleagues at the <a href="https://data.cdrc.ac.uk/">Consumer Data Research Centre</a>, I mapped out the differences between house prices and <a href="https://www.gov.uk/government/statistics/council-tax-stock-of-properties-2015">council tax bands</a>. Below, I have shown the biggest council tax band for each area in the borough, alongside a small inset map showing average house prices. Both maps are coloured according to the 1991 council tax banding. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/110485/original/image-20160205-18308-e45xwh.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/110485/original/image-20160205-18308-e45xwh.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/110485/original/image-20160205-18308-e45xwh.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=424&fit=crop&dpr=1 600w, https://images.theconversation.com/files/110485/original/image-20160205-18308-e45xwh.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=424&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/110485/original/image-20160205-18308-e45xwh.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=424&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/110485/original/image-20160205-18308-e45xwh.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=533&fit=crop&dpr=1 754w, https://images.theconversation.com/files/110485/original/image-20160205-18308-e45xwh.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=533&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/110485/original/image-20160205-18308-e45xwh.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=533&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Council tax bands vs house prices, 2015 (Islington).</span>
<span class="attribution"><span class="source">Valuation Office Agency, HM Land Registry</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Starting with the London borough of Islington, we can immediately see that the variation in council tax bands sits in stark contrast to today’s average house prices. In 1995, the first year data are available for, the average house price in Islington was £105,000. By 2014 it had reached £533,000. Most properties in Islington belong in the top band of council tax – but, according to the data, there are no areas where more houses fall under band H than any other category. </p>
<p>Perhaps unsurprisingly, this is also the case across much of London. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/111833/original/image-20160217-19275-13lvu8o.gif?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/111833/original/image-20160217-19275-13lvu8o.gif?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/111833/original/image-20160217-19275-13lvu8o.gif?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=424&fit=crop&dpr=1 600w, https://images.theconversation.com/files/111833/original/image-20160217-19275-13lvu8o.gif?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=424&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/111833/original/image-20160217-19275-13lvu8o.gif?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=424&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/111833/original/image-20160217-19275-13lvu8o.gif?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=533&fit=crop&dpr=1 754w, https://images.theconversation.com/files/111833/original/image-20160217-19275-13lvu8o.gif?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=533&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/111833/original/image-20160217-19275-13lvu8o.gif?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=533&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">House prices by council tax band in London (1995-2015).</span>
<span class="attribution"><span class="source">HM Land Registry</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>In more rural locations, such as West Oxfordshire, the contrast between council tax bands and current house prices is not as stark. But the variation is now very much out of line with the original 1991 valuations: some areas have gained value more quickly than others. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/110457/original/image-20160205-18277-jc0ne9.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/110457/original/image-20160205-18277-jc0ne9.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/110457/original/image-20160205-18277-jc0ne9.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=424&fit=crop&dpr=1 600w, https://images.theconversation.com/files/110457/original/image-20160205-18277-jc0ne9.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=424&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/110457/original/image-20160205-18277-jc0ne9.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=424&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/110457/original/image-20160205-18277-jc0ne9.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=533&fit=crop&dpr=1 754w, https://images.theconversation.com/files/110457/original/image-20160205-18277-jc0ne9.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=533&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/110457/original/image-20160205-18277-jc0ne9.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=533&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Council tax bands vs house prices, 2015 (West Oxfordshire)</span>
<span class="attribution"><span class="source">Valuation Office Agency, HM Land Registry</span></span>
</figcaption>
</figure>
<p>To take two contrasting examples from elsewhere in England, we can look at Cornwall and Liverpool. In the former, the purchase of second homes has driven up house prices, so much so that the council <a href="https://www.cornwall.gov.uk/council-and-democracy/council-tax/council-tax-discounts-and-premium/">removed the 10% discount</a> for these properties in 2013, following a change in government regulations. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/110470/original/image-20160205-18284-18z8lzu.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/110470/original/image-20160205-18284-18z8lzu.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/110470/original/image-20160205-18284-18z8lzu.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=424&fit=crop&dpr=1 600w, https://images.theconversation.com/files/110470/original/image-20160205-18284-18z8lzu.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=424&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/110470/original/image-20160205-18284-18z8lzu.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=424&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/110470/original/image-20160205-18284-18z8lzu.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=533&fit=crop&dpr=1 754w, https://images.theconversation.com/files/110470/original/image-20160205-18284-18z8lzu.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=533&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/110470/original/image-20160205-18284-18z8lzu.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=533&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Council tax bands vs house prices, 2015 (Cornwall).</span>
<span class="attribution"><span class="source">Valuation Office Agency, HM Land Registry</span></span>
</figcaption>
</figure>
<p>Meanwhile in Liverpool, where around 60% of properties are in the lowest value band A, the current variation in house prices is also out of line with the 1991 bands. House prices have risen much faster in some areas than others, particularly in well-connected, inner-suburban areas such as Mossley Hill and Aigburth. The effect – as noted <a href="http://npi.org.uk/files/3714/4904/8704/CT_reform_-_a_discussion_paper-_update_Nov_15_TBB.pdf">by the New Policy Institute</a> – is that “as time goes by, council tax becomes ever more arbitrary”.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/110472/original/image-20160205-18274-5wc1ts.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/110472/original/image-20160205-18274-5wc1ts.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/110472/original/image-20160205-18274-5wc1ts.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=424&fit=crop&dpr=1 600w, https://images.theconversation.com/files/110472/original/image-20160205-18274-5wc1ts.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=424&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/110472/original/image-20160205-18274-5wc1ts.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=424&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/110472/original/image-20160205-18274-5wc1ts.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=533&fit=crop&dpr=1 754w, https://images.theconversation.com/files/110472/original/image-20160205-18274-5wc1ts.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=533&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/110472/original/image-20160205-18274-5wc1ts.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=533&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Council tax bands vs house prices, 2015 (Liverpool).</span>
<span class="attribution"><span class="source">Valuation Office Agency, HM Land Registry</span></span>
</figcaption>
</figure>
<p>When you look at these maps, the absurdity of continuing to use bands set in 1991 is pretty obvious. Naturally, it raises the vexed question of what should be done. Well, we could re-value properties and introduce new bands, like <a href="http://gov.wales/topics/localgovernment/finandfunding/counciltax/banding/?lang=en">Wales did in 2005</a>. Or, <a href="http://localtaxcommission.scot/download-our-final-report/">as in Scotland</a>, we could pursue more radical change. There, <a href="https://theconversation.com/council-tax-reform-is-long-overdue-so-how-do-we-do-it-45534">ideas for reform include</a> property revaluation, a land value tax, and even a local income tax.</p>
<p>Personally, I would favour some form of land value tax, as proposed by leading economists such as <a href="http://budgetresponsibility.org.uk/about-the-obr/who-we-are/kate-barker/">Dame Kate Barker</a> and <a href="https://twitter.com/joesarling?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor">Joe Sarling</a>. But of course this brings its own set of challenges: for instance, unfairly taxing the Islington resident who had the good fortune to buy a house there in 1991, but who lives alone and never seeks to benefit from the value of the land or property. </p>
<p>At the very least, a widening of the bands at the top and bottom to reflect the growing gulf between the richest and poorest areas (and the residents’ ability to pay) would be a start. With detailed data on <a href="http://landregistry.data.gov.uk/app/ppd">house prices</a>, and the technology to crunch complex datasets, this should not be an insurmountable problem. The bigger issue is that, politically speaking, such reform is “<a href="https://next.ft.com/content/7da2852c-e3af-11e4-9a82-00144feab7de">dramatic and unpopular stuff</a>”.</p><img src="https://counter.theconversation.com/content/53991/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alasdair Rae does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Not only is council tax on the rise, it’s completely out of touch with reality.Alasdair Rae, Professor in Urban Studies and Planning, University of SheffieldLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/455342015-08-13T12:18:47Z2015-08-13T12:18:47ZCouncil tax reform is long overdue - so how do we do it?<figure><img src="https://images.theconversation.com/files/91753/original/image-20150813-21425-6jmbw7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/biketrouble/480427738/sizes/l/">biketrouble/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span></figcaption></figure><p>When the council tax was first introduced in 1993, it was viewed as a politically clever fix after <a href="http://www.historyworld.net/Articles/PlainTextArticles.asp?aid=zai&pid=165">the catastrophe of the poll tax</a>. It combined the palatable parts of a tax on property with personal discounts and limited exemptions for certain groups, such as students. Unlike the poll tax, there was a comprehensive system which ensured that low income households qualifying for social security could receive 100% rebates. </p>
<p>Council tax – along with business rates, grant support, fees and charges, and the occasional dip into reserves – pays for the total current spending of local councils across the UK. This mainly covers exhaustive spending like wages, the costs of delivering a range of local services and council administration.</p>
<p>But any credible property tax requires regular revaluation to reflect the changes in property values, whereas council tax across the UK (apart from Wales) is based on property values from 1991. As such, it is at serious risk of falling into disrepute and is essentially disconnected from current house prices. </p>
<h2>What went wrong?</h2>
<p>To understand where it all went wrong, we need to look at how council tax works. Essentially, properties are allocated to a band from A to H, based on their value (that is, their value in 1991). In each council area, band A properties have the lowest value (and therefore the lowest tax bill), while band H properties have the highest value (and the highest council tax liability). </p>
<p>But properties are not evenly distributed across the bands – rather, they are disproportionately found in the lower bands. The benchmark band D tax rate is set by each local government, with every other band a fixed proportion of D. Residents of the lowest value properties pay two thirds of the band D rate, while the band H rate is twice as much (even though property values in band H will be at least eight times as much as band A). </p>
<p>Already, we can see a problem: this is an arbitrary weighting, which directly benefits the residents of higher value properties, who will pay a lower proportion of the property’s value than those in cheaper properties. There is also <a href="http://www.jrf.org.uk/publications/council-tax-impacts">evidence that</a> people living in regions with relatively expensive house prices pay lower average council tax, compared with those in cheaper regions.</p>
<h2>Cuts and freezes</h2>
<p>Another issue is that governments across the UK have imposed freezes on council tax rates, meaning that local authorities are no longer at liberty to set the band D rate. In Scotland, the freeze is now <a href="http://www.bbc.co.uk/news/uk-scotland-scotland-politics-31614472">entering its eighth year</a>. The coalition government also <a href="https://www.gov.uk/government/publications/2010-to-2015-government-policy-council-tax-reform/2010-to-2015-government-policy-council-tax-reform">implemented a freeze</a>, and the new conservative government is <a href="http://www.telegraph.co.uk/news/politics/11335838/Council-tax-to-rise-in-Tory-shires-despite-freeze-ordered-by-ministers.html">looking to do the same</a>. The freeze in Scotland has cumulatively <a href="http://www.itv.com/news/border/2014-12-09/2-5-billion-council-tax-freeze/">cost the Scottish Parliament more than £2.5 billion</a> so far.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/91748/original/image-20150813-21421-kh0wtm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/91748/original/image-20150813-21421-kh0wtm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=480&fit=crop&dpr=1 600w, https://images.theconversation.com/files/91748/original/image-20150813-21421-kh0wtm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=480&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/91748/original/image-20150813-21421-kh0wtm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=480&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/91748/original/image-20150813-21421-kh0wtm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=603&fit=crop&dpr=1 754w, https://images.theconversation.com/files/91748/original/image-20150813-21421-kh0wtm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=603&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/91748/original/image-20150813-21421-kh0wtm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=603&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The big freeze.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/bambe1964/5400535359/sizes/l">bambe1964/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span>
</figcaption>
</figure>
<p>In 2013, the coalition government also cut its funding for council tax rebates by 10%, and devolved control over the rebates to local authorities. This created a patchwork of local schemes, wherein <a href="http://www.independent.co.uk/news/uk/politics/low-income-families-worst-hit-by-cuts-in-council-tax-benefit-as-thousands-struggle-with-household-bills-9073078.html">only 20% of authorities</a> found the funds to maintain previous levels of support. Scotland chose to pay for the cut out of its national budget (known as the Block programme), and essentially retained the previous system. </p>
<h2>Which fix?</h2>
<p>In view of these issues, it is clear that the council tax needs to be reformed. But how? The Scottish government has launched a broad based <a href="http://localtaxcommission.scot">Commission on Local Tax Reform</a> to consider the options for council funding. Here are some of the ideas that might come up.</p>
<p>Oxford professor <a href="http://www.ft.com/cms/s/0/74f9a2e4-d959-11e4-a8f1-00144feab7de.html">John Muellbauer has proposed</a> a package that would reform council tax, and includes exempting the first £40,000 of property value, a general revaluation, adding a new high-value band. Muellbauer’s solution would also offer a deferred payment system, for those who are asset-rich but cash-poor. This is effectively a form of equity sharing with government, so that if you cannot or choose not to pay annually, the government builds up a claim, which is realised on the sale of the property.</p>
<p>Then there’s Northern Ireland’s “rates” system: a tax on assessed properties’ capital values. Like the council tax, this has a rebate system, but it also allows for deferred payment. A different, more radical approach would be a land value tax – which is based on the value of the land only, rather than the property that stands on it. This approach is widely favoured by economists, because it would have no impact on development decisions and would widen the tax base.</p>
<p>Previously, the SNP government favoured a local income tax. Generally viewed as a fair and progressive approach, <a href="http://www.gov.scot/Publications/2006/11/06105402/0">the Burt Review</a> suggested that a revenue-neutral local income tax might need to be between 5.7% to 7.9% on top of existing income tax rates. Many worry that such additional income tax could lead to fiscal flight to places with lower tax rates. The income tax proposal would be a tough sell – but then, so is a property tax. </p>
<p>My own preference would be multiple taxes raising the same total revenue. Most countries widen their tax base and spread risk by using more than one local tax. The UK could well use some form of revenue-neutral property or land tax, supplemented with a modest income tax. This would need to be phased in and buttressed by regular revaluation, transitional support for those who lose out, and a serious commitment to communicating the reform proposals. But whatever tax option is chosen, that system must end the freezing of tax rates.</p><img src="https://counter.theconversation.com/content/45534/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kenneth Gibb carried out an independent evidence review for the Commission on Local Tax Reform and is a member of Scottish PropertyTax Reform.</span></em></p>The way we raise tax for local councils is unfair and unfeasible - our expert takes a look at the alternatives.Kenneth Gibb, Professor of Housing Economics, University of GlasgowLicensed as Creative Commons – attribution, no derivatives.