Headlines: July 21st, 2004

The decision to hold a new inquiry into reform of local government funding will mean another council tax crisis next year, according to the local democracy think-tank, the Local Government Information Unit. Local authorities, too, are warning that council tax is going to be “a huge problem” next year and that doing nothing is not an option.The responses follow the announcement of an independent inquiry that will examine how to make the council tax system fairer and more sustainable. Local Government Minister Nick Raynsford said the inquiry’s work would be informed by the Balance of Funding report, which concluded that council tax should be retained but reformed. It said, too, that there were strong arguments for shifting the balance towards more local funding, but only if the methods for doing this were both feasible and desirable.

The minister said the inquiry, to be led Sir Michael Lyons, would make recommendations for the reform of council tax, taking into account the revaluation of domestic property due in 2007. It will also assess the case for giving local authorities more flexibility to raise additional revenue, analyse the options for shifting the balance of funding, including local income tax, reform of business rates and other possible local taxes and charges and consider the implications for the financing of possible Elected Regional Assemblies. It will report to the Deputy Prime Minister by the end of 2005.

The LGIU said the inquiry meant more delay in reform with no firm decisions being made until at least the end of 2005, making another council tax crisis likely next year. It also warned that unless ministers find extra funding to bridge the billion pound gap that the Local Government Association has identified in town hall finance for 2005-6, there will be further pressure to raise the council tax sharply next year and the threat of capping to impose further cuts in local services for which ministers do not provide ring-fenced funding. It says the worst scenario for most council tax payers would be a failure to reform the council tax system before the revaluation of properties takes effect in 2007 and predicts that without reform, millions of people will suffer huge increases when they are reclassified into the higher bands.

In its response the LGA said the government’s review had concluded that the balance of funding needed to be shifted from the centre towards local councils, which would be a major step to ending the status of the UK as the most centrally governed country in the developed world. The LGA Chairman Sir Sandy Bruce Lockhart, “Doing nothing is not an option. Council tax is going to be a huge problem next year, and for the years to come, especially with the impending revaluation of properties.”

Looking to the new inquiry he added, “Nick Raynsford’s review has taken 15 months so far and we look forward to Michael Lyons bringing a final recommendation forward well before council budgets are set in February. The sooner change happens the quicker we can come to the rescue of those council tax payers suffering the injustices of the current system.”