The state and local government
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| 571 Council tax raised £8.9 billion in 1993/94.572 By 2007/8 this had grown to £23.7 billion, a rise of 166 per cent, triggering concerns that those on fixed incomes could not afford the constantly rising rates of tax. In October 2005 the government postponed the revaluation indefinitely. Both the Tories and the Liberal Democrats in Parliament had already rejected revaluation. The Lyons’ report in March 2007 offered another chance for reform.573 Yet even Lyons’ incremental steps to council tax reform, including the call for revaluation, were rejected by all sides. The heart of the problem for national political parties is fear of the political price that would be paid for the first step to reform. The losers from revaluation are likely to care more than the winners. Yet the problem will not go away. For 61 per cent of people council tax is already a major financial worry; the second biggest concern for householders; and 67 per cent believe it is unfair, making it Britain’s most unpopular tax.574 Council tax is set to rise above inflation every year, relentlessly increasing public opposition. With every year that passes the revaluation problem becomes larger, so making reform more politically dangerous.
The council tax, which on average accounts for around 25 per cent of local government revenue, is also highly regressive. The structure of the banding system and the difference between the levels of council tax paid in different bands means that the rate of tax actually falls the greater the value of the property on which it is levied. For example, someone in a house worth £1 million in 1991 pays only twice the amount of someone living in a house worth £70,000 in 1991, and only three times the tax paid by those in the poorest accommodation. On top of that, no account is taken of people’s ability to pay the council tax, except that single person households receive a 25 per cent reduction in their council tax. This reflects the fact that council tax is a hybrid tax, partly a poll tax and partly a property tax, and assumes a two person household. In addition, those on very low incomes are entitled to the means-tested council tax benefit, which is claimed by almost half of all households in the lowest band. However, the trouble here is that this creates a ‘poverty trap’ when people’s incomes go up, due to the withdrawal of benefit as earnings rise above a certain level. Furthermore, the take-up of council tax benefit is only around 70 per cent, so that many people, especially pensioners, lose out from not claiming their entitlement.575 New Labour did nothing, however, to address the injustice of the £1.8 billion of council tax benefit that goes unclaimed every year due to the complications and stigma of claiming. Lyons also recognised that the council tax was regressive and recommended that the large homes of the super-rich should be charged double what they are currently paying to allow for a rebate of £150 per year for the poorest, but New Labour again did nothing to address this injustice. Another problem with the council tax is the so-called ‘gearing ratio’. Since council tax is the only significant source of funds under the control of local authorities, if a local authority wishes to raise total spending by, say, 5 per cent, it will require a council tax increase of 20 per cent (because council tax accounts for only around 25 per cent of local government revenue). This represents a gearing ratio of 1:4. For poor areas, where central government support accounts for a greater proportion of revenue – such as in the London Borough of Tower Hamlets – increasing spending by 5 per cent can mean an increase in council tax of as much as 45 per cent, giving a gearing ratio of 1:9. In addition, council tax has to bear the brunt of any shortfalls in revenue coming from central government if local authorities are to maintain the same levels of service.576 Lyons – noting that, in 1993, local government had raised 23 per cent of its expenditure through business rates – calculated that the average household could be about £250 a year better off if businesses paid the same share of taxation as they did in 1993. Yet the Business Rate Supplements Act 2009, which gives councils the right to levy a business rate supplement (BRS) to fund local economic development, does not give local government the ability to challenge this. ‘Instead’, as Andrew Fisher points out in an act of tokenism, it allows local councils to levy a supplementary rate of no more than 2 per cent. In a further blow to local democracy, this would only be for hypothecated expenditure on local economic development….If the BRS will fund more than one-third of the total costs, then businesses must be balloted, as if business had some sort of democratic legitimacy.577 The consultation paper – setting out the draft guidance to be issued under clause 26 of the Bill for the consideration of local authorities, businesses and business representatives, and any other stakeholders – made it clear that: ‘A BRS is not a new means to fund existing expenditure or a resource to support general service expenditure.’578 Hence, as the liberal democratic political scientist Professor Anthony King concludes in The British Constitution: The story of British local government during the past half-century is in large part a story of its cumulative loss of autonomy, its cumulative loss of freedom and its cumulative loss of power. These losses have been on such a scale that in the early twenty-first century the word ‘government’ in the phrase local government really does need to be put in inverted commas.579 This has mainly been achieved by marketisation, privatisation and financial control under the Tories and New Labour: and, as Paul Feldman notes, local authorities ‘are now a mere cipher for central government control….government specifies each and every local authority’s grant in minute detail.580 The central state’s Comprehensive Spending Review The central state now plans public spending on a three year basis. The Comprehensive Spending Review (CSR) announced in October 2007 determined the amounts of public spending for the financial years 2008/09, 2009/10 and 2010/11. CSR 2007 was based on the – now unrealistic – assumption that Gross Domestic Product (GDP) growth of 3 per cent in 2007 would be ‘2 to 2½ per cent in 2008, before strengthening to trend at 2½ to 3 per cent in 2009 and 2010’581 : since GDP growth was 0.0 per cent in the second quarter of 2008’; and it declined by 0.7 per cent in the third quarter and 1.5 per cent in the fourth quarter. ‘For the year 2008 as a whole’, according to the Office of National Statistics, ‘GDP rose by 0.7 per cent over 2007, down from 3.0 per cent in the previous year’.582 In the first quarter of 2009, GDP contracted by 1.9 per cent and was 4.1 per cent lower than in the first quarter of 2008.583 New Labour postponed the CSR due in the summer of 2009 because it would have shown, according to Andrew Rawnsley, huge spending cuts whoever won the 2010 general election.584 The next CSR – by the Con-LibDem coalition government – will therefore be in autumn 2010. England John Healey, then Minister for Local Government, on 6 December 2007 announced that local government in England – which he claimed will have had ‘13 years of above inflation increases in funding…by 2010/11’ and be ’45 per cent higher in real terms than in 1997’ – would receive £70.4 billion in 2008/09, £73.5 billion in 2009/10, and £76.7 billion in 2010/11 amounting to ‘increases of 4.0 per cent, 4.4 per cent and 4.3 per cent respectively’. Healey also stated that he expected the average council tax increase in England to be substantially below 5 per cent in 2008/09 and made it clear to the House that ‘we will not hesitate to use our capping powers as necessary to protect council taxpayers from excessive increases’. In addition, Healey told Parliament: this is a tight settlement but a fair and affordable one. It delivers the certainty, flexibility, equity and stability that local Government told us it wanted.585 However, as the Local Government Association (LGA) pointed out, the overall settlement did not take account of the pressures facing local government. If the LGA’s CSR bid had been funded in full there would have been a 7 per cent cash increase; in fact the cash increase at the time was on average, about 4 per cent. The total Aggregate External Finance (AEF) increase for the three years was 4.0/4.3/4.3 per cent in cash terms, or 1.2/1.5/1.5 per cent in real terms. This was below the overall 2.1 per cent real increase for public expenditure as a whole and below the departmental settlements for education (3 per cent real), transport (3 per cent real) and health (3.7 per cent real).586 However the picture facing local government services excluding schools was bleaker: since –when the ring-fenced grants for schools are taken out, the increase was 3.5/4.0/3.1 per cent cash or 0.7/1.3/0.4 per cent real. Formula grant consists of revenue support grant and redistributed business rates. Here the settlement confirmed what was announced in the CSR 2007. The increases in revenue support grant and redistributed business rates was, including PFI special grant 4.2/3.5/3.4 per cent cash, but excluding PFI special grant 3.7/2.8/2.6 per cent cash (1.0/ 0.1/-0.1 per cent real).587 The LGA estimates total pressure of £2.6 billion over the CSR period arising from the increased demands due to demographic challenges and independent sector costs. Yet the total formula grant increase to local government over the three years, for all services, is only just over £2.6 billion. Local government faces an increasing complexity of cases. Older people with mental health needs are increasing. A quarter of over 85’s develop dementia and one third of these need constant care or supervision. Local government has also seen an average annual increase of 9 per cent in care weeks provided in the period for 2000/01 to 2003/04 for people with disabilities. Between 2001 and 2004 there was a 15 per cent increase in the number of people with learning disabilities using social services. In this period the number of people with learning disabilities aged over 65 and using services rose by 31 per cent. This has led to local government tightening criteria, as the Commission for Social Care Inspection has recently pointed out. The Government’s Social Care reform grant amounting to over £500 million over the CSR period is ‘back-loaded’ (£82 million in 2008/09 rising to £274 million in 2010/11) and local government is facing real pressures now, forcing them to review criteria. One borough council in the south east informed the LGA that, as a result of demographic and other pressures, expenditure on social care in 2008/09 would need to rise by 4.6 per cent in real terms. Similarly, a council in the north west had identified that expenditure would need to increase by 2.2 per cent in real terms. Both of these authorities therefore received real reductions in funding.588 The 2007 settlement used 2004-based population projections for 2008, 2009 and 2010, which were based on the last five years’ mid-year estimates projected forward and as such they do not allow the most recent population trends to be accurately reflected, so the most recent figures should be used. The new methodology for the international migration component in the mid-year estimates feeds into the population projections: but does not include short term migrants – that is those resident for less than 12 months – in the population statistics for either mid-year estimates or projections. Therefore the LGA called for DCLG research into the precise way in which short term migrants impact on the demand for local government services, in time for consideration for incorporation into the next three year settlement, and a fund of £250 million to alleviate particular pressures of migration in local council areas due to the undercounting in the official statistics.589 The LGA also noted that, following the 2006 extension to concessionary fares, councils reported rises of over 150 per cent in payments to private operators compared with the position in 2005/06. Hence they believed that central government should examine whether the £350 million for implementing the 2006 extension was sufficient and fund any shortfall. The LGA welcomed the decision to pay the extra costs for the 2008 scheme in the form of a specific grant. However, they urged the government to keep under review whether the amount (£212 million in 2008/09) was sufficient and whether the increases in 2009/10 and 2010/11 reflect the pressures: because the grant should reflect actual costs to councils. One shire district told the LGA that it estimated costs in 2008/09 of between £2.3 million and £2.7 million, whereas the government’s specific grant was £463,000 and RSG of £1.1 million. A particular pressure is also appeals from operators.590 The same pattern noted in adult social care can be seen in the pressures on children’s services. This includes rises in the number of children in care (up 17 per cent between 2000/01 and 2004/05). Between 1999 and 2004 the prevalence of conduct disorders among children rose from 5.3 per cent to 5.9 per cent. With the transfer of schools funding in 2006/07, over half of all local government external income comes in the form of ring-fenced grants. Ring-fencing places major constraints on authorities in a tighter financial climate. The LGA therefore believes that the ring-fence should be removed from the Dedicated Schools Grant. The increases in Dedicated Schools Grant are lower than those of recent years. This places pressure on authorities to find savings. One reaction, particularly in rural areas, is to reorganise small primary schools. Councils cannot be expected to pay out of council tax for keeping small schools open, particularly when the government has made it clear they will cap increases above 5 per cent.591 The total burden on local government for equal pay claims, including back pay, is estimated by the LGA to be around £2.8 billion: but the settlement made no additional funding available for this. Moreover, the cost of waste to English local government is some £3 billion per annum. Increases in costs relate to preparation for meeting the EU Landfill Directive. The actual tonnage of municipal waste disposed of in landfill fell from 20.9 million tonnes in 2003/04 to 17.9 million tonnes in 2005/06. However this has meant cost increases which average 10 per cent annually since 2001/02. Landfill tax is rising annually at £8/tonne, from the current rate of £24/tonne to £32/tonne from April 2008. This increase in the escalator is increasing costs for disposal authorities by a minimum of several hundred thousand pounds, and by well over a million pounds each for many authorities, even though councils are successfully diverting waste away from landfill. This was supposed to have been channelled into local authority grant, but the LGA have been unable to ascertain from the government how much of landfill tax has been recycled, and how it has been returned to local government. Their estimate is that, assuming landfill tax increases over 2003-08 were already fully returned, that the additional amounts to be returned over the CSR period attributable to the further £5 per tonne increase in the escalator would be at least £78 million /£150 million /£215 million. In its settlement response the LGA asked the government to clarify exactly how it has ensured the landfill tax escalator is revenue neutral to councils. The government replied that the resources will no longer be hypothecated to local government. This represents a backtracking from its previous pledge.592 A consultation document published by the Ministry of Justice on 19 December 2007 estimated that the overall effect of the increase in public law family fees will be £40 million per annum. It says that this has been allowed for in the overall CSR increases. However, the manner in which this has been done has never been transparently explained. If that is the case it means that there is less available for other pressures. No new money has been provided. In the three year CSR period, local government has been asked to make efficiency savings amounting to 3 per cent of their budget requirement. The government claim to have taken these into account in assessing pressures. Therefore these are not available to be put into improvements in services or reductions in council tax. For a sizable minority of authorities, the picture is bleaker: around a third of all authorities with responsibility for children’s services and social care will receive a minimum increase of 2 per cent, 1.75 per cent and 1.5 per cent in the CSR years. And around a third of all shire districts will have minimum grant increases of 1 per cent, 0.5 per cent and 0.5 per cent in the three years. This is at the time when they are facing pressures of concessionary fares and environmental services. Yet over the CSR period, according to the LGA, the government’s contribution to Revenue Support Grant from general taxation will continue to decline.593 The Pre-Budget Report in November 2008 announced:
But, as the Local Government Association noted in November 2008, this was ‘not an addition to the figures already announced in CSR2007’.595 The LGA also argued that: With repossessions having risen by 70 per cent and predictions of five million people waiting for a council house by 2010…Allowing councils to keep the £200m surplus raised from council house rents and greater freedom to borrow would free them up to build more homes. The Government should support councils to guarantee mortgages and housing schemes and allow authorities to keep all capital receipts from the sale of housing.596 Though, as shown below, in June 2009 the New Labour government announced proposals to allow councils to keep the capital receipts from sales. In January 2009 the LGA published the results of a survey showing the effects of the economic crisis on local authorities at the end of November 2008. The main findings were that:
Since November 2008 the situation has deteriorated even further. For example, following the announcement on 17 February 2009 that Leeds City Council planned to cut some 650 jobs over the next year due to ‘lower government grants and a drop in its income’, the LGA said the ‘situation had significantly worsened’ since its November 2008 survey showing one in seven councils had cut jobs.598 And Croydon Council announced 142 job cuts on 26 February 2009.599 Unions now fear that tens of thousands of Britain’s 6 million public sector works will lose their jobs as the recession deepens. The key findings of the Local Government Association’s survey of job cuts in the six months to March 2009, which was completed by 165 authorities in England, representing a 43 per cent response rate, were as follows:
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