Michael Lyons's report on local government finance, delivered on 21st March, was reminiscent of Horace's quip, "The mountains were in labour and gave birth to a ridiculous mouse." The expected roar of the Lyons turned out to be an impotent squeak.
The report had twice been postponed, in order to extend its scope to consider aspects of the role and function of local authorities as well as their financing. But the main thrust of its 400 pages turned out to be a series of tweakings of council tax rather than bold moves to replace, restructure or supplement it.
Along with the introduction of three new council tax bands, one at the bottom and two at the top, Lyons suggested a revaluation of house property—the current bands are based on 1991 prices—a move which the government promptly rejected. Scratching around for ways of widening the council tax net to scrape up additional revenue, Lyons also proposed removing the current exemptions of farms and farm buildings (to raise £450m); of property occupied by charities, including their shops (another £724m); and to end the relief for empty and derelict property (£1.3bn). All that would have increased the total yield of council tax by about 10 per cent. The government grabbed at the last of these—and it was largely included in Gordon Brown's swan song budget. But the other suggestions will be the subject of—probably lengthy and indecisive—consultation.
Most of Lyons's other proposals were immediately shot down: levying by councils of additional charges for refuse collection; a so-called "bed tax" on hotels (mainly aimed at foreign tourists); and a supplementary rate on businesses to help pay for major infrastructure projects.
Even if implemented, the Lyons proposals on council tax—together with his optimistic suggestion that central government should relinquish its powers of "capping" the rate charged by individual authorities—would do nothing to further the objective of giving local government more responsibility and freeing it from obsessively detailed central government control.
To do so must mean ending reliance on the council tax as, overwhelmingly, the largest source of locally generated finance. Even with all Lyons's tweaking, councils would still be reliant on central government for over two thirds of annual revenue, with all the constraints over policy and spending options that brings. Other income sources must be found. Council tax should be scrapped in its present form (although there is a strong case for retaining a levy of some kind on property—not least because its physical presence means that collection is virtually assured). An annual levy of perhaps 0.5 per cent on current values would be a practical alternative—and the cost of annual updating would be worth paying to avoid the anomalies in relative values that emerge over longer periods, which are then used as a reason to avoid change with its inevitable mixture of vocal "losers" and silent "winners," causing political panic.
Beyond that, local authorities should be entitled to a proportion of some central taxes: income tax, VAT, road fund licences and, possibly, inheritance tax, would be channelled back to them (as with business rates). That would provide a basic level of income which would be supplemented by a much-reduced central grant, reflecting the relative wealth and social needs of each local authority area.
Such a pattern is clearly desirable, but it is difficult to conceive of an administration in Westminster that would have the courage to implement it.
