Now that the dust has settled on the 2018/19 council tax settings and with the increase set on a national basis at 5.1%, Stephen Fitzgerald explores the issues associated with council tax setting and proposes a “balanced approach” to advising councils in this critical aspect of the finance director’s role.
In the United Kingdom system of government, the only bodies that have the power to raise local tax, other than national and devolved government, are local authorities. The council tax is a financial call on all local residents in a community and has always been an issue of discussion and controversy. Local tax is often a key concern in communities and the disaster which befell the community charge demonstrates what can go wrong when issues associated with it are mishandled.
Nervous about the potential for catastrophe that the community charge demonstrated, successive governments have been reluctant to release control over local taxation and there have been a series of regimes to prevent excessive increases. The current mechanism in use is where local authority increases exceeding 6% are put to a local referendum, to gain approval for the increase. Not surprisingly, there has been no referendum where there has been a majority of the electorate in favour of an increase in tax over 6%. This means that, at present, effectively the tax increase is fixed at no greater than 6%.
It is important to emphasise that all local authorities are different and their financial position is unique to their particular circumstances. What is the right advice for one authority may not suit another. In supporting members on this issue I recommend a balanced approach.
The arguments around the taxation issue tend to be along the lines shown below:
For higher tax –
- The council needs to increase income in support of services to vulnerable residents
- Tax rises are important to allow baseline expenditure to keep pace with inflation
- Council tax is supported by benefits so the poorest have their increases mitigated
- If you don’t increase the tax you detract from the sector argument for higher local government funding
For lower tax –
- Council tax is regressive, and the less affluent people who and not in receipt of benefits take a disproportionate impact from any increase
- Council’s need to look to alternative sources of funding to cover expenditure
- The taxpayer should be at the centre of financial decision making
- Council tax should not be an inflationary pressure
These arguments are familiar to local government finance practitioners and the local authority finance director should advise council members on the financial parameters within which the council is working and particularly the adequacy of reserves. But, I believe that it is not correct that they should pursue a particular agenda for low or higher tax. Ultimately, the setting of the council tax is a political function and the final decision lies with the politicians. It is for the finance director to advise clearly on the relevant factors and the implications of any particular course of action on the council, and if councils ignore advice, the finance director has powers to ensure appropriate action is taken, as we have recently seen with the Northamptonshire County Council. But I do not believe that pursuing a particular agenda should be worn as a badge of pride, it is better to provide a balanced view on the options available to allow the members maximum flexibility of decision making. It may be that in the time of austerity the range of potential decisions are limited, nevertheless the more that the finance director makes their councillors aware of all the options available, the more they will be valued for their objective professional advice.
Stephen Fitzgerald, director, Tamar Consulting.
@SHJFitzgerald
