Magazine article Public Finance

It's Now or Never

Magazine article Public Finance

It's Now or Never

Article excerpt

Tony Blair is in for the long haul. The prime minister's party conference speech was widely interpreted as a statement that he intends to be around for another four years. He did not sound like a leader cutting and running. The decision to postpone council tax revaluation indefinitely, announced the previous week, was surely further evidence that he wants to stay in power for as long as possible.

The PM's capacity to read the political runes and then act in his political self-interest remains unchallenged. Margaret Thatcher utterly misread the extent to which local taxation could damage a British leader. Her decision to push through the community charge cost her sufficient votes in her leadership battle with Michael Heseltine that she fell short of the majority needed to be certain of staying in office. From then on, she was politically dead. Blair has understood enough about this history to want to avoid the risk of a similar fate.

Thus, the possibility that April 2007 would be the occasion for millions of council tax bills to jump by 15% or more ahead of inflation has been avoided. Indeed, however long the prime minister hangs on, even until 2010, he will not face the nightmare of 'the losers'. But in opting for this self-preservation strategy, he has demonstrated just how difficult it now is to do anything other than freeze the council tax. The implications of this decision will surely affect each year's local funding settlement from now on.

Council tax is too hot to handle. It frightens even the most powerful political leader in Europe. Moreover, the need to put off the evil day of revaluation has led to another delay in the final conclusions of the Raynsford-then-Lyons inquiry. Nick Raynsford's Balance of Funding review got under way in April 2003. Lyons Mark 1 took over in July 2004 and was due to report in December 2005. Lyons Mark 2 will finally complete its work at the end of 2006.

Almost four years is a very long time to spend on official examinations of council tax and other possible finance reforms. The Layfield Committee took just two years from its establishment in 1974 to complete its encyclopaedic study of the same subject. True, the delay in Sir Michael Lyons' report was due to an extension in his remit to include other aspects of local government, such as the type and quality of services provided and the need to decentralise finance to neighbourhoods. But the original purpose of the Balance of Funding review was straightforwardly to look at funding. This element of the exercise truly will have stretched out over the better part of four years.

It was never very likely that Lyons would propose a radical change to the system of local government finance. He, like the rest of us, must work within a constitutional and political framework that appears to preclude a move towards a very different kind of funding regime. The idea that the Treasury would accept the introduction of, say, a local income tax looks so wild that very few commentators can seriously contemplate such a move. Thus, a degree of self-censorship becomes inevitable. Everyone finds themselves working within limits set by central government's unwillingness to consider any fundamental change.

But it is unlikely that the government will be able to soldier on with local authority finance in its present form for much longer. The relentless real increase in council tax appears to have reached some kind of a pain threshold. Pensioners volunteering to go to prison to protest against local tax rises undermine the political benefits of postponing or cancelling the 2007 revaluation. Already, it appears likely that council tax will rise by two or three times the rate of inflation in 2006/07.

The government finds itself in a fine old mess as it steers council tax from year to year. Whitehall must now take most of the responsibility for these local tax changes. The government has pushed up expenditure plans for education, personal social services and the police at a breathless pace in recent years. …

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