Archive article from The Socialist Issue 337
Council Tax - Unfair And Regressive
We're paying more while big business pays less
THE COUNCIL tax has become Britain's most hated tax. Millions struggle to pay ever- rising council tax bills while local authorities use the courts and bailiffs to retrieve arrears. In the next few weeks, we should all find out how much our council tax will be for this year. Estimates point to increases of 6% or 7%, still more than double the inflation rate.
Both deputy prime minister John Prescott and local government minister Nick Raynsford have warned councils that they will use their 'capping' powers to stop them increasing the council tax too far beyond the rate of inflation. As councils cannot meet existing budget requirements with these council tax levels, they will undoubtedly resort to even more cuts.
Devon county council has already set its 2004/5 budget. They plan to put council tax up by 5.25% and make £11 million cuts, hitting education support and road maintenance. Social services cuts total £3 million; 50 jobs are expected to go.
Cornwall have agreed a 6.9% rise but even their previous plans to push up council tax by 9% would have slashed planned spending rises by £10.3 million, affecting such areas as children's services and community care.
The council tax is unfair and workers shoulder the burden of incessant increases. Some pensioners, ironically cheered on by right-wing papers, are following the example of non-payment instigated in the Anti-Poll Tax struggle which Militant (our predecessor) led. Some have withheld payment of part of their council tax in protest at big increases.
Devon has taken to court 110 people who owe part of last year's tax. Devon Pensioners Action Forum plan to stand candidates against the tax in all seats in next year's county council elections.
By starving local authorities of sufficient funding for local services, this government has given councils the 'option' of administering massive cuts to our services or increasing the only source of income that councils have control over - the council tax.
In fact all councils have done both. Last year's average council tax rise of 13% (over five times the rate of inflation) was imposed alongside major cutbacks.
We would argue that there is a third option for local authorities, which is to set a budget to reflect local needs (a deficit budget) while building a campaign demanding more funding from central government.
Poor pay most
WHEN THE council tax was introduced in April 1993, the average bill for a property in band D was £568 in England and £328 in Wales. The 2003/04 average bill for band D is £1,102 in England (94% higher) and £837 in Wales (55% higher). Since 1997 the tax has increased by 70%.
London and the South East suffered the biggest recent increases. Last year Wandsworth's rise was 45.1%, Eastbourne's 23.6% and Lambeth's 22.8%.
These draconian increases are being made using an unfair, regressive tax. The council tax is basically a property tax with some exemptions and reductions for certain residents (see later). Each property is placed in one of eight bands (currently based on how much the property was worth in 1991).
Those living in the most expensive properties (band H) pay only three times as much as those in the lowest. The poorest 10% pay over four times more of their income in council tax than the richest 10%. So the Blairs, with an income over £350,000, pay just £1,140 in council tax.
It doesn't take into account an individual's ability to pay and only those on very low incomes get 100% rebate. Council tax benefit is notoriously difficult to apply for and is one of the most under-claimed of benefits. One-third of pensioner householders eligible to claim council tax benefit (1.4 million pensioners) don't do so.
Councils' benefit sections are extremely under-resourced, leading to long delays in dealing with benefits. It is not unusual to receive a courts summons for non-payment or missed payments of council tax even though people are still awaiting decisions on their council tax benefit.
Councils are particularly severe in demanding payment of this tax and use court summons and bailiffs when payers are only slightly late in making a payment.
Many have no choice but to borrow money from a loan shark to pay the tax or face the degradation of having their goods seized by bailiffs - or even jail.
Why Has Council Tax Increased So Much?
...is that since this tax came in, councils have had a smaller amount of local finances in their control.
Councils only raise 25% of their income from council tax - 75% of funding comes from central government. So a small increase in council spending or reduced government grants results in a high council tax increase. Every 1% council spending increase needs 4% increase in the council tax.
...is that income from business rates has plummeted. Before the poll tax, local councils would set the business rate as well as collecting and spending it.
Now central government sets the business rate and determines how it's spent on a national basis; the local authorities' only duty is to collect the business rate. So the only area that councils can gain extra funding from is the council tax.
The proportion of council income raised from business rates has fallen. Business rates now make up their smallest share of local income since 1981, having been pegged to inflation-only increases since 1990.
Of the £24 billion increase in local government spending since 1997/8, the portion raised from council tax has gone up 34% but from the business rates only by 15%.
In 1989/90 business rates covered 31% of local authorities' spending but now it covers only 22%. Council tax payers shoulder the burden with council tax rises way above inflation.
Any campaign against this tax must demand that business rates be brought back into local control and also that businesses pay a greater share of local authority income.
Of course, there should be rebates etc for small businesses but every area has big stores such as MacDonald's and WH Smiths who should pay a lot more to local councils. Right now their contributions are pegged to inflation and have been for the last 14 years! Taken with New Labour's reductions in corporation tax, big business has never had it so good.
...is the shortfall in central government funding. The government only allocates what it thinks councils need and not how much each council spends, so there are regular shortfalls.
Even the Audit Commission's recent report on the reasons for such massive increases in the tax cannot work out how the government decides what funding each council gets. For this financial year, shortfalls are already predicted with the government threatening to cap council tax levels if councils try to put them up too much.
Central government has agreed higher funding than expected for 2004/05 including a 4.7% increase in revenue support grant. Even with this increased funding the Chartered Institute of Public Finance and Accountancy (CIPFA) warns that "councils would struggle to balance budgets in 2004/05 without substantial council tax increases."
While council tax payers want lower increases, the government's plans to bring this about through capping will lead to even more cuts and reductions in our local services.
....is that more and more government funding is targeted spending such as 'Specific Formula Grants' and 'Ring Fenced grants'. This money can only be spent on services and resources which central government have targeted such as education and police.
For example, specific grants for education rose from less than £250 million in 1997/98 to over £3.5 billion in 2003/04. So local councils, with far less money under their control, resort to council tax rises and cuts to balance their budgets.
...is privatisation. If a local authority wants to build a new school for example they can usually only get funding from central government in the form of PFI (Private Finance Initiatives).
The council then hands over the money to a private contractor, ensuring some fat profits for the likes of Jarvis. By 2005 PFI expenditure will have reached £12 billion. This is public money, raised from our taxes, but a large proportion goes straight into the pockets of the rich, thereby resulting in less cash for our services.
Local Taxation - A Brief History
BRITAIN'S LOCAL taxation system was largely unchanged from the 17th century until the poll tax was introduced (in 1989 in Scotland and 1990 in England and Wales). Throughout the 1980s, central government grants to local authorities increased by less than inflation while local taxes increased faster than inflation.
In 1975/76 government grants accounted for roughly two-thirds of local spending in England. In 1981/82 local taxation contributed 46% of the cost of local services - central government contributed 54%. By 1989/90 the share of local taxation had risen to 59% while central government's contribution had fallen to only 41%.
The share of local service costs met by ratepayers rose from 22% in 1981/82 to 29% in 1989/90 and 34% in 1990/91 when the poll tax was introduced in England and Wales.
Local rates continued to increase and services were cut. Councils lost some of the government grant if they went over central government spending guidelines.
The poll tax was a tax on people not property, a flat-rate tax completely ignoring ability to pay. Even those on income support had to pay at least 20% and the bills were extremely high. Following a mass campaign of non-payment led by Militant the tax was defeated.
The council tax replaced it in April 1993. It is partly a property tax but also depends on who lives there. Each home is placed in one of eight bands.
The Inland Revenue values each property (currently based on how much the property was worth in 1991). A revaluation of all properties will take place in April 2005 for Wales and April 2007 for England.
Local councils set a tax for Band D and other bands are set in relation to this (Band H is twice that of Band D). There is a reduction for single residents and exemptions for certain categories. Since the tax came in, there have been massive hikes as council tax payers provide a larger proportion of local income.
Parties Look For Alternatives
ALL POLITICAL parties, including the Labour government, now admit that the council tax has to be reformed. Former transport and local government secretary Stephen Byers admitted the growing council tax crisis and said: "If we don't address those concerns now, the government will pay a heavy political price."
One of the Scottish Socialist Party's main campaigns is to replace the council tax with a "Scottish Service Tax". This would in effect be a local income tax and not based on property and would result in more progressive taxation. Anyone earning below £10,000 would be exempt. All income above £10,000 would be taxed at rates between 4.5% and 20% depending on their income.
The Liberal Democrats also propose a local income tax but one set at an average 3.7p in the £. They would not levy the tax on the first £5,000 of people's income.
The government has set up a "Balance of Funding Review" to report this July on all aspects of local government funding. They will look at a number of options which could include a local income tax, bringing business rates back to local control. They are also considering additional local charges for services or extra local taxes.
Lessons from Ireland
A Land Value tax is also an option along with a local sales tax on retail goods and services. The council tax could be reformed by introducing more bands, linking it more to the ability to pay and more people being eligible for council tax benefit.
However, on closer inspection, some of their proposals could be worse than the current council tax.
The Local Government Association, a cross-party body representing local councils, has just written a paper on how they see the future of local council funding. They are looking into a local income tax on top of a reformed property tax and then charging for specific local services as well!
Congestion charges, green taxes and more charging for council services are some of their ideas. They believe that raising money from these extra sources could mean needing less money from central government.
The government believe that individuals should pay for what they use. If you want your rubbish collected, they say, why not have a bin tax? Public services would disappear completely at this rate. We do not have to look too far to see how other governments have instigated extra local taxes.
The Irish government introduced a "Bin tax" making people pay for each bag of rubbish they collected. The Socialist Party in Ireland has galvanized the outrage at this extra tax and organized a mass campaign of non-payment and protests. Despite some leaders having spent weeks in jail, the campaign continues.
The City That Dared To Fight
FOR TOO long, councils have meekly accepted less funding from central government, then voted to make council tax payers pay more each year and cut our services. These councillors think that passing the consequences of insufficient funding onto ordinary residents is an easier option than defying the government and campaigning for more government money.
One council in the past did not accept the government's decision and instead built a mass campaign to fight for improved services and more funding.
Liverpool city council in the 1980s was elected on a programme to increase spending and make life better for working people - and they stuck by their promises. These Labour councillors, with supporters of Militant (the Socialist Party's predecessor) prominent in their ranks, built a mass campaign uniting council workers and their trade unions and local residents.
On 29 March 1984 in a one day city-wide strike, 50,000 marched to Liverpool's Town Hall where a deficit budget was set. The mass pressure forced Thatcher to retreat and make concessions which allowed the council to carry out their plans.
Despite these councillors being expelled from the Labour Party and some of the gains being taken back, their struggle is still a model to emulate (for more details read Liverpool, a city that dared to fight, see advert).
Instead of putting up the council tax, councils should refuse to make any cuts and set budgets accordingly. Campaigns should then be organised across the whole community to fight for the necessary funding from central government.
If the current batch of councillors won't do this, then we must look to electing councillors prepared to stand up on our behalf. We need more fighters like our Socialist Party councilors in Coventry and Lewisham who campaign to save and improve our services.
Even if a fairer local tax is introduced, the established parties are all in tune with the capitalist agenda. This means they favour more privatisation with all the wastage and worse services that this involves and they also back the culling of our public services.
That is why we need to discuss a fighting strategy to re-build our services alongside the abolition of the council tax.