Give us our money back

Published in the Evening Standard, 22 September 2005

We've become so used to politicians wriggling and writhing in response to a tough question, that when one gives a straight answer, it can come as a bit of a shock. So it was on Tuesday when the local government and communities minister, David Miliband, announced he was going to postpone the long-dreaded revaluation of council tax. “If the question is, is this a U-turn,” he said, interrogating himself, “the answer is yes.”

Well, he deserves credit for that. Not only giving the painful answer – but asking the painful question, too. In fact, he gets points just for making the announcement at all. Plenty of Miliband's Cabinet colleagues would have suddenly found a pressing engagement, perhaps reviewing refuse arrangements in the Shetland Isles, and sent their junior minister out to give the word instead.

And it's certainly an embarrassment. The reassessment of homes for council tax was meant to happen by next spring. Now, having spent #50m on it, the move has been delayed to 2010 at the earliest.

The motives are not hard to guess at. When houses were revalued in Wales a third of them were put into new, more expensive brackets – sometimes moving up two or three bands at once. The rise in house prices was to blame. If that was true in Wales, imagine what it would do to homes in London and the south east. Once classed as a modest home, your place could become a millionaire's pad overnight – and you'd get a whacking council tax bill to prove it.
So the government has decided to put off that moment of pain – leaving it to Gordon Brown to inherit. Of course, even the straight-talking Miliband didn't admit that that's what they're up to. Instead, he said he wanted to ensure a top-to-bottom look at the whole way our towns and cities are governed. Now Sir Michael Lyons – initially charged with a review of council tax alone – is to consider the whole business of local government.

So let's take the minister at his word. If he wants us to ask the big questions, let's ask them. For there is indeed much at stake here. Not just the immediate matter of how much we're all going to pay in council tax, but a larger one: how doe we organise our society?

Stroll along the South Bank and you can hear the question getting an airing already. Last night saw the National Theatre opening of Playing with Fire, a thoughtful new play by David Edgar which weighs this most neglected of public dilemmas: where should the balance lie between central and local? His play follows a Whitehall apparatchik, despatched to bail out the failing, northern council of Wyverdale. She is southern, well-spoken - and resented. To the Old Labour stalwarts of Wyverdale, she is London, come to condescend to the provinces.

That speaks of something real about Britain, an over-centralisation matched in the democratic world perhaps only by France. Except even the French have long had strong mayors in even the smallest towns, able to run their communities the way the people who elect them see fit.

Britain has been governed another way, with the man in Whitehall knowing best. The paradox is that, even though London is the over-mighty master in this arrangement, it is also the victim. For the central government dominates this city just as much as it dominates the rest of the country.

The creation of a mayor has changed some of that. But Ken Livingstone still has to look to central government for about half the money he spends. London's boroughs are in an even more dependent state: of every pound in their budgets, 75p comes from a Whitehall handout.

This is no way for a grown-up city to operate. In New York, currently enjoying the carnival of an election campaign, the mayor raises about 70% of his own income from an array of city-wide taxes – almost the exact reverse of the ratio here. In New York, if it's spent locally, it's raised locally.

Does that matter? So long as the money gets spent the right way, who cares where it comes from? Except the two are linked. If our borough councils had to raise most of the money they spend – rather than acting as mere recipients of a government cheque – they would instantly become more accountable. And something else would happen, too. The quality would improve. Power follows money and talent would come right behind it. Once local government had the muscle to raise and spend its own money, people of ambition would flock to be involved. Right now, they want to skip over the town hall and head straight to Westminster, to be where the action is.

It wouldn't be impossible to make the switch. The Liberal Democrats are still committed to scrapping the council tax in favour of a local income tax. |If that's too bold a step, there are two things to do. First, bring the business rate, which used to be local before it was snatched by central government, back to the towns and cities where it belongs. Then, simply take the chunk of our national taxes that ends up being spent locally, lop it off the income tax bill and levy it locally instead.

Tony Travers, the local government guru at the LSE, reckons that if we now pay 20p in the pound in income tax, about 4p comes back to London. So why not cut out the middleman: reduce the national tax to 16p and charge a 4p local income tax, so that those we elect in our boroughs and our city raise the money they spend. Then if that works, and residents feel they are getting value for money, one council could ask for more – while another cuts taxes and charges less.

It works in Scandinavia and a host of American cities already – and it could surely work here. Something for Mr Miliband to think about. After all, he has plenty of time.

Posted on September 22, 2005 10:21 PM

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