Wednesday, March 23, 2005

Why Council taxes are going up

Given the comments on my previous post I think a brief lesson on why Council taxes have been going up is in order:

Council tax is largely determined by the amount of money which a local authority (eg Monmouthshire County Council) receives from the Assembly. The lower that amount is, the more council taxes have to rise to make up the difference.

There are two reasons why council taxes have risen each year at levels that are way above the rate of inflation.

The first is that the each year the Council faces a rise in their costs, often due to initiatives which are imposed by the Assembly without being properly funded. The Council has faced a rise in costs because of these extra regulations such as the Teachers Workload Agreement. The difference between what the Council gets from the Assembly and what it has to spend is made up by the Council tax.

The second problem is that formula which is used to determine how much money each local authority gets from the Assembly, (and therefore how much extra they will have to levy in Council tax to meet their costs) is shamelessly skewed against more rural areas such as Monmouthshire.

Monmouthshire suffers from the misconception that it is a “leafy area” which, to quote the former leader of Blainau Gwent, “can afford to pay.” This is simply not true, but on top of the poverty that exists here the costs of maintaining services in a rural area are much greater than in neighbouring urban areas. Road maintenance alone will be vastly more expensive, and as the Free Press recently reported Council officials are warning that the roads are turning into cart tracks because of a lack of upkeep.

This County also has a relatively high elderly population many of whom need help from social services. None of this is properly factored into the formula which the Assembly use to decide how much money to give to each of the 22 local authorities so our taxes go up.

On numerous occasions both inside and out of the Assembly I have spoken out about this issue and highlighted the way in which Monmouthshire is being short-changed. Money which should be coming into this area as of right is being diverted to other local authorities which, in many cases, have consistently failed to spend to within their targets.

The Conservative group in the Welsh Assembly have been trying to get changes to the formula used for distributing funding to local authorities so that it properly reflects the genuine needs of each area of Wales.


Blogger Claire Smalley said...

I'm not disputing that council taxes are rising but it is an unfair tax which the tories introduced, surely it's a bit hyprocritical to point fingers why didn't you do that when it was being introduced.

And you have not answered the question what do the tories plan to do to help pensioners in wales?


4:53 AM  
Blogger David Davies AM said...

I disagree - it is not the tax that is unfair it is the rises! Nobody was complaining about council taxes until about 1999 / 2000 because they were (in Monmouth ) 136% lower.

The Conservatives would help pensioners by reintroducing the link between pensions rises and earnings and by changing the formula which increases Council taxes in rural areas.

A local income tax would make 3 out of 10 people worse off without solving the root cause of the rises.

8:17 AM  
Blogger Claire Smalley said...

Yes but local income tax will make 73% of people better off and thoose who will pay more can afford to. And the tax is unfair it is NOT based on how much you can pay. Meaning some people will be better off then others and pensioners suffer most dippling below the povety line.

Why if it is so unfair did the tories once argree with the Lib Dems on local income tax befor some hair brain came up with a stupid solution?

1:18 PM  
Blogger David Davies AM said...

The problem with local income tax is that - as Charles Kennedy has said - 1 in 3 housholds would be worse off. A third of the population is a significant number. Perhaps another third would be better off, but the better off they are under this system the worse of will be the third paying more. If you see what I mean.

Also remember under this system any household containing a working couple will be far worse off as they will be paying twice.

For a household with a working married couple and, perhaps one or two working children things will be far worse as they will pay up to four bills yet they will still be receiving the same service.

(sense of deja vu about the poll tax anyone?)

I am not sure whether a local income tax would be standard across Wales or related in some way to spending decisions taken by local authorities but doubtless a Lib Dem could tell me.

But the real problem still remains. You might well be able to help some poorer households, but unless you address the fundamental problem which I have pointed out - ie the Assembly underfunding of local councils - then whichever method of taxation you use the tax will continue to rise.

I have been thinking about an alternative method of local government funding and taxation which I may share with readers of the blog at some point.

2:58 PM  
Blogger Claire Smalley said...

Get your stats straight 73% will be better off, that means 27% will not be effected or be worse off. If you are going to use wrong stats at less stop changing them increasing every time 30% then 33% etc

The households which will pay more can afford to pay more and therefore that is fairer then squeezing money off thoose that cannot afford to pay such as pensioners.

And orcording to one of oliver letwins mad comments he'd double council tax.

"Also remember under this system any household containing a working couple will be far worse off as they will be paying twice. "

This isn't necesserly true but if a couple have a more diposable income surely it's fair that they will pay more tax

Comparing local income tax to the poll tax is odd. Firstly who tried to introduced poll tax. Poll tax was unfair because it did not take into context how much people could afford to pay - like council tax

3:13 PM  
Blogger David Davies AM said...

I'm afraid you may want to check your own facts -,12671,1121402,00.html

According to this article Kennedy said that 70% would be better off or unaffected, which is not the same as 70% being better off although he was clearly trying to mislead people into thinking this.

It does mean that 30% - or nearly one in three will be worse off.

3:44 PM  
Blogger Grangetown Labour said...

"This County also has a relatively high elderly population many of whom need help from social services. None of this is properly factored into the formula which the Assembly use to decide how much money to give to each of the 22 local authorities so our taxes go up."

Sorry David, I'm calling you on this. This year the RSG (Revenue Support Grant) formula for local government has had, for the first time, a factor added in to allow for the proportion of over 85's in each local authority. It was only introduced this year because the relevant data from the Department of Work & Pensions was not available in sufficiently robust form before now. The formula is complex, sure, but it is agreed through the Distribution Sub Group (on which I believe Monmouthshire along with a dozen or so other local authorities has a representative) by concensus.

The real problem is 'gearing', or the fact that Council Tax only accounts for a quarter (at most) of the revenue of any LA, but is the only bit which they have control over. Therefore to achieve a 1% increase in overall spending, Coucil Tax has to rise by at least 4%.

On the other hand, David is quite right that Local Income Tax is not the answer.

There is much to be said for a property tax, particularly at local level. It is fairly straightforward to collect and it is levied on the main element of most peoples overall wealth, rather than their income in a particular year. The problem arises with people on low, fixed incomes who for whatever reasons are living in large, valuable, properties (usually because they brought them 30 years or more ago). It would take a courageous politician to say so, but should they still be living in such properties, or realising the value and downshifting to something smaller and more manageable? It is a natural human thing to become attached to the house/home in which you have lived for decades, invested substantial money and energy, raised your children etc. In policy terms however such behaviour (i.e. downshifting) would encourage a more efficient use of our existing housing stock and one can cogently argue that it ought to be encouraged.

Local Income tax on the other hand is substantially more complex than it may first appear. Since the vast majority of it would be paid through PAYE, pay roll deduction, assuming that each council were allowed to vary the rate according to spending decisions taken by their elected local councillors, this would lead to the payroll departments of a typical medium sized enterprise in South Wales having to cope with probably at least half a dozen different tax rates and also having to keep track of which authority each employee lived in (something that has never previously been relevant for income tax purposes). Given that many younger non homeowners in cities such as London tend to be pretty peripatetic, this could pose substantial logistical diffulties for many firms.

There is also the issue of those wealthy people who don't pay income tax, but own valuable property. To make such people contribute it would presumably be necessary to introduce a local element of CGT too! How one copes with the issue of people who are not domiciled in the UK for tax purposes at all - but who may nevertheless own valuable properties I can't even begin to concieve.

The final problem (or at least the last one I will touch on here) is the differing tax bases of different local authorities. To raise the same amount of cash, Merthyr for example, would have to set a far higher income tax than Monmouthshire. Equalisation on a big scale would still be necessary - which rather upsets democratic accountabilty since the amount of LIT paid does not obviously relate to the quality/quantity of local services provided.

In summary, there are very cogent political and administrative reasons why those parties which are seriously aiming to form a government outright at this election want no truck with LIT, which is destined to remain a crank policy for crank parties!

7:29 AM  
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6:04 AM  

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