Monday, 20 September 2010

Local taxes and local borrowing

Here's Nick Clegg, according to The Telegraph:

We are different; we are liberal. Because we will put local government back in charge of the money it raises and spends.

That's why in our first budget we unlocked more than a billion pounds of ring-fenced grants. That's why we will end central capping of Council Tax. That's why we will allow councils to keep some of the extra business rates and council tax they raise when they enable new developments to go ahead.

And I can announce today that we will be giving local authorities the freedom to borrow against those extra business rates to help pay for additional new developments.

Localism, good. Increased taxes, bad. Government borrowing, bad.

As far as I can tell, Clegg isn't proposing to cut off central funding for spendthrift councils, he's just giving them a licence to extort more money from local taxpayers.

Westminster shouldn't be devolving any more power to councils unless they also give taxpayers a fresh chance to choose their local representatives. I'd go further, and suggest that

  • central government should only be responsible for matters that can't be handled locally, such as national defence
  • all local spending should be funded through local taxation; the citizens of Scotland shouldn't be able to vote for free prescriptions and free education, paid for by the English
  • no government, local or national, should have the option of running up debt; taxpayers should be forced to live with the consequences of their electoral choices, rather than passing the burden to future generations
  • a referendum should be required whenever taxes are to be increased; governments should have to work within a budget chosen by taxpayers
There was a good article in The Independent last week by Dominic Lawson, who found that Rich and poor agree on cutting taxes:
In February 2001 Bristol City Council held a public ballot to settle just such an argument: it asked its electors to choose between lower council taxes or "better" services – stressing that a vote not to increase council tax would result in big cuts, especially in its educational budget. It offered its electors the chance to vote for a 6 per cent increase in council tax to help maintain the education budget, a 4 per cent increase, a 2 per cent increase, or, finally, to freeze the council tax. Many more voted for the freezing of tax than the combined numbers of those who ticked any of the other boxes.
It's worth bearing in mind that this was not a solid Tory heartland area that might have been expected to put low taxes before public services: at the time of the referendum Bristol City was a Labour-controlled council.

Some might argue that these results simply meant that the affluent middle-classes had turned out to vote en masse, while the poorer sections within the councils' electorates had been less well organised. Yet this turns out to be not the case. David Maddison, project officer at the Local Government Association, told the BBC that "research in towns and cities holding the votes suggested the more wealthy wards had opted for the higher tax rises, with deprived wards choosing the smallest rises."

What could be the reason for this apparently paradoxical discovery? One might be that even those on the lowest council bands believed they were being taxed far too much. Another possibility – and perhaps it is more than a possibility – is that it is precisely those most dependent on public services that know the full extent of their inefficiencies and unresponsiveness and are therefore most sceptical of the claim that such organisations would deliver better results if they had even more money – and more employees – to conjure with.

I support the idea of localism, but I think it's essential that it empowers local taxpayers, rather than local politicians. Accordingly, I wouldn't object to a centrally-imposed requirement for all councils to hold yearly referendums on their budget, with options of "no change", "ten percent reduction", and "ten percent increase".

It still leaves room for the tyranny of the majority, but I hope and expect that most people would vote to keep more of their money to spend according to their own priorities. It would be an interesting experiment, anyway.

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