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Last Updated: Monday, 27 March 2006, 08:59 GMT 09:59 UK
New tax power idea for councils
By Ollie Stone-Lee
BBC News political reporter

Sir Michael Lyons
Sir Michael will answer your email questions on BBC News 24 on Thursday
Town halls could get more power to raise cash for local services under proposals being considered by the man looking at how to reform council tax.

Sir Michael Lyons is examining calls for councils to have to rely less on handouts from Whitehall.

The move would give councillors more freedom on how they spend money on libraries, street cleaning, parks and other services.

Sir Michael wants a debate on the role of councils and what powers they have.

On average, about a quarter of the money currently spent by councils is raised locally, with most of the rest coming from central government grants.

But in an interview with the BBC News website, Sir Michael says: "People have said that actually if you want energetic local government then you should have a situation where 50% of their funding is raised locally."

That shift would allow some areas to choose to offer fewer services and raise less taxes than others.

The former Birmingham City Council chief executive stresses he is still open minded and it is too early to say what he will recommend to ministers when he reports in December.

Business rates

One option being considered is restoring local control of business rates. At present the rates are set centrally and redistributed to different areas.

Sir Michael's review originally only covered local government funding but it was extended last year to include the role and responsibilities of councils.

Refuse collector
Sir Michael wants views on what councils do

He wants to hear public views on what services should be run from Whitehall and which should be controlled locally.

Sir Michael says the public know little about what decisions are made locally and which are made by national government.

"They have a very weak grasp of what they get for their council tax," he says.

"Understandably, they're sensitive about council tax, it's the only tax they have to actually pay each year - it's not just taken out of the wage packet or taken out of the shopping bill as the other big taxes are.

"What is extraordinary from our work is that people feel that it pays for a much bigger proportion of local services than it does pay for."


Sir Michael says probably the biggest problem with the current arrangements is that people do not know who to blame for high council tax bills or service cuts.

"If there is confusion about who is responsible then it's very difficult for the public to understand who took the decision and who they should hold to account," he says.

A council tax form

Sir Michael says it is too early to say what responsibilites should lie in Whitehall and which with town halls.

But he is anxious to ensure people do not think they can have an "Alice in Wonderland solution" of endless increases and improvement of public services without extra spending.

"For me I think the reality check is probably a new balance between national and local decision making," he says.

Too centralised?

People see things like education, healthcare, defence, perhaps policing as essentially national responsibilities.

That raises questions about whether issues such as parks, libraries and the arts are matters for communities to decide upon themselves, he argues.

Such services are in theory run by councils now.

Children in a library
Libraries is seen as a local responsibility by most people

But Sir Michael points to the constraints on councils' freedom to make such decisions in reality: funding coming from national goverment, with national targets, and the threat that council tax rises will be capped.

He accepts it is not easy to say which services should sit in which "box" - local or national.

He wants to challenge fears about a "post code lottery" - a term he says has become too emotive when used to describe differences in services in different areas.

"The truth is standards do vary between communities and between individuals within communities for a number of reasons - because costs differ, because tastes differ," he argues.

"So the 'postcode lottery' has become a sort of shroud that we wave when actually the reality is that there is a high level of variation anyway and there always will be."

Poll tax memories

The Institute for Public Policy Research last month said Britain's biggest cities should get elected mayors with tax-raising and spending powers.

Sir Michael says he will consider such ideas.

"When I look across at Chicago's extraordinary transformation I know that was about the ability to raise money from the local community, local business community," he says.

"It was about a shared vision about how you prepared that city for a new role in the 21st century."

His words highlight his belief that councils should have a "place shaping" role - bringing people together to enhance their communities.

But much of the attention on his review has centred on reform of the council tax amid protests from pensioners and others on fixed incomes about rising bills in recent years.

Sir Michael is clearly determined to avoid the mistakes of the poll tax and says it is essential that any tax changes are acceptable to the public.

The poll tax "created havoc" for council finances, he says.

"We're still working with some of the overhang from that in terms of people's distrust of the current council tax because of the history of the poll tax and the community charge.

"So I'm very clear that government is right to be cautious. On the other hand we need a sustainable tax system, one that people trust and that serves them in future."

Home improvement tax?

Research suggests that most people define fairness in terms of people's income but Sir Michael says that must be balanced by the fact that council tax is currently a property based tax.

He asks: "If you have two people living next door to each other with the same income but one is in a very expensive house which has gone up very considerably because this is a very attractive part of the world, and the other one is a smaller house which has gone up by the same proportion, might there not be a case for the person in the bigger house paying a bit more in tax for the services that make that such an attractive place?"

Critics have leapt on such comments, saying they show that people who improve their homes or benefit from rising prices could suffer.

Sir Michael only says he is considering calls for more bands for deciding council tax or even valuing homes individually.

But he accepts you cannot have bands without revaluing homes for council tax, something ministers have put off for the foreseeable future.

"If you want to tackle issues of fairness the quickest way of doing that is probably through adjusting the benefits system," he says.

Many people do not want to claim the current council tax benefit, despite saying their council tax bills account for as much as 10% of their weekly income.

Local government finance is notoriously complicated - the old Whitehall joke is that only two people understand it and they disagree.

Sir Michael insists it is not a "tecchies debate".

"Actually the underlying issues are about the kind of country we want to live in," he argues.

Sir Michael will answer your questions about council services and tax live on BBC News 24 on Thursday 30 March at 1330. Do you have a question for him? Which services should be provided by councils? What do people need most? Would you pay any extra for particular services? How should services be funded if not by council tax? You can send us your questions using the form below.

Would Sir Michael agree that his efforts will only amount to tinkering with an outmoded and inefficient system of local government, and that what is needed is the abolition the local government system and wholesale reform of the way in which services are financed, administered, and delivered locally and nationally?
Tony Hern, London England

Are you considering looking at something like a local sales tax, perhaps nil rated on food and childrens clothes as with VAT? This means the people spending the most pay the most but the people who want to save can do so. More importantly everyone pays with no chance of avoidance.
Jo Oliphant, St Albans, Herts

Each year billions of pounds are raised through stamp duty, which is basically a property tax, but it all goes straight to central government. Why can there not be a proportion which goes direct to the local authority?
Clarence Barrett, Upminster, Essex, UK

What possible justification is there for arbitrarily and artificially setting council tax rates based upon the size of property? The size of a property may provide some measure of wealth on paper but it does not provide any indication that an individual or family has the income to pay these extortionate levels of council tax.
Ralph Snape, Lincoln, England

We know that certain services are shared by all, therefore should be paid by everyone. However, why should we pay more per person to 'walk down the street' when we do not use the vast majority of obvious services?
Dr Summers, North Yorkshire

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