Councils should be granted greater control over council tax, MPs have warned, arguing that the current disconnect between local charges and service quality risks undermining the very foundations of local democracy.
An inquiry into the financial sustainability of local government concluded that interim powers should be devolved to councils, ahead of a more comprehensive overhaul of what it described as “the most unfair and regressive tax in use in England today”.
The Commons Housing, Communities and Local Government Committee’s report recommended that individual authorities be empowered to revalue properties in their areas, define property bands, set the rates for those bands, and apply discounts.
Beyond council tax, the report suggested that a broader devolution of fiscal powers, such as the ability to apply a tourist tax, should also be considered to address the growing financial strain on local government, exacerbated by austerity measures introduced in the 2010s.
Deputy Prime Minister Angela Rayner recently voiced her support for “more push” towards fiscal devolution, aligning with the government’s commitment to transfer central decision-making to local areas.
Furthermore, the committee advocated for replacing central government ringfencing of funding with “a rigorous outcomes-based system of accountability”.
This would ensure local authorities are held responsible for achieving agreed outcomes within their overall budgets, rather than simply meeting spending targets.
Council tax bill rises hit 5 per cent in April for the third year in a row, as almost all councils increased bills up to, or close to, the maximum permitted.
The revaluation of properties has long been called for, with council tax bands in England still based on property values in 1991.
The Institute for Fiscal Studies found that the most expensive properties (Band H) attract three times as much tax as the least valuable (Band A) despite being worth more than eight times more now, as prices have risen most in affluent areas.
“Council tax is therefore both increasingly out of date and arbitrary, and highly regressive with respect to property values,” it added.
A recent analysis commissioned by the County Councils Network found allowing councils to administer and retain taxes generated locally would boost funding for services by more than £4 billion in many areas and “supercharge” economic growth.
Florence Eshalomi, Labour chair of the committee said: “When residents are paying more and more in taxes but seeing less and less in regular, everyday services, such as libraries and fixing potholes, then trust in local democracy is at risk of being undermined.
“Government in England is overcentralised. The current financial pressures on local government are also driven largely by mandatory, high-cost, demand-led services, such as social care and special educational needs or disabilities, where councils have little control over these needs.
“Councils are trapped in a straitjacket by central government, with local authorities lacking the flexibility or control to devise creative, long-term, preventative solutions which could offer better value for money.
“If, as a country, we are going to deliver growth and improve local services, Westminster needs to ease its grip and let councils have more power to control their own affairs and be accountable to their own electorates.”
The report also called called for the Government to reconsider its decision to freeze local housing allowance rates and extend its support for local authorities to acquire new housing stock through the local authority housing fund.
Responding to the findings, the Local Government Association (LGA) said the findings provide further evidence of the fragile state of local government finances.
Pete Marland, chair of the LGA’s economy and resources board, said: “Greater financial certainty and a simpler funding system are important. However, all councils remain under pressure and face having to increase council tax bills to try and protect services at the same time as making further cutbacks.
“A sustainable, long-term financial model for local government must lead to all councils having adequate resources to meet growing cost and demand pressures.”
London Councils, which represents the capital’s 32 boroughs, said the report shows “change is long overdue”, but raised concerns over the Government’s plans for changing the way funding is distributed.
Claire Holland, chair of London Councils, said: “The Government’s plans to reform council funding are pivotal for ensuring local areas receive funding that genuinely matches their levels of need and enables them to cope with fast-rising costs and pressures.
“It’s right that the Government is targeting deprivation in the new formula, but we are concerned that the measures used in the current proposals will not sufficiently account for London’s extreme housing poverty.
“This could mean London is left without the funding we need to deliver vital local services and return to financial stability.”
A Ministry of Housing, Communities and Local Government spokesperson said: “The Government is taking decisive action to fix the broken council funding system, so local leaders can deliver the vital public services their communities rely on.
“We have announced over £5 billion of new grant funding for local services on top of the £69 billion already made available this year to boost council finances, and we will go further to reform the funding system to make it fit for the future.
“This will ensure councils get the support they need and protect residents from further costs by keeping a 5% limit on the amount council tax can be raised without a referendum.”
