MPs call for council tax review to plug £5 billion local authority funding gap

A “long-overdue” review of council tax bands is needed to help plug the £5 billion funding gap local authorities are facing, a committee of MPs has said.

In its report on councils’ finances, the Commons Housing, Communities and Local Government Committee warns public services are at “breaking point” because of funding cuts, changes to the way local authorities raise revenue and restrictions on increasing council tax.

The committee chair, Clive Betts, said the time has come for the Government to “get real” on council funding, adding: “There is a disconnect between the services taxpayers expect their local authorities to provide and the level of service possible under current Government funding.”

Reforms to local government funding mean that as grants from central government have been cut, councils are able to keep more of the business rates collected in their areas.

The committee’s report says the business rate retention scheme “lacks transparency” and is too complex in trying to promote development at the same time as rebalancing funding across local authorities.

The MPs are also seeking a review of the council tax system, which the MPs call a “regressive tax disconnected from the true value of properties”.

The report continues: “A review should consider the case for creating new tax bands at the top and bottom of the scale.

“Any changes should be implemented without dramatic increases for individual households and be revenue neutral at a national level, however, they must produce a progressive tax system in the long term.”

Mr Betts (pictured) added: “Taxpayers are paying more but getting less, and this comes at a cost to continued confidence in local authorities to provide the services they need.

“Democracy and accountability in local government is paying the price for central government spending decisions.

“The Government has a duty to establish a funding settlement that enables local authorities to provide services to meet the needs of their local communities.

“Over the last decade, we have seen a regular chipping away at funding while adding further statutory obligations for them to meet.

“This constant stress on local government is now compounded by a failure to even set out how much money they will be allocated in the next financial year.”

James Jamieson, chairman of the Local Government Association – which estimates the annual funding gap as being around £5 billion – said the Chancellor should ensure councils are well-funded in his upcoming spending review.

He added: “Its forthcoming spending round needs to confirm the continuation of key funding streams such as the Better Care Fund, and guarantee councils will have enough money to meet the growing demand pressures they face next year.

“Only with the right funding and powers can councils meet their legal duties and protect the wide range of other valued local services which also make such a positive difference to communities and people’s lives.”

The report also notes that rising demands for social care, for both adults and children, is placing an intolerable financial burden on local authorities, with the system on “verge of collapse”.

It also highlights that transport, culture, housing and planning spending has been cut by over 40%.

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