Local government finance Flashcards
Council tax
Is a hybrid property tax with a personal element
It is a domestic property tax because it is based on the value of your home, and the personal element is that people living alone get a 25% discount and full-time students and prisoners are exempt entirely.
Homes are valued by the valuation office agency and placed into one of eight bands – A to H. The cheapest band – Band A – is for properties up to £40,000 and the most expensive band – Band H – is for properties valued at more than £320,001.
The last valuation was done in 1991, meaning the valuations are out of date and do not take into account the rises in property values since then.
Criticism of council tax
One criticism of the council tax is that it does not take into account the wealth of an individual or a household. Another is that even the highest band does not reflect current property prices. For example someone renting a flat valued at £321,000 in an affluent part of London would pay the same council tax as the owner of a £50 million mansion.
Council tax is considered hard to avoid and comparatively cheap to collect. It is paid by all residents, both tenants and home owners.
25% local gov revenue spending and precasting authorities
Council Tax provides an average of 25% of local government revenue spending. But in less prosperous areas, where the housing stock is poorer, the proportion is less. In Sheffield for example, council tax provides about 13% of the city council’s revenue budget.
Council tax bills are sent to householders by the “billing authority” (district and borough councils in two-tier areas, and unitary authorities). “Precepting authorities”, for example county councils, Police and Crime Commissioners, Fire and Rescue authorities and parish councils, can add a precept to the council tax to raise money to pay for the services they provide.
Adult social care precept
In 2015 the government introduced an Adults Social Care Precept of 2% a year to pay for adult social care. The money raised is ring-fenced and must be spent on adult social care. (sometimes referred to as social care levy or supplementary levy that allowed councils to add an additional tax to raise income specifically for adult social care. In 2016 the gov set out arrangements for councils to have greater discretion and set a limit of 6% over three years.)
Cuts to local authority grants and an ageing population has created a crisis in adult social care according to the local government association with a funding gap of £2.6bn
To prevent local authorities imposing large increases in council tax, central government has imposed a cap of 4.9% (2.9% for general services and 2% for the Adult Social Care precept).
If a local authority imposes a rise in council tax of more than 4.9% they are required to hold a referendum among local residents to approve the move.
Local authorities spend money in two different ways
capital spending - concerns big building projects such as new schools or housing estates
revenue spending - concerns the day to day running costs of these projects after they have been built, such as salaries, utility bills, minor maintenance etc
capital = long term building costs
revenue = short term running costs
Where does the money for revenue spending come from?
Government grants: 75% of council revenue comes by way of central government grants
On average about 25% comes from the council tax
General government grants - a sum of money that the gov gives to local authorities and then the local politicians decide what to spend it on e.g. revenue support grant
specific governments grants - called passports grants - money passed to local authorities that may only be spent on specific things. The ministers in London decide where this money will be spent, not local councillors e.g. the dedicated schools grant
Others:
council tax - taxes on domestic property
council house rental income
other fees and charges (parking charges, leisure centre fees, library fees)
business rates - property taxes on commercial property
Changes under the coalition government since 2010
Under the previous labour gov the trend was to increase the number of passported grants that local authorities could only spend on things specified by central government
the coalition gov has reversed this trend and more money is now being delivered in unpassported grants that local authorities can spend as they see fit.
The grants given by central gov to local authorities have been cut back hugely - 40% or more
Business rates
Business rates: National Non-Domestic Rates or Uniform Business Rates. These are imposed on the occupiers of business properties – shops, factories, offices and warehouses. It is calculated by the “rateable value” of the property (what the property would cost to rent per year) multiplied by a multiplier. Local authorities retain about half of the business rates collected in their areas with the other half sent to central government. Business rates do not take into account the profit or turnover of the business.
This is controversial because a business in a small property that is doing well pays less than a business in a bigger property that is not doing so well.
Where does money for capital spending come from?
Capital grants from central government e.g. City Challenge money
EU grants and loans e.g. European regional development fund
Capital receipts - money raised through sales of council assets
Prudential borrowing - councils can borrow money according to limits set by the central government
Private Finance Initiative (PFI) and Public - Private Partnerships (PPP) - private companies provide capital investment e.g. for a new school and this is paid back by the local authority over years. The capital spending does not appear on the local authority’s balance sheet. Controversial as over the years councils could end up paying much more for new projects.
What does Sheffield City council spend its money on?
Total spending = £1,382m (2020/21) Education = £304m Adult Social Care = £259m Children's Social care = £109m etc
Sheffield city council revenue spending
Revenue support grant = £37m
Gets £398m from other specific gov grants
Issues with the councils budget include
council being adversely affected by reducing gov grants, the continuing pressure on social service budgets particularly in adult care, the limits on how councils can raise extra income because of the cap on council tax and council increasing charges to make up shortfalls.
