Fundamental reform of local government finance is required if councils are to be put on a sustainable footing over the long term. These reforms need to reduce the sector’s growing reliance on council tax and business rates, which now fund 75% of local government spending. Neither tax is fit for purpose as they cannot fund the growth in demand for local services expected over the next decade, and both have flaws that make them unfair to taxpayers.
The ongoing financial pressures on residents make substantial annual council tax increases unsustainable, particularly when the regressive nature of the tax is taken into consideration, and the two fundamental reviews of business rates concluding in 2016 and 2021 have both left many significant problems unresolved.
London Councils believes any system of funding for local government should be underpinned by the fundamental principles of stability, certainty, and transparency. We have long advocated greater fiscal devolution, as well as broadening the range of funding sources available to local government rather than being exposed to the flaws of two centrally prescribed taxes. Towns, cities and local councils that are more responsible for their own destiny and more accountable for their own success, would design better taxes and provide better services. London Government has demonstrated, through the pan-London business rates pilots and the 2020-21 pool, that they are ready to take on more responsibilities and resources to deliver stronger outcomes for Londoners.