« David Cameron's cheerleaders in the press (and the lack of them) | Main | Graeme Archer: From the frontline in Hackney »


Editor: Danny Kruger's analysis of the problem seems right--local government will always be unsatisfactory if the funding is not raised locally. And, of the three methods he considers, a local sales tax seems the most promising. I certainly agree with him that a local income tax would be would be a bureaucratic nightmare to implement

However, I think the major weakness with his local sales tax approach is in his throwaway comment Rich areas would help support poor ones with a cross-subsidy formula. Who would decide on the formula and how big would the subsidies be? This has the potential to leave the real power in the hands of central government just as the present system does.

I agree with you that decentralisation of power--and competition within education and the NHS--will involve standing up to newspaper campaigns against "postcode lotteries". I hope the leadership collectively are sufficiently strong-willed (and thick-skinned).

Hmmm, considering the fuss caused on the ThanetLife website and the blame set at the feet of the local Council, you'd think the Council run the country!

I 100% agree with the analysis. Councillors have next to no power to change things. A fair few of them appear to be retired ego trippers only interested in supplementing their pensions and getting their names in the paper. Decentralise and try to attact those with ambition and talent into running local government as a tester for running for national government.

Under EU law our European enemies won't allow us to reduce VAT below a certain level, let alone abolish it.

Interesting idea, though, but one for after we get our country back, or alternatively he needs to think of another way to do it.

The frustration is that local government blames central government, & vice versa, whenever there's a problem.

You canot have true political transparency and accountability unless politicians directly set and raise the money that they go on to spend.

The Editor's point about postcode lotteries is well-made. Diversity means different priorities. We need to understand what are the acceptable levels of difference in provision of local services across the country.

The only way I can see to square the "localisation, good/ postcode lottery, bad" problem (and it would be a problem because the culture in this country won't tolerate diversity of outcome) would be to tie the localisation to increased election of local state functionaries (a la US). Why should the chief borough police officer/head of education/head of housing/head of health etc not be elected? Then any postcode lottery would either be due to the will of the people or the decisions of the temporary, elected officers of the borough.

Surely an additional local income tax (variable level set by councils) collected centrally through the tax system would achieve the same localisation aims of a local sales tax and be much more efficient and cost-effective than the current system?

In addition, a local income tax avoids any cross-border smuggling or avoidance which could occur with a sales tax but still faciliates a spirit of competition between counties etc.

Government itself is the problem. We need to systematically dismantle central and local government - privatise the lot!

This is unworkable partly because of online sales and the extraordinary burden on business. Imagine a different VAT code for every supplier. It's as bad an idea as a local income tax.

In addition, the left of the Labour party are the ones who want to give local councils power over schools, hospitals and the police.

The Kruger article totally misses the elephant in the room, when will you people realize that waste management and VAT is an EU competancy. Our so called national government, let alone local government can have no effect on those fronts other than adding to the bills we have to pay. Infrastructure for the waste requirement is estimated at £10 billion alone. When will you wake up.

Every other developed country has more than one source of revenue for local government: property taxes, income taxes, hotel taxes, business taxes. Only in Britain do we try to fund local government with a single local tax.

True Blue, online sales do not make this unworkable. Ask our US cousins who set their sales taxes locally.

And yes, a sales tax would require negotiation with the EU. But in the preamble to the Maastricht Treaty, it declares, “decisions should be taken as closely as possible to the citizen in accordance with the principal of subsidairity”. Why sould that exclude decisions about the level of taxation?

We do not have local government in this country; we have local administration of central government directives, from the number of houses to be built, to what is taught in our schools to what medicines our doctors may prescribe.

Derek Buxton and Geoff are quite right - I didn't mention the main legal obstacle to the proposal: EU rules. All the more reason to change/resile from them.

Other writers have pointed out the main political obstacle: Britain will have to learn to put up with a postcode lottery. Or rather, in fact we'll get the opposite of the lottery, which is the situation we have now - your fortune dictated by chance, by circumstances and people you have no control over. As Graeme Archer says, if we tie local finance to direct democracy ie accountability of services to local people, it won't be a lottery but natural variation, as decided by local people.

That said, we can't have total self-financing as the local tax base in poor areas (which need more welfare spending) is smaller... hence the need for a cross-subsidy formula which Rob G objects to. In an ideal world this wouldn't be necessary - and in time one hopes it won't be. The challenge is to design a formula which doesn't erode the incentive for efficiency. Any ideas?

Why not lower VAT to the minimum permitted at present under EU law and use that to fund equalisation between rich and poor districts, then let local councils charge LST on top and collect the two together? It would be fiddly to reconcile who was due what - but no more so than the current mess.

If local tax buoyancy means anything then it has to be accompanied by a general lowering of tax at the national level, to permit local authorities to raise tax to their own desired amounts and introduce tax competition and genuine pressure to cut waste.

Otherwise, where local variation is the just the ability to add-on an extra top-up tax to an existing high national tax level you end up with either the situation in Scotland (local variation not used) or (more likely) everyone adds the same amount of local top-up tax in a sort of cartel which raises taxes altogether to the highest level the councils think they can get away with.

Danny: thanks for taking the trouble to respond to our comments. In relation to the cross-subsidy formula I don't think you can discuss ideas for a formula which doesn't erode the incentive for efficiency until you have decided what you are aiming to achieve by the subsidy. What I had in mind was the way that, in recent years, Labour has been taking money from councils in the south of England and giving it to councils in the north because the needs of the latter are supposed to be greater. I haven't tried to understand the basis on which this is being done but it looks like the Government feather-bedding its own supporters. Unless the objective is full equality of outcome--which I think all Conservatives would reject--there has to be some sort of political judgment as to how much redistribution the subsidy should achieve. And I don't see how you prevent central government from manipulating that to achieve its own ends.

Somehow I don't think more powerful local government would stop the BNP. Would a local council ban asylum seekers moving into available council housing (which is frankly what many BNP supporters want)?

Chad: you favour an additional local income tax (variable level set by councils) collected centrally through the tax system. The problem is that most people's tax is collected by their employer using PAYE on the basis of a code number which determines the allowances to which they are entitled. PAYE is too complicated as it is. If, in addition, employers had to be told to deduct at 22% from employees A, B & C; 23 % from D & E; 24% from F, G etc, I think the burden on employers would be intolerable.

And there must be many fairly small employers whose employees come from more than one council area--particularly if you continue to allow parish councils to set their own precepts and collect them by the same system.

The point about equalisation is that it would have to be transparent and based on some form of rough justice fairness. There is actually a way to do it based on a poll tax - no, don't shout, hear me out.

(1) Let's say that the revenues for equalisation work out at £1,000 per head of population (or whatever).

(2) We decide that the maximum a resident of a "rich" town should pay is an additional £500 per head per year.

(3) ODPM or whoever produces "poverty ratings" for each town - which is not unlike what they have at the moment - graded in relative terms from 1 to 10. Rating 1 for the poorest 10% of towns; rating 2 for those in the next 10% etc up to rating 10 for the richest 10%.

(4) The poverty rating of your town determines the amount of poll tax you pay. If you live in the poorest town, with a rating of 1, you pay 1/10th of the national poll tax tariff (£50), those with a rating of 2 pay 2/10ths (£100) etc.

(5) That means 50% of the population pay upto £250 poll tax and 50% pay over £250 poll tax. 'Average' poll tax is £250.

(6) So 'average' revenue per head for a council would be £1,000 + £250 = £1,250.

(7) Equalisation revenue paid to the council would be this notional average less the actual poll tax. So, the poorest town charging £50 poll tax would receive £1,200 per head from central government, but the richest town, charging £500 poll tax, would receive only £750.

(8) You would almost certainly need some form of social welfare to cover poor people living in rich towns (but not rich people living in poor towns - we have something called income tax for that already).

The trick (a mere bagatelle) is how you fix the £1,000 per head equalisation and the £500 maximum poll tax.

This system would have a self-correcting buoyancy - or ought to have (if you believe public spending has any effect on poverty).

Kruger's analysis is brilliant. And he surely deserves credit for pointing out that none of the parties has properly addressed this issue. (How many other aspirant Conservative candidates would criticise their leadership in print?) To the extent that the Tories are moving in this direction, it is in no small measure thanks to Carswell, Kruger and the other localists.

Why, though, are you assuming that the EU is an insuperable obstacle? The fact that we would have to leave the EU in order to set our own taxes is not an unfortunate or even a neutral side-effect: it is a delicious bonus.

This point was underlined in Direct Democracy, the book that first set out the LST, which was authored by a group of new intake Tory MPs along with Danny and me. If we want decisions to be taken as closely as possible to the people they affect, they plainly ought not to be made in Brussels. If we want decentralisation at home, we cannot sign up to "ever-closer union" in Europe. Having taken powers back from Brusslels, we must not leave them to fester in Whitehall; we should pass them down to local communities or, better still, to individual citizens. Leaving the EU is not an end in itself, but a means to an end - that end being a freer, more democratic Britain.

Interloper alert! But since Sam C asked me for my opinion at lunchtime I figured there might be something on this here. I actually replied to the Telegraph article first thing this morning, but in case they don't publish the letter (v likely!) I added it to my blog here.

Henry George had the answer a century and more ago. I really don't understaind why ASI are promoting this LST when their scion was a supported of land value tax. Forget all your equalisation formulae, LVT creates a mechanism where government doesn't really need to equalise in the long term, the market takes care of it as the tax-savvy learn to move about to minimise their tax bills.

I'd add though that this really does need to be backed with significant policy pledges. Many on the outside of the "big two" parties think that the Tories are only just not as bad as Labour in their record on centralisation and the emasculation of local government over the past century or so. It's good that you are looking at it now, but it has to be radical, and serious, IMO not to fall on deaf ears.

It's odd, because one would have thought that the Tories had a great example in the big civic movement pioneered in the nineteenth century. I suppose everyone just got caught up in some great lurch to the centre in the twentieth century.

A land value tax is certainly an idea worth investigating insofar is it probably causes the least economic distortion:


Over in America many libertarians view it to be the most suitable form of tax:


Hi Rob,

Yes I completely agree it doesn't fit on top of the current complicated structure.

However my solution would be a combination of a 2-rate flat(ter) tax system (negates the Labour lie/distortion about the nurse and the millionaire paying the same) plus local tax with the local tax element derived by postcode and simple to implement (I'm a system designer geek).

It could save a ridiculously large amount of money.

I think we have to devolve more power to the lowest level possible for a given function. This will mean some powers will be repatriated to Westminster from Brussels and some powers will go from Westminster down to local Govt and community councils and some right down to to particular institutions (like schools) and to the public themselves. I also think we should reward community work as it saves local councils money. We could do this by giving some discount on any local tax system to defined community roles. Now that would be a new Conservatism and prove "we are all in this together" and not the perceived selfish individualists that labour try to label us as,


The move in Education funding to direct central government grant has changed the Central Govt v Local Govt revenue figs considerably this year in my area - Wilts County Council revenues are 73% Council Tax, 23% Business Rates and 4% Central Govt in 2006/7. For Salisbury District its 47% Council Tax, 44% Business Rates & 9% Central Govt.
Policing has a high central funding but Fire Services are mostly funded by Council Taxes and Business Rates.

Giving back control of business rates to the local authorities would in this area at least mean that almost all County/District revenues would be raised locally.

The discussion on how to fund needs I think to look at what responsibilities should lie where and then how to fund those. A mix of property & income taxes would seem best way of funding - perhaps funding social services & education thrugh income taxes, roads, environment, fire, local policing & waste management through property taxes.

Indeed Richard - I would call myself a Geo-libertarian, I think. Although I probably woldn't want to widen gun ownership!

Your letter did make it in Jock!

Danny Kruger's article is thoughtful and first-class.

Quite rightly, many bloggers ask about the details of the plan to make town halls self-financing by scrapping VAT and replacing it with a local sales tax. If anyone would like to look at the subject in greater detail than Danny's article allowed, do click on to here.

It answers most of the questions - most notably the point about the need to overturn existing EU treaty obligations and the fact that calculating local sales tax liabilities and collecting the tax, would be far simpler than is currently the case with VAT.

Of course there is always the radical option of removing FSS (the Government subsidy to local authorities) in its entirety, so that all local expenditure is met by local residents and businesses...

Mr. Hannan is quite correct, we should look at getting out of the EU, our point of course, was that it is never mentioned. All three major parties appear to have a ban on even saying EU. Thanks to Mr. Kruger for his response, the more welcome for being unexpected.

Derek Buxton

I would hate my "local council" to get any more powers; it would be awful. It has lost control of Education, Roads, Housing because it is completely useless. It cannot organise recycling and misses every target, it has destroyed what shops survived its first onslaught and s thoroughly incompetent.

The pre-1972 situation was far better but unlikely ever to be revived. The libraries then had books rather than cavings in the tables and the shelves were full.

They say that not a blade of grass would grow where Attila The Hun had stood - a bit like the situation with out Metropolitan Borough Council and its destruction of all innovation and independence.

I live in what is constantly described as the most deprived rural district in England (Wear Valley in Co. Durham) yet I pay £1,300 for Band D council tax.

Perhaps someone could explain the utter myth that Labour controlled areas have lower council tax. I know they get greater subsidies, and with my bill as it is, I should be thankful.

With only 60% of Wear Valley's working population in employment, just imagine my bill without central help!

Perhaps it would be easier all round if investment and jobs were afforded to such areas to reduce the level of worklessness?

Did you also know that the Diocese of Durham gets £2 million in subsidy each year largely from Oxfordshire to keep the wee small light of Anglicanism flickering in the deep darkness of Co. Durham ?

How about a tax on land area (a certain amount per given area squared - all that needs to be done is to calculate the applicable area) and the scrapping of Council Tax, Land Area would be based on how much 2 dimensional area the land took up at ground level and therefore would have nothing to do with notional house values, people would be encourage to optimise use of their land to get the most out of it by building up and\or down (Tokyo apparently has an entire Housing Estate Underground).

That and abolishing overcrowding regulations regarding residential property would both potentially reduce usuage of Greenfield sites by concentrating populations more and because there would be only one tax band then there would be no possible disputes over which band it would be in.

There are certainly far too many councillors though.

Shades of Henry George - Yet Another is reading up on early Socialist Theory.

The reason houses are expensive is land prices - originally 20-30% price of a house it is now 50%+ and unlike the US the insurers here make you insure the land and not just the structure.

Maybe Yet Another should look at London where much of the inner London land is leasehold not freehold and is a separate tax itself which has done nothing to stop 50% asylum seekers flocking to London, nor most businesses being headquartered there - in fact London would be ideal for a property tax equal to 1% market value each year

The comments to this entry are closed.



ConHome on Twitter

    follow me on Twitter

    Conservative blogs

    Today's public spending saving

    New on other blogs

    • Receive our daily email
      Enter your details below:

    • Tracker 2
    • Extreme Tracker