Contents

• How local government is funded
• Who decides the level of local Council Tax?
• Who's accountable?
• Why does Devon lose out?
• What does this mean to local Council Tax payers?
• Is there an alternative to Council Tax?
• 10 Things you should know about Devon and Council Tax

How local government is funded

We all pay for council services through a mixture of national taxation, such as income tax and business rates, plus local taxation in the form of the Council Tax.

In recent years the Government has steadily switched the cost of paying for local services from national taxation to Council Tax.

Although the picture improved slightly with this year's funding settlement from the Government, the proportion of Government funding which Devon gets to pay for council services has fallen overall from 66.8% of the total cost in 1998/99 to 61.2% in 2005/6. As a result, the proportion which has to be met by Devon Council Tax-payers has risen from 33.2% to 38.8%.

Funding Devon County Council's net revenue budget 2005/06

Council Tax as % of budget requirement

Councils are told the level of national grant they will receive each year as part of the Local Government Financial Settlement. This Formula Grant is distributed according to two factors:

• the Government's assessment of what Devon needs to spend on services, which is a complex calculation based on information about population, social conditions and benefits take-up plus a range of other factors
• the relative wealth of Devon as measured by its property values - not its incomes

Devon gets one of the lowest grants in the country:

• 22% less per person than the national average
  (see "Why does Devon lose out?")
• 29% less than the North East.

Yet the cost of providing services in Devon is no different than elsewhere and in some cases, such as school transport, it actually costs far more.

Who decides the level of local Council Tax?

The Council Tax is set each year by local authorities. But the level at which Council Tax is set is increasingly influenced by central Government. Local Council Tax rises are now dependant on:

• the amount the Council needs to spend to meet Government funding targets for schools and to meet performance targets for social services and waste management
• The amount of Government funding councils receive. This is based on a national formula of needs assessment and the area's relative wealth as measured by property values. Devon does particularly badly under these calculations. After two years in which the Government's Formula Grant increase for Devon County council was one of the lowest for any education authority in the country, the increase for 2005-6 (5.7%) is slightly above the national average increase of 5.6%. This year's extra money from the Government is welcome and has made a difference, but we need more of that to ensure the county's public services are fairly funded
• any new responsibilities or targets without the money to pay for them • the amount the Government assumes that Council Tax should rise. In 2005/06 the Government assumed an above inflation increase in total Council Tax of 3.8% to help fund its public spending plans.

Who's accountable?

The current local government finance system lacks accountability and transparency. Local accountability is distorted in two main ways:

• a relatively small change in Government grant distribution can trigger large changes in local Council Tax
• funding may be ring-fenced by Government for specific initiatives without taking account of local priorities.

Why does Devon lose out?

Under the current system, the South West is one of the worst funded regions in the country, and it’s even worse for Devon. We receive less Government grant per head of population to support our schools, roads and social services than regions in the North and Midlands.

Devon - the County Council, Police Authority and District Councils - actually get one of the lowest grants in the country from the Government - £214.26 less per head of population than the national average.

If Devon did get the UK average grant it would provide an extra £153 million to support public services including schools, roads, social services and public transport - the equivalent of an instant 17% cut in the average Council Tax bill.

Whitehall calculates the amount of grant we receive based on information about the local population, social conditions and benefit take-up. But Devon loses out because the Government then deducts money it thinks can be met locally from Council Tax based on the assumption that those in higher banded properties have higher incomes.

Devon also loses out because the Government assesses local need by the types and levels of benefit people receive and measures like unemployment statistics. This does little to measure need arising from chronic low pay in areas such as Devon.

Government grant allocations per person 2005/06

What does this mean to local Council Tax payers?

In short, because Devon does not get as much Government grant as other parts of the country, more money has to be raised locally to maintain public services to meet local needs.

But it is widely recognised that Council Tax levels are now causing significant difficulty for many people, particularly for low-income families and pensioners on fixed incomes who fall just outside the threshold for council Tax benefit. Council Tax has reached the point where it is no longer affordable for many residents in Devon.

There are clear problems with Council Tax:

• Council Tax is based on property values but these do not always reflect income. Devon has higher than average property prices combined with lower than average incomes. Average house prices have more than doubled in the last five years but earnings are 20% below the national average.
• Below-average incomes mean that a given level of tax represents a higher proportion of Devon residents’ incomes.
• The Council Tax Benefit system deters people from claiming assistance. It is complex, subject to frequent change and focused on a very small number of households (broadly speaking those on or near Income Support levels) which leaves many households on relatively low incomes ineligible to claim

As a result, the relative tax burden in Devon is much higher than the Government assumes when distributing grant support around the country.

Despite being one of the worst funded authorities, Council Tax bills in Devon are not untypical of Shire County bills across the country, nor is Devon a high spending authority. It is of course much easier for those councils who receive higher Government grants than Devon to hold down Council Tax rises.

Is there an alternative to Council Tax?

Here in Devon many authorities believe that a sustainable system of local government finance can only be achieved by spreading the cost of funding across a range of taxes which might include retaining Council Tax but at a much lower level than at present.

As their response to a national review of Council Tax, Devon County Council and seven District Councils have proposed some key principles for reforming the current system:

• Taxes must be affordable and based on the ability to pay
• The relationship between taxes paid and services provided should be transparent and made accountable to local people
• Financial support to poorer households should be simple and easily accessible.

Reform of the way local services are funded in future should concentrate on:

• Reducing reliance on property-based taxation
• Improving scope for local flexibility
• Ensuring nationally-imposed costs are met in full from Government grants
• Establishing the degree of public support for alternative forms of local funding.

The Government has commissioned a more detailed review of local taxation, chaired by Sir Michael Lyons, to which the County Council has contributed.

10 Things you should know about Devon and Council Tax

• Devon is the largest council in the South West.
• The population is rising by 4,700 a year, almost twice the national average.
• Average weekly earnings are the third lowest in Britain.
• 21% of the population is aged 65 and over compared to 16% nationally and the number is rising.
• Average house prices in Devon have more than doubled in the last five years and are now nearly ten times average annual earnings.
• The proportion of Government funding to pay for local services has fallen from 66.8% of the overall cost to 61.2%.
• Devon gets one of the lowest Government grants in the country -- 22% less per head than the national average and 29% less than the North East.
• Devon as a whole receives £214.26 per person LESS Government grant than the national average.
• If Devon received the average level of Government grant support it could mean an instant cut of £213 in the average Band D Council Tax bill.
• If Devon received the average proportion of Government grant per person it would mean an extra £153 million for local services.

Also on devon.gov.uk

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