The case for reform

At the moment the money that is spent by parish, district and county councils comes from the Council Tax collected by district councils and from central government money collected through income tax, value added tax (VAT) and all the other levies that are paid to the Revenue and Customs.

See how local tax works for more detail.

Some arguments for local VAT

If VAT was charged as it is now, but retained by the local authorities in a proportionate way: in other words take the VAT revenue and split it between the relevant parish, town, district and county councils then:

• Local authorities are independent of national politicians
• Authorities can be held directly responsible for taxation and expenditure
• The relevance of, and interest in, local elections would be restored
• Visitors to the area would be contributing more fairly to the costs associated with their visit (health, waste, water, environment, roads etc)
• Just as is the case now, people pay the tax in accordance with their expenditure - thus linked to their ability to pay

Go to your say to suggest other advantages please...

Local government financing needs reform

“We recommend that the Government investigate the implications of introducing [a local sales tax] in order to inform local government decision making.” [Government response to the ODPM Select Committee Report: Local Government Revenue]

Greater focus on value for money

“Britain’s local government authorities raise only a quarter of their budget from local sources. Which means that they are in thrall to national politicians and bureaucrats. Turn-out in local elections is falling because people no longer think they matter. The solution? Make local councils raise all their money locally. Not with an extra tax, but by turning VAT into a genuinely local sales tax. Since VAT raises almost exactly the amount that counties and districts spend, the sums balance neatly. And with competition between authorities to keep rates low, there will be greater focus on value for money.” [Paying for Localism, Douglas Carswell, 2004]

We need a radical shift

“An interesting alternative that appears to work well in other countries is a local sales tax in place of VAT. Coincidentally the amount raised in VAT in the UK is almost the same amount we spent on local government. Such a system would actually also put a downward pressure on taxation too. I’m not saying this is absolutely the answer, there are other interesting models, but I do think we need a radical shift in the way we fund local authorities.” [Henry Smith, Leader of West Sussex County Council, 2006]

Make local government self-financing

It is argued that local government could be made self-funded by transforming VAT into a local sales tax used specifically to fund local councils. The local sales tax would be collected by councils who would be directly accountable to their electorates for how the money was spent. Councils could set different tax rates as they competed for revenue and people would be free to move to and shop within those local authorities whose tax and spending regimes most closely corresponded with their own preferences. [Local government can be made self-financing, Dr John Meadowcroft, IEA]

End apathy

“The plan is pleasing: abolish council tax; convert VAT into a local sales tax and thus make councils responsible for their own budgets. We would all then take a more lively interest... It had not crossed my mind that VAT could be converted into a sales tax akin to those deployed across the US and in other EU countries.” [End apathy: Make VAT a local sales tax, IEA and The Scotsman, 2004]

The case, or not
for local VAT