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Local Government

Rather that be critical of any Government, I would seek all-party support for where we go from here. If there is to be constitutional change, it will need cross-party agreement if it is to stick and not be unpicked by parliamentary statute. I know that the hon. Gentleman supports the essence of what I have been saying. I turn to what must be the second fundamental principle. Central to the concordat is that, while we may return ownership of local government to local people, we must also restore control to them. Political independence for councils would mean nothing without financial independence. The bulk of local authority spending—more than half—is now provided by central Government and only a fraction, one eighth, is raised locally by the council tax. That dependency must end. Central Government must be removed from the financial equation and localism given monetary teeth. To do so, a radical new settlement on taxation needs to be implemented. At present, income tax is first collected from local taxpayers by Her Majesty’s Revenue and Customs and then distributed back to localities via central Government. That essentially technical function of distribution has become politicised and arbitrary because of decades of governmental manipulation and the desire to impose central priorities and targets. In future, the same level of income tax revenue should still be collected by the Revenue, leaving the taxpayer and tax rates completely unaffected financially. However, the precise amount that currently goes to local government should be ring-fenced and go directly to it, not via the centre. Central Government spending on local services in England and Wales is £54.6 billion and the income tax take is £109 billion, so in effect about 50 per cent. of the income tax take would become local, with 50 per cent. going to the Chancellor, as it does now. That redistribution could take place via the Local Government Association or an independent commission, legally separate and dislocated from Whitehall. Yes, what we did for the Bank of England we must do for local government. Such a body would receive local government’s slice of income tax directly from HMRC, and be charged with distributing it to councils and equalising it on exactly the same basis as the Department responsible for local government currently does. There is no reason why most of such a commission’s members should not be elected councillors from all parties. Local government’s national bodies have shown themselves to be mature and confident in working cross-party and co-operating among themselves, and there is no reason why they could not perform the task. The amounts of income tax going to national and local expenditure would then be clearly identified on payslips as national income tax and local income tax, which would be a massive aid to accountability and to individuals in knowing the reality of what they pay for local services. It would be seen clearly and visibly, and therefore aid accountability.