A new report from the Institute for Fiscal Studies (IFS) looks at options for devolving further tax revenues and powers to English councils and concludes that a local income tax would be likely to provide the best outcomes.
The IFS estimates that for every 1% of local income tax on all tax bands, the yield would be around £6bn. A flat rate of 3p applied to all tax bands would raise £19bn, while 3p on only the basic rate band would raise around £12bn.
Among the advantages of devolving revenues and powers to local councils is that it would provide them with stronger financial incentives to grow their local economies. However, if local government were to use this to increase their funding, any tax devolution would have to mean either an overall increase in the national tax burden or a reduction in revenues for central government.
Possible downsides could include the creation of tax competition between areas, resulting in revenue erosion for all councils.
The report compares options for devolving other taxes and notes certain drawbacks. These include:
corporation tax, VAT or sales taxes would be difficult to administer, with differences in tax rates across councils more likely to distort taxpayers’ behaviour than income tax;
SDLT is more unequally distributed and volatile (and seen by the IFS as a bad tax that should be abolished, rather than devolved);
new council tax powers would focus incentives on property development, rather than on wider economic growth; and
tourist accommodation taxes would raise useful amounts only in a few well-visited areas and very little in many more places, with even a relatively high rate of £5 per night raising just £2bn across England.
Tom Harris, a researcher at the IFS and co-author of the report commented: ‘While tax devolution could give councils more options and discretion over how to raise funding, it is not a panacea for their funding issues. Addressing these ultimately requires either tax increases (whether via local or national taxes) or lower expectations of what councils can provide in future’.
The IFS report, ‘Taking control: which taxes could be devolved to English local government?’, is available at bit.ly/2HUhoDR.
A new report from the Institute for Fiscal Studies (IFS) looks at options for devolving further tax revenues and powers to English councils and concludes that a local income tax would be likely to provide the best outcomes.
The IFS estimates that for every 1% of local income tax on all tax bands, the yield would be around £6bn. A flat rate of 3p applied to all tax bands would raise £19bn, while 3p on only the basic rate band would raise around £12bn.
Among the advantages of devolving revenues and powers to local councils is that it would provide them with stronger financial incentives to grow their local economies. However, if local government were to use this to increase their funding, any tax devolution would have to mean either an overall increase in the national tax burden or a reduction in revenues for central government.
Possible downsides could include the creation of tax competition between areas, resulting in revenue erosion for all councils.
The report compares options for devolving other taxes and notes certain drawbacks. These include:
corporation tax, VAT or sales taxes would be difficult to administer, with differences in tax rates across councils more likely to distort taxpayers’ behaviour than income tax;
SDLT is more unequally distributed and volatile (and seen by the IFS as a bad tax that should be abolished, rather than devolved);
new council tax powers would focus incentives on property development, rather than on wider economic growth; and
tourist accommodation taxes would raise useful amounts only in a few well-visited areas and very little in many more places, with even a relatively high rate of £5 per night raising just £2bn across England.
Tom Harris, a researcher at the IFS and co-author of the report commented: ‘While tax devolution could give councils more options and discretion over how to raise funding, it is not a panacea for their funding issues. Addressing these ultimately requires either tax increases (whether via local or national taxes) or lower expectations of what councils can provide in future’.
The IFS report, ‘Taking control: which taxes could be devolved to English local government?’, is available at bit.ly/2HUhoDR.
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