Political Liberalism and the “Big Society”

When I talked previously about David Cameron’s Big Society, I mentioned that one difference between the two parties is funding.  I think this bears a closer look.

I think there is agreement on devolving more power from Whitehall to councils, but the Conservatives funding proposal seems to contradict that.  They propose freezing council tax.  If you look at how councils are funded, they get roughly 75% of their budget from direct grants and the remaining 25% from council tax.  This means that rather than increasing a council’s control over its own budget, its control would be reduced: to compensate for freezing council tax, a greater percentage of the budget must be supplied centrally.  This is exacerbated by any devolution of power where councils must do more not less.

In contrast, our proposal is to allow councils to raise local taxes.  In one version (by Ed Davey), the direct grant would be reduced, council tax would be scrapped and national tax reduced to allow a significant local income tax to be raised.  This would change the funding ratio to something like 25% direct grant and 75% local funding, allowing much greater local control.  I doubt anything this radical will be possible under the current coalition. But I can see a possible compromise where council tax is frozen (or perhaps reduced slightly) and councils are given the ability to raise small local taxes to make up the direct grant shortfall.

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