The Politics of Local Fiscal Reform
| Published date | 01 June 1989 |
| Date | 01 June 1989 |
| DOI | 10.1177/095207678900400202 |
| Author | Arthur Midwinter |
| Subject Matter | Articles |
The Politics of Local Fiscal Reform
Arthur Midwinter
University of Strathclyde
Abstract
From April 1989, Scotland will have a new system of local government finance.
Domestic rates (a property tax) will be abolished and replaced by a community
charge payable by all adults aged eighteen years and over, with a few exceptions,
and with a system of rebates for people with low incomes. Business rates (non-
domestic sector) will remain, but only allowed to increase in line with the
previous year’s rate of inflation, and eventually forming part of a new British
Uniform Business Rate (UBR) following harmonisation of valuation practice with
England and Wales.
This article sets out the political background to reform, the diagnosis of the
Conservative Government and the basis of the new system, reviews the problems
faced in implementation, and analyses the outcomes of the first year of the new
system. Finally, an alternative interpretation to that of the New Right of the likely
consequences of the reforms is offered.
The Political Background
Scotland’s local government system was reorganised in 1974, creating a two-tier
system of regions and districts, with the exception of the northern islands
communities where most-purpose authorities exist. Scotland’s twelve regions
have a considerable range of local authority functions and spending power,
accounting for around ninety per cent of local authority revenue expenditure.
Reorganisation was presented as a means of producing strong, effective and
efficient local government, capable of halting a perceived trend to centralisation
(Wheatley 1969). No sooner had reorganisation been achieved, however, than a
high inflation led to high rates increases, and a Government Committee of Inquiry
into Local Government Finance (Layfield, 1976). This report is significant for
raising wider issues of responsibility and accountability in local government
(Jones, 1979) and posing a choice between greater central and local control, with
the guiding principle that whatever tier of government determined spending
should provide most of the financing.
2
This was rejected by the Labour Government of the time. Britain’s economic
crisis and IMF loan of 1976 however, marked a watershed in public sector
development. For thirty years, public expenditure has risen consistently in real
terms, in the period of Keynesian consensus characterised by the creation of the
British Welfare State. (Heald, 1983). For local government, the post-
reorganisation period has been one of retrenchment and fiscal stress (Greenwood,
1981 ). Increasing costs,’lower government grants, and an inelastic tax base (local
government in Britain relies on only one source of local taxation) combined to
enforce a resource squeeze on local government. Whilst Labour increased grant
from 68.5 per cent of relevant expenditure to 75 per cent in an attempt to cushion
ratepayers, this was interpreted as encouraging expenditure, and this was reduced
to 68.5 per cent by 1979, since when the Conservatives have reduced it further to
the present 54 per cent. The gearing effect (ratio of grant to rates) required large
increases in rates to compensate for reductions in grant. Local authorities in
Scotland have had to cope with electoral resistance to both tax increases and cuts
in services.
Under Labour, real reductions in spending and grants took place. From 1979,
however, the return of a Conservative Government reinforced centralist pressure.
The Conservatives ’disowned’ the failed social democratic consensus of the past,
and presented a populist brand of conviction politics. Government ideology
regarded the British state as too large with high spending and taxation causing
low investment and disincentive to enterprise. Faith in the efficiency of markets,
and the need to tackle bureaucratic waste, were important themes in Government
rhetoric. Local government was regarded as a major part of ’the problem’, and the
government sought to create a new concept of local democracy based on the
’individual’, not the ’local authority’. Bulpitt (1983) captured the view of the
government accurately in his observation that the corporate interests of local
authorities may not replicate those of their electors.
Spending restrictions under Labour did not fundamentally challenge local
government’s primacy in service delivery in the British political system.
Traditionally, the strength and autonomy of local government was a central tenet
of...
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