Local income tax would be the best option for fiscal devolution if the Government wanted to hand more powers to local authorities, the Institute for Fiscal Studies (IFS) argued today.
According to calculations from the institute, a 3% local income tax levy on all tax bands would raise around £19bn – around 40% of councils’ core budgets – would incentivise inclusive growth and give the sector a buoyant revenue stream that keeps up with inflation.
However, a devolved local income tax would require a system to redistribute revenue between councils to avoid large disparities.
Variable income tax rates across different localities would also be problematic as HM Revenue & Customs does not always have up-to-date records of where people live.
IFS director Paul Johnson said: ‘Business rates and council tax cannot go up fast enough to keep up with adult social care.’
IFS researcher Tom Harris added: ‘If the Government does not devolve significant new revenues to councils in the coming years it will either have to raise more revenues centrally to give to councils as grants, centralise some of their spending responsibilities or accept further cutbacks in local services.’
For an analysis of the report by MJ editor Heather Jameson click here (£)
