In April 1990 the U.K. Government implemented the most significant change to local authority finance in England and Wales in the postwar period. It involved the introduction of a completely new tax on domestic householders (the community charge, a poll tax), the centralization of the current local taxation of business, and an overhaul of the method by which the Government allocates grants to local authorities.1
The most controversial of these proposals is the imposition of a poll tax. The most famous attempt to impose such a tax in England (in 1381) ended in its withdrawal following the peasants’ revolt. Historically, poll taxes appear to have been highly unpopular, even by the standards of taxes in general, and the current proposal has proved to be no exception. The new tax has produced widespread opposition, the most dramatic manifestations being the largest riots in London in this century and the biggest swing against a government in a parliamentary by-election since 1935.
The controversy over the poll tax has overshadowed other aspects of the reforms, such as the changes in the system of government grants and centralization of local business taxation, which themselves represent a significant change in the relationship between central and local government. In this paper the effects of all aspects of the reforms are analyzed.2
Bayoumi, Tamim, “The 1990 Reform of United Kingdom Local Authority Finance,” IMF Working Paper 90/58 (Washington: International Monetary Fund, July 1990).
Bennett, Robert, “Non-Domestic Rates and Local Taxation of Business,” in The Reform of Local Government Finance in Britain, ed. by S.J. Bailey and R. Paddison (London; New York: Routledge, 1988).
Bramley, G., J. Le Grand, and W. Low, “How Far is the Poll Tax a ‘Community Charge’? The Implications of Service Usage Evidence,” Discussion Paper WSP/42 (London: The Welfare State Programme, London School of Economics, April 1989).
Hughes, Gordon (1988a), “Rates Reform and the Housing Market,” in The Reform of Local Government Finance in Britain, ed. by S.J. Bailey and R. Paddison (London; New York: Routledge).
King, D. (1988a), “The Future Role of Grants in Local Government Finance,” in The Reform of Local Government Finance in Britain, ed. by S.J. Bailey and R. Paddison (London and New York: Routledge).
King, D. (1988b), “Accountability and Equity in British Local Finance—The Poll Tax,” University of Sterling Discussion Paper in Economics, Finance, and Investment No. 145 (Sterling: University of Sterling, March).
Muellbauer, J., “Some Macroeconomic Causes and Consequences of U.K. Housing Market Developments,” unpublished (Nuffield College, October 1989).
Muellbauer, J., and A. Murphy, “Why Has U.K. Personal Saving Collapsed?” Credit Suisse First Boston Research Report (London: Credit Suisse First Boston, July 1989).
The discussion here focuses on the arrangements for England. Those for Scotland and Wales vary in some minor respects. In Scotland the most important reform, the community charge, was introduced in April 1989. The discussion also concentrates on the effects of the new system when it is fully operational, rather than the implications of the transitional arrangements.
This is particularly true given the recent announcement of a further review of local authority finance, which will almost certainly result in a radical change to the community charge.
The income lines, Ip and In, are parallel, since the Government ensured that equal increases in the tax rate provided the same increase in expenditure per capita across authorities.
Interestingly, the tax price faced by the median voter in any given authority is similar under the two systems (see Table 1 below).
This picture may not be accurate for some urban councils where social expenditures are considerably higher.