Council Funding - Part I: Paving the Road to Hell

A while back I posted a couple of graphs about UK central government spending, with the promise to do something similar for Bristol in the near future.

Time constraints prevent me from doing a full treatment, but - spurred on by the appearance of a campaign on the Council website about the wickedness of those people who refuse to pay council tax - here's the first part of a quick guide to the magnitudes of taxation and spending associated with the operation of Bristol City Council.

When you hear something about a new bit of Council policy in the papers, you can immediately make some judgements based on the absolute value of the proposed spending. For example, Bristol intend to spend £25 million pounds on a Museum of Bristol, which is, I think we can all agree, a jaw-droppingly large mound of cash. (Whether this is a sensible idea, given that one museum has already gone bust in Bristol, is a matter that other commentators are already discussing. for example the mysterious Bristol Blogger.)

But relative to the overall budget of the council, is a given figure - in this case £25m - a lot of money? If the council decided not to spend this money and instead returned it to tax payers, what would be the effect on council tax?

To answer this question, we have to delve into the arcane world of local government finance. And before we can do that we must consider the history of local taxation.

A few years after our ancestors stopped dragging their knuckles along the ground - if, indeed they did - and took up farming, a ruling class developed, a priesthood, an aristocracy and thus goverment. To feed and pay for the government and its associated services a levy was required. For 99% of human history the process of taxation has largely consisted of a bloke on a horse arriving at your hut and nicking your stuff or cutting bits off your body, subject to status.

We are more organised in the twentieth century, and in Britain until the late-seventies local authorities obtained their funds from local rates - a property tax levied on businesses and individuals. Rates make a lot of sense when local government is primarily delivering services associated with property - drainage, waste disposal, roads - but as the scope of British government increased to cover education, health and particularly personal social services there was a dramatic divergence between the numbers of people paying rates, and the numbers expecting to benefit from the resultant services.

There were other sources of funding as well, such as Rate Support Grants disbursed to councils by central government from nationally collected taxes. There was also a "rates equalization" procedure to shift money between regions, since the councils with the lowest potential to levy taxes faced the largest obligation to fund services. (i.e. pretty much everywhere north of Birmingham).

By the start of the Conservative government of 1979, public disquiet with the current system was high. One of the objectives of that government was to reduce the size of the public sector, which they believed could be partly done by controlling local government expenditure.

Michael Heseltine was point man on local government reform in the early eighties. He added a layer of frightening bureaucratic complexity, centralised control and performance targets (Sound familiar?). It didn't achieve a great deal, as local government expenditure kept going up. So more fiddles, compromises and tinkering took place, ending with the imposition of a community charge, which is the point at which it all went pear-shaped for Margaret Thatcher. The Poll Tax riots and associated financial problems around the country are a good reminder that the Law of Unintended Consequences does not just apply to politicians on the left.

The Thatcher government had the best of intentions. All governments have good intentions; yes, even Gordon Brown's. The most rabid dictator in the world doesn't get up in the morning and say "You know what? Today I'm going to be really evil." All the most dreadful acts and omissions of human leadership throughout history have been committed by people with the firm and unwavering belief that they were doing the right thing.

Back to the original question, then, which I'll phrase a bit more formally:

If Bristol City Council changes its discretionary spending in a given budgetary year by £1 million, what is the effect on council tax?

The answers lie in the council website's finance and account section. Bristol City does at least have audited accounts, unlike the European Union for the last thirteen years.

The most relevant document for the current year is available here, from 25 January 2007. The headline figure is, £303 million of planned expenditure. Some of this is funded from grants from central government associated with business rates (which are still paid locally).

The "net requirements from taxpayers" - the bit that has to be funded by the council tax is £157 million. The (official) population of Bristol is 400,000, which constitutes 128,500 properties in the taxbase**.

Doing the maths, we get an unweighted tax requirement of £1223.00* on each council tax payer. This basic figure is modifed according to a ratio to place the burden of taxation on more expensive properties***. So if you're in a band A property, you pay two thirds of this figure, whereas in you're in a Band H property, you pay twice this figure. This is unrelated to further discounts on single occupancy (25%) or second homes (50%), although the previous year's exemption rates are used as part of the budgetary calculation.

By the way, this doesn't include the extra tax to pay for the police or the fire brigade, which add another £200.79 to that basic £1233.00 per year. The full table is here, along with the property prices around each band. If you're particularly interested, you can look up the rateable value of your property at last valuation here, which is equivalent to the market value in 1991.

If the council were to reduce discretionary spending in a given year by £1 million, the change in the unweighted tax burden on each household would be £1218.75, a reduction of £7.78

If you and your spouse/partner/mate live in a Band A property, you'll get a £5.19 reduction in your tax bill. And if you live in a Band H property, you can spend an extra £15.56 on your butler's Xmas present.

It's an interesting thought isn't it? Every time the council spends a million quid, they're taking a fiver out of your pocket.

*I find it amusing that the net unfunded requirement is exactly divisible by the number of taxable properties, leaving no remainder. This would seem to imply that the budget setting process is "We've got this many properties, how much can we get from each one?" rather than "This is how much we've need to raise to cover our expenditure. What's the necessary tax burden?"

**The taxbase is a notional value used for calculation, by calculating the equivalent Band D properties from the actual number of dwellings in the City. There are in total 175,886 properties in Bristol, of which 9,339 claim exemptions or disabled relief, and 17,536 claiming some form of discount. 

**An interesting point to note is that the average house price in Bristol is about £220,000, so as and when properties get revalued, near enough half of all properties in Bristol would fall into the top two bands.