The introduction of the Local Property Tax will provide a more sustainable funding model for local government, devolve greater responsibility for financial decisions to the local level, and help renew the relationship between the citizen and his or her local authority. In distributing Local Property Tax income to local authorities through the Local Government Fund, I will seek to ensure that a significant proportion of the tax is retained in the local authority area in which it is collected in order to fund essential local services in our communities.
Currently, general purpose grants from the local government fund are structured to bring about equalisation over time: that is, a position of balance where the financial needs of local authorities are met by their resources and they are able to provide an appropriate level of service to their customers. Local authority cost and income bases vary significantly from one another and calculating an appropriate distribution of these grants is complex. A number of factors are taken into account including the overall funding available for this purpose, the estimated cost to each authority of providing a reasonable level of services to their customers, the income each authority should generate from local sources and the necessity to provide each authority with a baseline allocation that will support its financial stability.
In time, local authorities may vary the local rate of the Local Property Tax. This function will strengthen local authority accountability to local taxpayers. The tax will alter the relationship between the citizen and his or her local authority in a way which will be altogether beneficial for good governance. As noted in the Action Plan for Effective Local Government, Putting People First, if local elected members have relatively little responsibility for raising revenue, their rigorousness in prioritising its allocation, overseeing its efficient use and stewardship, and oversight in relation to the performance and management of local authority operations, generally, is likely to be diminished.
Currently, local authorities vary in their degree of dependence on the local government fund. Differences in population densities and settlement patterns will, of course, have an impact on the extent to which a given local authority will be funded by the Local Property Tax. In accounting terms, the gearing of funding from local authority to local authority will differ and, as such, equalisation measures may be needed to address such variations.