Property Tax Resources and Political Party Control in England 1974-1984

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Property Tax Resources and Political Party Control in England 1974-1984 Keith Hoggart Urban Stud 1986 23: 33 DOI: 10.1080/00420988620080041 The online version of this article can be found at: http://usj.sagepub.com/content/23/1/33

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Urban Studies (1986), 23, 33-46 (~) 1986 Urban Studies

Property Tax Resources and Political Party Control in England 1974-1984" Keith Hoggart

[First received March 1985; in final form August 1985]

Summary. The fiscal plight of many inner city local authorities in England raises questions about similarities in urban fiscal stress processes in England and the United States. This paper focuses on one explanation for urban fiscal strain, the reduced viability of property taxes for local revenue gathering, which has been reported as significant in the United States. Given central government grant reductions and party political differences over expenditure priorities, it is argued that Labour controlled councils are (and should be) most prone to fiscal trauma. The results do not find that Labour control is linked to a poorer property tax environment. Labour's fiscal problems are linked to ideological issues, not to local economic conditions.

broad structural forces by seeking to identify processes and stimuli that induce specific actions and responses from government agencies. This paper fits into the second category. Its intentions are straight forward; namely, to identify how far difficulties associated with raising local government taxes are linked to political party control. To recognise the significance of this issue we first need to consider the origins of urban fiscal stress. From the outset we should be clear that there are no absolute criteria which distinguish authorities experiencing fiscal strain from those in fiscal health (Clark and Ferguson, 1983). Even so, it is usually accepted that fiscal stress is the result of a mismatch between expenditures and revenues. On the expenditure side, the two primary components are spending on current services and the cost of debt payments. For revenues, the ability to gather local tax revenues and the level of central government grants are crucial. Potentially each of these components can be blamed for fiscal ill-health, but it is their combined effect which is critical. Rapid increases in expenditure per se do not necessarily produce fiscal strain if this is matched by an expansion in revenues (witness, for

Introduction

The recent near-bankruptcy of Liverpool City Council has helped focus public attention on the fiscal problems of metropolitan local authorities in England. In a sense, this near-bankruptcy was merely icing on the cake. Since 1979 the Conservative Government has gone to great lengths to persuade the public that the expenditure proposals of urban governments were financially ruinous. Liverpool's plight emphasized this position, as well as drawing parallels with the traumas of Cleveland, Detroit, New York and a variety of other cities in the United States. The existence of similar events, occurring within equivalent time phases, has for some time provided a stimulus for social investigators to analyse the generality of causal processes. This search for generalisation has been approached at two distinct levels. First, at a structural level, where theoreticians have sought to link the internal logic of capitalist accumulation with the tensions, constraints and behavioural dispositions of state institutions (e.g. O'Connor, 1973). Secondly, at a behavioural level, where analysts work within these

The author is' in the Department of Geography, King's College, University of London.

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KEITH HOGGART

example, the effects on service demands and revenues of the oil industry in northern Scotland). Yet any one of these components can have a pre-eminent role. Until the 1970s, for example, most United States municipalities with severe fiscal problems were growing so rapidly that their demands for capital investments outstripped their increases in revenues (Clark and Ferguson, 1983). Similarly, New York City's expenditures rose above its revenue receipts so consistently that it accumulated a 2.6 billion dollar deficit on current spending between 1967 and the time of the city's bankruptcy in 1975 (Bingham e t al, 1978). Unfortunately, the mere identification of one component as a primary reason for fiscal strain does not inform us about its causes. It is hardly informative to state that rising expenditure or falling revenues produce fiscal ill-health if we cannot identify why this is so. We need to specify why expenditures are rising rapidly and why revenues are declining (or growing at an insufficient rate). On both counts, a variety of causes are already known to have been significant. In the US, for example, expenditure increases were often fuelled by federal overtures (and funds) to enhance programmes for minorities and the unemployed. Fiscal stress ensued when municipalities became committed to these programmes, only to find changing priorities in Washington resulting in the withdrawal of federal funds. This situation has parallels with recent reductions in Rate Support Grant payments in Britain. Further U K US similarities can be found in the British Government's target expenditure levels for local authorities and rate-capping proposals and in measures like California's Proposition 13 and Proposition 21 in Massachusetts. These latter two have induced fiscal strain because they have removed revenue sources from local governments that had already committed funds to particular courses of action. The comparability of British and United States contexts is further evinced in the demands made on expenditures. 1 Notably, cities in both the US and UK which have experienced fiscal troubles have tended to have higher expenditure demands. On both sides of the Atlantic, a supportable argu-

ment can be made which holds that these authorities are not extravagent overspenders, but actually spend too little. Thus, in a 1978 federal inspection, 49 of Cleveland's 164 municipal bridges were declared to be in an 'intolerable' condition, while only half the water taken from Boston's Quabbia reservoir makes it through the city's pipes due to their poor state of repair (Butler, 1981). Similar figures can be quoted for Britain. In 1982, for example, there were 5,000 sewer system collapses and, with an estimated cost of renewing the system of £40 billion, only £216 million was spent on the existing network. The clear correspondence of such unmet expenditure 'needs' with fiscal stress should not lull us into assuming that fiscal stress is caused by insufficient resources to meet expenditure needs. As Bradshaw (1974) has made clear, there is little agreement on what expenditure 'need' actually is. In its effects on expenditure policies, 'need' is whatever a central or local government of the day chooses to define it as. This does not mean that the specific criteria which define such expenditure 'need' cannot or should not be criticised. What it does recognise is that the definition of need is conditioned by the political objectives of a governing party or ruling elite. The precise definition utilised in policy implementation may have emerged following negotiation with other bodies (as in central government discussions with the Association of Metropolitan Authorities and the Association of County Councils over the Rate Support Grant), yet central government preferences are foremost as any opposition from these bodies generally lacks punitive consequences. Thus, variables which allocate funds through the Rate Support Grant have changed as Labour administrations have sought to channel funds into cities and Conservative Governments have favoured the shires (Bennett, 1981). Even if expenditure need is defined in legislation, it is written in such vague terms that it is open to wide interpretation. Thus, although its own inspectors have reported that many schools are spending too little to meet their statutory duties under the 1944 Education Act, the present Conservative Government has not exerted pressure on the

tThis list of comparable situations in the UK and US does not imply that the origins and characters of fiscal disorders in these two nations are the same. Even at a superficial level, there are clear differences (both between the UK and US and within the US in particular). Thus, while many British local authorities provide education services, separate education boards are the norm in the US. Yet certain US municipalities (especiallyfiscallytroubled ones like New York) have expensivewelfare benefits and university education programmes, which British local authorities do not. In addition, fiscal problems were aggravated in some US cities by municipalities borrowing short-term funds so that technically they had a balanced (revenue-expenditure) budget at the end of each fiscal year (Bingham et al, 1978). This practice would not have been acceptable in the UK.

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PROPERTY TAX RESOURCES AND POLITICAL PARTY CONTROL offending local education authorities to increase their expenditure levels (e.g. Cuts and falling pupil numbers are damaging the quality of education, school inspectors say, The Times, 11 May 1981, p. 2). The desire for the reality of reduced taxation clearly outweighs such a nebulous conception as meeting expenditure 'need'. To argue that local fiscal stress is caused by expenditure levels being greater than expenditure 'need' is simply to state that one disagrees with local leaders' conceptions of what expenditure needs are (here we assume that inefficiency or corruption are not being blamed for fiscal disorder). Such an image of the causes of fiscal stress is essentially ideological, for it defines disorder with reference to one set of policy preferences. In its selection of rate-capped local authorities (95 per cent of which are Labour controlled), the present Government has clearly highlighted this ideological component. In cutting local authority grant levels, introducing expenditure targets for local authorities and ratecapping some of them, the Government has helped produce a non-ideological fiscal stress. This is the stress that occurs because of an inadequacy of funds. Here 'stress' is not determined by 'externally' imposed criteria, but arises because local policymakers must make 'hard' decisions so that revenues and expenditures are equalised. There are two potential scenarios here: first, that councillors are unable or unwilling to raise the funds required to meet their expenditure targets (this could be on account of fears over the electoral consequences of raising taxes too high); and, second, that sufficient funds are raised, but that this results in so high a level of taxation that the economic viability of local wealth producing institutions is threatened and, on account of ratepayer selection of preferred taxservice packages (Tiebout, 1956), so is the longerterm revenue base of the local authority. Whichever is the case, the ideal of democratic local government holds that assessments of the correctness of local councils' actions should be in the hands of the local electorate (otherwise why have local elections?). Certainly local electorates do have the ability to eject a ruling party that introduces too high a level of local taxation (relative to services provided). How effective this has been as a restraint is nonetheless open to question. Survey evidence shows that the general public is remarkably ignorant about local authority affairs (Research Surveys of

35

Great Britain Ltd, 1976) and has usually voted in local elections, if at all, in response to national rather than local criteria (Green, 1972; Bristow, 1982). Local householders (as ratepayers) have also paid a small proportion of the total cost of local council services. Further, despite the claim that businesses receive less benefits than householders from local services, and even granted the unsatisfactory nature of many aspects of non-domestic rates (e.g. Crawford and Dawson, 1982), it should be borne in mind that businesses pass on their taxes to consumers in the prices they charge for goods and services. So long as they foresee service improvements resulting from expenditure increases, both householders and businesses have a vested interest in seeing spending increases (almost irrespective of their cost implications). On these grounds there is some justification for direct central government intervention in local taxation and expenditure decision-making (most especially given claims that local taxation policies can have detrimental effects on the viability of manufacturing and commercial enterprises, e.g. Birdseye and Webb, 1984). Set against acceptance of this argument is the justified claim that local councils can hardly be blamed for the existing state of affairs. The Layfield Committee made it abundantly clear to Ministers that the public was insufficiently interested in (and too unaware of the consequences of votes in) local elections. The Committee recommended that a local income tax be levied to enhance residents' awareness of the cost implications of service provisions. The failure of Governments since 1976 to follow the Layfield Committee's recommendations means that if there is a problem of local councils lacking financial responsibility, then this is in good measure a central government problem, rather than a local one. In essence, this problem can be solved by central government action. This would not inevitably remove the necessity for direct central intervention in local affairs, since central government's need to manage the national economy could justify such interventions (although Crawford and Dawson, 1982, have contended that, so long as local expenditure increases are financed by local taxes, this has no impact on macroeconomic objectives like the money supply, employment or the balance of payments). This reasoning does little to explain current local fiscal restraints. Most analysts, including the present Government, hold that in managing the economy

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KEITH HOGGART

the level of public sector expenditure is critical. The public sector includes both central government and local authorities. Yet since 1979 the Conservative Government has (perhaps until very recently) done comparatively little to check the level of total central government expenditure. Instead it has placed the burden of public expenditure cuts on local authorities (Caulcott, 1983). This is an arbitrary political decision. It owes its existence to the reluctance of Ministers to see cuts in their own departments, but their ready willingness to impose expenditure reductions on institutions which are one step removed from Ministers and are likely to generate few electoral problems for Conservative parliamentary candidates. Alongside this political decision many researchers see another; namely, the decision to call for current expenditure cuts at all. This view is most explicitly stated by researchers like Dunleavy and Rhodes (1983) and Boddy (1984), who have contended that under the Government's guiding monetarist economic theory it is the level of public sector borrowing, not expenditure per se, that has a critical effect on the nation's economy (through its influence on the money supply). Nevin (1983), for one has presented a different view of the Government's monetarist approach, when he argued that it entailed control of both the money supply and government expenditure in order to encourage a move of resources and control from the public to the private spheres of the economy. Yet Nevin accepts that these two components are in fact independent. To argue that an increase in the money supply is the most important cause of inflation in Britain does not imply accepting that an expansion in government spending is the main cause of money supply increase. This point was emphasised earlier by Bacon and Eltis (1976) who criticised the simplistic divide between private and public spheres as the line of distinction between productive (in their term marketed) and unproductive (non-marketed) activity. Although much public expenditure in Britain is non-marketed (e.g. defence, education, health) much is not (e.g. pre-privatisation British Telecom, British Airways, British Gas). It would be consistent with the Government's own economic rationale to incorporate into economic policy a push for the transfer of resources from non-marketed (i.e. non-wealth generating) to marketed activities, but the simplistic equating of this with the public-private distinction

owes less to economic rationality than to political ideology. Certainly the bulk of local government spending is not (directly at least) wealth generating, yet, in imposing blanket (rather than targeted) restrictions on local expenditures, the Government has let ideology and political expediency outweigh the logic of its own economic framework (as Milton Friedman has complained, anything the Government sees as a desirable policy objective tends to be equated with 'monetarism', even though it might contradict principles of monetarist theory, see Riddell, 1983). In a sense the Government's desire to strengthen the private sector and 'claw back' the state has led to an indiscriminate 'attack' on local authority expenditures. That this policy preference directly affects local authority fiscal strain is clear. It could nonetheless still be justified on the grounds that the Government has an electoral mandate for its actions. Again this point has merit. As before, however, its acceptance owes more to ideology than to logic of argument. General elections are inefficient mechanisms for the public to express their preferences on central government actions. Public opinion polls have made it abundantly clear that Londoners are opposed to the abolition of the Greater London Council, yet the Government argues that it has a mandate to take this overtly political party step. This mandate is based on voters' views about defence policy, the Falklands, privatisation, income tax cuts and a host of other issues that have no seeming relevance to the question at hand. That governments (of whatever persuasion) use such votes to justify the bulk of their actions is part of the British parliamentary system. Yet to accept such electoral results as a mandate logically requires that the results of local government elections be taken as a mandate. That comparatively few people vote in local elections is no reason to invalidate the mandate they bestow. It is well recognised, even in cross-national surveys (e.g. Almond and Verba, 1963), that voters trust local governments more than national governments. Hence, perhaps fewer feel the need to vote. Further, although local election results owe much to national swings, should local council actions extend beyond the degrees of freedom the electorate gives its councillors, then local events can have critical consequences. This was readily seen in the controversies in Sheffield over council house rent increases (Hampton, 1970), in Ashford over town expansion (Brown

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PROPERTY TAX RESOURCES AND POLITICAL PARTY CONTROL et al, 1972) and in many authorities resulting from the substantial rates increases which followed the 1974 local government reorganisation (Grant, 1977). To discount one election while counting the other, in a context in which current local authority expenditures are not critical to the national economy, further signifies the ideological origins o f the current local fiscal crisis. Perhaps a caveat needs to be added here, in that central government does have 'fiduciary duty' to protect local ratepayers from 'unreasonable' tax demands (the legal standing for this was exemplified in the 1982 court imposed abolition of the Greater London Council's Fares Fair policy, which substantially reduced public transport costs but led to significant property tax increases). This duty might well be viewed as sufficient cause for central government intervention to keep property taxes within acceptable bounds. But who defines what is acceptable? The courts interpret laws which Parliament passes, but these laws are subject to political party influence. What is an acceptable tax rate for Labour ministers might be wholly unacceptable for ministers from other parties. Hence, recourse to fiduciary duty to justify central involvement is, I believe, unwarranted. Significantly, it was a local authority rather than the Government that challenged the Greater London Council's Fares Fair policy in the courts. The Government was more concerned with changing the legislative framework that defined an acceptable rates increase than with responding to one instance of property tax growth. That local fiscal stress in Britain has ideological origins does not alter the fact that it is real. Some local authorities are experiencing real difficulties in meeting the commitments they are either legally obliged to undertake, or which they believe are appropriate for their local electors. The objective in this paper is not to ascertain which authorities are experiencing such difficulties. Rather it seeks to identify the extent to which political party control is associated with 'objective' conditions which induce fiscal stress. To be clearer, what I am contending is that both current spending and debt, on the expenditure side, and central grants, on the revenue side, are determined by ideological (or political party) considerations. The one component of the fiscal stress equation [(expenditure + debt)/(grants + local taxation)] which is not so determined is local taxation. Of course the actual level of local taxation is polit-

37

ically determined. As Ashford et al (1976, p. 18) reported: The tendency is clearly to add up desired expenditures, deduct expected income from the Rate Support Grant and other subsidies and then to determine the tax rate. Yet the tax base on which rate levels are set is largely independent (in the short-term) of political party effects. Given a Conservative Government that is committed to an ideological stance with policy consequences which directly clash with the preferences of many (especially leftish) Labour councils, the scene is set for fiscal traumas to be a reflection of local political party control. The question for this paper is whether these tendencies are intensified by dissimilarities in local taxation bases. As in the United States, can authorities most likely to be experiencing fiscal stress be distinguished by poor property tax bases? The Data Base

To analyse this question, information was obtained on each kind of lower-tier authority in England. Owing to their comparatively small number, data were gathered for all boroughs in inner London and outer London, and all metropolitan district councils. For shire districts the larger number of councils available enabled a systematic sample of one in five to be taken. This produced a total of 128 authorities. These were divided into groups of 12, 20, 36 and 60 for each of the respective local authority types (for much of the analysis these types must be kept separate since their different service functions produce dissimilar expenditure requirements). The property tax information examined was taken from Chartered Institute of Public Finance and Accountancy's (CIPFA) annual statistics. Data on rateable values, expenditures, rate poundages and grants were found in CIPFA's Financial and General Statistics (which was previously known as Financial, General and Rating Statistics and before that as Return of Rates). This data covers all the financial years between 1974/75 and 1984/85. (Although changes in the mode in which data were presented meant that only the 1976/77 to 1984/85 period was analysed for central government grants, rate poundages and total expenditures.) Some quirks that the reader should be aware of concerning these data are:

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HOGGART

first, that central government grant figures excluded the domestic element of the Rate Support Grant, for this is a uniform grant which is applied to reduce householders rate bills (i.e. it did include both the resources and the needs elements of the pre-1981 grant and their post- 1981 equivalents); second, that central government grant figures incorporated London equalisation payments for boroughs in the Greater London area (hence it was possible for London authorities to have a negative total 'grant' receipt); third, the data for grants and expenditures in these CIPFA reports are estimates based on expectations for a financial year (consequently they can only be taken to indicate broad trends rather than the precise details of local expenditure and grant changes); and, fourth, the figures which were analysed for local rateable values are actual penny rate p r o d u c t s - they do not incorporate central government deficiency payment contributions which compensate authorities for low property tax yields per capita (this is because these payments, while purportedly equalising per capita resources across local authorities, could potentially be reduced by central government, whereas actual penny rate products are 'guaranteed' revenue sources). Supplementing these data sources were CIPFA's annual Rate Collection Statistics and the Department of the Environment's Rate and Rateable Values in England and Wales (1974/75 and 1975/76). The former of these provided statistics for the 1977/78 to 1982/83 period (1976/77 to 1982/83 for rate arrears) on the rateable income councils were unable to collect. The latter contained data that were used to calculate the distribution of rateable values by property type (i.e. domestic, industrial, commercial). Although information on rateable property types was not available for all of the study years, CIPFA's Financial and General Statistics did include comparable figures for the later years that were investigated. In analysing this data the figures used throughout have been aggregate rather than per capita ones. This is principally because per capita figures are artificial representations of grant, rateable value or expenditure figures. Actual expenditures are aimed at specific groups or targets, hence if a measure of, say, service quality is required, individual services would have to be investigated, comparing local authorities on a per school pupil, per council home, per violent crime or per handicapped person basis. Per capita figures give an unsatisfactory representa-

tion of service quality (or tax burdens) because they combine different target groups. The point at which it is legitimate to combine such groups is when total expenditure figures are examined, since these, taken in the context of grant receipts, determine local taxation or user fee levels. In the context of this paper, it is this second level of analysis that concerns US.

Expenditures and Grants In essence, the argument that underlies the analysis of total expenditure and grant levels here is that they are ideologically determined. This argument is subject to the joint caveats that there are certain restraints on ideological dominance (like local expenditures being conditioned, within broad limits, by central government mandated service commitments or central adherence to the idea that its local grants respond to expenditure need differences) and that grant and expenditure levels are not determined in isolation from one another. Thus, while the Government's expenditure targets for each local authority might be taken to reflect the Government's ideologically-based expenditure preferences, the same cannot be said for the actual level of local grants or expenditure. This is because, for some local authorities at least, actual expenditures will represent a compromise between desired spending levels and the knowledge that they would result in grant penalties. Hence, in examining changes in expenditure levels, we should bear in mind that low rates of expenditure increase (coupled with 'normal' grant increases) could well be found for authorities which have experienced severe fiscal trauma (in having to decide what services should be cut to keep expenditures low and grants high). Without questionnaire survey or interview evidence, whether 'hard decisions' have had to be made or not cannot readily be identified. What can be ascertained is whether expenditure policies were linked to grant and property tax changes which made their implementation more problematical. The starting question, then, is whether expenditure levels and grant receipts reveal political party related distributions. If they do, then to counter the tendency for fiscal stress to be political party related, there would need to be compensatory differences in property tax resources. To establish this, the political control situations for each year were tabulated

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PROPERTY TAX RESOURCES AND POLITICAL PARTY CONTROL for all the investigated local authorities. Those that had a majority of council seats in Labour (Conservative or Independent) party hands for all years were referred to as L a b o u r (or Conservative or Independent) authorities. Competitive authorities were those which were controlled by both Labour and Conservative parties during the study years. Anti-Socialist authorities were never controlled by the Labour Party, but the Conservative Party required Independent or other party support to maintain a voting majority in some years. With these categories, it can readily be seen that Labour control was most commonly associated with the fastest rates of expenditure increase (Table 1). That this was not always the case is indicated by the figures for metropolitan districts. To provide an assessment of the magnitude of differences, two way analysis of variance tests were undertaken in which annual rates of expenditure increase were assumed to be determined by the particular years involved (as a control measure) and political control. O f the four local authority types examined, only in inner London and outer London (the smallest two categories) was the rate of Labour authorities' expenditure increase (0.05) significantly higher than that of other control categories. Although there was a tendency for Labour councils to increase their spending levels the most rapidly, this effect was not dominant. A similar lack of strong statistical association was

found when grant levels were subjected to analysis of variance tests. Here only metropolitan authorities had (0.05) significant party control differences, despite the fact that there were some clear differences in mean average grant increases over the period (Table 2). In part, this dissonance is accounted for by the volatility of grant changes since the 1979 Conservative Government attained its parliamentary majority. This is evinced by the fact that the interaction terms in all bar the metropolitan districts analysis of variance tests were (0.05) significant (when the same analyses were undertaken using per capita grant changes all interaction effects were statistically significant save inner London boroughs). Some indication of the character of these interaction effects can be obtained by examining annual percentage changes in outer London grant levels (Table 3). Given that annual changes in grant levels are conditioned by a damping effect within grant allocation procedures, it should be recognised that it is the expenditure targets (and associated grant penalties) which the Thatcher Government has introduced which has an important effect on grant fluctuations. This means that local authorities now have greater scope in influencing their own grant levels than they have had in the past. Fluctuations in central grant receipts are not simply centrally dictated. The pattern, then, is by no means a clear-cut one. Overall, however, Labour authorities' expenditures

Table 1

Mean annual percentage increase in total expenditures 1976/77-1984/85

Local authority type

Party Control

Shire districts Metropolitan districts Outer London boroughs Inner London boroughs

Labour 13.45 9.92 11.38 14.58

Conservative 9.63 9.99 9.26 10.44

Competitive 9.81 10.60 9.41 11.00

Independent 10.64 -

Anti-socialist 15.90 -

Independent 13.41 -

Anti-socialist 12.56 -

Table 2

Mean annual percentage change in central government grants 1976/77-1984/85

Local authority type

Party control

Shire districts Metropolitan districts Outer London boroughs Inner London boroughs

Labour 8.24 5.27 6.21 1.72

Conservative 14.39 5.37 5.62 8.77

Competitive 11.25 6.74 9.37 6.27

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Table 3

Annual percentage changes in central government grants in Outer London boroughs 1976/7~1984/85 Year

Party control

1976/77 1977/78 1977/78-1978/79 1978/7%1979/80 1979/8(~1980/8 l 1980/81-1981/82 1981/82 1982/83 1982/83-1983/84 1983/84-1984/85

Labour I0.47 17.68 10.25 19.47 2.13 4.90 -6.30 - 4.68

Conservative 6.77 19.45 11.43 19.15 2.04 - 1.77 -9.63 - 2.36

Competitive 13.97 16.33 9.47 18.58 9.84 10.03 -3.68 0.41

did reveal a faster growth rate than those of other authorities, even though their increases in central government grants were smaller. No claim is being made here that Labour authorities were 'hard done' by these joint processes. In fact given that many Labour authorities (especially in central cities) were losing population over this period, their increases in central grants per capita were greater than those of Conservative councils. Admittedly, these increases were not as large as Competitive authorities, but political party control was a statistically significant discriminatory of per capita changes in grant levels. However, this is not strictly relevant for our purposes. What is critical is the fact that locally elected representatives saw a need to increase expenditures relatively rapidly in Labour controlled authorities. Meanwhile, nationally elected representatives saw merit in providing a lower rate of resource increase for Labour authorities than for other authorities. These combined pressures set up a context in which Labour authorities required favourable local tax bases if they were not to be squeezed on all sides.

The Property Tax Base There are three components that need to be analysed when considering the value of a changing property tax base for controlling political groups. First, how rapidly is that base increasing, and hence, to what extent can councils raise extra revenues without substantial increments in rate poundages? Second, how reliable is the local tax base, or, to put that

differently, to what extent can councillors assume that the taxes they levy are actually collectable? Finally, how sensitive is the property tax base to electorate repercussions, that is, to what extent can councillors determine rate levels without fear of losing votes? A fourth factor that could be considered here is the absolute magnitude of each authority's property tax base. Councils with larger penny rate products can raise the same revenues with much smaller rate poundage increases than poorer authorities. Hence, desired expenditure increases can be attained with less fear of electoral (or other) repercussions. Generally, Labour controlled councils are acknowledged to have the poorest property tax bases within each category of local authority (e.g. Bennett, 1982). This is worth bearing in mind, although it should not be overstressed. For one thing, the resources element (and its post-1981 equivalent) in the Rate Support G r a n t is supposed to balance out deficits in local resource bases. 2 In addition, at the start of the period investigated here fiscal stress was not an issue of note for local authorities (albeit high rate poundage increases consequent upon the 1974 local government reorganisation did lead to attention being drawn to the best ways to fund local expenditures). It is through changes in local resource, grant and expenditure contexts that fiscal stress has emerged as a critical issue. Hence attention here focuses on these changes.

Rateable Value Changes 1974/75-1984/85 Table 4 lists the relevant information on rates of property tax resource changes over the study period. The patterns identified in this table are in keeping with widely recognised economic trends associated with the development of a post-industrial economy and the emergence of counter-urbanisation processes. Inner city areas, which are commonly Labour controlled, have been net losers, while remoter rural areas, which are still Independent controlled in many cases, have been substantial beneficiaries from these trends. Perhaps surprisingly, however, these changes were not clearly linked to political party control. Given c o m m o n expressions of concern over the negative effects of high rate and expenditure

2What is considered a 'balanced' situation is of course subject to politically-biased definition. The 'balance' obtained does not result in equality in the ease of gathering extra revenues at all expenditure levels, for example, and the 'balance' itself is set at an arbitrarily defined level (this was at the national average rateable yield per capita between 1966 and 1974 but was raised after that time). This still leaves some local authorities above the 'norm' in 'local' revenue terms.

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PROPERTY

TAX

RESOURCES

AND

POLITICAL

PARTY

CONTROL

41

Table 4

Percentage changes in the actual product of a penny rate 1974/75-1984/85 Local authority type

Party control Labour Conservative Competitive Independent Anti-socialist Socio-economic group Growth areas Suburban areas Rural areas Retirement areas Industrial and trade areas Service c e n t r e s Inner London

Shire districts

Metropolitan districts

Outer London boroughs

Inner London boroughs

8.46 19.71 21.64 35.00 35.33

14.04 13.82 13.05 -

5.16 10.58 6.21 -

15.63 7.47 10.04 -

27.75 18.02 37.20 19.92 18.61

15.27

14.31

10.68 1.15

11.73 -

3.75 5.88

-

16.78 10.88

Note." T h e s o c i o e c o n o m i c g r o u p c a t e g o r i e s a r e t a k e n f r o m C r a i g a n d W e b b e r ' s (1978) c l a s s i f i c a t i o n o f all local a u t h o r i t i e s .

levels (e.g. Birdseye and Webb, 1984), and the suggestion that these lead to a loss of investors to less (tax) burdensome locales (Aranson, 1974; Davies, 1982), it might be expected that the generally higher rates of spending and taxing increases of Labour controlled authorities would lead to them being disproportionate losers of property resources. On visual inspection this does not appear to be the case. Moving beyond visual appearances, this conclusion is confirmed by the analysis of variance tests undertaken. For the four local authority types examined, only the outer London one-way analysis of variance tests recorded (0.05) statistically different percentage increases in penny rate products (1974/75 1984/85) for authorities controlled by different party categories. Even here, although Labour councils did record the lowest rates of increase, the real point of contrast was between Conservative councils and others (Table 4). Labour authorities were little different from Competitive ones. Only in the shire districts was Labour's percentage change figure well below that of other control categories. That this difference did not produce a statistically significant result is probably due to the small number of Labour authorities in the shires and the wide range of values recorded for other party categories. However, even had this relationship proved to be

significant, this would have told us little about the origins of fiscal stress. As evinced in the named authorities on the Government's rate-capping list, it is Labour councils in city areas (particularly inner London) that have most commonly been linked with fiscal disorder. The tendency for shire district and outer London authorities to stand apart for penny rate product changes, was also found when alterations in the proportion of local authority rateable values in commercial and industrial properties were analysed (1974/75-1984/85). Again one-way analysis of variance tests were employed, with these two local authority types both recording (0.05) significant differences by political party control (inner London boroughs and metropolitan districts recorded no significant relationships). In the case of shire districts, Labour authorities ( - 8 . 3 0 per cent) were much heavier losers of their industrial property share than other councils (though only Independent controlled councils with + 0.03 per cent increased their industrial share), but in outer London it was Competitive authorities which lost the most ( - 6 . 4 0 per cent compared with Labour's -4.73 per cent and the Conservative figure of - 1.94 per cent). For commercial property, Labour councils as a group were always net gainers. Competitive authorities increased their commercial share by the largest

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proportion in all four local authority types. Independent councils in shire districts (with - 1 . 4 4 per cent compared with Labour's 1.10 per cent and Competitive councils 1.33 per cent) and Conservative authorities in outer London (whose 1.16 per cent contrasted with 2.53 per cent for Labour and 4.60 per cent for Competitive) occupied the lowest position. Overall, Labour authorities were not relatively disadvantaged in this regard. Further, given that Labour's poor industrial performance in shire districts was tied to explicit central government policies which affected particular districts which were investigated here (like the closure of Consett Iron and Steel works in Derwentside), it would be difficult to sustain the argument that local Labour policies resulted in increased industrial losses. Reliability of Property Tax Base A number of researchers have pointed to the handicaps experienced by many United States municipalities on account of specific categories of property being exempt from taxation. Talarchek and Agnew (1979) for example reported that 43.9 per cent of property valuation in Syracuse, New York, was lost to the City Treasury on account of taxation exemptions, while Weiler (1974) recorded a figure of 26.7 per cent for the City of Philadelphia. Such a high level of exemptions is not a characteristic of the current British situation (given that agricultural land is usually not included in such assessments due to its near universal exclusion from property taxation). In fact, the main exemptions in Britain tend to be for rate rebates and empty properties (Table 5). Central government grants supposedly incorporate payments which compensate for these losses (e.g. in weightings for the elderly, Department of Environment estimates are that 84 per cent of those receiving rate rebates are wholly or mainly retired, Whitehead, 1983, and in adjustments for rateable value deficiency per capita in the pre-1981 RSG resources element). With current cuts in Rate Support Grant payments, however, previously held assumptions about the equivalence of losses and gains in this exchange must be open to question. Hence, the percentage of rate income not collected in total, due to rate rebates, through empty property losses, because payees had absconded or were bankrupt, or where payments were in arrears, were all taken as measures of unreliability in property tax collection.

Costs of collecting rates per se were analysed to gain some assessment of the difficulties authorities faced in gathering their rate income. To assess whether such unreliability was linked to political party control, two-way analysis of variance tests were undertaken (with year and party control as explanatory variables). Examining each of the local authority types separately, it was notable that 'year' was always (0.05) statistically significant. For rebates, empty properties and total not collected, the trend was upwards over time. For rate payment arrears the trend was downwards (which is not surprising given local authorities' recent financial problems, for these have probably encouraged authorities to be less lenient over arrears problems). As for the effects of party political control, the picture was more confused. In metropolitan districts, for example, only empty properties (Competitive authorities higher), absconded/bankrupt (Competitive higher) and rate rebate measures (Labour higher) proved (0.05) significant. This pattern of different kinds of authorities being disadvantaged on each of the dimensions was also found for shire districts (Table 5). Here (0.5) statistically significant differences were recorded for total rate income not collected, rate rebates and rate arrears. For all of these, Labour authorities had the lowest rates of non-receipt. As with non-metropolitan districts, for the shires there was no evidence that Labour controlled councils were more disadvantaged by the unreliability of their property tax base than other councils (this was further confirmed by the lack of statistical significance for tests on the costs of rate collection). Only in London in fact did Labour councils have a more unreliable tax base. For the capital, (0.05) significant party effects were recorded for total rates not collected, empty properties and bankruptcy losses and arrears in rate payments (these results applying whether inner and outer London were examined separately or together). In each case Labour councils were in the most disadvantaged position. In this regard the London boroughs do stand apart; as indeed they do in being over-represented in the Government's first list of rate-capped local authorities. Over all local authorities, however, the dominant trend was for political party control to be related to technical problems of property tax collection in an inconsistent manner. In the next section, we shall see if this also applied for electoral restraint on rate collection.

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P R O P E R T Y TAX R E S O U R C E S A ND P O L I T I C A L PARTY C O N T R O L Table 5

Mean averagepercentage of rateable value not collected 1977/78-1982/83 Exemption (Local authority type)

Party control Labour

Conservative

Competitive

Independent

Anti-socialist

Total not collected Shire districts Metropolitan districts London boroughs

5.75 7.51 7.34

6.08 7.11 5.98

6.96 7.40 5.87

6.41 -

7.01 -

Rate rebates Shire districts Metropolitan districts London boroughs

2.36 3.76 2.64

2.96 3.47 2.53

3.16 3.23 2.35

3.20 -

3.38 -

Empty properties Shire districts Metropolitan districts London boroughs

2.59 2.42 3.17

2.22 2.52 2.40

2.41 2.96 2.41

2.15 -

2.57 -

Absconded/bankrupt Shire districts Metropolitan districts London boroughs

0.06 0.13 0.28

0.08 0. I 1 0.17

0.13 0.19 0.18

0.06 -

0.11 -

Rate payment arrears Shire districts Metropolitan districts London boroughs

0.96 2.31 5.58

1.39 2.03 3.0I

1.45 2.50 5.34

2.19 -

1.35 -

Cost of rate collection per I00 hereditaments (£) Shire districts 440.50 497.60 Metropolitan districts 568.92 558.97 London boroughs 794.71 780.60

471.65 529.07 815.75

435.50 -

454.37 -

Note: (1)data on arrears are for 1976/77-1982/83; (2) arrears do not count in the 'Total not collected' figure as it is assumed they will be collected eventually; (3) the Empty properties figures are net values, so they take into account empty property ratings under the 1967 General Rate Act; (4)the Total net collected figures do not include 'Reduced Assessments' as these data were only available for 1981/82 and 1982/83. Property Taxes and Electoral Politics E v i d e n c e f r o m b o t h the U n i t e d States (Jackson, 1972; H a i d e r , 1976) a n d Britain (Ferry, 1978) has suggested that local a u t h o r i t i e s ' p r o p e n s i t y to raise taxes is clearly affected by politicians' c o n c e r n o v e r the electoral c o n s e q u e n c e s o f tax increases. This is particularly seen in the t e n d e n c y for large tax increases to o ccu r in those years w h e n elections are n o t held. In a situation in w h ic h central grants are declining, an d pressure f o r local e x p e n d i t u r e is intensifying r a t h e r t h a n a b a t i n g (in terms o f changing local s o c i o e c o n o m i c c o n d i t i o n s at least), any decision to restrict e x p e n d i t u r e (and hence rate) increases f o r reasons o f electoral a d v a n t a g e will a l m o s t certainly increase b u d g e t a r y t r a u m a s within a local a u t h o r i t y (this t r a u m a p e r h a p s t a k i n g the

f o r m o f conflict o v e r w h a t services have to be cut to minimise tax increases). This c o m b i n a t i o n o f circ u m s t a n c e s s h o u l d e n h a n c e fiscal stress in so far as it p r o d u c e s a cyclical p a t t e r n o f ex p en d i t u r e an d tax increases (Ferry, 1978). Such a p a t t e r n is n o t c o n d u cive to the s m o o t h p l a n n i n g a n d i m p l e m e n t a t i o n o f e x p e n d i t u r e policies in times o f e c o n o m i c recession. F o r the local authorities e x a m i n e d here there were three basic p a t t e r n s o f local elections. In stating this the r e a d e r should bear in m i n d t h a t it is lower tier elections (and rate p o u n d a g e s ) that have been e x a m ined. T h e effects o f elections for u p p e r tier a u t h o r i ties h a v e n o t been t ak en into a c c o u n t in the analyses below. T h e three election p r o c e d u r e s were as follows: 1. F o r the b o r o u g h s in inner L o n d o n an d o u t er L o n d o n , elections for the w h o l e council were

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KEITH HOGGART

held every four years. These occurred in May of 1977/78 and 1981/82. 2. For metropolitan districts and 'A type' shire districts, elections were held for one-third of the council in each year save that when a county council election was held. This means that elections were held in all years except 1977/78 and 1981/82. 3. Since shire districts can select their electoral procedure, a third electoral system exists. This is found in 'B type' shire districts. These local authorities hold elections for the whole council every four years. Over the 1976/77 1984/85 period these occurred in 1979/80 and 1983/84. Since local authority financial years begin in April, whereas council elections are held in May, this effectively means that the budget in an election year is made by the outgoing council. For our purposes this does not matter, since the temporal proximity of the setting of budgets and local elections should result in budgets for election years reflecting this fact (in other words, it is assumed that budgets were set by councillors with an interest in the outcome of the forthcoming electoral competition). The proximity of these two events should in fact result in an intensification of electoral pressures on elected representatives to keep property tax increases low. Unlike Ferry's (1978) analysis of rate poundage increases before 1974, the post-1974 period cannot be treated as a uniform whole. This is principally because annual rates of change in central government grant payments varied considerably from Table

1981/82 onwards (Table6). For rate poundage changes between 1980/81 and 1981/82, for example, it is not feasible to distinguish changes in rate poundages that were influenced by electoral considerations and those that were 'forced' on authorities on account of reductions (in absolute and/or real terms) in grant revenues. For that reason only the first four of the study years were concentrated upon when evaluating the effect of elections on rate poundage increases (the reader can nevertheless readily ascertain that the conclusions reached do not change when the whole study period is considered). From this period, the evidence provides little support for the hypothesis that elections have a depressing effect on rate poundage increases. Councils in which four-yearly elections were held did not have their lowest rate increases in election years. Neither did authorities with elections three years out of four save their largest rate increases for nonelection times (Table 6). This finding leads to the same conclusion as that of Bristow (1982), who compared actual election results with rate poundage levels; namely that decisions on rate poundage levels seem to be made largely independently of electoral considerations. Further, if this held for the 1976/7-1980/81 period, it was even more likely to be true after that time since local councillors could blame centrally imposed grant reductions for any rate increases that ' h a d ' to occur. All the above observations are of course made as if political party control had no effect on budgetary behaviour. Quite feasibly, Labour and Conservative dominated authorities felt so secure in their electoral support

6

Mean average changes in rate poundages 1976/77-1984/85

Local authority type

(A) Shire districts (B) Shire districts Metropolitan districts Outer London boroughs Inner London boroughs

Year 1976/771977/78 1.31 (102.97) 1.17 (103.74) 7.74 (11.16) 2.32* (8.31) 3.21" (10.01)

1977/781978/79 0.85* (17.33) 0.85 (31.10) 3.57* (10.84) 0.31 (18.76) 2.78 (15.27)

1978/7~ 1979/80 - 4.34* (39.48) -4.04* (25.75) 8.51" (9.62) 9.07 (10.98) 7.46 (16.57)

1979/801980/81 2.66* (20.67) 2.69 (20.71) 16.81" (21.28) 16.21 (19.22) 11.13 (18.22)

1980/811981/82 2.89 - 90.27) 0.61 -95.23) 33.99 - 10.20) 22.69* (1.18) 24.89* - 16.49)

1981/82 1982/83 0.10" ( - 2.26) 2.74 (10.40) 16.10" (2.33) 2.82 (0.82) -4.20 ( - 13.38)

1982/83- 1983/841983/84 1984/85 0.66* 2.67* ( - 3.31) (7.45) 0.22* 1.49 (5.60) (7.60) 6.17" 7.98* (0.01) (1.28) 14.42 9.03 ( - 8.33) ( - 2.92) 21.31 16.48 (13.31) ( - 14.31)

Note: Figures in brackets refer to percentage changes in central grant receipts. Those years signified with an asterisk were election

years.

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PROPERTY TAX RESOURCES AND POLITICAL PARTY CONTROL

45

Table 7

Competitive authorities rate poundage changes 1976/77-1980/81 Local authority type

(A) Shire districts (B) Shire districts Metropolitan districts Outer London boroughs Inner London boroughs

Year 1976/771977/78 0.52 (97.35) 1.71 (98.76) -0.90 (10.54) 6.73* (13.97) 7.08* (6.33)

1977/781978/79 1.22" (17.46) 0.47 (32.63) -0.93* (11.20) 2.92 (16.33) 8.15 (14.43)

1978/791979/80 -3.35* (42.66) - 4.24* (30.08) 8.16" (10.01) 9.67 (9.47) -3.39 (13.17)

1979/801980/81 2.83* (27.57) 4.29 (17.00) 18.59" (21.32) 14.83 (18.58) 1.30 (18.26)

Note: Figures in brackets refer to percentage changes in central grant receipts. Those years signified with an asterisk were election years.

that they experienced few qualms over rate increases. Yet in Competitive authorities, such considerations might be expected to have been critical. To assess this possibility, mean rate poundage increases were tabulated (by year and party control) for the 1976/77 to 1980/81 period (Table 7). These confirmed the finding for all authorities, namely that there was little support for the notion that electoral conditions constrained the fund raising decisions of local authorities.

not be concluded that the rating base of Labour councils discriminated against them. Labour councils are comparable with others in that changes in their resource bases were sufficiently robust to fund their expenditure requirements. What the current fiscal troubles of Labour (and other) local councils stem from is Government attempts to restrict access to their own resource endowments.

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Conclusion

From the material investigated in this paper, it has to be concluded that there were no marked linkages between local political party control and property tax resources. This result is perhaps somewhat surprising, given that Labour controlled authorities are commonly assumed to operate with high expenditure priorities, relatively poor resource bases and (recently) a Government that is antagonistic to their policy aims. Certainly, it is Labour councils that have dominated the Government's own definition of fiscally troubled authorities (i.e. its list of ratecapped councils). Yet the only real suggestion of a political party bias found here was in the higher rates of expenditure increase and poorer reliability of rate income of London's Labour councils. These same authorities were not really disadvantaged by central government grant payment alterations or by changes in rateable values, so there was no consistent pattern of factors combining to disfavour London's Labour boroughs. In a nutshell, it could

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