While the local authority associations would welcome an end to capping as a constructive step toward restoring local democratic accountability for services, it is important to understand that the removal of capping would on its own do nothing to ease the financial pressures on education or other local services. Just one-fifth of local spending in England is raised locally through the council tax while nearly four-fifths is financed by central Government grant.
Should capping be lifted without a concomitant increase in grant, any additional spending would have to be financed entirely by increases on council tax. The result of the1:5 "gearing" ratio is that the average council would have to increase its council tax bills by 5 per cent in order to raise its total expenditure by just 1 per cent. The magnitude of underfunding in essential public services including, but not only in, education is 2.8 per cent not even counting inflation. If the Government's own inflation estimate for next year of 3 per cent is added, it becomes clear that removing capping alone will not solve the problem of underfunding.
Providing local councils with additional ways to raise money, through increasing the range of taxes they can levy and relaxing restrictions on the use of capital receipts and borrowing, would help councils to meet local needs while easing pressure on council taxpayers and the Exchequer.
Allowing local government to spend more by relaxing capping without providing the means by which additional funds can be raised would be a pointless gesture.
Local Authority Associations
35 Great Smith Street, London SW1