What happens when Local Government is funded by local taxes

I have long argued that there are dangers in the current fashion of saying that Local Government in the UK should raise more of its funding from locally raised taxes.

You only have to look at the financial (and social) state of many cities in the USA to see this, so we shouldn’t be surprised when these same problems and issues arise in the UK, which they will.

Just as a single illustration of my point have a look at this article.

http://www.city-journal.org/2012/cjc0105sg.html

It is a bit confusing if you don’t know the detail of this issue, but the thing I really want to point out is the bit about cities promoting developments just because these developments brought in additional tax revenues for these cities, often to the detriment of the larger area as well as the city (and its citizens and businesses) as a whole. The city authorities encouraged certain large developments even if they harmed the wider area and economy.

 

The article didn’t spell it out but this is due to the technique and policy known as Tax Incremental Financing (TIF), and TIF is being put forward by the UK Coalition Government, and many consultants, as   a bit of a cure-all for UK Local Government. This is to be combined with localisation of Business Rates which, I think, could lead to the same outcome –  decisions about developments being taken purely based on the fact that they bring in some extra tax funds for the Local Authority and not on whether it is a project which benefits the local citizens and businesses as a whole, especially in the long-term.

The lessons are there if we really want to take them. We have been warned.

 

 

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