Local Tax Equalisation in England: An Empirical Analysis

Abstract

In this paper the effectiveness of local tax equalisation across English local authorities since 1981 is evaluated. Two specific aims of equalisation policies are identified. Proportional rate equalisation implies that variations in needs and resources should be neutralised and that tax levels should depend on local spending decisions. Strict rate equalisation implies that local taxes should not exceed the levels specified by central government. The statistical evidence indicates that neither of these aims has been achieved since 1981. The main obstacles to proportional rate equalisation are differences in grant funding and inadequate compensation for variations in needs and resources. The main obstacle to strict rate equalisation is incrementalism in local budgeting. The implications of the planned reforms of local government finance are analysed. It is concluded that equalisation may be more effective under the new system of local taxes and central grants.