Downing Street Years - Margaret Thatcher [405]
It is worth noting that the changes we made in local government finance originated in and continued to reflect opinion in the Conservative Party, notwithstanding these arguments about transitional arrangements. Both the English and the Scottish Party demanded fundamental changes in the rates. It was the Scottish Party which insisted upon the early introduction of the community charge in Scotland: and if, as the Scots subsequently claimed, they were guinea pigs for a great experiment in local government finance they were the most vociferous and influential guinea pigs which the world has ever seen.
It is true that in April 1988 we had to fight off an amendment put forward by Michael Mates MP, a lieutenant of Michael Heseltine, which would have introduced a ‘banding’ of the community charge — that is, income would be taken into account in setting the charge. This would have defeated the whole purpose of the flat-rate charge, as well as creating damagingly high marginal rates of tax at the level of each ‘band’. The proper way to help the less well off was through community charge rebates, and Nick Ridley won round many of the rebels by announcing improvements in these, making them a good deal more generous than rate rebates had been. But the most consistent pressure was from Tory MPs anxious to see that the benefits of the new system came through faster to their constituents.
The bill received its Royal Assent in July 1988. The new system would come into operation in England and Wales on 1 April 1990.
The discussions about dual running, the safety net and transitional relief which so preoccupied us in the period before the new system’s introduction all reflected one fundamental point. The new system of local authority finance would be ‘transparent’. That is, its clarity and directness would bring financial realities home to everyone. This, in my view, was one of its inestimable benefits. As I used to put it in my speeches explaining the community charge, it provided everyone with a ‘ready reckoner’. The differing needs of any particular area would be taken into account in the central government grant. Then a standard level of community charge would be set and published. If local authorities chose to spend more than the standard level of service required then the community charge would go up. The effect would not be concealed either by complex formulae or by draining more money from business. Every elector therefore would have the information and the incentive to insist on efficiency and low levels of spending.
But the other side of this was that because the total contribution from businesses was to be held to the rise in the RPI any increase in local authority spending above the level allowed for in central government grant would be concentrated on the individual community charge payer. Each 1 per cent of extra spending would add 4 per cent to the community charge — the charge covering about a quarter of total local authority spending. Such high ‘gearing’ meant that if local authorities pushed up spending — using the opportunity of the introduction of a new system to do so and then blaming central government — the increase in the bills to the individual charge payer would frequently be dramatic. In many badly run (usually Labour-controlled) authorities families were stunned by the size of the estimated bills and blamed the Government. In these cases, the deep unpopularity of the community charge was in a sense proof that it was likely to work, but the political opposition rapidly began to get out of hand.
Looking back, it may have been a mistake to do away with the dual running of rates and community charge. And perhaps we were relatively too sensitive to the needs of business