COUNCIL TAX LIMIT

The Government has admitted that council taxes have reached the "limit of acceptability". The obvious option would be to curb public spending and therefore have no cause to extract extra money from its citizens. The Local Government minister, Nick Raynsford, who admits that council tax is now at this stage, does not, however, appear to include this on his list of options. Instead, he talks of resorting to "other sources of revenue". The Government's problem, he implies, is not that people are taxed too heavily, but that they are taxed in too blatant a fashion. Devise a less visible form of taxation and the Government will be able to continue its spending spree without having to look over its shoulder at the angry taxpayers, such as the Devonian pensioners who police have warned are on the brink of civil unrest.

One of those "other sources of revenue" appears to be petrol, upon which the Chancellor of the Exchequer is proposing to raise the duty by 5p a gallon. It isn't hard to deduce the identity of another. Recently, Gordon Brown made a speech to the Local Government Association on proposed changes to business rates. The Chancellor was careful to insist that business rates would still be set nationally - for now. But he made a crucial concession, all the more striking coming from as notorious a centraliser as Mr Brown. Henceforth, he said, councils would be able to retain a proportion of the revenue raised by the business rate which is currently paid straight into central Government coffers. According to Mr Brown, the purpose of the change would be to "encourage enterprise".

If councils are allowed to keep some of the money raised through business rates, he argued, it would give them an incentive to attract new companies to their area. Mr Raynsford claims that there will be no additional burden to business in what is, at present, simply a proposed re-allocation of funds between town hall and Whitehall - £1 billion over three years. But, having conceded this re-allocation, it is clear that the next logical step would be to devolve the power to set business rates to cash-strapped councils. There is a clear political advantage to the Government in gradually switching the local tax burden away from council tax towards business rate. A rise in council tax is quickly noticed by every householder in the country. A rise in business rates, on the other hand, will register only with those who run businesses.

Given that there are many more householders than businesses, and that businesses do not directly have the vote, there is much less scope for a rise in business rates to provoke a popular revolt of the kind which was waged against petrol taxes in 2000. The one period during its six years in office when the Government's opinion poll ratings fell below that of the Conservatives. It would be foolish, however, for the Government to think that it could get away for long with transferring the tax burden to business. Its proposals would reinstate the regime which existed before the uniform business rate was introduced by the last Tory Government in the 1990s, the time when Labour councils were able to spend taxes on the many but raise them from the few. It wasn't so much residents who were made to pay for lesbian awareness-training, it was businessmen trying to set up plastics factories.

Since the introduction of the uniform business rate, there has been a transformation in the economic fortunes of many inner cities. Boutiques and wine bars flourish in areas that were once commercial wastelands, save for decaying nationalised industries. To put business back at the mercy of Left-wing authorities would mean a return to commercial no-go areas. It would be a dangerous path for a party which launched itself on the path back to power via a campaign of breakfast meetings to persuade businessmen that Labour no longer meant socialism. Businesses have every right to feel nervous about the direction which this Government's local taxation policy is taking. The low quality of local authority management in this country means that most firms will feel dismay that a slice of the business rates they already pay will now be handed over directly to town hall bureaucrats.

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