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A local income tax would be the best option if the government wanted to devolve a significant new source of revenue to councils a report by the Institute for Fiscal Studies has found. However such a move would inevitably come with challenges – not least to ensure equity between richer and poorer parts of the country.
It could provide substantial sums of money. Each 1% of local income tax on all tax bands would yield around £6bn equivalent to almost 15% of councils’ core budgets. Devolution of a portion of income tax would also:
- provide broad financial incentives to councils to grow their local economies and raise incomes and employment among residents; and
- give councils a buoyant revenue stream that automatically keeps pace with inflation and economic growth.
But a local income tax would raise more in some areas than others. The IFS estimates that revenues per person from...
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