Select Committee on Environment, Transport and Regional Affairs Minutes of Evidence

Examination of witnesses (Questions 200 - 219)



  200.  Subject to capping?
  (Mr Wood)  I am sure that any government would take very seriously indeed any problem that arose in that area.

Mr Flight

  201.  Because the actuarial reviews are still triennial it is quite difficult to have an up-to-date view of what may be over the horizon in terms of the cost to local authorities changing. As you point out, they are the bodies that pick up the residual. My personal concerns are not just about ACT but the fact that equity markets have performed particularly well for 15 years and the probability is that they will move into a phase which is in the other direction. I believe that in three years' time quite a big hole will be found in this area. I accept that to get hold of the data to try to anticipate that is quite difficult. I counsel against a complacent view that, despite the processes that you have described, they are giving you the current answers.
  (Mr Wood)  I agree with you about complacency being the last thing that is needed in this area. Perhaps I may quibble with you over the use of the word "hole". That may unnecessarily and unjustifiably worry people. No hole will be allowed to exist in any sense that affects the financial interests of the beneficiaries. Their entitlements are also statutorily guaranteed; ie, they are set out in secondary legislation and are fully committed. There is no sense in which there is a hole that threatens those beneficiaries.

Dr Whitehead

  202.  What discussions have you had with local authority associations about the relationship between central and local government expenditure to explore the possibility of varying it?
  (Mr Wood)  Discussions with the Local Government Association on that particular subject almost inevitably tend to be at a very high level of generality. The LGA would like to see a greater proportion of its expenditure covered by locally generated taxation. That is a consideration that has certainly influenced the LGA in its desire to have some—or perhaps total - localisation of non-domestic rates. Their stance is very much driven by that sort of philosophical approach that is well understood. As far as the Government are concerned, in trying to answer that question we usually focus on the proportion of revenue expenditure that is covered by the council tax and its predecessor. The current figure is about 24 per cent. There are lots of different factors that will affect that in future as in the past. The council tax has a degree of buoyancy. After all, more households are being created at a rate of about 175,000 a year. However, a large proportion are single adult households that enjoy a discount, so there is not a pro rata effect on council tax income. There will be changes in efficiency. Councils will take their own decisions about the total quantum of expenditure, subject under the present regime to capping and so on. The question is whether the Government want to go in the direction of a greater proportion of the total being covered by locally generated taxes. There has been no firm statement by the new administration that the Government explicitly wish to raise that figure of 24 per cent. One may reasonably interpret their general statements about the desirability of improved local financial accountability and the possibility of a degree of localisation of non-domestic rates, which was put in the consultation document on this subject, as an indication that the Government might wish to go in that direction other things being equal. However, there is no firm commitment in that respect.

  203.  Do you count as firm commitments items that were placed before the electorate as a policy document?
  (Mr Wood)  I do not and cannot. I can proceed only on the basis of what Ministers, White Papers and consultation documents say.

  204.  But is it not the case that when a new government come into power civil servants read carefully the policy documents on which the government have successfully based their election campaign and make strategic plans accordingly?
  (Mr Wood)  We read them extremely carefully both before and after. But it is for Ministers once in government to decide what they will do taking into account their manifesto commitments. It is not for us as officials to treat the manifesto as a government statement.


  205.  Is it not logical in an area that is fairly fundamental to ask Ministers for direction?
  (Mr Wood)  The answers that they have given publicly is at the level of very broad statements about their desire to increase the degree of local financial accountability, if possible. But what I am trying to say carefully is that Ministers have not put their names to a proposition, for example that the figure of 24 per cent that I have quoted should be increased. Whether or not it is feasible to increase it is an interesting question to which we turn our minds. That is not a technical judgment or one for officials. In the final analysis it is a political judgment for Ministers. Over the years we can see that the share of total revenue expenditure by local authorities accounted for by council tax and its predecessor has varied considerably. Since about 1981 the figure has been between 21 and 34 per cent. That is an indication of feasibility in one sense. One can also argue that because it reached 34 per cent in the first year of the community charge there was a political reaction against it.

Dr Whitehead

  206.  Are you saying that the feasibility of changing the relationship between central and local government expenditure is a matter for political decision by Ministers?
  (Mr Wood)  Undoubtedly.

  207.  I am rather confused by this. I would have thought that the right sequence of events would be for civil servants to produce a number of papers that considered the feasibility of various options and then for Ministers to decide on the ability physically to implement those matters; ie, civil servants will consider feasibility as part of their advice to Ministers?
  (Mr Wood)  The key factor in asking the general question whether it is feasible to increase the figure of 24 per cent is the political judgment involved in that. There is not a technical knock-down argument which says, "Dear Minister, no, you cannot go from 24 to 25 per cent." Of its essence it is necessarily a political judgment.


  208.  What is the consequence for local government?
  (Mr Wood)  That there would be higher council taxes.

Dr Whitehead

  209.  Or a wider tax base?
  (Mr Wood)  That would be another way of approaching it—hence the arguments that we have been having, for example, over the localisation of the business rate.

  210.  I was thinking of the wider tax base in the sense of the experience of other European countries where local authorities have a number of tax-raising options. Presumably, the department has looked at that from time to time?
  (Mr Wood)  Indeed. One of the consultation documents said that the Government had no plans to go beyond consideration of taxes in the range of council taxes that already existed, possibly some degree of localisation of the business rate and the option that had been mentioned in the area of congestion charges—although one must wait for the transport policy White Paper to see a firm statement of the Government's policy in this area.

  211.  Is that because a wider tax base is not technically feasible or because Ministers do not want it to happen?
  (Mr Wood)  It is not a matter of it not being technically feasible. I pluck an example completely out of the air. It is not government policy. I am sure that we could give you a feasible option of a bed tax in hotels. The argument is not about feasibility but whether the Government regard it as being politically desirable to have such a tax. One can extend that argument across the piece in relation to each of the theoretical possibilities. Ministers are quite clear that apart from the examples that I have given they do not intend to come forward with proposals for additional taxes.

  212.  Even though they are feasible?
  (Mr Wood)  We can make almost anything work given time and money. The political question is whether it is worth the price.

Mrs Dunwoody

  213.  You are saying that no political parameters have been put to you in such a way that you are required to come up with detailed answers on either a different tax base or an extension of the existing tax base?
  (Mr Wood)  Ministers have looked at and considered some of the options for extending the tax base, but their conclusion is that they do not want to introduce a raft of new taxes.

Dr Whitehead

  214.  The implementation of the best value pilots and the strong suggestion in the Green Paper that legislation will follow upon the successful examination of those pilots will presumably have an effect on local authority management and administration costs. Bearing in mind the requirements that Ministers have placed upon consultation and accountability under such a best value regime, that will have an effect on the cost of democracy. Have you assessed that extra cost?
  (Mr Wood)  It depends on the elements that one is talking about. As far as best value in general is concerned, Ministers do not expect that there should be any additional costs falling on local authorities, still less council taxpayers, as a consequence of best value arrangements.

  215.  Really? How on earth can they say that?
  (Mr Wood)  I do not understand.

  216.  To me it is obvious that there will be some additional local management costs following implementation of best value, particularly the overhead charged to each department for the cost of central administration and democratic activity, for example the requirement to hold consultation with the public each year?
  (Mr Wood)  We come back to the effect on finances of local authorities taken in the round. You will know that best value is about producing the appropriate mix between both quality of services and the price at which they are acquired. I do not think that we can take out particular costs associated with one element of the process, for example consultation costs, and say that they are additional costs that must be paid for while ignoring the other side of the equation which is the benefits that the Government believe will be delivered by best value.

  217.  But the benefits that the Government claim will be delivered by best value are not necessarily cost benefits; they are wider three-dimensional value benefits, ie a general improvement in the value of services to the local population which is not based on a baseline accountancy view.
  (Mr Wood)  One is considering quality of service and value for money in the round, which also includes the cost to the authority and, through it, to the taxpayer of the service thus provided. It is not moving away from the importance placed on efficiency and the result of efficiency as expressed in the cost to the authority.

  218.  But there is no claim of cost savings as a result of best value. Indeed, at most the suggestion is that the outcome will be neutral or possibly a slight increase in cost overall?
  (Mr Wood)  I am not aware that the Government have put their name to any proposition that best value will lead to an increase in costs.

  219.  But it has not put its name to the proposition that best value will lead to a decrease in cost?
  (Mr Wood)  No. When it comes to it the Government are saying that it is for local authorities to make their own judgment about the balance between the quality of service provided and the cost to it of providing that service. But Ministers would be dismayed by any suggestion that best value across the board would lead to higher costs. That is not the intention at all.

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