Examination of witnesses (Questions 200
- 219)
TUESDAY 30 JUNE 1998
MR JOHN
BALLARD, MR
PHILIP WOOD
and MR PAUL
EVANS
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.
Chairman
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.
Chairman
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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