Memorandum by Royal Institution of Chartered
Surveyors (LGB 19)
1. We are pleased for this opportunity to
submit comments on the draft Local Government Bill to the Transport,
Local Government and the Regions Select Committee.
2. The Royal Institution of Chartered Surveyors
(RICS) is the leading source of advice on land, property and construction
issues worldwide, representing over 110,000 members. RICS is regulated
by its Royal Charter with the objective of promoting the public
good. This allows RICS to comment independently on matters in
which its members have expertise.
3. RICS welcomes in large part the measures
introduced by the draft Local Government Bill. We are alarmed
however at the quantity of secondary legislation to be initiated
by these measures. We calculate there are over 50 regulations
or order enabling powers that will need to be made as a result
of the Bill. We urge the committee to press the government to
include more of these powers in primary legislation.
4. Our main points cover:
— The need for consolidated primary
legislation for local government financial powers, non-domestic
rates and council tax;
— The effectiveness of national pooling
of local authority capital receipts for re-distribution;
— Widening the scope of interests for
which local authorities may dispose of their property assets;
— The absence of Local Tax Reinvestment
Programmes from the legislation;
— Liability for owners as well as occupiers
for additional rates raised for business improvement districts;
— Small business rate relief which
should not be made "revenue neutral";
— Over-complexity of the transitional
non-domestic rate relief scheme;
— The need for an effective right of
appeal against a Valuation Tribunal decision on council tax property
banding;
— Shorter council tax revaluation cycles;
— Limiting transitional arrangements
for council tax liability following revaluation.
IMPROVED FISCAL
POWERS FOR
LOCAL AUTHORITIES
5. We welcome the greater freedoms and responsibilities
local authorities are provided with to borrow to fund public investment.
It is vital local authorities have the means with which to deliver
services and revitalise local communities. It is equally important
that they are accountable to their electorate for their actions
and we support the mechanisms employed to achieve this in the
Bill.
CAPITAL RECEIPTS
(CLAUSES 8-13)
6. One source of revenue for local authorities
is the use or disposal of their property assets that are then
converted into capital receipts. Local authorities may currently
do so under section 123 of the Local Government Act 1972. Under
that Act's definition of "best consideration" local
authorities may dispose of property assets for returns below their
market value. This definition should be expanded to incorporate
the Local Government Act 2000 definition of best consideration
as including the "social, economic and environmental well-being
of the local community". This important amendment will significantly
improve the ability of local authorities to dispose of their property
assets where it is to the long-term benefit of their communities.
Local Tax reinvestment Programmes (LTRiPs)
7. Local Tax Reinvestment Programmes were
proposed as a possible additional resource for local authorities
in the Modernising Local Government Finance green paper. Based
on a US idea, LTRiPs allow an authority to reap the benefit of
improvements made to districts within its control made through
local initiatives, for example through Business Improvement Districts.
The idea is for the additional revenues achieved as a result of
regeneration initiatives to be retained by the local authority
rather than, as would be the case in England and Wales, returned
to central government for national re-distribution.
8. Since the green paper there has been
no comment from the government on this issue. LTRiPs are clearly
a major incentive to local authorities to pursue regeneration
projects because they reward investment. We would envisage an
LTRiP covering a period of 20 to 25 years in order to accrue significant
revenue for a local authority.
Pooling of capital receipts
9. The proposed re-distribution of capital
receipts through a national pool is in principle a worthy suggestion.
This is also consistent with the approach to national non-domestic
rating. We note however that this may be a disincentive to some
authorities to release their assets, as they will directly realise
less of the benefit both in financial terms and indirectly in
relation to making land available for regeneration. A power does
exist for Ministers to order the release of certain local authority
assets but this is little used and, in any event, an authority
may get around this difficulty through simply re-defining an asset
as non-investment. This raises potential doubts over the ability
of the government to re-distribute significant funds to local
authorities through this mechanism. On a technical point neither
does the draft Bill propose what proportion of receipts should
be pooled. This should be stated in the primary legislation rather
than in Regulations and Orders. We assume the pooling of capital
receipts does not apply in instances where assets are being disposed
of to self-fund the provision of replacement assets (ie "in-out
schemes").
BUSINESS IMPROVEMENT
DISTRICTS (BIDS)
10. RICS welcomes BIDs as a major tool for
regeneration in urban districts. BIDs will be agreed between local
businesses and authorities and then specific schemes will be targeted
for BID projects. These projects will be financed through an additional
levy on the non-domestic rates paid by business property occupiers
or owners within a given BID. This raises important questions
over how to gain the agreement of local businesses and the extent
of liability for paying the levy within a given BID.
11. Liability is to be imposed upon relevant
"non-domestic ratepayers" or a class of such ratepayers.
This definition would include occupiers or owner/occupiers but
not owners who are not relevant ratepayers. Arguably this is unfair
to occupiers who may find themselves footing the Bill when it
may be their landlords who may reap the full benefit. The reason
is that one of the more important effects of a BID project would
be to increase the value of property within the district. Owners
of such properties would then gain the benefit of enhanced investments
without having to contribute in any way unless required to do
so under the project. The principle needs to be established that
if the BID parties agree (including owners) the owners of property
should contribute a fair proportion of the levy.
12. We consider the draft Bill and not Regulations
should specify the required percentage to vote in favour of a
BID proposal for it to be successful. The circumstances under
which a billing authority may exercise a veto of the BID proposals
also should be outlined in this Bill and not left purely to regulations.
NON-DOMESTIC
RATES (NDR)
13. In 1996 RICS established a National
Committee on Rating that comprehensively considered non-domestic
rates and was published as the Bayliss Report. This report was
the result of 12 months' discussion between 16 business and representative
organisations assisted by eight Government departments. The recommendations
of these bodies represent a consensus view of local government
finance stakeholders.
14. Bayliss stated, "Rating law in
England and Wales has now become uncertain and so complex that
it is extremely difficult even for professional advisors to understand"
and later "all current rating legislation is in urgent need
of consolidation". Those words are as true today as they
were six years ago and with a further revaluation on the books,
rating legislation has become even more incomprehensible.
15. Part 5 of this Bill addresses by amendment
revised Government thinking on a number of matters in the 1988
Local Government Finance Act (and subsequent amending legislation)
and introduces additional matters it now considers appropriate
for the proper administration of this important tax.
16. All of this adds to the complexity of
the understanding of rating legislation today. If the Government's
aim of a system that is intelligible and transparent is to be
achieved, we believe that all English rating law should be consolidated
and founded in separate updated primary legislation.
Small Business Rate Relief
17. Research has indicated that small businesses
bear a relatively higher burden of rates and therefore we see
some merit in a targeted rate relief scheme. Nonetheless we do
have considerable reservations that small businesses may not enjoy
the full benefit of the relief. This is because landlords may
benefit from any relief given by seeking higher rents as rate
outgoings fall. This was one of the findings of the research carried
out for the Department of the Environment in 1995.
18. Moreover, any scheme that would provide
greater relief the lower the rate assessment, will encourage small
businesses to appeal against their rateable values. This is because
the rewards from a successful appeal would be increased if the
result were to move the rateable value to a point where a greater
percentage relief is given.
19. Ideally relief should be targeted only
at small businesses that are in need of financial assistance.
We recognise however that if relief is to be granted through a
statutory rates reduction scheme it would not be practicable to
apply a needs test. Therefore we agree with the proposed qualification
criteria of prescribed rateable value limits, prescribed conditions
and ratepayer applications.
20. Whilst we support the principle of small
business relief we strongly believe, as indeed did the Bayliss
Committee in its Report, that such a relief scheme should be funded
centrally and not paid for by other ratepayers through an increase
in the national non-domestic rate multiplier. Other existing mandatory
rate relief schemes are presently met by the Exchequer and not
imposed upon other business ratepayers or council taxpayers and
this principle should be applied for any small business relief.
Calculation of the non-domestic rating multiplier
21. We have expressed above our opposition
to the funding of small business relief by way of a surcharge
on the non-domestic rating multiplier. For reasons we set out
below this Institution is also opposed to certain proposals relating
to the further adjustment of the non-domestic rating multiplier,
and the small business non-domestic rating multiplier if that
is introduced.
22. One of the main benefits of the current
national non-domestic rate system is the high degree of certainty
between revaluations. It is of fundamental importance for businesses
to be able to budget for their NDR liabilities and any additional
adjustment of the UBR multiplier will undermine this ability.
23. In setting the UBR multiplier at the
time of a revaluation the government predicts the likely loss
of rateable value from appeals and builds this into its calculations.
The adjustment built into the 1995 UBR multiplier for anticipated
appeal losses was broadly correct and the modern day Valuation
Office Agency (VOA) experience of conducting regular quinquennial
revaluations, coupled with its continuing technology investment,
should lead to even more accurate valuations. With plans to develop
a "right first time" culture, which we actively encourage,
this should mean even less slippage in future. We would therefore
press for continuation of the present system and strongly urge
that there is no need for further adjustment of multipliers between
revaluations.
24. If there is to be a right to correct
an inaccurate estimate of losses, it should be at the time of
the following revaluation and not annually. For this reason we
support the proposal for adjustment of the multipliers for the
year for which the new list must be compiled (ie at the time of
a revaluation) but not for subsequent years until the time of
the next revaluation.
Transitional rate relief
25. RICS believes that transition obscures
the effectiveness and fairness of rates as a tax and that the
complexities of the schemes are the main cause of confusion about
the rating system. Moreover the transitional arrangements now
being proposed are likely to be even more complex than hitherto
and, importantly may put at risk the chances of success for the
VOA's modernisation agenda.
26. The aim of any transitional relief scheme
should be to provide stability and certainty and to allow those
facing large increases time to adjust to their new liability.
In order to achieve those aims and to avoid any sudden unpredicted
increases in bills, there is need for a short transitional period
only. The purpose of transition should not, in our opinion, be
to provide continuing protection to those whose businesses have
prospered and whose rents and rateable values have thus increased.
We do not therefore favour the proposal that transitional relief
should become a permanent feature of business rates.
27. RICS has argued consistently against
the principle that transitional relief should be self-financed
by the imposition of the penalty of downward transition and we
remain of the opinion that it is fundamentally unfair and should
be abolished. However this Bill reflects Ministers decision that
transitional relief will continue to be self-financing.
28. We urge that any future scheme should
be simple to understand and run for a relatively short period.
The artificial overtaxing of ratepayers whose premises have fallen
in relative value is both a distortion in the rating system and
unjust. We believe there would be much merit in adopting a transition
scheme in harmony with any scheme adopted in Scotland and Wales.
29. RICS (with the co-operation of other
professional organisations involved in rating) is commissioning
research into the most effective and fairest means of phasing
transitional rate relief within the policy boundaries set down
in Strong Local Leadership—Quality Public Services.
PROVISION OF
INFORMATION (CLAUSE
77)
30. RICS supports the principle of decriminalisation
for the provision of information to valuation officers and its
replacement with an extended period for compliance and civil penalties
for non-compliance. We consider though that the pre-requisite
for any such (civil) measures must be that the forms of return
shall be simple to complete, ask only truly relevant questions
and be properly directed to the ratepayer.
31. We have substantial misgivings on some
of the administration procedures as drafted in the Bill. Our main
concern is that the valuation officer's discretion to mitigate
or remit a penalty for non-provision of information by a ratepayer
is open-ended. We consider the Bill should set the framework for
the exercise of this power and we would be happy to elaborate
on these issues in further detail if required.
COUNCIL TAX
32. Our comments concerning the need for
consolidation of non-domestic rating legislation are equally applicable
to council tax. We believe that the principal law relating to
council tax in England and Wales should be consolidated and founded
in separate updated primary legislation. Doing so would create
a better understanding of the law for all concerned.
Appeals to valuation tribunals on council tax
33. There are no provisions in the Bill
to change the present status and procedures for appeals from decisions
of Valuation Tribunals in respect of council tax matters. Currently
these are only to the High Court and therefore only on points
of law and in our view it is unacceptable that there should not
be an avenue of appeal against a decision on valuation banding.
The costs of an appeal to the High Court make appeals on issues
of law prohibitively expensive for taxpayers, particularly when
measured relative to the amount of liability likely to be at stake.
We urge therefore that appeals from Valuation Tribunal decisions
should be to the Lands Tribunal on matters both of law and value.
STATUTORY REVALUATION
CYCLE (CLAUSE
79)
34. Council tax was generally well understood
when first introduced. This level of understanding has diminished
as time has passed because the values on which liability is calculated
have become outdated. Because of the delay in introducing a revaluation—still
five further years ahead of us now under government proposals—council
tax bands are no longer based on property values to which the
taxpayer can relate. The revaluation cycle should be such that
values are not allowed to become so out of date as to lead to
incomprehension or unfairness and this Institution had urged a
five-year cycle to link with, but not to be concurrent with, the
non-domestic rate cycle.
35. For similar reasons we approve the provision
in Schedule 5, paragraph 29 that the "appropriate date"
for future valuations to be carried out may be less than two years
before the date of the new council tax list. We cannot emphasise
too greatly the need to keep this period as short as is practicable
in order that the valuation process, and hence the relationship
between the taxpayer's house value and its banding, is properly
understood by the taxpayer. This will also reduce the likelihood
of appeal.
36. The government also propose to introduce
transitional arrangements for council taxpayers following the
forthcoming revaluation (set for 2007) of domestic properties.
It is expected this will greatly alter council tax liabilities
for many households. We believe however, that the government should
limit the duration of any such transitional arrangements if the
complexity and confusion of transitional arrangements for non-domestic
ratepayers is to be avoided.
37. We would be pleased to comment further
on any of the points raised above or in related areas.
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