Select Committee on Transport, Local Government and the Regions Memoranda

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.


  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.


  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").


  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.


  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.


  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.


  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.


  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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