Examination of Witnesses (Questions 20-39)
MR PETER
KENWAY, MR
GUY PALMER,
MR NICHOLAS
BOLES AND
MR DAN
CORRY
27 APRIL 2004
Q20 Mr Betts: Is the council tax a viable
and adequate source of revenue for local authorities?
Mr Palmer: To quote from our paper,
yes, but only if it is reformed, and our paper goes through our
suggestions for reforming it.
Mr Corry: What I would like to
see us come out with is something where we are not stuck with
a one club tax regime for local authorities. So I think we need
to do a bit more than just rely on the council tax, but, equally,
I do not just want to replace it with another tax which is the
only tax that local authorities can use.
Mr Boles: We said we would agree
when we agree—I agree!
Q21 Mr Betts: We have the revaluation
coming up and there is some talk about possible changes to reform
the council tax, one of which might be changes to the banding.
Do you want to give us your suggestions for what should happen
as part of the revaluation?
Mr Kenway: We think you need to
increase the progressivity within the tax and that the way you
do that is to attend to both the bottom of the current band A
and also to the top, by which we mean G and H (G is obviously
a double band). In some sense the surprising conclusion that we
have come to in our research is that the middle of the council
tax bands B, C through to F are for the most part there, they
are regular, there is a logic to them and, most importantly, although
there are lots of caveats attached to the arithmetic, it does
look like council tax in those bands moves more or less in line
with average household incomes. There is obviously a huge variation
in the incomes of people in band B or band C, but in some sense
we think you can keep the heart of the tax as it is and lower
the tax at the bottom, following the same proportions as you have
in the middle band and increasing it at the top again following
the same proportions as you have at the minute. That seems to
us to be one crucial element. The other crucial element is that
unless something dramatic happens to house prices in the next
year you will need some form of regional variation to allow government
to take account of the fact that the incomes of people living
in band C in London and the South East are very much lower than
the incomes of people living in band C across much of the rest
of the country. We think that that is actually quite do-able.
Q22 Mr Betts: Any other comments?
Mr Corry: No. I think the NPI
work is very good in this area.
Q23 Mr Betts: I was not quite certain
what you were trying to achieve with the original banding because
by its very nature council tax levels in different bands will
be different. Even if the average council tax for an authority
is the same as the one next door, suddenly you have got a different
distribution of houses between the bands, so it is quite likely
that band D will be higher in a northern authority with lots of
band A properties than it would be in a southern authority with
lots of band G properties. Does that not counter the point you
were making about the different income levels?
Mr Palmer: The principle we think
is important is that on average people on similar incomes in similar
houses pay similar amounts of council tax no matter where they
live geographically. At the moment that happens to be true. The
problem with the revaluation is that it will up all the London
house prices enormously and people in London will find themselves
paying very much higher levels of council tax than people in other
parts of the country, so it is because London house price inflation
has been so high.
Q24 Mr Betts: So it is almost a peculiar
London problem, is it?
Mr Kenway: It is London and the
South.
Q25 Chairman: Would it not help to correct
the housing market if you had to face up to the costs?
Mr Palmer: I do not think charging
high amounts of tax to poor people in the South East is a good
way of trying to tackle the housing problem, plus this is all
to do with people living in rented housing not people who are
buying houses. You impute the amount of rent that people should
pay and rents in London and the South East are higher and so people
pay higher amounts of council tax.
Q26 Chairman: If the rents they were
paying were higher and you had a higher council tax, would that
not encourage a lot more people and businesses to relocate to
some of the more attractive parts of Britain?
Mr Kenway: As an economist I am
very sceptical about ideas that appeal to economists as ways of
solving economic problems. As politicians, I could not imagine
you really wanting to go on the doorsteps and say, "Your
council tax is going up as a means of trying to lower the house
price boom in this part of the country." I think it is very
doubtful. It might work and it might not. I do not think it is
a practical political proposition.
Mr Boles: The bedevilment of the
council tax, as with the rates, is revaluation and this is also
where it completely ceases to be a locally determined tax and
somehow we need to find, if we are going to hang on to council
tax or any other kind of property tax, which I personally believe
we should, a way to get revaluations away from central government
and away from this whole thing of, "There is an election
coming up. What on earth are we going to do? The revaluation is
going to be horrific. Let's postpone it". What will happen
is that in ten years the problem grows and grows and grows and
then we will have to try and sweep it under the carpet. I do not
know how we do that. One of the things Dan was mentioning just
before we came in was surely there is some way of doing continuous
rolling revaluations, locating it in some way outside political
control. I do not know what it is, but somehow we need to get
it away.
Q27 Christine Russell: In all the arguments
and all the discussions about council tax the one factor that
always seems to be overlooked is council tax benefit. Is that
not a way of bringing in a system whereby a person's ability to
pay can be more closely aligned with the actual council tax bill?
What are your views on council tax benefit reform?
Mr Corry: I think Peter has done
some work on how you might reform it. I do have a slight concern
and it is the classic case of the single pensioner living in the
big house paying a fortune. To some extent, as an economist who
does believe in some of what economists say, I want some incentives
in the system to encourage that person to think about downsizing.
Mr Kenway: We only really got
to the bottom of council tax benefit last year when we were asked
to look at it by Help the Aged. It is remarkable that council
tax benefit, if you look at it in a different way, has lots of
features of a local income tax. Undoubtedly it does pick up this
ability to pay question. The fact that take-up is so abysmally
low—
Q28 Christine Russell: Do you have a
theory as to why the take-up is so abysmally low?
Mr Kenway: That might be putting
it too grandly, but people certainly dislike the idea of applying
for relief, which is what council tax benefit is, it is very intrusive
with the amount of information you have to provide. Our proposals
for reform, which is a wilder idea than we usually come up with,
consists—
Q29 Chairman: So you give star ratings,
wilder and wilder!
Mr Kenway: You do not need to
have a benefit attached to a tax. People have remarked how strange
it is to have a benefit to allow you relief from a tax. You could
have a straight assessment on the basis of your income and your
savings. You could have something much more like the way in which
your income tax is assessed if you are self-employed or have to
give in a tax return and I think that sending your information
off to the Inland Revenue to find out how much you have to pay
does have a different feel, it is a different relationship from
that which you have when you are applying for a benefit, the money
in some senses is moving in the opposite direction.
Q30 Christine Russell: Is it because
it is more anonymous, that perhaps people do not like the thought
that the person at the Town Hall who is assessing the benefit
could be someone who lives down their street?
Mr Kenway: I think it is partly
that. I think it is also that there is a difference between me
asking you for money as opposed to me giving you some money where
it has been properly assessed how much I must give you.
Q31 Chris Mole: Is that not essentially
what happens if somebody has a social care assessment and all
you are doing is providing that sort of assessment for a charge
rather than for a tax and the irony is that one of the big drivers
for tax is the costs of social care on local government?
Mr Palmer: I am not sure. We are
arguing that there ought to be an assessment which says this is
the net amount of council tax you have to pay, whereas at the
moment there is effectively two assessments, one is the gross
amount of council tax you have to pay and the other is the council
tax benefit that you can reclaim off that. So it is two separate
assessments and it is two separate processes and we think they
can all be integrated into one and basically handled automatically
in the same way that tax credits are being handled automatically.
Can I raise a couple more points on take-up? I think one of the
issues is that because quite a large number of people are owner-occupiers
and because they often are not in constant communication with
the state they do not get encouraged on an individual basis to
apply for things whereas people in council housing are advised
to do so. I think the second thing is that take-up is falling
in council tax benefit. Given it has always been abysmally low
the fact it is falling is exceptionally worrying.
Q32 Chris Mole: What about the threshold
level? Do you think the Government should look again at the relatively
low level of threshold which means that perhaps thousands of people
with very limited incomes are not entitled to claim?
Mr Kenway: Our understanding is
that those savings thresholds have not gone up in ten years. I
think the income thresholds are now quite well set for pensioners
because they are related to the levels of the pension credit.
In some sense I think our concern now about council tax benefit
and who is entitled to it should be directed again at the low
paid in work. A worker on £5 an hour with two kids gets no
council tax benefit. I think there is scope there for attention.
Q33 Mr Sanders: Are this group, the low
paid, where the ratio between house prices and incomes is the
greatest, the ones who are going to be hit hardest by a council
tax revaluation?
Mr Palmer: The ones who live in
high inflation areas, yes.
Q34 Mr O'Brien: Do you all believe that
we should continue with the tax on property?
Mr Kenway: Yes.
Mr Boles: Yes.
Mr Corry: Yes.
Q35 Mr Betts: Let us turn now to Article
9 of the European Charter of Local Self-Government which basically
says that "the financial systems on which resources available
to local authorities are based shall be of a sufficiently diversified
and buoyant nature to enable them to keep pace as far as practically
possible with the real evolution of the cost of carrying out their
tasks." Do you think we are in breach of the Charter the
way things stand?
Mr Corry: We are probably in breach
of bits of that Charter. The basic point underlying that is that
the revenue available to local government at the moment is through
one single rather monolithic tax which has advantages, but it
is very lumpy, it comes as one big bill even if payments can be
spread out, it does not rise with general prosperity in the economy
and so it does make it very hard. I think at the very least local
government needs, at the end of the Balance of Funding Review
and so on, to end up with more choice and a spread of taxes. We
could have a re-localisation of the business rate, some of that
would spread the load and then there are a lot of other smaller
taxes which we certainly think local government should be able
to use, ranging from a tourist tax to a sales tax and all sorts
of things. They may not want to use them, they may be impractical,
there may be limits you need to put on them, but a diverse spread
of tax just as central government has would certainly not only
fulfil the Charter but would be much more sensible in allowing
local authorities to plan and to fund the things they need to
do.
Q36 Sir Paul Beresford: This is going
to confuse the multi-taxpayer as to who is responsible for what,
what they are paying and what they are getting for what they are
paying.
Mr Corry: I think the local taxpayer
is already confused. When there are cuts, is that due to their
local authority being inefficient or central government not giving
them enough money? When the council tax goes up enormously, is
that a product of gearing or whatever? If a local authority had
a number of taxes it would have to explain it to its local taxpayers.
You could have systems where you said that certain taxes could
only be brought in locally if there had been some kind of a referendum.
There are all sorts of things you can do. People always get a
bit confused on tax, but I do not think that would necessarily
be a big problem.
Mr Boles: One of the troubling
things is that you could argue that the real problem is the fact
that central government taxes are buoyant, that central government
should be forced to go out and tell people, "We are going
to raise your taxes by X% this year to pay for more services,"
rather than just floating upwards on an ever rising tide of inflation.
Of course, that does not happen. I think that is where the problem
for local government comes, from the lack of buoyancy. With council
tax, people are not used to being asked for increases in their
national taxation but they are permanently being asked for these
increases in council tax and it is the contrast that means that
so much opprobrium falls on the head of local government for what
is something that happens every year in and out and none of us
notice it. If central government actually had to send people a
tax bill with £15,700 written on the bottom of it then I
think that people would focus their minds rather more on what
taxes they were raising and what the Government is doing with
it, but at the moment only local government has to do that. What
we have said is that the local taxation base should have the same
level of buoyancy as the national taxation base so that there
is not this huge contrast.
Mr Betts: Surely there is a difference
in that if central government taxes have a degree of buoyancy
but central government also has the ability to borrow to fund
its revenues. In a recession, when taxes are not quite so buoyant,
then government simply borrows and it equalises out, but some
local authorities do not have that right. Is that an issue that
should be addressed, the ability of local authorities to borrow
for revenue purposes to go hand-in-hand with the buoyancy issue?
Q37 Chairman: To make sure the council
tax only goes up in years when there are not elections.
Mr Boles: Wandsworth do that anyway.
Mr Kenway: I think the buoyancy
point is over-done. Last year there was a great fuss about the
council tax across much of England. I think it is just over two
years ago that the ODPM—was it a Green or a White Paper—wrote
that the tax was more or less accepted and people were happy with
it and I think by and large that is true. I think people are mature
enough, they know that the council tax is going to up each year.
The objection is not to it going up, the objection is to it going
up by an unreasonable amount. I do not think one should worry
too much about this point in general.
Mr Corry: Peter made an almost
political point, which was that people are vaguely happy. I still
think it is wrong if you want serious local government to say
they have got to rely on one tax only and one tax that does not
automatically rise with prosperity. We do need to give local government
more freedom and give local government the ability to give its
citizens some choices as to which spread of taxes they want to
use and that is the route to local government.
Q38 Chairman: There is a suggestion that
local authorities should be using a vastly different tax system
where they can choose how much they want to raise and for what
they want to use it, or is local government going to be allowed
to decide that is a good idea, we will go and create a tax of
that kind irrespective of any specific parliamentary legislation?
Mr Corry: I think Parliament,
given our constitutional settlement, would have to authorise the
ability to choose taxes. Like the Congestion Charge at the moment
where people can bring it in if they want to and there was legislation
to allow that. I think there should be much more subsidiarity
in allowing local government to decide how it is going to raise
its share of the funding.
Mr Palmer: It seems to me that
if you are going to introduce major change (a) you have to be
very clear what your principles and objectives are, and (b) you
have to do it on the scale that is required. I think one of the
worries with all this basket of taxes and so forth is that you
introduce a myriad of what are actually very small taxes which
does not achieve anything for anybody and merely confuses the
issue. If you are to have multiple local taxes so that we are
not in breach of our convention then you would need to introduce
major new taxes.
Q39 Mr Clelland: On the question of the
business rate which was touched on slightly in that last question,
would localising or re-localising the business rates strengthen
the partnership between local government and businesses and increase
accountability given the fact that businesses will argue that
the current system gives them stability and in any case local
authorities are not accountable to business through the electoral
system?
Mr Boles: I am much in favour
of the re-localisation of the business rate to maximum standards.
For equalisation purposes there are places, for example Westminster,
where we are going to need to have some way of retaining some
portion of their business rate take because otherwise they would
be paying their residents a council tax benefit because they have
been raising so much from business rates. I do not think that
the lack of accountability argument really works because we never
hear that in relation to corporation tax or the many other charges
that fall on businesses. Businesses do not have votes in general
elections. I think we are a fairly mature capitalist democracy
now. People know that they work for businesses and their pensions
are invested in the shares of businesses and so ultimately it
is about people and people own businesses. There is an interesting
idea being suggested as a way of perhaps allaying some of the
more acute concerns of business, which is to link the rate of
the increase that any local authority could apply to the business
rate to the rate of increase in the council tax, so basically
if you are going to put the council tax up by 4% then you can
put the business rate up by 4% but no more. It is a restriction
of freedom, no question, but if that was the price for re-localising
business rates then I would be willing to pay it.
Mr Kenway: I am unclear about
the rights and wrongs of re-localising the business rate, but
I do think it is very important to do away with this extraordinary
fact that the business rate only goes up with the rate of price
inflation. That could be done away with without the business rate
being localised, although I think your suggestion there that it
should be linked to council tax is a good one. This is not a small
issue. We tried to do a calculation yesterday and it looked to
us as though if the business rate had gone up in line with council
tax since 1997-98 the council tax increase that we have seen since
then would have been reduced overall by about a third. So in some
sense if your idea had applied over that period I am not saying
that would have done away with all of the political problems but
it would certainly have taken the pressure off council tax. Whether
or not you want to go as far as re-localising it, I certainly
think it is extraordinary that we have this protection that it
goes up just by RPI.
| 
