Examination of Witnesses (Questions 60-77)
PROFESSOR GLEN
BRAMLEY AND
PROFESSOR TONY
TRAVERS
27 APRIL 2004
Q60 Christine Russell: What about a change
in the culture because the issue has already been raised this
morning about the education expenditure where you got into this
passing the buck, blaming each other, "no it is central government's
fault", "no it is local government's fault". Do
you think there is any evidence to support the theory that if
you raise more revenue locally perhaps that "blaming each
other" culture might be diminished a little bit?
Professor Travers: The answer
must be yes but I will explain what I mean. I mean if a local
authority raised 100 per cent of its income from local tax sources—and
indeed that has happened in the not-too-distant past where a small
number of authorities were out of grant and did raise 100 per
cent of their resources from local taxes—it would be entirely
clear whose responsibility changes in local tax were from year
to year. I think the terrible problems that we had in 2003-04
derived from great political argument at the national level as
to whether the increases in taxes or changes in education spending
levels were because of something local government had done or
because of something national government had done. There was a
great big argument about it and the public, understandably, was
confused and we had to wait for the Audit Commission to produce
its report to say broadly where the blame lay. So I think that
the more money that is raised locally the nearer we get to a situation
in which it would be difficult then for local authorities to blame
national government for variations from year to year in their
income.
Q61 Christine Russell: But unless you
had a system of unitary local government they would then simply
blame each tier, would they not?
Professor Travers: That is a separate
but important issue. Where there are two tiers of local government—
Q62 Chris Mole: —or three.
Professor Bramley: —or three.
Chairman: — Before we get any more
complicated we need to move on. John Cummings?
Q63 Mr Cummings: Professor Travers, could
you please tell the Committee how local accountability is measured?
Should local authorities be given greater responsibility for the
levying and allocation of local funds when voter turn-out at the
present time is so abysmally low?
Professor Travers: I think the
difficulty with words like "accountability" which we
do all use a great deal—and I have used several words, it
and others, this morning already—is that they are abstract
and they are not easy to tie down with precision. I think what
we mean by accountability is the idea that local electors/local
people have some capacity of gaining the attention of local councillors
or MPs and that those elected representatives will then have regard,
not necessarily to always come to the electors' view, but will
have regard to the electors' view in making decisions and that
the elector will feel that that is happening and have some trust
that that is happening. I think therefore in terms of this inquiry
the question is will the local government finance system make
it more or less likely that electors will feel that councillors
are taking notice of them and then I think it does matter who
is setting local taxes and we then have indirect measures as to
whether the public is aware and is holding councillors to account
which would include turn-out in local elections but would not
only include turn-out in local elections, there are a whole array
of other things such as whether individual constituents contact
councillors or MPs, whether individual electors write to them
and say which suggested degree of involvement they would like
and there I think the evidence from MORI is that the public is,
if anything, rather more involved in letter writing and going
to meetings now than it was in the past so there are many ways
of testing accountability and in a sense, even though it is an
abstraction we are trying to ensure that the electorate feels
that its elected representatives takes its views seriously and
trusts them in doing so.
Q64 Mr Cummings: If indeed local authorities
were to be given significantly more responsibility for the raising
and direction of local funds would this damage the argument for
national standards?
Professor Travers: It might. It
would not damage the argument for national standards which, as
I said earlier, I think is a powerful one. I think that we live
in a society in which there are very powerful demands for national
standards particularly in welfare services such as health and
education. I think they get less when you move towards what you
might call district council services but they are still there
and if a larger proportion of income were raised locally and there
were more local autonomy then I think there would be greater diversity.
As I said in an earlier answer, you get some authorities performing
well and others less well and that would I hope be reflected in
electoral outcome. That is the way the system should work. So
it would not damage accountability, I think that raising more
money locally would enhance it, but the question of whether people
want that is another matter.
Professor Bramley: It must be
right that this model of more local accountability is not compatible
with a situation where central government prescribes standards
for everything—the high level standards that people should
be aiming for or the minimum standards. I think there has to be
some retreat from that by central government if you were to go
down this road. Central government will I am sure continue to
prescribe minimum standards in some areas and that is why I think
it is realistic to recognise that but there has to be some tradeoff
there. There is bound to be some tradeoff there.
Q65 Mr Cummings: Just to be absolutely
sure, if local authorities were to be given significantly more
responsibility for the raising and direction of local funds would
this damage the argument for national standards?
Professor Bramley: It is an argument
that has to be weighed in the balance. You cannot have both to
an absolute degree. You cannot have maximum determination of standards
by central government—
Q66 Chris Mole: Is it possible to cost
national standards with a transparency that allows people to understand
what additionality is being bought with local taxation?
Professor Bramley: To go back
to the point we heard a minute or two ago and earlier about the
about arguments for education funding last year, clearly it would
be desirable if there were some forum that was perhaps a little
bit more arm's length from central government and local government
which could in a sense adjudicate on some of the issues. Essentially
what you are trying to do each year is to cost what is the cost
of carrying on with the existing policies and commitments and
statutory commitments we have, allowing for inflation and pay
settlements and pension costs and that sort of thing and then,
secondly, what is the cost of some new proposed departure from
that. These things ought to be capable of being largely resolved,
after perhaps quite a bit of technical discussion and a bit of
wrangling There is another model in my mind, another theoretical
view about local government which is that it is a scapegoat, it
exists and is allowed to continue to exist because it is quite
convenient to blame it when things go wrong, so I think sometimes
ministers in government exploit ambiguities in these areas and
say they should be able do this for this much money but if this
were subject to an independent audit it would turn out that perhaps
they could not.
Q67 Chris Mole: The Government knows
exactly what it thinks it is spending per primary pupil nationally
but by the time that has been mangled through resource equalisation
and area cost adjustment it is a completely different figure by
the time it arrives in Berkshire or somewhere.
Professor Travers: In education
it probably would in theory be possible to achieve the precise
division of accountability that you are discussing. It would in
theory at least (and we have got quite close to this) be possible
to have a school by school allocation of money or at least an
allocation of a formula spending share kind which is of course
an allocation not of grant but an allocation of imagined resource,
stylised resource, it would be possible to have that in theory
down to the school level so, "Here is a figure that the Secretary
of State believes your school should receive this year,"
and then allowing local authorities to spend more or less than
that amount. It would be possible to do that.
Professor Bramley: It would be
possible to have it down to the pupil level?
Professor Travers: Indeed yes,
it would. So you could for education move in that direction to
the point where you could have, "This is the amount the Secretary
of State says you should have spent on you, oh pupil, or you,
oh school, but the authority has decided to spend five per cent
more or 5% less and you can blame them for that margin."
You could do that—just.
Q68 Chairman: You could do it for schools
but you could not do it for flower beds presumably?
Professor Travers: It would be
very difficult for some other services.
Professor Bramley: Would you want
to do it for flower beds?
Professor Travers: Where there
is a formula spending share in principle you could do it service
by service by ring-fencing each service and by saying, "This
is what the government says you should do," and then the
authority would be free to do more or less, but it is easier in
education to see the result.
Chairman: I think we need to move on
to local income tax. John Cummings?
Q69 Mr Cummings: The supporters of local
income tax cite fairness and the simplicity of its assessment
and collection. Are these not powerful and compelling advantages
over the council tax?
Professor Bramley: I rather agree
with the previous speakers that it would be a great mistake to
abandon council tax because I think it is important to have a
balanced tax system and it is important that property should be
taxed within that. We have got enough problems with the housing
market going out of control through being under-taxed as it is
and to take away the last remaining property tax would be a big
mistake Also I think taxes on fixed property are ideal par
excellence appropriate for assignment to local government
level. They are the first choice for a local tax for lots of reasons
that you can easily see. I think broadly the experience of the
council tax is that it has been successful, it has worked well
compared with some of the predecessors and alternatives that have
been considered, it has been less controversial, more workable.
It has got a bit more controversial lately perhaps because it
is in need of some reform. The other quite interesting point that
emerged from Peter Kenway's presentation this morning and his
written submission is that it is quite close to being proportional
to income in many ways anyway across the bands, at least in the
central part, and if the bands were extended then that could become
more generalised. He alluded to a problem that it is not necessarily
proportional to income across regions given what has happened
to property prices. I make a suggestion in my paper that one could
address that issue by doing something which I think Layfield suggested
originally which is to base the equalisation on income rather
than the council tax values themselves. I see a strong continuing
role for council tax. I have also made the point that I think
there is a role for part of the non-domestic rate to be localised.
You could have income tax as well and there are precedents from
some of the Northern European countries, for example, for having
a locally assigned income tax. It is quite feasible. Personally
I cannot believe that central government will let it go. That
is just my political judgement. My guess is that it is too sensitive
in the national political arena and they will not let it go and
it is also the Treasury's most important revenue source. I do
not think it is worth getting into the argument to move it to
the local level unless you are going for a thorough localist solution.
If we have still got central government dictating a lot of what
is going on in education and so on I am not sure it is worth the
candle.
Q70 Mr Cummings: Is that the reason why
central government has been reluctant to accept the analysis that
a local income tax is acceptable?
Professor Travers: Can I take
it up. I agree with Glen's point precisely on the importance of
keeping a property tax and a local property tax. I think council
tax has all the characteristics that Glen has described and I
think that there would be a risk that if it were removed as a
local tax that the Treasury would simply take it over as a national
tax so I would be very surprised if property tax went away altogether.
On the question of local income tax interestingly, in a sense,
we are all paying income tax or other taxes some of which is used
to fund local government through the grant system. I think one
of the interesting aspects of the Local Government Association's
proposals published within the last six or so months is that they
do find a way of trying to make clear to people that a proportion
of their national income tax is being used to fund local government,
that the people of Stockport are already paying for their local
services, they are just doing it through the Exchequer and I think
it would be appropriate to go down the route of making that more
explicit but not at the cost of losing the property tax.
Q71 Mr Cummings: Professor Bramley, what
do you think might be the impact on deprived communities of the
need for increasing economic equalisation for alternatives to
council tax, such as a local income tax as you have been talking
about?
Professor Bramley: I have just
made a suggestion—we already have a grant system that supposedly
equalises the situation of local authorities that are in rich
or poor areas at the position so that if they spend equal to the
FSS share as a base position, if they provide a standard level
of service they should be able to fund that at a common band D
council tax. I have made two suggestions about equalisation that
would possibly improve on that situation One is to do with the
so-called dynamic equalisation so that if they chose to spend
more than that they should do so on a level playing field basis
rather than an unequal basis and, secondly, I make the suggestion
that possibly the basis for the equalisation should be related
to income levels rather than council tax levels to get a better
relationship between council tax and income levels. As far as
having the non-domestic rate relocalised, yes, I think that would
have to have an equalisation grant associated with it to deal
with the Westminsters on the one hand compared with the places
that have relatively little commercial property value at the moment
on the other hand, but I was suggesting that should not be at
100% so that there is still some incentive.
Professor Travers: Could I just
add briefly on the point of equalisation, Glen Bramley has done
an enormous amount of work in the past looking at the extent to
which we in Britain have by international standards ferociously
complex equalisation arrangements that seek to create much greater
degrees of precision than I think many other systems do. I am
not sure we need to spend quite the level of time and effort—personally,
I am not saying he does but personally—achieving quite that
level of precision. The only thing I would challenge with what
Glen said is that I am not sure that adding income into the equalisation
base would of itself be a good thing because it would be more
complicated to understand what was then going on. I think it would
be far better to use the benefit system where appropriate to help
those who are clearly in need at the margins of poverty from being
overburdened by council tax.
Chairman: I am getting worried about
the time, I am sorry we will have to move on to Mr O'Brien.
Q72 Mr O'Brien: Should not local authorities
be allowed to raise additional taxes other than council tax and
income tax?
Professor Bramley: I would have
thought in principle yes. It depends on the circumstances. There
may be some circumstances in which it is possible. There is the
general ultra vires principle: they have authority which
they have been given under certain legislation to do certain things
such as congestion charging, and maybe those powers could be extended.
Whether Parliament would want to give them completely open-ended
powers is perhaps another matter.
Q73 Mr O'Brien: Any other suggestions
other than the congestion charge?
Professor Travers: We have seen
some inching in this direction in recent years. After all, section
106 in planning has almost become a tax and may be formalised
into one. It is not an ideal one but it is moving that way. The
local authority business incentive, which is a way of allowing
councils in future to keep part of any growth in their business
rate base, is a move in that direction. Business Improvement Districts
are a slight move in the direction of locally retaining—
Q74 Mr O'Brien: —They only apply
to certain authorities.
Professor Travers: They only apply
to certain authorities. All I am saying the principle there are
tiny cracks in the dam so I think it is possible to imagine going
further.
Q75 Mr O'Brien: How long will we have
to wait to be able to ensure that we can do away with the gearing?
What other taxes would you suggest would be favourable?
Professor Bramley: I do not think
either of us is suggesting that these other types of taxes are
a large scale solution to the whole balance of funding problem.
They are something that can develop incrementally and they may
be quite helpful to certain local authorities in relation to certain
types of problem they face, particularly on the capital side and
the need to facilitate certain types of development, for example,
transport infrastructure.
Q76 Mr O'Brien: What would you say to
a sales tax?
Professor Travers: A sales tax
would be a much bigger revenue potential and that would be part
of what I would see as a major change to the way in which local
government was funded, which personally I would support, but that
does immediately put you into the position of what is effectively
a constitutional change.
Q77 Chairman: On the point you were making
about income tax, in a sense we already have a sales tax because
VAT went up from 15% to 17½% on the theory that that extra
2½% went on to councils. The fact is that it did not but
it was supposed to go on.
Professor Travers: I think it
is fair to say, Chairman, it is a sort of invisible hypothecated
revenue.
Chairman: On that note I think we had
better call this session finished. Thank you very much indeed
to both of you. Can we have the next set of witnesses, please.
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