Select Committee on Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Minutes of Evidence

Examination of Witnesses (Questions 280-296)


11 MAY 2004

  Q280 Mr Clelland: How many tax payers in Somerset on your current levels of spending would be better off under a local income tax and how many would be worse off?

  Ms Bakewell: I should imagine probably—

  Q281 Mr Clelland: You do not know. Have you done any calculations?

  Ms Bakewell: No, I do not know precisely.

  Q282 Mr Clelland: So we have got a situation where you do not know how many people are going to be affected by this, you do not know how you are going to raise money from the self-employed, you are not quite sure about that, you are not quite sure about the effect on business; you are not really quite sure about much. Why is this Somerset's policy when you do not know much about how it is going to affect the people of Somerset?

  Ms Bakewell: It will affect the self-employed in much the same way as their income tax affects them now: they have to submit returns and—

  Q283 Mr Clelland: Yes, but what they will want to know is: "How much is this going to cost me?" You do not know that, do you?

  Ms Bakewell: No, not at this moment in time.

  Q284 Mr Clelland: So this is the policy of the county council?

  Ms Bakewell: It is.

  Q285 Mr Clelland: But you cannot tell the people of Somerset how it is going to affect them?

  Ms Bakewell: It will affect those who earn more. They will pay more, and those who earn less will therefore pay less.

  Mr Sanders: Are you in government and should you know the answer to these questions? I would have thought the obvious answer was, "No." A waste of time asking you then!

  Q286 Sir Paul Beresford: Income tax finalisation is retrospective. Will you therefore have to have at least a one-off increase in your balances to accommodate that?

  Mr Bilsland: Possibly, yes.

  Q287 Mr O'Brien: Could I ask in the first instance, would the local income tax be carried paying through PAYE or would there be a separate system?

  Mr Bilsland: The research that we have seen is that it could work through PAYE, and that would be the most economic option, I think.

  Q288 Mr O'Brien: So you have worked out the tremendous costs that that would have in trying split the local tax to the national tax?

  Mr Bilsland: The costs, I think, that CIPFA put in the Balance of Funding Review are pretty explicit—I have not got them to hand here—about what it would cost to run a local income tax on employers. It is an affordable cost. It is more expensive than council tax collection, because we know one of the benefits of council tax collection is that property is easy to tax, easy to find, nobody disputes that, but it is still an affordable cost in terms of the tax yield and the cost of many other tax collections.

  Q289 Sir Paul Beresford: One of the problems with the poll tax was people with accommodation addresses. Do you anticipate that happening?

  Mr Bilsland: Sorry, people with?

  Q290 Sir Paul Beresford: Accommodation addresses. If you lived in Wandsworth it was cheaper than living in Lambeth, so you put your name down for Wandsworth, not Lambeth?

  Mr Bilsland: We still have evidence of that with second homes, of course, where people chose which home to tax, but people are not always chasing the cheapest possible tax option in the way they go about running their affairs.

  Q291 Mr O'Brien: Can I ask you what other tax has been considered to be introduced in addition to the local income tax or the council tax by Somerset?

  Mr Bilsland: I think our submission to you said that there are other taxes around, there is sales tax, there are tourism taxes, but these are not sustainable alternative options to council tax. These are taxes that councils might want to introduce for different sorts of reasons, perhaps to influence behavioural changes, but you would not see sales tax, we would not see tourism type taxes being a big alternative option for us.

  Mr Lacey: We would see that there is a problem if you go for the alternative sources of funding these types of tax, that they cannot be localised to the parish level. I think, therefore, from the parish perspective property tax in some form is very convenient, very easy. Local income tax can be done, but it is five places of decimals and all sorts of problems that that will bring and the question of balances, the question of risk—all sorts of issues will arise.

  Q292 Mr O'Brien: Is Somerset fully compensated for the service they provide for tourists?

  Mr Lacey: My members would say that the parishes pick up a significant part of the tourist costs in terms of local provision of public conveniences, in terms of tourist information centres, in terms of all sorts of support that the parishes give which is not related to the people of the parish who pay the tax. It is related to the businesses of the parish.

  Q293 Chairman: If there was a bed tax for people staying in the village, then that would be easy to pass on to the parish council, would it not? There would be one or two hotels in most villages, if there was a hotel at all. They may be able to pass it on?

  Mr Lacey: I do not see a hotel as the problem; it is the bed and breakfast that is the problem. That is a significant part of the market.

  Q294 Chairman: What about car parking charges? They could say, could they not, it is in a sense a visitor tax?

  Mr Lacey: It is in a sense. They tend to be with the district council rather than the parish council.

  Q295 Mr O'Brien: Are Somerset compensated for the services they provide for tourists?

  Mr Bilsland: We are not as exposed as many other tourist areas, but probably not, no.

  Q296 Mr Sanders: We have been told that the changes introduced to the formula grant system in 2003/4 were done with a view to making the distribution of central government grant fairer but you have called the arrangement faulty. Maybe you can explain?

  Mr Bilsland: The two big changes we saw in those were, first of all, resource equalisation. This was where government moved money from low spending councils into high spending councils. The philosophy behind that government move was councils spend more because they need to spend more. Therefore, we need to shift resources. Areas like Somerset and the south west generally, which are traditionally and historically low spending councils, argued the opposite. "We are a low spending council in Somerset because we are more efficient and because we have to provide a low level of service because we cannot afford to provide a high level." It seems very wrong for us that high spending councils were rewarded for high spending without an assessment that they needed to spend at those high levels. The second issue was about the old chestnut of area cost adjustment, where we have always argued there seems something very perverse about the idea of taking money away from low wage economies, like Somerset and the south west, and putting it into high wage economies like London and the south east. What we saw in those changes was not the abolition of area cost adjustments, but we saw them extended into other areas. For example, they were extended along the M4 boundaries. There is something wrong, is there not, with a system where areas like Somerset, where wages are low and seasonal, there is an assumption that, because of that, our costs are low and therefore we can afford to subsidise areas in the home counties or inner cities. Those are changes which not only we opposed but the local newspaper regularly runs letters about attacks on the west and the problems there.

  Chairman: Can I thank you all very much for your evidence?

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