Examination of Witnesses (Questions 560-579)
PAUL WOODS
AND COUNCILLOR
BOB GIBSON
25 MAY 2004
Q560 Mr Cummings: Both the old rates
system and now the council tax require regular revaluations, but
unfortunately these do not take place on a regular basis. Obviously,
from what you have just indicated to the Committee, the North
East is a region which benefits from revaluation. How big a problem
do you think is the lack of regular revaluations?
Mr Woods: I think in the same
way as resource equalisation and the lack of—inaudible—resource
equalisation, it means that there is a drift of resources being
provided to the poorer areas over a period of time. The poorer
areas over a period of time then tend to lose out to wealthier
areas, in terms of property values and in terms of any other form
of taxation, be it income tax, local government tax or property
tax. There is a gradual losing out over that period which occasionally
gets corrected, and when that is done periodically it is a very
visible shift of money from several parts of the country to the
others and it becomes a problem at that point in time.
Q561 Mr Cummings: How regularly do you
believe revaluations should be carried out?
Mr Woods: I think originally it
was envisaged that it would be fairly regular, on possibly a five-year
basis for council tax properties revaluation, so not every year.
It is a significant task and there is a significant cost to that.
There might be ways of indexing the specific revaluations over
a period of time, but certainly more frequently than the current
position where, effectively, it had been about 16 or 17 years
between revaluations.
Q562 Chairman: Why not every time a property
changes hands?
Mr Woods: You have a problem then
if a property does not change hands. I have lived in my property
for 16 years and my property would still be valued at a certain
date. If a property changed hands immediately then it would be
revalued potentially at that new date, unless you backdate it
down 15 or 17 years ago to 1991 property valuations. I think there
are issues about fairness and equality.
Q563 Chairman: It would help a lot of
pensioners, would it not, if they knew that the valuation was
not going to change on their properties until they sold up?
Mr Woods: I think a lot of people
have a misconception about the effects of the revaluation. A lot
of people in the communities are very worried that the uplift
of the values would mean that they would be paying more council
tax immediately, and that is not true. It depends on relative
changes around the country, and we have been trying to get that
message to the local community, who do feel, especially over the
last year, when property prices in the North East have jumped
substantially, that in 2007 they will be paying huge amounts more.
There is a clear message which needs to be got over to the local
population that a simple revaluation does not mean automatically
that you will be paying substantial amounts more, because the
bands themselves will change.
Q564 Mr O'Brien: Alternative funding
for local government: local income tax?
Mr Woods: Local income tax clearly
is one of the things that we will be looking at very carefully,
but the Association has not yet taken a specific view. There are
both advantages, in terms of buoyancy, in terms of cost of collection
and in terms of the fact that you do not need a benefits systems,
and potential disadvantages, in terms of perhaps the impact on
business, also similar concerns about what sort of tax you are
actually trying to measure in terms of income, what sort of income
you are taxing. We are looking with interest at the debate which
has happened and the evidence being presented to the Balance of
Funding Review, and the Association will be taking a view, which
will be the political view, over the course of the next few months
as it weighs up the various options. We have not got a formal
view from the Association at this point in time.
Q565 Mr O'Brien: Is there some work being
done on this?
Councillor Gibson: Yes. We will
take evidence from CIPFA and a whole range of different organisations
which are looking at the other means of funding local government.
The CIPFA one indicates that, at the moment, in equalisation terms,
with a local income tax in the North East we would require another
£132 million in equalisation funding, so that is something
we would have to look at carefully. There is a range of local
sales tax, business rates, local vehicle excise duty, the list
goes on.
Q566 Mr O'Brien: I want to concentrate
on income tax because, as you say, the equalisation would mean
an extra increase. Are you suggesting that if a local income tax
was introduced into your area your council tax-payers would pay
more as a local income tax than they do as a council tax?
Mr Woods: They would pay less
because of the additional grant you would get from resource equalisation.
Q567 Mr O'Brien: You have worked it out
that they would pay less as a local income tax?
Mr Woods: Yes, as a group. Obviously,
there are individual tax-payers on higher levels of income who
would pay more, but as a group in the North East it should be
less, on the basis of the work done by CIPFA so far. Clearly,
we are looking at that to make sure that work is robust, but on
the basis of the evidence presented so far that is the initial
conclusion.
Councillor Gibson: What is an
income? That is the question.
Q568 Chairman: Are there not a fair number
of people who work in local government and feel a bit resentful
when they see I would not quite say the butcher, the baker, the
candlestick-maker but the self-employed who appear to get rather
generous treatment as far as their income tax is concerned?
Mr Woods: Yes.
Councillor Gibson: I am not self-employed
and I never have been.
Q569 Mr Betts: When you say they pay
less, you are assuming that the national system would have a greater
amount of money for equalisation because of the bigger differentials
on the income than on the property values?
Mr Woods: Yes. If the principles
of local government funding are to hold true and be applied in
the new system then you would equalise through that route. Broadly,
it is the same level of income tax at the standard level of service,
so resource equalisation would have to be put in place. You would
be looking at another substantial increase in resources for the
North East to compensate for the fact that, in fact, incomes in
the North East are less than the relative changes in the council
tax banding, because council tax is constrained, in terms of the
one to three ratio Band A to Band H, where incomes are a lot higher.
In the other parts of the country, incomes are much higher than
in the North East, so actually the North East is paying the higher
proportion of local tax because the council tax is the same.
Q570 Mr Betts: That creates further gearing
problems?
Mr Woods: Potentially, yes.
Q571 Mr O'Brien: The gearing you said
would be fair, 50% from local tax, 50% from central government.
Mr Woods: As a minimum.
Q572 Mr O'Brien: Would the 50% increase,
or up to the 50% increase, in local income tax mean that your
income tax-payer would pay less?
Councillor Gibson: I think you
could start on the basis of a very low wage base in the North
East, there is still a lot of unemployment and an awful lot of
people who are living on benefits permanently, sickness benefits,
those types of benefits. If it is a pay as you earn tax, that
is what we are talking about, not any other sort of income, just
a tax on PAYE, they are bound to pay more. It would be a huge
burden on those who are paying tax, and the higher the earnings
the bigger that burden. That is local income tax.
Q573 Mr O'Brien: The theory is that your
council tax-payers will pay more?
Councillor Gibson: I am saying
that those who earn will pay more, yes, they will pay more under
income tax rather than council tax. Those who are not earning
will not pay any more.
Q574 Mr Sanders: It depends on what band
you are in, and it depends on what you earn.
Councillor Gibson: That is the
fairness of it.
Q575 Chris Mole: You were touching on
the basket of other new taxes which the LGA have on their shopping
list. You have got Durham charging a local congestion charge.
What are your views on any of the others, tourism tax, local vehicle
excise duty, or the like?
Councillor Gibson: The congestion
charge in Durham is probably the worst example in the world. It
is costing them money, I think. It has successfully diverted the
traffic out of the city. Nobody goes into the city any longer.
I would be very surprised if they broke even on their congestion
charge.
Q576 Chairman: Are you holding up your
hand for any of these other taxes?
Councillor Gibson: I am holding
up my hand and saying that the Association of North East Councils
and the regional assembly will be looking at a whole range of
possible local taxes.
Q577 Chairman: You are not advocating
one at the moment?
Councillor Gibson: No. There is
much work ongoing with CIPFA, with the RDA and other organisations.
Eventually we will make up our mind.
Q578 Chris Mole: Would you welcome the
general principle of being able to pick and choose which taxes
would be appropriate for your area?
Councillor Gibson: No, we would
not. We are looking at which is the best and which model can fit
the North East.
Mr Woods: We have got concerns
about the non-financial implications of these, so a tourist tax.
We are trying to increase tourism in the North East, we are trying
to bring business into the North East, we are trying to retain
entrepreneurs in the North East, we are trying to retain skilled
workers. We have got to look at the implications of this tax,
if it has a differential effect and deters tourism or deters business,
etc., so we are looking at the non-financial implications before
we come up with an assessment of any of these, in terms of their
appropriateness for a form of local government funding. There
could be some very significant side implications and we have to
assess that fully.
Q579 Mr Clelland: You inferred earlier
that you would like to see the business rate returned to local
control. Could you explain just what difference that would make?
Mr Woods: If the business rate
were returned to local control, it would bring the balance of
funding back in line broadly with the 50/50 split as it was previously,
slightly less because obviously business rate since 1990 has not
increased as much as council tax and as much as national income
tax support for local government. That would help in terms of
restoring the balance of funding. However, there is considerable
concern, I think, among some local authorities in the North East
not to deter business. We are very conscious of the concerns of
business, so we would want to see appropriate controls, which
would mean that the tax increases for businesses would not be
substantial, so some limiting around the level of the local tax
increase might be said to be appropriate as well. Significant
partnerships are being built up with local business communities
in the North East by individual councils, and there is a concern
that those business partnerships could be damaged if there was
a very negative reaction of businesses to the full restoration
of business tax locally.
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