Examination of Witnesses (Questions 760-779)
MR NICK
RAYNSFORD MP
23 JUNE 2004
Q760 Mr O'Brien: There is a lot of anxiety
there at the present time. One of the reasons is that the idea
in the first instance was that the period between revaluations
should be every five years and it has become every ten years.
Is the process to be overhauled so that we do not face this situation
in the future?
Mr Raynsford: I was not part of
the government which introduced the council tax, as you will understand,
so I was not party to the discussions. I see no evidence that
the idea was that there would be revaluation every five years;
certainly the legislation did not provide for it. There was provision
for revaluation of business rates every five years as part of
the normal process, but we found the situation of a council tax
which had been based on 1991 values with no timetable for revaluation.
Our conclusion was that it was probably appropriate to have a
ten-yearly cycle of revaluations. It is a much bigger exercise
than the business rate revaluation and in order to ensure that
the Valuation Office can cope with the work, we felt that a ten-year
cycle was probably appropriate and phasing it so that it did not
coincide with the business rate revaluation. That is what we have
decided and that is what we have put in place. I accept that the
relatively long period of time, 16 years, which will have elapsed
between the first valuation and the revaluation is the cause of
some anxiety. Can I say that if people are worried that because
of a large increase in their property value since 1991 they are
likely to be faced with a large increase in council tax, the crucial
message which we can all help to get across to our constituents
at the present time is that there is no inherent consequence that
will lead to increases in people's council tax liability if their
property has increased in value by the same average as applies
across the country as a whole. It is only where the property increases
are significantly higher than the national average that there
would be a potential liability for a higher level of council tax.
Conversely, if property values have gone up by less than the national
average, people in bands other than Band A might well be able
to look forward to a reduction. Clearing some of the mythology,
that people believe that because property values have increased
they are all going to face increases in council tax, is quite
an important challenge and that is something all of us can help
do.
Q761 Chris Mole: So there will be a reduced
increase rather than a reduction.
Mr Raynsford: It depends on the
circumstances. If people are living in properties which have increased
by less than the average increase in values between 1991 and the
point of revaluation, then they could well qualify for a reduced
banding and therefore a reduction in their council tax.
Q762 Mr O'Brien: Are you advising them
that what your department is looking at is a ten-year cycle of
revaluations.
Mr Raynsford: Yes.
Q763 Mr O'Brien: Concerns which have
been expressed have been because there have been reports that
the uplift to the tax base could be about 15%. Obviously people
are concerned when they are facing a 15% increase in the tax base
and it depends how the taxes are levied. Finally, on the balance
of funding review, will the decisions taken by your department
on balance of funding be available in time to ensure that any
recommendations are included in the revaluation programme?
Mr Raynsford: May I say firstly
on the balance of funding review itself that this is a report
to government and it will need to be considered by government?
It is not going to make specific recommendations, it will set
out options and undoubtedly there will be a wish to ensure that
any appropriate conclusions should be drawn from that in time
to influence the process of the revaluation which is due to begin
next year. As far as the question you asked on the increase in
the tax base is concerned, the purpose of revaluation is simply
to revalue individual properties, to create a more up-to-date
basis for the council tax. The actual levels of council tax will
be determined by the bandings. As I have already indicated, we
have powers to change bandings and that was one of the issues
which was raised in the balance of funding review. I should make
clear that the overall impact will be neutral. There is no intention
that this should increase the overall level of funding which local
authorities derive from the council tax. What it will do is provide
a more up-to-date basis for the relative value attaching to individual
properties and therefore ensure a more up-to-date banding framework.
As you will appreciate, if there were to be changes to the banding,
that would affect the outcomes and clearly it would be inappropriate
to say anything more before decisions have been taken.
Q764 Mr O'Brien: I come back to my first
question. What are you doing to reassure people, the public, that
the effects of revaluation will be as you have just pointed out
now, negative more than vast increases.
Mr Raynsford: No, I did not say
the effects will be negative. I said the effects should be neutral
overall because it is not our intention that this should raise
additional revenues for local authorities. For individuals the
impact on their personal liability for council tax will vary depending
on whether the value of their property has increased or decreased
in relation to the average across the country as a whole. That
is something we will not know until revaluation has been carried
out and it would be premature to try to convey messages to individuals
about the likely impact on them at this stage. What we can do,
as I suggested, is to try to ensure that people are made aware
of the fact that because property values generally have gone up
by a very significant amount since 1991, this does not lead on,
as some people assumed that it will, to much larger council tax
demands, because the overall increase, the average increase across
the country as a whole, will simply mean that the valuations on
average are raised by that amount. A property which was in Band
D in 1991 and has increased in value by the average amount over
the intervening period will remain in Band D. So there will be
no necessary consequence at all, assuming the local authority
does not increase its council tax demands.
Q765 Chris Mole: If that leads to regional
redistribution of the tax base will you change equalisation to
compensate for that?
Mr Raynsford: The whole issue
of regional banding was introduced by the New Policy Institute
on the premise that there might be quite marked variations between
regions in the impact of changes in values since 1991. I did say
earlier in my evidence that during the first decade, post 1991,
there was a disproportionate increase in the southern parts of
the country compared with the north, but more recently that has
not been the case and we do have to wait until we are nearer to
the point of valuation before a more considered judgment can be
reached as to what the impact will be on different regions.
Q766 Mr Sanders: Is not the problem here,
and you alluded to it earlier, the council tax system, that it
is not related to ability to pay? If you are in an area where
you are disadvantaged by a council tax system which is related
to an area's tax base and you have enjoyed—or some may say
suffered—from above average house price rises since 1991
and you have low incomes, then this revaluation is just going
to pile on the agony in those areas which at the moment have the
people with the most difficulty actually paying the council tax?
I just think that this revaluation exercise, when it becomes known,
will turn the protests into mega-protests.
Mr Raynsford: Only if people are
misinformed about the implications. As I have made clear already,
if someone is living in a property which has increased in value
by no more than the average across the country in the intervening
period since 1991—
Q767 Mr Sanders: I am talking about people
who at the moment are in part of the country where property prices
are well above the national average, incomes are well below the
national average, that impacts on the amount of grant which the
Council gets because government assumes it has a tax base. That
will simply get worse under revaluation for that area.
Mr Raynsford: No, no, because
if those properties were already above the average for the country
as a whole in 1991, there is no reason at all for any change.
It is the relativities between 1991 and the date of revaluation
which is the critical issue, not whether property values are above
or below the national average at the present time.
Q768 Chairman: Surely the problem is
going to be that people who bought a house in the 1960s and are
now pensioners are going to see the property theoretically being
worth a lot more, therefore their area's valuations are going
to go up, so they are going to have considerably increased tax
bills as a result of that.
Mr Raynsford: I do not follow
that. If the property was bought in the 1960s and if it was above
the national average value in 1991 and it remains above the national
average value by the same proportion in 2005, there will be no
change.
Q769 Mr Sanders: There are some parts
of the country, particularly the South West, which were above
the national average in 1991, but even further above the national
average now. So they are clearly going to jump up a band.
Mr Raynsford: That is precisely
why the New Policy Institute suggested that the issue of regional
variations in banding should be considered as part of the approach
to revaluation because that would be a mechanism to offset such
an effect.
Q770 Mr Sanders: Regional variations
across an entire region will completely ignore property hot spots
in certain parts of that region and it is the property hot spots
where you see the biggest protests against the council tax at
the moment.
Mr Raynsford: I am not sure what
the logic of that is.
Q771 Mr Sanders: Because the property
hot spots which have the higher property prices are in areas which
have lower incomes and usually fixed incomes for pensioners.
Mr Raynsford: If you are saying
that in areas which were the property hot spots in 1991 are where
there are particular protests, then there would be logic in your
question, but the fact that there may be very high property values
currently in those areas will not be a necessary reason for any
particular problems at the present time because the council tax
is based on 1991 values, not 2004 values.
Q772 Mr Sanders: Has the government undertaken
or commissioned any work into the technical issues which would
have to be determined before the non-domestic rate could be returned
to local control—such as, for example, how the grant equalisation
arrangement might operate? If you have done the work, what were
the main findings?
Mr Raynsford: The balance of funding
review, as I have stressed, is not a government review, it is
a review being carried out with the participation of government,
with the participation of local government, with the participation
of many others and it is making a series of option appraisals
which will then be spelled out in its report. It will then be
for government to decide how to respond and there will unquestionably
be need for further technical work to be done on a range of issues
which are highlighted by the review. I do not want in any way
to hide from that. It would be wrong to get the impression that
government has been beavering away looking at particular options
as part of the balance of funding review. It has not.
Q773 Mr Sanders: Has it considered how
it might allay any concerns of the business community were non-domestic
rates to be given back to local control?
Mr Raynsford: It is a known fact
that business has expressed concerns and apprehension about the
implications of relocalisation of business rates and clearly one
of the issues which the Local Government Association highlighted
in its evidence was the need for reassurance and issues have been
discussed around ways in which that reassurance might be given.
I do not want to say more at the moment, because, as I have stressed,
the balance of funding review itself is due to report within the
next month, I hope, and all will be clear at that point.
Q774 Mr Sanders: There has been research
which has indicated that the actual business rate is not a key
factor in where a business would locate. Therefore, it is perhaps
a concern which is unjustified on the part of the business community.
Does that chime with any view that you may have about the return
of business rates to local control?
Mr Raynsford: I am not an expert
on the factors which lead businesses to choose to locate in a
particular area, but I should be astonished if the level of the
business rate itself was the main determinant. It nevertheless
could well be a factor that many businesses would take into account
and also it could be a factor in businesses deciding whether they
wish to remain in an area or might choose to relocate. I certainly
would not dismiss it as an issue. It is an issue, but we want
to keep it in proportion.
Q775 Mr Betts: Do you think it is reasonable
that the amount of resources businesses contribute towards local
authority expenditure should fall as a percentage of our total
expenditure year on year?
Mr Raynsford: You in this Committee
and we in the review have noted the relative movement in terms
of the contribution towards local government funding of the business
community on the one side, where the proportion of local authority
funding met by business has declined over the last 13 years and
the proportion met by the domestic council tax payer has increased.
That was a significant finding. You can draw your own conclusions
as to whether we will comment on that in our report.
Q776 Chris Mole: Last month the Prime
Minister told the NAHT that after this year's spending review
school budgets will cover three years and be based on the school
rather than the financial year. What effect do you think this
will have on the rest of the local government finance system?
Mr Raynsford: This was a general
wish and it is not limited either to schools or to local government,
to try to move towards greater financial certainty. The institution
of the spending review programme with three-year indications of
funding is part of that process. Schools are interested in having
greater certainty for a few years ahead and my colleagues in DfES,
with whom we have worked very closely in the course of the last
year to try to ensure that we squared the circle of how you gave
reassurance to schools about their future funding while at the
same time not imposing unreasonable straitjackets on local authorities,
are keen to pursue this and we are in very constructive discussions
with them.
Q777 Chris Mole: So you think that the
predictability and stability of three-year budgets across local
government would be helpful.
Mr Raynsford: It would be helpful.
I do not want to minimise the difficulties, because there are
problems, particularly in areas where there are fluctuations in
either pupil numbers or in other demographic trends which impact
on the cost of delivering local authority service. If you lock
people in to particular levels of funding for a three-year period,
without the scope to vary to take account of significant rises
in cost pressures, driven by demographics which are entirely outside
the authority's or the school's control, you could be creating
a different problem. There are issues there which need to be addressed,
but the concept and the principle of a greater degree of certainty,
so that people can plan ahead, whether it is at the school level
or the local authority level, must be right.
Q778 Chris Mole: Do you think it would
have felt more like stability over the last three years if we
had not had the formula funding distribution changes?
Mr Raynsford: Undoubtedly, but
nevertheless there are many in local government who felt that
the formula funding review was long overdue and the member sitting
immediately to your left was one of the foremost advocates for
that review and government had to take a view on this. We felt
the right response was to conduct this review of the grant distribution
formula and then to say, having taken the decision, that there
would be a three-year freeze, so that authorities would have a
period of time with stability and certainty.
Q779 Mr O'Brien: In the basket of suggestions
for additional funding for local services local income tax has
been one which has been analysed quite often by different organisations;
a simplified local income tax that would be set only by single
and upper tier authorities. Does the government have any objections
in principle to such a system where an individual's local income
tax payments are netted off the national income tax payments?
Has this been discussed with your colleagues in Treasury?
Mr Raynsford: I cannot comment
on that, because, as I have already indicated, the balance of
funding review is not a government review, it is a report which
will go to government and government will itself need then to
form a view. It is certainly the case that the evidence given
to the review by CIPFA pointed quite forcefully to the disadvantage
of a local income tax allowing wide variations across a large
number of authorities in the rates charged, because there would
be consequent administrative complications and pointed quite forcefully
in favour of a relatively restricted scope for variation, limited
both in the number of different levels of tax which might apply
and limited in terms of the number of authorities which might
be able to set that. That is one of the factors which obviously
have to be taken into account in consideration of this option.
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