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

Examination of Witnesses (Questions 802-819)


23 JUNE 2004

  Q802 Chairman: May I welcome you to the Committee? May I apologise that we are running so late? You will just have to reflect that you did opt to be last on. May I ask you to identify yourselves for the record, please?

  Sir Jeremy Beecham: Jeremy Beecham, for the next 14 days Chairman of the Local Government Association.

  Sir Brian Briscoe: Brian Briscoe, Chief Executive of the LGA.

  Mr Chalke: Peter Chalke, Leader of the Conservative Group at the LGA.

  Mr Clarke: Chris Clarke, Liberal Democrat Leader in the LGA.

  Q803 Chairman: Do you want to say anything by way of introduction?

  Sir Jeremy Beecham: Briefly, if I may. As you will have gathered, the balance within the Local Government Association has been shifting. We are however united in wanting to see a shift in the balance of funding. We believe that the present imbalance has two significant effects. First, it limits the autonomy of local government; the dependence on central government funding has that effect. Second, it creates a system which people who pay current local taxes cannot understand. They cannot understand the relationship between local expenditure decisions and the local taxes they have to pay. If they cannot understand that then our accountability to them is much diminished. We think that it is absolutely essential to move from the present imbalance of funding to a better balanced system and it is not an option to remain where we are. We believe we have put forward a proposal which would achieve the objectives of creating a fairer, more accountable and more buoyant system of local government finance, with a mix of a reformed and more progressive council tax, the relocalisation of the business rates and with an element of local income tax. That is the basis on which we have submitted our evidence. May I make one further point, though it is not strictly related to the balance of funding it is a matter which has been discussed this afternoon? We would strongly urge that reform of the council tax benefit system takes place and that need not wait on the eventual outcome of changes to the system as a whole. That is something we believe should be progressed quickly and put in place as soon as possible, irrespective of the outcome of the balance of funding review.

  Q804 Christine Russell: You have really answered the question I was going to ask you, so I shall ask you to confirm and to elaborate further. You have indicated that, although the balance of representation on the LGA has changed following the local elections, and perhaps your two colleagues would back you up, there will be no change to the paper you put forward in April, a couple of months ago. Is that correct?

  Sir Jeremy Beecham: Yes, there is that broad consensus. We have all given a little in our approach to this, but we are all united around the need for change and pretty much on the direction of change.

  Mr Chalke: As leader of the largest group, we generally subscribe to it. It has been quite an achievement for the three party groups, and the independents of course, to come to a consensus. There are areas of detail where some of us would not want to go down that route.

  Mr Clarke: Yes. In the way that the report is coming together, and John Healey referred earlier to the criteria which were set out, and in the outline Sir Jeremy has described we now feel that there are enough pieces in the jigsaw that if the will were there from government, it could be moved in such a way as to bring about a change by a mix of funding which would be sustainable, could be efficient and could bring a greater element of fairness than there is now, thereby adjusting the balance of fairness, which was the aim we set out with.

  Q805 Christine Russell: In your presentation you indicated that you thought there was a need for change because the present system is very complex, it is very difficult to understand and it needs clarification, but some of your critics have said that in fact the comparisons you have come up with are just a confusing wish list. How do you think all the matters you have identified such as relocalising the business rate, having a proportion of income tax, but still retaining some form of property tax are going to clarify the situation in the eyes of the public?

  Sir Jeremy Beecham: I do not think the public will necessarily ever be clear about how the system works in its various components, any more than perhaps they are clear about how much central taxation is raised by the various methods around, including income tax, VAT and so on. What will be clearer is the translation of a local decision to increase or reduce expenditure and the consequent impact on the tax they have to pay, whether that be a mix in terms of the domestic taxpayer of property tax and local income tax or with the business rate they are obviously paying just the business rate. The outcomes will be much clearer and that will make us more accountable.

  Q806 Mr Clelland: Peter Chalke suggested that while you are united on the principles there might be some differences on details. Part of the submission which the LGA made at the beginning of the balance of funding review was that there ought to be a basket of extra taxes like local congestion charges, local sales taxes, etcetera. Is this list still the same, or have you now decided that some of these are maybe not such a good idea? Are there new items to add to the list or do you have some preferred options in the list you have submitted.

  Mr Chalke: I come from the side that I do not want to see extra taxation. I do think that some of those issues will not raise very much money but can actually have policy direction, for example, charging utilities for lane rental when they are digging up roads. Under the public service agreement in Wiltshire, we narrowly missed having one of the pilots. We consulted industry and industry was delighted at the idea that if you tax the utilities for digging up the roads they would go in and out in half or a quarter of the time that they currently do. That has an advantage for traffic flow and cost to industry; so there is a policy advantage and I can accept that. I cannot accept extra taxations just for the sake of it.

  Sir Jeremy Beecham: The basic position is that few of those would add significantly to the desired objective of adjusting the balance; some of them might have a local policy benefit, such as, for example, localising the collection of vehicle excise duty. Some of them would probably be unacceptable as a matter of principle, for example local sales tax. Few people would advocate that.

  Q807 Mr Clelland: In your paper you say that a local sales tax or local land value tax could have a significant effect. You heard the Economic Secretary to the Treasury say that he felt these peripheral taxes would be insignificant.

  Sir Jeremy Beecham: A local sales tax could have a significant effect; unfortunately it would not be a progressive effect. I would not support it because it would be regressive and in a small country there would be boundary problems and so on. It is not workable or desirable from the point of view of equity, although that is perhaps the one thing which could make a significant difference to the balance. However, there are significant disadvantages to that particular tax.

  Mr Clarke: The common ground is that that mixture of the three which he highlighted could deal with the issue of balance and fairness. These others are peripheral to that, but could be valuable in some separate consideration for policy reasons rather than to assist in dealing with the balance of funding or the fairness issues.

  Q808 Chairman: If you got some of these additional taxes would you want there to be equalisation?

  Sir Jeremy Beecham: Of the additional taxes?

  Q809 Chairman: Yes, of the money from the additional taxes.

  Sir Jeremy Beecham: The amount they are likely to contribute would be so small as to make equalisation—

  Q810 Chairman: Westminster would do quite well out of a bed tax, would it not?

  Sir Jeremy Beecham: Yes. What we are suggesting there is that there might be an option for a bed tax, but you could not equalise. Part of the problem faced by authorities like Westminster is that there is a significant burden, as well as benefit, from dealing with large numbers of visitors. You do not want to over-complicate the system, but it is likely to be marginal in the event and I would not have thought it was necessary to take equalisation into account with these subsidiary taxes.

  Q811 Chairman: Would those be taxes which each local authority would be expected to impose or would it be entirely up to local authorities whether they imposed them?

  Sir Jeremy Beecham: As far as a bed tax is concerned, we are suggesting that that should be entirely optional. There are quite mixed views over which way to go amongst similar types of authorities with an interest in that and different international experience about the effect of such taxes. If you were to localise vehicle excise duty, I suppose that would apply across the piece, for policy reasons rather than revenue reasons. It really is very much a subsidiary issue. The three main planks we are seeking to construct the new framework on are—

  Q812 Chairman: Vehicle excise duty does more or less reflect where cars are and there is huge variation between local authorities, so would there not be some case for equalisation?

  Sir Jeremy Beecham: I do not really think so. It is a policy objective here which would encourage authorities to deal with the problem, amongst other things, of abandoned vehicles and the like, it is a positive incentive for them to ensure that vehicles are taxed. I do not think that would be likely to require equalisation, indeed that might be counter-productive in terms of achieving the policy objective. These are very much subsidiary

  Q813 Mr Betts: The 2003 Act gave authorities new freedoms to trade and charge for services. There is a feeling around that perhaps they have not been used as widely as local government were saying they would be when they campaigned for them. What is your view of that? Is there scope to do more?

  Sir Jeremy Beecham: There is scope to do more, but I am not sure we have actually yet got the Order which would facilitate the trading. The department has not actually as yet pressed the Go button on that. It will take time to develop. Although this is significant in the long term, it is more significant in policy than in revenue terms. We would not see that as making a huge difference to the balance of funding and the capacity of authorities will vary quite markedly.

  Q814 Mr O'Brien: You heard us pressing the minister on the question of council tax and, if it survives, in what form it will be. Do you have a view as to how it should be reformed?

  Sir Jeremy Beecham: Yes. We think that there certainly need to be extra bands, both at the top and bottom levels. It might also be desirable, although we have not taken a formal view on this, to look at the multipliers between the bands because the range is quite narrow at the moment and even with extra bands it would not—

  Q815 Chairman: So you would go back to rates.

  Sir Jeremy Beecham: Not quite, perhaps; not quite, but more towards that. Appropriately we are meeting in the Thatcher Room, are we not? One becomes quite nostalgic for the situation which pertained before certain decisions were made. Yes, more in that direction.

  Mr Clarke: Both of the ministers referred to the need for more detailed work and I should just like to add, assuming that they will continue to look seriously at the possibility of a form of local income tax alongside a form of residential property tax, that I strongly believe that the start level of that tax needs to be considered as well. A lot of the anger in the last year or two has been that bills of £1,200, £1,400, £1,500, £1,600 really hurt some people very, very much. As that detail works through, modelling will need to take place on what the start rates should be. For example, the personal allowance gives a degree of protection for people on low incomes from the start rate of income tax; there is not quite the same equivalent in—

  Q816 Mr O'Brien: The LGA have suggested that the council tax could be a percentage of capital values rather than bands. How might this work and what benefits would it bring?

  Sir Jeremy Beecham: That was a possibility which we ventilated. I am not sure it has been taken very much further in the context of the review. There have been people who have suggested that it would be a simpler process than a notional banding, or a rather more accurate process than a banding system, but it has the disadvantage of requiring individual valuations and tracking movements on that basis would be more complicated. The feeling of the review is that perhaps capital valuation is not high on our list of desiderata, unless it were established by further work that was going to be more efficient.

  Q817 Mr O'Brien: It is not a serious issue then.

  Sir Jeremy Beecham: I do not think so.

  Q818 Chris Mole: You heard the minister indicate just now that they see that there needs to be some further work on council tax benefit, and you mentioned in your introduction too, improvement of take-up and making it fairer. What specific changes do the association have in mind to council tax benefit?

  Sir Jeremy Beecham: All of us on the review, right across this rather large body, were impressed by the fact that, for example, the capital limits have not been raised at all since the benefit was introduced and are low; £16,000 is the maximum amount of capital, apart from the property itself, that somebody can have. This is now 15 years on since the benefit was introduced. Equally the income limits are too low, so one needs to increase the eligibility and one also need to make the application more user-friendly, but in particular we were taken with the notion that you try to change the culture from one of applying for a benefit to one where you are merely limiting your liability to pay tax. That is the way the proposition was put. That might well help people, particularly older people who are reluctant to claim a benefit. We know that there are 1.7 million owner-occupying pensioners who are not claiming on the present eligibility criteria and this cultural inhibition is something we ought seriously to address.

  Mr Chalke: Coming from a rural area, there is a marked reluctance to claim benefit; there is a pride which stops people doing that. We found that with all the other benefits when we worked with the CAB and went round to these people's homes to suggest to them that they had an entitlement. In the first couple of years £4 million of entitlement was found which people had not claimed. It would not be too difficult to put down your gross income; after all capital limits are irrelevant because it is the actual income you derive from them and at this moment it is probably a fairly low income from the capital. You could include the total income in your electoral registration form and you would then be sent a council tax bill lower than the others. That way you get a reduced bill, you do not queue up for a benefit, which I think is the thing stopping the 1.7 million from accepting it.

  Q819 Chris Mole: Do you think reform of the council tax benefit system would still be needed if a local income tax comes in alongside council tax?

  Sir Jeremy Beecham: Yes.

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