Examination of Witnesses (Questions 802-819)
CBE, MR CHRIS
CLARKE OBE AND
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
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
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
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
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
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
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
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
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
Sir Jeremy Beecham: I do not think
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.