Examination of Witnesses (Questions 820-839)
CBE, MR CHRIS
CLARKE OBE AND
23 JUNE 2004
Q820 Chris Mole: You had said that as
an association you supported discounts on council tax for specific
groups. I appreciate there is a degree of irony in the second
part of this question. Who did you have in mind and, after Kent
County Council had to backtrack on their proposal of discounts
for pensioners, is it still a viable option?
Sir Jeremy Beecham: Probably not.
One of the problems is that the discount which is available, for
example for single people and disabled people, is a discount to
go down a band. If you are in Band A, you cannot go down a band.
That is an issue which needs addressing. There needs to be something
below the bottom band, as it were. As to specific other groups,
I am really not sure. I do not know whether colleagues have any
views about that. If you change the benefit system and change
the whole system, the pressure for particular groups, like pensioners
and so on, would actually diminish.
Q821 Chris Mole: Can you say something
about what local authorities have been doing to improve council
tax benefit take-up?
Sir Jeremy Beecham: There have
been several campaigns around this. For example, my own authority
in Newcastle included in the council tax bills a lot of information
urging people to claim. We have been working with organisations
like Age Concern and other organisations working with the elderly
to promote advice sessions. We have had hotlines and indeed the
government itself has sought to promote take-up with an advertising
Q822 Chairman: What has happened? Has
the take-up in Newcastle gone down?
Sir Jeremy Beecham: No, only the
Labour vote has gone down in Newcastle. The take-up has gone up
marginally, because the experience is actually that advertising
is not enough. The other measures, for example using data matching
on claimants for different types of benefits, going to areas where
you know people are getting another benefitit might be
attendance allowance or something like thatand talking
one to one, helping them to apply, is much more effective, what
Peter presumably experienced in Wiltshire. Advertising is background
only; you actually need to get to people directly. Another way
is to encourage families of people who are entitled to claim,
so that the children of the pensioner owner-occupiers might be
another group to work with. It is difficult at the moment to increase
take-up without direct contact.
Mr Chalke: We gave grants to the
Citizens' Advice Bureaux and we gave them lists of those with
benefits and the number of people who then started to claim those
benefits was significant; after the second year the take-up was
around £4 million.
Q823 Chairman: This is on other benefits.
Mr Chalke: No, they go through
everything that these people may be entitled to and point it out
to them. Obviously you cannot make them claim, but at least it
was a one to one which was helpful, it was not queuing up.
Q824 Chairman: With the national trend
of take-up going down, in Wiltshire it is going up.
Mr Chalke: Yes.
Mr Clarke: The same in Somerset.
We found that investing in welfare rights' support to people generates
a tremendous response. May I make a general point, because I wanted
to respond to what you said about complexity? The balance of funding
review for local government, as the minister made clear, began
to look at this issue of gearing because of the way it blurs accountability.
If a 1% shortfall in grant has to be picked up by council tax
payers, on average it pushes up council tax by 4%. These two issues
have now come alongside each other: on the one hand is the issue
of fairness and on the other hand the issue of gearing and this
is why you have these different dimensions. So the benefit take-up
would obviously make a difference to fairness and what people
pay, but it would not contribute to the balance. This is why we
have come to this view of needing a mixture of things going on:
the relocalisation of business rates and the reform of council
tax, or residential property tax, to make it fair and local income
tax alongside that to move the balance and add a further element
of fairness and buoyancy because it directly relates to ability
Q825 Mr Betts: That leads me on to local
income tax. Reading the Local Government Chronicle a recent article
suggested that the LGA is supporting the local income tax proposal
set out by CIPFA. Is that the case and if so, why?
Sir Jeremy Beecham: We were persuaded
that it looksbecause there will inevitably have to be further
work upon itto be a more feasible approach than perhaps
we had first envisaged, thinking in terms of widely different
rates with all the collection problems which might ensue. The
notion which was presented to us of having a relatively small
number of bands which could be applied locally and determined
locally and based on a particular day in the yearI would
not necessarily go along with the particular date they had in
mindin order to avoid the problems of people moving around,
so a fixed notion, would also help in terms of predictability,
would make an element of LIT more feasible. We have also thought
that this might be phased in, possibly by assigning revenue in
the first place and then moving towards this choice of a local
band in due course. There would obviously be costs to this process,
both in terms of collection by the authorities, bigger revenue
for local authorities, and also for employers and that is something
which would have to be looked at as well and an effort made to
minimise. We think it does become feasible and it looked like
a reasonable way forward.
Q826 Mr Betts: Do you have any idea what
balance you would like to see in terms of the revenue raised by
local income tax as against the council tax?
Sir Jeremy Beecham: I am not sure
we looked at it quite in those terms, but what CIPFA were talking
about was something between three point five pence and four pence,
ranges around that. Quite what that would do to the council tax
element, I am not sure. Our overall package would produce something
like a reverse of the current 75:25 split and it would then be
75% raised locally and 25% nationally.
Mr Clarke: Roughly equal amounts
of residential property tax and local income tax. You have talked
quite rightly about equalisation, but in fact the amount of funding
needed for equalisation is £16 or £17 billion, whereas
grants are £40 billion. So, in effect, transferring that
difference across to locally set taxes rather than nationally
set taxes would be a key part of moving the balance.
Q827 Mr Betts: There is still a problem
with equalisation, is there not, because the need to compensate
Sir Jeremy Beecham: Oh, yes
Mr Clarke: Yes, it does.
Q828 Mr Betts: Is not one of the problems
with local income tax that the differentials in the tax bases
of different authorities, on the income levels, are actually greater
than they are on the debt from council tax and therefore the amount
of equalisation needed on the local income tax is probably going
to be greater than the council tax system and does that not give
you problems back onto the gearing issue?
Mr Clarke: CIPFA actually said
that they are quite similar most often, but there are some places
where they are very dissimilar. We were hearing earlier that the
South West, which is the region where both Peter and I live, is
a region of higher than average prices and lower than average
incomes. It is apparently the region in which the mismatch is
the greatest, but in most other places, there is quite a degree
Sir Jeremy Beecham: We have done
some modelling which suggests that the gearing could be reduced
pretty substantially across the piece and there would only be
a relatively small number of authorities which would be either
in negative grant or at the other end in the Newham position.
Any system would require a measure of equalisation.
Q829 Mr Betts: It is generally perceived
that income tax would be more buoyant so at one level people might
be worried that over a period more and more money would be taken
in local income tax and it would be easy for councils to sit back
and take the money rather than put up the council tax.
Sir Jeremy Beecham: Like the government
Q830 Mr Betts: Secondly, there are occasions
when the national economy may not be doing that wellnot
under Labour I hasten to addbut the take from local tax
might actually go down. How do councils respond to that situation?
Does that not cause major problems, particularly when you cannot
borrow for revenue purposes in the short term?
Sir Jeremy Beecham: That is one
of the reasons why we would want a mix of taxes. It would be a
mistake to put all your eggs in one tax basket, or, rather, to
derive all one's eggs from one tax basket. That is one of the
reasons why some of us have never liked the idea of going completely
for local income tax. We think a mix is better, because you have
more predictability, you spread the risk and we think that is
Mr Clarke: CIPFA in their second
paper said that by taking that date a year early, they would assume
the take in the financial year and therefore if there were the
dip, if there were a major closure during the actual financial
year, the income would nevertheless have been set in the previous
year. That gap would give time to give further adjustment in the
next financial year through equalisation.
Mr Chalke: I have to say, just
to make the point, that this is the area in which there will be
some disagreement, as you would expect, from myself. An awful
lot more work needs to be done on it, because the proposal to
levy it through an adjustment of someone's code number is hardly
transparent; no-one knows what their code number is, whereas the
council tax is at least a bill which can be compared between councils.
Q831 Christine Russell: May I carry on
asking you about the CIPFA proposals? I am sure you can all accept
that for residents living in Shire counties, two-tier authority
areas, there is already considerable confusion as to who does
what. My understanding is that part of the CIPFA proposals is
that residents would get one bill from the Town Hall, which would
cover district council bill, police bill, fire bill and part of
the county council bill, but then they would get a separate notification
from County Hall about their local income tax. Surely that is
going to confuse people even more than the present system?
Sir Jeremy Beecham: I do not know
that it would confuse them any more than the present system. In
the two tier areas there is already considerable confusion, as
you have already indicated, as to who is responsible for what.
It has to be spelled out as clearly as possible, but I do not
see that it would be that difficult to do. After all, all of us
contribute to central government taxation in a variety of ways
which are very lacking in clarity.
Q832 Christine Russell: Is there any
logic in, for instance, the costs of running county council services
being split between district and county? What is the rationale,
what is the logic behind the proposal?
Mr Clarke: Yes, this is CIPFA
contributing suggestions to reduce the complexity of raising the
local income tax, the complexity of collection. I must say that
it seems to me that when the detail was being worked through,
in the first major paper by CIPFA, they came to the view that
with local income tax the optimum would be the level set by local
authority and the income collected by the Inland Revenue, because
eight out of ten people are in the PAYE system. If the combined
option continues to receive further study, I feel it would be
logical to look at whether residential property tax ought also
to be collected by the Revenue. That method in the first CIPFA
paper would save £200 to £300 million a year. Logic
suggests the same could apply to residential property tax and
that would deal with the complication.
Q833 Christine Russell: That was the
other question I was going to ask you: whether or not the LGA
have actually done any analysis of the cost of the CIPFA proposals.
Mr Clarke: Yes, there is some.
Sir Brian Briscoe: CIPFA have
done an analysis. It is about £300 million.
Q834 Christine Russell: This is perhaps
a bit of a quirky question, as the proposals would only relate
to local authorities in England. For those who represent border
constituencies, how do you think the feeling is going to be in
Wales over these suggestions?
Sir Jeremy Beecham: We will leave
Offa's Dyke where it stands, if we may.
Q835 Chris Mole: Would the introduction
of a local income tax have to coincide with the complete e-filing
of PAYE end-year returns, which is not due until 2010, to operate
this sort of system?
Mr Clarke: It has not been identified
as such an issue so far. The longest lead time estimated was three
to four years.
Sir Jeremy Beecham: We are only
looking at PAYE rather than unearned income; I am not quite sure
about self-employed people. I must say that I was sceptical about
this, because it did seem to me rather invidious that, to name
somebody at random, the Duke of Westminster's unearned income
might be untaxed for the purposes of local taxation, but the cost
of seeking to tax unearned income is too great.
Q836 Chairman: And bringing agricultural
land into the rating system.
Sir Jeremy Beecham: Funny you
should mention that, because I did actually float that at the
end of the last meeting of the LGA.
Q837 Mr O'Brien: During the questioning
of the Economic Secretary and the Minister for Local Government
on this issue of business rates it emerged that since it was introduced
council tax payers have had an increase of above 100% and over
the same period there has been a 30% increase in business rates.
Do you think they are making a fair contribution to local services?
Sir Jeremy Beecham: No and I think
their argument, which we have had put very forcefully in the review,
is really thoroughly misconceived. As somebody said earlier this
afternoon, there is no evidence that location of business is particularly
influenced by the level of business rates. On the contrary, the
evidence of the Cambridge studies in the 1980s and the experience
of the enterprise zones which gave ten-year rate-free periods
afterwards was that what is important is the total property outgoing.
To the extent that the property tax rises, the rents go down.
What we experience, certainly in my enterprise zone, was that
the rents rose within the enterprise zone so that the total property
outgoings remained the same inside and out. In fact it is another
illustration of what Christine Russell was asking earlier in relation
to the impact of council tax and property prices. Commercial property
tax is a tax on commercial rents in effect and the CBI has completely
misconceived that element. Furthermore, they argue that business
pays other taxes; well so does every other taxpayer, we all pay
a variety of taxes. The other point they seem to overlook is that
business is both a huge supplier of services to local government,
actually benefits from local government activity in that sense,
and they also indirectly benefit from many of the services we
provide. We think that at the moment they are not paying a fair
share. The final point is that it has to be kept in proportion.
Business rates amount to something like 3% of turnover. I am not
saying that is insignificant, but a change in that is not of itself
hugely burdensome. We do need to revisit the question of business
rates. There has to be protection for business of course. Nobody
is suggesting they should be singled out for worse treatment than
the domestic taxpayer; that cannot be right. Indeed I would go
further and suggest that there might be scope for a variation
downwards only for business rate in particular local circumstances
where the local authority saw that as necessary in the given circumstances
of a particular locality. In general, our view is that relocalisation
of business rate is important; it is crucial in our view to achieving
a better balance. It might be phased in rather than done in one
go, if that were to help, but we think it is an essential component
Q838 Mr O'Brien: The CBI say no vote,
no increase in rates. What is your answer to that?
Mr Chalke: I believe there have
to be stronger safeguards and I was pleased to hear the minister
say that he thought there should be safeguards as well. We cannot
allow the extraordinary increases which have been levied in the
past on business; my own factory had 29% increase in one year.
You cannot allow that to happen. Business is in a competitive
world, it is competing worldwide, not so much within this country
even. There should be strong safeguards. I also think that there
should be greater involvement of business in local authorities.
I believe that the scrutiny role of the larger businesses, scrutinising
the council's budget before it is set, with a statutory role for
them to report publicly on what they find, could be the sort of
deal that the CBI or others might actually believe would involve
them. This year is a very easy year to argue; the council tax
has gone up on average by 6%; business rate went up by 2%. If
the two had been together, it would have been a 4% increase; indeed
if you had had a wider base it might have been even less. That
is not a price which the business community would baulk at too
much. If you go back to last year when it was an average of 12.9%
increase in council tax, I do not think we should have been inflicting
that sort of increase onto the business community.
Q839 Chris Mole: Would you have been
happy with a link which said the maximum increase in local business
tax would be the same as the maximum increase in the domestic
Mr Clarke: Yes. It is interesting
also that if you read the second large CIPFA paper, which clearly
assumes, because of the way it is constructed, that local authorities
will end up setting the business rate and setting a residential
property tax and local income tax, it implies that there is a
degree of buoyancy and it implies some kind of flexibility which
would create a new kind of sustainable balance. The other point
about business is that the first complaint was that they did not
have a vote. They still do not have a vote, but there is now no
connection at all. Other leaders will have had the same experience
as I and I am sure you have had, business is asking what impact
this decision will have on business rates and we have to look
them in the eye and say that nothing we ever do has any effect
whatsoever on business rates. The valuer sets the value and the
government sets the rate. It is just totally disconnected.