Examination of Witnesses (Questions 40-59)
SIR SANDY
BRUCE-LOCKHART,
SIR JEREMY
BEECHAM, SIR
DAVID WILLIAMS
AND SIR
BRIAN BRISCOE
21 NOVEMBER 2005
Q40 Chair: In your paper that you
gave us on the Balance of Funding Review, the Combination Option,
it says: "A reformed and more equitable property tax. Looking
at the calculation of council tax, as opposed to a banding system
the council tax rate could be expressed as a percentage of capital
value." So that is instead of a banding system. Is that not
the same as the rates? I am not being pejorative; I thought the
rates was quite a good system?
Sir Jeremy Beecham: Rates were
not based on capital values, they were based on notional rental
values. My understanding is that that is an option.
Sir Brian Briscoe: It was not
something that was particularly recommended, it is just an alternative
way of getting over the problem that there are real issues about
where the band falls and what side of the band a particular property
does fall. A percentage approach to that would deal with that
border problem, but it was not a proposition to move away from
capital values. I think largely because that is where we are,
and if we were not where we are we might go somewhere else, but
because we are where we are the only way to deal with that problem
of adjustment near the boundary is to use a percentage, but it
was not a strong recommendation of the LGA to do that.
Q41 Anne Main: You said "regular
revaluations". How regular?
Sir Jeremy Beecham: Ten years.
Q42 Anne Main: Ten years. This would
be carried out every 10 years. You would have a regular revaluation?
Sir Jeremy Beecham: Yes.
Q43 Anne Main: At whose cost?
Sir Brian Briscoe: The government
actually committed to do this in the 2003 Local Government Act.
It was foreshadowed in the 2001 White Paper, and I think until
recently, when the 2007 revaluation was cancelled, we had expected
another in 2017, although I gather the ministers dropped that
commitment.
Q44 Anne Main: Your businesses would
be revalued as well at the same time or just domestic premises?
Sir Brian Briscoe: No, businesses
are revalued every five years under the present legislation for
business rates.
Q45 Anne Main: And that would stay?
Sir Brian Briscoe: Five years
seems like a sensible time arising. The Government was only prepared
to go to 10 for the council tax.
Q46 Chair: Can I return to the issue
about your reform of council tax. You say that council tax at
present is regressive. In what way do you think just increasing
the number of bands would make it not regressive?
Sir Brian Briscoe: Less regressive
not "not regressive". There is an element of poll tax
embedded in council tax, and to that extent there will be a regressive
element within it, but extending the bands and looking again at
the multipliers would make it fairer than it now is, though clearly
it is not as progressive as an income-based tax would be, but
there are good reasons for having a property tax.
Q47 Mr Betts: One area where I am
surprised you have not looked is at the old limitation reforms
to council tax benefit, and you particularly mention pensioners
and people on fixed incomes where they could be given additional
assistance. I do not know whether you have had time to look at
the LGIU's pamphlet on the interaction between the level at which
working people start paying income tax and start losing their
council tax benefit. They actually start losing their council
tax benefit at a lower income than they start paying income tax.
That could be one proposal that will help that group of people
who are getting back into work who get hit by council tax charges
before they get hit by income tax and bring the two into line.
That could be particularly helpful?
Sir Jeremy Beecham: I think that
it is a very good point that they made, and pensioners are not
the only group. They are the most often commented upon group who
do not claim the existing benefit. The immediate task is to persuade
the 1.7 million owner/occupying pensioner households to claim
the benefit that is there. But I agree, and I think we agreed
that collectively, it would be sensible to look across the range
of the interrelationship between tax and benefits of this kind,
except that in a way one wants to get away from talking about
benefits and assistance because that in itself is perhaps one
of the inhibitions against claiming. One wants to look at this
as a way of people reducing their tax burdens in the way that
quite often people like me who spend money on accountants to do.
Q48 Chair: In Sir Sandy's article,
which we all have a copy of, he talks about reducing the burden
on the council tax payer and government taking more of the burden.
Do you accept, Sir Sandy, that, however you pay for it, it is
paid for by taxpayers either through council tax payers, or through
income tax, or through VAT? It is taxpayers that pay everything
in both central government and local government.
Sir Sandy Bruce-Lockhart: Yes,
that is obviously entirely right, but one of the things that I
pointed out was that there has been, as we are all aware, a substantial
increase, some 50%, in public expenditure in the last eight years
and the consequent 50% increase in taxation and the very surprising
decision of the Government taken in 1997 not to put any of that
on income tax. It was really quite surprising to have gone to
such a large increase in taxation with none of it going on income
tax and all of it going on indirect taxes, including council tax.
Q49 Chair: Or business tax?
Sir Sandy Bruce-Lockhart: The
council tax payer . . . Well, business tax has gone down during
that time. So a range of what the press nicknamed "stealth
taxes" have gone on and income tax has stayed still. It probably
would have been more honest, if there was going to be such a substantial
increase in public expenditure, for some of that to have gone
on income tax, and that is why I think council tax has gone up
so fast, because the spending plan, the instructions to councils
to spend, have not been matched by grant, and you can see that
in the Red Book statements of the Chancellor where the projections
each year, increased council tax yield, have been way above 5%.
As you say, of course, the taxpayer pays in the end, but there
has been a shift from the income taxpayer to the council tax payer
and that is why people are having such a problem.
Sir Jeremy Beecham: But the problem
is magnified by the fact that for the income tax payer and the
national tax payer, as it were, as incomes have grown the yield
to government rises but without the rates changing, whereas for
us, with a non buoyant tax, it is the case of having to increase
the local taxation rate, and that is a very obvious and transparent
thing, and perhaps it should be, of course, so people understand
what is being done on their behalf and in their name, but the
lack of buoyancy is a problem at local government and it is not
one that government nationally suffers from.
Q50 Martin Horwood: Surely the reason
stealth taxes are attractive to government is precisely because
they are quite difficult to track and it is quite difficult to
be held accountable for them. Does that not then argue for a much
simpler system of local taxation, whereas you seem to be arguing
for a more complicated one which surely would be equally difficult
for people to track?
Sir Sandy Bruce-Lockhart: I do
not think that is fair, to say we are arguing for a more complicated
one. We have put forward what we have called "a basket of
options" as part of the ministerial review. It was clearly
for the Minister to decide which of the options they wanted to
take forward. We were not saying, "Do the whole lot"
We were saying, "Here is a basket of options which we can
support, which we can get behind", and it was awaiting a
ministerial decision.
Sir Jeremy Beecham: There is nothing
more complicated than trying to explain to a council tax payer
how a 1% increase in council expenditure translates into a 4%
increase in his tax.
Sir David Williams: Even if they
understand it, they do not want to hear the argument, and not
many of them do really. Can I say briefly, Chair, that one of
the things that we want to try and do is to get the controversiality
out of the local taxation system. It is quite appropriate that
we are sitting in the Thatcher Room, because before 1990 there
were complaints about local taxes but nothing like what happened
from 1990, and we are never going to get back to the level of
uncontroversiality thanks to the eminent politician whose name
was given to this room. The problem with rates: I rather agree
with you that domestic rates were quite a good tax. What was wrong
with them was that they were over-cooked in the seventies and
the eighties, and one of the reasons that you want a basket of
taxes is because it is actually, from the benefit of experience
and what a lot of other countries do, quite a good idea and produces
a more equitable package if you have both a property tax and an
income tax and the business rate, because then you do have a more
balanced and potentially, though I am an optimist to say this,
a less controversial package for local taxation.
Q51 Sir Paul Beresford: Are you not
just spreading the confusion? You are saying that the local government
gets the blame. Are you not spreading the confusion so that they
cannot actually assist?
Sir David Williams: I think if
we had a more equitable package without one component being pushed
too hard, like rates were in the eighties, like council tax is
now, then I think you would have a more acceptable system even
if it was a little more complicated to explain.
Q52 Mr Olner: Have you been down
to William Hill's and got any odds as to whether you are going
to lead anything into the system this time round on the Spending
Round that was not there before? For two weeks you have been talking
to the ODPM. What do you think your chances of success are?
Sir Jeremy Beecham: It is a bit
difficult to speculate. We are still in discussion with government
about the costs pressures that we face and we are trying to reach
a decision where there is an agreement about the scale of the
problem, which does not necessarily mean that government will
be able or willing to fund whatever gap is finally there. In previous
years government has injected significant extra resources into
the system and that has helped us keep council tax increases lower
than they otherwise would have been, and we are hopeful that,
together with what we have already done on the efficiency front,
which has been substantial, we will be able to sustain modest
increases. I do not frequent William Hill's and I am not going
to break the habits of a lifetime at this stage, I have to say.
As I say, discussions are going on. We have a further meeting
this week with the Deputy Prime Minister and ministers. Presumably
all will be revealed on 5 December.
Q53 Mr Olner: Will pensioners get
the same sort of assistance that they got last year? We all know
of the 10% increase and there was money put into assisting old
age pensioners?
Sir Jeremy Beecham: I really do
not know. Nothing has been disclosed to us, and nor would we expect
it, frankly, about a measure of that kind, which is for the Chancellor.
I hope that there will be some movement on council tax benefit,
both the process, which the Government is looking seriously at,
and perhaps also the question of the financial eligibility limits,
but whether that will come as part of the pre-Budget statement
is again something we have no information on.
Q54 Mr Olner: You referred earlier
to a basket of various money-raising measures that perhaps local
authorities should be participating in. Does that mean everybody
has got to put everything into the same basket, or can they pick
and choose what is going into the basket?
Sir Jeremy Beecham: I think our
view was that there should be a menu, or could be a menu, particularly
around fees and charges, which would be a matter for local discretion.
It is possible, for example, to revert to the question of a tourist
tax, that that might be something that would be an option for
councils without being a requirement; but none of this really
amounted to a significant percentage of the spend of local government
any more than, for example, the Local Authority Business Growth
Incentive Scheme, which is useful and will help us actually nationally
this year to the extent of about £300 million. It represents
in itself a small proportion, even in that case, of non domestic
rate income, which is £18 billion. These things can be useful
at the margins, but they are at the margins, and, yes, if they
are to come in, then I think our view is that there should be
an option for councils and they will adopt them and levy them
at a rate which is appropriate to their circumstances.
Q55 Mr Olner: The biggest problem
I have found recently, particularly when we have had floors and
ceilings, is that it is sometimes very unfortunate, the ones that
are on the floor and aspiring to reach the ceiling, because of
the length of time that it takes to get there, they very often
change the formula and so the ceiling is never reached. I am talking
about the Shire counties, for instance. They have persistently
been damaged and put into a wrong position over many years and
they have never ever reached the equality that the LGA and others
sought in the first instance.
Sir Jeremy Beecham: Yes.
Sir David Williams: The very first
meeting that I ever had as leader of Richmond-upon-Thames, when
I went to see William Waldegrade, who was the local government
minister—it is clearly a long time ago—we lobbied
strongly for a change in the way that sixth-form colleges were
funded, and he actually said, which will interest Jeremy—I
am not sure if you have heard this story before—"No,
I will not do that. That will help Newcastle and I do not want
to help Newcastle." There you go.
Q56 Mr Betts: Can I ask you about
what has happened this year, which is probably of immediate interest.
It does seem we go through this ritual every year, apart from
general election year when all sweetness and light breaks out
and everyone is happy: the LGA comes along and it is, "Woe
is me. Doom, doom, we are all doomed", and central government
says, "We do not know what the problem is. We think you have
been given a perfectly reasonable settlement." Somewhere
in between we suspect the truth might lie. Is there a chance of
a meeting of the ways? I want to go on and ask about precisely
what the problem is, but is there a chance we are going to get
the two sides together?
Sir Sandy Bruce-Lockhart: We are
trying very hard to do that. You are absolutely right; it is a
wholly unsatisfactory situation. We can all remember last year
that the LGA asked for one billion pounds extra. We said that
would bring council tax down from around 10% to just less than
5%. A billion pounds was put in and it did bring council tax down,
but unfortunately the billion pounds was only put in as one-off
funding, and the problem is that we have had cash injections of
one-off funding each year. What is, I think, welcome is something
that we have asked for and we very much welcome, and that is trying
to move to two-year budgets. That is a two-year budget now until
the next spending review and then a three-year budget from 2007.
That would be extremely helpful.
Q57 Sir Paul Beresford: What indications
have you been given?
Sir Sandy Bruce-Lockhart: My understanding
is that we are moving towards a two-year budget as from November
and, indeed, a three-year budget from 2007. That would be very
helpful, but you are absolutely right in saying that the LGA does
flag up these pressures. There are two points that I would like
to make. First, for the current, coming year the suggested increase
is around £300 million at the moment, around 1% or so, and
I think everyone expects the public sector as a whole to have
to increase its wages by 2¾% and its prices by the rate of
inflation, and so there will be every year increases at the rate
of inflation; but what we have to deal with and what I believe
we are now constructively negotiating with the government around
is that there are new burdens from legislation and from demographic
change which inevitably increase. If you take the increases there
on adult social care, there simply are more elderly people, because
of legislation more care weeks have to be paid for, there are
more people with mental and physical disability that need more
help, and so the demographic changes are undeniable. One final
point: the second biggest item of expenditure is in waste disposal.
The volume of waste is increasing by 3% every year. That is an
undeniable fact. One of the things we need to do, very importantly,
is to work with the Government on how we can bear down on those
pressures, and that also is extremely important.
Q58 Mr Betts: Can I pick up on what
the scale of the problem is and why it has been caused. When we
talk about a 1.5% increase in grant—that is the figure I
think you quote here?
Sir Sandy Bruce-Lockhart: That
is right.
Q59 Mr Betts: That is what you have
said?
Sir Sandy Bruce-Lockhart: Correct.
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