Rating (Property in Common Occupation) and Council Tax (Empty Dwellings) Bill

Written evidence submitted by the Local Government Association (RCTB05)

1. About the Local Government Association (LGA)

1.1. The Local Government Association (LGA) is the national voice of local government. We work with councils to support, promote and improve local government. We are a politically led, cross-party organisation which works on behalf of councils to ensure local government has a strong, credible voice with national government.

1.2. We aim to influence and set the political agenda on the issues that matter to councils so they are able to deliver local solutions to national problems. The LGA covers every part of England and Wales, supporting local government as the most efficient and accountable part of the public sector.

2. Summary

Hereditaments occupied or owned by the same person (Clause 1)

2.1. We are seeking assurances from the Government that this Bill will have no detrimental impact on local government. In particular, we are looking to engage with the Government to explore the financial impact on councils of the Government’s plans to reinstate features of the business rates valuation practice which applied prior to the Supreme Court in Woolway v Mazars. We therefore welcome the recommendation of the Housing, Communities and Local Government Committee that the Government should take steps to quantify the potential effect on individual local authorities of the provisions of the Bill. [1]

2.2. The Chancellor confirmed at the Autumn Budget 2017 that local government would be fully compensated for the loss of income as a result of this announced measure. [2] It is therefore disappointing that the Government then announced that no compensation will be payable to local government.

2.3. We support the Committee’s recommendation that the Government needs to reassure councils that they are not going to be worse off financially because of this legislation, and that the Government should bear the associated costs as a result of the reforms. The new burdens principle should apply to this retrospective change, in order to fully fund councils for any losses to their income.

Higher amount for long-term empty dwellings (Clause 2)

2.4. There are currently more than 200,000 empty domestic properties in England. It is positive that the Government has taken on board our recommendation to provide councils with the ability to charge more for empty homes. This will give councils the tools they have been calling for to increase the incentive for owners of long-term empty homes to bring them back into use.

2.5. The national housing shortage is one of the most pressing issues we face. In order to tackle this, further tools will be needed to allow councils to resume their role as major builders of affordable homes. In particular, we would like to see the Government go further by ensuring all areas of the country can borrow to invest in new homes.

Other recommendations on council finances

2.6. Full retention of business rates by local government could be an important step towards greater fiscal independence. We remain clear that extra business rates income should go towards meeting the funding gap facing local government which will exceed £5 billion by the end of the decade, and no council should see its funding reduce as a result of the outcome of the Fair Funding Review.

2.7. Council tax should be made a truly local tax, with councils being given the ability to spread the burden of taxation fairly. We continue to call on the Government to bring forward measures to give councils more flexibility on council tax discounts and on the relative burden between valuation bands, and for council tax referendum principles to be abolished.

3. Further information

3.1. We are seeking assurances from the Government that the measures in clause 1 will have no detrimental impact on local government. We therefore welcome the recommendation of the Housing, Communities and Local Government Committee that the Government should take steps to quantify the potential effect on individual local authorities of the provisions of the Bill.

4. Hereditaments occupied or owned by the same person (Clause 1)

4.1. At the Autumn Budget 2017, the Chancellor announced that the Government would bring forward legislation to retrospectively address the "staircase tax", which clause 1 would give effect to. The Chancellor confirmed that affected businesses will be able to ask the VOA to recalculate valuations so that bills are based on previous practice, backdated to April 2010. This includes those who lost Small Business Rate Relief as a result of the Supreme Court judgement. The Autumn Budget document confirmed that local government would be fully compensated for the loss of income as a result of this announced measure.

4.2. The Government has indicated that the financial implications for local government are beyond the scope of the Bill. [3] They now view the additional revenue flowing from the Supreme Court decision as an unexpected windfall, with no associated liability for compensation for councils.

4.3. It is disappointing that the Government has reversed their Autumn Budget decision on the financial implications of this measure, and has indicated that no compensation will be payable to local government.

4.4. We support the Housing, Communities and Local Government Committee’s recommendation that the Government needs to reassure councils that they are not going to be worse off financially because of this legislation, and that the Government should bear the associated costs as a result of the reforms.

4.5. The new burdens principle should apply to this retrospective change, to fully fund councils for any losses to their income.

5. Higher amount for long-term empty dwellings (Clause 2)

5.1. There are currently more than 200,000 empty domestic properties in England. [4] It is positive that the Government has taken on board our recommendation to provide councils with the ability to charge more for empty homes. This will give councils the tools they have been calling for to increase the incentive for owners of long-term empty homes to bring them back into use.

5.2. Our national housing shortage is one of the most pressing issues we face. The last time this country built the homes it needed each year, in the 1970s, councils built more than 40 per cent of them. If we are to truly get back to building 300,000 homes a year, then further tools will be needed to allow councils to resume their role as major builders of affordable homes.

5.3. Building on the important measures provided for in clause 2, we would like to see the Government go further by ensuring all areas of the country can borrow to invest. Councils also need to be given the ability to keep 100 per cent of receipts from properties sold through Right to Buy to replace homes and reinvest in new housing.

6. Further information on council finances

6.1. Business rates retention and the Fair Funding Review

6.1.1. We continue to engage extensively in discussions with the Government on the implementation of further business rates retention and the Fair Funding Review. These reforms are important and are something local government has called for.

6.1.2. Full retention of business rates by local government could be an important step towards greater fiscal independence away from uncertainty and reliance on decisions by the Government to fund local services.

6.1.3. We have welcomed the opportunity for local government to influence central government on the design of the new retention system, including the devolution of responsibilities and the distribution of funding, and how the Government conducts the Fair Funding Review. [5]

6.1.4. Ultimately, however, the reforms will not be successful or lead to a sustainable outcome if they are not introduced alongside additional resources. We estimate that councils face a funding gap of over £5 billion by the end of the decade, on top of a £1.3 billion pressure to stabilise the adult social care provider market today.

6.1.5. One way to help meet this gap is for the sector to collectively retain 100 per cent of business rates collected in England. We support the recommendation of the Housing, Communities and Local Government Committee, in their report on business rates retention, that the additional business rate income available through 75 per cent retention should be used to meet the funding gap facing local government, rather than transferring in grants. [6]

6.1.6. It is also positive that the Committee has recommended that the Government provide additional funding to compensate authorities for significant losses due to appeals. This is a position that we support.

6.2. Council tax

6.2.1. Council tax is subject to significant control from central government, and the current system does not allow for local freedoms or accountability of politicians. No other sector faces such constraints on its capacity to increase income as demand rises.

6.2.2. The current system can also be seen as resulting in unfair bills for taxpayers with a differential impact on different parts of the country. The social care precept and the increase in the general council tax referendum limit from 1.99 per cent to 2.99 per cent does signal welcome change. However, more needs to be done to give local government freedom on its own taxation. 

6.2.3. Council tax should be made a truly local tax, with councils being given the ability to spread the burden of taxation fairly. We continue to call on the Government to bring forward measures to give councils more flexibility on council tax discounts and on the relative burden between valuation bands. More widely, we support the recommendation from the HCLG Committee that further fiscal powers be devolved to local government. [7]

6.2.4. In particular, we are calling on the Government to work in partnership with local government to:

· Abolish council tax referendum limits to bring council tax in line with other taxes in the UK which are not subject to referenda.

· Remove restrictions around eligibility for council tax support to rectify the challenges around intergenerational fairness and sustainability of support packages.

· Allow councils to vary council tax discounts to make sure it is fair to everyone according to local circumstances and helps achieve shared goals and priorities.

May 2018


[1] House of Commons Housing, Communities and Local Government Committee, Pre-legislative scrutiny of the draft Non-Domestic Rating (Property in Common Occupation) Bill , published April 2018

[2] Autumn Budget 2017 [page 32, para 3.28]

[3] Government response to business rates in multi-occupied properties consultation , April 2018

[4] MHCLG Factsheet: Higher amount for long-term empty dwellings

[5] Our full response to the Fair Funding Review consultation on the relative needs assessment can be found on our website .

[6] House of Commons Housing, Communities and Local Government Committee , Business rates retention report , published April 2018

[7] ibid

 

Prepared 2nd May 2018