Select Committee on Transport, Local Government and the Regions Minutes of Evidence

Examination of Witnesses (Questions 123-139)




  123. Could I ask you to identify yourselves for the record, please?

  (Sir Robin Wales) I am Robin Wales, I am Chair of the Association of London Government and Mayor of Newham.
  (Cllr Houghton) I am Stephen Houghton and I am Chair of SIGOMA.
  (Cllr Thornber) I am Ken Thornber, Vice Chairman of the County Councils Network.

  124. Right. Do any of you want to say anything by way of introduction or are you happy for us to go straight to questions?
  (Cllr Thornber) I think, Sir, just a general observation. I see this Bill as part of a movement that has taken place for 20 to 25 years, which is the amount of time I have served on my county council. I think it is a question of strong local government versus Central Government prescription. I do believe, Sir, that there has been an erosion in local government, of its powers and its abilities, and that has been reflected in the ballot box.

Mr Betts

  125. Do you support the proposals to allow the Secretary of State to vary the number of council tax bands?
  (Sir Robin Wales) The answer to that would be yes but it is a complex issue, the question of rebanding and how the money is divided across regions. I can see the argument for extending the number of bands, I think there are so many issues that will not address. Primarily from a London perspective, clearly the high value of property is likely to push a lot into higher bands when there is revaluation and that gives us grave concerns because, particularly for people who are renting property, for example, which I think is 41 per cent in London, they will not get any benefit from higher values and clearly we are very worried about them. I think in principle yes, but it does not address all the issues but then you would not expect it to.
  (Cllr Houghton) A similar answer, we would support—

  Chairman: If you agree leave it at that. If you disagree please come in.

Mr Betts

  126. So there is hope for it but what will the effect be on the residents in the areas that you represent? Presumably there will be slight differences in the effect on different parts of the country.
  (Cllr Houghton) In terms of our area, clearly as far as Band A goes, there are far too many properties in our view within Band A. Within Band G it is a very broad band and therefore changes within housing and house prices do not impact in terms of council tax and then, of course, at the very top end we have Band H so any improvement across there ought to be an improvement in terms of recognising people's ability to pay. Obviously we want to see the exemplifications and how that is going to work but as a general principle it will move us from being as crude, if that is the right word, as the system is currently.
  (Cllr Thornber) Yes. The top end has a huge range of values within it, open ended in fact. So one would like to see one perhaps two more bands. Of course in the South East house prices are rising dramatically, perhaps a little more than is the norm so I think there is, as it were, an exemplification of the north-south divide which could be inherent in these band revaluations.

  Chris Grayling: Can I pick up on that point. Is there not a danger that Government will take a simplistic view and say "Well, house prices in the South East are high and therefore people can afford to pay a lot and house prices in the North are low and therefore we will have an adjustment of bands which reflects those differences" whereas in reality, for example, a primary school head teacher living in the South East will have much more difficulty paying extra tax than a primary school head teacher living in the

  where the cost of living is less.


  127. Good try on behalf of Surrey.
  (Cllr Thornber) That is certainly true, Chairman.

Mr Betts

  128. As well as the proposal to have more band rates there is the idea of revaluation as well. Have you a concern about how that might impact on the people in the areas you represent?
  (Sir Robin Wales) Extending the bands is very useful but there is the real issue about the high value of housing in London. I believe that it is desirable that there is a narrowing of the difference in property prices between the north and the south. If this were the case it would have a knock on effect on the impact of revaluation. Clearly it is a big issue. As I said earlier, 41 per cent of our householders live in rented accommodation in London, they do not get the benefit of higher values in property. You might argue well if you have got the benefit at least of the higher capital asset then you can maybe have a quid pro quo, with 41 per cent rented they do not get that benefit. Clearly if house prices go up, that is a big problem also in terms of social housing where the clear value of social housing in London is rising rapidly as well and those are people who cannot necessarily afford to pay so there is a big issue there. Wages are higher in London, okay so there is a balance to be struck. It is one of the things which needs to be discussed, I think, and thought through. Clearly there has to be a revaluation, I think we would accept that, because you cannot stick on a valuation that is years and years out of date. We would not argue about having a revaluation, what we would say is that it needs a lot of discussion.

  129. Are your concerns about the effect on the Revenue Support Grant because if all you are doing is raising a given amount of money in the borough and all the house prices are going up—
  (Sir Robin Wales) What will happen is by having an increase in the number of high value properties the Government will adjust the Revenue Support Grant then so we will have to meet that with an increase in council tax in areas which have got large numbers of high value property. So the effect will be that council tax will rise for no change in services simply because London property prices have gone up and things have moved into higher banding. We are keen to engage in a discussion. I have to say I think this is something which needs a discussion and, like a number of things in the Bill, it needs further discussion with the Government and arguments on all the different sides need to be picked up. I have some understanding for people in the North who have lower property prices saying "Hang on a minute, why should we be paying as much, why should there not be something in this". I think it is something we need to talk about but certainly there is a concern that all that will happen is we will push up council tax and a lot of people in London will be unable to get it, we are eager that the government undertake some research work into what the effects of revaluation will be.


  130. Should it be done quicker?
  (Sir Robin Wales) No, I think it is a very helpful timetable because it gives us a chance to discuss these issues. These are not simple issues. Like many issues in local government there is justice on all sides and there is a case to be noted, and actually I think the London case is a better case for debate and we will have the debate. I think it is very helpful that we have taken some time on that and I think the Government's timetable is reasonable.

Mr O'Brien

  131. In the submission from Westminster City Council they say "The City Council has long argued that the success of the council tax depends on it being seen as a fair tax. For this to be achieved, it must be kept up to date." On the question of the revaluation of council tax, what will be the effect of council tax revaluation on council tax payers once the area cost adjustment is taken into account?
  (Cllr Houghton) From our perspective this is partly related to the previous question. We believe that there should be revaluation because the funds local authorities get or the amount of Revenue Support Grant they get to some degree is determined by how much it is judged could be raised locally and if we are saying that house prices are the basis of people's ability to pay, which is what the system does, then you need a revaluation because clearly things have moved on in the last 12 years. Therefore, the sooner that is done the better.

Chris Grayling

  132. But house prices cannot reflect people's ability to pay because they are unrealisable capital.
  (Cllr Houghton) That is what the system says. That is the system we have currently got, so if we have it then we will have a system that more adequately reflects the current position. If people are struggling in terms of their ability to pay then obviously we have got to talk about the benefit system as well for people on low incomes who have real problems with that.

Mr O'Brien

  133. How do you see the question of the area cost adjustment impacting? Has this been taken into account in the revaluation and how do you see it impacting upon your council tax payments?
  (Sir Robin Wales) The area cost adjustment is clearly something that is currently under debate and something which I think we are going to be engaged in some discussion on. It is an attempt to reflect the fact that London is a more expensive place. The concern we have with that is reflecting both the needs, the deprivation and extra costs.

  134. Do you think that should be based on the actual expenditure or assumed expenditure, the area cost adjustment?
  (Sir Robin Wales) I actually think the exemplifications the Government has come out with today are reasonable and based on a reasonable assumption. I think all the relevant costs, the general labour market, are worth looking at and that is the right approach. I generally think the exemplifications today seem to be interesting ones that we want to discuss. If you like, if the Government is prepared to find a way of subsidising when the revaluation comes in and will then say "we will add the area cost adjustment", that would be a way of protecting people in terms of high property prices, but there are also issues around things like looking at the regional issue and carrying it out on the basis of regional earning. There are a number of different options that we can follow with the revaluation.


  135. What would be the advantage of a regional set of council tax bands?
  (Sir Robin Wales) If we did it today, if we revalued today with London being in the position it is in—I think there is evidence that maybe, as the last time there was a property boom, it moves out of London, it just takes a bit longer—what would happen is that when the Government comes to calculate how much grant it is giving it would assume a certain take from London authorities with the higher banding and that would mean for a straightforward increase in council tax there would be no change in the services people are getting. If you did it regionally and said "we will look at the regional set-up and then within that regional set-up we will allocate the money based on council tax" then you have got a possible way forward. I think it does need some discussion, that is why I think 2005 is a reasonable date.

Mr O'Brien

  136. Do you agree with the regional calculation, Councillor Thornber?
  (Cllr Thornber) Yes, I do because I think it would be seen to be fairer and I think it would have to take account of the regional differences.


  137. So what would happen if you have got a London one and then just outside Surrey, would you not have a problem at the transition?
  (Cllr Thornber) We would certainly, yes. I would like to add that whatever happens in terms of the proposed changes to revaluation, there has to be a careful phasing in in terms of transitional relief because otherwise—
  (Cllr Houghton) Obviously the SSA forms part of the local government expenditure or support for local government, so the greater the figure in terms of the SSA, the less the other forms of revenue support. We recognise that there are costs in London in particular but also the South East. All we are asking for is that that SSA should reflect the real and actual costs as far as they possibly can of that area and not just be based on assumptions. We had the position this year, which I think people are familiar with, where something like 350 merchant bankers and city financiers were added late into the calculation which took something like 78 million from SIGOMA authorities. It is things like that which discredit the system and clearly cause angst amongst our members. What we are saying is, yes, there needs to be a recognition of the extra cost but let us have that clear and transparent and be a recognition of the cost that is there. If the SSA simply continues to grow on the basis that it does now that is less for other people, less grant, and potentially an impact on council tax.

  Mr O'Brien: Can I just put to you that Clause 81 in the Bill suggests amendments to the transitional arrangements that were introduced in 1992. Are the proposals for the transitional arrangements adequate?

  Chairman: Come on, a thumbs up or a thumbs down, very quickly.

Mr O'Brien

  138. Clause 81 allows council tax payments in the transitional period to be either higher or lower than their long run value.
  (Cllr Houghton) Adequate.
  (Cllr Thornber) The jury is out.

Christine Russell

  139. It is anticipated that there will be provisions in the Bill for council tax discounts and exemptions. What are your views on that? What issues would you like to see taken account of? In particular, I think we would like to know your views on the issue about charging, or rather charging full council tax on empty properties and second homes.
  (Sir Robin Wales) I think the LGA's position is that they support that and we support that fully because think it would be an appropriate thing to do. We are a little disappointed that it is not there. We would certainly support the LGA on that.
  (Cllr Houghton) A similar position.
  (Cllr Thornber) I would agree.

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