Examination of Witnesses (Questions 280-299)|
TUESDAY 9 JULY 2002
280. Finally, can I just ask you does the Bill
as it is drafted at the present time reflect the Government's
commitment to review the balance of funding and reduce the incidence
of ring-fencing that you referred to earlier?
(Mr Travers) I think to be absolutely honest, as far
as revenue funding is concerned this Bill is not going to make
a substantial difference. On the capital front there could be
a significant move to greater local autonomy, but as far as revenue
funding is concerned I do not think this Bill could reasonably
be expected to represent a major shift back towards locally raised
281. Yesterday we heard local government people
suggesting that there should be an increase in money raised locally
to 50 per cent of expenditure against 25 per cent at the present
time. How do you view that?
(Mr Travers) I am not sure any particular figure wouldI
am wary about saying one figure would be good. The direction of
change towards 50 from 25 would be no bad thing, indeed that is
the way local government has been inching in recent years. It
would certainly be better for the way local government feels about
itself and possibly, although the evidence for this is mixed,
in terms of real accountability if there were a move away from
25 towards 50, if I can put it in that cautious way.
Sir Paul Beresford
282. Is not the fact in reality that this Bill
is tying local government even more almost by Treasury rules or
Treasury attitude? You mentioned capital but Clause 4 can effectively
mean that the Government can take the freedom away. Added to that,
as you will know better than any of us, any capital has to be
funded by revenue and if you have to look over ten, 20, 30, 40
years as your borrowing length you cannot predict it and capital
in the main, if the balance of Government funding directly stays
as it is it is all really in the hands of Government, so you are
tied there. Capital receipts, the Government can take that away,
I think even retrospectively. There are huge public control restrictions
under Part 2 of the Bill. The grant is no more predictable than
it has ever been. If you look at Part 3 it is very much like the
old Government Act 1992. The business rate is going to be pulled
into Government grant so you lose any transparency there, we have
got a formula based HRN subsidy and any repairs subsidy is going
to be disappearing subject to grant, and I have only just started.
(Mr Travers) Well, what I can I say?
I think I would say yes to a fair number of those points if I
am honest. If I can just concentrate on the capital finance point.
There is no doubt that although the Government has set in the
Bill a framework within which it would be possible to operate,
its so-called prudential rules system, the same legislation would
indeed allow the Government to operate a very different capital
control system, one similar to or even more controlled than the
present one. In that sense, it is a very wide power. I think apart
from that I would agree that the legislation could be interpreted
at different points in a number of different ways but as far as
revenue funding is controlled, within this legislation there is
not any evidence of a major shift towards greater local autonomy.
For that reason, inevitably, the freedom on the capital side allowed
by the prudential rule system, assuming that is what is introduced,
will be constrained because in the end all that capital spending
financed by borrowing will have to be funded by revenue in the
longer term. So I could just have said yes, yes, yes and yes or
no, no, no and no to your questions I suspect.
283. Can I just take you back to this question
of the central and local funding. Do you think that is the question
of the divide or is it really that there is nothing in the local
funding which moves up with inflation? Income tax has that sort
of increasing yield each year and there is nothing really, except
parking charges, which gives a local authority any extra yield
year on year.
(Mr Travers) In an era where oppositions of both party
have accused governments of both party of the use of stealth taxes
there is no doubt that local government has a distinctly non stealth
tax, indeed it has virtually the only very, very visible tax except
for people who are on Schedule D income tax who probably also
notice what they are paying. For this reason I think there is
a real difficulty here that local government's tax base is not
only very, very visible, the tax that people pay is visible, but
the base is not buoyant, as you rightly say, it has to be revalued.
When it is revalued it will simply jump all over the place, for
some people it will be good news and for others bad news but it
does not feel terribly logical because the steps are big. So it
is not a buoyant tax base and I think that is a profound disadvantage
for local government. One only has to ask oneself what problems
the chancellor would haveany chancellor in any partywere
we faced with putting up the income tax rate every year, because
incomes did not change, to see the agonies that would cause national
284. Professor Stoker, you have been very quiet
so I will target my questions to you, if I may. In your memorandum
you say "The Bill would also seem to put the final nail in
the coffin of the campaign for the return of the business rate
to local control . . .". Do you really mean that because
somewhere you are saying also "Ah, yes, but the Government
is reviewing the balance". What is your view?
(Professor Stoker) I think the amalgamation of the
National Non-Domestic Rate with General Revenue Support in a way
implies that the Government does not want to disaggregate the
two and therefore does not want at any point to return the National
Non-Domestic Rate to local government because if it is combined
with General Revenue Support that suggests a certain state of
mind in terms of the way they are perceiving it. I think that
it is a politically dead issue and I do not think it is one which
will be easily resurrected. If we are looking for a shift in the
balance of funding I think we have to look elsewhere. Although
I take on board, I think, some of Tony's comments that if he had
no other option left to him, the National Non-Domestic Rate would
be one that he would perhaps back to local level, I think if we
have other options open to us it is not the most attractive in
terms of establishing the two principles which I think we would
both like to see running alongside which are an autonomous local
government with more capacity to make a difference in its community
and at the same time an accountable local government. I do think
it is important that new taxes which are provided to local government
are taxes that they can be directly accountable to local people
for. I do not think that the National Non-Domestic Rate is the
perfect case there. I think that shifting the burden of taxation
in our country is going to be very difficult and actually I do
not think it is entirely due to constitutional problems, I think
it is actually a fundamental mind set both amongst governments
but also amongst vast members of the public. In a way the reason
why local autonomy has been increasingly challenged is also because
of the rise in the national welfare state system and people's
expectations that they should receive the same level of service
whether they live in Durham or whether they live in Dorset. It
is the reality of that commitment to equalisation and the determination
expressed in the national press and the national political debate
that somehow or other it is fair that somebody should get the
same quality of service wherever they live, especially the core
services of education and social services, which puts a huge demand
on our system which I think can only be met by some form of central
redistribution of money. I would argue that the only politically
realistic way forward is to give local authorities wider freedom
but by giving them access to a series of marginal tax raising
options. In that sense I think the Bill helps and I hope that
the Raynsford Review will come up with some other marginal taxes
that local authorities will have access to also.
285. Such as?
(Professor Stoker) At the moment, in addition to congestion
charging, car park fees and so on, one could imagine possibly
a proposal which was put forward by the urban investigation suggesting
that in a way you could have micro-zones within urban areas and
where property values had been increased through regeneration
measures that the additional business rate or property rates raised
through that could then be made available to the local authority.
I would also like some experimentation with tourist taxes in certain
areas. It is a common tax in other places. You could think about
labelled rental taxes, something that has been piloted in a couple
of areas and would be a tax on utilities when they were disrupting
our highways. You could think about takeaway taxes. You could
think quite broadly about a range of other environmental taxes
as well. I also would be quite interested in seeing whether you
could extend the principle of BIDs, the Business Improvement District
idea, to a kind of negotiated agreement with other sectors in
the economy, not just business people.
286. That is sort of bringing the business rate
backwards, is it not?
(Professor Stoker) The Business Improvement District?
287. Yes. If you are saying you want to extend
it you might as well call it
(Professor Stoker) The real in principle difference,
I suppose, between the return of business rates and Business Improvement
Districts is the Business Improvement District is directly negotiated
between businesses and a local authority and is subject to referendum
approval by the businesses and they are much more directly involved
in the management of the spending associated with it. It is that
sort of accountability and hypothecation which I think is likely
to be the way forward in the future. I think if you accept the
argument about our attitude to the welfare state, our attitude
to equalisation, then you have to accept that we can only move
forward where it is possible to take groups of local interest
and stakeholders with us. I think that BIDs is an example of a
tax that can do that. I think there are some of the other marginal
taxes that I have identified that could do that as well.
288. I would be interested if you could expand
on the tourism tax. Who would you be levying the other taxes on?
Representing a city that has about six million visitors and a
local authority that is constantly moaning that it gets no grant
to provide services for those visitors, what form would a tourism
(Professor Stoker) I think in other countries it can
take one of two main forms. Either it is a bed tax, a tax on hotel,
bed and breakfast rooms and so on, or it is a menu tax, a tax
on restaurants and so on so there is a tax raised every time you
buy a meal.
Christine Russell: Would you put it on a pint
Chairman: I think we will stop at that point.
289. This is to Mr Travers. The non-domestic
rate properties are revalued every five years and the new revaluation
will take effect in April 2005. Successive governments have phased
in the results of the revaluation to try and soften the increases.
What happened the last time the Government introduced a self-financing
transitional relief scheme for non-domestic ratepayers? Can you
advise us on that?
(Mr Travers) There have been difficulties. Certainly
all reforms or all changes to valuation bases now, be they of
the business rate, which we see more frequently, or where there
is a change as with the introduction of council tax or presumably
when we have a council tax reform, lead to gainers and losers.
What happened last time was the Government sought to rob Peter
to pay Paul, if I may put it that way. They used a method of self-contained
protection so that the losers did not lose as much as they ought
to lose and the gainers forewentwhatever the past of forego
ispart of their gain in the short-term in order to pay
for the protection of the losing businesses and other non-domestic
ratepayers. This proved highly unpopular because the businesses
that were expecting to gain found that they were losing or were
not gaining what they should be gaining and eventually the Government
had to step in and pay off, in effect, those businesses that were
going to gain. I think there is a risk with these self-contained
systems that non-domestic ratepayers who are going to gain feel
that they are being cheated if they do not get much or all of
their gain relatively quickly and those that lose out, even if
they are protected in the short-term, also feel cheated. There
is a risk that everybody will feel cheated.
290. Clause 71 of the Bill introduces a statutory,
self-financing transitional relief scheme. What would you expect
to be the result of the introduction of that statutory, self-financing
transitional relief scheme as proposed?
(Mr Travers) Based on past experience there must be
a risk that the businesses and other non-domestic ratepayers who
should be achieving or having a lower bill and gaining out of
the reform will find that they are not getting their full gain
because they are paying towards the protection of losers. That
could well lead to resentment which I think would put pressure
on the Government to step in and then at some point simply pay
them all the money that they are entitled to, and that is what
they will feel they will want.
291. Finally, can I just put it to you that
one of the sayings is the best learning gap anyone can face is
lack of experience. Do you see any evidence that the Government
has learned from their predecessor's mistakes with this Bill?
If not, do you think that this failure to learn stems from the
loss of experienced staff in Government Departments?
(Mr Travers) The great tradition of the British Civil
Service which involves generalists moving from one part to another
has many strengths but it can have the weakness that there is
no departmental or other history built up and, therefore, when
these things have happened in the past there is a risk that the
officials who are now dealing with it will not know what occurred
in the past.
292. The "floors and ceilings" introduction
last time did not go down very well, did it?
(Mr Travers) Here we are speaking on the day when
the possibility of changes to need assessment is in the newspapers,
and I do not want to introduce another subject. There is no doubt
that any effort to redistribute resources which leads to protection
paid for by one group of people in order to protect the losses
elsewhere simply leads to everybody feeling aggravated. There
are very powerful arguments for governments, in my view, putting
a bit of money aside from some other pot in order to help protect
the losers but without the gainers feeling that they are somehow
paying or foregoing money that is rightly theirs.
293. What the gainers are doing is really having
the revaluation deferred for another one, two or even three years,
are they not?
(Mr Travers) They are. In the case of the business
rate where you have got a revaluation based on fairly good information
about the rental values of properties in different parts of the
country and where there could be as a result of the revaluation
a fairly significant redistribution from one part of the country
to another, clearly there are wider political issues involved
294. Professor Stoker, can I ask you to speculate
on what you believe will be in the legislation regarding the transfer
of staff in local authorities because you do mention it in your
(Professor Stoker) I hope it is something that enables
public-private partnerships to become an accepted part of the
way in which we construct the delivery of public services. I do
not think it has to be the only way but I do think it is a useful
tool to have on board. In order to achieve especially the more
strategic public-private partnerships we need to build up the
infrastructure to make that possible. One of the key elements
of that infrastructure is to enable staff to feel that the transfer
to a private sector company is not one where they are regionally
going to lose out even in terms of their employment rights or
their future pension rights.
295. So there should be mandatory protection
for transferred staff in the Bill?
(Professor Stoker) I think it is difficult to imagine
constructing a market effectively in the future unless, in a way,
you are prepared to confront those key issues on employment rights.
296. What is your view on councils perhaps being
tempted to use their new powers to borrow and charge and trade
as a way of avoiding the best value regime?
(Professor Stoker) I think that in a way my understanding
is that the Bill is likely to be constructed in a way to make
that quite difficult because in order to have access to trading
powers it seems to me we have got to have demonstrated already
some success in terms of service delivery. Maybe I have misunderstood
the Bill but my understanding is the implication is that this
power to trade is going to be one related to your demonstrated
capacity for achievement.
297. Do you think they are probably trying to
control it too much, not giving enough flexibility to local authorities?
(Professor Stoker) If we separate out charging and
trading, I think with trading it is reasonable enough to ask people
to have some demonstrated performance ahead of them before that
feeling is given to them because there is a substantial risk associated
with trading and that risk in the end will have to be borne by
local tax payers. So I think it is a responsible Government which
asks for some demonstration of capacity before granting that freedom,
and I think that is reasonable. In relation to charging for services,
though, I cannot see any reason why that would be a discretion
given to only those authorities which have proved themselves to
be high performers. It seems to me that is entirely a matter for
discussion between local charge payers and the local authority.
If the council can make a convincing argument for saying it needs
to raise these charges, and people feel they are getting value
for money in doing so, then I am very happy to go along with that.
298. If you have to show some track record in
trading, if I think of Stockport as a local authority one of the
few things they are pretty good at is raising small plants, bedding
out plants, in its nurseries. Now it was for a period flogging
those off, as long as it claimed that they were surplus to its
own requirements it was able to do it. Surely it would be common
sense to let them make that into a slightly more commercial activity
without having to prove they have a track record in trading in
(Professor Stoker) I am not sure whether the legislation
is going to require them to prove that they have got a track record
of trading in general. I understood it was to prove they had some
track record of efficiency in terms of service delivery in different
areas. One assumes that they have got a demonstrated capacity
for delivery in that area in which case the problem would not
299. As long as they could prove as far as bedding
out plants were concerned they were doing all right, you think
they should be able to do it under the legislation?
(Professor Stoker) I think it is a good principle
to demand of an authority that it should demonstrate that it is
already an efficient service provider in that area, not least
because as a council tax payer in effect if there was not that
efficiency there, I would rather they spend their precious in-house
management not on trading activity but on making sure they get
right what they can do within the authority itself. As a resident
of Stockport I would rather Stockport got the delivery of services
right within Stockport rather than spent a lot of time flogging
plants to other authorities.