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

Examination of Witnesses (Questions 280-299)



  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 taxation.

  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 would—I 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 have—any chancellor in any party—were we faced with putting up the income tax rate every year, because incomes did not change, to see the agonies that would cause national Government.

Christine Russell

  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.

Christine Russell

  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 tax take?
  (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 too?

  Chairman: I think we will stop at that point.

Mr O'Brien

  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 forewent—whatever the past of forego is—part 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 as well.

Christine Russell

  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 memorandum?
  (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 general?
  (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 arise.

  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.

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