Select Committee on Transport, Local Government and the Regions Memoranda

Memorandum by Lancashire County Council (LGB 21)

  1.  Lancashire County Council wishes to submit the following brief comments by way of evidence to the House of Commons Transport, Local Government and the Regions Select Committee Inquiry into the draft Bill. The Council is supportive of the response emerging nationally from the Local Government Association to the Bill, but would particularly want to emphasise the following points.


  2.  Accurate calibration of the council tax base of individual authorities is of fundamental importance to the equity of the current system of local government finance. The value of the tax base governs the extent of government grant drawn in to an authority to support the funding of its Standard Spending Assessment; and of course the value placed on an individual property defines the amount payable by its owner in council tax itself.

  3.  It is therefore a welcome move for the Bill to require revaluations to take place at a maximum period of 10 years, and to empower the Secretary of State to vary the council tax bands involved. But the County Council would question whether this goes far enough. In a time of volatile house prices, large differentials can emerge between different regions of England within a period as long as 10 years. The problem is compounded if, as is the case at present, the bands for council tax valuation are set in such a way as not fully to capture the full range of house price values that may emerge.

  4.  Currently there are eight valuation bands, into which properties were allocated on 1 April 1993 on the basis of their values on 1 April 1991. Band A covers all properties then valued at £40,000 or below; Band H covers all properties valued at over £320,000; and Bands B to G cover the points between. The distribution of property between these eight bands now varies widely across the country. For example, for England as a whole, 25.9 per cent of all properties fall into Band A and 0.6 per cent into Band H; in the South-East (including London), 6.2 per cent of properties fall into Band A and 1.3 per cent into Band H; here in Lancashire, 38.8 per cent properties fall into Band A and 0.1 per cent into Band H. (Data from the Valuation Office Agency of the Inland Revenue, as at 26 March 2002).

  5.  The County Council would argue that the bands must be changed for the next valuation to capture more fairly the true value of the council tax base that now exists. For example:

    —  There has been a collapse of property values in deprived urban areas of Lancashire (and elsewhere) which is at present not fully reflected in the standard Band A category: there needs to be an "A minus" band to reflect this

    —  There has been a disproportionate increase in the values of property in the South-East at the other end of the spectrum: there needs to be at least one "H plus" band to reflect this

  6.  Lancashire's view on the Bill is therefore that it is not enough to give the Secretary of State a power to vary the bands that currently are set. If the interval between valuations can be as long as 10 years, the Secretary of State of the day should have a duty to review the bands such that they fairly capture the shape of the property market at the valuation date. Without such a duty, revaluation of individual properties alone will not guarantee that the council tax base is fairly calibrated.


  7.  Lancashire's officers have been assisting at a national level with the development of the new capital regime, and the County Council is also a pilot site for trialling the new regime in practice. We are therefore very supportive of the general approach indicated in the Bill. However, perhaps because of the uncertainty involved in so radical a reshaping of the current arrangements, the Bill seems at times to be overly prescriptive.

  8.  In particular, Lancashire's view is that it is unnecessary, and against the spirit of self-regulation implicit in the new regime, to give the Secretary of State a power of direction to set limits in relation to the borrowing of money by a particular local authority (clause 4 (1) b). The guidance accompanying the Bill understandably explains the need for a long-stop power to impose a limit on all local authority borrowing if the macroeconomic situation required it (clause 4 (1) a); but no rationale is given for the extension of such a direction to the level of an individual authority other than that it may be necessary to "prevent imprudent action at a local level". The whole regime of prudential borrowing limits being created by the Bill ought to be good enough to prevent such action, without the need to give the Secretary of State power to intervene directly in this way.


  9.  Lancashire has been regularly commended by its external auditor for the robustness of its financial management. From our perspective, and indeed from the perspective of any well-run authority, the section of the Bill imposing statutory requirements on the level of financial reserves, the validity of the budget, and the monitoring of expenditure in-year, is wholly unnecessary. Not only is it unnecessary; it is damaging to good governance. For example, the prescription of a common level of reserves cannot capture the individual circumstances of local authorities, and risks (through an over-cautious "lowest common denominator" approach) tying up unnecessarily large amounts of public money in financial balances. Statute is a clumsy weapon to enforce the details of sound budget management, and these matters should be left to authorities, their professional officers and their auditors.

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