Local Government Finance Bill

Earl of Lytton Excerpts

Tuesday 12th June 2012 Lords Chamber

[The Earl of Lytton]

My Lords, about 25 years ago I stood before your Lordships and spoke for the first time on a local government finance Bill. I do so again with about as much trepidation as I had then. My interests are well known. I am a practising chartered surveyor and a member of several professional groups with an interest in non-domestic rating and property development. I am also president of the National Association of Local Councils.

Before I go any further, I pay tribute to the excellent quality, if somewhat overexuberant quantity, of the briefing material that has been produced—in particular, the briefing papers produced by the Library of your Lordships’ House and the Library of the other place, which have been enormously helpful.

A Bill about the way in which local government is financed when a significant part of that finance is sourced from charges on the occupation of property falls sort of within my bailiwick—a domestic one in the form of council tax and a non-domestic one in the form of business rates. It is certainly right to try to get this nearer to residents and voters and to reconnect businesses with the levying of non-domestic rates at the local level, but that would result in a very heavy reliance being placed on the valuation base for the tax.

Once upon a time, well within my professional memory, we had a unified system of domestic and non-domestic rates. It fell under something called the General Rate Act 1967. While the process was a bit lumpy, particularly at the edges, by whatever benchmark of fairness you would wish to import it was cost-effective, efficient, transparent and pretty much unavoidable, and people understood it. Since then various things have changed because there has been a succession of attempts to tinker with the system. None of the obsolescence of the concepts within the system and its architecture has been dealt with. The resources to refresh and modernise have not accompanied successive tinkering. While we have a system that is still administratively very efficient, it is incomprehensible to voters and ill serves business interests.

We come to the latest set of proposals embodied in the Bill. I welcome the fact that it is part of the localism agenda of moving more responsibility and resources to communities. That is extremely welcome, as are the coalition’s other localism policies, except that for a certain sector it does not fulfil much of the promise. There is nothing in it for the most numerous part of local government—the 9,000-odd parish, town and neighbourhood councils—nothing by way of financial benefit to match the promise of additional powers and responsibilities, and nothing to improve national guidance or co-ordination to increase the capacity of the sector. This stands in stark contrast to the resources made available to other comparable sectors. Therefore, I hope that the Minister will tell me that somewhere else, something will be done about this.

It is for others with much greater knowledge of the hard core of local government finance to explain how this rests with the difficulties that billing authority finance officers will have in balancing costs and risks, and in dealing with the tax base on which the finance will be based. With a revenue cut of around 10% that will have to be made good elsewhere, I do not see any prospect of offsetting it any time soon by expanding the tax base. Therefore, it will produce short and possibly medium-term problems that will have only an adverse bearing on the administration of the system or the services provided. Without other measures, the premise on which the add-back to billing authorities is put forward here seems very optimistic. Cutting costs is one thing; adding value is quite another. In that breath I pay tribute to local authorities that do add value and that are very successful at it. However, I suggest that it will not be of very general application, at least for some considerable time.

I referred to the tax base. The Bill bolts on a degree of additional complexity to an already complex system. It does not do anything to remedy the fundamental problems arising from the constant failure over many years to maintain and manage the tax base—I refer for instance to the council tax—or to resource the problems with non-domestic rates appeals. The impression given is of an out-of-date system being required to yield more than it is capable of.

Council tax was supposed to be a temporary measure. The bandings are 21 years old. The appeals system operated by the valuation tribunal deals with about 97% of business rate cases—I forget the exact figure—and about 3% of council tax cases. The system is creaking. The valuation tribunal’s forward business plan assumes a normal temperature and pressure scenario and makes no allowance for the backlog already accumulated, nor for the likely increased transfer from the social services appeal tribunal to the valuation tribunal. Depending on whose estimates you believe, there will be anything from a threefold to a tenfold jump in council tax appeals. They will start becoming quite significant, in particular because benefits will be challenged and people will realise that they may be faced with a cut and will have to justify things in much more detail, so the obvious default will be to look at the basis of the liability for the charge and the basis on which it is computed.

I flinch a little at devolving things from the centre, where the power to modernise the system rests, by having a series of measures bolted on to something that was designed for another age. However, we are where we are. I must leave that in park and hope that the Minister will be able to reassure me on that. My fellow members of the Institute of Revenues Rating and Valuation are most concerned, and my co-members of the Rating Surveyors’ Association equally fear a progressive gridlock in the appeals system.

It is not for me to refer to the obligations, risks and greater collection of uncertainties that will fall on billing authorities. That must be for others more learned than I am in this field. However, there are some significant problems. Contrary to the received wisdom about Governments internalising societal risks that the market will not underwrite, I perceive a raft of risks being transferred to where they cannot fail to inhibit growth, increase costs and devalue project outcomes. I hope I am wrong.

There are many aspects of detail in the Bill, including in areas where there is fundamental unfairness, where out-of-date elements of the tax base are manifest, and where the management systems that lie behind the maintenance of the valuation lists, the council tax banding and the appeal systems will come back to haunt us at a future stage. I make no apology for flagging them up because it will fall ever more increasingly on the billing authorities to deal with these matters as they go forward.

Next year, 2013, will be the antecedent year for the 2015 non-domestic revaluation. The likelihood is that, on the present count, values will fall. I hope that someone has factored that into the equation because, as the noble Lord, Lord Tope, mentioned, there are large numbers of variables involved. The need to get robust predictions and budgetary measures in place to take us forward in very uncertain times, and over some quite extended timescales where all kinds of things could happen before a 2020 reset, means that we should look at the Bill most carefully. I look forward to it being in a good deal better condition than it is at the moment.