david magor obe irrv (hons) chief executive institute of revenues rating and valuation gary watson...
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David Magor OBE IRRV (Hons)Chief ExecutiveInstitute of Revenues Rating and Valuation
Gary Watson IRRV (Hons)Deputy Chief ExecutiveInstitute of Revenues Rating and Valuation
Localised Support for Council TaxLocal Retention of Business RatesTechnical Reforms of Council Tax
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LOCALISED SUPPORT
FOR COUNCIL TAX
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Introduction
• Spending Review 2010• Localise support for council tax reduced by 10% from
2013 -14• Abolition of council tax benefit provision in the
Welfare Reform Bill• CLG claims it is part of wider policy giving councils
increased financial autonomy• The consultation sets out proposals on the “key
elements” of a framework for reform• Enabling power for the new scheme to be contained
in a finance bill in the current parliamentary session
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CLG View of localising support for council tax
• Give local authorities (LAs) a greater stake in the economic future of their area
• Give LAs the opportunity to reform the system of support for working age claimants
• Reinforce local control over council tax
• Give LAs a degree of control over how the impact of the 10% reduction
• Give LAs a financial stake in the support for council tax
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Overview of consultation
• Broad parameters– Framework for support for eligible pensioners– The importance of supporting incentives to work
• LAs encouraged to collaborate to reduce costs• LAs to consider how system can be simplified for
working age claimants• LAs will seek to integrate arrangements for providing
support within council tax system• Reform accompanied by a new grant• Proposals to create local mechanisms to manage
financial pressures
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Principles of the scheme
• Local authorities to have a duty to run a scheme to provide support for council tax in their area
• For pensioners there should be no change in the current level of awards, as a result of this reform
• Local authorities should also consider ensuring support for other vulnerable groups
• Local schemes should support work incentives, and in particular avoid disincentives to move into work
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The Timetable 1
• Summer 2011
Consultation begins
Government begins working with local authorities, representative organisations and suppliers on delivery requirements for localisation
Basis for model schemes considered
• Autumn/winter 2011-12
Government publishes a response to the consultation
Introduction of Local Government Finance Bill (included provisions for localisation of council tax support)
Central and local government begin working on model schemes
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The Timetable 2
• Spring 2012
Primary legislation in passage through Parliament
Government preparing and publishing draft secondary legislation
• Summer 2012
Primary legislation passed
Secondary legislation prepared
Local authorities designing and consulting on local schemes
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The Timetable 3
• Autumn/winter 2012-13
Local authorities establishing local schemes – putting place systems, notifying claimants of changes
Local authorities setting budgets
• Spring 2013
Local schemes in operation
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Managing risk
• Local contingency arrangements
• Managing financial pressures with other authorities– Billing authorities should be able to share any financial
pressure as a result of unexpectedly high increases in demand for support with major precepting authorities
– The billing authority should not be exposed to the totality of the financial pressure in-yea.
– While risk sharing with precepting authorities will be the default approach, different forms of risk sharing should be possible
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Funding Proposal
• Framework that will deliver– Certainty– Incentives to manage down expenditure!
• The form of grant
• Restrictions on the cost of the scheme
• Basis for allocating grant, and frequency of adjustments, two options– Reflecting as closely as possible levels of take-up or demand, by
adjusting as frequently as is practicable to changes in these levels
– Leaving the grant allocation unchanged for several years
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Transitional and implementation issues
• Three issues– The wider context of welfare reform and in particular the
changes to the administration of housing benefit– The process and timescales for designing new schemes and
commissioning and procuring new systems– Communicating changes to claimants
• Transition to new arrangements
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Initial Thoughts
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Issues raised so far
• Timescale• Impact on collection• Administration, appeals and data sharing• The groups protected and impact on other claimants• Defining the vulnerable• Need for a national scheme not a local one• What could the model schemes look like• Link to Universal Credit• The nature of the grant or subsidy• A demand led scheme but cash limited• Managing the risk
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The Risks of Localisation 1
• Irrespective of the £500m cut, the total sum of government funding for the replacement CTR scheme should be subject to reviews in line with the New Burdens procedure with the total rising in line with the total council tax levy and the growth in unemployment and other socio-economic factors
• Collection performance will suffer significantly with the 10% reduction which will fall largely on working age claimants
• The impact of the reduction in housing costs as a result of housing benefit changes and the cap will have a cumulative affect on the ability to meet council tax and other domestic bills
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The Risks of Localisation 2• CTB is currently based on actual as opposed to estimated
eligibility and therefore an increase in the number of claimants will automatically lead to an increase in CTB costs which will expose councils to increased expenditure
• If the current financial crises continues, benefit costs will continue to rise
• Any cap on expenditure needs to protect local authorities from the burden of increased caseloads
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The Risks of Localisation 3• This problem is evidenced by the latest expenditure statistics
from central government that suggest that planned expenditure has risen by 10% in the last twelve months
• Any system where CTB becomes a discount is likely to increase take-up, for example among pensioners, again leading to pressure on local authority budgets
• The localisation of CTB is being introduced in conjunction with a cut of almost £500m which will make implementation of local replacement schemes much more challenging as decisions will need to be taken about where reductions in entitlement are to be made
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The problem of protecting pensioners & the vulnerable
• Protecting pensioners and other vulnerable groups provides considerable challenges; the IRRV has modelled the results from a small sample of authorities
• The claimant statistics show that:
– 77% of total CTB is paid out to those who receive 100% benefit
– 38% of total CTB is paid to pensioners
• If both those on 100% CTB (all of whom will be in receipt of Universal Credit) and pensioners are protected, the 10% cut would be restricted to less than 11% of the total awarded. The only way to achieve the cut would be to set a minimum benefit award for non protected claimants which would be set at a level to meet the 10% reduction.
• The reduction in support for those working age claimants currently in receipt of council tax benefit could be as high as 26%
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Reforming discounts
• Councils could be given greater flexibility over existing discounts as part of the overall review, but unfortunately the recent consultation document on discounts is limited in it’s impact
• The 10% reduction would be easier to manage if local authorities were given maximum flexibility
• If both the issues above were implemented together as part of the reform process any overlapping issues could be manipulated to maximise entitlement
• CLG’s objective in relation to treating the council tax rebate as a discount is uncertain … is this being proposed as an administrative issue or a fiscal matter?
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Joint working
• Joint working between authorities may help reduce administration costs although none of the claims of savings made in the schemes listed have been subjected to rigorous external scrutiny
• The proposal that councils have flexibility in deciding whether to pursue joint schemes and the level of integration they seek to achieve is welcomed however the suggestion that “joint working” could be incentivised needs careful consideration
• The application of the principles of joint or partnership working/consortia being applied to scheme design and software development need to be clarified
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Managing risk 1
• Councils should be able to share the risk of any scheme across the tiers of administration
• There is however a need for more discussion on how risk is managed between consortia of local authorities and between central and local government
• The consultation document suggests that it is for local authorities to administer council tax rebate in as fair and efficient a way as is possible whilst minimising errors and the risk of fraud
• Local authority performance in this area of administration is good, particularly in the recovery of excess benefits
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Managing risk 2
• The Department for Work and Pensions will be launching the new Single Fraud Investigation Service (SFIS) in April 2013
• Local authority administration of these functions should continue, whilst working in partnership with SFIS where the need arises
• The risk of fraud and error should be minimised by effective data sharing across all areas of the public sector although the Government have yet to realise the potential savings of comprehensive public sector data sharing coupled with effective partnerships with the private sector
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Funding
Rebate cost grant• It is welcomed that the proposed rebate cost grant should not be
ring-fenced • The allocations should be adjusted annually • The rebate cost grant should be calibrated
Administrative cost and implementation grant • It is welcome that councils will not be left out of pocket for
implementing new local schemes, however there is a need to see the detail of how this will be achieved particularly any link to joint working and associated savings
• The costs of all aspects of implementation must be met in full as a one off grant
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What are the realistic options?
• Continue with existing scheme less 10% cost and protecting vulnerable groups
• A modified existing scheme protecting vulnerable groups and reducing cost
• Roll council tax support into Universal Credit
• Scrap the existing scheme and introduce a range of council tax discounts to protect vulnerable groups and award limited relief
• Overhaul the current discount scheme to make it fairer and protect vulnerable groups and award limited relief
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LOCAL RETENTION
OF BUSINESS RATES
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Business Rates
• Localising the business rates• A Bill this year, three years to complete it• Consultation• Growth incentives• Tax Increment Financing (the tif)• Local reliefs• Local supplements• Automated small business rate relief
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A Local Business Rate - My Six Questions
• Does it give the local authority freedom to fix a local levy?
• Will Central Government reserve the right to include supplements in the levy?
• Will there be a fair equalisation scheme, if so how will it work?
• Will there be local discretion in the awarding of reliefs and in the creation of transition schemes?
• How will the cost and losses on collection be met?
• Are there any issues concerning diligence?
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1. Establishing the Baseline
2. Measuring Business Rates
3. Non Billing Authorities
4. Business Rates
Administration
5. Tariff, top up and levy options
6. Volatility 7. Revaluation and transition
8. Renewable Energy
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Where are we now?• Overview of the current system
– Under the current system, local government has three main sources of income: grants from central government; council tax; and other locally generated income (such as fees and charges for services).
– On average, councils receive 53% of their income from central government grants, of which there are two types:-
• First, ‘specific grants’, which may be ring fenced for specific purposes, or non ring fenced.
• Second, ‘formula grant’, which is an non ring fenced revenue grant distributed to local authorities through the Local Government Finance Settlement.
– The proposals focus on the distribution of business rate tax revenues, rather than changes to the system of business rate taxation. Businesses will see no difference in the way they pay tax or the way the tax is set. Rate setting powers will remain under the control of Central Government.
– The revaluation process will be unchanged.
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Local Government Resource Review’s -Terms of Reference • To build into the local government finance system an
incentive for local authorities to promote local growth over the long term
• To reduce local authorities’ dependency upon central government, by producing as many self sufficient authorities as possible
• To maintain a degree of redistribution of resources to ensure that authorities with high need and low tax bases are still able to meet the needs of their areas
• The protection for businesses and specifically, no increases in locally-imposed taxation without the agreement of local businesses
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The Principles of Business Rate Retention
• Ensure a fair starting point for all local authorities
• Deliver a strong growth incentive where all authorities can benefit from increases in their business growth and from hosting renewable energy projects
• Include a check on disproportionate benefits • Ensure sufficient stability in the system • Include an ability to reset in the future to
ensure levels of need are met
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The Seven Components of Business Rates Retention
• Component 1: Setting the baseline • Component 2: Setting tariffs and top ups • Component 3: The incentive effect • Component 4: A levy recouping a share of disproportionate benefit • Component 5: Adjusting for revaluation • Component 6: Resetting the system • Component 7: Pooling
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Component 1: Setting the Baseline
• To establish a fair starting point for all local authorities and ensure that no-one loses out at the outset of the system a baseline would be set at the position in 2013-14 for each local authority
• The starting point will be within the overall envelope of the expenditure control totals set out in the 2010 Spending Review
• This means that a proportion of business rates revenues will be set aside and directed to local government through other grants
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Component 2: Setting tariffs and top ups
• In order to achieve this fair starting position, government would calculate a tariff or top up amount for each local authority
• Those authorities with business rates in excess of their baseline level of funding would pay a tariff to government
• Those authorities with business rates yield below their baseline would receive a top up grant from government
• The tariff and top up grants would be self funding and remain fixed in future years
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Component 3: The incentive effect
• In future years, local authorities would keep a significant proportion of increases in their business rates
• Authorities whose business rates grew would retain a significant proportion of that growth in revenues
• Those whose rates declined or grew at a lower rate would experience lower or negative growth
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Component 4: A levy recouping a share of disproportionate benefit• To manage the possibility that some local authorities
with high business rate tax bases could see disproportionate financial gains, government would recoup a share of disproportionate benefit through a levy
• The proceeds would, in the first instance, be used to manage significant negative volatility in individual authorities’ business rates and so ensure stability in the system
• Depending on the amounts raised, resources could also be redistributed to, for instance, authorities with lower growth, or for example, to fund regeneration schemes, in areas with high growth potential
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Component 5: Adjusting for revaluation
• The system would be adjusted to take account of changes in the distribution of business rates yield resulting from five yearly revaluations
• The system would ensure that the incentive to promote physical growth in the business rates base remained in place for all authorities
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Component 6: Resetting the system
• Government would have the option of resetting the system if it was felt that resources no longer met changing service pressures sufficiently within individual local authority areas
• The longer the period between resets, the greater the incentive effect and level of certainty for local authorities about the funding system
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Component 7: Pooling
• Local authorities, for example those in local enterprise partnerships, or districts and counties, could choose to form voluntary pools within the system
• Thus allowing them to share the benefits of growth and smooth the impact of volatility over a wider economic area
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Interactions with existing policies and commitments• New Homes Bonus• Local Authorities Central Services Education Grant• The Central List• Other functions funded through the local government
settlement• Business rates administration• Business rate reliefs• Business rate supplements• Business Rate Improvement Districts; and• Tax Increment Financing (Tifs)
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Outline of the Technical Papers (1)• Paper 1 Establishing the baseline
How, technically, we establish the baselines and the implications of fixing them for a number of years between resets
• Paper 2 Measuring business rates The issues associated with measuring business rates and options for doing so
• Paper 3 Dealing with non-billing authorities The basis for funding police and fire authorities in 2013-14 and 2014-15 and, more widely, that for apportioning rates between authorities
• Paper 4 Business rates administration
The consequences for business rates administration of the scheme outlined in the consultation paper
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Outline of the Technical Papers (2)• Paper 5 Tariff, top up and levy options
Options for the design of tariffs, top ups, the levy and the use of levy income
• Paper 6 Volatility
Causes and the options for dealing with it • Paper 7 Revaluation and transition
The practicalities of assessing business rate income following a revaluation. It will also consider the implications of the transition scheme – and in particular, how this affects business rate administration and the payments made between authorities
• Paper 8 Renewable energy Definitions of renewable energy, the treatment of rates from renewable sources for the purposes of tariffs, top ups and levies, and their distribution between the tiers
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TECHNICAL REFORMS
OF COUNCIL TAX
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Consultation Paper
• Scope
- Section 1: Introduction
- Section 2: Second Homes and Empty Dwellings
- Section 3: Other Technical Changes to Council Tax
- Section 4: Questions
- Appendix A: Current classes of exemption
- Exemption Classes A, C and L
• Timescale
- Responses by 29th December 2011
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The Council Tax
• Background
- General Rate
- Community Charge
• The Council Tax
- Principle
- Valuation
- Liability
- Reliefs
- Recovery
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IRRV Committee of Enquiry
• Published December 2006
• Recommendations
- Replace the banding system (not simply a revaluation)
- Ability to set variable tax rates
- Comprehensive review of discounts and exemptions
- Overhaul of the council tax benefit scheme
- Attention be given to administration
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Lyons Enquiry
• Published March 2007
• Recommendations
- Revaluation (and an overhaul of the banding system)
- Continue to look at the fairness of the tax
- Review of reliefs (2nd homes and students)
- Replace ‘benefit’ with a rebate
- THE COUNCIL TAX IS A SOUND TAX!
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Section 1: Introduction
• Purpose
- Government agenda
- Need to give local authorities greater flexibilities
- Address technical issues
• Implementation
- Primary legislation
- Secondary legislation
- Timescales
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Section 2: Second Homes and Empty Dwellings
• Summary
- Change discretion on 2nd homes from 10%-50% to 0%
to 50%
- Abolish classes A and C and give billing authorities
discretion to award a discount between 0 and 100%
- Repeal of class L (mortgagees in possession)
- Ability to charge an ‘empty homes premium’ in respect
of long term empty dwellings (i.e. 2+ years)
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Section 2: Second Homes and Empty Dwellings
• Questions
- Question 1
* Do you agree to extend range of discounts?
- Question 2
* How would you identify 2nd homes?
- Question 3
* Should class A be replaced with a discount?
- Question 4
* If class A replaced, should the 1 year limit stay?
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Section 2: Second Homes and Empty Dwellings
• Questions
- Question 5
* If class A replaced, should discretions be given to
billing authorities on levels?
- Question 6
* Should class C be replaced with a discount?
- Question 7
* If class C replaced, should the 6 month limit stay?
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Section 2: Second Homes and Empty Dwellings
• Questions
- Question 8
* If class C replaced, should discretions be given to
billing authorities on levels?
- Question 9
* Should mortgagees in possession be liable?
- Question 10
* Would a levy on empty homes impact on numbers?
- Question 11
* What should be the maximum % of the premium?
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Section 2: Second Homes and Empty Dwellings
• Questions
- Question 12
* How long should a dwelling be empty before a
premium is due?
- Question 13
* Should there be restrictions on how income is used?
- Question 14
* When should a premium not be charged?
- Question 15
* What practical issues may arise?
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Section 3: Other Technical Changes to Council Tax
• Summary
- Changing the definition of a ‘relevant person’
- Extension of instalments to 12
- Replace the need for supporting information by post
- Change in approach to ‘Rent a Roof’
- Review of annexes to dwellings
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Section 3: Other Technical Changes to Council Tax
• Questions
- Question 16
* Should the definition of a ‘relevant person’ be
changed?
- Question 17
* Is there acceptance that Council Tax should be
payable by 12 monthly instalments?
- Question 18
* Should billing authorities be able to publish
information on-line?
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Section 3: Other Technical Changes to Council Tax
• Questions
- Question 19
* Should domestic scale solar installations be treated
as part of the dwelling?
- Question 20
* Do you agree the maximum generating capacity
should be 10kw?
- My Question
* Have you still got the will to live?
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Section 3: Other Technical Changes to Council Tax
• Questions
- Question 21
* In what circumstances would separate banding of
self-contained units lead to unfairness?
- Question 22
* Should the changes to the rules be made?
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Section 3: Other Technical Changes to Council Tax
• Summary
- Changing the definition of a ‘relevant person’
- Extension of instalments to 12
- Replace the need for supporting information by post
- Change in approach to ‘Rent a Roof’
- Review of annexes to dwellings
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Contact Details
David Magor OBE IRRV (Hons)Gary L Watson IRRV (Hons)
Telephone0207-691-89730207-691-8988