Local Government Revenue (HC 402-I) ODPM Committee 27 Apr 2004

Evidence given by Peter Kenway, Director and Guy Palmer, Director, New Policy Institute, Nicholas Boles, Director, Policy Exchange, and Dan Corry, Director, New Local Government Network; Professor Glen Bramley, Heriot Watt University, Edinburgh, and Professor Tony Travers, London School of Economics; Ray Shostak, Director, Public Services Directorate, and Andrew Lewis, Head of Tax Policy Team, HM Treasury, Lindsay Bell, Director of Local Government Finance, Andrew Allberry, Head of Taxation, Valuation & General Policy Division, Local Government Finance Directorate, and Robert Davies, Head of Modernisation and Grant Distribution Division, Local Government Finance Directorate, Office of the Deputy Prime Minister.

Q12 Mr. David Clelland: Do you think the regional government or a devolved government ought to have a role in the distribution of central funds to local government?

Mr Corry: There is a case for that. Something we published by Professor Ian McClean did suggest that in some way what central government might want to do was decide its allocation across the regions and then, if there were elected regional bodies, let them decide the allocation across the local authorities and his suggestion was also that that should be an independent body. So the elected bodies would give the criteria on which that should be done, but then it should be up to some sort of independent Monetary Policy Committee-type body to take the constant lobbying and politics at the micro level out of the system. In my experience there is less of that than people think, but they do think there is an awful lot. These are ideas that if we had elected regional assemblies become possible and I guess that is what we wanted to throw into your thoughts.

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Q39 Mr. David Clelland: On the question of the business rate which was touched on slightly in that last question, would localising or re-localising the business rates strengthen the partnership between local government and businesses and increase accountability given the fact that businesses will argue that the current system gives them stability and in any case local authorities are not accountable to business through the electoral system?

Mr Boles: I am much in favour of the re-localisation of the business rate to maximum standards. For equalisation purposes there are places, for example Westminster, where we are going to need to have some way of retaining some portion of their business rate take because otherwise they would be paying their residents a council tax benefit because they have been raising so much from business rates. I do not think that the lack of accountability argument really works because we never hear that in relation to corporation tax or the many other charges that fall on businesses. Businesses do not have votes in general elections. I think we are a fairly mature capitalist democracy now. People know that they work for businesses and their pensions are invested in the shares of businesses and so ultimately it is about people and people own businesses. There is an interesting idea being suggested as a way of perhaps allaying some of the more acute concerns of business, which is to link the rate of the increase that any local authority could apply to the business rate to the rate of increase in the council tax, so basically if you are going to put the council tax up by four per cent then you can put the business rate up by four per cent but no more. It is a restriction of freedom, no question, but if that was the price for re-localising business rates then I would be willing to pay it.

Mr Kenway: I am unclear about the rights and wrongs of re-localising the business rate, but I do think it is very important to do away with this extraordinary fact that the business rate only goes up with the rate of price inflation. That could be done away with without the business rate being localised, although I think your suggestion there that it should be linked to council tax is a good one. This is not a small issue. We tried to do a calculation yesterday and it looked to us as though if the business rate had gone up in line with council tax since 1997/98 the council tax increase that we have seen since then would have been reduced overall by about a third. So in some sense if your idea had applied over that period I am not saying that would have done away with all of the political problems but it would certainly have taken the pressure off council tax. Whether or not you want to go as far as re-localising it, I certainly think it is extraordinary that we have this protection that it goes up just by RPI.

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Q42 Mr. David Clelland: Mr Boles' suggestion that the business rate ought to be tied to local taxes or whatever they might be in the future is obviously in preference to the Government controlling it centrally, but might there be a role for regional government controlling business rates given their responsibilities for economic redevelopment and the economic activity of their regions?

Mr Boles: I would prefer it to go as far down as possible, but I agree that that would be better than central government.

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Q98 Mr. David Clelland: If and when any new taxes or charges are brought into change the balance of funding and weight it more in favour of local authorities, what account would be taken of that in calculating central government grant? Will every pound raised through the new system result in a pound reduced in government grant?

Ms Bell: I genuinely could not answer that. I think there would be options year-on-year as to how the government in certain spending reviews take decisions on what spending is. I do not know, you could do it either way.

Q99 Mr. David Clelland: It has not been discussed at all in the course of the ---

Ms Bell: In terms of balance of funding, the balance of funding is what it says. You would assume that the same amount of money was the take.

Q100 Mr. David Clelland: So the answer is yes there would be a pound-for-pound reduction.

Ms Bell: That is an answer but, as I say, there are separate streams of work on what the government thinks overall public spending should be, and they would be in the spending review, so there are two different streams coming together.

Q101 Mr. David Clelland: In all of the discussions which are going on in this is no change at all a viable option?

Ms Bell: I think it is. Anywhere on the spectrum is still up for grabs.

Q102 Mr. David Clelland: So it has not been ruled out? We have not decided that there has to be some change and the present system could just continue as it is?

Ms Bell: The thing the Government has said is that it is definitely going to revalue, so the revaluation of council tax is definitely going to happen and thus there are components of this that will change anyway even if the overall system stays the same.

This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.