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By Kate Miller ...
By Kate Miller

The government won't be footing the bill for council tax discounts for pensioners, or any other groups councils decide to help, ODPM minister Phil Hope told local government revenues officers.

The clash between the principle of freedoms for local authorities and the practical effects came to the fore in Mr Hope's speech to the IRRV annual conference yesterday.

Secondary legislation under the Local Government Act 2003 will be put in place in time for local authorities to introduce council tax discounts for the new billing year, Mr Hope said.

But IRRV delegates were hostile to the idea of discounts for pensioners, as proposed by Kent CC (see LGCnet).

'We're in danger of undermining the council tax, where there is a perfecly adequate rebate system in place,' said John Roberts, head of revenues at Thanet DC, in Kent.

Other revenues officers were sceptical about new powers to reduce council tax discounts on second homes and empty properties, pointing out that the districts, as billing authorities, have little to gain financially.

Pat Doherty, deputy finance director at Harrogate BC, suggested scrapping all council tax discounts and introducing a system of targeted relief.

But Mr Hope said it was up to councils how they used the discounts - central government had simply given them the flexibilities they asked for, he said.

'There won't be a national discount scheme for pensioners, because we don't want to go down that route,' he said. Under the Local Government Act, individual councils were now free to go down that route if they chose.

But someone has to pay for any discounts - and it will be other council tax payers, he pointed out.

However, he agreed with delegates that there was a problem with council tax. Within the balance of funding debate, 'there is a recognition that council tax is not sustainable as it's currently going,' he said. The gearing effect, causing high incr eases and now the issue of discounts, were destabilizing the tax and this is one of the issues the balance of funding group seeks to address.

Mr Hope's full speech follows.

IRRV Conference 14th October ??? Speech by Phil Hope MP


1. Welcome.

The Office of the Deputy Prime Minister

2. Let me start by giving you a overview of the role of the Office of the Deputy Prime Minister before plunging into the detail of local government finance.

3. The Office of the Deputy Prime Minister is about delivering thriving, inclusive and sustainable communities in all the regions. Local authorities have a key role in this. Our emphasis is on communities. Our job is to support stronger regional and local neighbourhoods. We do this by bringing together, within our Office, policies, which address all the things that, are vital to strong communities. These include:

- a strong local economy that delivers jobs

- decent housing and a better balance between the supply and demand for housing

- good local public services

-attractive, clean and safe places to live

- regeneration and action to tackle our most deprived areas

And, of paramount importance:

- vibrant local democratic government which is responsive to what people want and is freed up to deliver it

The Local Government Act

4. The finances of local government are a critical part of this agenda. This conference occurs at an important time. The Local Government Act has just received Royal Assent and local and central government now need to deliver on the new opportunities, which the Act provides.

5. The Act gives local authorities more freedom to make their own decisions, based on what is best for their area. It cuts red tape and lets councils get on with their main job, delivering high quality services to their communities. It will contribute to the Government's goal improving people's quality of life. Let me remind you of some of the main things the Act does:

- It allows councils to fund local improvements by borrowing money without Government consent ??? provided they can afford to take on the debt,

- It gives councils new powers to trade and charge for non-statutory services.

But perhaps of particular interest to many people here today

- It gives small businesses and community amateur sports clubs a reduction in business rates,

- It introduces Business Improvement Districts which will allow authorities and business to work together to enhance town centres and other areas,

- It gives the Government powers to reward councils that promote business development in their areas by allowing them to retain a proportion of their local business rates. This is known as the Local Authority Business Growth Incentives scheme.

- It gives new flexibility in relation to council tax discounts and paves the way for council tax revaluation

6. I would like this afternoon to talk about some of the live issues connected to revenues, rating and council tax.

7. Let me start with some of the background. The next few years will be an important time in revenue terms. As you know revaluation of all non-domestic properties comes into effect on 1 April 2005. Revaluation is a huge task but the Valuation Office Agency has had a great deal of experience of such revaluations over the last fifteen years and I believe we can be confident about this process.

8. None of us have had the same experience of domestic property revaluation. The revaluation in Wales is well underway for 1 April 2005 but it is quite clear that the major challenge will be to revalue over 20 million properties in England for 1 April 2007. So you can imagine that ministers will be taking a particularly close interest in this project

9. As to the wider background, I am sure you all have ideas on the current system of funding local authorities. You might be aware of the Balance of Funding Review which is considering ideas for the way in which local authorities are funded and which is due to report next summer. The consultation on this closed on 30 September.

10. I now want to return these three topics of Business Rates, Growth Incentives and Council Tax in a little more detail. First of all, Non Domestic Rates.

National Non Domestic Rates

11. The new Act commits us to produce the draft valuation list for the 2005 Revaluation, six months before 1 April 2005. This is a challenging schedule for the Valuation Office Agency but one I am confident that they will achieve.

12. We intend to provide non-domestic ratepayers with as much advance notice as possible of their rateable value and rate liability. To this end, when the VOA publishes the draft list and sends out summary valuations in the autumn of 2004, ratepayers will be able to refer to a provisional multiplier to estimate their likely rate bill.

13. We will also be producing a variety of publicity materials and information keeping ratepayers and local authorities up to date on what to expect.

Transitional Relief

14. I know that Transitional Relief causes some concern for ratepayers, rating professionals and revenue managers. We have committed in the Act to ensure that there will always be a transitional relief scheme at every revaluation. The condition that applies to this is that it must be revenue neutral and it must work through within the five-year life of the rating list. Let me here acknowledge the contribution of the IRRV, the RICS and the RSA in suggesting how the Bill could be amended to ensure that a scheme could be revenue neutral over the five-year period if we so wished. We have listened to the arguments and adapted the policy based on your input.

15. The same bodies expressed concern about the perceived unfairness of downward transition. We have set up a major research project to identify the issues, to model different options and to make recommendations. We have committed to consider the issue of downward transition in this research. This is the first time we have commissioned major research on transitional relief and we have done it early in the process so that we can use the model when precise figures come from the Valuation Office Agency in 2004.

Business Improvement Districts

16. Now I would like to turn to Business Improvement Districts or BIDs. I hope you have given feedback on the Consultation document on the guidance on BIDs. We are now drafting the regulations and will be consulting on these, too, later in the year.

17. BIDs offer a real opportunity for local authorities to work in partnership with businesses. There are some great examples of innovative thinking in the pilot projects - from market towns such as Rugby to small rural communities such as Brandon in Suffolk; from the West End of London to Newquay in Cornwall.

Growth Incentives

18. While BIDs offer an opportunity for local initiatives funded by a levy on the rate bill, the Growth Incentive initiative offers income to local authorities with no effect on the business ratepayer.

19. The Local Authority Business Growth Incentive scheme provides a real incentive for all local authorities to encourage business development. This is good for their areas and good for the national economy too.

20. The aim of the Growth Incentive concept is to increase councils' incentive to work in partnership with local business and others to maximise local economic growth and regeneration. The incentive is there for all authorities, rich and poor, North and South.

21. Let me make a few important points about this scheme quite clear. First, no business will pay more under the scheme.

22. Second, no council will bear any downside risk because the public expenditure totals under Spending Review 2002 will not be adjusted to offset the amount retained by local authorities under the scheme.

23. Thirdly, Councils will be free to spend the revenues they retain on their own priorities.

24. On 4 July ODPM and Treasury launched a joint consultation paper on Growth Incentives. There are a number of technical issues here that need to be decided such as baselines to be used, the proportion that is retained between different tiers of authorities, and how to make the scheme attractive to areas of low economic growth as well as areas of high historic growth. All these issues need to be properly debated, and we welcome your input. The deadline for replies is 31 October - please respond!

25. We are planning to a second consultation on the chosen system next year.

26. I might add here that at a recent seminar about the scheme sponsored jointly by ODPM, the Treasury and the Local Government Association many delegates commented that they felt it was refreshing that they had been involved in the discussions at such an early stage in the process. I think this bears out our intention to listen and work with you - local authorities, valuers, ratepayers and their agents

27. Once we have got the necessary regulations in place in December 2004, the scheme should start for real in April 2005.

28. But local authorities' revenue is even more dependent on Council Tax, which is what I want to turn to now.

Council Tax

29. The Local Government Act provides some welcome new flexibility on council tax and paves the way for council tax revaluations.

Changes being made to council tax in 2004/05

30. Starting with the changes we are making next year, the Government has given local authorities greater choice on the discounts and exemptions on council tax that they grant. From 2004/05, billing authorities will have the freedom to reduce discounts on second homes from 50% to 10%, or reduce or remove completely the discount on properties left empty for a long period. And there is a new freedom to grant locally defined discounts.

31. We are currently consulting on the detailed regulations and directions which are needed to bring in the new freedoms in relation to cou ncil tax discounts, as well as the other small changes we are making in relation to council tax enforcement and administration. The consultation period ends on 29 October and we should have the secondary legislation in force for you to use for the next billing year.

Revaluation 2007

32. Domestic property has not been re-valued since 1993, when council tax was introduced. The Government has committed itself in the new Act to a revaluation in both England and Wales. In England this means revaluing over 20 million domestic properties in England for bills in 2007. This should ensure the burden is distributed on the basis of up-to-date values.

33. Work will start in earnest in 2005 once the Valuation Office Agency completes the national non-domestic rate revaluation. Council Tax will then be re-valued at least every 10 years - although powers in the Act will allow a shorter revaluation cycle if that should ever be needed.

34. It is too early to speculate on what changes we might make to the council tax system at revaluation (even if the press seems recently to have had a shot at trying). For example, any decisions on council tax banding can only be taken closer to revaluation when we know more about the distribution of property values.

35. We now have powers to make any changes we find we need. Existing powers allow us to revalorise the bands, to change the current ratio of bands, or to introduce regional banding, and the new Act makes clear we can increase the number of bands. But contrary to what you may read in the papers, we are not committed to any particular changes yet.

36. In any case, revaluation and changes to council tax will, of course, depend on the outcome of the Balance of Funding Review.

Balance of Funding Review

37. 'Balance of funding' refers, as you know, to the proportion of local authority spending raised locally, by council tax, as against centrally, via grants and redistributed business rates. The average ratio in England is about 25% local to 75 % central, but there is very wide variation between areas. In Newham 11% is raised locally, while in St Albans the figure is 50%.

38. This has the effect that a 1% increase in local authority budgets leads on average to a 4% increase in council tax bills. Many people argue that dependence on central grant reduces local autonomy and accountability and leads to low local election turnout.

39. The 2001 Local Government White Paper committed the Government to setting up a high-level working group to consider the issues. My colleague Nick Raynsford chairs it, and I am a member. It includes senior figures from central and local government, academia, business and unions. The group is making good progress. The next meeting is on 21 October where we will review the feedback from those that responded to the invitation of 16 July to submit comments. Many thanks to those that did write in.

40. We expect the Review to finish in summer 2004. The final report will look at what problems (if any) are caused by the current balance of funding and consider a range of options for change, setting out their pros and cons.

Conclusion / Summary

41. So in conclusion I hope you can now see some of the changes that are on offer. I hope, too, that you will respond to these challenges and create the dynamic and sustainable communities that we are striving to develop.

42. There are many opportunities to contribute to the development of these policies and systems across all the areas - NNDR revaluation and transition schemes, Business Improvement Districts, the Balance of Funding and Growth Incentives. .

43. I recognise that there is a great deal of knowledge and expertise in this audience from you - the professionals in the field. We cannot afford to neglect that expertise as we take our thinking forward. You can, and must, play an important part. We look forward to building on the good relationships that already exist between us.

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