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REVALUATION: WHO LOSES?

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Lyons inquiry options expose councils to huge funding shifts...
Lyons inquiry options expose councils to huge funding shifts

An LGC exclusive by Kerry Lorimer, finance ediitor

Council tax rises of almost 50% will be needed to compensate for massive post-revaluation shifts in government grant.

Exclusive research obtained by LGC reveals the impact of revaluation on local government under the four leading options for council tax reform being considered by the Lyons inquiry.

One option, the addition of two bands to the system, could cost London£200m in revenue support grant, the east£87m and the south-west£70m, in response to anticipated post-revaluation rises in council tax yield.

In all three areas, householders whose properties skip two bands could see their bill increase by 44% under the 10-band model, while those whose homes rise one band could pay a fifth more than now.

The prime beneficiary would be Yorkshire and Humber, which would see its revenue support grant swell by£155m.

The research, by the Society of County Treasurers for the County Councils Network, shows the swings could be mitigated by replacing the existing national banding system with regional bands to take account of house price variations across the country.

But it would create a new set of losers in the east Midlands, which would forfeit over£55m. London and the east would continue to lose out heavily.

If the government were to leave the system unchanged, but inflate the band cut-offs to take account of the most up-to-date-house prices, a different picture would emerge, with the north-east losing out to the south-east and east.

Swathes of the country will lose out whichever model is adopted, presenting new local government and communities minister David Miliband with a headache as he attempts to determine the most politically acceptable solution.

Tim Richens, assistant director of finance at Somerset CC, who led the work, said: 'There would be a significant distributional impact. The impact will be greater in areas like London, where it's likely properties will jump two bands.'

CCN director John Sellgren said councils would carry the can for increases in bills.

'There is a risk council tax payers will think councils are getting extra cash [because of council tax rises], when in fact every penny is being clawed back in government grant,' he said.

Tony Travers, director of the Greater London Group at the London School of Economics, said the figures were 'a monster, waiting to leap out' on Mr Miliband.

'There will be very great pressure on government when they have to cope simultaneously with revaluation and the consequences that will flow from accepting any of the Lyons proposals,' he said.

The revaluation is scheduled to take effect in 2007.

kerry.lorimer@emap.com

Area for potential change - London

London boroughs are expected to be worst hit by revaluation under proposed changes to the council tax system. Soaring house price increases in the capital mean councils will lose out on up to£200m in government grant in anticipation of increased yield from council tax.

The loss would be greatest if the government added two bands to the existing eight. Regional banding will contain the damage, but not by much.

'The case for regional banding is overwhelming. It's wrong for revaluation to lead to London making a greater contribution.'

Rob Whiteman, chief executive,

Barking & Dagenham LBC

North-East

The north-east has most to lose if the current system is retained. Revaluation, with the same eight bands as now and without the protection of regional banding, would cost over£43m in grant.

With the north-east's low cost housing, additional bands at the top and bottom of the system would push down council tax yield and boost grant by£43m. But the benefit of extra bands would be cancelled out by regional banding.

'We'd like a 10-band council tax. Three-fifths of our properties are in band A and we feel there needs to be a greater degree of differentiation.'

Pau l Woods, city treasurer, Newcastle City Council

South-West

The south-west, like London, would be hugely disadvantaged by the introduction of additional bands to the system. Such a move would cost the region over£70m in grant.

But even retaining the current system would leave the south-west almost£18m out of pocket.

Its best hope is the introduction of regional banding, under which it would make reasonable gains in government grant under both the eight and 10 band models.

'Regional banding would be beneficial. House prices have increased in the south-west - we are second after London in terms of affordability problems.'

David Trethewey, director of strategy and local government, South West LGA

East

Extra bands would also hit hard in the east of England, depriving the area of over£87m in government grant.

Regional banding would offer some protection if extra bands were to be introduced, but the region would still lose out.

Its best prospect would be retention of the existing eight bands, with the benefit of regional banding - it would gain over£65m in grant.

'I have been very concerned about the revaluation . . . I wouldn't be surprised if it resulted in the increase of council tax for residents in the south-east.'

David Beatty (Con), deputy leader and executive member for resources, Hertfordshire CC

East Midlands

The worst case scenario for the east Midlands would be the introduction of extra bands at the top and bottom of the system.

Whether or not regional banding is brought in makes no difference as the region stands to lose the same amount of grant - almost£56m.

Councils will be best off if the government opts to retain eight bands and rejects regional banding. But the region will be no better off than it is now.

'The east Midlands loses out already because of the area cost adjustment, so any change that would leave [us] even worse off would be unacceptable.'

Arthur Deakin, director of resources, Nottinghamshire C C

Could revaluation bring down the council tax system?

  • It will be more explosive thanpoll tax

  • Council tax is a good system and would ride it out

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