Minutes:
The Chair reminded members that Resources Board had been tasked by the Executive Advisory Board to examine alternative or additional ways of funding local government. During the discussion at the March Board meeting on business rates, members had requested a report on possible reform of the council tax and this was being brought to the Board today. He stressed that it was designed to start a conversation about reform rather than to take any concrete decisions at this stage. He therefore asked for members initial thoughts and said that the conversation would be continued in more detail at the reformed Task & Finish group.
Sarah Pickup added that Resources Board had rejected lobbying for reforms to council tax, such as revaluation, a couple of years ago but that times were now very different. Council tax needed to be looked at alongside other sources of local government funding.
Mike Heiser, Senior Adviser, then went through the detail of the report and highlighted Table 1 which set out the various potential reforms to council tax that the LGA could lobby for. He then laid out the two broad policy options for the LGA and asked for members views on them:
· Keep to existing policy supporting local rebanding, more discretion on the single person discount, the abolition of nationally set referendum limits and support for full funding of council tax support; or
· Argue for an option for the council tax to raise more and address the regressive nature of the tax, within the context of rebalancing local income alongside the reform of business rates.
There followed a discussion during which members raised the following points:
· Any new system of funding, or reform of existing systems, needed to be based on principles of fairness and public acceptability. Greater freedoms and flexibilities were also considered to be important in spreading the tax base more widely. Support was expressed for removal of the single person discount but it was recognised that this might not suit all areas of the country.
· Some members urged the LGA to consider lobbying for more radical alternatives such as Land Value Tax which were said to work well in Denmark. Reforming council tax was considered to be tinkering around the edges when taking a more fundamental look at how local services were funded was required. This should tie in with the Government’s forthcoming White Paper on Devolution. Any reform could not be effective without first sorting out the Adult Social Care funding issue and members urged the Government to publish its Green Paper as soon as possible.
· Other members felt that if a better alternative to council tax existed it would have been found by now. It was suggested that the problem with council tax was that it no longer reflected the actual value of properties and so more regular revaluations would resolve that. Other members expressed a preference for removing the referendum limits. Some of the unfairness in the current system could be resolved by reforming the housing elements of the benefits system. It was suggested that Land Value Tax wouldn’t work in the UK.
· Most members agreed that the exemption of student accommodation from council tax liability needed to be looked at, as many residents considered it to be unfair. It was suggested that commercial student landlords should be charged council tax or business rates in some form. However, concern was expressed that these additional costs on landlords would be passed down to students in the form of higher rents.
· Support was expressed for the proposal to allow councils to charge developers full council tax on unbuilt developments as a means of disincentivising land banking. It was also suggested that this should apply to developers who sought to convert commercial properties to residential. Similarly, it was suggested that a levy should be introduced on developers converting commercial buildings to residential.
· Any reforms to council tax should not be rushed in as time would be needed to allow people to adjust by, for example, downsizing. The revaluation exercise in Wales was cited where one third of properties moved into a higher band.
· Reforming council tax would be complicated by the fact that councils, for various historical reasons, would all be starting off from different baselines.
· It was suggested that whilst the Board was able to agree that the current system was broken, it would be much more difficult to agree on a set of principles for reform, due to the political nature of the arguments involved.
· When council tax was introduced in 1991 it was not designed to be the main source of income for councils but it had developed into that over the years by default. A fundamental review of council funding was therefore considered necessary as reforming council tax would amount to endorsing a broken system that nobody had agreed.
In response, Sarah Pickup said that the report that was brought to the Board in March explored options for more fundamental reform, but members had requested the current paper on council tax as part of the wider picture. She agreed that a property-based tax alone would not be able to fund all the demands upon councils, in particular Adult Social Care, in the future. She expressed optimism that members would be able to agree what a fair system should look like and said that there had been a great deal of agreement during the debate today.
The Chair thanked members for their contributions and said that this was just the beginning of a conversation. He agreed that it should be possible to get behind some key principles and said that any solution would need to involve a mix of household and business taxation together with a range of fees and charges. He said that the Board would be kept updated on the discussions that took place in the Task & Finish Group.
Decision
Members of the Resources Board noted the report and agreed that the comments from the debate should be taken into account by the reformed Task and Finish Group on Business Rates Retention and the Fair Funding Review, and the Executive Advisory Board.