Robert Largan: Cutting Council Tax would do more to level up than cutting Corporation Tax

18 Jan

Robert Largan is MP for High Peak and a Member of the Levelling Up Taskforce Committee. Onward’s report, Levelling Up the Tax System, is available at this link.

At the last election, in northern constituencies like mine, many people voted Conservative for the first time. They did so for three main reasons: to “get Brexit done”; to stop Jeremy Corbyn becoming Prime Minister; and because they wanted to see their area “levelled up”.

We’ve left the EU with a deal and Corbyn has been consigned to the dustbin of history. In 2024, voters will judge this Government on its successes and failures in levelling up.

So far, the debate on levelling up has focused on spending, particularly on infrastructure and understandably so. There is a desperate need to invest in infrastructure in places like the High Peak, whether that be our roads and railways or our schools and hospitals or even our digital infrastructure. But this spending is only part of the levelling up equation. We also need to look seriously at how our tax system works and whether the burden is spread fairly across the whole country.

That is why the Levelling Up Taskforce along with the think tank Onward have published a new report on Levelling up the tax system.

The report takes a new approach, analysing the impact of different taxes on different parts of the country. For example, taxes such as council tax and VAT fall the hardest on the most deprived regions, while average council tax per head in London is lower than anywhere else in England, despite house prices being much higher.

We often hear about how London generates £1 in every £5 of tax receipts. But this ignores the fact that London generates less tax than any other region as a share of their GDP, partly because it benefits from much higher levels of commuters than other places. If we’re serious about levelling up, we need to reassess this situation.

The report considers which tax changes might have the biggest impact on helping people in the most deprived parts of the country as we recover from a global pandemic.

Because there are lots more Band A properties in poorer regions, cutting Band A council tax by a ninth would save 54 per cent of households in the North East an average of £147 a year, 43 per cent of households in Yorkshire an average of 146 per year, and 41 per cent of households in the North West an average of 148 per year. This would put more money in people’s pockets quickly.

While another reduction in corporation tax would benefit London most, an increase to capital allowances for plant and machinery or industrial buildings would be of far greater benefit to the North, Midlands and Wales where there are far more manufacturing businesses. Such a change would lead to large savings for businesses in places like Cheshire, Derbyshire, the West Midlands, Teesside, East Yorkshire, Northern Lincolnshire and Cumbria where capital spending is highest.

I’m not seeking to write the Chancellor’s budget for him but I hope that this report can open up a new dimension in the levelling up debate and help inform how we make tax and spending decisions in future. At the very least, the regional impact of different tax measures should be a standard part of Treasury analysis.

We won’t be able to level up the whole country if the Government has one of its hands tied behind its back. The full fiscal firepower of the Treasury is needed if we are going to give real change for parts of the country that have been neglected by Westminster for far too long.

Harry Fone: Reserves should be used to limit Council Tax rises. If this isn’t a “rainy day”, what is?

13 Jan

Harry Fone is the Grassroots Campaign Manager for the TaxPayers’ Alliance.

Less than two weeks into January and councils are already telling residents to expect another year of inflation-busting rate rises. Local authorities will be permitted to raise Council Tax by up to 4.99 per cent and many have already indicated they will do so. A typical band D household could see their bills rise by as much as £106.

However, there is promising news from the home of the concrete cows. Milton Keynes Council (MKC) has taken the welcome step of using its sizable reserves to implement a more bearable rise of 2.5 per cent. The council leader has clearly listened to the concerns of local residents, saying, “the time has come to use those emergency reserves during a crisis rather than cut vital services”.

According to the most recent figures, reserves from all councils totalled £25.5 billion. It seems there is plenty of money for a rainy day and residents of Milton Keynes will be grateful for the lowest rate rise in five years. But could the council have done more?

MKC has been no stranger to wasteful spending in recent times. In January 2020 as part of efforts to tackle climate change, £95,000 of ratepayers’ cash was allocated to adorn underpasses and bus shelters with moss. But this pales into insignificance compared to the cost of refurbishing council offices that went at least £7.8 million over budget. Perhaps MKC should focus on stamping out largesse before plundering its coffers.

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In Hampshire, the Police and Crime Commissioner Michael Lane – who enjoys a taxpayer-funded salary of £86,700 – has called for the policing precept, which makes up part of Council Tax bills, to be increased. Both he and the chief constable of Hampshire Constabulary are recommending a rise by the maximum permissible £15. The injection of cash will be used to fund the “early recruitment of 50 new police officers”.

But like Milton Keynes, could this hike have been averted? The Daily Mail discovered that since 2012 Hampshire Police and Crime Commissioners splurged £51,000 on merchandise such as keyrings and stress balls. Unfortunately as is so often the case the wasteful spending didn’t stop there.

In 2014, Thames Valley Police and Hampshire Constabulary combined their efforts and money to create a new 999 call management system. Like most public sector IT projects it has been plagued with delays and cost overruns. In July last year operators in the emergency control centre had to resort to pen and paper after the “cutting edge” system crashed.

Originally forecast to cost £27 million, the bill to the taxpayer has skyrocketed to at least £39 million. That’s £6 million that each force saw go down the drain. Given it costs around £75,000 to train and hire a police officer for one year, Hampshire Constabulary could have put 80 bobbies on the beat, never mind 50. More rigorous oversight and project management could have avoided punishing rate rises for residents and made streets safer.

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In recent years many councils have drastically cut staff numbers in an effort to balance the books and increase efficiency. News that Leeds City Council intends to axe 914 jobs recently caught my eye and made me wonder how the English “Core Cities” (Birmingham, Bristol, Leeds, Manchester, Newcastle, Nottingham and Sheffield) match up in terms of the number of council employees to the number of residents. The results are quite varied but there are some noteworthy observations.

Using the latest data, Leeds had 12,868 full-time equivalent (FTE) staff. Birmingham, the biggest of the core cities in terms of population, had 696 fewer FTE employees, despite having a population around 40 per cent greater than Leeds. To put it another way, Leeds has 1 council employee for every 61 residents, compared to Birmingham’s 93. I was surprised to discover that Liverpool came out on top of all the English core cities, with 1 council employee for every 103 residents.

Of course, fewer employees per head doesn’t necessarily mean better results for ratepayers. But between 1997 and 2017 Council Tax increased by 50.5 per cent (in real terms) for Leeds and only 23.6 per cent for Birmingham.

There are undoubtedly more factors other than the number of employees that affect Council Tax bills. But, as staffing costs make up a large chunk of expenditure, local authorities should ensure they have the most efficient workforce possible – culling non-jobs would be a good start – saving their residents potentially millions of pounds in the process.

Starmer opposes Council Tax rises. But he won’t say where the money would come from.

12 Jan

In the latest piece of repositioning, Sir Keir Starmer, the Labour leader, has spoken out against Council Tax increases. It came in a speech yesterday devoted to seeking to recapture a broader piece of territory from the Conservatives by claiming Labour to be the party of “the family”. Sir Keir declared:

“The Prime Minister and the Chancellor want to hike council tax – a £1.9bn bombshell that lands a bill of around £90 on every family…

“I’m calling on the Government today to put families first during this lockdown. By backing local councils to prevent council tax rises; stopping any cut to Universal Credit; extending the ban on evictions and repossessions and giving our key workers the pay rise they deserve.”

It followed an article for the Sunday Telegraph, where Sir Keir wrote:

“It is absurd that during the deepest recession in 300 years, at the very time millions are worried about the future of their jobs and how they will make ends meet, Boris Johnson and Rishi Sunak are forcing local government to hike up council tax. The Prime Minister said he would do “whatever is necessary” to support local authorities in providing vital services – he needs to make good on that promise. That’s why I’m saying to Boris Johnson: give councils the support you promised and then give families the security they need by dropping your tax increase.”

To some extent, the intervention is not especially brave. How could any of his local government colleagues object? He proposes that every penny of the funding they would forgo from the Council Tax increase would be replaced by extra central Government grant. So nothing to challenge Labour councillors or public sector workers. (Though some who believe in “localism” might fret that local authorities would become still more financially dependent on Whitehall.)

Similarly, what Council Taxpayer could possibly object? No increase in bills without any reduction in funding for local services.

Doubtless it has occurred to Sir Keir that a bumper batch of local elections will be taking place before too long. They might, or might not, be delayed from their scheduled date of May 6th. Some I have spoken to think a short delay until June would be likely. But whenever they do take place, they will be dubbed as “the first big test” for the new(ish) Labour leader.

If the political focus is directed to the interests of the Council Taxpayer that is something to be welcomed. Council Tax hits the poorest the hardest. It is also a tax that people are highly conscious of paying. Eric Pickles, the Communities and Local Government Secretary during the Coalition Government, was very effective in keeping bills down. Councils had the option of increases above inflation – but only if they could win the approval of their residents via a referendum. Of course, they didn’t dare. It was an era of spending restraint where – despite much scare-mongering – services were generally well-maintained. Since then, there has been greater indulgence, but the referendum limit has still prevented excessive increases. Routinely we would have Labour and Conservative councils setting Council Tax rises at the maximum they could to avoid a referendum. Sometimes there would be a misleading claim, to be doing this “on behalf of the Government”.

This has tended to take the political heat out of Council Tax over the last decade. Yet the bills continue to vary widely – by several hundred pounds from one local authority to another. That impact on household budgets could mean, for example, whether or not there is enough to pay for a family holiday. Council leaders sometimes try to justify what marvellous value their tax increases offer, only ” a few pence a week”. A spokesman for Sadiq Khan, the Mayor of London, notes that the proposes ten per cent increase in precept amounts to “£2.63 a month on average”. But annual rises above inflation represent a cumulative burden. So often during recessions we have references to “austerity” in terms of the public sector. Tax increases being presented as being anti-austerity. Neither Ed Miliband nor Jeremy Corbyn complained much about Council Tax increases. Sir Keir has shifted the focus.

Yet the rhetoric from the Labour leader lacks credibility as he does not disclose how this additional largesse to town halls would be paid for. Council Tax is due to raise £51.2 billion in the coming financial year; a five per cent rise. If Sir Keir would stump up the £2.5 billion to avoid that increase, would he borrow the money? Would he cut spending elsewhere? Would he increase other taxes? If he wants borrowing to go up even further, with the current pandemic as the justification, what would be his plan to bring it back down? Would we all have to pay really big Council Tax rises in future years to make up for it? Or would Council budgets be squeezed – with Sr Keir offering an echo of Tony Crosland’s message that the “party is over”.

Previous Labour leaders have sought to prove their responsibility with the message that there will be “no unfunded spending pledges.” Often researchers at CCHQ would be able to spot a lack of rigour when it came to the details. In the current mood of profligacy, Sir Keir may calculate that nobody much will challenge him about a footling couple of billion here or there. Yet this remains a vulnerability for the Labour Party. In the coming years, the public finances will be a key priority. Can Sir Keir persuade sceptical voters of his credibility? Will he show he has the capacity to take the “tough choices”? To show that his sums add up. His speech yesterday is scarcely encouraging in this respect.

Sam Robinson: The case for comprehensive property tax reform is long-standing and crystal clear

31 Dec

Sam Robinson is a Senior Researcher at Bright Blue

Recently, yet another Conservative Research Group – this time the Property Research Group, comprising 29 Tory MPs – was launched.

With the vaccine arriving in the UK, it seems attention among those on the centre-right is starting to shift towards what happens after the pandemic is under control: specifically, making sure things do not just go back to normal on housing policy.

One of the Government’s main tax interventions during the Covid-19 crisis, the stamp duty holiday on the first £500,000 for any buyers, is set to come to an end in the next fiscal year. But we should be asking ourselves: do we really have to go back to the default settings of stamp duty and council tax when we come out the other side of Covid?

The short answer is that there is no good reason to.

Economists have long been in agreement that the UK’s current system of property taxes is horribly designed and inefficient. The evidence is incontrovertible. Stamp duty distorts the volume and timing of housing transactions; just look at the wild spikes in transactions during the current holiday. Indeed, a two percentage-point increase in stamp duty is estimated to reduce the mobility of homeowners by around 40 per cent.

And council tax regressively hits low-value homes located in less prosperous regions hardest: a person living in a property worth £100,000 may pay six times more, as a proportion of their property value, than someone in a house worth £1 million. As Paul Johnson of the IFS succinctly put it: ‘it’s rather like charging VAT at a lower rate on Bentleys than on Fords’.

The sticking point for reform has always been the politics. Partly, this is driven by competing priorities: many on the left want a tax system that is redistributive, while the right often slams policies such as stamp duty as a ‘tax on aspiration’.

But when it comes to property taxes, this is a false trade-off. There are many alternative models out there, such as proportional property taxes or land value taxes, that ensure a more equitable impact across regions and across the income distribution but without the economically damaging impacts of a transaction tax.

Many policymakers recognise this, but retort that while such ideas are good on paper, implementing them would be costly and unworkable, in particular due to the need for accurate and regular valuations. Perhaps this was true in decades past. But it’s worth noting that we already have an administrative system in place for regular property valuations, in order to calculate business rates liabilities. And with the rise of Automated Valuation Models, the digitisation of property and location-based data, and technologies such as AI and blockchain on the horizon, the administrative strain of property valuation is on a downwards trajectory.

Even the difficult task of valuing land is possible. Not only are there methods available to estimate the value of land in the absence of a deep market with many transactions, but several governments including Denmark and Estonia, as well as numerous US and Australian states, have experience of implementing land value taxes.

To be sure, radical property tax reform would bring implementation challenges. But such proposals are very much grounded in reality.

The real political issue is in truth electoral: substantive property tax reforms will create winners, yes, but a lot of losers too. But given that, eventually, tax reform will be needed both to pay off the escalating budget deficit and to address the complexity and inefficiency of the tax code, the question of winners and losers cannot be skirted indefinitely.

Analysis from the IFS lays bare the political economy of reforms to council tax, which the Treasury has allegedly got its eye on. If council tax were revalued and moved to a flat-rate, proportional system then council tax bills (assuming central government funding to local authorities was adjusted) could reduce by 20 per cent or more across much of the North, and conversely increase by a similar proportion in London and the home counties.

It is not difficult to see the political risk to the Tories of pursuing this line of reform. But this also presents political opportunities: the winners of a move to a fairer system of property taxes would comprise people in the regions paying over the odds on their council tax bill relative to those living in London and the south-east, as well as those in low value properties, who are often young and on modest incomes. Surely, these are the very people this Conservative Government purports to champion through their ‘levelling up’ agenda?

Aside from the principled argument for levelling up, if the Conservatives are to prosper in the long term then they will need to maintain their electoral coalition of voters in the red wall and shire seats; and they will need to win over young people, millions of whom would consider voting Conservative but have yet to be persuaded to do so in elections. Reforms that reduced tax bills on low-value properties and lowered the penalty on buying a house would reward the ‘just about managing’ yet deeply aspirational households that Conservatives have long sought to win over.

Evidence bears this idea out. Recent polling conducted by the Property Research Group shows that council tax is the most unpopular tax in the country: 51 per cent of people dislike or hate it. And levels of dissatisfaction are higher still in the North East, where the Tories will be hoping to consolidate their ‘Blue Wall’ ahead of the next election. In any case, roughly seven in ten around the country want to see council tax reformed to make it better reflect house prices.

Admittedly, stamp duty is potentially an easier political sell, for the simple reason that it is a ‘voluntary’ tax insofar as it is only incurred when you buy a house. Nevertheless, with the average home in England incurring £2,300 in stamp duty – £6,000 in the South East – the tax weighs heavily on purchase decisions and successfully deters many transactions. With the end of the stamp duty holiday in sight, around a third of buyers recently suggested they would pull the plug on their move if they had to pay stamp duty, with a further 43 per cent saying they would ‘most likely’ do the same. That’s hardly a ringing endorsement.

The economic case for comprehensive property tax reform is long-standing and crystal clear. But not enough attention is given to the political rationale for such reforms. Hopefully, with the birth of the Property Research Group, that could well be about to change.

Tony Jefferson: Rebellion in the shires over the economic damage of continued lockdowns

28 Dec

Cllr Tony Jefferson is the Leader of Stratford-on-Avon District Council

Stratford-on-Avon is a rural district and, by area, it is 48 per cent of Warwickshire. Rural areas have, unsurprisingly, a lower prevalence of Covid-19 than urban areas. We have consistently had the lowest metrics against the indicators of all areas in Warwickshire.

Covid-19 has had a devastating impact on the local economy. Early on in the outbreak Stratford-on-Avon was estimated to be the local government area where it would have the fourth worst impact. More recently it has been estimated that we are the most adversely impacted in the West Midlands. Our two biggest industries are the motor industry and tourism. Tourism drives hospitality and retail. We are therefore very sensitive to the decisions on tiers. Indeed, it is obvious from the correspondence and questions I get that many people monitor the situation closely, are fully aware of the metrics, and can compare our metrics with those of other areas.

Our residents can see the economic damage being done every time they walk down Bridge Street and High Street. The number of empty shops continues to grow. Family members, friends, and neighbours are furloughed from restaurants and pubs. The RSC has its theatres closed. Shakespeare’s Birthplace Trust was able to open only one of its four properties. At one stage when I added together the number of unemployed, the number on furlough, and the number receiving Self-Employed Income Support the total came to 43 per cent of the working population of the District.

Until the announcement of the mutant strain of Covid-19 people were becoming far more concerned about the economic damage than the health impact. Although, the mental health issues caused by the length of the pandemic are an increasing factor in people’s disquiet.

This is why, when the decisions on tiers were made on 26th November and we were placed in Tier 3, we were less than happy. When the following day there was a chart in the Financial Times showing the metrics for Stratford-on-Avon were at the bottom of the areas in Tier 3 and below about 75 per cent of those in Tier 2 the credibility of the decision was suspect. So we decided to send a Judicial Review pre-action protocol letter to the Secretary of State for Health and Social Care (the DHSC). This was not a decision taken lightly but was fully and unanimously supported by our Cabinet.

Subsequent comments I received indicate there was real anger locally about being in Tier 3. The level of anger came as a surprise but reinforced the view that people are becoming more concerned about the economic impact. This was compounded and intensified when it was realised that we had been lumped in with Coventry and Solihull.

The local reaction to taking action against the government has been running more than 10 in favour for every one against. People have been coming up me in the street (as close as social distancing will allow) to congratulate me on taking the action we did.

I would draw three obvious conclusions from this experience:

  • It is important to make decisions based on areas people can identify with, rather than areas based on administrative convenience. The more local the better.
  • Decisions that directly impact people will be very closely scrutinised and need to be capable of withstanding analysis by intelligent and capable people.
  • Peoples views of what is important change over time and as a result of experience.

It is gratifying that in the latest round of decisions on tiers, lower-tier local government areas have been considered separately. Disappointingly, all our metrics have gone up so we have not yet benefitted. The message has, however, got through.

Covid-19 has had a huge impact on the District Council finances. It has cost us about £7.5 million. We are now left with a funding gap of about £4 million per annum out of a net budget of about £16 million. We have a substantial amount of commercial income from things like car parks. This has taken a very big hit. We are currently working up our five-year Medium Term Financial Strategy and, by exhausting our reserves we can get through the next 5 years. However, what this means is that many of the things we want to do to enable place-shaping and underpin economic development and recovery have been squeezed out. This is far from ideal. We have, under the current government constraints, very limited room to increase the Council Tax. Much as I don’t like the idea of increasing Council Tax if it is a choice between doing that and constraining investing in economic development and the recovery then that is a choice I would make.

On a very positive note, the response of councillors, especially my fellow cabinet members and officers, has been superb. Flexible, responsive, and always willing to go the extra mile.

Stratford on Avon has always been a prosperous district; over the next two years at least our local economy will be hit very hard. I never thought that we may need to be part of the “levelling up” agenda.

2020 was the year everything changed.

Harry Fone: How to avoid Croydon’s fate

3 Dec

Harry Fone is grassroots campaign manager for the TaxPayers’ Alliance.

Like Northamptonshire before it, Croydon Council has declared itself bankrupt. But what went wrong? Many blame austerity and coronavirus, but this is too simplistic. Through local activists, the Croydon Constitutionalists, I’ve learned of the hapless housing project, ill-judged investments, and wanton waste that sealed the council’s fate.

Is austerity to blame?

Croydon Council’s leader, Hamida Ali, has stated “austerity” is a major reason behind the bankruptcy. On the face of it, she may have a point. As the Council’s 2019-20 statement of accounts makes crystal clear, “since 2010, when austerity began, Croydon has seen its funding from Central Government reduce by 75 per cent”.

But compare it to other London boroughs and a fuller picture emerges. Between 1997 and 2010, before the cuts, Croydon Council raised rates 13 out of 14 years, leaving it with the seventh most expensive council tax charges in London. Residents were consistently asked to dig deeper into their pockets long before the coalition government. Looking at a 20 year period from 1997 to 2017, Council Tax rose in Croydon by 69.3 per cent in real terms, the third highest rise in London and compared to a city-wide average of 42 per cent. Most London councils have lower Council Tax bills and avoided bankruptcy. What’s special about Croydon?

Brick by Brick

One factor that cannot be ignored dates back to 2015. Croydon Council set up Brick by Brick (BBB), a company tasked with building 500 homes a year. Financed by £214 million worth of council loans, BBB made a loss of £774,952 in March 2019, despite obtaining some sites for just £1. It’s yet to make a single repayment on money it borrowed, having completed ony 283 homes in that time (less than half of which are deemed affordable). The latest set of accounts are still pending, but with profits forecast at a measly £250,000, Croydon residents will be waiting a long time for the homes they were promised or the loans to be repaid in full.

PwC summed it up, explaining, “the delays in bringing new homes to the market has put the Council at serious financial risk and resulted in only a handful of new homes being available. As a consequence, savings have not been made.” With almost nothing to show after five years and millions of pounds potentially down the drain, Brick for Brick has undoubtedly had a big role to play in Croydon Council’s downfall.

Risky business

Commercial property investments also failed to deliver. Take just two examples: the Croydon Park Hotel and the Colonnades retail park. Using the Public Works Loan Board (PWLB), the council purchased these for a cool £80 million. The hotel is now in administration and, given the current circumstances, the future of the Colonnades doesn’t look rosy either. But again it’s not simply about covid. As my colleague, Jeremy Hutton, explained in his analysis of local authority commercial property investments, high street retail investments were already struggling before the pandemic.

Frankly, access to loans from the PWLB was all too easy. One former council leader described the process as “absolutely bonkers” having requested hundreds of millions of pounds only to receive it “three days later.” No wonder then the Treasury has just this month imposed tighter restrictions on lending. Sadly it came too late for Croydon. The most recent accounts show the council has over £900 million of outstanding PWLB loans. Their investment fund is forecast to deliver a net return of only £82,000 in 2020-21. Once interest payments are factored in, the council could end up making a loss of around half a million pounds.

A tale of two chief executives

Colm Lacey is chief executive and founding director of underperforming Brick by Brick. He was remunerated to the tune of nearly £150,000 in 2018-19, with fellow directors also enjoying six-figure pay packets.

What did a recent strategic review by PwC make of them? It was scathing. “There is currently no financially qualified member of the Board to provide challenge to BBB’s reported performance or forecasts,” they said, citing the “unavailability of robust financial information from BBB.”

A glance at Mr Lacey’s LinkedIn profile may explain why. It shows a long career in the public sector, with no hint of financial qualifications aside from a degree in Economics and Political Science. If PwC’s assessment is correct, then two questions spring to mind. One, why was he chosen for this role? Secondly, why didn’t he appoint at least one financially literate member to the board? Those responsible for his appointment must have their feet held to the fire.

Until September this year, Jo Negrini was chief executive of Croydon Council. Paid £218,358 in 2019-20, she was one of 15 staff receiving over £100,000. Despite overseeing a rise in debt to £1.5 billion that led to the council’s downfall, she left with a severance package reportedly worth £440,000.

As Council Tax increased, both Negrini and Lacey repeatedly failed local residents, but enjoyed gold plated pay at their expense. Council leaders shouldn’t assume that paying top dollar for chief executives will benefit taxpayers. All too often it ends up costing residents dear.

What can councils learn from Croydon?

For starters, councils should only enter into the investment world if they know what they’re doing. They must remember that public money is at serious risk. It’s very welcome that the Treasury is imposing restrictions on PWLB loans; councils should seek to diversify portfolios and demonstrate financial expertise before any investments are undertaken.

Perhaps most importantly of all, council bosses must focus on their statutory responsibilities and stop trying to reinvent the wheel. They must deliver the best services at the best possible value to residents, relentlessly eradicating waste and ramping up efficiency, in order to keep any rises in council tax to an absolute minimum. There are plenty of places they can make a start. By abiding by these simple principles, councils can avoid Croydon’s fate.

“The Chancellor has passed the responsibility to us. Can’t complain.” Council leaders respond to the Spending Review.

27 Nov

Thespians are well known for their fear of the name Macbeth. Should someone utter it, the culprit must exit the theatre, spin around three times, spit, curse and then knock on the theatre door to be allowed back in. The correct form is to refer to “the Scottish play”. For council finance officers, the current equivalent is to utter a reference to “Croydon.” Best to protect sensibilities by reference to “a certain south London borough.” Croydon Council has not actually gone bankrupt – neither did Northamptonshire. But it is facing a struggle to balance its budget and thus avoid the men from the Ministry swooping in to take charge. Thus we have a Labour council, a Labour council, obliged to introduce what The Guardian describes as “drastic cuts.” Other councils – especially those who undertook imprudent investments in commercial property – are anxious to avoid getting into the same position.

Thus the Spending Review, which Rishi Sunak, the Chancellor of the Exchequer, delivered on Wednesday was listened to with particular interest by decision-makers in local government. I have spoken to several Conservative council leaders to gauge the reaction. They included district, county and unitary leaders from north and south. One caveat was that they tended to be waiting to see the “small print” – specifically details of what funding individual local authorities will get when the grant settlement is revealed next month. But there was a favourable reaction to the broad headline announcements. The Chancellor said:

“Local authorities will have extra flexibility for Council Tax and Adult Social Care precept which together with £300 million of new grant funding gives them access to an extra billion pounds to fund social care.”

Looking at The Treasury documents this turns out to mean that “upper tier” local authorities, that do most of the spending, will be able to increase Council Tax next year by up to five per cent – without needing a referendum. That is well above inflation (which is currently under one per cent). The distinction between Council Tax and the “Adult Social Care precept” is illusory – even more so than the distinction between Income Tax and National Insurance. It all goes into the general pot, not a special fund. Nor do councils have to impose either element of Council Tax increase. Some try to imply otherwise with references about applying the “adult social care precept on behalf of the Government”. The Government tends to be indulgent to misleading references of this nature.

Whatever bureaucratic locutions are resorted to, some of the council leaders I spoke to were nervous that people would still notice if their bills were pushed up. One council leader in the south said she would “probably” increase to the maximum allowed, but was nervous about the backlash:

“It’s shifting responsibility to us. It’s allowing us to raise more money. We can’t complain about that. But it will not be an easy decision. Many people are losing jobs. You have households that used to have two incomes coming in with only one. We have people taking wage cuts. The self-employed being hit. For Conservatives putting up the Council Tax is not something we like doing anyway. But if households incomes are rising they shrug it off. But if the family budget is already being squeezed there is more resentment. The alternative would be some difficult choices that would involve scaling back what we do.”

The public sector pay freeze will help. One county council leader from the north said:

“The payroll is a huge cost. We had budgeted for a two per cent increase. So a freeze will make a big difference. That’s more important to us than the extra flexibility on Council Tax – which I will try really hard to avoid using, anyway.”

One of the grim consequences of the lockdown has been an increase in the number of children in care. Domestic violence has increased and thus the “safeguarding” requirement for children to be taken from their families. This has huge financial implications. One council leader told me:

“If people thought about the full picture there would be much more opposition to lockdowns. The full consequences are not appreciated. I do get angry about it. We are trying to do more with early intervention. Once children are in the care system it’s very difficult. Placing them for adoption is very slow if it ever happens, there are all these bureaucratic obstacles. Sort of institutional resistance. The alternative of putting the children back with their families is dangerous. So they just get stuck in care.”

Even when coronavirus is eliminated there is some doubt as to what being “back to normal” will mean. One London borough council leader said:

“The statement did give some recognition that the problems won’t all disappear in April. That there will be an impact for a few more months. But if it is long term, I ask myself if our parking revenues will ever get back to normal. With the Council Tax revenues if people lose their jobs then it gets paid in benefits. What’s more difficult for our finances are the people who are still working but struggling. Quite a few have cancelled the direct debits and just paying when they can afford to.”

Another council leader was preparing to “go into battle” with his finance officers to resist increasing the Council Tax by the full amount:

“I will be told that if we don’t increase the Council Tax then the base will be lower which will restrict the amount of extra cash we can raise in future from these limits in percentage increases. My counter to that is that we have been increasing the number of homes and are due to do so further.”

All those I spoke to welcome the Chancellor “new Levelling Up Fund worth £4 billion.” Sunak explained that:

“Any local area will be able to bid directly to fund local projects. The fund will be managed jointly between the Treasury, the Department for Transport and the Ministry of Housing, Communities and Local Government – taking a new, holistic, place-based approach to the needs of local areas. Projects must have real impact. They must be delivered within this Parliament. And they must command local support, including from their Member of Parliament. This is about funding the infrastructure of everyday life: A new bypass. Upgraded railway stations. Less traffic. More libraries, museums, and galleries. Better high streets and town centres. This government is funding the things people want and places need.”

A council leader from the Midlands told me:

“I do like the approach of allowing local decisions on what transport improvements should be a priority. We don’t need devolution – with extra layers of metro Mayors or whatever. We need decentralisation to the local government already in place.”

Just one sour note was struck – from a “red wall” area:

“If it’s a ‘Levelling Up Fund’ then how come any council can apply? Is money from the ‘Levelling Up Fund’ going to be spent in Surrey? It’s ridiculous.”

Expectations are important. The message I got was that though the Chancellor’s help was significant there was still a shortfall that they would have to cope with. But then they never imagined that he would pick up the whole tab for the pandemic. The consensus among council leaders is that they have been left with a difficult challenge – but not an impossible one. Should they need inspiration, they can look at what has happened in Croydon should they fail.

Sunak opts to suck it and see

25 Nov

We must be thankful that no-one is forecasting that Government borrowing will rise to record levels this year.  Or Rishi Sunak wouldn’t have been in a position to announce that Government spending will rise at its fastest rate for 15 years.

Apologies for the sarcasm – which isn’t aimed at the Chancellor’s measures, but is meant instead to provide an introduction to the thinking behind them.

One response to a ballooning deficit is to cut the rate of growth of spending.  That’s what the Coalition did after 2010, when the deficit hit seven per cent of GDP.

The Office for Budget Responsibility is forecasting a peak of 19 per this year.  But Sunak’s response is to raise the rate of spending.  Why?

Because in 2010 George Osborne judged the deficit to be structural (he was right), and his successor judges this one to be exceptional (he’s right, too).

It is almost entirely a product of the pandemic and what has followed.  It is in this context that the OBR forecasts the economy to shrink by 11 per cent this year and unemployment to hit 2.6 million next year.

In these circumstances, the Chancellor has found it impossible to produce the four year spending review he hoped for, and has been forced to issue one for a single year instead.

Furthermore, his statement was only one side of the tax and spending coin. Today, we got the spending.  In the Spring, we will get the Budget – and the tax.

Given all this, it will be very odd if Sunak turns up then with large-scale tax rises to raise revenue quickly.  The foundation of his measures today appears to be: suck it and see.

Broadly speaking, the spending package suggests that the Chancellor is going for growth.  That’s the logic of the infrastructure spending, the coming review of regulation, the new northern bank and the enlarged Restart programme.

The Levelling-Up Fund is a classic Treasury exercise in the English centralist tradition, with its central feature of bids from the provinces to Westminster for money.  So it is in a country with relatively few local taxes.

On that point, Sunak announced “extra flexibility for Council Tax and Adult Social Care precept”.  Local authorities will like that, council taxpayers not so much.

It’s worth stressing that the OBR’s forecasts, like all such animals, shouldn’t be taken too seriously.  Our columnist Ryan Bourne debunked its record on this site earlier this week.

If you walk down the sunny side of the street, you will smack your lips at the thought of a Roaring Twenties effect, as employment recovers, consumers spend, the hospitality sector booms and people pile into holidays abroad.

And it may be that post-Covid changes even out for the better, with a shift in activity and spending from city centres to the suburbs and countryside, together with music, art, theatre and all the rest of it.

That might not be such a bad things for towns and their centres, at which the new Levelling Up Fund is partly aimed.  Our columnist James Frayne believes they are a core concern for provincial voters, and government listens to him.

If on the other hand you stick to the shady side, you will point to the economic equivalent of Long Covid: fearsome economic and social bills for damaged mental health, postponed operations, lost educational opportunities.

All that is a big minus for levelling-up – because it’s the disabled, poor and disadvantaged who have been hit hardest by restrictions and lockdowns, especially if they work in the private sector.

The background in recent years is not encouraging.  Since the financial crash exploded, we haven’t grown at more than 2.6 per cent a year.  That suggests recovery may be sticky.

Sunak’s persuasive manner, grip of detail and spare eloquence have served him well during this crisis.  Others holding his post would not have survived roughly ten major finance annoucements in less than a year.

It’s not as though he hasn’t sometimes had to recast his plans – as in October, when he pumped more money into his Job Support Scheme.

And if the economics of his strategy are straightforward enough, its politics was sometimes a bit odd.  If the Government’s overall plan in the short-term is expansionary, why raise the minimum wage but curb public sector pay?

If spending on nearly everything else is rising, why crack down on the 0.7 per cent aid spend?  Doing so because you think aid is wasted or the target is wasteful is one thing.

But that wasn’t the basis of Sunak’s decision – since, after all, he said that the Government intends to return to 0.7 per cent “when the fiscal situation allows”.

The Chancellor also left a big unresolved question hanging in the air.  What will the Government do about the Universal Credit uplift?  Will it be extended or not?

The sense of a statement with contradictory messages was picked up Rob Covile of the Centre for Policy Studies.  (The Treasury would do well when the Budget approaches to look at its supply side ideas.)

“Feels slightly like Treasury couldn’t decide whether the message was ‘tighten belts’ or ‘we’re still spending’,” he tweeted. “So we’re getting two or three minutes of each in turn.”

That first element in the Chancellor’s statement, plus the OBR’s horrid short-term forecasts, comes at a bad time for the Government.

For tomorrow, the toughened tiering details are announced. Lots of Conservative MPs won’t like them.  The detail of which tiers apply in which areas will be published, too.  Many Tory MPs will like those even less.

Graham Brady, Steve Baker, Mark Harper, and the Covid Recovery Group will say that the economic damage of restrictions is so severe that the Commons should not vote for more – at least, without an impact assessment.

They may not be alone.  “These measures may be a short-term strategy, but they cannot be a long-term one,” Jeremy Wright declared in the Commons during the recent debate on the lockdown regulations.

He and Edward Timpson (another ex-Minister) plus other MPs backed the Government but, sounded a cautionary note.

Will the prospect of vaccines be sufficient to rally the doubters round?  Or will they take a leaf from the book of Theresa May, who savaged the regulations during the same debate?

We shall see – but Ministers are not helping themselves by dodging requests for that impact assessment, urged by this site and others, and the subject of a dogged campaign by Mel Stride, Chair of the Treasury Select Committee.

All in all, Sunak is shaping up to go for growth.  Good for him.  Nonetheless, he must watch and wait to see how and when the economy rebounds.  Brady and company are less patient.

Peter Golds: The skewed enforcement priorities of Tower Hamlets Council

21 Oct

Cllr Peter Golds is a councillor in Tower Hamlets. He has served as a London councillor for almost 21 years and is a Board Member of the Conservative Councillors Association.

Here are two matters of concern taking place on the same road. They give an indication as to why my local authority has problems with the public.

My first example concerns a single mother living in a house with her daughter. She is qualified in both banking and architecture and holds a responsible job with a major corporation. In order to work, she employs a properly registered child-minder and ensures that all tax and national insurance with regard to the child-minder is paid and correctly recorded. She is, by any standard, a model citizen and is both active and popular within her local community.

A while ago, and to her surprise, she suddenly received correspondence from the borough’s council tax that she was living with a person aged over 18. She was quickly able to prove that she lived with her daughter and a dog.

Next, and very disturbingly, she received an early morning visit from two officers from the council’s social services. They were checking allegations of “neglect of her child” and “illegal employment.” This was easily proven to be false, but the resident lost a day’s work. I was approached, as the local councillor, to see where the council stood in this. I got no further than the council has to investigate all allegations.

This was followed by a formal visit from Ofsted investigating a complaint that this resident was operating an “unlicensed child care facility,” where a child was being neglected. This was again quickly proven to be untrue, confirming the presence at the address of a registered carer looking after a single child, at home, whilst the parent was at work.

Then she began to receive, on a daily basis, addressed envelopes with nothing inside. The police were contacted but undertook no investigation despite being made aware that this appeared to be part of an ongoing campaign of harassment of a single woman living alone with a child.

The most recent problem she had was while replacing rear doors and windows. To ensure this was in order she obtained a “certificate of lawfulness” from the council’s planning department and went ahead. One morning recently, a man appeared at her front door, saying that he was from Tower Hamlets council’s building control department investigating a complaint and demanding entrance to view the work. He flashed an official council pass, but would not permit the resident to photograph the pass or take details. After a stand off, she secured the name of the officer. Despite producing the council’s certificate of lawfulness, an inspection took place. It is obvious that somebody, somewhere, aware that planning was completely lawful, complained to building control, who appeared not to work with planning within the same local authority.

This completely law-abiding and popular local citizen, facing continuous harassment and vexatious complaints, then sought information as to the source of these incidents via the Freedom of Information process. This has been refused by Tower Hamlets Council. The question I have asked is how much longer will this continue and how many other council departments will be involved? Equally, the police should be taking this seriously. We have a single, law-abiding woman, living with a child, facing an ongoing and organised campaign of harassment and threats. She deserves more than a CAD number.

Further up the same road is a small housing development called Thames Circle. It includes some flats and a row of town houses around a circle. Within the area is an uncompleted piece of land for which planning permission for a block of flats was given eighteen years ago – but the consent lapsed. For a period, portacabins were placed in this area and used by a local school on a temporary planning consent. The council declined to extend the temporary planning consent for the school and it moved elsewhere.

A few months ago portacabins arrived on the site and a takeaway kitchen commenced operation. This involved preparing food for adjoining residencies and a local Church, and the distribution of the food by car, scooter, and bicycle. The scooters are all badged with an L plate. Thames Circle is off a busy major A road, with bus routes, one of which operates 24/7 and on a curve. Scooters and cycles moving in and out of the development, dodging traffic and ignoring the local speed limit, on top of the emissions and smell from the kitchens do not add to the quality of life.

I met residents and made enquiries of the council who wrote to me to confirm that the site does not have planning consent for the operation of the kitchens. The council has “an ongoing inspection concerning smoke complaints” and no licence has been issued to the operator regarding licensable activities. In addition, I discovered that there is no traffic management scheme. The operator ultimately applied for a retrospective planning application in June but there was “missing information that would be required to be able to make it valid and add to the planning register.”

In short, this is a business operating without planning or licensing, while the council took no enforcement action whatsoever.

We have two important council concerns on the same road, just a short distance apart. There is a completely innocent woman facing a campaign of harassment by a person or persons who are manipulating the council to harass a resident, whilst the same council departments are unable to deal with an illegal operation.

Across the borough, Tower Hamlets Council spent, between January 2019 and August 2020, the sum of £2,660,000 on “liveable streets” projects. Of that sum, £978,000 was spent on preliminary design to “inform consultation workshops.” The result has been chaos in parts of the borough, with roads suddenly closed and concerns about access to emergency vehicles.

Yet on the Isle of Dogs, there is a road where residents lives are a misery due to anti-social behaviour which can be traced to parking bays, and avoided by residents because of drug dealers. Residents, supported by the police, have been asking the council to remove the parking bays and extend the pavement. Despite spending over £2.5 million on “liveable streets” the council response to these residents with genuine problems is – organise a petition…

Kevin Hollinrake: Replacing council tax and stamp duty should be part of the roadmap for a fairer Britain

24 Sep

Kevin Hollinrake is MP for Thirsk and Malton.

The battle against the Coronavirus is far from over, but as we begin to look at how to achieve what the Prime Minister called “building back better”, the time is right to think about what we as Conservatives believe “better” really means.

For me that must include creating a fairer society. By hitting the most vulnerable groups hardest, Covid-19 has sharply exposed the profound inequalities that exist in Britain. These are divides that a modern Conservative Party must be committed to eradicating. Now is the moment to do so, and as a fundamental part of that we have to look at how we tax people.

While it might not be the first thing that comes to mind, replacing council tax and stamp duty should be part of the roadmap for a fairer Britain. It’s a fundamental principle of taxation that taxes should be simple, transparent and fair, yet these taxes achieve none of those things.

Council tax is based on property values that are thirty years out of date, taxes low-value homes at a much higher rate than high-value properties and pushes millions of households into debt. It is emblematic of a broken system that is no longer fit for purpose.

Ultimately these taxes are unfair, complicated and block aspiration. Unfair because the poorest find themselves hit hardest. Complicated because they are difficult to understand and command an intricate web of bureaucracy to administer. And they hinder aspiration by taxing property transactions and discouraging people from moving home.

Since being elected to Thirsk and Malton in 2015, and as Chair of the APPG on poverty, I have seen first-hand how council tax inflicts immense suffering on some of our most vulnerable citizens while failing to fulfil the most basic tasks of a functioning property tax.

It has a devastating impact on low-income households, who if they are unable to pay are aggressively pursued by local authorities and debt collection authorities – and in some cases even imprisoned. According to Citizens Advice, 40 per cent of problem debt can be apportioned to council tax, up from 21 per cent in 2011. The Covid-19 crisis has only exacerbated the situation, with an extra £700 million in council tax debt accrued by 800,000 struggling UK households since March.

As an officer of the APPG on Land Value Capture and a former member of Parliament’s Housing, Communities and Local Government (HCLG) Select Committee, I’ve become depressingly familiar with council tax’s many structural flaws. Chief among these is its failure to keep up with the substantial increases in property values that have taken place in recent decades, particularly in London and the South East.

This has deprived the Treasury of crucial tax revenues. While it is right that property owners are able to enjoy the fruits of their investment, it is only fair that in return they are taxed on the actual – rather than 1991 – valuations of their homes.

I have come to accept that council tax is in need of replacement – the problems will not be solved simply by adding one or two more property bands. I was therefore delighted to discover that a new grassroots campaign, Fairer Share, has put forward credible and costed proposals to do just that. It proposes replacing council tax and stamp duty with a proportional property tax (PPT) which would tax all homes at exactly the same rate based on up-to-date property values.

These proposals have two key merits in comparison to council tax: they are fairer and they are simpler. By taxing homeowners on current property values, they would ensure that wealthy homeowners pay an amount of tax that actually reflects the value of their homes while providing a much-needed tax cut to millions of low- and middle-income households.

This would give a real boost to the UK’s regions, the majority of which are hugely disadvantaged by the current system. This is in stark contrast to the status quo, under which a person living in a property worth £100,000 pays around five times more tax as a share of property value than someone living in a property worth £1 million – the equivalent of charging more VAT on a Ford than on a Ferrari.

In place of the administrative challenge of council tax, in which properties are taxed through a confusing and distorting system of bands and exemptions, the PPT would apply a single rate of tax – 0.48 per cent of property value – to all homes. Owners rather than tenants would be responsible for the tax, removing over 8.7 million households from property tax altogether and saving councils an annual £400 million in administrative costs.

To incentivise more efficient usage of existing property, a surcharge on second, empty and offshore-owned homes would be introduced, as well as on plots of land that received council planning permission yet have been left vacant by developers. The policy is revenue neutral – raising the same amount of money for the Treasury as the scrapped taxes currently do.

To maintain the important democratic link between local expenditure and local taxation, Fairer Share recommends that the 0.48 per cent rate should consist of two components. A fixed national rate (0.32 per cent) which would go to central government for redistribution and an initial floating local rate (0.16 per cent) which would go straight to the local authority and could subsequently be moved up or down by that authority. In this way local authorities retain flexibility over taxation and voters can still judge them on value for money.

And importantly, this approach includes the complete abolition of stamp duty land tax (SDLT) on owner-occupied residential property. By taxing properties when they change hands, stamp duty discourages homeowners from moving – such as a young household looking to buy a family home or an older couple looking to downsize – and prevents the efficient use of our existing supply of housing. This also has wider economic consequences when, for example, it leads to people turning down job opportunities outside of their area due to the cost of moving home.

The Government has already acknowledged the harm stamp duty causes by introducing numerous exemptions from the tax, including most recently a temporary holiday on all purchases up to £500,000 announced last month. With the UK likely facing an extended economic downturn, the Chancellor should now take further action to support the housing market by fully abolishing stamp duty on owner-occupied property.

While replacing taxes as fundamental as council tax and stamp duty – responsible for raising £50 billion annually ­- is no walk in the park, I firmly believe it is the right thing to do. The current system of council tax and stamp duty is simply unfair and inefficient.

Local authority finances have been hit hard recently. Replacing these taxes with a better system will put them on a stronger foundation for the future. The PPT is simpler and easier to operate, and revaluations can be carried out regularly, quickly and easily using the latest technology and on a desktop basis.

The Fairer Share campaign has provided us with an excellent blueprint for reform. I urge the Chancellor to take its proposals seriously, starting by announcing a fundamental review of council tax at this year’s Autumn Budget. This would mirror the Treasury’s ongoing review of business rates, the other half of our dysfunctional property tax system.

While it would take time to get the details right, introducing a proportional tax on property in the UK would be an excellent way for our party to demonstrate our commitment to “levelling up” and to do something meaningful for the many new constituencies we have won across the country.

I urge anyone interested in Fairer Share’s proposals to visit their website here or get in touch with me, and to share this article and the wider campaign with their networks. I will also be hosting a live webinar and Q&A with the Fairer Share team in the coming weeks – details will be posted on my website in due course.