Liberal
Democrats welcome the intention of the consultation paper to simplify the local
Government Finance system in Wales. We
believe that for far too long the system has constrained local authorities
rather than enabled them. It has failed
to achieve accountability and it has failed to reflect a basic principle of
taxation that it should relate to the ability to pay.
We
support the new approach to local Authority capital spending which will give
Councils the flexibility to invest in new capital assets without the
artificially imposed ceilings of credit approvals and which is based on a
responsible approach to debt management.
We agree that policy agreements should be the central plank for ensuring
local expenditure reflects both local and national priorities.
Liberal Democrats strongly believe that in order to tackle the backlog of repair in Council housing the Public Sector Borrowing Requirement rules should be changed so as to free local Councils to borrow against their income streams to invest in their housing stock. It may be that a Council owned housing company with equal tenant and community representation may be the best vehicle for this. We would urge you to press the Treasury on this point.
We
believe that there is a need for an objective assessment of the real costs of
PFI against that of public borrowing.
At present it is used very much as a way around Treasury PSBR rules but
does not offer best value in financial terms.
It is the public sector equivalent of going to a loan shark and should
be avoided if possible.
We
believe that Council Tax, because it is a property-based tax, is a crude way of
raising income. This is because it
assesses wealth by ownership of property rather than income. We believe that it
should be replaced by a local income tax based on the ability to pay and which
could be varied against National Income Tax so as to allow Councils to collect
a greater proportion of their finance locally without penalising taxpayers.
This would also help to reduce the gearing effect.
Revaluation
may improve the fairness of Council Tax but could be a political timebomb
creating huge shifts in tax burdens for communities at any one time. If we are to retain Council Tax it is better
to change the criteria for appeal against Council Tax valuations to allow more
scope for tribunals to take changes in local circumstance into account.
Councils
should be required to publish annually a report on local taxes raised and how
all the Council’s income has been spent against its performance
objectives. Taxpayers should be
consulted on future levels of Council Tax in the same way as Business
ratepayers. The process of consultation
should be set out in a scheme, which must be robust, inclusive, extensive and
informative. Each Council’s scheme
should be subject to approval by the Assembly.
We
believe that Supplementary Business Rates fail to address the need for local
accountability in the levying of taxation on businesses. Despite the safeguards and the hypothecation
involved they will be an additional burden which cannot be justified given the
present economic climate and the current tax burden on businesses. We support the more formal partnership and
consultative arrangements but they should form part of a fundamental
reappraisal of business rates. This
should allow the business rate to be set and retained locally with the present
redistribution system being replaced by adjustments in RSG to reflect different
tax bases on an authority by authority basis.
Alternatively
and preferably, the business rate should be replaced by a new tax based on land
values, which is set and collected locally. Site Value Rating (SVR) is the term
used for Land Value Taxation (LVT) when applied as a form of local government
finance. In other respects SVR works exactly like LVT but many believe that LVT
works best when *every* tier of government is allowed to 'precept' the rating
authority for a share of land-value revenue.
SVR/LVT
is a tax levied annually (just like 'normal' rates) but on the *owners* of
sites, whereas rates are now levied on occupiers. The site value is assessed as
the annual rent that could be obtained on the open market if the site itself
were 'undeveloped' (i.e. in a virgin state) but with its surroundings in their
*actual* state, at 'highest and best use'. in accordance with the Local/Unitary
Plan. This element of the 'total' rental value of the site (basically what is
used now for UBR) owes nothing to the efforts of the owner (unlike what he puts
on it or does to it). It could also be called 'location value'.
It
is used without many problems in New Zealand, Australia, South Africa, Denmark,
some cities in the US, several central African and Caribbean countries and was
recently introduced to Estonia (with the help of the Chief Exec of a London
Borough!) and some Russian cities
It
is (once introduced) cheaper to administer than 'normal' rates, because *no*
inspection of buildings, turnover of businesses, etc is required. Some claim by
a factor of 4-5 times cheaper (based on several studies, since GIS made 'mass
assessment' by computer easier to validate).
As an important consequence, re-valuations
can be more frequent (usually annual) than now, which reduces the likelihood of
injustices caused by out-of-date assessments. [Currently 80% of UBR valuations
are appealed against by businesses!]
It
gives an incentive to owners to develop their sites, in accordance with the
Plan, in order to earn sufficient income to pay the tax. Thus it is an
extremely effective instrument of economic policy in terms of urban renewal
(Lord Rogers agreed in his Urban Task Force report). In the same way, it
encourages owners to maintain the structures on sites in good repair, since any
actual reduction in earning power of a site reduces profit but not tax. SVR
takes no account of the *actual* use to which a site is put - only the
potential allowable use.
It
gives added force to democratically approved Development Plans, at every level.
Instead of giving a 'jackpot prize' with every planning permission, a tax rise
follows the decision. But those who are harmed by a decision will also be
compensated automatically by a reduction in tax.
Thus
proposals will be debated more on their merits, less on who wins or loses.
It
reduces urban sprawl and tends to concentrate development near transport
facilities and modal inter-changes, where land values are naturally highest.
This supports sustainable development (even when the Local Plan is less than
imaginative in this respect). By helping bring 'brown' land into re-use, it
reduces pressure on green fields.
It
helps a community to retain the wealth that it creates. Speculators are usually
absentee landlords. The incentive to develop every small site rather than wait
a few years (at no cost to the owner) to assemble a large site favours *local*
small builders, business occupiers and labour. It keeps land (hence house and
shop rent) prices lower than they would otherwise be (supply & demand).
If
a local authority has a booming economy, it will have a far higher tax base
than an area with low land values, which will have to set a higher rate than
its rich neighbour. So what is needed is LVT at national (or perhaps regional)
level, to ensure that there is a more equal spread of wealth.
In
relation to the section on schools we support the identification of money
allocated to schools through the SSA formula as a means of parents measuring
the performance of their local Council.
We also agree that the measurement of outcomes is important. Ideally we
need to measure both outcomes and inputs and assess performance against both in
parallel.
Finally,
if we are to encourage greater use of “special expenses” we must ensure that
areas with a County Council, which do not have Community Councils, are not
penalised by this measure. It will
inevitably lead to an increase in Council Tax for these areas who will be
paying more for services delivered elsewhere by a Community Council without the
same level of accountability. We
support the creation of new Community Councils in both rural and urban areas to
tackle this problem. However, discretion on “special expenses” should be left
with County Councils. Any new duty
should only apply where the whole of a Council’s area is parished and an
agreement on a particular service has been reached with Community Councils
across the area.
Peter
Black AM
Liberal
Democrat Spokesperson on Local Government
11
October 2000