Contact: Jon Pittam, ext 7400

With the concurrence of the Chairman under Section 100 (B) (4) (b) of the Local Government Act 1972, this matter was included on the agenda to enable the County Council to respond formally to the consultation paper by the deadline date of 29 October 2003.

1. Summary

1.1 The Government has published draft regulations for consultation on a number of council tax issues including:

· reduced discounts for second homes where the County Council will retain its share of any additional income received from reducing this discount

· billing authorities (district councils) will fund any locally defined discounts, such as for pensioners, which they wish to create

1.2 The following decisions are sought:

· the County Treasurer, in consultation with the Leader, submit a response to the Government on its consultation on the council tax regulations, based on paragraph 2 of the report

· that concern be expressed to the Government that it has decided to delay any changes to council tax bands, or the ratio between them, before the 2007 revaluation for the reasons set out in paragraph 1.9 of the report

· that Cabinet determine whether it wishes to seek district council support to reduce the discount on second homes and apply the proceeds to reduce the council tax or to focus additional spending on countywide priorities for community services

· that the protocol be concluded with district councils to give effect to maximising additional income from reducing the council tax discount on second homes as set out in paragraph 3 of the report

· to note that district councils will be able to give discounts to pensioners from 1 April 2004 but that the regulations prescribe that the loss in council tax revenue resulting from the granting of local discounts and exemptions must be met by district councils

· to make representations to Government that it should accept its responsibility for the projected 7% council tax rise in Hampshire because of its national spending priorities and because of its reduction in grant for Hampshire, and that it should assist those pensioners who find it increasingly difficult to meet future council tax rises

· that the County Council minimises the council tax rise for all council tax payers and continues to consult fully on the options and implications for 2004/05

2. Reasons

2.1 The Office of the Deputy Prime Minister has requested responses by 29 October 2003

2.2 The Cabinet will wish to determine its response to:

· the Government's lack of action to assist council tax payers

· the development of a protocol with district councils to reduce the discount on second homes and to use the additional revenue

· the power for district councils to agree additional discounts, for example for those on low and fixed incomes, including pensioners, provided that the district council funds that loss of income from the taxbase.

3. Other options considered and rejected

3.1 Not applicable.

4. Conflicts of interest declared by the decision maker or a member or officer consulted

4.1 There may be a possible conflict of interest if a Member or Officer own second homes in Hampshire, or who are pensioners, and who might personally lose or gain financially if discounts were varied.

5. Dispensation granted by the Standards Committee

5.1 Not applicable.

6. Reason for the matter being dealt with if urgent

6.1 Not applicable.

Approved by: (signature) Date: (date of decision)

Councillor T K Thornber

Contact: Jon Pittam, ext 7400

7. Introduction

7.1 This consultation paper seeks views by 29 October 2003 on the draft regulations and directions that will give effect to Part 6 (the council tax provisions) of the Local Government Act. Comments are invited on the wording and effect of the regulations and directions. It is not a consultation exercise on the policy behind the provisions of the Act.

7.2 The policy issues are set out in Appendix 1 and relate to:

· discounts for second homes

· discounts for long-term empty property

· locally defined discounts, which could create the power to offer discounts to certain classes of council tax payers, such as pensioners, but with the cost fully met by the billing authority (district councils) and not shared with the major precepting authorities (the County Council)

· council tax enforcement

· combined fire authorities as preceptors.

7.3 The Cabinet at its meeting on 23 December 2002 considered the draft proposals to reduce the council tax discount on second homes from 50% to a minimum of 10% in all or part of a district council area. It agreed to maximise the application of additional resources to locally identified needs and priorities by partnership working. This required the development of a protocol with district councils to share the additional resources with the County Council, Hampshire Police Authority and Hampshire Fire and Rescue Authority. Whilst endorsing the broad thrust of the recommendations the Cabinet stressed that the additional revenue raised by reducing council tax discounts on second homes should be targeted in line with county-wide priorities, and not individually on a district by district basis.

7.4 Subsequently concerns about the sustainability of higher council tax rises and their effect on those with low and fixed incomes has been at the forefront of the County Council's consultation on possible budget and council tax rises for 2004/05. The Council has consulted with various stakeholder interests including residents (through the MORI community workshop), business, local strategic partnerships (other councils, health and Government agencies), the voluntary sector and the Schools Forum. The projected standstill budget increase is 4.5% but because the estimated Government grant increase is only 3.5% (at the floor - as a result of changes in the distribution formula away from the south east to urban areas in the north and midlands), the projected council tax rise is 7%. The council has also consulted on reductions in services to achieve a 5% council tax rise and a 9% council tax rise to meet new demands and pressures without compensating savings elsewhere in services. Generally the standstill position was favoured.

7.5 The projected 7% tax rise is:

· less than half the rise of 15% in 2003

· more than double the underlying rate retail price inflation and more than the County Council's own underlying cost increase of 4.5%

· after a further estimated grant loss in 2004/05 (this was estimated at £14m but will reduce to £9m if there is a higher floor for the schools budget of 3.5% , with the difference of £5m being lost in later years), equivalent to about 2.25% on council tax

· still broadly in line with the Government's own assessment of the average council tax rise of 6 to 7% in 2004/05 to implement its spending plans.

7.6 Against this background the Leader has also wished to explore what further support in discounted council tax might be possible for pensioners.

7.7 The Government is also concerned about the public reaction against further council tax rises and in response has published `Council tax - the facts' on the website of the Office of the Deputy Prime Minister. This is attached as Appendix 2.

7.8 It is disappointing that the Government, despite the County Council's representations, fail to acknowledge:

· its responsibility for the cost of living increases for pensioners and others on low and fixed incomes who are dependent upon the benefits system or who have income slightly in excess of the benefit limits. However the Government believes the best way to target assistance is through the means tested council tax benefit system and the new pensioner credit introduced on 6 October 2003 which guarantees pensioners a minimum income.

· its intention over the period of Spending Review 2002 to increase spending plans and council tax rises by 6-7%

· its redistribution of grant which has caused problems for schools and council tax rises, especially in the south east

· and although it is fair to say that every local authority has received a higher than inflation increase in funding from central Government in 2003/04, in Hampshire's case that was at the floor at 3.8% and below the Government's own requirements for this Council to increase its spending on Education and Social Services in line with its spending plan increases of 5.9% for County Council services.

7.9 Despite the introduction of the new pensioner credit it is also disappointing that the Government has decided not to change any of the council tax bands, or the ratio between them, before the 2007 revaluation. The County Council suggested that such changes should be made earlier as they would:

· remove some of the regressive nature of the council tax (ie take more account of ability to pay)

· extend the bands above the current highest band (currently everyone with a house valued more than £320,000 pays the same amount of council tax)

· help those close to the thresholds at which benefits apply.

7.10 It is also a matter of regret that the Government does not rule out the possibility of capping authorities categorised as `good' or `excellent' in the current and future comprehensive performance assessment. This `freedom' was illusory and it would be invidious if the Government capped the County Council despite removing £48m of grant in its recent formula changes. This risk seems unlikely if the council tax rise for 2004/05 is less than 10%, and very unlikely at the average of 6 to 7%.

7.11 This report develops these themes and in particular looks at the scope for:

· additional revenue from reducing the discount on council tax for second homes

· additional discounts for those on low and fixed incomes, including pensioners, from future council tax rises.

7.12 The report also deals with the questions raised in the consultation on the regulations.

8. Summary of consultation questions

A Classes of dwellings (second homes and empty properties)

8.1 The Government would welcome comments on whether the definitions of the prescribed classes of dwellings, and of job-related dwellings, are clear, workable and appropriate.

Commentary

8.2 As these are largely a matter for billing authorities, no comments are made.

B Calculation of tax base

8.3 The Government would welcome views on whether the amending regulations will ensure that the tax base of both billing authorities and major precepting authorities will reflect the additional capacity to raise tax in the light of the billing authority's decision to reduce the second home discount or reduce or remove the long term empty property discount.

Commentary

8.4 Billing authorities must calculate their tax base, (roughly speaking the band D equivalent number of dwellings in their area for which council tax is payable), in accordance with regulations. The tax base calculated by a billing authority is then notified by it to any relevant major precepting authority (the County Council, Police and Fire authorities), which aggregates the tax bases of the billing authorities in its area to arrive at its own tax base.

8.5 In calculating their tax base billing authorities adjust for the reduction in council tax due to certain discounts. The fewer council tax discounts there are, the higher the tax base. A higher tax base raises more money from council tax payers, but is reflected in the calculation of revenue support grant.

8.6 It is the Government's intention that where a billing authority chooses to reduce the second homes discount, both the billing authority and major precepting authorities should benefit from an increase in their tax base used in their council tax setting decisions. The tax base used in the calculations of revenue support grant payable to those authorities in the annual local government finance report will not be increased. Therefore both billing and major precepting authorities will benefit financially from the billing authority's decision.

8.7 Where the billing authority reduces or removes the discount for long term empty homes, this will also be taken into account in calculating the tax base for council tax setting purposes. But it will also be will be taken into account in the tax base used in revenue support grant calculations in the normal way so that, authorities will not receive the same financial benefits as with the proposal for second homes.

8.8 Under the new regulations the discount on second homes and long term empty homes can be varied across a billing authority's area or part of a billing authority's area.

8.9 The changes can be implemented for 1 April 2004.

8.10 No comments are required on the consultation as the regulations appear to give effect to what the Government and the County Council both want. In particular the sharing of the discount proportional to tax base is fully supported. However there are a number of practical issues to consider in developing a protocol with district councils, and these are considered further in paragraph 3. As their share of the proceeds could be quite small in some districts, the regulations should provide for some discretion to share the administrative costs.

C Collection fund

8.11 Views are requested on whether the new directives will ensure that the loss of revenue caused by the granting of local discounts and exemptions will be fully met by the billing authority and not shared with the major precepting authorities.

Commentary

8.12 Billing authorities will have the power to reduce the amount of council tax payable in respect to any chargeable dwelling in their area. They may reduce the tax payable to nil and apply it either on an individual or class of dwelling basis. This will allow the billing authority effectively to introduce local discounts and exemptions for local situations such as flooding and which are not already covered by the national discounts and exemptions.

8.13 It is the Government's intention that the loss in council tax revenue resulting from the granting of local discounts and exemptions must be met by the billing authority and not passed onto the major precepting authorities.

8.14 The Government does not therefore propose to require authorities to take account of any council tax reductions in their tax bases. This is because if the reductions were taken into account, this would reduce the tax bases of both billing and major precepting authorities. The Government does not want major precepting authorities to have to choose between setting lower budget requirements (while keeping council tax the same) or setting a relatively higher council tax, due to the billing authority's decision.

8.15 Instead the Government will require a billing authority to transfer from its general fund to its collection fund the amount by which the council tax has been reduced by local discounts and exemptions granted under the regulations.

8.16 This means that the billing authority (ie the district councils and not the County Council or the Police and Fire authorities) will meet the whole cost of the discounts in its own budget requirement and council tax calculations. The logic behind this is that billing authorities are responsible for administering council tax benefits and collecting council tax as well as any local council tax discounts .

8.17 As the policy is not open to consultation, the draft regulations can be supported, although again billing authorities are better placed to comment on their effect.

8.18 The practical use of such discounts, for example for pensioners, is discussed further in paragraph 4.

D Council tax enforcement

8.19 Views are requested on whether the regulations will achieve the intended objectives.

Commentary

8.20 As these matters are for billing authorities, no comments are suggested.

E Demand notices

8.21 Views are invited on whether council tax demand notices:

· should show discounts under the new regulations in the same way as previous discounts

· in areas with a combined fire authority (CFA) should show that the year on year percentage increase figures are not comparable for the CFA and the county and unitary authorities that previously funded it.

Commentary

8.22 Transparency in discounts given is to be supported. It is also sensible that the council tax bills will make clear by means of a footnote that the required year on year increase is not comparable.

8.23 The regulations provide the framework. The Cabinet will be more interested in the practical implication of the new discount arrangements. Given that the regulations give effect to the policies included in the Local Government Act it is suggested that they are generally supported in the response to the consultation.

9. Council tax on second homes

9.1 The regulations allow billing authorities to reduce the discount on the council tax on second homes for prescribed classes of dwellings from the present 50% to 10%. The additional council tax increase will be retained by local authorities proportionate to tax base. The County Council will share the extra resources with the district councils and the Police and Fire authorities.

9.2 It was not clear how the income would be identified and shared when the Government initially consulted on reducing this discount. The regulations propose that any reduction in the second home discount would be reflected in the tax base used to determine council tax and automatically shared between different tiers of local authority. Therefore there is no requirement to identify this element of the council tax base separately or propose any special arrangements for determining how any additional income should be used.

9.3 However the arguments which underpinned the original proposal to develop a protocol with the district councils still apply. It remains the case that the decision to reduce second homes discounts will benefit the County Council financially much more than each individual district council. Unless the district council has strong policy grounds for wanting to reduce second home discounts, it may not have the financial incentive to do so in the absence of a protocol which gives the district council some influence over how the County Council's share of the additional income is spent.

9.4 Some further work has been done with the Hampshire and Isle of Wight Chief Finance Officers to develop the protocol suggested in December 2002. Final details awaited the publication of the regulations. The next steps will be for the County Council to firm up the data and agree terms with the Hampshire and Isle of Wight Association or otherwise on an individual district council basis.

Hampshire Police Authority

9.5 Part of the additional income raised will be in respect of the Hampshire Police Authority's council tax. The Police Authority will share in any additional income, not only from the eleven Hampshire districts but also from Portsmouth, Southampton and the Isle of Wight (which is the area with the most second homes). As community safety may be one of the priorities for allocating the additional income, including for example police community support officers, the Police Authority and the three unitary authorities may also wish to adopt the proposed protocol for the County Council and Hampshire districts. However the Police Authority does not wish to support the direct appointment of community safety officers and will only consider accrediting schemes if local authorities meet 100% of the cost.

Hampshire Fire Authority

9.6 Combined fire authorities will have precepting status from 1 April 2004. This will add a further party to the protocol, also involving Portsmouth and Southampton.

Applying the minimum discount

9.7 The regulations will enable billing authorities to determine whether the discount should be reduced to a minimum of 10% for all second homes in its area or in part of its area. Billing authorities in Hampshire may wish to consider whether they should agree to apply the minimum discount of 10% throughout their areas to all second homes or whether they wish to retain some local discretion. This might have an impact on how the income is spent as well as the amount raised.

Administrative costs

9.8 Some Hampshire districts have relatively few second homes, as Table 1 shows.

9.9 In some cases, the total additional income raised could be less than £20,000 per annum before it is shared with the precepting authorities. It is possible that the administrative costs for these districts will account for a significant proportion of their share of the additional income and they may be unwilling to implement the reduced discount without some assistance from the precepting authorities who stand to gain most from the additional income. This could be achieved by adjusting the basis for sharing the additional income but the draft regulations will require amendment to allow this (or the precepting authorities will need to reimburse these costs from their share of the additional income).

9.10 Table 2 shows the approximate additional income that could be raised if the discount is reduced to 10% for all second homes in Hampshire. These figures are approximate as the calculations are based on assumptions about the council tax banding of the second homes.

9.11 Districts feel that this is likely to be an overestimate because of assumptions about the band distribution of second homes and the inclusion of second homes created by the requirement to occupy tied accommodation by an employer (where the 50% discount remains). The Fire Authority's share of income in 2004/05 will be at the expense of the County and City Councils.

Basis for sharing the income

9.12 The regulations specify that additional income will be shared on council tax proportions, based on the actual council taxes for the year in question.

9.13 Actual council taxes for 2003/04 would give the County Council around 77% of the additional income, the Police Authority 9% and the district councils an average of 14%. As Table 2 shows, this would leave three Hampshire districts with additional income of £5,000 or less, and only three districts would receive more than £20,000. (figures will need re working for the separation of the Fire Authority based on its notional 2003/04 council tax).

9.14 The disincentive for district councils to reduce the discount could be eased, by agreeing locally that the first £20,000, say, of additional income should be retained by the district council provided they applied the reduced discount of 10% to all second homes in their area. Any excess over £20,000 would be shared with the County Council and Police and Fire Authorities in proportion to council taxes. As the regulations do not permit that discretion over the basis of sharing the income, the precepting authorities could agree to use their share of the income to make equivalent payments to the billing authorities. The power to do so will be clarified at the same time as responding to the consultation.

Use of the additional income

9.15 The Cabinet wishes to target the additional income in line with countywide priorities at community services and local public service agreements involving the County Council, the Police Authority, the district councils and, in due course, the Hampshire Fire and Rescue Authority.

9.16 As the regulations require the additional income to be apportioned between billing and precepting authorities, each authority could decide individually how to use their additional income or simply decide not to spend it but reduce council tax by a corresponding amount. But there is an opportunity for all authorities to agree to pool the income for use towards agreed priorities. These could include, for example, police community service officers, or affordable housing, or any of the four Cabinet priorities for young people - crime and deprivation; older people; education; or transportation.

9.17 If police community service officers are included amongst the priorities for using the pooled income, it may not be necessary to offer the Hampshire Police Authority an incentive to agree to pool its share of the income except that it has different views on the operational requirements and cost effectiveness of such staff. Otherwise, it could be agreed that the Police Authority should retain the first 20%, say, of its apportioned share with the remainder pooled.

9.18 As Table 2 shows, the amounts available for each district vary significantly, from less than £15,000 in Hart to over £700,000 in New Forest. It may be necessary to consider whether some pooling of the income across district council areas may be necessary if a coherent countywide approach is to be adopted for any new initiatives. In other words, the amounts spent in each district may not necessarily match the additional income raised in that district. This will be a key consideration for the Cabinet especially with the New Forest District Council.

9.19 There are a number of practical difficulties to gain access and agreement to the additional use of the revenue and it will require quick action and no dissent to achieve full agreement with all the authorities concerned for 2004/05. This will be difficult and it may not be prudent to make budget plans on that basis at this stage.

10. Other discounts in council tax

10.1 The new regulations allow additional discounts on an individual or class of dwellings basis. The district council meets the cost and it cannot be passed on to the County Council. The Government does not want County Councils to choose between setting a lower budget requirement or setting a relatively higher council tax due to the district council decision. Paragraphs 2.12 - 2.17 set this out. There is therefore a new power to provide discounts to pensioners but this has to be exercised on a district by district basis.

10.2 It is clear the regulations were drafted to deal with local and temporary situations such as flooding, but the Government now see an advantage in transferring the onus on discounts for pensioners to local authorities by this mechanism. The Minister, Nick Raynsford, has indicated that discounts could apply to individuals, for example, because of hardship, or a class of council tax payers "such as liable persons who are over a certain age". The ODPM appear to be of the view that this is a new `freedom' for local authorities and is a `power for local authorities to decide if they think it is in the interest of their area'.

10.3 Cabinet will be aware of media reports that Kent County Council had Government agreement to grant discounts to pensioners. The ODPM has subsequently sent out a council tax information letter which states that `contrary to recent media reports, the Government has not `approved' the proposal by Kent County Council to offer discounts to pensioners paid for by other council tax payers. We are aware of no power for a county council to offer local discounts but if billing authorities (ie district councils) choose to offer such a discount they will soon be able to do so. This does not require specific government approval because the new power to create local discounts comes into force automatically on 18 November 2003'.

10.4 The Government has announced that the basic state pension will rise by £2.20 per week next April. This is in line with the 2.8% increase in the retail price index at September 2003. The projected council tax rise, at the standstill base position is £1.10 per week, or about half the increase in the basic state pension. The Government points out the new pensioner credit guarantees pensioners a minimum income and they have also increased the amount of savings pensioners may have before they are taken into account when calculating entitlement to income-related benefits, including council tax benefits. This should at least alleviate hardship cases.

10.5 There would be a number of issues to resolve if discounts on council tax were to be extended:

· getting agreement of all district councils to set similar discounts and whether applied or not - not only for the County Council council tax rise, but also for each district and parish council rise, as well as for the Police and Fire Authorities.

· agreeing what that discount should be

· considering how this would be applied in future years, or as a one-off for 2004/05 only

· assessing the administrative costs

· agreeing what power the precepting authorities (the County Council, Police and Fire authorities) might have to support the cost of the district councils in granting the discounts, and how that might be shared between them (within Hampshire - and extended to Portsmouth and Southampton applied to Fire - and further extended to the Isle of Wight if applied to Police)

· the extent to which discounts for pensioners for example might be challenged if set only in some districts within the county, or part of district areas only

· the claims of other groups on hardship grounds - low or fixed incomes, or families with little disposable income, or for example teachers and other parts of the workforce if the national pay award is between 2-3%

· whether ability to pay is considered for pensioners

· the ability of `capital rich but income poor' pensioner households to release equity by selling or re-mortgaging their homes

· future growth in the elderly populations, including people who move to Hampshire in retirement

10.6 The Council would not have increased the council tax by 15% in 2003/04 if the Government had not shifted its grant support away to urban areas in the North and Midlands. The estimated grant loss for 2004/05 is equivalent to 2.25% (assuming at 3.5% grant floor), so there is an argument for saying that the projected standstill tax rise of 6.7% is an underlying rise of 4.45%, slightly more than inflation, and certainly in line with the 4.5% cost increases facing the County Council. The 4.5% budget increase is mainly as a result of meeting the national requirement of a minimum increase in the Schools budget, and meeting the increased costs and pressures on Social Services and waste management. In other words the above inflation increase should be the responsibility of Government and central not local taxation. It could be argued that the Government should reverse the grant changes so that the council tax rise can be kept down for all tax payers as well as the Government accepting its responsibility to assist those pensioners who find it increasingly difficult to meet the council tax rises.

Section 100 D - Local Government Act 1972 - background papers

The following documents disclose facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of this report.

NB the list excludes:

Published works.

Documents which disclose exempt or confidential information as defined in the Act.

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