Contact: Paul Carey-Kent, Deputy Treasurer, 01962 847525

1 Introduction

1.1 Regulations will become effective from 18 December 2003 under the Local Government Act 2003 to enable local authorities to reduce the discount on the council tax, currently allowed to owners of second homes, from 50% to as low as 10%.

1.2 It is likely that this will take effect from 1 April 2004. Local authorities will retain the additional income raised. It will not be matched by a corresponding reduction in Government grant.

1.3 The Regulations will share the additional income in the Hampshire area between the billing authorities (the districts and unitary authorities) and the major precepting authorities (the Police Authority, Hampshire Fire and Rescue Authority and Hampshire County Council) in proportion to their council taxes.

2 Hampshire County Council

2.1 The County Council's Cabinet supports the reduction of the discount and has agreed that its share of any proceeds should be used for countywide priorities for community services which could include accredited community support officers.

2.2 It also supports the development of a protocol with the billing authorities to maximise the additional income and its use.

3 Distribution of second homes and implications

3.1 There are around 4,000 second homes in the County Council area; and just under 800 in the two city areas (these numbers are likely to reduce because they currently include tied accommodation for which the 50% discount continues). Possible additional income could be substantial, around say £1m in the County Council area, possibly a further £0.25m from the unitary authorities.

3.2 The number of second homes in each authority and the possible additional income are set out in the Appendix (Tables 1 and 2) though further work is required to estimate the potential additional income more accurately. This has been calculated based on 2003/04. The Fire Authority would receive approximately half that of the Police Authority ie £100,000 (the reduction being from the current constituent authorities).

3.3 Some district councils have relatively few second homes, with less than 100 in Gosport, Hart and Rushmoor. New Forest, on the other hand, has more than 1,000. As a result, the benefits of reducing the discount on second homes will be more significant for some district councils than others, particularly as over 85% of the additional income raised will pass to the major precepting authorities (the county, police and fire authorities) because their council taxes account for the major part of the council tax.

3.4 In some cases, the total additional income 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. It may be necessary to agree in the proposed protocol that the major precepting authorities share in the costs of such districts.

4 Use of the additional income

4.1 Under the Regulations, the additional income from reducing the discount on second homes will pass automatically to each authority (district, unitary, county, police and fire) in proportion to their council tax per band D through the tax base used for council tax setting purposes. Each authority will then be able to decide how they wish to use the additional income.

5 Protocol

5.1 The Hampshire and Isle of Wight Chief Financial Officers Association has developed some initial thoughts on a possible protocol following consultation started last year.

5.2 If authorities in the Hampshire area agree, it would be possible to develop a protocol covering:

· whether to adopt a common policy to apply the reduced discount on second homes with effect from 1 April 2004

· support for the administrative costs of billing authorities with relatively few second homes

· pooling of the additional income by all authorities, after allowing for agreed administrative costs, for use on agreed priorities.

6 District Council considerations

6.1 The District Council finance officers have a general preference to reduce the discount to 25% rather than 10%. There was concern that a 10% rate could be difficult to implement successfully if couples claimed that one person was living in each property in order to claim single occupier discount of 25% or might switch their choice of first or second homes, if other authorities were not implementing the 10% rate. If this behaviour was exhibited the effect in either case is to reduce the number of second homes. More single occupancy homes would leave the tax base unchanged but potential additional income not subject to equalisation would be lost. Second homes in Hampshire reclassified as first homes could lead to more council tax collected, but again the taxbase for grant redistribution purposes will increase to compensate.

6.2 District Councils also expressed the view that they would wish to see the additional income spent in their local area. However the Government's intention in the regulations is to ensure that both billing and major precepting authorities benefit financially from the billing authority's decision. A condition of the protocol that the precepting authority's share of the additional income be spent in the billing area from which it derived would make the development of a protocol less attractive to the precepting authorities.

7 Hampshire and Isle of Wight Local Authorities Association (HIOWLA)

7.1 The development of a protocol and initial views were considered by HIOWLA on 28 November 2003. The district councils wished to promote affordable housing for key workers by possibly creating shared equity purchase schemes rather than housing to let, in partnership with housing associations. The legal power to share equity will need examination.

7.2 Some smaller authorities may not wish to participate but a further meeting is being considered and New Forest, East Hampshire and Winchester appear willing to pilot and develop the protocol further with the County Council.

7.3 The key priority will be to determine an agreement to reduce discounts from 1 April 2004 so that it can be built in to the taxbase for 2004/05, which has to be declared by 31 January 2004. This would leave time for the use of the additional income to be considered.

8 Implications for the Fire and Rescue Authority

8.1 The Authority will move to precepting status from 1 April 2004 and it will be eligible to receive a share of the additional income in the county and city council areas of Hampshire.

8.2 The Authority could seek to use its share of any potential additional income either

· to reduce the council tax rise or

· to support additional spending

8.3 The Authority's potential maximum share would be around £100,000 - perhaps £85,000 if the full reduction in discount is not made.

8.4 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. Any decisions to reduce the discount for second homes will benefit the precepting authorities financially more than each individual district council. Unless the district council has strong policy grounds for wanting to reduce their 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 precepting authorities share of the additional income is spent.

8.5 The Association did not specifically deal with the Authority's position, but that can be built in to a future meeting as far as the Hampshire County Council area is concerned. The Authority would need to make its own arrangements with the two unitary city councils.

8.6 There remain a number of practical difficulties to gain access and agreement to the use of this additional income. Any additional income will be helpful to the Authority in setting its future budgets but it may not be prudent to make firm budget plans for 2004/05 as it will require quick action and no dissent to achieve full agreement with all the authorities concerned in time.

8.7 In the context of the specific pressures in the 2004/05 budget, therefore, it could appear best not to plan to use such income but to put into reserves to meet pressures in the year.

9 European convention on Human Rights and the Human Right Act 1998

9.1 The proposals within this report are compatible with the provision of the European Convention on human Rights and the Human Rights Act 1998.

Recommendations

1 That the Authority :

i) support the development of the protocol set out in paragraph 5.2

ii) participate in future meetings to determine how to accrue and use the potential additional income

iii) encourage all district councils and Southampton and Portsmouth City Councils to reduce the discounts for council tax on second homes from 50% to 10%

iv) determine its use of any additional income after the billing authorities have made their decisions, but encourage those decisions to be made for 1 April 2004 if possible

v) add the Authority's own share of any additional income to reserves in 2004/05, but budget for it from 2005/06 onwards

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.

TITLE

None

Appendix

Number of second homes and possible additional income

NB: Tables 1 and 2 are likely to be overestimates 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).