Rebecca Evans MS, Minister for Finance and Trefnydd
This was published under the 2016 to 2021 administration of the Welsh Government
Today I am pleased to launch a discussion paper on Reforming Local Government Finance in Wales. It brings together the findings from a suite of research exploring reform options for local taxes and the wider local government finance system, a system which supports the delivery of vital services in our communities.
Reforming local government finance in Wales: summary of findings
In Taking Wales Forward 2016-2021 we committed to making council tax fairer, and to providing support to small businesses, within a context of supporting the future sustainability of local government. We subsequently embarked upon a phased programme of action, published in early 2017. The improvements identified for shorter and medium-term delivery have since been achieved as a result of significant effort and collaboration between local government, the Welsh Government, the Welsh Local Government Association and a range of other organisations. Our accomplishments have been reported on an annual basis.
On council tax, our achievements over the course of this Senedd term include exempting young care leavers, removing the sanction of imprisonment for non-payment, improving access to discounts for people with severe mental impairments, implementing a citizen-focused protocol for managing collection and arrears, and encouraging take-up of our Council Tax Reduction Scheme and other council tax support. We have continued to deliver our Council Tax Reduction Scheme to help low-income households make ends meet, reducing bills for 285,000 households, with 220,000 paying no council tax at all.
The Council Tax Reduction Scheme has been a priority for this government, both in terms of ensuring it supports vulnerable and low-income households in the fairest way possible, and in terms of extending its reach. This is one reason why we commissioned detailed research by Policy in Practice to shed light on the impact of Universal Credit on the scheme and on patterns of council tax debt in Wales. We will need to reflect carefully on whether a more fundamental rethink of the scheme is required to mitigate the impact of choices made outside Wales. I was pleased to be able to provide additional financial support to local authorities to cover increases in the Council Tax Reduction Scheme caseload as a result of the pandemic. We will continue to monitor take-up and respond accordingly.
On non-domestic rates, we have invested significant amounts of support in targeted relief for small businesses, charities, high streets, hospitality and leisure sectors and childcare premises. We have implemented a revaluation exercise to maintain the integrity of the tax-base including providing transitional protection for ratepayers. We are putting in place measures to tackle non-domestic rates avoidance. For 2021-22, we are also freezing the non-domestic rates multiplier ensuring that, prior to applying reliefs, no ratepayers will see an increase in their rates bills next year. We continue to examine options for further support and I would like to put on record my thanks to local government for issuing our emergency COVID-19 grants to businesses in such a swift and efficient manner.
We achieved all our short and medium-term ambitions within the constraints of the existing systems and frameworks, but we recognise there are other ideas to consider. We have therefore been exploring whether more fundamental reform of the system is possible over the longer term. We want to make local taxes more progressive and more aligned to our wider policy ambitions, while maintaining vital revenue for local services. Where possible, we will use all the levers available to us to tackle poverty and share wealth at local levels. With these aims in mind, we commissioned a range of in-depth research to inform our thinking, and went on to hold our first virtual Local Taxes Conference in November 2020. This proved a successful engagement event with many of our key stakeholders in attendance, and allowed us to gather further insights into perceptions and future possibilities.
The paper I am publishing today focusses on the future of local taxes, council tax and non-domestic rates, reflecting on a number of key research studies. For example, research by the Institute for Fiscal Studies and the University of Sheffield helps us understand the possible impacts of a revaluation of domestic property if one were to be carried out in Wales. Both reports apply their own statistical models using Welsh data to understand how different approaches to revaluation and reform of council tax could affect households and the tax-bases of different council areas. The studies offer possibilities for making the current council tax system more progressive.
Bangor University’s research explores whether local taxes could be based on the value of land. It provides an initial appraisal of a local land value tax in Wales, and identifies the further work that would be required to fully test such an approach. An important finding for future consideration is the investment necessary to meet the detailed information requirements upon which such a tax could be based, including comprehensive land maps and robust mechanisms for valuation. The work of Jennie Bunt from Cardiff University explores whether local taxes could be based on assessments of income as a more progressive distribution of the local tax burden. The themes explored include whether a local income tax offers an opportunity to design in from the outset elements which would normally be managed through discounts and exemptions, the choices that would need to be made about what constitutes ability to pay, and the risks from fiscal flight and economic instability.
Brought together, this suite of research provides important analysis and outlines the detailed further work that would be required to take forward more radical reform. The findings illustrate the scale of work which would be involved in a redesign of the system and the rigour which will be needed in managing the risks to ensure the sustainability of this £3 billion revenue stream. Local government must be enabled to go on delivering better local services for everyone: to provide the best foundation in early life, to help those who need it most, and to tackle poverty by creating a thriving economy which benefits everyone fairly.
I hope the paper published today will be thought-provoking. I continue to welcome ideas and viewpoints on this work, in particular how the changing world post-Covid could impact on our local tax-bases, but also what opportunities for better outcomes this might bring and how different approaches to local funding could help to realise such outcomes.