National Assembly for Wales

Okay. Bore da; good morning, everyone. Welcome to this meeting of the Local Government and Housing Committee. Our first item today, item 1, is introductions, apologies, substitutions and declarations of interest. This meeting is being held in a hybrid format, but, aside from the adaptations relating to conducting proceedings in that hybrid format, all other Standing Order requirements remain in place. The public items of this meeting are being broadcast live on Senedd.tv. A Record of Proceedings will be published as usual. The meeting is bilingual and simultaneous translation is available. Are there any declarations of interest? No. 

We'll move on to item 2, then, which is our first evidence session on council tax reform. And I'm very pleased to welcome our witnesses joining us virtually this morning: David Phillips, associate director at the Institute for Fiscal Studies, and Dr Rhys ap Gwilym, senior lecturer in Economics at Bangor University Business School.

So, welcome to you both, and perhaps I might begin with some initial questions, the first of which is the extent to which council tax reform is required and what are the benefits and drawbacks of changing the system? And aligned with that, do the current proposals, as in the consultation, go far enough in the witnesses' views? So, who would like to begin on that fairly general question? David.

Good morning—bore da. Thanks, first, for inviting me to give evidence today. I think there's a lot in that question, so, I'll start first by saying what I think the issues are and how reforms can address them, before talking about some of the potential issues that need to be considered alongside reforms, and then a little bit about the last part. 

Okay.

So, I think the first issue is that, currently we have an out-of-date tax system. Currently, we have the unfair situation whereby two taxpayers living in properties of equal value can get very different council tax bills simply because their properties used to be worth different amounts almost 20 years ago. Related to this, the councils' grant funding, which takes account of differences in councils' tax bases, is also based on the relative property values in the areas 20 years ago rather than now, and, of course, that could have changed a lot. So, firstly, revaluing council tax and updating the grant funding for councils would address these issues. That's an important first step, I think.

I think the other issue, or other main issue people talk about, is that the council tax is really quite regressive in respect of property value. So, currently, a band I property is worth at least 9.5 times as much, but often maybe, say, 20 times as much as a property in band A, which is 3.5 times higher. So, when you measure it as a percentage of property value, tax rates are much, much lower for the highest value properties in Wales than those with the lowest values. And that, again, means that, when measured as a percentage of the residents' income, council tax, at least before council tax support, is much higher for lower income households than for higher income households. And even when you account for council tax support, given that many households don't take it up, you still see a somewhat regressive pattern across the distribution.

Now, as an economist, it's not really my role to say how progressive or regressive the whole tax system should be, but I think it's odd, at a time when we're concerned about inequality, and especially wealth inequality, that one of the parts of the tax system most related to wealth inequality is regressive. And even if you didn't think you wanted to increase the progressivity of the tax system as a whole, I think, in my view, it would still be better to increase the progressivity of council tax and, for example, make income tax or land transaction tax a bit less progressive, and the reason I say that is because the current property taxes, like council tax, are some of the most efficient and easiest to collect, especially for local government. But the current regressive structure of council tax makes it a less usable, less useful tax for councils, which makes it harder for councils to raise the funding that they need to go forwards.

I think the other issue—and I'll then move on to some of the implementation issues—but the other issue I think that needs considering is reforms to discounts, premiums and exemptions. The biggest single discount, of course, is the single-person discount that provides a 25 per cent reduction to all households with only a single eligible adult in them. Now, the issue with this is that, because it's based on the band that the property is in, that discount is bigger if you're in a band I property than if you're in a band A property. So, effectively, it's a subsidy for single adults to live in bigger houses and more valuable houses than they otherwise would, and a penalisation for those bigger families to live in those properties. So, it makes the housing market less efficient. You could remove that discount, or you could reform it so that, rather than it being 25 per cent of the tax bill, it's a flat amount, so maybe it's 33 per cent of a band A tax bill, so it's not providing that bigger subsidy to live in bigger properties.

So, I think reform of council tax is really important, and it can address many, many issues. You'd need to think about a range of issues alongside it; it would require the updating of records, it would require some expense in terms of revaluation, you might need to think about appeals and how it might change compliance effects, and there'd certainly need to be transitional arrangements. And if the Senedd chooses to legislate for them, you might even want to have deferral arrangements, whereby people facing particularly big bills, especially if they have low, low income but live in and own a big property, they can defer it until they sell or until they pass away.

So, there are many issues to think about there. I think that's probably where I'll end. I think there was a further part to the question, but I've talked a lot there, so I should probably hand over.

The other part, really, David, was the consultation proposals—

Oh, yes.

—and whether they go far enough, really. Do you have a strong view on that?

So, my understanding is that these sort of—. At least, when the Welsh Government first set out its thoughts here was that there would be potentially two stages of reform. This would be kind of an initial stage of reform and subsequently, they'd consider potentially broader reforms. I think, actually, it may be worthwhile considering some broader reforms. I think you could actually think about not just a system with more bands and less regressive bands; you could move to a proportional system, where it's a percentage of the value. That is how it used to work under rates, so, that was based on the rents rather than the property value. It's how it still works in Northern Ireland; it's how it works in most countries, actually. So, I think that could be one thing to do.

I think you could also actually broaden it beyond just a council tax. Wales has control over the whole gamut, or most of the property taxes we have—so you've got land transaction tax, you've got business rates. You could think about a reform that brings those together. So, for example, land transaction tax is one of the most damaging taxes, actually, because it means that the more frequently properties change hands, the more they're taxed, which really discourages mobility, it discourages people trading to a property that better suits their needs, whether that's trading up or trading down. You could think that we could make the economy and property market more efficient by actually having slightly higher council tax, but lower land transaction tax, for example.

And I'll just add one small gripe I had here, maybe. There are proposals to have locally varying land transaction tax, where second homes could maybe have higher rates in certain parts of the country. I think it would have been better to consider doing that via the council tax system, rather than doing it via the land transaction tax system, so given that the Government is considering reforms to both, it was a little bit disappointing that the links between those policies hadn't been made.

Okay, David. Yes, quite a lot is happening on council tax and second homes, but yes, thank you very much for that. Rhys.

Yes, I think I concur with much of what David said there, and rather than repeat what he said, I'll try and pick out some further points. Firstly, he talked a lot about the regressivity of council tax, but then he talked separately about the issue of exemptions and discounts. My view is that those two things are closely linked. The reason that we have so many discounts, reliefs and exemptions is because of the nature of the tax, as being regressive, and we don't want that regressivity to—or, Welsh Government doesn't want that regressivity to actually play out in the real world. So, in order to correct for that, they've introduced the council tax relief scheme and a number of other reliefs and exemptions.

So, I think those two points are closely linked, and when David says that we should be quiet as economists about progressivity and regressivity, well, when that regressivity leads to policies that add to the complexity and opaqueness of the tax, I think that is something that we should talk about and should raise concerns around. So, I think regressivity is a big problem, and when we look at the current proposals, the set of proposals that are on the table at the moment are extremely modest and they don't get to the heart of any of those problems, I think, laid out quite eloquently by David.

Okay, thank you very much for that, Rhys. Another question from me before we move on to other committee members, and that is: considering the economic and financial challenges that householders and public bodies are facing at the moment, is now the right time—it's always a great political question, isn't it—to undertake such reforms?

Should I carry on?

Yes, please, Rhys.

So, my view is that, firstly, reform will take some time to implement, and so there's no better time to at least get started than the present. My view is that, if we look at the history of council tax, the problems that we've been talking about already this morning are well recognised and have been understood for a very long time. Reform has been pushed down the road previously, so my view is that there's no time like the present to start thinking about reform and actually making some positive progress on reform.

Secondly, the kinds of things that we're talking about—making the system less opaque, more transparent, more progressive—these are reforms that actually could help to alleviate some of the problems that households, particularly at the bottom end of the income distribution, are currently facing. So, my answer would be that the present challenges that people are facing give greater impetus for the need for reform.

Diolch yn fawr, Rhys. Okay, David, anything you'd like to add to that?

I would just concur with what Rhys said there, really. I think that the current situation arguably makes revaluation even more vital, not only if it were it made less regressive would it particularly help lower and middle-income households, and it would mean that the losses would be concentrated—. Some people would lose; if you have a very neutral reform, the winners mean that there'll be some losers, but those losses will be concentrated among higher income households who, typically, saw their savings increase quite substantially during the pandemic. So, whilst clearly, the cost-of-living crisis is affecting everyone, it's affecting some people less than others. So, I think the reform would help those who, on average, have been hit harder by the cost-of-living crisis. Of course, it would hit some people, but, on average, they've been hit less hard by the cost-of-living crisis.

I'll go back to the point that, if we're particularly concerned about councils' funding and their ability to raise funding, well, a less regressive council tax, I think, might be more usable as a revenue-raising tool. Also, in the same way as with business rates, and it being more important that they keep up to date when the property market's changed a lot, when the business environment's changed a lot—well, the same is true for council tax. And in the last few years, with the pandemic, we've seen quite big changes in the relative values of different properties—bigger than we've seen for quite a long time. So, the need to bring it up to date has also increased as well.

That's great. Thank you very much, David and Rhys. We'll move on, then, to Sam Rowlands. Sam.

Thank you, Mr Chairman. Morning, both, and thank you for your time, joining us this morning. Just going back to some of the types of reform and the reform as defined by Welsh Government at the moment, do you think it's fair to say that what we're being told is reform at the moment isn't really reform, it's just tinkering around the edges and perhaps it won't achieve the things that Government would want to see achieved?

David.

I think, at this stage, it's too early to say. I wouldn't discount the importance of revaluing and putting in place regular structure revaluations. England hasn't revalued now for over 30 years; the same with Scotland. Wales did a revaluation in 2003, but that's almost been 20 years. I think, even just putting a revaluation in, and then doing that every three or five years, would be quite a beneficial change. 

When it comes to the other changes, for example, around how much less regressive the tax would be, around what to do with exemptions and discounts and so on, I think the current consultation has left it quite open. So, if all they do is add one band and make it a Scotland-type reform in terms of how much less regressive it is, I probably would call that tinkering. But if they were to add several bands at the bottom, several bands at the top and make them quite a bit less regressive, well, alongside a revaluation, and potentially some changes to some of the discounts and exemptions, that would be, I think, quite a substantial reform. I think, at this stage, it's too early to say whether it's just tinkering, but there's a risk that they could be timid and I think that is something that people might want to, maybe, put some pressure on to consider making it a meaningful reform. 

Rhys.

My interpretation of the document, the consultation document that the Welsh Government has put out is, maybe, less generous than David's. I think these do look like quite timid and modest reforms, as you say, tinkering at the edges. The document does talk about potential further reform later down the road, but my worry is that, in these current proposals, they're not laying the foundations for that further reform later down the road either. So, it does appear to me as though these are really, really quite modest. I don't think they get to the heart of the types of priorities for reform that I think we would want to see—that I would want to see—in proposals for reforming council tax. Maybe I'm not somebody who has to live with the political realities of having to implement reform, and so maybe I would favour more radical reform than others, but I think, even if we take the current system as a starting base and we aren't thinking from the ideal, I think there are some very substantial reforms that could be made that aren't really talked about in this document. Things like, for example, shifting liability for council tax away from occupiers and towards owners—that would be a very substantial change. I can't see any convincing reasons for not wanting to take that kind of reform, for example.

Okay. Thank you, both. Sam.

Thank you, Chair. I don't know if, Rhys, you started—. I know there are things we've mentioned already, as we've gone through this session, and you started to touch on some of the reforms that, if you were Minister for Finance and Local Government for the day, you would bring in. Are there any other missed opportunities you think, at the moment? If you were in those shoes, what sort of reforms would you like to see, and the same for you too, David?

So, if I were finance Minister, I probably would be looking at, 'What is the ideal system that we want for financing local government?' That would be very much tied in with the wider political settlement around local government, and local government reform in general. Now, I don't think we want to go down there this morning, so I'm going to focus on—. Assuming that what we're looking at is change relative to the present system, there are, really, three priorities that I would have.

The first I've already mentioned, which would be about shifting the financial liability from the occupier to the owner. The second would be, actually, around the valuation system. The valuations that we currently use are not just out of date, but the way in which properties were valued back in 2003—the system of valuation—is now out of date as well. I think we should be talking about introducing modern methods of valuation and the use of hedonic pricing models to value properties, which would mean that rather than just putting properties into bands, we would then have the full spectrum of values. So, whether you wanted to implement a proportional rate right now or whether you wanted to do that at some point in the future, at least putting in a system of valuation that gives you the values on which you could base that proportional system or even a progressive system—. I think we should be thinking about doing that now, rather than just repeating the exercise that was undergone in 2003. So, that's the second point—it's getting a proper cadastral database in place. 

My third priority for reform would be not just to move away from banding and move to a proportional system, but my view is that we should move to a progressive tax rate. For me, the simplest way and the most transparent way of effecting that would be to have a tax-free threshold of, let's say, half the median property value, for example, being tax free, and then having a single rate above that threshold. Now, I suspect that that rate would need to be around 1 per cent of the property value. Obviously, if those kinds of proposals were to go forward, you'd want to estimate that more precisely. So, as an idea, if you had, say, a £90,000, which is roughly half the median property value in Wales at the moment, tax-free allowance on people's primary residence, that would mean that somebody who owns a property of £180,000 would pay an effective tax rate of 0.5 per cent. Somebody who owns a property that's worth £900,000 would be paying an effective tax rate of 0.9 per cent. So, you could introduce progressivity into the system through that type of mechanism.

So, those are the three priorities that I would have for reform. If you like, as a result of those, introducing that progressivity in particular—so, the first point and the third point in particular—I think would minimise the need for reliefs and exemptions, and so, actually, you could really simplify the tax system as well as a result of those three reforms.

There we are. Thank you very much, Rhys. David.

Yes, thank you. I'll say what my priorities would be first, then I'll say a little bit on some of Rhys's points there as well. So, I think my priority, actually, would be to revalue it and put in place a regular set of revaluations. I think the second would be to make it less regressive. The extent of that, in my view, is maybe not something all economists shouldn’t have a view on, but it’s something that, at the IFS, we don’t take a view on—how progressive the system should be overall. But I said earlier I thought that there'd be benefits in terms of overall design, even if you didn’t want to make the overall tax system more progressive, and council tax itself were more progressive—there’s a political decision to be taken about just how much more so, I think. And bearing in mind the point that Rhys makes—that you may be able to remove exemptions and some of the discounts and so on under a more progressive system—I still think that, given council tax started life as a bit of a hybrid between rates and the poll tax, there has been a sort of belief in some quarters that it’s like a benefit tax, if you like, where it’s fair that single households pay less because they use less services. Now, I actually don’t buy into that argument, but if that was to still be part of the system, I would like to see changes in how those things are done, as I said, removing the link between the discount and the bill, so you’re not getting a bigger discount on a higher value property, therefore encouraging single people to live in bigger properties. So, I guess I think that, actually, many of the things in the Bill—or in the proposal, I should say, not the Bill; in the consultation—are steps in the direction of what I would prioritise. But I do agree with Rhys that they’re potentially—. They’re not all the way, and they’re potentially only a little bit of the way, depending on what the Government does.

In terms of some of the things that Rhys said, I want to make a couple of small points. The first is that, on the incidence of should it be the liability on the owner or the occupier, I think that matters in terms of the immediate impact of council tax, and it matters in terms of transparency, but the evidence actually is that, already, changes in property prices, changes in rents, mean that it’s ultimately shifted onto owners largely anyway. There’s good evidence from a range of studies in the UK and overseas that property taxes effectively get capitalised—they get shifted into prices. Actually making it formally liable on the owner will mean that happens more quickly and is more transparent, actually.

On the second point, about the type of revaluation method, I think this is still an open question. The consultation talks about bands, but I think the Welsh Government is still open to using methods that allow point estimates for prices, like Rhys said on regressions, which I think would not only allow potentially a wider range of options to be considered, but would also be, I think, cheaper than doing it manually, and I think it would be more consistent. I think people often think, 'Oh, a computer system—that’s not going to be able to take account of all the different detailed things about my property or my area'. Well, you can actually build a lot of these into the model, and you’re also removing the human element, where different valuers might make different subjective judgments. So, I actually think, in some ways, these computer-based models are more consistent and fairer than human-based approaches using surveyors, although I do think that, for properties that don’t transact very often, or are very, very unusual—at least we did this in our report, because we used a similar method in our report for the Welsh Government—we need to look a bit at the very top of the distribution, for example, or types of property that don’t change. So, you might still need a bit of a back-up of certain types of properties being valued manually, and you probably would want to do a random sample just to sense-check the results as well.

Okay. Thank you, both, very much. Sam.

Yes, I’m very conscious of time, Chair, so I’ll probably not ask another question. Just a quick comment on that final point, though, because I worked in credit risk for a bank for 10 years, and banks all the time just hit a button and it pops up with a value that is extremely accurate, and I’ve always been perplexed why Government can’t do something very similar. The systems are built, they’re ready to go, and it’s really not hard to do. So, I won’t ask any more questions—I’m conscious of time. Thanks.

Okay. Thank you very much, Sam. We’ll move on, then, to Mabon ap Gwynfor. Mabon.

Great, thank you. So, I do think revaluation is important—keeping values up to date is important. As I mentioned earlier, I think it is unfair, effectively, that two properties with very similar values now can face very different tax rates because of their previous values. I actually think it would be beneficial to legislate for revaluations to take place on a regular cycle, rather than leaving it to be ad hoc. I think this has several benefits. I think, first, it should make it more likely that the revaluations actually take place—you need an active decision to not do it, rather than an active decision to do it. If it was made five yearly, for example, they could be legislated to take effect, perhaps, two years into each Senedd term to try to reduce the temptation for postponement or cancellation around election campaigns. 

I think, actually, secondly, having it legislated on and having it on a regular cycle means that property buyers and occupiers can plan better for their future, if they know the revaluation is planned. For example, I mentioned that it seems that property values and rents change when you change property taxes. Well, if people are aware of property revaluations coming down the line, they can potentially build that into their planning, whereas if they don't know it's happening and if it's on an ad hoc basis, they may find they've paid more for a property than they really think it's worth, given the tax bill on it is about to go up quite a lot, or, actually, vice versa and they might have thought, 'Actually, I can afford to pay a bit more for this, given that the tax bill is going to be coming down in that area'. So, I think there are benefits there. And I think also there are benefits if councils and the Valuation Office Agency know that they're planning to a regular cycle.  

In terms of the cycle length, on the one hand, the more frequent, the better, because it means the values more closely reflect current property markets. For example, if it was a fixed percentage of value rather than a banding system, what many countries do there is they do a full revaluation every several years, but then in between they index the values according to a local property market index—so, they know that prices in Rhondda Cynon Taf are going up by 8 per cent and in Cardiff by 6 per cent, and they make adjustments like that. That's an option that you could do if you had a proportional system. If you have a banded system, you probably don't want properties changing bands year to year. That might be a bit complicated. So, I think the frequency of revaluation, the frequency of updating things, would partly depend on whether you have a banded system or whether you move to a fully proportional or point value-based system. 

So, I was going to add a point on this, actually. Yes. I think that's a good point. I think the point that Rhys is making, which I very much agree with, is that, if you were to have a less regressive system, or proportional or progressive system, because most low-income households live in low-value properties, council tax support—you'd have fewer people needing council tax support or they'd need less council tax support. But, of course, not every low-income person lives in a low-value property; some live in high-value properties, whether that's a farmer or someone in Abersoch, or whether that's someone in an expensive part of Cardiff, in a council house in the Heath or Whitchurch or Rhiwbina. So, I think the way to see this is that you probably still would need a council tax reduction scheme, because even if the bill is dropped from £1,200 to £400, that's still a lot of money for someone on a very low income. But, because most people on council tax support would have a lower bill, the cost of the current scheme would be lower, which could mean that you either use that revenue to spend on other things, or you make the council tax reduction scheme more generous, so it can provide support to a bigger group of people, or it can, potentially, be means tested at a lower rate. So, I think you would still want a council tax reduction scheme for those on low incomes in high-value properties, but it would cost less, or it could potentially be more generous, or you could spend that money elsewhere.

Okay, Mabon? We're rather pressed for time. Are you okay with that? Yes, okay, diolch yn fawr, Mabon. We will move on, then, to Carolyn Thomas. Carolyn.

[Inaudible.]—ask, you mentioned here about having a cadastral records system to capture land as well as property, and I just would like your view on the land value tax system. I know that it's not included in what has been presented at the moment, going forward, but just your views on it, please, while you're here.

All right. Who would like to offer us something on that?

I can only say a couple of words, because Rhys mentioned this cadastral system, he could, maybe, come in there. So, I think there is value in investing in land valuation in Wales, and I think there's value in thinking about reform of business rates to make it a land value tax in particular. There's an old result in economics that you don't want to tax what are called 'produced inputs'—things you have to build or make—'Don't tax those, because that discourages business from using them, it raises the cost to business, it distorts business decisions'. And, actually, with business rates, many of the complexities that we have there are designed to stop business rates from discouraging investment and building a new property. So, for business rates, I think a land value tax would make a good replacement.

I think for property tax, the issues are a little bit different. Property is a consumption good. It's used by households, it's not a business good, and we do tax most forms of what people consume. We tax the clothes they buy, the cars they drive; we tax most things. So, I think there is a case, actually, to not only tax the land that the property is built on, but also the property itself, so we're being consistent across the different types of things that we all buy and consume. So, in my view, I think it would make sense to value land and have land value tax, but I think, for residential property, it still makes sense to also tax the property on that land as well.

Okay. Thank you.

I think that's a fair point and well made. What I would say is that, it's not necessarily clear that the tax rate on the land and the property should be the same. So, being able to differentiate between the land value, the property value and the bricks and mortar value would maybe make it possible, at some future point in time, were a Government wanting to do it, to tax those two elements at different rates. Obviously, that would add complexity into the tax system, which is maybe not as desirable. So, should we have just a land value tax or should we have a tax on property, or should we have two different rates on those two elements? Well, we see examples of all three of those systems in different jurisdictions around the world, and I don't think there's a clear consensus on which is favoured. I could jump and take the middle option where you would have a higher rate on land and a lower rate on bricks and mortar, but I think it's a relatively moot point. But, I think, having a cadastral system, where a Government could decide that it wants to tax those two elements separately, or just to tax the land element, I think either of those would be systems that one could make good arguments in favour of. So, I think having a system in place where that could be a possibility at any point in the future would be a good idea.

Again, I come back to the point—and I think David concurred—that, actually, having an automated, modern, hedonic pricing model would be cheaper, more efficient and easier to implement. One of the things that does concern me in this current consultation is that there does just seem to be an assumption that there wouldn't be a change to the valuation system—that the valuations would still be carried out by the Valuation Office Agency. Now, as far as I can see, I don't know whether the VOA represents good value for money or not, that's not an area of my expertise, but it seems as if the consultation is very closed on its considerations of who should be carrying out these valuations, and I would question that. We see a system in Northern Ireland where these functions, the function of valuation occurs within their departments of finance in a section that has responsibility for mapping valuation and recording ownership of properties. I would have thought that moving towards a model similar to what they have in Northern Ireland would be a good step forward for us in Wales.

Okay, thank you—sorry, you hadn't finished then. Do you want to carry on?

Well, it seems rather perverse to me that the Welsh Government believes that we should have a system where all the data that's been generated is owned by a UK Government agency, rather than being owned within Wales and therefore having utility for Government in Wales.

Fab, I get it. Thank you.

I just want to ask questions about the transitional period because it could create some difficulties for people. So, what support do you think should be provided if there are significant changes in council tax bills? And who should meet any transitional costs as well, going forward? I do remember it happening in Wales, and the significant increase and the impact. And then it didn't happen in England. So, just your views on that, really. Thank you.

So, if I come in first, I think, if there was just a simple revaluation, a pure revaluation, which is like, I guess, the de minimis reform here, you could consider a scheme similar to the last time there was a revaluation, which I think was that increases in bills were capped at moving one band. So, if you moved up two bands because your property was assessed to have increased a lot in terms of its relative value, it would move up one band in the first year and then the second band in the second year. I think that's how it operated. You could do something similar. I think, if the reform is more broad, so that it's not just changing the values, but it's also changing the structure of the tax—there are more bands; the bands are more progressive—you might say, 'Well, the cash change in the bill is capped at a certain amount per year or certain percentage per year', so you'd need a scheme like that.

In terms of who pays for it, I think, fundamentally, there's a bit of a political choice here about how quickly the Government wants those benefiting from reductions in their tax bills to benefit. So, I'll use an example. In England, in business rates, traditionally, the way transitional relief scheme for business rates works is they funded relief for those seeing their bills going up by slowing down the reductions in bills for those due a fall. Now, they're not doing that this time round in England. I think they don't do that in Wales. I think in Wales the Government pays for the transitional relief, although I'm not 100 per cent sure on that. So, the alternative is that the Government, basically, pays that and allows the bills to drop. So, I think there's, basically, a political choice there. For business rates, I think, actually, the problem with having the winners pay for the losers to have transitional relief means that you're not actually reflecting fully, straight away, the changes in values. Something similar happens with council tax. I think it's probably a little bit less of a concern there. And then I forgot to point out earlier, I think, in future, the more frequent the valuations are, the smaller the changes in relative values between valuations, so the less of a need for these complicated schemes.

Thanks. Okay. Got that. Rhys.

I don't think I really have much to add on that. I think, essentially, any transitional relief needs to be designed to fit the changes that are being made. So, if they're relatively modest changes, you won't need significant transitional reliefs. If you're making quite radical changes, then you do need to think more carefully, and David's already alluded to some examples of how you could implement that. I guess the only other thing to add on top of that is the idea of, potentially, a deferral scheme, so that you're not actually providing actual relief, you're not reducing anybody's liability, you're just allowing them to delay payment, and that might be an option that you would want to consider as well.

Okay, thank you.

Okay, Carolyn, are you content with that?

Yes, thank you, John. Thank you. Sorry, the smoke alarm testing was happening at the same time.

Oh, right. Okay. We'll move on to Jayne Bryant.

Diolch, Cadeirydd. I've just got two quick questions really, hopefully. Some local authorities are going to be more dependent on council tax revenue as a result of the reform, while others are going to see their grant funding increase. I just wonder if you have a view about how fair you feel that is, and I'm just wondering also if you could expand on any administrative or resources implications for local authorities under the current proposals, and how could a more progressive reform programme add or reduce the impact on authorities.

Okay, who would like to answer that first?

I'm happy to go first on that. We're already in a position where I think council tax accounts for something like 18 per cent of local authority spending. So, the grant that they get from Welsh Government is already a substantial part of local authorities' funding. Obviously, if the tax base shifts significantly—and David will have a better view on this, because of the work that he carried out with the IFS on how the tax base shifts as a result of moving towards a less regressive council tax system—it does mean that, for places like Blaenau Gwent, where there are far more properties down in band A at present, if they all end up paying less council tax, well, obviously, that is going to increase the need for fiscal transfers from other parts of the country to Blaenau Gwent. But, as I say, we already have those fiscal transfers occurring, and, the way that they're determined at present, they're dependent on various measures of need, but also based on the size of the tax base in each local authority. So, if the tax base is diminished by these proposals, my understanding of how the system works is that you'd automatically be compensated through fiscal transfers for that. 

But, yes, it's an important consideration, and, again, we have very significant geographical inequalities in Wales, and the role of fiscal transfers is incredibly important, and something that we should be aware of. 

Okay. And David.

Yes. I would agree with what Rhys was saying there. If I might expand a little bit on the grant point first, so, when we looked at this for the Welsh Government, it was clear that changes to grant funding are vital if you want the revaluation to have the impact of not only redistributing tax bills within each local authority to reflect the up-to-date values or the more proportional system that you want to put in place, but also to redistribute across Wales. And let me explain, briefly, why. Let's say you're to revalue council tax and make it more proportional to value. That would mean areas where values have gone up, and areas where values are higher, the bands of properties would go up; areas where prices have fallen, or are low values, they'd go down. But, if you don't change the amount of grant you give to each council—. Each council still needs to raise just as much from council tax as before in order to fund its spending. So, whilst, in Blaenau Gwent, those areas that, relative to Blaenau Gwent, have done better or worse in terms of property values, their bills could go up or down, the average bill in Blaenau Gwent would stay the same. So, unless you change grant funding, you're not redistributing from high to low value parts of Wales; all you're doing is redistributing from high to low value parts of Blaenau Gwent, or high to low value parts of Monmouthshire. You're just doing it within each local authority. So, a revaluation across Wales, reform across Wales, requires you to actually change the grant funding as well; it's a key part of the system. 

Now, there is a question about do you do that completely, or do you say, 'Well, look, we actually do want Monmouthshire to not lose all the benefit of its higher property values; some of that should stay in Monmouthshire, so we'll only account for 80 per cent of the difference when we do the grant funding changes'? There are choices you have there, but, unless you do some grant funding, it's not really, I think, a revaluation or reform as most people would consider it. 

In terms of the second point around administrative or resource implications, I think any reform will have some implication. As I said, there'll be a need to update records. There could be changes in compliance. You might see that where bills have gone up it's a little bit harder to get compliance and where bills have gone down it's a bit easier. There'll also be a need to operate transition and, potentially, deferral schemes. So, I think the more radical the reform to the system, the bigger those transitional arrangements would have to be. You're more likely to want to consider a deferral scheme for the proverbial granny in the mansion, and that would require more time to plan, and potentially a little bit more resource for local government, but I don't think any of it is insurmountable. You shouldn't let these administrative issues drive the reforms you make. You should make sure that the resources and time that's allocated are sufficient for the reform you think you want for distributional and other key policy reasons.

Diolch, Cadeirydd.

Okay, Jayne. Diolch yn fawr. Could I just ask one further question of you both, which is: who should be doing the revaluations, really? You were saying, perhaps, that the VOA might not be the most appropriate body. Might it then be something that's done in-house, as it were, within the Welsh Government's civil service, or would it be better done by some other separate body from the civil service, and not the VOA—any views? David.

I probably wouldn't be quite as quick to rule out the VOA. I do get the concerns that Rhys has around ownership. I mean, previously—. I do think the VOA does collaborate with the Welsh Government. It makes data available to them. I think both—. Well, certainly, we did—I think probably Rhys as well—use VOA data in the reports we did for the Welsh Government. So, I think that data is available, and I think they would be open with the Welsh Government. I also think that they would be open to changing their methods. I've talked previously to you—. Dyfed Alsop, now head of the Welsh Revenue Authority, he used to be head of analysis at VOA, and he said that this was something that they were actively looking at, and that was like 10, 15 years ago. So, I don't think we should think they're going to necessarily do just the same old thing.

If it was done within the Welsh Government, I think there would probably need to be an expansion of capacity there. So, the reason that the Northern Ireland Government have it is because the VOA has never been doing this in Northern Ireland, so they've had to have their own system. I think one potential risk, perhaps, although it's probably mitigatable, given that these skills are quite widely available now, would be that, if building the capacity within the Welsh Government to do all this analysis itself meant that that pushed back reform, that, I think, would be unfortunate. So, I think it's worth maybe doing a quick scoping exercise, if they wanted to, to kind of work out, 'Actually, could we do this differently?' They shouldn't necessarily just do the VOA, but they shouldn't rule out the VOA either.

Okay, David. That's great. Rhys, would you add anything?

Yes. I agree with that. I certainly don't think anyone should rule out the VOA. They clearly have a huge amount of expertise in this area that they've built up over a very long period of time. What concerned me in this document was that there seemed to be an assumption that they're the best people to do the job, and that there wasn't any consideration of other options, which might involve bringing the function within Welsh Government itself. It might involve setting up an arm's-length body, similar to the WRA. It might involve some kind of joint venture between Welsh Government and a private sector organisation of the type that does valuations for the banking sector, or for Zoopla or Rightmove. My concern is not necessarily about the VOA, but the idea that they would automatically be the first choice for doing this. So, I'm certainly not trying to rule them out. What I'm saying is that all options should be on the table.

Okay. Da iawn. Diolch yn fawr. Thank you very much.

Diolch.

Okay, well, thank you both for giving evidence to the committee this morning. You will be sent a transcript to check for factual accuracy. Thank you very much.

Thank you.

Diolch.

Okay. Committee will break briefly and resume at 10:10.

Okay, welcome back, everyone, to item 3 on our agenda today, our second evidence session with regard to council tax reform. I'm very pleased to welcome, joining us here in person, Jon Rae, director of resources, Welsh Local Government Association, and Leah Whitty, finance policy officer with the Welsh Local Government Association; and joining us virtually, Councillor Lis Burnett, leader of the Vale of Glamorgan Council, and Councillor Dyfrig Siencyn, leader of Gwynedd Council. Welcome to you all. Perhaps I might begin with some initial questions, and firstly in terms of an overview of the extent to which council tax reform is required and what would be the benefits and drawbacks of changing the system. And, allied to that, do the current proposals, as set out in the consultation, go far enough? So, who would like to begin? Yes, Dyfrig.  

Thank you, Dyfrig. Who would like to add to that? Anyone? Leah? No.

I think Lis would like to.

Sorry, Leah. Yes, Lis.

Diolch; thank you. I concur totally with what Dyfrig has said, and I think that, in some ways, we need an incremental move. We're not in a position to make wholesale change at the moment, but there is a need for a fairer system. The values that this is based on are nearly 20 years out of date, and so, we need to be making it fairer. But I think, as we'll come on to later, that in itself needs to have adjustments made to ensure that people aren't disadvantaged. I think that one thing that is important is communications, when this is done, to ensure that people don't see it as a revenue-raising exercise—that it is more around a readjustment of the system to increase the fairness of it, rather than saying, 'Oh well, we're just going to put everybody's council tax up.' So, I think communications are very, very important. And, as we'll come on to later, how it is done is almost as important as what's done. Thank you.

Okay. Thank you, Lis. And Jon.

Thank you, Chair. I'll just add to what the two leaders said there that the response that we put into your inquiry was actually based on the consultation response that the WLGA put into the Welsh Government. And that response really had broad support across the WLGA executive, so, I think that's important to note. We've also, in collecting evidence for our own response, I suppose, sought advice from the Society of Welsh Treasurers and the professional network—the revenues and benefits group, the Cabinet Minister, the taxation system—so, we've got broad views, I suppose, from both our political leadership and professional networks. 

I suppose I'd note as well that the idea of local taxation reform seems to be garnering some interest in England as well by UK Government—the latest comments from the Secretary of State on that issue are quite interesting and go to the heart of whether a system of fair taxation actually should underscore a credible local government finance system. There's some sense, perhaps, that it may be driving the need for reform in England as well.

Okay, Jon, thanks very much for that. Okay, a second question from me then, which is about the timing. Given, as we know, it's a very difficult time at the moment in terms of cost-of-living pressures—we've just entered a new economic recession, it would seem—and there's a lot of pressure on household budgets, is now the right time to be taking forward these sorts of reforms?

Lis, do you want to go first?

Lis.

Yes, happy to, Dyfrig. I think that that actually is something that is a matter of huge concern in terms of when it's done, how it's communicated. As we know, you can't overstate the pressure that people are under at the moment, but, at the same time, there are currently people who are disadvantaged by the system and so, we have to be very, very careful about how we're doing that, how we're communicating it. And, moving forward, I think certainly not to rush into it until there's some stability within the economy would be a benefit, but the thought of this adding one more straw onto people's already heavy load, could be the final straw. Thanks.

Thank you, Lis. Dyfrig.

Okay. Diolch yn fawr. We'll move on, then, to Sam Rowlands. Sam.

Thank you, Mr Chairman, and good morning, all. Thanks for your time again this morning. It's always appreciated.

So, you sort of hinted at some of the types of council tax reform that you'd like to see. I'm just wondering if you want to expand on that at all, and where your thinking is at the moment in terms of what's being proposed by Welsh Government: can you really define that as reform, or is it really just a slight adjustment to what already exists, and should we send them to the Advertising Standards Authority for misadvertising reform? Any thoughts on that would be appreciated.

Diolch yn fawr, Dyfrig. Would anybody like to add to that? No? Oh, yes, Lis.

Sorry, I was just going to say that—. As the Senedd goes forward, as Welsh Government go forward, the whole discussion around what form Welsh taxation should take will move forward, and undoubtedly, this is something that will need to be looked at within that wider context, to make sure that it reflects the aims and objectives of Welsh Government going forward. But we're not in that position yet, and so we shouldn't avoid trying to make the current system fairer while we work towards a new system. And I think it chimes with what Dyfrig was saying: ideally, the system should be based on continuous valuations, so that we're not in a position of having data that's 20 years out of date in the future. I know that Wales has had revaluations more recently than other parts of the UK, but 20 years is still too long in that. But if that's not practicable, then perhaps we should be looking at an increased number of bands to increase the flexibility. So, just a short comment on that one.

Okay, thank you very much, Lis. Back to you, Sam.

Thanks, Chair, and just to come off the back of this theme around models of council tax, I just wonder, as council leaders and as council authority representatives, if you have any concerns about any future models removing the democratic will of locally elected politicians, because some of the proportional options that might be there would have to be considered at an all-Wales basis, not at a local authority level. So, I was just wondering if you have any concerns that—. At the moment, as we all know, in those council chambers, probably the biggest vote that happens every year is councillors putting their hand up or not to vote for a council tax rise or whatever they might want to do. If that is removed from councillors in the future, would that concern you—if council tax or property tax was set at a national level, rather than at a local level?

Dyfrig.

Okay. Anybody like to add anything? No, okay. Sorry, Jon. Jon.

Thank you, Chair. It's an important cornerstone of local democracy, at the end of the day, that decisions are made locally, and I suppose the questions of local taxation are inextricably linked to local representation. So, yes, there would be concern, I guess, if any other model—. It's not difficult to envisage a scenario where you had, perhaps, a system of continuous valuations that took a fixed proportion, and it would almost take away that local decision making and accountability. Remember that local decision making is there because sometimes there are local factors at work. There may be issues about grant funding; there are issues built into the design of the funding formula that, year on year, it may not reflect actual need on the ground at the margins. But there are also questions about local service provision as well, and decisions to be made in 22 council chambers across Wales as to whether it's an appropriate amount of resource for the services that are there.

Okay, Jon. Okay, Sam?

Thanks, Chair, and thanks for those responses. My view is, and it's quite clear generally, that whoever holds the purse strings holds the power, so, if those purse strings were removed from locally elected people, then I suspect that a lot of the power would also be removed. Just a final question from me—or comment, perhaps. I'd appreciate understanding your view of how fair or not the current system is and how fair or not you think the proposed reforms would be. Would it make things fairer or less fair, do you think, with the reforms that are coming in?

Okay. Lis.

Thank you. I think, overall, fairer. But I think that what we have to do is recognise that, for some people, this won't necessarily provide a constructive outcome, and so I would look at situations where people—. It's well known that places like the Vale of Glamorgan and Monmouthshire have got high house prices, so you might have somebody in rented accommodation in a high-price house where their council tax is on a higher band than somebody on a similar income in a neighbouring authority maybe only 20 miles away. So, we have to make sure that there are mitigations in place for such situations. There are a wide range of measures currently that are available. I think that, within the process, that has to be looked at, but overall I think that moving to a more frequent revaluation system—and certainly taking one now, because house prices have changed quite dramatically and some have gone up and some have gone down—is the best way forward. Thank you.

Okay, thank you very much, Lis. Dyfrig.

Okay. Diolch yn fawr. Mabon ap Gwynfor.

Yes, please.

No, you go on, Dyfrig. No, you carry on.

Lis.

Everything that Dyfrig said, but I think the other thing is that we need to be mindful that this would have to be funded, most likely by Welsh Government and, ultimately, from there, the Welsh taxpayer. So, to do something that is continuous—with the exception of the development of a database, it would be semi-automatic, in effect—would probably be prohibitive. But if it was done on a five-year cycle and you didn't have the updates that you currently have when properties are sold—. Because that adds a little bit of inequity into the system, where some people can go for years and years without their houses being revalued, and some people, if they sell their house immediately, it gets revalued. So, if you went onto a five-year cycle, that brings the time limit down, and if you took out the revaluation on sales, then that's one alternative. But I think we do have to be mindful of the cost of this as well: have an ultimate idea of where we want to get to, but be working towards it in a cost-effective manner. 

Okay. Thank you very much. Mabon.

I would totally defer to Dyfrig's superior knowledge on this one—with the exception of being married to an ex-cartographer, who has bored me to tears with it over the years. But, no, I would defer to Dyfrig, because it's this thing about, 'Well, if you're going to do something, you need the relevant evidence'. What that would be, I will stand back. 

Okay, thanks, Lis. Jon Rae would just like to come in at this point, Mabon. Jon.

Thanks, Chair. It raises an interesting question, doesn't it, about different databases existing in different places, and almost the typography that Councillor Siencyn has outlined there of data existing in three different spaces. So, you've got the Land Registry, you've got other national databases like the Valuation Office Agency, and how all of that ties up with local databases. So, it's obviously a long-term question about whether you need something centrally, something of a cadastral-type database, or whether you just need some kind of middleware, I think it's called, that makes these things speak to each other—it's an interesting point. 

In some ways, we're almost path dependent here, around the question about who does this and who undertakes it, because it's the VOA, I think it would be, for the purposes of going into the current reform—the reforms that are proposed. I don't think you could reasonably ask the Welsh Government or any other agency, really, to do this. The VOA have a track record of doing this type of exercise. The question is whether they would be adequately resourced. I know that in other areas across the UK—Northern Ireland—it's not a function of the VOA, but that's for historical reasons. So, I suspect, for reasons of path dependency, we have the VOA to do this kind of exercise.

Thank you very much, Jon; that's very useful. Mabon, are you content?

Okay, diolch yn fawr. We move on, then, to Carolyn Thomas—Carolyn.

Thank you. It's a really interesting conversation. I'm very excited about cadastral mapping as well—looking at it from an ecology term as well. I know that our local nature partnership has been looking at geographic information system mapping for biodiversity, so we could do with bringing it all together under one system; maybe that's something else that we could look at.

In the previous evidence session, they mentioned moving the tax burden from the occupier to the owner. So, I was wondering whether you could give me your view on that. 

Shall I go first, Lis? That is—

Thank you. Anybody else?

No? Lis.

I was only going to mention, again, I think it's very straightforward, and for most people, it wouldn't make that much difference. But I think one of the most disadvantaged groups that we would deal with are people on low incomes who rent properties, and so, we have to find a way of making the system work for them, and if that means that council tax, or whatever it is, is based upon ownership of the land, then that is potentially a way to make it a fairer system.

Thank you. And just some questions, really, on the transitional period, which we've mentioned earlier as well. What sort of support do you think should be provided if there's a significant change in council tax bills? I know you said that, if it was every five years, that would be helpful. Should any transitional costs for any deferral scheme—who should meet those? And how long should the support be in place for?

Shall I go first on this, Dyfrig? Yes. In essence, we need to look at the process of transition, particularly if somebody goes up more than one band in a year. So, potentially limit it to one band a year, maybe looking at capping any increases—should it be capped at 10 per cent maximum, or something along those lines? Obviously, you've got the various support mechanisms in place as well, and those should continue. It's a topic that actually was discussed at length in the WLGA executive board at the end of September, and the leaders believed as well that this should be funded outside the system—so, it shouldn't be funded from within the council tax system, to provide that element of transition. Going back to communications, it should be easy to understand so that if people find that their council tax is going up, they know how much it will go up in future and where they can get support if that proves onerous.

Thank you. Anybody else want to come in?

Thanks. Jon, did you want to say anything?

We've got Jon, yes. Jon.

Thanks very much. I think the kind of support that Councillor Burnett was alluding to there was the kind of support that was available at the last revaluation, for those of us who have memories that long. My recollection is, at the time, as Councillor Burnett's set out, people rising through the bands were limited to rising one band in any one year, and it was only available two years, so if you were shooting up through a number of bands, obviously the transitional support was time limited as well. And that would only work, I suppose, if the banding system remained relatively unchanged. I don't know if you recall at the last revaluation—

I do.

—there was an added band. But obviously, there could be proposals here, when you look at the IFS report, and the witnesses who gave evidence earlier, potentially, there could be a great expansion in the bands to cope with this kind of odd and skewed distribution that you have in house prices across Wales, in which case, it could be a transitional period—sorry, a transitional scheme, to answer Carolyn's question. In that case, it might be limited to certain percentage rises in any one year. So, I hope that answers your question, Carolyn, as well. 

Yes. Thanks, Jon. Jon, sometimes your sound is fading in and out, and it could be because of your headphones around the neck. 

Thank you. 

Carolyn, you heard what Jon had to say. 

I did hear everything, yes. Thank you. 

Okay. Carolyn, are you content at this point? 

Thank you. 

Yes. Okay, we'll move on then to Jayne Bryant. Jayne.

Diolch, Cadeirydd. I'll try and roll my questions into one. Some local authorities are going to be more dependent on council tax revenue as a result of the reform, while others are going to see their grant funding increase. I'd really appreciate your views on that. And, just to expand on any administrative or resource implications for local authorities under the current proposals, and how could a more progressive reform programme add or reduce the impact on authorities?  

There we are. Who would like to begin? 

Lis, or—? 

I'm happy to start off, but I'm sure Dyfrig will then say, 'No, she's missed that bit', so he then will come in. I think in terms of leaders' and also the WLGA's view, we've always felt that one of the strong features of the current system is the way in which it equalises resources. So, it takes into account the extent to which each local authority can raise resources from its own tax base, and I think it was something that we were talking about earlier when we were talking about local democracy. Within reasonable parameters, there is an ability to make those adjustments. And, as we keep saying, the intention of the revaluation is to make council tax fairer, and, again, going back to the fact that it was done 20 years ago and property prices have considerably changed in that time. There are idiosyncrasies within the market where, actually, some communities within a town might have gone up and others might have gone down, and some have become more desirable. So, there are quite sizable changes within areas. 

Going back to the fact that the intention is for this not to be revenue raising, if there were significant increases in the tax bases of local authorities from the revaluation, that would naturally mean that the revenue support grant would be adjusted. In the Vale, I probably speak about an area where we would be expecting to have increases in council tax, and so, it would have implications for us in terms of RSG. In some ways, that needs to be looked at within the context of it being a fairer system. It's difficult to actually quantify any further, really, unless there are more details back or information back from the Valuation Office Agency. 

In terms of the resource implications for local authorities, the revaluation itself, along with arrangements from it, is likely to be manageable, although there could be some sort of transition costs in terms of ICT systems, et cetera, so how do you manage that within the existing resources. But one thing that has been noticed—and it's a side issue—is the removal of committal sanctions, which has placed—. The implications of the removal of committal sanctions on local authorities in collecting some of the more difficult debts can cause a problem, even though councils didn't tend to use committal in taking individuals to court. However, I think it has to be recognised that, when you get to that point of no return, that, quite often, is a catalyst to people having a constructive conversation with the local authority. And it's almost like—. I think a lot of our casework, whether it be Senedd Members or local authority members, would come at that point of crisis. And so, in some ways, we need to look at how we manage that engagement when you have a system of—when things have changed, and people might be putting their heads in their hands. I hope that that makes sense—it's quite a difficult question, so it's a bit of a stream of consciousness, I'm afraid.

No. Thank you for that. I was just conscious of time and trying to get a response, so that others can ask questions as well.

Okay. Thank you very much, Jayne. Jon?

Councillor Burnett underlines one of the two key principles of the local government finance system. So, she mentions equalising for resources. Of course, the other underlying principle is equalising for need, which is what the local government funding formula does. So they both work together to make the system fair. And I know that there are always questions about what is 'fair'—it's always in the eye or the ear of the beholder, at the end of the day. And equalising for resources is a key principle of the system, because the system at the minute—you can recognise in that quite a difference in what is raised locally, because it depends on the relative richness, if I may use that word, of the resource of the tax base itself. Because in a local authority like Blaenau Gwent, which has a low tax base, you'll find that 80 per cent of the properties are in bands A and B. And in an authority like Monmouthshire, which is completely at the other end of the scale, you will find that only 10 per cent of the properties are in bands A and B. So, that was a differential that was fixed over 15 years ago, so the question is now: is that differential still the same?

Obviously, the IFS have done some work, and I think there's a graph in there that's really interesting, isn't it? Because you've got Blaenau Gwent at one end and Merthyr right at the top there, and at the bottom, you've got Conwy. And I thought that was really interesting, that latest piece of work from the Institute for Fiscal Studies. So, it does raise another question, about the—. Because, in theory, it shouldn't really make any difference, because it's just a change to the balance of funding, but there is an additional point here, a peripheral point, that, depending on whether the local authority sets its budget above or below the standard spending assessment, it will have resource implications as well for the local authority. So that's something important to bear in mind, but not as important, I think, as the impact on communities and the taxpayers themselves.

Okay. Thank you, Jon. Thank you, Jayne. Joel James—Joel.

Thank you, Chair, and thanks, everyone, for coming today. It's been actually quite fascinating and informative so far, especially about all the cadastral maps and everything; that was a new word for me, so I was busy Googling it to see what it meant.

What it is, I wanted to talk about the current council tax system and the current discounts and exemptions that we have. We've heard evidence from the Bevan Foundation and Fairer Share, and they both say that the current system is quite unfit for purpose, and the complexity of it means that a lot of people who are eligible for these discounts end up not receiving them, or not even applying for them, and that's something that's been highlighted by the Bevan Foundation and then, also, earlier today, by the Institute for Fiscal Studies. I just wanted to know if that chimes with you, really. Is that something, with your councillor hats on, that you're aware of, and why is it so complex? And then, why are people who need those discounts and support simply not getting them?

Okay.

Diolch yn fawr, Dyfrig. Lis.

Thanks, Chair. This is probably one of the biggest areas that I care about in that, with the best of intentions, various discounts have been put into place, and how do we make sure that they get to the right people? I think there are a few areas of good practice that we can point to on this. If you actually look at the way in which Welsh Government has promoted the discounts—or exemptions, rather—for people who are severely mentally impaired. And they did some amazing work on that, to such an extent that, actually, in the Cardiff and Vale health board, for people receiving a diagnosis of dementia, it's automatically raised with them. And they will provide the necessary certificate, and it's a question of, 'Here's your certificate. Just get in touch with the council and give them this certificate', and it's fairly seamless.

I think we've learnt a lot through the various payments throughout COVID, and more recently, with the cost-of-living payments. And I think, from my own experience, the numbers of eligible people that we're reaching seem to be going up every time we have a different payment to use. We're doing things like using QR codes on letters, so that people just have to scan them with a smartphone to be able to access the system. And I work at—or volunteer—at a local foodbank quite often on Friday afternoons, and that has been the main conversation with people throughout the last couple of years: 'Have you claimed such and such?' 'No, I don't know how to do it.' 'This is how you do it; this is where you go'. And, with anything that we do in the future with council tax, we need to make sure that the systems are in place to make sure that any exemptions that we do—and I do think that maybe they need to be looked at because, again, you can look at some of the exemptions and say, 'Well, why should they be universal?' but we need to look at what discounts, what exemptions, and how those people access them—they're three big questions for me.

Thank you very much, Lis. Back to you, Joel.

Thank you, Chair, and thanks ever so much for those responses. We heard earlier about if the current council tax system was more progressive, then we would see a need to move away from various discounts that are there. I was just wondering if you had any ideas yourselves about what sort of system you would like to see, if that makes sense, because obviously, in the evidence session, we talk about regressive council tax schemes and then progressive schemes, but it would be interesting to know roughly what your thoughts are. I know, with one of the evidence sessions, we heard again from the Institute for Fiscal Studies about how the single occupancy discount—and I have to declare an interest here, because I claim that—is, for want of a better word, unfair in the sense of the impact that it has on the housing market, they were arguing, and how it sort of encourages single occupancy of larger houses rather than smaller ones. But then, I know that the Bevan Foundation has actually advocated that we should get rid of that completely, and I just wanted to know your views then as well.

Okay. Who would like to answer that question? Dyfrig, do you want to offer a view?

Okay. Diolch yn fawr, Dyfrig. Lis.

Thanks, Chair. It's an interesting one here, because we can talk about being a regressive tax, but I think, on the whole, property values do correlate fairly strongly with wealth. So, there is a correlation, but—. I would agree that those with greater means should shoulder more of the burden, but, actually, if you look in terms of proportion, of relative values of people on the lower and higher bands of council tax, actually, it's not proportionate. But, there should be exceptions where discounts and exemptions can come into play, because, as I mentioned earlier, if you've got somebody living in rented accommodation, they could be in a minimum-wage job, but because of the local property values, they've actually got quite a high council tax rate. So, I think that, in some ways, maybe we should be looking at something that does have a recognition of income or deprivation. 

Similarly, we have exemptions for things like care leavers as well, which I think is very valuable, and that links in quite well with the care leavers basic income pilot that Welsh Government is doing, because, if you actually look at the issues faced, challenges faced, by people leaving care and what we know of their life outcomes, interventions such as that are needed. And I think this is why there needs to be an objective look at, if we're going to make the system as fair as it can be in the current situation, where is it still missing, and that is where there is a case for the exemptions and reductions, to make sure that it does remain—. But, potentially, they should be time limited or reassessed as time goes on, to make sure that you don't—. You wouldn't get a care leavers allowance until you're 50, so to speak. It might be pleasant, but—. But we do—. At the same as any revaluation, a complete look at the discounts and exemptions is absolutely necessary.

Okay, thank you, Lis. And Jon.

I was just going to add very quickly, Chair, that it's a good question because it asks about, I suppose, the fairness of the system in the whole, really. Obviously, there's a question as well about how making the system more progressive might impact on the council tax reduction scheme as well, because, if you're potentially reducing the tax burden of those in the lower bands who are claiming more CTRS, the cost of that scheme may come down.

But I'll just go back to the point that there are a couple of discounts here where it's questionable, and then there's a whole list of exemptions that even I get lost when I look at them. I still don't understand why—. I'm sure there are reasons why diplomats don't have to pay their council tax. But these things have grown over time, I think. In fact, even, as Councillor Burnett has alluded to there, leaders themselves have supported things like the exemption for care leavers. In fact, I think that dates from the time when Sam was maybe a leader as well and Carolyn was in local government, because they all came together, agreed that was a good thing to do, and then the Welsh Government codified it.

Okay, Jon. Thank you very much. And thank you all for giving evidence to committee today. You will be sent a transcript to check for factual accuracy. Diolch yn fawr.

Committee will break briefly then until 11:20.

Diolch yn fawr ichi.

Croeso.

Okay. We have reached item 4 on our agenda today, then, and our third evidence session on council tax reform. And I'm very pleased to welcome, joining us virtually, Dr Victoria Winckler, director of the Bevan Foundation, Andrew Dixon, chairman of Fairer Share, and James Wood, policy manager for the National Residential Landlords Association. Welcome to you, all; thanks for joining committee today. 

I will begin with one or two questions regarding an overview of council tax reform and what's proposed. So, the extent to which council tax reform is necessary, the benefits and drawbacks of changing the system, and, in terms of the consultation, whether the current proposals, as set out, go far enough or not. So, who would like to begin? Victoria?

I'm never one to hold back. I think council tax reform is long overdue. I think it's probably one of the most unfair taxes that there is, and it's unfair in almost every way, and the mitigations aren't particularly effective either. So, I think this is a reform that's long, long overdue. 

Whether it's the—. So, the proposals in the Welsh Government consultation paper are very welcome, and I understand that this is not a small task, and it's not a task to be undertaken lightly either. That said, I think, while we've got some detail on the proposed revaluation, which is part of it, in fact, that's probably the least unfair bit of the whole scheme. And I think I'd like to see the revaluation being part of a whole package. And although there's reference in the consultation paper to wanting to look at more bands, and possibly changing the relationship between the different bands, and also reference to looking at the discounts and exemptions and reductions, I think it's difficult to know how they'll stack up without having more detail. So, I think it's a step in the—. I suppose, if I was to sum up, it's a step in the right direction, and one that's long overdue, but there's still a way to go. 

Thank you very much, Victoria. Andrew or James, would you like—? James. 

Yes. So, I would agree with Victoria's comments. I do think that council tax reform is long overdue and it would be sensible to expand the number of bands, and all of the changes are welcome, but there is more that needs to be done. In particular, one of the things that I think I'd really like to highlight here is the particularly unfair practice of disaggregation. In general, when you are letting out a house in multiple occupation to tenants, annual letting out by the room, the person who is responsible for the council tax is the landlord, and they'll be responsible for, say, a band D property and paying all of the council tax on that. Now, where the VOA comes in and disaggregates the properties, i.e. splits them into multiple separate dwellings, then that responsibility then falls on the contract holders, as they are now called as of today, and it significantly increases the costs on people who are probably the least able to afford a new council tax bill. So, while all of the changes are welcome, I think this is an opportunity to look at this unfair practice and potentially change it by formalising when the VOA can disaggregate properties and ensuring that, wherever possible, a house, as it is understood, remains one council tax band, rather than being split into, say, six or seven, based purely on whether or not a room is let separately compared to other parts of the house.

Andrew, did you want to add anything, or not?

Yes, thank you. Thank you so much for inviting me. As an alum of the wonderful Aberystwyth University, I am very, very grateful to be here. I'm chair of Fairer Share, the campaign to reform council tax. The main focus of our work to date has been in England, but I'm absolutely delighted that Wales seems to be taking the lead on this. I think those in England seem to have their heads in the sand on this issue, and, as Victoria outlined at the beginning, council tax is incredibly regressive. I think it fails to address the needs of local government funding, and I think that's the bigger issue. That's the elephant in the room on this—how we fund important services such as adult social care, which I don't think get the funding that is very much needed. So, I think fundamental reform is required.

I think, clearly, rising inequality across the country is not helpful. We're seeing, obviously, the implications of COVID, inflation, the cost-of-living crisis, and I personally believe those with the broadest shoulders do have to carry more of the burden. I was listening, obviously, to some of the submissions made earlier, and clearly I think there is definitely a sense that there is somewhat a correlation between property values and wealth, and I think, given the challenges we face, I expect we're going to have to see that those who have greater assets and greater wealth will have to carry more of the burden. So, yes. I'm delighted to be here. I can go into more detail, but I guess that may come up later. But, as a starting point, I think there is a great opportunity to be ambitious. I think reform is required. I'm a big fan of certain elements of some of the suggestions that have been made—increasing the number of bands, et cetera—but I think there is more that we can look at, and, hopefully, we'll have the opportunity to discuss that later.

Yes, absolutely. Okay, well, thank you all very much. Andrew, when you talk about—. We've gone through such a difficult period, really, haven't we, as you say. There was the pandemic, and now the cost-of-living crisis, which is hitting households so hard, and of course getting into economic recession, it would seem. You stated those as reasons to have a fairer council tax system, really, Andrew, but I guess some might say that with those difficulties now would not be the right time to press ahead with reform, given that churn and instability. Do any of our witnesses have sympathy with that view, or would you agree with Andrew? I think it's fair to say, Andrew, that you think we ought to press on. Yes, Victoria.

Thank you. I would actually say now is the perfect time to press on. I think we are seeing increasing inequalities in income and wealth, and it's unjustifiable, in my view, to continue to operate a system where the least well-off pay a disproportionate amount. It's not going to be implemented overnight anyway. We are looking at, I think, the end of 2025 before the revaluation kicks in, and probably a period after that before any reforms actually took effect. So, I think, by that time, the pressure on households ought to have eased, if we believe some of the economic forecasts, and now is the time to really take stock. The system is creaking, if not broken, and if we don't do it now, then when?

Okay. Thank you very much for that. Sam—Sam Rowlands.

Yes, thanks, Mr Chairman, and good—are we in the morning still?

Yes.

Good morning, everybody. I appreciate your time. I just wanted to touch on, perhaps, some of the reforms that you'd like to see. So, we know what Welsh Government are looking to do. I'm not sure I'd call it reform, I would call it tinkering around the edges, but there we go. If you were to look at reform and you were to do this yourselves, what sorts of things would you like to see and why would that be?

Andrew.

Fairer Share advocates a scrapping of council tax and land transaction tax and replacing both with a proportional property tax, something that's been widely endorsed by the Institute for Fiscal Studies, Onward, the Institute for Public Policy Research, Bright Blue, a variety of different think tanks. We firmly believe that the obligation to pay should move away from the tenants to the property owner. In the campaign we're running in England, the break-even rate is about 0.48 per cent, about 0.5 per cent of the value of the property; in Wales, it's a touch higher at 0.62 per cent. The reason for that is because Wales doesn't benefit from some of the multimillion-pound mansions that exist in Westminster, et cetera. So, some of the value that exists in the really wealthy parts of London help to subsidise some of the costs elsewhere. So, the break-even rate in Wales is about 0.62 per cent. We have a surcharge rate for second home owners and foreign home owners, which works out at about 1.24 per cent.

I'm super excited about some of the bits that I've read in Wales about increasing local council tax. I think it's really important for local communities. I see it in the south-west of England, I see it in parts of Wales, communities are being decimated by those who are very fortunate to have the opportunity to own second homes, may visit them for a period of the year but certainly not the entire year, and I think that places undue pressure on local councils to fund important services. I think what's worse, actually, is it forces local communities to move out of those towns to find cheaper housing elsewhere. So, I think the impacts are really profound, and I'm all for supporting seaside and holiday communities, but I think those who are fortunate to own second homes do need to pay more, whether that be double the council tax, triple the council tax, or 1 per cent of the property value, I welcome all of those suggestions.

There are many other options. I'm a big fan of land value tax. And just at the outset of our campaign, we did see land value tax as being the solution, and that would be my ideal one, but I think the practicalities of that are not insignificant. And because we run a retail campaign, we're very much trying to appeal to voters and local populations up and down the country, we want to make it easier to understand. So, a tax based on property value for us was going to be easier than basing it on land value. 

Obviously, there are other solutions. There is CGT, capital gains tax, on property. The problem with that is it's very lumpy, and you only extract the value at the end of the ownership. We'd rather tax the value of the property over the period of ownership, not at the beginning, which is what you have with LTT, and not at the end, which is what you have with CGT. So, we see it very much as a gradual tax take over the life of the ownership. 

Obviously, extra bands are helpful, and that would increase revenue. I don't think it helps those who are low and middle-income households—it doesn't really help them at all, and they're the households—. We've got 120,000 people who have signed our petition, and all these people are very much the low and middle-income households who are really struggling. And I think you've all probably seen the recent data that has come from Citizens Advice around some of the challenges that people have paying the council tax.

I know a local income tax has also been mooted. I like the idea, but I think one of the problems we have in this country is that young hardworking individuals are already paying quite a lot through income tax and national insurance, and it seems that we need to move some of that tax take away from hard work and more on to wealth, whether that be accumulated over hard work or inherited, et cetera.

So that, in a nutshell, is where we stand. We have lots of support; we've got a number of MPs—Conservative and Labour MPs—who support our work, but I'm not saying our solution is the ideal one. Absolutely, I think there are lots of different pieces we could play with, but I think a proportional property tax is a good place to start. Thank you.

Thank you for that, Andrew. Joel James, committee member, wanted to come in at this point. Joel.

Yes, thank you, Chair. Apologies, I had to dip in and out a couple of times—I won't go into it, it's long story—and apologies if I missed it earlier on, but I just wanted to come in really, because we've heard in one of the previous sessions that if we are looking at reforming the council tax system, we also have to look at how we then fund local government in Wales. I was just wondering what your views on that were, because we all represent different local authority areas and we hear so much about unfair funding, that one council area gets more than another does, and areas like Monmouth don't get as much as they would like, et cetera. Honestly, that would have an impact then on council tax—you know, doing new council tax rates and that. And I was just wondering what your thoughts were then on local government funding from west—from Cardiff. I'm all over the place at the moment, sorry, Chair.

No, it's okay, Joel. Okay, who would like to respond?

I can, if needed, but don't want to hog the floor.

No, go on, Andrew, and then we'll bring in Victoria.

Yes, I think it's a great question. I think at the heart of council tax reform is very much what needs to be done with local government finance. We've actually written a 20-page technical paper on this, because I think the interface between local government finance and referenda principles, i.e. obviously the importance of local people voting in local elections, is really important. I'm very happy to share that with the group afterwards if needed. I think there are lots of different ways that we can do it: for example, you could say, 'We'll take a certain percentage of the 0.62 per cent and allocate that to the local councils', and a certain percentage could be used for broader redistribution to perhaps local authorities who are in slightly greater need of funding.

We talked about a surcharge rate earlier, obviously on second homes and empty homes and holiday homes then, again, clearly, I'd feel that this sort of surcharge rate should be retained by local authorities because they need to then fund the important services that exist within those communities.

I think it's a great question; I think it deserves a lot of thinking, but the key bit for me is definitely honouring the referenda principles, but also ensuring that certain elements of redistribution that exist already—. I don't know the figures, but I suspect that already a number of councils across Wales do not fund all of their services through local council tax as it's raised. So, my personal view is that I do feel there needs to be redistribution. And what a lot of the supporters of our campaign have said to us is that they don't mind taxes, they just want it to be fair and easily understood and ensure that those authorities that do not have the resources available to them are suitably funded.

Thank you, Andrew, and please do share that piece of work with committee. Victoria.

Thank you. I think Joel has raised a really important question, because the risk is that we tinker with part of the system that might have unforeseen consequences without looking at the whole picture. And I think, as Andrew hinted, the first thing that should be done is to think about the principles: what are the principles that should underlie funding for local authority services, and what should then be the principles that underlie any local taxation system? And, if you do that, then you can start to look at something differently. Rather than jumping straight in and tinkering with bands and valuations and all the rest of it, I think the principles that fit something should be fair, in that, and what we mean by 'fair', in that 'fair' is in relation to ability to pay, that there should be a relationship between what you pay and what you get and that there should be a clear—. Well, there shouldn't be inequalities between different areas simply because of the historical accident of the property base that they have. So, council tax is not just unfair between people of different incomes, it's also unfair between places. So, I think if we stepped back and thought carefully about what kind of principles we want our whole local government finance system and our local taxation system to be based on, we might end up in a slightly different place than if we just jump in and start tweaking.

Yes, okay. Thank you very much, Victoria, and we'll go back to Sam.

Yes, thank you, Chairman, and I think just to carry on that theme around what is fair and whether you think the reforms that are being proposed—and I use the word 'reforms' because that's the word that Government uses—will make things fairer. And if they will make things fairer, to what extent do you think it will be fairer? Any thoughts on that would be appreciated.

Okay. Andrew.

I can only talk to our particular campaign, and our analysis and research shows that 75 per cent of households would see a fall in their local tax, and an average saving in England of £556 per year—slightly less in Wales—but, yes, the major beneficiaries are very much low and middle-income households, and obviously tenants, because a key part of our campaign is to move the obligation to pay away from the tenant onto the property owner. Clearly, property owners are going to pass on some of the additional cost in local tax to some of the tenants—estimates would be about 65 per cent of it. So, tenants usually often live in poorer housing, more modest housing, and therefore, I'd think they would be a key beneficiary of this sort of reform. There's lots of debate about who wins and who loses, et cetera, on this, and I'm happy to share that.

Yes, thank you very much, Andrew. Victoria.

I think it's difficult to tell what the impact will be, because we don't really have enough detail. I think one of the key things is what proportion of a band someone paying council tax would pay, and we don't know about that, and we also don't know about the reforms to the scheme of discounts and reductions and exemptions. So, until that's a bit clearer, I would say, certainly from the Bevan Foundation's point of view, the jury is out on the Welsh Government proposals at the moment.

Yes, okay. James.