Lyons report proves too hot a political potato

22 Mar 07
Ministers have quickly rejected key recommendations from Sir Michael Lyons' review of local government, including a revaluation of property prices and an end to capping.

23 March 2007

Ministers have quickly rejected key recommendations from Sir Michael Lyons' review of local government, including a revaluation of property prices and an end to capping.

Speaking in the aftermath of Lyons' long-awaited study, published alongside Chancellor Gordon Brown's Budget on March 21, local government minister Phil Woolas rejected the call to remove the current 5% cap on council tax increases.

'We only use capping powers to protect taxpayers from excessive increases and will continue to do so,' Woolas said. Another senior MP told Public Finance that Lyons' capping plan was 'one of many politically unpalatable recommendations that may not see the light of day'.

The government will publish its formal response to Lyons' study alongside the Comprehensive Spending Review this autumn. But as if to reinforce the political sensitivities around the Treasury-commissioned study, Brown made only a passing reference to it during his Budget speech; he merely backed the call to reduce tax relief on empty commercial properties.

The Department for Communities and Local Government, meanwhile, reaffirmed that there would be no property revaluation or changes to council tax bandings, two more of Lyons' core proposals, during this Parliament.

Speaking at the launch of his report, Lyons called for a new top rate council tax band for homes worth more than £2.5m, with a new bottom rate to slash bills for the cheapest properties.

'Council tax is not broken, but it is seen as unfair,' he said. The last property revaluation was in 1991 and Lyons said that the retention of the outdated system had reinforced local tax inequalities across England, with the Southeast benefiting at the expense of the North. However, he acknowledged that the two proposals would initiate tax rises for many families.

In response, Woolas said: 'The evidence in the [Lyons] inquiry shows that a revaluation would not have a significant impact on the fairness of council tax relative to income. It would, however, cause significant disruption for individuals and families,' he said.

'Indeed, with the forthcoming three-year settlement for local government concluding in 2010/11, [the government] would not expect to consider revaluation before this date. Even at this point there would need to be clear benefits.'

Tony Travers, director of the Greater London group at the London School of Economics, said Cabinet ministers feared that a revaluation would lead to a backlash similar to that against the poll tax in the early 1990s. It could undermine a 'flimsy' future parliamentary majority, he added.

'Council tax revaluation and rebanding are eminently sensible ideas. But, mentally, ministers are still positioned at the edge of Trafalgar Square in 1990, looking out over the riots and a rebellion against a major local tax change. They're living in fear,' Travers said.

The Local Government Association, meanwhile, expressed 'disappointment' at Lyons' decision not to recommend the relocalisation of business rates. Despite concluding that Whitehall needed to loosen its grip over local government, Lyons told PF that 'businesses were not ready to accept such a move.'

CIPFA chief executive Steve Freer, said: 'Of course there will be some disappointment – particularly around the missed opportunity on business rates. But frankly there's no mileage in dwelling there. Better to try to bag the changes that this puts on the table and continue to demonstrate that, despite less than ideal funding arrangements, local government is… delivering great results.'

Chris Leslie, director of the New Local Government Network, backed Lyons's decision, 'principally because wealthy areas would benefit disproportionately and poor areas could be penalised'.

However, LGA chair Sandy Bruce-Lockhart argued that relocalising business rates would have 'provided councils with an additional incentive to drive commercial development, new housing and economic prosperity'.

Leslie also expressed disappointment that Lyons had not proposed more changes aimed at shifting the central-local balance of funding towards higher levels of locally raised revenue. Currently town halls receive 75% of their cash from central government, which Leslie claimed has led to an 'unhealthy level of dependency' on Whitehall.

Lyons has, however, proposed the introduction of a supplementary business rate to boost town hall coffers and other, flexible charges in areas such as waste management.

There was general support for Lyons' other proposals, including his call for council tax benefit to be paid automatically to recipients, and an increase in the same benefit's savings threshold for pensioners from £16,000 to £50,000. Lyons estimated that around 370,000 people could benefit from the change.

He also called for less ring-fenced central government funding, fewer Whitehall-imposed targets and closer working between local authorities and businesses to improve economic growth.


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