Richard Harbord: Balanced budget reform and a ‘sense of safety’
0Last week saw proposals that the requirement for a balanced budget should be lifted in special circumstances. However, if granted, the move could well remove a much needed element of financial security, argues Richard Harbord.
You will have read on Room151 last week of a response to the business rates consultation to the effect that in very special circumstances the requirement to make a balanced budget in every year should be relaxed and the position instead looked at over two or three years.
This is really in response to the risks that now exist in forecasting income. In particular, the move to 50% business rate retention has highlighted the difficulties of large appeals going against an authority and leading to backdated repayments. There is no doubt that the uncertainty and sudden need to repay causes severe difficulties and that these difficulties cannot always be seen and provided for.
Even the improvements of having Valuation Office Agency (VOA) liaison officers for each authority and the supply of lists of outstanding appeals does not entirely help.
The appeals list is often very long and making a judgement about which will be won and lost is not easy if you are not closely involved on the valuation side. We know that 60% of all appeals fail, but spotting the other 40% that succeed and putting a value on them is problematic.
Improvements
The business rates steering group has had several discussions about how this might be improved but there has been no satisfactory conclusion. There have been several areas of discussion.
The first is that the number of appeals is far too high. The consultation proposes a solution in having a three-stage appeal system and possibly charging a fee to appeal as a discouragement for those who automatically appeal on the off chance.
The number of appeals is far higher in the UK than anywhere else in the world. That being said, there are actually relatively few comparable property rating regimes and nowhere is the tax so high. High charges are bound to produce a large number of appeals. I suspect, following the announcements last week about the draft rating list for 2017, there will be rating agents throughout the land preparing an avalanche of appeals.
It is difficult to argue that this is wrong. The VOA takes a view and makes an assessment, the ratepayer offers a counter argument and there is often a negotiated outcome.
The system could be improved, however. If the rating list showed how the value was reached this might reduce the number of appeals because, at present, the detail of the valuation is only available on appeal. This is rather self-defeating.
The time taken to deal with appeals is also unacceptable and leads to the hefty sums involved in some repayments. However, the VOA has, like the rest of us, lost significant resource and cannot cope with the number of appeals. Thus, the view from central government is that appeals should be reduced. We shall see if the current proposals will actually have that effect. I rather suspect not.
Uncertainty
DCLG have made two attempts at the steering group to resolve uncertainty. They suggested reimbursing the authority for the loss of income. The difficulty is that this was for “VOA mistakes”, the definition of which was unclear and would lead to uncertainty over which appeal outcomes were to be provided for by the local authority and which would be picked up at the centre.
The alternative suggestion was that the business rate be top-sliced and all appeal losses met from this top slicing. The stumbling block in this proposal, which was resisted by local authorities, was that it was unfair on authorities who have few large losses as they will be contributing more than they get from the top slice. It is a crude fix and many authorities would rather carry on reviewing the appeals, making a judgement and making a provision.
The major preoccupation at present should be the effect of the draft list. Many authorities have seen a considerable reduction in rateable values and therefore face considerably less in business rates income. However, the system resets mean that it is difficult to judge the overall effect. Decisions also need to be made on appeals on the council’s own assessments.
It is, therefore, indisputable that making and certifying a balanced budget is difficult. Business rates are only one impediment. The achievement of necessary savings within the financial year is another.
But I think that the strength of local government finance, certainly for lenders and contractors, is the sense of safety the balanced budget gives and I cannot see the Treasury agreeing to any sort of relaxation at present.
Richard Harbord is the former chief executive of Boston Borough Council.
