UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 402-ii

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

OFFICE OF THE DEPUTY PRIME MINISTER:

HOUSING, PLANNING, LOCAL GOVERNMENT AND THE REGIONS COMMITTEE

Tuesday 11 May 2004

MS CATHY BAKEWELL, MR CHRIS BILSLAND and MR PETER LACEY

MR NICK LEWIS, MR ANDREW MAY and MR FRANCIS CORNISH

MR ALBERT VENISON, MS CHRISTINE MELSOM, MR BRIAN JAYE

and MR MICHAEL SCHOFIELD

Evidence heard in Public Questions: 181 -388

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Office of the Deputy Prime Minister:

Planning, Local Government and the Regions Committee

on Tuesday 11 May 2004

Members present

Andrew Bennett, in the Chair

Sir Paul Beresford

Mr Clive Betts

Mr Graham Brady

Mr David Clelland

Mr John Cummings

Chris Mole

Mr Bill O'Brien

Christine Russell

Mr Adrian Sanders

________________

Witnesses: Ms Cathy Bakewell, Leader of the Council, and Mr Chris Bilsland, Corporate Director (Treasury), Somerset County Council, and Mr Peter Lacey, Chief Executive, Somerset Association of Local Councils, examined.

Q181 Chairman: Can I welcome you to the Committee this morning to the session on Local Government Revenue that the Committee is holding and ask you to identify yourselves for the record?

Ms Bakewell: Cathy Bakewell, Leader Somerset County Council.

Mr Bilsland: Chris Bilsland, County Treasury, Somerset County Council.

Mr Lacey: Peter Lacey, Chief Executive of the Somerset Association of Local Councils, the Parish Councils Association in Somerset.

Chairman: Does anyone want to say anything by way of introduction, or are you happy for us to go straight to questions? Then it is straight to questions. Christine Russell.

Q182 Christine Russell: Good morning. I would like to start by asking you about the survey which I believe the county council carried out. Was that survey carried out solely by the county council or did you carry it out with support from the district and the parish council? Also, in the survey of your budget options I believe the result was that the majority of people in Somerset supported one of the extremes, either the high council tax, improvements to services, or low council tax, cuts in services. Would you like to comment on how you carried it out and what conclusions you drew from the results of the survey?

Ms Bakewell: It was a survey that we carried out ourselves. We used Somerset Influence, which is a body of 5,000 people recruited from the general public which the district councils buy into; so we all use the same people but they do rotate on an annual basis.

Q183 Christine Russell: It is like a giant focus group?

Ms Bakewell: It is like a giant focus group, yes. Mainly they are contacted by television or by forums, but in the case of this particular budget consultation we also had six focus groups around the county, one in each of the district council areas and the second one in Taunton, which also included members of staff, but it was mainly through leaflets which were distributed and advertised in the local newspaper; they were in the libraries and in schools and people could ring in to get them and they were also on the Internet so they could get them off the website. I thought we had very good response. We had 4,600 odd responses, which I do not think is too bad for a county of our size. In terms of the responses that we got with the people being polarised at the two ends, it was obvious when we went to the focus groups that, although we knew from the statistics which had come out of the census that we had a predominantly elderly population with over 50 per cent of the population being over 50 and people living much longer and therefore we had a large proportion of people on pensions and also frail elderly, that when we came to the focus groups myself and my colleagues were quite shocked at the absence of younger people, young married people, and they were predominantly elderly people. Some of that was about the time that we held the focus groups and some of that was about the age profile of the areas. Certainly in West Somerset, which also takes in Exmoor National Park, the majority of the population is over 50, and we have a large retirement population, and those people are the ones that voted for 2.5 per cent. As you might imagine, they are on fixed incomes, some of them are on very, very low pensions and they just could not afford to pay any more.

Q184 Christine Russell: You may not know the answer to this, but I know in my own county of Cheshire over 50 per cent of the population are over 50. Is that not common with many of our Shire counties? Is Somerset different to any other of the Shire counties?

Ms Bakewell: I would not know about the profile of other counties. It is the case that a lot of the people from the Home Counties at least retire to Somerset, so we have an in-migration of pensioners.

Q185 Chairman: I am sorry; I did not intend to cut you off. I thought you had finished. Go on; your last sentence.

Ms Bakewell: I was going to say that we have no university. Our young people go away for higher education and they do not come back, they do not come back until they are in their middle-age and with families. There is a skew towards the elderly.

Q186 Sir Paul Beresford: The options you give where you talk of cuts, you directly relate those to cuts in services and cuts in finance together. Any big organisation would be looking for efficiencies and, particularly with the gearing effect, presumably an organisation with a budget as big as yours, a 1 per cent or 2 per cent cut in expenditure through efficiencies should be easily managed, I would have thought, and therefore have dramatic effect, through gearing, on council tax.

Ms Bakewell: Gearing has a dramatic effect, and I am sure you are all aware of that. Before we went out to public consultation we had already gone through some very stringent efficiency savings and had taken 4 million out of the budget through that process.

Q187 Sir Paul Beresford: What is that as a percentage?

Mr Bilsland: As a percentage of our spending? We had already taken out about £4 million savings, or £4 million in cash, so that is about 1, 2 per cent in total. In council tax terms that is more like 5, 6 or 7 per cent, but we did not consult on that because we knew that people would vote for efficiency savings, so all people saw were the cuts options after we had made the efficiency savings.

Q188 Chris Mole: What is that as a percentage of the non-schools budget?

Mr Bilsland: Double the figures basically; so sort of 10 per cent.

Q189 Sir Paul Beresford: You will find that expenditure has gone up dramatically throughout the country for every local authority if you sum them up together. In the last ten years it has gone up about 72 per cent. Do you feel that government interference through best value, CPA, inspection, and so on and so forth, has contributed massively to that?

Mr Bilsland: My answer would be, "Yes". We have never seen an Ofsted report, we have never seen an SSI report that did not encourage us to spend more money. They are always routing for more with the backlash of consequences. Passporting forces council tax up because, members may know, the Government improved the schools funding position this year by requiring local authorities to passport even bigger figures into schools by increasing the floor, but we need to put more money into the system to make that happen. What we found was by the time we start our budget process the whole of the allowable increase was swallowed up by having to meet the prospective target. But it is not just education, we have similar pressures on social services, we have similar pressures even on the library service where we are under pressure from the department to improve and increase our spending on library books.

Q190 Sir Paul Beresford: Would the same apply to district authorities? If I could use Torbay as an example. It is written up as a weak authority. They tell me that they are a weak authority but they are now being clobbered with 24 inspections programmes next year which is going to cost them £2.5 million on top of the budget?

Ms Bakewell: It is the case that when authorities are rated as weak or poor there are more inspections for which authorities have to pay, and it is a bit of a bone of contention that you have to find money to pay for the inspectors, which I would not say we could do without, it is right that we should be inspected, but the level of inspection is very, very onerous.

Q191 Christine Russell: Can I ask you a particular question that arises out of your submission. You are aware that the Home Secretary has mooted the idea of perhaps there being a local levy to pay for additional policing if local people are prepared to pay a little extra to support it, but you are dead set against any kind of local referenda to decide local spending priorities. Do you want to elaborate on why you are against local referenda?

Mr Bilsland: One of the reasons why we are against local referenda comes back to the results from our own consultation process. As Cathy was saying, part of it was the focus group meetings, and one of the things we did in those focus group meetings was we polled people before they came in and said, "What sort of council tax increase do you think you would be prepared to pay: 2.5 per cent up to 11.5 per cent?" Then we polled them afterwards, after we had been through all the case, all the explanations, all the consequences, and we found a very substantial core of people would not change their position regardless. We know there is evidence to explain that part of the reason for that is simply that people cannot afford to pay a council tax increase, but many people can afford to pay but they are simply not prepared to pay any higher taxes for any public services under any circumstances.

Q192 Christine Russell: Is that because they assume others are consuming the services rather than themselves?

Mr Bilsland: That would certainly be one of the reasons, would it not, yes. We found, for example, elderly people tended not to be very supportive of schools funding. There again, younger people were not very supportive of the care of the elderly either, were they? You could view that as a denial of old age, but we felt, hang on, how useful is it to have a referenda? Before you even start there is going to be a substantial majority of people who simply will not pay any more regardless?

Q193 Mr Betts: Let us come on to the issue of the balance of where the funding comes from, either from locally raised taxes or from the centre. What difference do you think it would make to the accountability of the county council if the amount of money that you spent that came from local taxes was increased?

Ms Bakewell: I think that would be good. I think there should be local accountability for the money that is spent, and it should be raised locally. I think that is the right way forward. It is much more transparent. People can see where their money has gone. They can, through consultations such as the one we have done, have an input into where that money is spent. However, they have to be able to afford it, and currently council tax is not affordable.

Mr Bilsland: I think, Cathy, we would add to that that if business rates was repatriated, which we believe is the case, that would also result in a much better connection between local authorities and local businesses, which would also be seen as a very good thing.

Q194 Mr O'Brien: Would you say that the same principle should apply to business rates, that the business should be able to afford it?

Mr Bilsland: Business would say it cannot afford higher taxes, but we are saying two things really. First of all, we are saying let us repatriate it to begin with and that would improve the balance of funding and accountability; then let us look again at whether a business is paying its fair share, although our experience is that local council tax payers are having to cover the costs that business might have been paying had we had a local system.

Q195 Mr Betts: What do you think might be a fair and reasonable split then? Currently, I think, from the figures that we have had, Somerset has a relatively high percentage of its spending funded by local taxation. I think it is 37 per cent of the total, which is higher than the national average of 25 per cent. What balance do you think we should be working to on a national basis?

Ms Bakewell: I would think over 50 per cent, between 50 per cent and 75 per cent is reasonable to be supported locally, but, as I have said before, it has to be affordable, especially relating it to the local householders.

Q196 Mr Betts: So we are going to increase the amount raised locally, and the grounds for that is that that gives you greater accountability. Is that the real reason?

Ms Bakewell: It gives us greater accountability. However, if more is raised locally and we still have the same government restraints on what we spend the money on, then that would, I think, be unreasonable, and that would not be transparent, and I do not think the local population would understand that. I think there has to be some relaxation by government on what the money is spent on. Whilst I support putting money into education and have always done that and would always passport through to schools wherever possible, the increasing trend towards ring-fencing is not particularly helpful. Is local government there just to deliver National Government's priorities?

Q197 Mr Betts: We may come on to that in a minute, but still on accountability, how do you think you can measure whether accountability is improving? One idea is that we ought to be looking at the turn-out in local elections?

Ms Bakewell: Yes.

Q198 Mr Betts: Would you see that was a reasonable measure of accountability, that if we say to local authorities, "You have got the right to raise more taxes locally, more of your spending will be funded locally", then turn-out, or if it does not then it has failed?

Ms Bakewell: It would not just go up because more money was raised locally. There would have to be other measures in which the local population were engaged as to how the money was spent. Certainly a lot of what I do is about trying to re-engage the public with the county council, which is often seen as remote and just providing the Government's agenda rather than following the one which the local people want. So there are some issues about re-engaging the electorate, but certainly electorate turn-out is very, very important and in the county, in the rural areas, there tends to be a much higher turn-out than in the urban areas.

Q199 Sir Paul Beresford: Can I ask you to explain what I see as a small quandary? You say you want it to go up to perhaps 50/50 Central Government funding, which increases accountability. On the other hand, you have done your efficiency cuts and you cannot cut your expenditure, therefore the council tax will go up dramatically, and you then make the differences with shifting Central Government off your back. Is that going to be sufficient: because you told us at the same time that if the council tax is too high the rebellion that has already come up over the last couple of years is going to be even worse?

Ms Bakewell: It is a difficult situation. It is not a question of just getting government off our back, it is a question of a balance between local government priorities and national government priorities and about where the funding actually comes from. At the moment the effect of gearing is such that the withdrawal of central government grant, in order just to stay still the council tax has to go up 4 per cent for every 1 per cent increase in spending. That is a very difficult concept to get over to members of the public; very, very difficult.

Q200 Chris Mole: How much grant have you had withdrawn?

Mr Bilsland: In terms of withdrawal, we have lost grant through forum resettlements and part of our case has always been to refer resettlements on the way that money is shifted away, not just from Somerset, but from the South-West generally into other areas. For example, the year before last, we lost over $12 million worth of funding through what was then known as the Resource Equalisation Process. That did not result necessarily in cash because, as you must know by now, the system is totally complicated with floors and ceilings, but if you

said--

Q201 Chris Mole: You have not actually lost any cash?

Mr Bilsland: You never know what you have lost, because the forum does not tell you what you would have had had some of these things not happened. We know we lost what was called the "Formula Spending Share" of £12 million. The Formula Spending Share results in extra cash. Quite how much - it is not pound for pound - we do not know.

Q202 Chris Mole: At the time when the grant was going up?

Mr Bilsland: That is right, but what we do know is if we had a fair level of funding from the county council, for example, we would have extra grant in the territory of at least £20-30 million, at least £20 million, of source funding to get us up to an English average plus at least another £10 million for all the services. So those are quite big figures, £30 million, so that is worth another 15 per cent, 16 per cent on the council tax.

Q203 Sir Paul Beresford: The local protest on the council tax coincides with it?

Mr Bilsland: Yes.

Q204 Chris Mole: The resources that central government allocate are, as we were just touching on, both ring-fenced and passported. You have described this as undermining local democracy with the current arrangements. Can you explain what effect ring-fencing and passporting has on county council budgets, what discretion you have and how you exercise it, and, in practical terms, what is the difference between ring-fencing and passporting?

Ms Bakewell: In terms of passporting, there always has to be a debate about whether we are actually going to passport to schools. You have to have that debate - it is quite right to do that - and if you choose to passport, which we always have done because we support schools, what have we got left with the rest of the services? There are key performance indicators for every service and, in order to deliver on a lot of KPIs, there has to be resource input. So there is then a debate about, "Okay, which of our KPIs are we going to put at the top of the list?", and they are always those about elderly and children on the at-risk register and those people who are extremely vulnerable. So you work down the list until you get to those services which are important, but you have to prioritise them. Then there will sometimes be things like trading standards. Well, that is important, and people do value trading standards services, but at the end of the day you have to balance the budget and, in order to keep the council tax down at a level which people can afford and are prepared to pay, there have to be some very tough decisions made.

Mr Bilsland: In two other areas - it is not just schools - on the care of the elderly, for example, we have bed-blocking and bed-blocking fines, and certainly we have no choice really, even though we wanted to anyway, we have to fund care for the elderly costs. It would have cost us more not to have done that, but also, on capital, our local transport planning settlement is a big capital investment. Want to do it. It is made very clear to us by Government office that, if we do not fund capital investment on transport at NTP levels, then future settlements will be massively reduced in all this funding; so again there is an indirect impact.

Q205 Chris Mole: So you have to find the revenue implications of that coupled with funding implications?

Mr Bilsland: Indeed, although we do get some support for the costs. Ultimately we have to meet the capital financing costs, the borrowing costs.

Q206 Chris Mole: I think, Cathy Bakewell, you were touching on the priority that you give to education, including it is a central government priority which is delivered by local authorities to national standards. It is not justifiable for the Government to ensure that the resources to which it gives such high priority are delivered locally?

Ms Bakewell: Yes, I think that is the case, and it would be my priority as well, is the other ring-fencing that we have had difficulties with, and, as we have already indicated, education is not necessarily the priority of quite a large section of our population. I personally find that quite sad, that some elderly people, a large proportion of elderly people, are not prepared to put money into education; they perceive that education is adequately funded. It is a priority for is. We have to sell that to the members of the public that we are going to put money into education, because not only is it the Government's agenda, it is our agenda as well because children are our future.

Q207 Chris Mole: So do you think there is ever any justification for capping as a final resort? Surely the Government needs to be able to put a ceiling on it at some stage if efficiencies are not being achieved in councils or, as maybe has been described already, some local electors just cannot afford it?

Ms Bakewell: I think capping is a pretty blunt tool. It does not really relate to the local population. If councils raise council tax too high the local electorate will pretty soon let them know.

Q208 Chris Mole: One used to say it was a blunt tool when it was universal, but six authorities this year have been capped. It is not quite so blunt; it is quite precise?

Ms Bakewell: It is quite precise, but it does not help them. It does not help the residents in their area. They will have to pay more for the same services if they are going to be re-billed, and that is just dead money: it does not produce any better increase in services. I think capping does not work. Councils still have priorities. They still have the people there which they have to provide the services for. I think it is better for councils to relate to their electorate and to their residents and for them to decide what is an adequate level.

Q209 Chris Mole: So you do not think it was the threat of capping which kept increases that were on average somewhere between 10 to 20 per cent last year in low single figures this year?

Ms Bakewell: It was there in the background, but it was not an overriding factor with me. The overriding factor was the number of letters I was getting from the elderly, pensioners and people on low income.

Q210 Mr Clelland: To go back to the question of education spending, you say it would be a priority for you too. You would acknowledge and support that. Where would that put you? If we had greater local accountability in an authority like yours where you say the majority of the population, or a huge section of the population, do not give education the same priority that you would yourself, how does local accountability affect that?

Ms Bakewell: Obviously you have got the pensions on the one side and then you have the parents of the children on the other side. The parents of the children, the teachers in the schools and the head teachers are all very supportive of the education that we provide. We are a three-star LEA and the education that we do provide is first-class. We have very, very few schools with serious weaknesses, and we do not have any in special measures. The two divides come together, if you like, and the council has to decide on that, but we are elected to deliver services and, on the one hand, we are delivering services and education to children and young people and, on the other hand, the other main priority is obviously the frail elderly.

Q211 Mr Clelland: But at the moment, as far as education is concerned, central government is dictating the priority even though you support it, because it is ring-fenced and passported, etcetera. If that central government funding was lifted because you want greater local accountability, is there not a danger that education will suffer in an authority like yours?

Mr Bilsland: We did some research on this. In the days before passporting, local authorities already spent a lot more on education than the old SSA figures. Now that you have got passporting most councils start off well with passports, no more and no less, i.e. the evidence is there, but if there was local choice there would be even more spending on education than as a result of passporting.

Q212 Mr Clelland: In Somerset?

Mr Bilsland: Nationally.

Mr Clelland: We are talking about Somerset!

Q213 Chairman: Let us make it clear. Do you think that more should be spent on education? If you had total local control you would spend more on education, or would you spend less?

Ms Bakewell: If we had more money we would certainly spend more on education. As Chris has already indicated, we are funded below the average.

Q214 Chairman: If you had the chance to raise more money locally, would you raise more money locally?

Ms Bakewell: If it were affordable, yes, I would.

Q215 Mr Sanders: I am intrigued by your answer on capping, that the threat of capping was not what kept your budget down but actually the representations from the public. In areas that are being capped there is a case where the public are actually egging the Government on to cap those authorities. If you are capped is it councillors who feel the pain, council officers or is it public?

Ms Bakewell: The pain is felt by the public because of the rebilling costs, because that, as I said before, is dead money, you do not get anything for the cost of rebilling, and that obviously goes on to the council tax, or the service cuts which support that; so, yes, it is the public.

Q216 Mr O'Brien: You referred to gearing two or three times this morning and the unfairness of gearing. This brings in the question of parish town and city councils. It is a very interesting situation because gearing does not apply to them. In your opinion what effect does this have on local councillors when they come to make their decision on spending for the parish and town councils?

Mr Lacey: So far as the parish and town councils are concerned, they are delighted to have direct accountability, much closer to the people than perhaps the principal authorities. If they wish to spend money locally on a particular project, it is likely they will have held a parish meeting to discuss it. For instance, in my own parish, I have the question of street lighting coming up in a fortnight's time - a wonderful rural issue - but it is all about spending, it is all about directly involving local people: because it is a meeting in the village hall held locally in the evening, we will get probably one-sixth of the total population of the parish turning up at that meeting. The hall will be full. That is very good direct accountability. It does not suffer particularly from the problems of the volunteer shortage.

Q217 Mr O'Brien: What would be the average age of the people in the hall?

Mr Lacey: Complete representation. There would be complete representation: mothers of young children, that age group, right the way through to the older people.

Q218 Mr O'Brien: There would not be the over 50's group then? We have been told that one of the problems we have is the fact that a substantial number of the population are over 50. Council tax is unfair; gearing is unfair; we are looking for alternatives. In your case then the people who attend the parish meetings are the younger population?

Mr Lacey: They would represent the community that we have. Therefore, if there is a large proportion of over fifties, then, yes, that will be represented. It goes on the parish.

Q219 Mr O'Brien: The meeting you attend?

Mr Lacey: The meeting I attend, I would say it would reflect the whole parish, and therefore the over fifties, the grey brigade, will tend to be, not a majority, but a significant chunk of the meeting.

Q220 Mr O'Brien: So this unfair campaign then, the council tax, does it apply to parish councils?

Mr Lacey: I do not think it does, because the sort of increases you are talking in terms of at parish level are going to be a 10 per cent increase on £50 a, year: two pints of beer a year increase, and if they know that is going to be spent on improvements to the village hall kitchen or providing swings and slides, directly, immediately to their benefit, they will do it.

Q221 Mr O'Brien: Why should that 10 per cent go on education, or social services?

Mr Lacey: I cannot explain why they might object to that. The figures are much larger. I think that is the problem. They also feel more divulged from it. We are talking, at parish level, of local facilities, local decisions.

Q222 Mr O'Brien: Education is local, is it not?

Mr Lacey: What is "local"?

Q223 Mr O'Brien: Education and social services are local.

Mr Lacey: I am talking settlements of two or three thousand. So the one school: if we had local control by the parish council of the school that would be local. I do not suspect we are.

Q224 Mr O'Brien: It is a question of what you judge to be "local"?

Mr Lacey: Yes.

Q225 Mr O'Brien: And the question of--

Mr Lacey: That is a very difficult word, because we are called "local councils." The county council are called "local government", so the word means totally different things depending on through which end of the telescope you are looking.

Q226 Mr O'Brien: On the question of the county council, when the county considers their budget for the year, what part does gearing play in that resolve?

Ms Bakewell: Chris is probably best answering that, but it plays a huge part, because we are aware that if you want to put more money into social services, you want to provide more care in the community, then that is going to have a dramatic impact on the council tax, because a rise of 1 per cent is going to work through to about a 3.5 per cent, 4 per cent rise in council tax; so it does have a dramatic effect?

Mr Bilsland: That is absolutely right. I think 1 per cent on council tax for the County Council is £1.8 million, 1 per cent on the budget is £4.5 million. So obviously a one per cent movement in the budget has a three-fold impact on council tax, and members are very sensitive to that. That means, of course, that when you get such volatility in government grant, you get huge impacts on council tax, and it is impossible to explain that to council tax payers, why these relatively small percentage shifts at one end of the system result in quite big numbers at the other end.

Q227 Mr O'Brien: What percentage of your expenditure do you think should be raised from local taxes?

Mr Bilsland: We said at least 50 per cent, and a further 75 per cent should be raised locally, and, of course, if business rates was localised that would immediately take the figure up to about 60 per cent.

Q228 Mr O'Brien: You are suggesting that 60-75 per cent should be raised locally?

Mr Bilsland: Between 50 per cent and 75 per cent, yes.

Q229 Christine Russell: Can we move on to talk directly about the council tax, because those who are in favour of retaining it argue that virtually every country has a form of property tax, and also it is far cheaper to collect than income tax. Why do you feel it should be abolished and replaced by a different form of tax?

Ms Bakewell: Because it is not related to people's ability to pay. We have seen huge rises in house prices in recent years so that young people quite simply cannot get on the housing ladder. Elderly people are staying in the houses that they moved into when they started their families, they are living in the area.

Q230 Christine Russell: Can I just stop you at that point. You are talking about young couples. Two young teachers struggling to find affordable housing in Somerset, but still earning a reasonable above the average wage, they are not going to be any better off, are they, if we abolish council tax?

Ms Bakewell: No, but, as I have already indicated, a lot of people are elderly and it is the elderly who are struggling. Somerset is quite a low-wage economy. We also have some people who have come into the area with quite considerable incomes who could afford to pay more. The house prices have gone up, and I think that local income tax, which would be based on people's disposable income, related to their ability to pay, I think people will see that that was much fairer. Obviously there are people at the upper end of the spectrum.

Q231 Christine Russell: What evidence have you got for that? From all the surveys that you have done, what evidence have you got that these older people moving into Somerset are prepared to pay more in local income tax?

Ms Bakewell: All the surveys that we have done out in the market place and door-to-door have come in overwhelmingly in favour of the abolition of council tax and the introduction of a local income tax. People can see that if they have got a low income then they pay very little, and if they have got a high income then they pay more. I think that is predicated towards people's ability to pay, and I think that is fair and people can understand that. They do not understand that it is fair for somebody, an elderly couple that live in what is now a band D or band E property because of the way in which house prices have risen, although when we get to the revaluation it will be worse for them. They are still living on very straightened circumstances; pensions have not kept pace.

Q232 Christine Russell: In your experience are these people who are saying, "Yes, abolish the council tax", aware that if you introduced a form of local income tax every person who pays income tax, like the poll tax, will in fact have to make a contribution. It would not just be one amount per household?

Ms Bakewell: Yes, I think they are. They see that if they have income then it is assessed on their ability to pay.

Q233 Christine Russell: Can I ask about the Association. How do your members in general feel in Somerset? Do you want to see the council tax abolished or do you want to see it reformed?

Mr Lacey: We are back to: what is the meaning of the word "local". Local income tax can be applied at county level quite easily. You can see the administration coping with 38 different rates, but 20,000 different rates! Therefore, can local income tax deliver to the parishes the ability to vary the tax parish by parish, which is so key and upon which they actually have security for borrowing? Without a local variable tax would we be able to continue to borrow the funds for particularly large projects? So it does strike at the heart of what is local.

Q234 Chairman: In asking local people whether they prefer local income tax rather than the council tax, have you given them some illustrations of what it would mean on their bills? As I understand it, you are not saying that Somerset should get more money from central government, you are simply saying that the bills should be reallocated. As I understand it, someone in band D is paying at the moment about £20 a week for all the council services. If a lot of pensioners were not having to pay that £20, some groups are going to have to pay a significant amount extra on their income tax, are they not? Have you given any illustrations of what it would mean for people who are very low earners but paying income tax?

Ms Bakewell: There are illustrations for people based on their income about what the effect of local income tax would have on them. The party has produced a document, yes.

Q235 Chairman: "The party" - is that the council or is that the Liberal Party?

Ms Bakewell: No, the Liberal Party. Obviously I am a Liberal Democrat. It is our party policy, so, yes, the party has produced a document.

Q236 Chairman: The question was whether the county council had done that, as opposed to--

Ms Bakewell: The county council, as an organisation, has not done that. At this moment in time it is still a political issue.

Q237 Sir Paul Beresford: What is the political make-up of Somerset?

Ms Bakewell: 29 Liberal Democrats, 24 Conservatives, five Labour.

Q238 Christine Russell: Can I just ask you a final question, which is about second homes. I think you indicated earlier that there are a substantial number of second homes in the county of Somerset. What are the districts doing about the council tax discount on those second homes? Have they abolished it?

Ms Bakewell: Yes.

Q239 Christine Russell: They have. Across the county?

Ms Bakewell: All six councils, the five districts in the county, have had a motion through the full council to implement the 90 per cent council tax on second homes, and we have all agreed that the money will go to the local strategic partnerships, that is the district strategic partnerships, to be allocated against their spending priorities which are drawn up from their community plans.

Q240 Christine Russell: Maybe this is a question more for Mr Bilsland. Have you done your sums in Somerset on the likely effect on house prices if the council tax was abolished?

Mr Bilsland: I do not think we have seen any evidence that there is going to be an automatic effect on house prices anyway if council tax was abolished. The theory is that a tax on property will depress house prices, but, as we have seen with interest rates and mortgages, house prices are quite insensitive to these sorts of things and therefore we have not done that. What we have done research on, we have done research on what the impact will be of council tax revaluations, and we do not like the look of that, which is another reason why the council is against council tax.

Q241 Mr Sanders: Coming on to that, the South West has seen house prices rise far higher than the national average, and the revaluation, which is supposed take place by 2007, will have a significant impact on the council tax bandings in the South West, probably with many people seeing themselves jump up at least a band. The protests that we have seen last year to the Devon rise and the Somerset rise, and this year, are probably nothing compared with the protest we will see as a consequence of that revaluation. In that sense, given the South West perspective on this, is council tax actually sustainable after the revaluation?

Mr Bilsland: If I can quote some figures on that. The figures we have seen are that nationally revaluation will uplift the tax base by about 15 per cent. The South West uplift will be 18 per cent, which is the point you are making. So that 3 per cent uplift results in a 10 per cent increase in council tax, and when you think where that is going to fall, it is going to fall on the people who can least afford to pay it. An element will fall on people who are already in band H, because, of course, this extra tax is paid by people in other bands, as you are saying. So the very high earners in the very expensive properties are neutralised by this. This will be impacted, as you say, by people in the Bs, the Cs and the Ds, the nearly poor, the people who can least afford it, and actually council tax revaluation will not survive, council tax will not survive a simple uplift like that, something else has to be done to neutralise the impact of that.

Q242 Mr Clelland: Are you saying that this would mean no more revenue for the council on that simple basis, that there will be no more revenue for the county council?

Mr Bilsland: No, the way the system works is that government grant equalises needs and resources. So, all other things being equal, if council tax revaluation happens and properties in Somerset and the South West go up a proportion more than the rest of the country, the government reduces grants to neutralise the impact of that. So as government reduces grants, that means therefore that tax payers in the South West will end up paying more council tax, but tax payers elsewhere in the country will pay less.

Q243 Mr Clelland: There will be a balancing out?

Mr Bilsland: Yes, there will be, but region by region there will be winners and losers.

Q244 Chairman: Would you prefer to see more bands on the council tax? Would that ease the problem?

Mr Bilsland: Banding sort of bandages the problem, does it not? An extra band at the top of the property range would be right, because at the moment people, as we know, council tax is all banded around band D, so at the moment people who are in properties worth four times the value of Band D are paying twice the council tax. That does not make any sort of sense. So extra bands will help at one end, extra bands at the bottom will help, but it is bandaging the problem, it is not fixing it.

Q245 Chris Mole: What is the most numerous band in Somerset?

Mr Bilsland: Sort of C and a half.

Q246 Chris Mole: Which is higher than in many places?

Mr Bilsland: Yes, absolutely.

Q247 Chris Mole: Which will quite often be dominated by As and Bs.

Mr Bilsland: There are many councils in the north which are virtually all As and just a few Bs.

Q248 Chris Mole: So it indicates that Somerset probably is wealthier, and should expect to--

Mr Bilsland: No. Average earnings in Somerset are low, and I think the research is there that in the South West generally there is a bigger gap between earnings and house prices than anywhere else in the country. Although house prices are high, for example, in the South East, their earnings are higher. I think the gap is about 10 per cent. Well, I know. The gap is 10 per cent in the South West. You know, council tax is 10 per cent more expensive in the South West than in the rest of the country.

Q249 Sir Paul Beresford: The crux of the problem is the one you touched on earlier, and that is that revaluation will shift the proportion of houses up the band. Therefore the Government assesses grant, assesses the so-called ability to pay, you will lose grant because of that shift. So that extra banding does not necessarily make any difference, because if they put an extra band at the top and an extra band at the bottom and you shift, you still lose and that load has to go on the council tax payer?

Mr Bilsland: The extra bandings will, as I say, bandage the problem a bit, but it will not make a fundamental change to that loss of grants, yes.

Q250 Mr Sanders: The fundamental problem here is the ratio between income levels and property prices, and even within a region like the South West, there is a significant difference between the far South West and the North and East of the South West where you have some of lowest incomes in the United Kingdom, in Cornwall and in some parts of Devon, and the second highest house prices in the United Kingdom. That makes this tax unsustainable, pretty unsustainable at the moment, but if you were then going to levy an even greater charge on those low income earners simply because their properties are so popular - it is not money they can realise - it is going to become unsustainable and government needs to be warned about that, that the protests of last year are nothing compared with what is going to happen at revaluation across the South West region. It will be up in flames?

Ms Bakewell: Yes, I totally agree with that.

Q251 Mr Cummings: If I can turn now to council tax benefit. I certainly recognise that the county council's preferred option is the abolition of council tax; but let us assume that the Government intend to continue to keep it. What changes do you believe should be made to the council tax benefit system?

Ms Bakewell: It would be better if it were easier to claim. It would still not be claimed by some people. Some pensioners are far too proud to claim benefit, they feel they have failed if they have to claim benefit, and they would attempt to struggle on in quite desperate poverty in some cases. I do not think it could become a universal benefit, how that would be implemented if it would, but it needs to be, we need to have a big campaign to make sure that people understand that it is a benefit to which they are entitled in order to get more people to claim.

Q252 Mr Cummings: Do you have any specific changes in mind to improve the system?

Ms Bakewell: I am not a council tax benefit expert, but we do have members of staff working with district council members of staff to increase the benefit take-up throughout the whole of the county, and we work in conjunction with the Citizens Advice Bureau to do that.

Q253 Chairman: What is the level of take-up now?

Mr Bilsland: The last time we did a count, as far as Somerset was concerned about two-thirds of people who should be claiming benefit were actually claiming it. When we did work to find out why they were not claiming it (and this is what Cathy was saying, and of course, it is incredibly complicated) in areas like Somerset there is not always the support network available for people to go about knowing how to fill the forms in. It is not just that people are too proud to claim benefit; sometimes they do not know how to access it.

Q254 Chairman: Are things improving or getting worse in terms of take-up?

Mr Bilsland: In terms of take-up, much improved, because we identified this as a problem four years ago and we put extra funding into the Citizens Advice Bureau and Help the Aged specifically so that people could go out and help people fill these forms in and since then we have even more work for our own direct county council services. It is improving, but even now there is a strong substantial group of people in near poverty who cannot or will not claim this benefit, despite our best efforts.

Q255 Mr Cummings: What percentage more of people are claiming now than before you started the exercise?

Mr Bilsland: Four years ago less than half the people in Somerset who could have been claiming benefit were claiming it. We think the figure now is about three-quarters, so we have improved it by 50 per cent, but it is still not very good.

Q256 Mr Betts: This issue of local income tax. In some ways your response is really one of a response to pressure of circumstances, is it not? You have got the pensioners particularly complaining about the level of council tax; so what you are going to do is abolish the council tax, bring in local income tax and therefore shift the burden of taxation from the elderly to younger people?

Ms Bakewell: No, you shift the burden from those who cannot afford it--

Q257 Mr Betts: That is what is going to happen, is it not? The elderly are the ones you are saying have got low incomes and often quite high house prices. If they are going to pay less, then younger people are going to pay more?

Ms Bakewell: People on higher incomes will pay more at the moment.

Q258 Mr Betts: No, no.

Ms Bakewell: Some of the younger people will pay more, some of the elderly people who are on high incomes, because there are some of the elderly on high incomes, would also pay more. It is a nonsense that somebody on a fixed income should pay 10 per cent of their disposable income in council tax and yet somebody on a very high income only pays 1 per cent of their income in council tax. That, quite clearly, is unfair.

Q259 Mr Betts: The people who are asset rich but have not got very high incomes tend to be elderly. They are going to pay less under the arrangements you are proposing; so there is going to be a shift of taxation from elderly to younger people. That is what you are proposing. That is the effect of what you are proposing?

Ms Bakewell: It is the effect in some areas, but it is more of a shift from those that do not have income to those that do have income. Some of those will be young people.

Q260 Mr Betts: From those that do have assets to those that do not have assets?

Ms Bakewell: Yes.

Q261 Mr Betts: The second issue is: you have already said that you do not want to have any more money raised from central government. You are not looking for central government to fund this change, you are looking to change the way in which money is raised locally. You have also said that Somerset is a low wage area. That is what you have said to us. If it is a low wage area but you have got to raise the same amount of money, you have got to have a high rate in the pound of local income tax in Somerset, have you not?

Ms Bakewell: It is possible, yes.

Q262 Mr Betts: You have explained this to people, that people in Somerset are likely to pay higher rates of income tax than other places in the country. This is the result of what you are suggesting?

Mr Bilsland: But the county council also supports a grant system which equalises needs and resources.

Q263 Mr Betts: You are just saying now that you are expecting to have more money coming from the centre to balance out this situation, but a minute ago we were told that we are not talking about shifts in funding at national level, we are talking about a change in the way the money is raised locally. You cannot have it both ways.

Mr Bilsland: The argument in the South West, if not Somerset, is that regions will be winners or losers in the local income tax. It is obvious that an area like London, for example, will be a massive winner because of the tax earnings; so there would have to be a system, as there is now, to equalise resources.

Q264 Mr Betts: So it is not simply a matter of raising money in a different way, it is about a completely different system of taxation where you are going to shift the money around the country so that some areas pay more than they do now and others pay less. Is that right?

Ms Bakewell: That is what happens now.

Q265 Mr Betts: No, from what happens now you are proposing a change in the way that money is raised locally that will only work if there is a redistribution of money nationally between different areas?

Mr Bilsland: A different distribution, yes.

Mr Betts: That is different to what was said before, when we were told it was just a different way of raising money locally.

Q266 Chairman: You assured me that in fact you were not asking for more money from central government, you were simply asking for the money raised in Somerset to be raised in a different way. That is not what you are asking. What you are now asking is that the rest of the country puts up more money so that the bill, whether it is council tax or a local income tax, is lower in Somerset?

Mr Bilsland: What--

Q267 Mr Betts: Yes, is it not?

Mr Bilsland: Nationally there is no need, is there, for more money, but there needs to be money to be redistributed between regions.

Q268 Mr Betts: Okay. Can we go on to another question? We have been told that council tax has some failings because it is not buoyant; it does not rise nationally; you have to put the level of council tax up each year to bring in extra money. Is not one of the problems with a local income tax that it can be very buoyant when the economy is doing well, but you do your budgets and then, through no fault of your own, there is a recession - probably not under a labour government but like the one we had at the end of the 80s beginning of the 90s when we had a significant recession - so the money you would get as a local treasurer would fall significantly from local income tax. How does the local council cope with that? It cannot go and borrow for revenue purposes. How does it cope with that situation?

Mr Bilsland: The research that we have seen, and I think the most recent research is the research that CIPFA did for the Balance of Funding Review, was very explicit that there is a variability about income tax collection levels, but it does not change over night; and there is no particular reason, I think, why councils should not be able to manage their affairs within the money that is available if they are good at financial planning.

Q269 Mr Betts: How do you plan for a downturn in the national or the world economy, which could very easily see local income tax figures drop by 5 per cent - that is not unreasonable. Even with the gearing you are talking about at 50 per cent in front of the national locally, that is a 10 per cent fall in your services. Can you cope with that easily?

Mr Bilsland: The research that went in from CIPFA into the Balance of Funding Review said, "Yes, this could work."

Q270 Mr Betts: So you can cope with a 10 per cent cut in your services over night?

Mr Bilsland: Councils could cope with the variability and the fluctuations that were there through--

Q271 Mr Betts: What, 10 per cent, just like that! It would make your surveys of public opinion quite interesting, would it not?

Ms Bakewell: It would, but then under the old system if there were suddenly mass unemployment people would not be able to pay their council tax anyway and the level of council tax would go up.

Q272 Mr Betts: But then they would be on benefit, would they not?

Ms Bakewell: Yes, but we would not get any more money.

Q273 Mr Betts: They would be on benefit though. Of course. You have also talked about a number of changes: the bringing in of local income tax, the abolition of council tax and the localisation of a business rate. What sort of time period are we talking about to get all those changes in?

Mr Bilsland: The repatriation of business rates could be fairly quick. It was quick when it was centralised, so it should be quick when it is decentralised, although again there are distribution issues. Obviously local income tax, the research that CIPFA put in said it would take, I think, up to four years to make this thing work, but we are looking for a sustainable solution. When council tax came in, those of us who were around at the time will remember, there was never a sustainable solution then. If you remember, council tax came in on the abolition of poll tax and only happened because VAT was increased from 15 per cent to 17.5 per cent. So people were in the position of saying, "We do not like council tax very much, but it is less than I used to pay on the rates or it is less than I used to pay on the poll tax".

Q274 Mr Betts: Four years. Do you think you could manage it in four years with all the changes?

Mr Bilsland: CIPFA have said it would take at least four years, I think, for local income tax to be put in place, so we have to go by that research, I think.

Q275 Chris Mole: How many people would disappear out of the local tax system because they are self-employed and what would the impact for local income tax be for Somerset?

Ms Bakewell: I do not know.

Q276 Chris Mole: Would it be likely to be significant?

Ms Bakewell: There are quite a number of small businesses who employ less than five people. There are a smaller number of sole traders. Peter might know a bit more about that.

Q277 Chris Mole: Who do not pay income tax?

Ms Bakewell: I do not know whether they pay income tax or not.

Q278 Mr Betts: Have you talked to your local businesses about the impact on them of these changes, particularly the cost to them of collecting variable amounts of income tax? There may well have been people working, living in different local authority areas. Have you talked about that, for a start, the extra costs on them and whether they are going to be compensated, whether you are going to compensate them, and, secondly, a local business rate which will not be anchored to anything, will it? You will not have a council tax or a domestic rate to anchor it, so the local council are presumably going to be free to levy what level of business rate they want. Is that right?

Ms Bakewell: That is obviously of some concern to local businesses, which is why businesses nationally are not keen on the repatriation--

Q279 Mr Betts: You have talked to your local businesses about it. Have you taken a survey of their opinions?

Mr Bilsland: No, we have had some correspondence with the regional CPI, who, as a matter of policy, are against repatriation of business rates, but we have just left it, I think, at a difference of opinion at this stage.

Q280 Mr Clelland: How many tax payers in Somerset on your current levels of spending would be better off under a local income tax and how many would be worse off?

Ms Bakewell: I should imagine probably--

Q281 Mr Clelland: You do not know. Have you done any calculations?

Ms Bakewell: No, I do not know precisely.

Q282 Mr Clelland: So we have got a situation where you do not know how many people are going to be affected by this, you do not know how you are going to raise money from the self-employed, you are not quite sure about that, you are not quite sure about the effect on business; you are not really quite sure about much. Why is this Somerset's policy when you do not know much about how it is going to affect the people of Somerset?

Ms Bakewell: It will affect the self-employed in much the same way as their income tax affects them now: they have to submit returns and--

Q283 Mr Clelland: Yes, but what they will want to know is: "How much is this going to cost me?" You do not know that, do you?

Ms Bakewell: No, not at this moment in time.

Q284 Mr Clelland: So this is the policy of the county council?

Ms Bakewell: It is.

Q285 Mr Clelland: But you cannot tell the people of Somerset how it is going to affect them?

Ms Bakewell: It will affect those who earn more. They will pay more, and those who earn less will therefore pay less?

Mr Sanders: Are you in government and should you know the answer to these questions? I would have thought the obvious answer was, "No." A waste of time asking you then!

Q286 Sir Paul Beresford: Income tax finalisation is retrospective. Will you therefore have to have at least a one-off increase in your balances to accommodate that?

Mr Bilsland: Possibly, yes.

Q287 Mr O'Brien: Could I ask in the first instance, would the local income tax be carried paying through PAYE or would there be a separate system?

Mr Bilsland: The research that we have seen is that it could work through PAYE, and that would be the most economic option, I think.

Q288 Mr O'Brien: So you have worked out the tremendous costs that that would have in trying split the local tax to the national tax?

Mr Bilsland: The costs, I think, that CIPFA put in the Balance of Funding Review are pretty explicit - I have not got them to hand here - about what it would cost to run a local income tax on employers. It is an affordable cost. It is more expensive than council tax collection, because we know one of the benefits of council tax collection is that property is easy to tax, easy to find, nobody disputes that, but it is still an affordable cost in terms of the tax yield and the cost of many other tax collections.

Q289 Sir Paul Beresford: One of the problems with the poll tax was people with accommodation addresses. Do you anticipate that happening?

Mr Bilsland: Sorry, people with?

Q290 Sir Paul Beresford: Accommodation addresses. If you lived in Wandsworth it was cheaper than living in Lambeth, so you put your name down for Wandsworth, not Lambeth?

Mr Bilsland: We still have evidence of that with second homes, of course, where people chose which home to tax, but people are not always chasing the cheapest possible tax option in the way they go about running their affairs.

Q291 Mr O'Brien: Can I ask you what other tax has been considered to be introduced in addition to the local income tax or the council tax by Somerset?

Mr Bilsland: I think our submission to you said that there are other taxes around, there is sales tax, there are tourism taxes, but these are not sustainable alternative options to council tax. These are taxes that councils might want to introduce for different sorts of reasons, perhaps to influence behavioural changes, but you would not see sales tax, we would not see tourism type taxes being a big alternative option for us.

Mr Lacey: We would see that there is a problem if you go for the alternative sources of funding these types of tax, that they cannot be localised to the parish level. I think, therefore, from the parish perspective property tax in some form is very convenient, very easy. Local income tax can be done, but it is five places of decimals and all sorts of problems that that will bring and the question of balances, the question of risk - all sorts of issues will arise.

Q292 Mr O'Brien: Is Somerset fully compensated for the service they provide for tourists?

Mr Lacey: My members would say that the parishes pick up a significant part of the tourist costs in terms of local provision of public conveniences, in terms of tourist information centres, in terms of all sorts of support that the parishes give which is not related to the people of the parish who pay the tax. It is related to the businesses of the parish.

Q293 Chairman: If there was a bed tax for people staying in the village, then that would be easy to pass on to the parish council, would it not? There would be one or two hotels in most villages, if there was a hotel at all. They may be able to pass it on?

Mr Lacey: I do not see a hotel as the problem; it is the bed and breakfast that is the problem. That is a significant part of the market.

Q294 Chairman: What about car parking charges? They could say, could they not, it is in a sense a visitor tax?

Mr Lacey: It is in a sense. They tend to be with the district council rather than the parish council.

Q295 Mr O'Brien: Are Somerset compensated for the services they provide for tourists?

Mr Bilsland: We are not as exposed as many other tourist areas, but probably not, no.

Q296 Mr Sanders: We have been told that the changes introduced to the formula grant system in 2003/4 were done with a view to making the distribution of central government grant fairer but you have called the arrangement fraud. Maybe you can explain?

Mr Bilsland: The two big changes we saw in those were, first of all, resource equalisation. This was where government moved money from low spending councils into high spending councils. The philosophy behind that government move was councils spend more because they need to spend more. Therefore, we need to shift resources. Areas like Somerset and the south west generally, which are traditionally and historically low spending councils, argued the opposite. "We are a low spending council in Somerset because we are more efficient and because we have to provide a low level of service because we cannot afford to provide a high level." It seems very wrong for us that high spending councils were rewarded for high spending without an assessment that they needed to spend at those high levels. The second issue was about the old chestnut of area cost adjustment, where we have always argued there seems something very perverse about the idea of taking money away from low wage economies, like Somerset and the south west, and putting it into high wage economies like London and the south east. What we saw in those changes was not the abolition of area cost adjustments, but we saw them extended into other areas. For example, they were extended along the M4 boundaries. There is something wrong, is there not, with a system where areas like Somerset, where wages are low and seasonal, there is an assumption that, because of that, our costs are low and therefore we can afford to subsidise areas in the home counties or inner cities. Those are changes which not only we opposed but the local newspaper regularly runs letters about attacks on the west and the problems there.

Chairman: Can I thank you all very much for your evidence?

Witnesses: Mr Nick Lewis, Director of Finance, and Mr Andrew May, Policy Adviser, SW Regional Development Agency; Mr Francis Cornish, Chairman, South West Tourism, examined.

Q297 Chairman: Can I ask you to identify yourselves for the record?

Mr Lewis: I am Nick Lewis. I am director of finance at the South West Regional Development Agency which is one of the nine development agencies reporting to the DTI and responsible for government development in the regions of England.

Mr May: I am Andrew May. I am a policy adviser with the South West Regional Development Agency.

Mr Cornish: I am Francis Cornish. I am the chairman of South West Tourism.

Q298 Chairman: Do any of you want to say anything by way of introduction or are you happy for us to go straight to questions?

Mr Lewis: We are happy to go straight to questions.

Q299 Christine Russell: You have heard from Somerset that they are very keen on getting business rates back under their control. Do you accept that businesses have got off quite lightly over the last few years, because we have been told that the council tax payers in Somerset have faced increases of 30 to 40 per cent; whereas business rate increases have been linked to inflation?

Mr Lewis: I think I need to plead the fifth amendment. Perhaps I am in the wrong country for that. I should have said that the RDA is supposed to be a business led government quango. I could not possibly come before a select committee and say that businesses have got off lightly. We recognise that the proportion of local authority income coming from businesses has reduced since the uniform business tax. That is a matter of fact. We would be opposed to doing away with the national business rate and relocalising it, because businesses need consistency, certainty and simplicity above all. If you were to ask about the level of taxation levied on businesses I would have to say that is not an issue the RDA could comment on, but one recognises the reduction.

Q300 Christine Russell: I will ask Mr Cornish in a minute, because he represents a particular sector of business, but from your perspective you think the views you have just expressed would go across the whole spectrum of business interests in the south west?

Mr Lewis: Undoubtedly. Hence Somerset did not answer your question about those other businesses.

Q301 Christine Russell: Do you want to comment, Mr Cornish, on your views from a tourism perspective?

Mr Cornish: Tourism is a highly competitive business. If we are going to attract people to the south west, it has to be as good a deal or a better deal than the obvious alternatives. Many of the obvious alternatives are the near abroad and the near abroad is taxed less heavily than is the south west and the rest of the UK. The EU average tax faced by visitors is 8.5 per cent. Popular destinations for Brits and for other people who might come to the south west include Spain, seven per cent, and France, 5.5 per cent. Up against that sort of thing, our 17.5 per cent looks high. There is one other statistic that comes from the BTA, when the BTA existed. For the average American family of four going to any of 52 prime cities in the world, the tax burden on London is the second highest of the 52. In other words, there are 50 places cheaper in tax terms to go to. In terms of competition, the tourism business, hotels, restaurants, catering for tourists, the attractions or whatever in the south west are already facing an uncompetitively high rate.

Q302 Christine Russell: Would both your organisations still be as averse to the relocalisation of business rates if increases were pegged to increases in council tax?

Mr Lewis: Yes.

Mr Cornish: I am not going to answer that directly because we are concerned about the burden, the dividing line between moneys raised centrally. Moneys raised locally are of less concerned. We are only concerned about the competitive position for the business.

Q303 Mr Cummings: When you are talking about the 52 other cities in relation to London, what is the position with public health in these cities and public toilets? Are you talking about Bangkok? Are you talking about third world countries?

Mr Cornish: I am talking about cost.

Q304 Mr Cummings: What about services?

Mr Cornish: I am talking about the tax. Of course there are all sorts of things like that but the tax burden on the visitor is what I was talking about. What you get for that tax burden depends massively as to whether you are in Bangkok or Taunton and the sensible ones will go to Taunton.

Q305 Mr Cummings: There are those who favour relocalising business rates who would argue that it will strengthen the partnership between local government and businesses and increase accountability. Do you accept these arguments?

Mr Lewis: Speaking on behalf of the business community, they would say there is little accountability and no representation without taxation. They have no vote so it is an interesting argument.

Q306 Chairman: They live in the area, do they not?

Mr Lewis: Some do and some do not. It depends on the size of the business and the area which you talk about as local. There is obviously the possibility which we are working hard on in the regions, both through the Regional Development Agencies, through the business bodies and through our local authority partners, to engage with businesses and that is happening very successfully. Indeed, there is a good example of that in Torbay with the new Torbay Development Agency.

Q307 Mr Cummings: You do not have a position at the present time on it?

Mr Lewis: We do not see that it is important to have the revenue raising going along with that. We can get the business cooperation without that.

Q308 Chris Mole: You are encouraging a discussion when local authorities are obliged to consult their business rate payers, even though the business rate is nationalised. Every year, the local authority has to have a meeting which business rate payers can attend, even though the local authority no longer sets the local business rate.

Mr Lewis: I am not personally encouraging that and I have not come here to talk about that. It seems to me that is a meeting we could do without.

Q309 Mr Cummings: There is also a school of thought that says that the lack of accountability argument does not work because we never hear it in relation to corporation tax or the many other charges that fall upon businesses. Would you care to comment on this point of view?

Mr Lewis: Again, it is difficult for a government quango representing business to go into that level of detail. Businesses would come back and say they want consistency, certainty, simplicity at the top of the list and then they would obviously add, "They would say that, wouldn't they?" and a low level of charge. I think we should be advocating as public servants looking after business interests just those first three: consistency, certainty and simplicity.

Q310 Mr Cummings: You do have a viewpoint as a development agency, or you do not have a viewpoint?

Mr Lewis: As a development agency, we represent the interests of business back into government. That would be the viewpoint of business.

Q311 Mr Cummings: The local business rate is an immensely important element of local business. Do you have a particular stance?

Mr Lewis: Local business rates are part of the base costs of businesses. At the moment, it works acceptably and there is no wish in the business community to abolish them or change them.

Q312 Mr Cummings: So you do have a view?

Mr Lewis: Yes.

Q313 Mr Cummings: Both the organisations here today work very closely with businesses and local authorities in the south west. Can you tell the Committee firstly what is your assessment of the level of understanding by local authorities of the needs and concerns of business? Secondly, how big a risk is there that if business rates were to be relocalised local authorities would set the rates at a level where they would damage businesses?

Mr Cornish: It is a general question and I can only answer it in a general way. One of the features of the tourism industry is that it is highly fragmented and is represented by a very, very large number of mostly teeny, tiny businesses. Many of these businesses do make it their business to keep in pretty close tough with local authorities. My general guess is that in the areas where there is tourism, which is an awful lot of the south west, you will find in local authorities, whether they want it or not, that they have been forced to take on board the preoccupations of these businesses to a fairly steady degree.

Mr Lewis: The relationship between local authorities and their support for businesses, like everything, varies dramatically across the region. Some are very good and some are very poor. All we seek to do as a Regional Development Agency is publicise the examples of best practice and encourage the laggards to catch up.

Q314 Mr Cummings: Do you believe that there is a great degree of understanding by local authorities as to the needs and concerns of business?

Mr Lewis: In some, yes. We have some exemplars of best practice. In Bristol, they are particularly aware of the need to help social enterprise and are very active in doing so. That is to be encouraged. I just mentioned the example of Torbay Development Agency where they followed the best practice example of Cornwall and set up a separate agency, putting their economic development activities outside. In some local authorities, yes; in others, not. That is what local democracy and accountability are about, presumably. It varies.

Q315 Chris Mole: Let us look at that from the other end of the telescope because you both want a climate in which businesses, whether it be the tourism business or businesses generally, can succeed. Does the current system of local finance hold local authorities back from investing in economic development?

Mr Lewis: Again, it varies. As the treasurer of Somerset County Council said, it is very complicated and certainly if it is complicated for him it is impenetrable to me. I am happy to talk about the finances of regional development agencies, although with Rita sitting in the corner I might be a bit nervous. The answer is we cannot quite understand that. In some, like Bristol, they seem to be able to find the funds to do very well. Cornwall as well, but there is European money there as well. I am told that it was in the block grant. It depends historically how much they spent on economic development activities and business support activities. It depends on their capacity to do so in the future. All I know is that it is variable and that businesses obviously want to see the example of the best followed.

Mr Cornish: Most tourism businesses believe, I think with good reason, that the tourism budgets of their local authority are under very severe pressure indeed. The effects are being see in attention to public realm facilities, the usual things, cleanliness of beaches, public loos etc. There is a widespread perception that, try as they may, an awful lot of local authorities are struggling like crazy to continue to provide a decent service and in many cases are not succeeding.

Q316 Chris Mole: Are things like a day out in Somerset, if something like that exists, subsidised by your local authorities?

Mr Cornish: We are talking about tourism publications?

Q317 Chris Mole: Tourism promotions and publications.

Mr Cornish: Yes. That typically would be largely financed out of the local authority's tourism budget. If it formed part of a campaign that we were running, the money that we would be using for that campaign typically would come largely from the RDA.

Q318 Chris Mole: Let us focus on the RDA. What proportion of your funding comes from central government?

Mr Lewis: 100 per cent.

Q319 Chris Mole: Does your reliance on that high level of funding affect your ability to meet your objectives?

Mr Lewis: I do not want to be trite but obviously one of the problems that the South West RDA suffers from is a problem that I thought Somerset would raise more strongly, which is that generally speaking when government allocates resources the south west seems to suffer under those formulae. Certainly the South West RDA, in our view, does not get a fair share of the national two billion budget that is available for RDAs and therefore it affects our ability to perform, yes.

Q320 Chris Mole: You would be able to deliver more if the local authorities were able to support your sorts of projects more?

Mr Lewis: Clearly we would and if they had the ability to raise that revenue. Some of them appear to be able to do so; others do not and again I do not understand the reasons for that.

Q321 Chris Mole: You must be aware of the housing situation in the south west and the problems associated with it. What view does the RDA have on this notion that if the council tax was abolished the problem could be made worse or better and the effects on house prices of abolition?

Mr Lewis: The RDA does not have a formal policy view because it is not something that would figure high on our agenda.

Q322 Chairman: You must be concerned as to whether house prices go up or down.

Mr Lewis: Clearly we are concerned about house prices. I would say that if it was debated by the RDA we would not be in favour of the abolition of some sort of tax related to property. There will be issues of equity that need to be addressed but generally speaking any move that might increase house prices in the south west we would be opposed to, because one of the key constraints on economic development in the south west is affordable housing. That is a key issue for us. What we did want to put into this debate in terms of blue sky thinking is that we would rather see any taxes that were introduced to fund local authorities to be both drivers of economic change as well as raisers of revenue. Therefore, we would in principle support congestion charging. Workplace car parking charging would be another good example of something where we could tackle the constraints of the current infrastructure in the south west in terms of making it an attractive place for business to come.

Q323 Christine Russell: Mr Cornish, in your view, just how aware are the council tax payers of the south west of the importance of tourism to your region? Do you feel there is a real, true awareness of the pressures on local authorities to keep the streets clean, keep the loos open and provide those public facilities because of the importance of tourism to your local economy?

Mr Cornish: Again, it is difficult to answer such a general question.

Q324 Christine Russell: Do you get the impression that all the council cares about are tourists; they do not care about others?

Mr Cornish: Having said it is difficult, I am going to try and answer it. In the areas which come to public attention because of the loos being locked or whatever it may be, there tends to be a lively, local debate in the local paper. Therefore, to that extent, council tax payers are well aware of the problems. Council tax payers tend to be very well aware of the pressures which tourists can bring to bear on a rainy day in Truro, with traffic jams and all the rest of it. Everyone who watches television knows perfectly well what the problem is. The problem is, on that particular occasion, bad weather, too many tourists and too few facilities and roads in a bad state. The answer generally, in those areas of the south west which are full of tourists, is yes, by and large, council tax payers are pretty well aware.

Mr Sanders: Tourism tends to come under economic development within local authorities. It does not really fit very comfortably there. The economic development is often about trying to attract inward investment or to help existing businesses grow and to promote the area in that way. With tourism, there are some direct services that have to be funded by councils. You need more public toilets per head of population because of the visitors. You need more parks and gardens. You probably need more sports facilities. You have to pay, in my constituency, for illuminations all year round that you would not find perhaps in Bridgewater but you would find on Paignton sea front. None of those costs is adequately funded or recognised in central government funding. They are part of the discretionary spend. Is there not a failure in the council tax system to recognise some of those additional costs that do fall disproportionately on a local population, many of whom, although they benefit from being in a tourism area, do not see a direct benefit from that investment. That needs to be corrected.

Q325 Chairman: A question please.

Mr Cornish: Because local authority budgets generally are under pressure, because tourism is a discretionary area, eyes turn towards the tourism budget extremely easily. That said, I think there is scope for local authorities to make whatever they can save in their tourism budgets stretch considerably further. We are engaged in a strategy covering the next ten or so years a central point of which is persuading local authorities to reorganise the way they manage tourism destinations. I can go into the details if you want but suffice it to say at the moment that we believe firmly that there is considerable duplication, waste, among many local authorities simply because there are about 215 self-proclaimed destinations scattered around the south west, an awful lot of them essentially doing their own thing. We want to change that fairly radically. Over the long term, we will to a considerable degree succeed. That will not save money but it will mean that what is in tourism budgets can stretch a lot further. There is a bit of light at the end of that particular tunnel, I hope. Generally speaking, these budgets are under pressure. We see it with tourist information centres being put under threat, not by people who think they are unimportant, but by people who have to save the money.

Q326 Mr O'Brien: Mr Cornish, the Local Government Association has suggested that other forms of local taxes could help from local government and one of those is a tourist bed tax. What effect would that have on your members if it was introduced?

Mr Cornish: As I said at the beginning, tourism is a competitive business. Many visitors are prepared to pay for a quality product. By definition, an additional tax, particularly as it would come on top of existing taxes which are very high for the tourist, would not improve the product. Indeed, it would hamper the ability of the business to invest in product and in staff. This is difficult for a different reason. About 45 per cent of the £8.3 billion per year which visitors spend in the south west is spent by day visitors, people who do not stay in hotels. Our research has shown that for every pound the tourist spends only 21p is spent on accommodation. You are hitting only part of the target with a bed tax.

Q327 Chairman: You want to hit the whole target with a tourist tax?

Mr Cornish: The one bit of the target you are hitting are the people we desperately want to see in the south west who are overseas visitors. We are running a £15 billion trade deficit in tourism but you can guarantee that whereas the guy who comes down from London can just about do it in a day the overseas visitor is bound to be staying in a hotel, and would be bound therefore to be hit by a bed tax.

Q328 Chairman: If that tourist is going to have choices of lots of tourist destinations, a very large number of tourists now around the world have some form of tourist tax, do they not?

Mr Cornish: If you look at the tourism tax that is levied in France, (a) it is a low-ish tax but (b) it comes on top of a VAT rate of 5.5 per cent. We are comparing apples and oranges. Yes, various people do levy some kind of tourism tax but it does not come swingeing in on top of existing taxation levels which are very high. We now have a severe problem with the bed tax, as have all the associations which represent hoteliers and so on.

Q329 Mr O'Brien: How do you see the services that provide for tourists being paid for by tourists?

Mr Cornish: If this was an easy question to answer, I am sure it would have been answered long ago.

Q330 Mr O'Brien: That is why I am asking you.

Mr Cornish: I do not see one easy answer. I can indicate ways in which local authorities can stretch their tourism budgets further. I can argue the case for a congestion tax on access roads provided it helps the objective of spreading the burden - in other words, operating only at peak times. I can argue the merits of a degree of privatisation of some of the things that worry local authorities the most. It so happens that a small number of the privately run beaches in the south west are rather well run with rather good amenities and make a tiny profit. I can argue that particular case.

Q331 Mr O'Brien: Would you not consider that a bed tax would be easier and more efficient to provide some of the costs for services?

Mr Cornish: I think a bed tax would send people away.

Q332 Mr O'Brien: This is for the Development Agency. A tourist tax would undoubtedly provide extra resources for authorities in the south west. What is your assessment of the possibility of negative effects as have been pointed out by Mr Cornish? Is there anything in favour of such a tax?

Mr May: We have done a bit of an assessment of this as we are concerned about tourism as a key sector of the south west economy. It is a very important sector. We are the biggest UK destination for tourism of all the English regions, as I am sure you know. Our position is slightly different from France. We would strategically aim to improve the offer of tourism in the region. Many of the tourist offers in the region are not the big, glamorous venues like Eden or the Tate at St Ives. Everyone has heard of those. The typical visit to the south west often has issues of quality there. Driving up quality is a strategic aim for us. In the light of that, some kind of tourism tax is something we would not rule out. We are cautious about this.

Q333 Mr O'Brien: Would it contribute to the regeneration of the areas?

Mr May: It depends. If the revenues were retained within the region and deployed upon improving the tourist infrastructure in some hypothecated way, obviously that could be very beneficial. A lot turns on the context of this. We looked at examples of New York where a bed tax was introduced in the early 1990s. It had to be abolished after four years. It had exactly the effect that Francis has described of driving away visitors to a change of location. I think a similar thing happened in Majorca, where a flat rate per night bed tax was introduced at an unsustainable level. However, there are European examples where there are local, fairly low levels of taxation which are directly ploughed back into the tourism industry. That is the kind of model I think we are interested in.

Mr Cornish: We are very concerned, as is the RDA, with driving up quality. We would argue however that, at the end of the day, driving up quality is a matter of persuading private businesses to invest, every bit as it is a matter of persuading somebody to improve the roads. Secondly, just to give us all encouragement, we ought perhaps to look at the example of Ireland, which decided to halve its VAT rates applicable to tourism in the mid-1980s. As a result, between 1983 and 1994, VAT rates were halved and revenue from those VAT rates doubled.

Q334 Mr Betts: The Local Government Association drew up a list of various local taxes that could be considered. We have dealt with the bed tax. Congestion charging found a bit more favour with you. Other examples like local sales taxes have been mentioned as well. Are there any of the others from the LGA shopping list that you would consider might be appropriate?

Mr May: I think you are going to hear from the LGA in a later session, so I will not try and pre-empt what they are going to say. We have looked at their wish list. There are things in there which have appeal, a bit like the model of the tourism tax. If we could raise revenue on a sustainable level, not excessively burdensome, which could then be kept within the region to tackle regional economic development objectives, we would be quite interested in that. Greener taxes, for example. Some kind of congestion charging comes to mind in the south west.

Q335 Mr Betts: Any ideas about greener taxes? Any examples?

Mr May: The LGA have posited all sorts of things like plastic bag taxes in an Irish model. I am not sure what we would think of that, but there might be ways in which the environmental assets of the region - we have a wonderful physical environment, which is one of the main economic drivers o the region; people come because of the open spaces, because of Exmoor, Dartmoor, the national parks and so on - might be sustained and protected by revenue raised. That would be a very beneficial and benign cycle which we should get into. It does depend upon this thorny issue of hypothecation of these taxes, that we would raise and spend them wholly locally on specific objectives, not lose them into some general pool of revenue. That would just be seen as another level of taxation and obviously any government would be very cautious about simply introducing another tax.

Q336 Mr Betts: One of the ways in which local authorities do raise quite a lot of money is fees and charges, but most of those fees and charges tend to be prescribed by central government and just about cover the costs of the service that is being delivered. Would you favour greater freedom for local authorities to be able to increase those charges, set them at what the market would bear and use the money for purposes that might be appropriate locally?

Mr May: Generally liberating local authorities to be more creative about that, yes, we would certainly sustain that argument.

Q337 Mr Betts: Even if some of those charges fell on business?

Mr Lewis: If they are for services and there can be a clear assessment of the value for money, we do not see why not. Business would not want to pay, obviously, a greater share of the existing costs but if they were for services that were improving I do not see why they should not. In particular, one of the taxes that the RDA would be prepared to put its head above the parapet on and promote, which the business community would not want, is workplace car parking charges. There is a congestion problem in a number of our towns which is a constraint on economic development and we have to encourage people out of their cars. An obvious way to do this and to assist employers to introduce themselves charging for the workplace parking is to make it a taxable benefit. That is something that we would promote and I hope the headlines are not too unkind tomorrow.

Chairman: Can I thank you very much indeed for your evidence?

Witnesses: Mr Albert Venison, Ms Christine Melsom, Mr Brian Jaye, Mr Peter Webb and Mr Michael Schofield, examined.

Q338 Chairman: Welcome to the Committee. Can I ask you all to identify yourselves for the record?

Mr Webb: My name is Peter Webb. I am chairman of Surrey Tax Action Group.

Mr Venison: Albert Venison. I am the chairman of the Devon Pensioners' Action Forum.

Mr Jaye: Brian Jaye, a pensioner from Dorset.

Ms Melsom: Christine Melsom, founder member of Is It Fair.

Mr Schofield: Mike Schofield, a member of the central Is It Fair Committee.

Q339 Chairman: Does anyone want to say anything by way of introduction?

Ms Melsom: Yes, I would like to, please. Is It Fair is a national campaign and it is growing very rapidly across the country. We welcome members of all ages and we are completely non-party political. The current system is fundamentally flawed and this has been widely reported and documented. People recognise that all public services have to be paid for. What they want is a fairer system based on the ability to pay. The payers are the people, not the property. Having studied the various proposed options and solutions, we believe that the fairest and simplest way for each individual to contribute towards the cost of public services is to use the existing income tax and VAT systems that are established and understood and accepted. Is It Fair is only concerned with resolving the issues of council tax and the damaging impact they have on the taxpayer. The current discord that exists amongst the electorate cannot continue. We are grateful to be here today and willing to assist the Committee in any way we can.

Q340 Mr O'Brien: On the question of council tax, as you are aware, the government is looking at the balance of funding. That is a review that is taking place. What do you think the review should conclude if we are going to have a fairer balance of funding for local government?

Mr Webb: It should conclude that council tax should be abolished, that the raising of revenue should be separated from the accounting for spending, that local authorities should be financed from central taxes.

Q341 Mr O'Brien: Completely?

Mr Webb: Completely, apart from local charges of a congestion type. I think the present situation has been 30 years in the making and it is largely because of the muddle between this question of raising revenue and its distribution.

Q342 Mr O'Brien: Have you done some research into the question of the current formula for funding of local services from central government and are you satisfied with that? If the total revenue for local government is coming from central government, there has to be a formula set as to how the distribution will go: education, social services, IOA, police.

Mr Webb: I would have thought local authorities are far better placed than anybody else to calculate, bearing in mind national strategy and their own responsibilities, the funds that they need. It must surely be a fairly simple matter to add up the requirements as calculated in that way and for the Chancellor to say, "Yes, I love all your plans but I only have 95 per cent of what you need. Could you come back next year and could you economise in some way?"

Q343 Mr O'Brien: That is what he says at the present time. The government will provide 75 per cent of the expenditure and local government will have to provide the other 25 per cent but it does not work like that because the amount of money spent by local government is far in excess of what the government suggests they should expend at.

Mr Webb: In the total, national pot, it all works out in the long term.

Q344 Chairman: You would say that local councils would be responsible for spending the money but they would have no responsibility for raising the money?

Mr Webb: No. I say that they should be responsible for spending the money, responsible for performance on delivery and spending and be accountable for the use of the revenue.

Q345 Mr O'Brien: Accountable to whom?

Mr Webb: Accountable to us and that mechanism exists now because every local authority has to do that, as does a company or a tennis club or whatever.

Q346 Mr O'Brien: The local authority would have no say in the amount of money that you are going to have to pay in taxes, so how can they be accountable?

Mr Webb: That is right. That is as it should be.

Q347 Mr O'Brien: How can they be accountable to you if they have no say?

Mr Webb: I do not want them to be accountable to me for silly things like council tax which do not mean anything. It does not measure anything.

Mr O'Brien: It does; it measures the electorate.

Q348 Sir Paul Beresford: We have just heard the Somerset finance director saying that his difficulties in his local authority came about two years ago with the shift of funding formula. He assesses, as do the other council finance directors, how much they are going to spend each year. Those figures go through to central government and central government redistributes. What you are going to do is to allow central government the opportunity to shift funding but leave no buffer, which council tax is, for the difference in the shifting in funding. In the case of Somerset, the director was saying it was 30 million. I am sure you aware because you are Surrey that the shift in the funding for Surrey, year on year, with the change was a deficit of 39 million. Suddenly, they would have to find £39 million-worth of cuts because they have no buffer.

Mr Webb: I do not think it would work like that at all.

Q349 Christine Russell: Can I ask hypothetically, if the council tax was not abolished, do you see a way whereby it could be reformed to make it fairer?

Ms Melsom: It has to be abolished. It cannot be fair in any other way.

Q350 Christine Russell: Your organisation can see no fairness at all in any kind of property tax? Virtually every other country in the world has a property tax. You do not want us to have one at all anywhere in Britain?

Ms Melsom: No.

Mr Schofield: Just because people elsewhere have it does not make it right.

Q351 Sir Paul Beresford: Would you not agree that your whole campaign has been based on the size of the increase perhaps in the council tax over the last two or three years?

Ms Melsom: No, it has not. Some of our members have been doing this for much longer than the last two or three years.

Mr Schofield: Certainly the rate of increase over the past two years has been a great help to our campaign.

Q352 Sir Paul Beresford: Who do you blame for that increase? Local government, central government or both?

Mr Schofield: Both.

Ms Melsom: Mainly the government.

Mr Schofield: As the Audit Commission report said, the system is fatally flawed. It used all sorts of double negatives. Not all costs are unavoidable at the local level.

Q353 Christine Russell: It is interesting that you say you blame the government and yet what you want to put in its place is putting the government, of whatever colour, in charge of setting the level of local taxes to fund local services.

Mr Schofield: Yes. It is difficult. We do not know who to trust these days.

Q354 Christine Russell: You did just say, Mr Schofield, that you felt your campaign had received greater impetus in the last couple of years because of the increases in council tax. What about if there was a review of the entitlement to council tax benefit and perhaps the government looked at something like the savings threshold? At the moment, a lot of pensioners, for instance, on low incomes are not entitled to any discount because of their level of savings. Would that be a positive way forward, to look at ways in the savings threshold?

Q355 Mr Schofield: As I understand it - I am not a pensioner so I do not benefit from any of this - the notional interest that is used to calculate any income from savings that is used currently, which is taken into account when council tax benefit is being calculated, is 10.5 per cent. If you can tell me I can get 10.5 per cent on any of my investments, I would be very grateful. If our proposal was adopted to increase standard and higher rate of income tax and to put a small increase on VAT, the whole council tax benefit system, the bureaucracy and the cost of it could be swept away at a stroke.

Q356 Christine Russell: What about all these rich people who pay no income tax? What are you going to do with them?

Mr Schofield: This is obviously, possibly, a bone of contention.

Q357 Chris Mole: Is it fair?

Mr Schofield: There will always be people who are wealthy enough to be able to hire financial advisers to hide them away from any taxes that anyone imposes.

Q358 Christine Russell: They cannot stash their property away in a Swiss bank account, can they?

Mr Schofield: That is true.

Q359 Mr Clelland: I assume from what you are saying that under the system that you are proposing - otherwise you would not be proposing it - that people like yourselves would pay less. Who is going to pay more in order to cover this?

Ms Melsom: Not all of us would pay less.

Q360 Mr Clelland: Some people are volunteering to pay more?

Ms Melsom: Some of our members are saying that they can easily afford to pay but they just do not think the present system is fair.

Q361 Sir Paul Beresford: In your system, local councils would be effectively elected quangos. Is there any value in having elections?

Mr Schofield: My personal opinion is that we have too many councillors anyway. There are 74 county councillors in Hampshire. There are 57 district councillors where I live and 14 parish councillors. The only people who have their ears and eyes to the ground really are the parish councillors and because of the cabinet style of local government ----

Q362 Sir Paul Beresford: A non-elected quango doing local government services would be the right way?

Mr Schofield: No, I would not want a non-elected quango.

Q363 Chairman: You just want fewer people elected.

Mr Schofield: Yes, fewer people.

Q364 Chris Mole: The people who would be making the decisions would be just making decisions on allocation, so effectively you have done away with local government. It is local administration under what you are proposing. Would that be a fair representation of what you are suggesting?

Mr Webb: We could do with less of it.

Ms Melsom: We could do with less of it. Nobody is suggesting that the money is allocated from the government in a fair way to the councils and they would administer it in the way that they are administering now, but there would not be so much bureaucracy. It would just go to whoever is doing the education, to whoever is doing the other things. If you adopted our system, this is something that you clever men in London would have to work out. It is not feasible as it is.

Q365 Chris Mole: We took some evidence from some academics in the last few weeks who said that council tax between bands B and F was broadly progressive and that most of the concerns that have been expressed by campaigns such as your own would be addressed if there was full take-up of council tax benefit. Do you think that position is getting better or worse?

Mr Venison: No. One of the things that people do not seem to realise as far as pensioners are concerned is that, in my opinion, there are three types of pensioners. There are the pensioners at the lower end who for some reason have not been able to take advantage of a second pension or their savings. They are entitled to council tax benefits and they should put in for these and claim them. At the other end of the scale is the pensioner who is probably retired with quite a good income, quite a good pension, both a private and a state pension. He is in the position of being able to pay council tax. He should be treated no differently from anybody else. If there are any pension rises, he should get those and then he should claw that back by way of income tax. In between, you have about 80 per cent of the pensioners in this country who for some reason have savings which they have managed to save. They have a private pension which they have contributed to and they have their state pension. I am one of those people and I fall in between the two extreme bands, whereas my monthly income is greater than anything I can claim in benefit, so there is absolutely no point in me trying to take a benefit. My expenditure, because of the huge things like council tax and a mortgage which I have, is over £40 a month over the money I have coming in. Therefore, every month I am £40 behind my budget which I have to draw from savings. My savings, on the other hand, are reducing each month so I am getting a lesser income. The government have this queer attitude that any money you have invested, any savings, will get 10.1 per cent and it has taken them about four years to get to the stage where they accepted that 20.5, or whatever it was beforehand, was much too high. They have now decided that 10.1 or 10.2 per cent is enough and this is what they have based the interest on that you get on your savings. It does not work like that. I would differ from my colleagues here. Local interests need to be kept to local things. You can still maintain the local government finance if you take the national things out like education, social services, police and transport. Take those out of the equation and fund those directly from central government. You would then end up with local issues being dealt with by local people and you would have local accountability. Can I make a further plea that this has to be done quickly and urgently because no longer can we go on in the same way as we are. 25 or 26 per cent of people I know are on the same basis as I am, where they are raiding their savings every month and trying to balance their budget. It has to be done now and not in two or three years' time. You are going to have a refund or doctor the banding system which will take another four or five years. I am 79; I will be 80 next birthday. I want something to happen next April, not in three or four years' time.

Q366 Mr Sanders: I think all of you have identified the problem but there is a problem with your solution because local government over the years has met community needs which have tended to be national. If you go back 100 years, the sewerage system and education all started at local government and you are basically saying, "Let's finish the job and have the centre give a budget to a local area." There is not a need for any elected representatives because there are no local, priority decisions to take at a local level under that system.

Ms Melsom: We had a meeting last week and Ken Thorn, the leader of Hampshire County Council, told us at that meeting that 92 per cent of his money was already administered by the government.

Q367 Mr Sanders: That is not an argument for taking the remaining two per cent away, is it?

Mr Webb: I think it would enhance the accountability and the satisfaction of local authorities if they had the responsibility for asking for precise, planned amounts of money.

Q368 Mr Sanders: They do that anyway.

Mr Webb: No, they do not, because the grant calculation is theoretical.

Q369 Christine Russell: Mr Venison, do you think it would be right for an anonymous civil servant in Whitehall to decide to close a village school in Dorset, Devon or wherever, perhaps because of falling roles? That is really what you are saying is the way forward, is it not?

Mr Venison: I would not expect that to happen because I would expect the government to come up with enough money to keep that school open if the local people could prove their case. At the moment, a certain amount is given on an education programme and the local council have to allocate as they think fit. They have to make the decision and there is never enough money available for what they want to do. Some agreement must be reached in the end.

Q370 Mr Betts: What you have said is that the school will be kept open by central government if the case is made, but the decision about whether the case is made will be made by central government. Every individual school closure, every small decision, is going to be taken in Whitehall.

Mr Webb: Why does that follow from having centrally funded revenue?

Mr Venison: Why does that follow? If you are going to get the local people to say, "This is the amount of money we want to keep this number of schools open" or whatever it may be, one of the things I have found over the past two or three years is that quite a number of county councils underspend their school budget. You probably know this. Devon, for instance, underspent by 10.2 last year, about 10.4 this year, so we are talking about £20.6 million that they have underspent on their schools budget.

Q371 Mr Betts: I am still confused by precisely what you are asking for. I am hearing two different things, I think. One is that there is an amount of money which central government will determine and then will fairly - whatever that means - distribute it to local councils up and down the country who will then make decisions on how to spend it and they will be accountable for their spending decisions. Also I see in the evidence you have given to us that somehow local councils will begin by talking to their local communities and deciding what is reasonable to spend, and then put those plans to central government who of course will say yes, we will find the money.

Mr Webb: Central government would only decide whether they have funds available to fund what the local authorities were asking for.

Q372 Mr Betts: Central government will get a request from local councils up and down the country and they will get different requests from different local councils. The Treasury will say, "We have these and they add up to more than we can afford." How do they decide who does not get the full amount they are asking for?

Mr Webb: If 105 per cent of what is available is asked for, you give 100 per cent which means every authority, in simple terms, has to take 95 per cent of what they ask for.

Q373 Mr Betts: I understand that now. In that system, people are going to work out fairly quickly that they are going to put in for a lot more than they really need because they are going to get cut back.

Mr Webb: You really do insult human nature. I know that people play games but this only happens once. I would suggest also that any enlightened government is going to look at the quality of the plans and be able to judge ----

Q374 Mr Betts: It is not straightforward as top slicing?

Mr Webb: Mr Nick Skellet goes up to Gordon Brown and Gordon Brown says to him, "Yes, you have held to your plans; you have been audited; we trust your plans." If another authority has asked for 120 per cent of what they really need, which can be easily checked out, all right; that affects the success of their dialogue.

Q375 Mr Betts: Every single authority will put in a plan about what they think they will spend and every single one of those plans will be examined in the most minute detail to decide how much of that should be funded centrally. Quite frankly, the system is not going to work, is it?

Mr Webb: I am thinking in terms of the ancient, quite well established form of philosophy as to how an industrial conglomerate works.

Q376 Sir Paul Beresford: If you look at the dustbin service in London, the dustbin service cost for Hammersmith and Fulham is twice that for Wandsworth, but the services are similar. For Westminster, it is more expensive than either because it is a totally different service. Are you suggesting that we are going to have officials sitting in central government going through the minute detail of every single item?

Mr Webb: No.

Q377 Sir Paul Beresford: Otherwise, they cannot assess it fairly.

Mr Webb: You amaze me.

Q378 Chairman: You are against local income tax. Is that right?

Mr Schofield: Collected locally, yes. We think it should be collected through the existing revenue and VAT system.

Q379 Chairman: You would have a national income tax system with national rates; you would not have any local variation in it. Am I right?

Mr Schofield: That is what our proposal states.

Q380 Chairman: You are obviously arguing that you want changes very quickly.

Ms Melsom: Yes.

Q381 Chairman: But it is very unlikely that legislation can get through that quickly. What about the revaluation in 2007? You obviously do not want the revaluation but if you have to have a revaluation do you want extra bands put into it or do you want the bands to stay as they are?

Mr Jaye: As far as Dorset is concerned, having spoken to the leader of Dorset County Council last evening, if you want to increase the bands, provided the equalisation fund remains the same, that is okay, but what happens with the banding in the north west of England if that does not go up the same two bands? It will mean horrendous cost to the council taxpayer in Dorset. What you all overlook, all politicians, whether you be Liberal Democrats, Conservatives, Labour, Green Party, is the hardship you are all causing with this council tax. I come from Dorset. Within Dorset, I have pensioners of 70, 72, even as old as 75 returning to work because they are so proud that they do not want to claim this fictitious, unworthy council tax benefit. Have any of you sat down and looked at a council tax form for benefit? It is 22 pages.

Q382 Chairman: Let us assume that it was reduced in length so it was a much shorter form, much more like income tax. Would people be happy to fill it in?

Mr Jaye: No.

Ms Melsom: No.

Q383 Chairman: People are prepared to fill in forms for income tax but they are not prepared to fill in forms to reduce the amount they pay.

Ms Melsom: What we must remember with a lot of very elderly people especially is that very few of them do fill in those forms. When it comes to the council tax benefit form, somebody else invariably has to fill it in for them. A lot of elderly people resent that intrusion.

Q384 Chairman: Yes, but if we were moving from the council tax to a system of extra being paid on income tax, there would be a logic, would there not, in the levels at which people had to start paying the income tax being lowered so that some of those people who were now exempt would make some contribution, would they not?

Ms Melsom: It would be very few.

Q385 Mr O'Brien: You refer to a fair taxing system and in your document you advise how that would come about, by raising certain bands of income tax. Nowhere in the document do you refer to the contribution made by business or industry. Why is that?

Mr Schofield: Business and industry use the services, just like every council tax payer.

Q386 Mr O'Brien: Why are you saying that the only people who should meet this cost are the individual earners and nowhere in the document do you refer to business or industry making a contribution?

Mr Schofield: We are just ordinary citizens. We are not in business.

Q387 Mr O'Brien: But you want to change the system.

Mr Schofield: Yes, but we defer to the CBI and people who are more ----

Mr Webb: Business tax is just another tax.

Mr O'Brien: Should it not play a part in funding local services?

Q388 Chairman: As far as local services are concerned, you would keep their system from business as it is now. Is that right?

Ms Melsom: Yes.

Chairman: On that note, can I thank you very much indeed for your evidence?