Council tax could be scrapped in Wales under plans for ‘fairer’ local finance system
FINANCE Minister Rebecca Evans is planning a major reform of local taxation that could lead to the scrapping of council tax.
At the same time, she has accused the UK Government of breaking an agreement it made with the Welsh Government five years ago by making it more difficult for new Wales-specific taxes to be introduced.
In an interview with the Western Mail, Ms Evans said that before Christmas she would be making an announcement about the future of local taxes in Wales, which are already devolved.
She said: “What we are looking at is different ways we could raise tax locally in terms of council tax reform. One of the key things I’m working on at the moment is the future of local government finance.
“We did a lot of work over the course of the last Senedd term which looked at ways in which council tax could be made fairer and more progressive. We commissioned lots of research from organisations such as the Institute of Fiscal Studies, Cardiff University, Bangor University and others in order to have the evidence we need to make good choices in this Senedd term.
“That research looked at a number of different ways of raising local finance in future. It looked at moving towards a Land Value Tax, for example, at moving towards local rates of income tax, at what would be the implication of a revaluation [of homes] and potentially adding different bands, and then it looked at whether or not we should just look to make the system we have at the moment even fairer.
“I think we’ve probably gone almost as far as we can now in terms of making the existing system fairer, in the sense that we’ve provided support for council tax payments to around 280,000 families and we’ve removed the sanction of imprisonment for non-payment of council tax, because struggling clearly shouldn’t be a crime.
“We’ve also removed the burden of council tax from young people leaving care up to the age of 25, and we’ve done lots of work to ensure that people with what’s referred to as severe mental impairment are able to access the support and exemptions that they’re entitled to. Now we’re looking at whether something more fundamental should take the place of it in future.”
Ms Evans said Land Value Tax would be different to council tax because council tax is a mixture of a property and an individual person assessment. Land Value Tax would look at the value of the land on which that asset is, and could potentially look at ways in which funds could be raised to reflect the value of the land on which the asset sits.
When it was pointed out to her that in 2012, as a backbencher, current First Minister Mark Drakeford
had said that “at its most radical, a Land Value Tax would allow for for the abolition of council tax, business rates and stamp duty land tax”, Ms Evans responded: “What I’m interested in is which of these systems would give us the fairest and most progressive system for the future. “It could be about a revaluation, but one which adds additional bands to the top or the bottom of the system, to better reflect the ability to pay of those households. “It could also be potentially a system such as that which they have in Northern Ireland, where they have more of an individualised spot value of the property. “So there are lots of different potential options, but our work at the moment is considering them and narrowing them down before determining a way forward.” She said her aim was to make an announcement before Christmas. Explaining the difficulties her department was experiencing with the UK Government over the ability to create new taxes, Ms Evans said: “When he was Finance Minister, Mark Drakeford had what he called a national conversation, asking people for their ideas in terms of new taxes which could be devolved to Wales.
“One of the ideas that came forwards was for a Vacant Land Tax – and that would be a tax that aims to influence behaviour rather than necessarily raising revenue. It would look to release the land that has been earmarked for housing or other development, but which is then dormant or derelict, in order for it to be brought back into use.
“However, we have had the most difficult time imaginable working with the UK Government to get the power to raise the tax devolved.
“Under the Wales Act, there’s a process set out by which we have discussions with the UK Government, we provide information to the Treasury, which then consults UK Government departments.
“It’s very clearly set out. But we haven’t been able to make the progress we would have wanted over the last three years. And that’s partly because there’s an important principle at stake, especially when we use this system for the first time.
“And that’s about ensuring that the actual decisions about how a power is used should lie with the Welsh Government and the Senedd rather than being a material consideration to whether or not the power should be devolved. That’s where we’ve come to this big sticking point, really, in terms of using the process.
“We’re determined to get this right the first time we use
the process because it sets a precedent for future years. Unfortunately, we feel we’re back at square one in terms of the work we’ve done over the past couple of years to engage with the UK Government on this.
“The process set out in the Wales Act I don’t think is fit for purpose and needs to be reviewed in light of the difficult time we’ve had with the Vacant Land Tax proposal.”
Ms Evans said the sticking point was the level of detail the UK Government required in terms of how Wales would use the power.
She said: “We’re very clear that is very much a matter for the Welsh Government and the Senedd. It shouldn’t be a consideration as to whether or not the UK Government likes how the Welsh Government and the Senedd decides how to use that power.
“The UK Government is asking for more and more information as to what the policy behind the power would be. Actually, we haven’t done that detailed policy work yet because that would involve consultation, engagement, Senedd scrutiny and so on. We’re not at the point to even have that level of information.
“Really, it speaks to the UK Government’s current attitude towards the devolved administrations more than what they think about the merits or otherwise of a Vacant Land Tax.”
A HM Treasury spokesperson said: “The UK Government remains committed to working with the Welsh Government on their request for a Vacant Land Tax. We have asked for a more developed proposal of how the tax would work so the potential impact can be fully assessed – and are happy to work with the Welsh Government to identify and compile the material needed.”