A row of new build red-brick houses. Some greenery to the frontages

A row of new build red-brick houses. Some greenery to the frontages

“A fairer and more progressive system” – first steps to reforming local taxes

Published 15/04/2024   |   Reading Time minutes

Reforming local government finance and local taxation has long been on the political agenda. Despite incremental changes to local taxation law since the current system was established more than 30 years ago, the system has remained fundamentally the same.

The Welsh Government’s Programme for Government made clear its intention to “seek to reform council tax to ensure a fairer and more progressive system” during this Senedd. In November 2023, the Welsh Government introduced the Local Government Finance (Wales) Bill that proposes to amend existing arrangements, and lay the foundations for further legislative changes in future.

This article examines some of the Bill’s key proposals and evidence heard during Stage 1 scrutiny of the Bill.

Regular Revaluations

Among the most eye-catching proposals in the Bill are those that will establish statutory five-yearly cycles for council tax revaluations (beginning in 2030) and proposals to increase the frequency of non-domestic rates (business rates) revaluations from five to three-yearly (beginning in 2026).

Striking the balance with council tax reform

There are currently 1.4 million chargeable dwellings in Wales liable for council tax. Each property is placed in one of nine bands on the basis of property values from April 2003, the last time a revaluation was undertaken in Wales. For context, council tax bills in England and Scotland are based on 1991 valuations.

The Bill aims to ensure more frequent revaluation of domestic properties is undertaken to “improve the fairness of the council tax system and its responsiveness to economic change”. The Welsh Government proposed five-yearly revaluations as it “strikes the right balance between the benefits delivered by revaluations and the administrative costs they incur”. It’s estimated the next revaluation could cost up to £18 million to administer.

The Senedd’s Local Government and Housing Committee heard evidence supporting the change, including from the Welsh Local Government Association (WLGA) noting the proposal is a “bold step”. The Institute of Fiscal Studies (IFS) considered the change would improve the current situation whereby “council tax is based on the relative value of properties more than 20 years ago”. The IFS said over 40 per cent of properties are “effectively in the wrong band”.

While there was general support for five-yearly council tax revaluations, there were concerns too. The WLGA noted it’s likely a revaluation will “have a significant impact on all taxpayers, whether positively or negatively”, while the Committee had concerns that a revaluation on the back of a cost-of-living crisis, would also be a cause of worry for many.

Rapid and responsive non-domestic rates system

In comparison to the irregularity of council tax revaluations, non-domestic rates revaluations have been more routine, with the last cycle undertaken in 2023. Rates revaluations have generally been done on a five-yearly cycle, however, the Welsh Government makes the case for “a more rapid and responsive cycle”. The rationale is that it would provide greater stability and more accurate rating bills for businesses. It would also align with recent changes to non-domestic rates revaluations in England.

Stakeholders appear broadly supportive of such a change, with the Federation of Small Businesses Wales noting that the current system has meant a need for “sticking plasters on sectors affected by external shocks through reliefs”. Regular revaluations should reduce dramatic changes in business rates from one revaluation to the next, and according to the Welsh Retail Consortium ensure they are “more closely linked to market values”. Nevertheless, stakeholders all agreed that more frequent revaluations should not equate to an increase in administrative burden on businesses.

Public notices – print media vs digital

Despite the proposals above, the part of the Bill that generated the biggest response to the Committee’s consultation was the requirement for local authorities to publish council tax notices online. Legislation currently requires local authorities to publish these notices in newspapers. It is estimated that the change could save local authorities around £385,000 over ten years.

A majority of consultation responses objected to the change. Both individuals and print media organisations cited the potential negative impacts on digital exclusion, local democracy and the viability of local newspapers. However, the WLGA, whilst sympathetic to the financial challenges facing local print media, emphasised that it should be a matter for local authorities to decide “what works best within their area”. Wrexham.com, an online news platform, told the Committee that public notices are a “subsidy” for print media, governed by an “out-of-date law”.

Having heard a robust debate on the issue, the Committee called on the Welsh Government to set out how it plans to monitor the implementation of the provisions in the Bill. The Committee was concerned about the potential unintended impact on accessibility and transparency, whilst acknowledging that local authorities are “best placed to decide how to publish this information”.

A framework for future legislative changes

In addition to the proposals noted above, at its core, the Bill provides Welsh Ministers with powers to make subordinate legislation (regulations) across a range of local taxation matters. This includes non-domestic rates reliefs, exemptions, multipliers and council tax discounts.

The Welsh Government states powers to make subordinate legislation would “reduce our reliance on provisions which have needed to be sought frequently in UK Government Bills”. It also seeks to enable a more “responsive” approach to changing social and economic circumstances.

Several stakeholders said they had concerns about the broad regulation-making powers for Welsh Ministers in the Bill. The Chartered Institute of Taxation said subordinate legislation should “generally be reserved for administrative matters” and that the extensive use of wide regulatory powers in this Bill “undermines the essential work of the Senedd” in scrutinising the government.

Both the Senedd’s Legislation, Justice and Constitution Committee and the Senedd’s Finance Committee had concerns about the use of subordinate legislation in the Bill, with the former holding serious reservations:

We do not consider that the Bill represents an appropriate way for a government to legislate. Primary legislation that creates extensive regulation-making powers should not be proposed by a government to enable future governments ‘to think creatively’. This facilitates the avoidance of detailed scrutiny by Members of a democratically elected Senedd.

The Local Government and Housing Committee concluded that:

… due to the nature of the potential future changes that could be made in regulations, specific provisions within the Bill should be subject to additional opportunity for scrutiny by the Senedd.

Enhanced approval procedures for draft Welsh Government regulations would guarantee that relevant Senedd committees are given “appropriate time for scrutiny”, beyond what is provided for subordinate legislation subject to the affirmative procedure.

What’s next?

The Senedd’s Local Government and Housing Committee made 18 recommendations on the Bill.

The Senedd will vote on whether to support the general principles of the Bill on 16 April. If the Senedd decides to support the Bill, Senedd Members will be given further opportunities to amend the Bill before a final vote takes place.

This Bill is largely an enabling Bill, which provides the framework for a number of future policy changes to be made by the Welsh Ministers in secondary legislation. However, if passed, Wales will be the only nation in Britain to have a systematic process of undertaking regular revaluations of domestic properties.

You can follow the debate live on Senedd.tv.

Article by Osian Bowyer, Senedd Research, Welsh Parliament