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CIPFA Revenue Collection Statistics


July 2006
The Replacement of the Rate System

With minor exceptions, up until April 1990, rates were the only form of local taxation available to local authorities in this country. The Local Government Finance Act 1988, provided for a new system of raising revenues to finance local authority expenditure in England and Wales;
  1. A 'Community Charge' or tax levy on persons aged 18 or over, replaced the old domestic property rating system; and
  2. A new 'National Non-Domestic Rate' was introduced which sets a standard poundage (except in the City of London) on revised rateable values. In past years, the local authorities serving the area in which the ratepayers’ properties were situated directly consumed all of the revenues collected by the rating authority.

In the new system the National Non-Domestic Rate is paid into a National Pool, and redistributed by Central Government to local authorities on a per capita basis.

This system was introduced in April 1990.

The Introduction of the Council Tax

However, the Community Charge proved to be unpopular with local taxpayers and difficult to collect. It was the perceived unfairness of the personal community charge and the public's response to it that led the Government to publish a green paper in April 1991 entitled 'A New Tax for Local Government'. Later the same year, the Government introduced a Bill that detailed its plans for replacing the Community Charge with a new local tax, the Council Tax. This came into operation on 1st April 1993. The National Non-Domestic Rating System remains largely unchanged, though revaluations of the ratings list are required every five years, the most recent occurring on 1 April 2005.

The Council Tax aims to use, but simplify, the concept of property values, which had been the basis of the old domestic rating system, as a means of assessing occupying residents' ability to pay the local levies to fund the proportion of local authorities' expenditure not met by central government. The Council Tax is normally payable by the occupiers of property, except in certain circumstances where the owner is liable.

Responsibility for collecting both taxes in England and Wales lies with shire districts, metropolitan and unitary authorities and the London boroughs.

Detailed information about the administration of the Council Tax and NNDR taxation systems can be found in the CIPFA Technical Information Services titles, ‘Local Taxation’ and ‘Guide to the Council Tax’ available at www.tisonline.net.

Sources of Local Government Finance

The effect of the changes detailed above mean that local authority expenditure is currently financed from four main sources.
  • Council Tax;
  • National Non-Domestic Rates (NNDR);
  • Charges for Services; and
  • Government Grants.

In effect, this means that Council Tax, together with income from services, provides local authorities with their only independent sources of income, as grants and income from the National Non-Domestic Rates are determined by central government. Some new schemes have been introduced in recent years; the Local Authority Business Growth Incentive scheme (LABGI) enables authorities to benefit from increases in non-domestic (business) rate revenues; Business Improvement Districts (BIDs) are partnerships between local authorities and local businesses to provide additional services or improvements to a specified area.

The Balance of Funding and Reform of Local Government Finance

In 1989-90 local authority expenditure was funded to the extent of 58% from rates and 42% from government grants. The changes over the years mean that now over 80% of expenditure is funded by central government. The effect is to make the level of Council Tax more highly geared to increases in expenditure beyond those allowed for in the grant settlement and the redistribution of National Non-Domestic Rates. The effect of such increases in expenditure will be reflected by greater proportionate increases in the Council Tax.

Concern at year-on-year council tax increases over the rate of inflation saw a return to the use of capping powers in 2004-05 and led to renewed calls for an alternative system of local taxation.

In 2003 the government launched a major review of local government finance known as the ‘Balance of Funding Review’. The review considered the effects of changing the proportion of revenues raised from local taxation (currently around 20% from council tax) and alternative systems such as a local income tax. Other options included a return of NNDR to local control. Though no formal changes were made as a result of the review, the findings have been taken on board by the independent Lyons Inquiry into Local Government 2004-2006. Initially set up to look at funding, the Inquiry’s remit has been widened to look at the role and functions of local government. Its recommendations due at the end of 2006 could have major repercussions for the future of the council tax and NNDR.

Further information about how local government is funded in England and Wales can be found in the CIPFA publications, 'Finance and General Statistics' and 'Council Tax Demands and Precepts' and in the CIPFA Technical Information Services ‘Grants’ title at www.tisonline.net.

Council Tax Bands

Band 'D' is the benchmark value for domestic properties liable to council tax in all areas. In 2004-05 this is defined as properties with a value lying between £68,001 and £88,000 in England, and between £51,001 and £66,000 in Wales. A revaluation of these bands has taken place in Wales with the new values taking effect from April 2005, including the addition of an extra band at the upper end of the scale (band ‘I’). A similar exercise in England has been postponed until further notice. Table 1 summarises, by class of authority, the average band D council tax for 2004-05. In reality, the mix of dwellings by value in local authority areas may be significantly different, giving rise to overall average bills which may vary considerably from the 'mid-point' (band 'D') average.

Average Band 'D' Council Tax 2004-05
Grossing Methodology

For certain financial information, data have been obtained via the DCLG's QRC4, NNDR3 and CTB1 forms for English authorities and from the Welsh Assembly’s CTC and NDR forms for Welsh authorities (see page 8 for details). For non-financial data, it has been possible to 'gross' for missing or incomplete data for all classes of authority. The totals of the non-financial data have been derived by attributing the same level of increase among the class average for responders, to the figure reported by the authority in the previous year. Where these figures are also missing, the data are derived by scaling to the per capita class average. All the tables in this commentary are based on 'grossed' data.

NNDR – Rateable Values

Table 2 summarises the statistical analysis of rateable values. It shows that commercial and industrial premises account for 85% of the total. The remaining 15% being made up of education, training, cultural, public utilities, leisure and miscellaneous premises.

The information included in Summary Table 2 was supplied by the Valuation Office and represents a response rate of 100%. The efforts of local authorities to improve their cash flow and the difficulties they encounter, are illustrated by the figures shown for enforcement action, which are detailed in Summary Tables 3a and 3b.

Rateable Values Analysed by Category as at 1st April 2005
Recovery 2004-05
Recovery 2000-01 to 2004-05
Although there has been a steady decrease, Table 3b shows that reminders were sent out for over half of the Council Tax and NNDR accounts raised for 2004-05. However, levels of enforcement are lower, with summonses issued for around one in five accounts and liability orders for one in ten.

Table 4a summarises arrears at 31st March 2005, split between council tax and NNDR. Table 4b provides an analysis of cash collected over the last five years. The continued rises in Council Tax bills may suggest an increasing number of people struggling to pay their bills, however, the level of arrears appears to be decreasing. Recovery has been increasingly more difficult with Magistrates advised not to commit to prison for non-payment except in extreme circumstances, and the threat of bailiffs diminishing with taxpayers increasing knowledge of how to circumvent the system. To curb this, authorities are introducing recovery policies such as using attachments, charging orders and bankruptcy. At 31st March 2005 arrears totalled almost £615m or 4.0% of gross amount collectable (net amount collectable excluding council tax benefit).

Arrears at 31st March 2005
Cash Collected 2000-01 to 2004-05
Table 5 illustrates the numbers who are exempt from paying the council tax and those in receipt of discounts.

Council Tax Exemptions and Discounts at Time of Initial Billing 2004-05
An analysis of the numbers in receipt of Council Tax Benefit at date of initial billing is detailed in Tables 6a and 6b. The average Band 'D' equivalent council tax charge increased by 5.9% for 2004-05 in England and Wales from the previous year and has risen by 38% since 2000-01. Table 6b shows that the trend in the number of recipients of Council Tax Benefit has continued to increase and has risen by 5.1% since 2003-04.

Council Tax Reliefs and Benefits at Date of Initial Billing 2004-05
Council Tax Benefit 2000-01 to 2004-05
Table 7 shows the number of hereditaments receiving relief from NNDR.

NNDR Relief 2004-05

July 2006

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