Institute warns Welsh local tax bill could limit Senedd scrutiny

The Bill proposes a number of changes to the council tax and non-domestic (business) rates regimes in Wales and if passed, is expected to become law in summer 2024.

In written evidence to the committee, CIOT had warned that the proposals give too much power to ministers at the expense of Senedd scrutiny.

The committee considered a number of issues including the balance between using primary and secondary legislation to make changes to the tax system, ministerial powers, and business rates and council tax revaluations.

Speaking alongside Lakshmi Narain, former chair of the CIOT’s Welsh Technical Committee, were Stuart Adam of IFS and Matthew Evans of the Institute of Revenues Rating and Valuation.

The evidence session

Legislative processes

Committee chair John Griffiths (Labour) asked the witnesses their views on the general provisions and principles of the Bill.

Lakshmi Narain said CIOT was broadly in agreement with the objectives but spoke about the Institute’s concerns around the potential limitations on parliamentary scrutiny. He told the committee there needed to be ‘appropriate scrutiny’ of tax changes by the Senedd. He argued that some of the measures contained in the Bill strayed ‘a little too far’ into using secondary legislation and that the use of the ‘affirmative process’ (where legislation is either accepted or rejected) without the option of amendments’ posed potential challenges.

Matthew Evans said there needed to be a balance between the use of primary and secondary legislation, with the use of the latter requiring ‘clear support’. Stuart Adam expressed agreement with Narain on the use of primary legislation for major policy changes but acknowledged the advantages of secondary legislation to make quick changes. Asked whether the Bill gave too much power to Welsh Ministers, Adam said that ‘as long as the system is rigorous and subject to scrutiny’ it was ‘perfectly fine’ for ministers to have level of discretion in their decisions.

Non-domestic rates

Sam Rowlands (Conservative) asked about the move to more frequent (3-yearly) business rates revaluations. Narain said CIOT had no ‘strong feeling’ on the proposal but that it was likely to be more challenging for businesses as it would increase their compliance obligations.  He later added that it was ‘eminently sensible’ for a value-based tax to be levied on more up to date values. Evans argued that the proposals were achievable and Adam, that it would be an improvement on the existing 5-year window and would allow tax bills ‘to respond more quickly to changes in economic circumstances and changes in value’. Rowlands also asked about the impact of the Bill’s proposals on the appeals process, with Evans arguing that a shorter revaluation cycle may ‘reduce [the] chance’ of appeals.

Carolyn Thomas (Labour) asked about attempts to avoid paying business rates. While Evans supported the Welsh government's anti-avoidance approach, Narain said there would need to be clarity on how they operate in order to mitigate against ‘behavioural issues’.

Thomas then asked Narain about Welsh ministers' power to impose different rate multipliers. Narain argued that having a larger number of rates within the system could complicate business decisions, while Adam questioned the need for varying multipliers, saying these could cause instability and uncertainty. Adam argued that existing discretion over reliefs and exemptions could be a better alternative.

Jayne Bryant (Labour) asked about the impact of providing information on ratepayers to the Valuation Office Agency (VOA). While Evans agreed ratepayers had a duty to provide information but said this should be proportionate, given many of those liable do not pay any rates as a result of exemptions and discounts. Narain expressed concern about the availability of information in digital form, which could increase compliance costs. He also highlighted concerns about digitally excluded individuals.  Bryant then questioned the ‘proportionality’ of civil penalties for non-compliance. Narain argued that there needed to be more consultation on what constituted a ‘reasonable obligation’, a view echoed by Evans.

Council tax

Joel James (Conservative) discussed the Welsh government's proposal to end the use of council tax band D as a reference point for deciding council tax rates. Both Evans and Adam supported the proposal, emphasising the need for any change to be clear and easily understood. Adam then spoke about ‘more radical reforms to council tax’ suggesting that a percentage-based property value tax, similar to Northern Ireland, could be considered.

James then asked about the impact of a five-year revaluation on the housing market and the  power ministers will have to implement revaluations. Evans favoured a five-year revaluation but said he was ‘unconvinced’ that the power should remain with ministers, arguing that “it needs to come through the legislative process”.

Stuart Adam spoke in favour of more regular revaluations, arguing that ‘smaller and more routine’ changes would provide taxpayers with greater certainty. He suggested that lower council tax bills could increase house prices and that he favoured ministers having discretion to shorten, but not lengthen revaluations Lakshmi Narain pointed out that revaluations could drive up costs for occupiers and increase the likelihood of appeals.

Luke Fletcher (Plaid Cymru) questioned the IFS's view on the Welsh government's decision to maintain the single-person discount at 25%. Adam explained that this discount distorts the housing market, incentivising single-person households to occupy more valuable properties. He then suggested a flat-rate discount to address this distortion. Evans said “There's a political decision, in terms of single-person discount, on whether it's fit for purpose” and highlighted the potential impact on the council tax base if this discount was removed completely. Narain pointed out the ‘lack of a clear policy objective’ for the single-person discount and emphasised the need to determine why the discount is provided.

In his final remarks, Narain stressed the importance of clear criteria to measure ‘fairness’ and the need for a ‘post-implementation review process’ for legislative bills to assess whether policy objectives are achieved.

Other stakeholders, including representatives from VOA and Local Government Associations, also provided evidence to the committee on the same day. the full transcript of the session can be read here.