Pickles’ Shock-horror News: Biggest Councils Have Biggest Tax Arrears

Chris Game

Communities and Local Government Secretary Eric Pickles is famed for his sensitive news antennae. I wonder therefore just what – in a week dominated by revelations of his party’s and government’s moral flakiness on the whole tax collection business – persuaded those antennae that it would be a good time to attack local authorities’ tax collecting record.

Actually, I don’t wonder.  I assume that, as with the many other Pickles’ Passions – from council newspapers and biscuits at meetings (bad) to street parties and weekly bin collections (good) – he just can’t stop himself.

Councils’ uncollected taxes and hoarded revenue reserves have become Pickles’ winter perennials – a reassuring sign of approaching spring – and three league tables of the supposedly guiltiest councils were duly posted by the DCLG last Tuesday.

As a Birmingham City Council taxpayer, I was naturally interested to note that Birmingham featured prominently on two of these naughty lists – first of the 10 councils with highest council tax arrears, and fourth of those with highest non-ringfenced reserves – and, to be honest, slightly surprised that it didn’t register at all on the third. Doubtless to the minister’s disappointment, DCLG hadn’t found a single “surplus fixed asset, not directly occupied, used or consumed in the delivery of services”.

There’s no attempt to percentagise these lists, or acknowledge that there might just possibly be some relationship with, say, the size or relative deprivation of councils’ populations.  So Pickles’ shock-horror story amounts to large councils having bigger tax arrears, reserves, etc. than small councils.

It’s hardly headline stuff, but Local Government minister, Kris Hopkins, was determined we should share his boss’s outrage. During that same day’s Commons debate on the recent local government finance settlement, my and the University’s Birmingham, Edgbaston MP, Gisela Stuart, had questioned the fairness and sustainability of Birmingham’s share of that settlement. In customary Commons style, the minister, rather than answer that tricky question, preferred to tell the House about the council’s tax arrears:

“I am afraid that poor leadership in Birmingham and the fact it has not collected some £100 million in council tax arrears may explain some of the issues it is facing. Stronger leadership and the ability to carry out the simple function of placing a charge on an individual and collecting it will assist it” (col.671).

In the heat of the moment, Hopkins omitted to explain that this arrears figure was a cumulative one covering the whole 21-year life of the council tax, or that it includes costs incurred in collecting unpaid taxes. Nor, even more unfortunately, was there time for Gisela Stuart or anyone else to observe that the biggest councils have not only the largest cumulative tax arrears, but also, equally unsurprisingly, the largest tax receipts.

For, by Hopkins’ reasoning, Birmingham’s having collected £63 million more last year in council tax and non-domestic rates than any other English authority outside London presumably reflects rather positively on the quality of its political leadership (Table 5).

Returning from Planet Hopkins to the real world, the key statistics – and they are key – are those for tax collection rates: not pounds collected but percentages collected of the total sum due.

The 2013-14 council tax collection rate for all English authorities was 97%, ranging from shire districts’ 97.9% to 95.4% for Inner London boroughs and Birmingham’s most obvious comparators, the 36 metropolitan districts. Birmingham’s 95.3%, therefore, was fractionally below the met district average, but, as it happens, second highest among the 10 large authorities in the DCLG’s naughty list – behind only Croydon (96.2%) and way ahead of the coalition’s current favourite Labour council, Manchester (91.7%).

Certainly not the disgrace, then, that its heading of the naughty list suggested, but yes: both improvable and costly. If ever decimal places matter, it’s here. Though respectable nationally, Birmingham’s 95.4% collection rate was lowest of the seven West Midlands metropolitan districts – behind Solihull (98.6%) and, in a perhaps less expected second place, Sandwell (98%), ranked 9th most multiply deprived of England’s 326 local authorities against Birmingham’s 13th.  With each percentage point worth nearly £3 million, if Birmingham had achieved even Sandwell’s rate, it would have collected an additional £8 million – and a similar sum each year.

The DCLG’s non-ringfenced reserves naughty list is even more contestable. There is no set or professionally agreed formula for an ‘appropriate’ level of reserves, or for the balance between earmarked/ringfenced and unallocated reserves. But when CIPFA (Chartered Institute of Public Finance and Accountancy) asserts that councils increasing their cash reserves “is essential for protecting frontline services” and finance officers advise that, with council funding over the next few years being exceptionally uncertain, it’s only prudent to set aside reserves in anticipation, it’s hard for councillors – and should be for Pickles – to argue otherwise.

Birmingham’s prominence on this particular list – again, a consequence of its sheer size – is just perverse, given repeated warnings by the council’s external auditors about the councils’ reserves being, if anything, too low. In fact, last month’s Annual Audit letter noted specifically a concern regarding the “relatively low levels of general fund reserves (£85.8 million compared to a revenue budget of £3.5 billion)” (p.7).

Returning to tax collection, if there are numbers of individual councils that find it difficult to, as the minister put it, “carry out the simple function of placing a charge on an individual and collecting it”, what should we make of Her Majesty’s less than exhaustively tenacious Revenue and Customs (HMRC)?

One of HMRC’s helpful ancillary services – or hostages to fortune – is its annual report detailing all the taxes it doesn’t collect: in 2012-13 just the £34 billion – or 6.8% of the total it should have managed.  In other words, all but the very worst council tax collection rates exceed the average managed by the people whose sole job is tax collection.

If we take that most “simple function” of individual taxation, English local authorities failed to collect £734 million (3%) in council tax, while HMRC failed to collect £14.2 billion (5.3%) in income tax, NI contributions and capital gains tax. From businesses, councils failed to collect £478 million (2.1%) in non-domestic rates, while HMRC failed to collect £12.4 billion (10.9%) in VAT, and £3.9 billion (8.7%) in corporation tax.

As Matthew, the Galilean tax collector-turned-gospeller, might have put it: You hypocrite, Pickles; first take the plank out of your own eye, and then you will see clearly to remove the speck from your brother’s eye.

game

Chris Game is a Visiting Lecturer at INLOGOV interested in the politics of local government; local elections, electoral reform and other electoral behaviour; party politics; political leadership and management; member-officer relations; central-local relations; use of consumer and opinion research in local government; the modernisation agenda and the implementation of executive local government.

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