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Tax doesn’t have to be taxing: Chris Game is 110% on the money

Tax doesn’t have to be taxing: Chris Game is 110% on the money

🕔06.Nov 2013

At a time of blistering austerity and council cuts to local services in Birmingham, Chris Game takes a look at the tax take from central  and local government to test the Chancellor’s 110% focus.


Among the many reasons for mistrusting the Chancellor of the Exchequer is his disturbing inability to grasp how percentages work. He claims he’s “110% focused on the economy” (Clip 6) , with the Government giving “its 110% effort and energy” to creating growth, as if he were some lamebrain Premier League footballer who’d never quite managed his GCSE Maths Grade C.

Unlike 110% mortgages, or Wonga’s 5,853% APR, George Osborne’s 100%+ boasts are humanly and mathematically impossible. As would be, you might think, a 100% tax collection rate in any single financial year – surely, there’s bound to be some slippage somewhere. But you’d be wrong.

I have a large statistical spreadsheet of all English councils’ collection rates for council tax and non-domestic rates for 2012-13 (Table 7). That’s 326 so-called billing authorities, several columns of percentages for each, the very last one of which, at the extreme bottom right-hand corner, is 100%.

Verily, the last shall indeed be first. Wyre Forest District Council, last alphabetically, is, as a non-domestic or business rates collector, Numero Uno. Indeed, it did the seemingly impossible. Of its estimated collectable total of £27.355 million, the council actually brought in £27.367 million, or an Osbornesque 100.04%.

The problem is that just one figure like this suggests, to Government ministers at least, that all the other 325 councils could be trying harder. They had new ammunition last week, with the Audit Commission reporting English councils being owed £1.2 billion in uncollected business rates. We’ll come to that shortly, but only after first examining the efficiency or otherwise of ministers’ own tax-collecting world.

HM Revenue and Customs calculate that in 2011-12 central government’s tax gap – the difference between what HMRC were due and what they actually collected – was a cool £35 billion: the one-time cost estimate for HS2, or 7% of total tax liabilities.

Naturally, individual tax collection rates varied – stamp duties 98%, alcohol duties 93%, corporation tax 90%, VAT 89%, self-assessed income tax 83% – and there may well be plausible technical reasons why the percentages aren’t higher.

But it’s simply not credible that a 93% overall collection rate is the maximum attainable. After all, it’s already more than 1% higher than seven years ago. A further 1% rise to a surely not unreasonable 94% would yield an extra £5 billion a year – more than the total public cost of Jobseeker’s Allowance, or Incapacity Benefit, or pharmacies and dental care combined.

And it would still leave HMRC more than 3% adrift of local government’s collection rates – 97.4% for council tax, 97.7% for non-domestic rates – that ministers see as evidence of laxity and inefficiency.

In fact, three-quarters of councils collected over 97% of the council tax they were due, which sounds great, until you remember that most of these high collectors come from the 201 shire district councils that altogether collect only 45% of the total. Particularly the metropolitan districts and London boroughs are far bigger, have generally more challenging populations of tax payers, and mostly lower percentage collection rates.

Mostly, but not all. There are significant variations among authorities of the same type. Birmingham’s 95.4% council tax collection rate, for instance, is the lowest among the seven West Midlands metropolitan districts, and seventh lowest among all 36 metropolitan districts.

Two of the West Midlands seven had rates of over 98%. One, predictably perhaps, was Solihull (98.7%), but the other was Sandwell (98.2%), one of the most economically deprived authorities in the country. Elsewhere, the similarly recession-hit Newcastle upon Tyne, Sunderland, Knowsley, St Helens, and Rotherham all managed around or over 97%.

Now there may be good reasons for such disparities. Some may be largely outside a council’s control – characteristics of housing stock, number of empty properties, income deprivation. But others – like accuracy of records, billing and debt collection methods – clearly are potentially improvable.

As with HMRC, therefore, it seems fair to note that, had Birmingham increased its collection rate even halfway towards Sandwell’s, it would have raised an additional £4 million – equivalent to, say, the threatened cut in the parks budget that we were warned recently could lead to grass going uncut and the closure of bowling greens, tennis courts and other sports facilities.

Positionally, Birmingham’s 95.6% collection rate for non-domestic rates is equally modest: sixth lowest among all metropolitan districts and bottom but one –Wolverhampton’s 95.5% – in the West Midlands. Wyre Forest’s 100% may be a one-off, but Solihull managed 99.1%, Coventry 98%, Newcastle upon Tyne 99.5%, and, in inner London, Camden 99.2% and, perhaps most remarkably, Tower Hamlets 99.7%.

The sums involved are even greater here than for council tax, with each 1% increase or decrease in Birmingham’s collection rate representing virtually £4 million – which makes the Government’s recently introduced business rates retention (BRR) scheme all the more important.

Formerly, councils paid all the business rates they collected into a central pool, from which the Government, through complex formulae, distributed it back to them. There was no explicit incentive to encourage business growth, as any new business rates went straight to the central pool.

The BRR’s limited concession is that councils can now keep half the business rates income they collect. As that income grows, they will keep half of the growth and thereby have a direct financial incentive to attract new businesses – and also, of course, to maximise their collection rates and minimise their costs.

You might think there’d have been incentive enough to be doing these things already, but I for one will be looking to see if in 2013-14 the Council will have pushed those 95.4 and 95.6% collection rates over at least the 96% hurdle.

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