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Why isn’t the City Council a better tax collector?

Why isn’t the City Council a better tax collector?

🕔08.Jul 2012

What do you make of this? I reckon, if Birmingham City Council had managed to collect the same proportion of its council tax as Sandwell, it could have added an extra £10 million to its budget. And if it had collected the same proportion of its non-domestic rates as Walsall did, that would have brought in nearly another £7 million.

OK, I know there would have been costs involved in getting in the extra tax. I recognise too that £17 million is less than half a per cent of the Council’s total budget. But it’s also a sixth of the £100 million of savings we were regularly told had to be found somewhere, so I’d be interested in learning why the Council’s collection rates can’t at least match those of these two hardly affluent neighbouring authorities.

The individual council figures come from the Department for Communities and Local Government, who always produce them at this time of the year. In fact, when there’s a Conservative Government, the House of Commons is usually treated to a kind of Wimbledonesque ritual. Party whips select a tame Tory backbencher – the parliamentary equivalent of a first-round loser – to lob up a couple of juicy questions for the high-seeded Local Government Minister to smash away, adding for good measure some unsubtle party spin about how the councils with the worst tax collection records are almost all Labour.

Like many parliamentary rituals, it’s a touch tedious – implying that it’s some kind of administrative triumph for a small Conservative shire district in the home counties to produce a collection rate of 98%, while inner London Labour boroughs like Tower Hamlets and Southwark can only manage 95%. Which makes it all the more enjoyable when, as this year, it goes a bit pear-shaped.

First, the parliamentary questions were asked not by a neophyte Government backbencher, but Labour’s Shadow Local Government Minister, Helen Jones – possibly to enable her to make a point about the increasing numbers of us who are getting behind with our council tax payments and seeking assistance from already overstretched debt counselling charities. Secondly, she wanted to know not just about councils’ collection rates, but also about their tax arrears – which seemed to confuse the Minister’s Spads (special advisers) when they circulated the story to their media friends.

For a council, the two things are quite distinct. Uncollected taxes relate to the most recent financial year and, fairly or not, can be seen as an indicator of administrative inefficiency. Arrears are uncollected taxes over several years that are still being chased as, in principle, collectable – which makes them much harder to criticise. After all, even fruitless chasing sounds more responsible than just giving up and writing them off.

If the Spads had just followed the usual routine and produced a table listing councils by the highest proportions of uncollected tax in 2011-12, they’d have been fine. Heading the London list would have been Labour Newham, with a very un-Olympian 89.6%, and the six other boroughs with collection rates of under 95% were also Labour controlled.

The metropolitan borough uncollected tax list would have been led by solidly Labour Salford and Manchester, and Ministers would just have had to finesse somehow the only other borough with a collection rate of under 95%, which was Birmingham, with 94.7% – Labour now, of course, but Conservative-Lib Dem for the past several financial years.

Interestingly, the three boroughs with the highest collection rates, and the only three over 98%, were the West Midlands trio of Solihull – perhaps no huge surprise there – Dudley and, yes, Sandwell: forever Labour and the 9th most deprived local authority area in England, according to the Government’s own deprivation indices. Hence my opening question: does Sandwell know something about maximising tax collection rates in difficult areas that Birmingham doesn’t? If Sandwell can collect 98.2% of the council tax due to it, why is Birmingham lagging behind with one of the lowest collection rates of all England’s urban authorities?

Back to the Spads. The table they actually produced ranked councils according to their accumulated council tax arrears – and in cash terms, rather than, say, as a percentage of their total collectable tax, which might just conceivably qualify as an efficiency measure. This list too was Labour dominated, but, since it reflects primarily local authority size, rather than inefficiency, it was headed unsurprisingly by big city councils.

Moreover, they even messed up their political counting, claiming that 9 out of the 10 “worst offenders” were Labour councils, whereas in fact the top five included Conservative Croydon in 5th place and, once again, Birmingham in 2nd. So, since it’s cropped up, that would be another question it would be interesting to have answered: is it part of the Council’s tax arrears and write-off policy to hold arrears (£96 million) equivalent to over a third of its total annual collectable tax debit?

Then there’s non-domestic rates, and we’re not too clever at collecting them either, with the fifth lowest percentage (95.6%) of the 69 metropolitan and London boroughs combined. It’s not immediately obvious why we shouldn’t be matching Newcastle’s 99% or Rotherham’s 98.1%, but even Walsall’s 97.3% would be something. Birmingham’s non-domestic rates are worth potentially nearly £400 million, so every extra 1% brings close to £4 million. As they say, every little helps.

And so, even more, would a lot – which brings us to all those national taxes we pay, or that some of us presumably don’t pay. How does local government’s total council tax collection gap of £600 million, or 2.7%, look when compared with those for HMRC-administered taxes? To which the answer is: not so shabby.

Considerately, HMRC produces an annual report on this very subject – Measuring Tax Gaps – and the latest estimates, for 2009-10, include: direct taxes (income tax, NI contributions, capital gains tax) – £14.5 billion or 5.8%; VAT – £11.4 billion or 13.8%; corporation tax – £4.8 billion or 11.7%; beer, spirits, cigarette, tobacco duty – £2.4 billion or roughly 10%. And the total gap: just the cool £35 billion or 7.9%.

I don’t know if it makes the folks in the City Council’s Revenue and Benefits Department feel any better, but it ought to make those Ministers, so ready to criticise local government’s efforts, feel a whole lot worse.

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