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Does Birmingham deserve its place on the DCLG’s naughty lists?

Does Birmingham deserve its place on the DCLG’s naughty lists?

🕔18.Feb 2015

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, writes Chris Game.

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.

Birmingham features prominently on two of these naughty lists: first of the 10 councils with highest council tax arrears, fourth of those with highest non-ringfenced reserves.

Somewhat surprisingly, and doubtless to the minister’s profound disappointment, DCLG couldn’t find a single surplus fixed asset “not directly occupied, used or consumed in the delivery of services”, so Birmingham itself doesn’t register at all in this list – although the WM Integrated Transport Authority does have the odd £55 million-worth on its books.

There’s no attempt to percentagise these lists, or acknowledge that there might 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. In that same day’s Commons debate, he preferred to recite Birmingham’s tax arrears than answer Edgbaston MP Gisela Stuart’s questioning of the fairness and sustainability of Birmingham’s finance settlement:

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.

In the heat of the moment, Hopkins omitted to explain that this arrears figure (£105.2 million, to be precise) was a cumulative one covering the whole 21-year life of the council tax, or that it includes collection costs.

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, presumably Birmingham’s having collected £63 million more last year in council tax and non-domestic rates than any other English authority outside London must also reflect the quality of its political leadership.

Back in 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.

Contrary to council leader Sir Albert Bore’s assertion in last week’s Birmingham Post, Birmingham’s tax collection rate is not “one of the best in the country”All things considered, it would be rather amazing if it were. But it’s far from being the worst.

The 2013-14 council tax collection rate for all English authorities was 97% and for the 36 metropolitan districts – Birmingham’s most obvious comparators – 95.4%.

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%).

But, 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%) in first place and, perhaps less expectedly, Sandwell (98%), in second.

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.

And a similar sum again, if its 2013-14 non-domestic rates (NDR) collection figure of 95.5% were as high as Sandwell’s 97.3%.

It is this part of Birmingham’s record over the years that should have been more substantially improvable, and, if the DCLG’s tax arrears naughty list recorded the same councils’ NDR collection rates, Birmingham would be bottom – albeit marginally ahead of Wolverhampton (94.8%) among West Midlands districts.

The 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.

If finance officers advise that council funding over the next few years is exceptionally uncertain and that it’s only prudent to set aside reserves in anticipation, it is hard for councillors, and should be for Pickles, to argue otherwise.

Here, Sir Albert’s Birmingham Post statement about the council’s external auditors repeatedly warning about Birmingham’s reserves being, if anything, too low is certainly correct. In fact, last month’s Annual Audit letter noted specifically the “relatively low levels of general fund reserves (£85.8 million compared to a revenue budget of £3.5 billion)”

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.

I was planning to conclude there, probably with a thought of how Matthew, the Galilean tax collector-turned-gospeller, might have advised Pickles: You hypocrite; first take the plank out of your own eye, and then you will see clearly to remove the speck from your brother’s eye.

But this Monday a delightful postscript turned up, in the form of the latest TaxPayers’ Alliance Research Note.

It details the many and varied losses made individually and collectively by Ministerial Departments – their spending beyond the limits agreed by Parliament – and it’s a gem, easily worth a blog in its own right.

All figures are taken from departmental annual accounts, and they show that in 2013-14 these Whitehall departments incurred total losses of £5.1 billion – or roughly the total council tax receipts of all 56 English unitary authorities. Biggest losers were Defence (£3 billion), Health (£760 million), Work and Pensions (£569 million), and – a nice one, this – Business, Innovation and Skills (£469 million).

DCLG nowadays is little more than a bit player in this company, and managed losses of a mere £82 million – a £27 million chunk of which was a pleasingly described “fruitless payment” in respect of the department’s change of London offices, signed off presumably by Pickles and the then DCLG Permanent Secretary, one Sir Bob Kerslake. As the saying goes: one rule for town hall, another for Whitehall.

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