Tax revolution in Wales: Local Government Finance Bill unleashes changes for fairer and responsive system

While some Members of the Senedd commend the Bill for its potential to address these issues, concerns have been voiced regarding alterations to council tax discounts and the potential reduction of powers from local authorities.

The Bill that has been introduced by the Welsh Government aims to reform non-domestic rates and council tax in Wales. The proposed changes align the framework for local taxes more closely with market conditions, the Welsh Government have said, arguing this will ensure responsiveness to evolving taxpayer contexts and subsequent community impacts.

Senedd statement

Making a statement to the Senedd, Rebecca Evans, Minister for Finance and Local Government, emphasised that “This Bill will make a significant contribution to the delivery of a major package of reforms to the local taxation systems in Wales, addressing many of the limitations of the current arrangements identified from extensive research and experience of operating the current systems for over twenty years.”

She highlighted the importance of frequent revaluations and told Senedd members that the Bill provides a fundamental improvement to the non-domestic rates system through three-yearly revaluations. Furthermore, the Bill introduces changes to ratepayers’ information provision to the Valuation Office Agency (VOA).

Regarding the non-domestic rates tax base, the Bill grants regulation-making powers to ‘confer, vary and withdraw reliefs and exemptions’, the Minister noted. To counteract tax avoidance, it addresses advantages from artificial non-domestic rating avoidance arrangements, defining specific avoidance behaviours in regulations for future responsiveness.

“We will not shy away from grasping the issues presented by a regressive and outdated tax,” said Evans, in relation to council tax. She noted that the Government has recently launched a phase 2 consultation on making the system fairer and stressed that the Bill would “put more frequent revaluations on a statutory footing”. She argued that this will ensures households are paying the right amount of council tax. Moreover, Evans highlighted that as part of revaluation, the Government will be able to review the bands and the tax rates to make sure the council tax system remains fair.

Evans stressed that the Bill allows greater flexibility for setting and changing council tax discounts and disregards, ensuring responsiveness to changing needs. She said: “The Welsh Government has been clear that the existing one-adult council tax discount will remain in place, and this is confirmed in the Bill. It is also our intention that this will continue at 25 per cent”.

While welcoming some aspects of the Bill, Sam Rowlands, Conservative shadow minister for local government, expressed concerns about some changes to council tax discounts. He said: “It states that the Bill would allow Welsh ministers greater flexibility to create and make changes to discounts and categories of disregard. I am concerned that this could lead Wales towards higher taxes through the back door, further increasing the burden on working people here”. He continued: “there are of course other discounts in terms of council tax that people rely on… Will some people suffer because some of the discounts will be taken away from them”.

Rowlands also questioned the shift of powers from local councillors and stated that: “My general ethos is that those being seen to take the taxes should also be the ones responsible for setting that tax”.

To conclude his remarks, the shadow minister asked the minster to explain why the Welsh Government have decided that council tax revaluations should take place every five years and non-domestic rates every three years. In his view this would “pose a risk to businesses”.

In response, the minister clarified that this provides “a balance between certainty but then also ensuring that the tax base is current and it is up to date, and that there is a degree of predictability and certainty in terms of when rates might change, so it doesn't happen too frequently”. She emphasised engagement with stakeholders and the positive reception of three-yearly revaluations by the business sector.

In relation to taking powers from local authorities, the minister explained that the Bill makes “it a duty for Welsh Government ministers to put in place a council tax reduction scheme in the future”. However, it doesn't take away the roles that local authorities have in terms of delivering that scheme. “What it does do is give people certainty that that scheme will be there for them if they need it in the future”.

Regarding council tax discounts, Evans stressed that the Bill will grant a power to Welsh ministers to make regulations facilitating quicker and more responsive implementation of changes over time. Welsh ministers could set different conditions for statutory discounts or add new categories of discounts, including new rates. She reiterated that there are no plans to reduce the single person's discount.

Pointing out that council tax in Wales is ‘regressive and outdated’, Peredur Owen Griffiths (Plaid Cymru) said “the centrepiece of the Bill is, of course, the power to enable long overdue changes to council tax in Wales”. Griffiths, who chairs the Senedd’s Finance Committee, commended Wales for its leadership in council tax reform, referencing IFS research and a Citizens Advice study that revealed “council tax arrears is the most common debt issue facing Welsh people”. He expressed concerns about the current qualification criteria for the Council Tax Reduction Scheme (CTRS) and asked if the Bill would explore ways to improve the CTRS to ensure support reaches those in need.

The Plaid Cymru MS argued for a long-term ambition to replace council tax with a land value tax (LVT). He highlighted research from Bangor University, indicating that a uniform national LVT rate of 1.41 per cent on residential land could generate the same revenues as council tax. “But, as was highlighted in the study, the main impediment to introducing such a tax is the lack of effective data systems at the moment”. He urged the minister to address this issue, laying the foundation for a potential introduction of LVT in Wales.

Griffiths suggested that the benefits of LVT include replacing non-domestic rates and potentially bringing “revenue straight to the Welsh Treasury from the vast amount of land owned by the Crown Estate”.

Responding to Griffiths’ comment on council tax reductions, Rebecca Evans stated that the Bill imposes a duty on Welsh ministers to establish a single national council tax reduction scheme through regulations, allowing for in-year changes. She noted that “the scheme we have at the moment was introduced in 2013, and it does provide local authorities with £244 million of support a year to support people in a whole range of situations—pensioners, working-age households, universal credit recipients, and so on. So, obviously it does make a big contribution to tackling poverty and to safeguarding people who are in financial difficulty, especially as a consequence of changes to the non-devolved welfare system.”

The minister acknowledged Griffiths’ interest in a land value tax, stating that the government continues to explore its potential. She said: “we do continue to explore the potential for a local land value tax and that builds on Bangor University’s detailed technical assessment that it did in the last Senedd term for us, to aid our thinking about the future of local taxation.”

Mike Hedges (Lab) said that non-domestic rates are not liked by the rich as they are “difficult to reduce, as opposed to corporation tax, which is very easy to reduce.” He provided an example, stating that Amazon paid £6.3 million in corporation tax in the UK last year, despite an income of £13 billion in sales.

While welcoming the three-yearly valuations, Hedges wondered why the Government could not move to annual revaluations. He also raised a question on land value tax, asking: “how would it affect social housing in very high value areas, such as within your own constituency, Minister”.

Evans noted that Hedges's questions would be considered in the government's longer-term work on land value taxation.

Carolyn Thomas (Lab) raised concerns about recent misinformation about council tax and reiterated that “the council tax reduction scheme will still be in place—the single-person discount.” She also expressed interest in Griffiths’ comment on land value tax and said that it would “be really good”.

Vikki Howells (Lab) also proposed a question to the minister about the support mechanisms for those affected by revaluations. Evans assured her that transitional support is provided to businesses that see an increase in their bill over a certain percentage. For households, she added that: “When there is a revaluation, it is the intention to consider whether transitional support is required for those households that see an increase in their bills, and also to consider what transitional arrangements might be needed for local authorities that might see changes based on their local tax base as well.”

You can read the full debate here.