Breadcrumbs
rural proofing: pre-budget submissions (ap01/41)
FOR DECISION
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Relevance to Strategy and Corporate Plan:
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Staff and financial implications:
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Main issues to concern the Board:
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Background
1. The pre-Budget process is a key stage in formulating each Budget . HMT has clearly indicated that they would like to build up a relationship with agencies to improve their policy making process. Partner NDPBs have achieved some success in influencing HMT through being involved in the pre-Budget process.
2. In his Budget speech (March 2001) the Chancellor acknowledged that our rising prosperity still leaves too many places and people behind. The Countryside Agency's State of the Countryside report 2001 confirms that many rural areas are being left behind in terms of average earnings and access to services, with pockets of deprivation throughout all rural areas. The outbreak of foot and mouth disease has had a severe impact, not only in the counties worst affected by the disease, but throughout the rural economy. The consequences for rural economies extend far beyond agriculture, as we reported recently in our post Foot and Mouth State of the Countryside report.
3. The Agency is in a strong position to advise HMT on a range of rural issues, particularly to redress problems of social deprivation and the impact of foot and mouth and more general economic restructuring in rural areas, as well as on environmental issues.
Proposals
4. Taxation issues are a very broad area, so we hope to utilise not only experience within the Agency, but the expertise of external organisations. Our current plans include:
- continuing the work of the Agency Budget group, led by Victoria Edwards, to agree the direction of the Agency's future budget work programme;
- liaising during the Budget process with DEFRA economists and HMT officials to ensure that Agency proposals have maximum impact;
- organising a seminar on taxation issues for April / May 2002 with external speakers to assist the Agency in identifying priority issues for future pre-Budget submissions;
- developing our contacts with existing partners - English Nature , Environment Agency and English Heritage - and seek further partners for the 2003 pre-Budget submission, including those from the voluntary and charitable sectors;
- using the outputs of the taxation study to inform this process and presenting the outcomes of the first phase of this study to the Board to steer the second phase of the study.
5. Our proposals for taxation measures currently under consideration are in Annex 1.
6. This area of activity has the potential to be a primary strategic influencing opportunity in the heart of government and complements a large spectrum of the Agency's other work programmes. The pre-Budget process can be a way to "fast-track" carefully considered policy measures. It links to the Agency's role of influencing policy and helping to rural proof policy development, as outlined in the Rural White Paper.Financial and manpower consequences
7. The allocation of staff time to the Budget group has currently come out of existing staff time, mainly from RPSU, but also other branches. If the Agency is to progress with pre-Budget influencing then there will be implications for members of RPSU and financial implications as a result of any further studies/the proposed seminar.
Risk management
8. The main risks and mitigation measures are as follows :
- an important risk is failing to engage in a process which can have a significant impact on rural life, people, businesses, visitors and the environment. The Treasury (uniquely in government ) has a guaranteed annual legislative slot through the Finance Bill mechanism which offers significant opportunities to make fiscal changes . Our main mitigation measures include developing good working relationships with Treasury officials, sharing our knowledge and expertise thus establishing credibility and engaging with others in the process of influencing the Budget process.
- the main risk in seeking to engage in the pre Budget process is that we will not be able to deploy sufficient resource to work up proposals to the necessary level of detail required to influence Treasury. We would then risk damaging our credibility as a key player in rural issues. Our main mitigation measure is to ensure we only present proposals that have been quality assured internally and agreed by the Board. By working with partners and utilising the expertise of external consultants, we should achieve sufficient competence to influence Treasury in those areas where we feel rural areas would benefit from changes in fiscal policy.
Annex 1
POSSIBLE TAXATION CHANGES TO BENEFIT RURAL AREAS
Areas of current interest
Initial thinking has identified the following measures could be beneficial to rural areas:
1. Stamp Duty on Second Homes: Application of a higher rate of stamp duty on second home purchase. The vast majority of second homes are situated in rural areas so this change could reduce pressure in some rural "hot spots". With hypothecation, the revenue raised could be targeted towards increasing rural affordable housing and services. This proposal needs to be considered alongside the proposed DTLR review of Council Tax Relief for second homes. The main implementation issues are definition and compliance.
2. Rural Employment Support: Many rural businesses find it hard to take on new staff or successfully utilise relief staff. We would like to investigate a range of measures, including the use of fiscal incentives, to make it easier for micro businesses in rural areas to take on new staff. We would also like to explore with DWP, DfES and the Learning and Skills Council opportunities for providing agency staff in rural areas.
3. Business Rate relief: Currently and, under new powers, relief for certain categories of business in rural areas is mandatory up to 50%. Making the relief mandatory above 50% for certain other businesses would enable vulnerable rural businesses to stay open and continue to serve their rural communities.
Rural areas are in danger of missing out on the technology revolution as telecommunications companies may find it uneconomical to invest in the infrastructure necessary for broadband delivery. Fiscal measures could be used to encourage the provision of broadband infrastructure in rural areas. This would keep Britain at the forefront of technological development, ensure business viability and also overcome, to some extent, the transport disadvantage suffered by those in rural areas. This is an area where the Agency could do further work with HMT, DTI and OFTEL.
5. Aggregates Levy: The Agency welcomed the announcement of the aggregates levy as it is consistent with " the polluter pays principle " . The Agency is likely to be one of the distributors of funds raised through the levy .
However, there are concerns that it might penalising smaller quarries . We would therefore like to better understand the likely impacts and contribute to the review of the levy which will take place after 2 years of operation .
Areas for further consideration
The following measures have been raised by the Budget group as areas for further investigation but need further scoping work .
6. Raising VAT thresholds for rural businesses : Raising the VAT threshold may help many small businesses in rural areas. (We have not been able to access the figures which would show how many businesses would be affected by a specified threshold increase.)
7. Tax incentives for renewable fuels: Possible 100% allowance on first year capital equipment for all business sizes (similar to the scheme introduced for IT equipment), or tax credits, with £150-200 credit given for every £100 spent on 'green' technology (such as those for R&D in the 1999 Green budget).
8. Tax relief for habitat/environmental management and access facilities: These are often covered by grants, but not always at 100%. Although most farms deduct the expense from trading income (and then declare the grant as income), strictly speaking they should not unless it contributes to agricultural income (e.g. stock proof hedge). Holdings with only schedule A income (let land) or no income (e.g. hobby farms) cannot deduct environmental expenses at all. The ability to offset the costs against any income (schedule D or E) would be great, especially given the increase in 'residential' holdings.
9. Council tax relief: We believe this should be abolished on all second homes and not be at the discretion of the local authority. For holiday homes that are let, the cost would be passed on to those renting. If it is uniformly applied, all holiday letting prices will rise and it should not affect individual businesses or competition in the market. (This is linked to the issue of increased stamp duty on second homes above).
10. Capital Gains Tax relief for affordable housing
11. Single Room Rent Restriction / Housing Benefit: The Single Room Rent Restriction could be removed to increase the availability of accommodation in rural areas to in particular under 25s. (In the short term, an increase in demand for private rented housing from young people may lead to an increase in rents in this sector. In the longer term, this may lead to an increase in the supply of private rented housing, which may eventually push down rents)
12. VAT on renovations: The Agency has had a stance that VAT on renovations should at least be equalised with VAT on new build, if not made more advantageous. Other measures include tax incentives for renovations. The Urban White Paper flagged up the reduction of VAT to 5% for residential conversions and the sale of renovated houses that have been empty for 10 years or more.
13. Landfill tax credits: These could be passed to local authorities for specific works. At present they cannot be the recipients of the credits. Currently, despite the positive restoration/habitat work done by local wildlife trusts, we are not treating the cause of landfill, by encouraging more waste reduction and recycling schemes. These schemes are likely to be headed up by local authorities and landfill tax credits would encourage them to do so. (HMT is already reviewing landfill tax credits).
14. Car Purchase Tax Breaks: These could be targeted at car dealers, via the local New Deal partnership. For example, a local car dealer supplies used cars to the value of £1,000 (which are taxed and insured) to unemployed people who are offered jobs. The car is supplied and the client pays the New Deal partnership back in instalments. This acts as an incentive to the unemployed and expands the job horizon for the clients and helps ensure punctuality in the job which could be at risk because of poor transport links. The dealer should be given a tax break (corporation/income/VAT?) to encourage their involvement and also to enable them to offer cars to a higher value to the client. This was piloted in Gordon Brown's constituency - but is it going national? Negative implications are cost to HMT but would be more than offset by increased tax revenue from employed individuals.
Measures to be considered in the longer term
The following measures have only a partial rural angle or are complex enough to warrant a larger study :
15. Tax relief: Currently companies can defray corporation tax for investment in R&D or capital (within certain rules and regulations). Individuals can defray income tax or capital gains tax by investing in certain types of company (Venture Capital Trusts, AIM companies etc., or companies in certain locations e.g. enterprise zones). This concept could be extended to small companies investing in capital and/or IT in designated rural areas and to individuals investing in start up companies and AIM/OFEX /unlisted companies in designated rural areas. (These measures were not considered appropriate in the short term for consideration because most small businesses are too small to benefit from this type of funding - they are more interested in using their profits or savings to fund investment and many small businesses are not interested in growth).
16. Tax increment funding
17. Venture Capital Trusts: Encouragement of Venture Capital Trusts (VCTs) into rural areas. Regional VCTs have just been agreed, but will they replace the SRB? (RDAs will have one unfunded year) (Not a high priority for the same reasons as tax relief above).
18. Fuel Duty Rebate: For public transport operators, which could be beneficial to rural areas.
19. One Estate Election: The reintroduction of One Estate Election, to allow costs of maintenance on estates to be offset against schedule A income and a similar scheme for residential farms.
20. Community Investment Tax Credit: Developing the proposed CITC so that the aims for money raised by tax credits is not restricted to purely economic regeneration but is made available to the assist in the provision of affordable housing, work units and other land and property based regeneration activity in rural areas. If indicators are used for targeting, they should take into account employment quality and access to services, and preferably be ward based rather than district based. When selecting Community Investment Vehicles (CIV) their rural knowledge and expertise should be assessed. Community finance organisations need to be supported and expanded in rural areas. (The Agency has responded to a consultation document on this issue)
21. Business Rate: Government is promoting the concept of Business Improvement Districts (BIDS) - funded by local businesses in towns and cities. In market towns, where small firms predominate this is unlikely to happen voluntarily and any addition to the tax will threaten already vulnerable businesses. The proposal is therefore to allow suitable District Councils to retain a small proportion (before passing to central Government) of the Business Rate income for the establishment of BIDS in market towns. The measure could generate additional funding for regeneration activities within market towns, boost confidence, and attract additional funding and investment.
22. Service encouragement: Innovative fiscal measures to encourage people to start up and run essential service businesses in rural areas.
23. Village Halls: Allowing village halls to have a village shop on their premises, currently limited by charity law.
Measures that will not be pursued for the present
The following measures were considered, but rejected for a variety of reasons:
24. Energy saving materials and Disabled facilities: We cannot recommend zero rating these, in terms of VAT, as once VAT has been levied it is not possible to reduce it below 5% due to European legislation.
25. Enterprise Allowance scheme
26. Car Tax and VAT: More tax breaks for low emission vehicles and low fuel consumption vehicles. Fuel duty versus road tax, versus congestion charging versus fuel tax escalator. We have yet to establish which method is our highest priority. Rural residents are still very heavily car dependent. (A politically sensitive question which we are unlikely to be able to influence until we become more informed on the issues).
27. Air Passenger duty: not within the Agency's remit.
28. Listed Buildings: We cannot zero rate VAT on repair and maintenance of listed buildings as a result of European legislation.
29. Tax credits for business advice
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