Natural England

ADVICE TO GOVERNMENT ABOUT COUNCIL TAX ABOUT SECOND HOMES AP02/20

FOR DECISION

BACKGROUND

Introduction

1. In February this year, the Board considered a response to the Government's consultation on changes to council tax on second homes. The Board agreed to submit an interim response and to consider what further advice might be needed once the results of the Agency's research on second homes was available.

The Government has now published a draft Local Government Bill which, although it does not specifically include any provisions for council tax on second homes, an accompanying consultation paper does state that this issue will be included in the Bill after consideration of the results from the earlier consultation exercise. This provides the Countryside Agency with an opportunity to influence the content of the Bill.

Countryside Agency research

2. In November 2001 we commissioned the Bartlett School, University College of London, to explore the nature and extent of second home ownership in rural England and provide policy advice on mechanisms which could be used to overcome the impacts in some areas arising from a high incidence of second home ownership. The research was in three parts: a postal survey of rural local authority housing and planning departments and all the National Parks (with a response rate of 87% (117 responses); telephone interviews with 35 selected rural local authorities and National Parks, where second homes are a significant source of pressure on the local housing market; and 10 detailed case studies. The research was guided by an advisory group with representatives from the LGA, DTLR, National Park Authorities and Chartered Institute of Housing.

3. The four key findings were:

Ÿ There are approximately 100,000 second homes in rural England. They are not evenly distributed but found in concentrated pockets, sometimes confined to two or three parishes within a district. Charging 100% council tax on these properties would raise some £40 million per annum. (These numbers are significantly less that those reported in the press, because they refer only to second homes in rural areas and do not include those in urban areas or empty properties)Ÿ Using data from last year's Housing Corporation Rural Programme, we estimate that taken overall this could increase the funding available for rural affordable housing by 1.5 times, roughly equating to an additional 1,600 units pa (which is equivalent to the target for the HC's rural programme by 2003). However, because of the distribution of second homes, this funding would not be evenly available. In some areas, where the revenue was likely to be small, local authority respondents considered that the revenue could be better used to support other housing purposes, such as funding a Rural Housing Enabler, rather than capital funding.Ÿ There was overwhelming support for changes to the Council Tax regime and for local authorities to retain the revenue raised and use this to support the provision of affordable housing in their areas. Ÿ Planning powers to limit second home ownership were considered to be unwarranted, except in the National Parks. However, there was universal support for better planning mechanisms to improve the supply of affordable housing in rural areas. 

4. In the light of the research and the proposal to include measures in the Local Government Bill, the Board will wish to consider what further advice that they might give to government on this issue.

Rate of Council Tax charge

Our interim response proposed that local authorities should have the discretion to charge at least 100% Council tax on second homes.  (There was some support at the Board meeting for a higher rate.)

5.  The research identified strong support for levying 100% Council Tax on second homes as a means of recompensing for the social costs caused by a high incidence of second homes, rather than to depress demand. Half of all housing staff and one planning officer supported setting a rate greater than 100%. Those against a higher rate did so on the grounds that second home owners would be paying for services they did not receive. It would in effect be perceived as being a penalising impact levy imposed on second home owners (in circumstances where the impact arguably remains unproven) rather than as a compensating charge to assist in meeting the local housing needs in part created or exacerbated by the incidence of second homes.

6. The research reported that although 75% of rural local authorities collect data on second homes, it is of variable quality and reliability. Some draw on Council Tax information, others on individual perceptions. Distinguishing revenue from Council Tax on second homes may be difficult, especially if it is charged at the same rate as other occupied housing. In that event in may get 'lost' in the authorities' general funds. This argues for a differential rate on second homes. We have been advised that levying the additional charge slightly below 100% may prove to be an incentive to second home owners to register their second homes as second homes. (There is a range of technical issues on registration and avoidance which will need to be addressed.) 

Proposed advice:

that local authorities should have the discretion to remove the discount on second homes. However, because of the need to ensure that the funds raised can be identified separately and does not affect the Rate Support Grant, the charge should be at a rate slightly under the full 100% of the Council Tax charge. 

Local retention of revenue raised

In our interim response we argued that the revenue raised should be retained within the local authority where it was raised. The Office of the Deputy Prime Minister have confirmed that they were proposing that revenue raised could be retained at district level and would not count against Revenue Support Grant. .

7. The research found that 93% of housing, 78% of planning and 100% of National Park Authorities interviewed favoured local retention of revenue raised through removing the discount on second homes.

Proposed advice:

that we confirm our view that the revenue raised should be retained within the local authority where it is raised. 

Use and ring fencing of revenue

Our interim response proposed that the revenue raised should be ring fenced to support the provision of affordable housing and local services in the areas most affected.

8. The research included a range of responses as to how useful it would be to ring fence funds for specific purposes. These reflected the extent of second home ownership and consequential additional revenue which could be raised in the respondent's area. Overall, respondents considered that the additional revenue could make a useful contribution to addressing affordable housing needs, but not necessarily through support for capital funding. Only 7% of respondents considered that the extra funding would be sufficient to support key services.

9. It is worth noting that only 19% of responses to the Government's own consultation on these proposals favoured a local authority ring fence for use on housing purposes. Some 72% of the respondents favoured local retention with the freedom to spend on local priorities.

10. Whilst the Rural White Paper was clear that the prime intention behind this proposed Council Tax reform was to address the housing needs caused by the incidence of high second home ownership, on reflection we now feel that in practice a compulsory ring fence may not be necessary. There are democratic objections to ring fencing by local government and it is also the case that local authorities could, were they so minded, circumvent the spirit of any ring fence by making compensating adjustments elsewhere in their budgets. In any event, local authorities in areas with a high incidence of second homes have made it very clear that their intentions are in line with those expressed in the Rural White Paper, ie to use any additional Council Tax revenue from second homes to address local housing needs.

11. In the light of these views we now believe that our concerns on the use of the revenue raised could be met by statutory guidance to local authorities underpinning the Government's intentions, as outlined in the Rural White Paper, on the expenditure of any additional resources raised from Council Tax on second homes, together with some clear annual accounting report on this expenditure. We would be willing to advise on the content of any such statutory guidance.

Proposed advice:

that rather than ring fencing, statutory guidance should be issued to local authorities on the use of the additional Council Tax revenues raised from second home address local housing needs.