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Paper 6 -  28 November 2003 Meeting

ASSOCIATION OF HAMPSHIRE AND ISLE OF WIGHT LOCAL AUTHORITIES

28 November 2003

COUNCIL TAX ON SECOND HOMES

Report by the County Treasurer and the Treasurer of New Forest District Council

_____________________________________________________________________

RECOMMENDATION

That the Association considers the issues raised in paragraph 11.

_____________________________________________________________________

INTRODUCTION

1. Draft regulations which the Government plan to make under the Local Government Act 2003 will enable local authorities to reduce the discount on the council tax, currently allowed to owners of second homes, from 50% to as low as 10%.

2. It is likely that this will take effect from 1 April 2004. Local authorities will retain the additional income raised. It will not be matched by a corresponding reduction in Government grant.

3. The Regulations will share the additional income between the billing authorities (the districts and unitary authorities) and the major precepting authorities (the County Council, police and fire authorities) in proportion to their council taxes.

HAMPSHIRE COUNTY COUNCIL

4. The County Council’s Cabinet supports the reduction of the discount and has agreed that its share of any proceeds should be used for countywide priorities for community services. It also supports the development of a protocol with the billing authorities to maximise the additional income and its use.

DISTRIBUTION OF SECOND HOMES AND IMPLICATIONS

5. There are around 4000 homes in the County Council area; about 3000 in the Isle of Wight and just under 800 in the two city areas (these numbers are likely to reduce because they currently include tied accommodation for which the 50% discount continues). Possible additional income could be substantial, around say £1m in the County Council area, possibly a further £1m from the unitary authorities.

6. The number of second homes in each authority and the possible additional income are set out in the Appendix (Tables 1 and 2) though further work is required to estimate the potential additional income more accurately.

7. Some district councils have relatively few second homes, with less than 100 in Gosport, Hart and Rushmoor. New Forest, on the other hand, has more than 1,000. As a result, the benefits of reducing the discount on second homes will be more significant for some district councils than others, particularly as over 85% of the additional income raised will pass to the major precepting authorities (the County Council, police and fire authorities) because their council taxes account for the major part of the council tax.

8. In some cases, the total additional income could be less than £20,000 per annum before it is shared with the precepting authorities. It is possible that the administrative costs for these districts will account for a significant proportion of their share of the additional income. It may be necessary to agree in the proposed protocol that the major precepting authorities share in the costs of such districts.

USE OF THE ADDITIONAL INCOME

9. Under the Regulations, the additional income from reducing the discount on second homes will pass automatically to each authority (district, unitary, county, police and fire) in proportion to their council tax per band D through the tax base used for council tax setting purposes. Each authority will then be able to decide how they wish to use the additional income.

PROTOCOL

10. The Hampshire and Isle of Wight Chief Financial Officers Association has developed some initial thoughts on a possible protocol following consultation started last year.

11. If authorities in the Hampshire area agree, it would be possible to develop a protocol covering:

ˇ whether to adopt a common policy to apply the reduced discount on second homes with effect from 1 April 2004

ˇ support for the administrative costs of billing authorities with relatively few second homes

ˇ pooling of the additional income by all authorities, after allowing for agreed administrative costs, for use on agreed priorities.

DISTRICT COUNCIL CONSIDERATIONS

12. The District Council finance officers have a more general preference to reduce the discount to 25% rather than 10%. There was concern that a 10% rate could be difficult to implement successfully if couples claimed that one person was living in each property in order to claim single occupier discount of 25% or might switch their choice of first or second homes, if other authorities were not implementing the 10% rate. If this behaviour was exhibited the effect in either case is to reduce the number of second homes. More single occupancy homes would leave the tax base unchanged but potential additional income not subject to equalisation would be lost. Second homes in Hampshire reclassified as first homes could lead to more council tax collected, but again the taxbase for grant redistribution purposes will increase to compensate.

13. District Councils also expressed the view that they would wish to see the additional income spent in their local area. However the Government’s intention in the regulations is to ensure that both billing and major precepting authorities benefit financially from the billing authority’s decision. A condition of the protocol that the precepting authority’s share of the additional income be spent in the billing area from which it derived would make the development of a protocol less attractive to the precepting authorities.

OTHER AUTHORITIES

14. The Isle of Wight has the largest number of second homes in the Association’s area. Although the Isle of Wight is covered by the Hampshire Police Authority, it is assumed that any agreement to pool the additional income will be limited to authorities in Hampshire, subject to any separate decisions the Isle of Wight Council (and the two cities) make with the Police Authority.

15. As well as the Police Authority, the Hampshire Fire and Rescue Authority will move to precepting status from 1 April 2004 and will be eligible to receive a share of the additional income in the county and city council areas of Hampshire.

JON PITTAM
County Treasurer

CHRIS MALYON
Treasurer, New Forest District Council

Date: 17 November 2003
Annex: 1
Contact: Jon Pittam 01962 847522 jon.pittam@hants.gov.uk

ANNEX

Table 1 - Number of Second Homes

Number of
second homes
2003/04

As % of
of total
dwellings

Number

%

%

Basingstoke

264

6.5

0.4

East Hampshire

700

17.3

1.5

Eastleigh

150

3.7

0.3

Fareham

269

6.6

0.6

Gosport

92

2.3

0.3

Hart

29

0.7

0.1

Havant

450

11.1

0.9

New Forest

1,485

36.7

2.0

Rushmoor

46

1.1

0.1

Test Valley

288

7.1

0.6

Winchester

274

6.8

0.6

Hampshire total

4,047

100.0

0.8

Portsmouth

537

0.7

Southampton

256

0.3

Isle of Wight

2,959

4.7

 

This is likely to be an overestimate because of assumptions about the band distribution of second homes and the inclusion of second homes created by the requirement to occupy tied accommodation by an employer (where the 50% discount remains).

Table 2 – Possible additional income

County

Police

District

Unitary

Total

Council

Authority

Councils

Authorities

£000

£000

£000

£000

£000

Basingstoke

96

11

11

-

118

East Hampshire

257

30

47

-

334

Eastleigh

49

6

9

-

64

Fareham

92

11

13

-

116

Gosport

28

3

5

-

36

Hart

10

1

2

-

13

Havant

149

17

25

-

191

New Forest

546

63

110

-

719

Rushmoor

15

2

3

-

20

Test Valley

109

13

14

-

136

Winchester

105

12

18

-

135

Portsmouth

-

19

-

176

195

Southampton

-

9

-

94

103

Isle of Wight

-

111

-

1,182

1,293

Total

1,456

308

257

1,452

3,473

This is likely to be an overestimate because of assumptions about the band distribution of second homes and the inclusion of second homes created by the requirement to occupy tied accommodation by an employer (where the 50% discount remains).

Last update: 18/11/2003
Author: Nick Goulder, Director

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