Association of Drainage Authorities 6 Electric Parade, Surbiton, Surrey, KT6 5NT Telephone +44 (0)

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1 Local Audit and Accountability Bill: IDB Q&A Briefing The Local Audit and Accountability Bill requires the levies made by other bodies to be included in the calculations for council tax and compliance with the Secretary of State s threshold for excessive council tax increases. The bill does not mean that the IDB is bound by that threshold, but if the Local Authority in aggregate exceeds the threshold then a referendum is triggered. The referendum is undertaken and funded by the Local Authority What is an IDB Special Levy on a local authority? Historically IDBs have always sought contributions to their work from those benefitting. Originally these contributions were collected directly from both landowners and those occupying property. Occupants of properties (homes and businesses) each paid a very small levy direct to the IDB. This large number of small payments was administratively very inefficient so in the 1970 s it was decided that the local authority would collect the property levy alongside rates, and pass the accumulated levy payments to the IDB. To make the arrangements even more efficient it was decided to collect the property levy as an average charge with the rates (now council tax), so that property occupiers only had to make one payment to the local authority. Local authorities pay the sum of the individual property levies collected to the IDB as a single payment known as the Special Levy. Because of changes to council tax collection the payment now forms part of the council tax across the Local Authority area rather than just the properties within the Internal Drainage District. This has changed the nature of the relationship. Would including the IDB levy in referendums encourage IDBs to modernise? No. It could have quite the opposite effect as amalgamations which increase efficiency and transparency could create concern that special levy changes would trigger referendums which would stop them proceeding. (The Government wants IDBs to modernise so they are as efficient as possible and open and transparent. Two independent reports [JBA 2006 & Entec 2010] and recent best practice have shown that the best way to achieve this is through amalgamations of smaller local IDBs. However amalgamations change the administrative boundaries of IDBs, so the developed land that was spread across several small IDBs is now all in the new IDB s area. As the levy is calculated according to the relative proportions of developed and agricultural land, although the total income of the new IDB will be similar to the combined income of the old individual IDBs it replaces and the new IDB s total levy is likely to be less due to reduced overheads and other efficiencies, levies on some local authorities that have significant payments to an IDB may increase enough to trigger a referendum (and some may fall). We can use differential rating to mitigate this impact, but that increases the costs and bureaucracy for the IDB and would be a deterrent to future amalgamations. The recent very successful amalgamation in Somerset would not have gone ahead had the new referendum rules applied.)

2 Would including the IDB levy in referendums have any consequences for the Government s growth agenda? Yes. It could have a negative impact on the growth agenda by making it against IDBs interests to encourage growth. (The reason is that when an area of agricultural land is developed, the money that goes to the IDB to manage that land is switched from landowner payments to the Special Levy see 1 st question above. The IDB is not increasing its overall income, but the Special Levy paid by the local authority is increasing to cover contributions for occupiers of the new property on that land as income from agricultural landowners correspondingly falls. To avoid such an increase in the Special Levy triggering a council tax referendum the IDB will resist the new development. This is a structural change rather than a decision point. Additionally, if the new development requires supporting infrastructure such as a new pumping station, the IDB would have to further increase its levy on the local authority to pay for it, adding to the risk that a referendum will be triggered. Council tax payers who probably objected to the development in the first place are hardly likely to support a referendum on paying more council tax to support it.) Would including the IDB levy in referendums have any other unintended consequences? Yes. It could reduce Environment Agency resources or protection of local communities. IDBs pay a precept to the Environment Agency for the work it does in IDB areas. In some IDBs this amounts to half (and in rare cases three quarters) of the IDBs total budget. If the EA keeps increases in its precept low so the IDB does not need to increase its levy on local authorities, the EA may not have sufficient resources to do its job properly. However if the EA increases its precept over the referendum threshold and the IDB can t pass this on through its levy on local authorities without triggering a referendum, then IDB services to the local community will be reduced. The change would also have administrative consequences for the Environment Agency. As the IDB would need to provide details of the annual levy to the local authority earlier, it would need to know what the EA precept would be in October, rather than December as is currently the case. Is the IDB levy value for money? Yes. The IDB levy pays for the protection of local homes, businesses and services from the damage and disruption caused by flooding and high groundwater levels. Defra and the Environment Agency estimate that overall every 1 spent on flood risk management brings a benefit of 8 and for capital projects this doubles to 16. [Department for Environment, Food and Rural Affairs and Environment Agency, Flood Risk Management in England, HC 1521, October 2011; Environment agency report: Managing flood and coastal erosion risks in England 2011/2012] The benefit from the work of IDBs much wider than just local: 53% of England and Wales total installed electricity generating capacity; 3% of trunk road, 6% of motorways and 5% of rail track in England and wales; the majority of Grade 1 agricultural land; significant parts of the nation s food

3 processing industry; access for ports handling almost 20% of England s imports and exports; significant tourist sites; and over 25% of UK s oil refining capacity is within IDB areas. Is the IDB levy democratic? Eric Pickles has said that charges from a secret state of unelected local bodies were adding to bills. However IDBs are not unelected (as prescribed by the Land Drainage Act 1991). The legislation sets rules for the constitution and election of IDBs and requires that Local authorities in IDB areas have seats on IDB Boards in proportion to the proportion of the Board s income from the Special Levy (although not exceeding by more than one the number of other members of the board). The process for setting the Special Levy is transparent and accountable, but IDBs cannot be directly answerable to a local authority s electorate as the service provided to them is only a part of the IDB s remit, and the IDB may be providing a service to more than one local authority. Why is the Government changing the trigger for a local referendum? The change has been precipitated by large changes in levies from bodies such as joint waste disposal authorities and integrated passenger transport authorities (which account for a far higher proportion of council tax than IDB levies). The Government s reasoning behind the change is to stop councils having to increase their overall council tax bills by a substantial amount, without triggering a referendum, because of levies from external bodies. Why shouldn t the referendum trigger include the IDB levy? Because IDBs are not directly accountable to local authorities or local electors. Local authorities and their electorates cannot exert significant influence on IDBs, which have their own transparent and accountable governance arrangements, and are accountable to the Environment Agency and ultimately to Defra Ministers. If, as Mr Pickles has said, the purpose of the change is to ensure that a referendum is triggered by real increases in local government services, then council tax rises due to levies by waste disposal authorities and passenger transport authorities which provide core local government services should be included in the rules that apply to charges for other council services. However this argument does not apply to the IDB levy, which is only part of council tax as an administrative convenience and not a charge for a local government service. (This is supported by the detail of the powers in the Localism Act, which state that an authority proposing an excessive increase must also make substitute calculations, based on a nonexcessive council tax level. Although a Local Authority has to pay the IDB precept once made, there is a risk that in order to manage pressures Local Authority members of an IDB vote with a mind to the council tax impact rather than the duties of the IDB for which they are a member. A local authority would not be able to make meaningful or valid substitute calculations on the IDB special levy component of the council tax, nor would an IDB be in a position to make or influence those calculations itself.)

4 Do IDB levies have a big impact on council tax bills? No. On average, the levy from an IDB only accounts for a small proportion of council tax, less than 1% on average for English Districts according to LGA figures. Mr Pickles has said that he wants the change so unelected levying bodies do not have a disproportionate effect on council tax levels. The levy from IDBs clearly does not have a disproportionate effect on the vast majority of councils. [However in the small number of districts where the majority of the land is managed by IDBs, the IDB levy does account for a significant proportion of some District s council tax 54% for Boston]. Has the IDB levy been increasing? Not in real terms. Nationally, increases in the IDB levy have been in line with inflation. Figure 1 shows that total income IDBs have received from Special Levy has been increasing at a similar although slightly higher rate than inflation since 2003/4 using RPI as inflation rate increasing from a 2003/4 baseline figure. The overall relationship is slightly skewed by a particularly high increase in Special Levy between 2003/4 and 2004/5, markedly higher than inflation. Figure 2 uses 2007/8 as a baseline and shows an overall almost identical increase in total Special Levy with inflation. Where individual IDB levies have increased over inflation, this is either because: a) There has been development on greenfield land in the IDB s area so the relative proportion of developed land to agricultural land has increased (the levy is based on the proportion of developed land in an IDB s area as it reflects contributions to the work of the IDB from the property owners who benefit from the IDB s services); or b) The administrative boundaries of adjacent IDBs have changed, so more developed land is included in an IDB s area. This will increase that IDB s levy (but with a corresponding decrease in the levy from the other IDB). This will have no effect on council tax as the actual land area subject to the IDB levy has not changed, only the IDB administrative boundaries. So if a local authority was paying a levy to two IDBs, either one levy will fall as the other rises or the two levies will be amalgamated and paid to one IDB. c) To fund essential additional work to protect the community. If an IDB needs to do emergency work to repair an embankment, or build a new pumping station to cope with increases in flows from water company discharges or increased rainfall or run-off, it will have to raise funds from all the beneficiaries: the agricultural land owners who pay a direct levy; and the property owners who pay via the Special Levy in their council tax.

5 Figure 1: Change in total income from Special Levy for IDBs in England and Wales against projected change with inflation (from 2003/4 baseline) Figure 2: Change in total income from Special Levy for IDBs in England and Wales against projected change with inflation (from 2007/8 baseline)

6 Is the IDB levy fair and transparent? Association of Drainage Authorities Yes. It is set according to the area of developed land, following rules set out in the Land Drainage Act The IDB budgets behind the levy, and the decisions made in forming them, are subject to transparent procedures and are in the public domain. The Government has said that it wants levying bodies to be brought more closely into the accountability framework This is a laudable objective, but changing the council tax referendum triggers is not an effective way to achieve it. IDBs already operate in a transparent and accountable way, and making an IDB levy a potential contributor to trigger a referendum will not improve IDB accountability. Instead it is likely to cause confusion as the roles and responsibilities of local authorities and IDBs are different, reflected by their different governance arrangements, and IDBs are not directly accountable to local authorities or local electors. Would including IDB levy in the referendum trigger make IDB budgeting and spending more efficient and effective? No. IDBs strive for efficiency. They are accountable for their budgets and spending to boards comprising local landowners who benefit from their services and elected local councillors from the local authorities whose communities benefit from IDB services. Mr Pickles asserts that levy increases often stem from poor policy decisions by the unelected bodies. However we know of no evidence for this for IDBs, which have a strong track record for sound policy decisions. What would be the effect of a referendum blocking a council tax rise due to an increased IDB levy? If a local referendum vetoed an increase in council tax due to the IDB levy, the local authority would have to pay the levy and cut local services to keep its council tax below the threshold (this is the outcome DCLG has indicated would be the most likely during the Lords Committee Stage of the Bill) or the local authority may approach the IDB to ask it to issue a lower substitute levy to help it to manage the need to cut budgets. This is difficult for IDBs because they would have to reduce the rates across their whole area which will reduce charges across the Board (could affect up to six local authorities and as a consequence reduce the IDB income by a greater amount and incur additional costs to re-issue bills etc. Reducing funding across the board area would have stark consequences for the affected local communities: increased flood risk with its attendant disruption, social and health costs and consequent damage to local economies; and increased costs of road maintenance due to damage from high groundwater levels. The effects could be much wider than just local: 53% of England and Wales total installed electricity generating capacity; 3% of trunk road, 6% of motorways and 5% of rail track in England and wales; the majority of Grade 1 agricultural land; significant parts of the nation s food processing industry; access for ports handling almost 20% of England s imports and exports; significant tourist sites; and over 25% of UK s oil refining capacity is within IDB areas.