Item 4 is a statement by the Minister for Finance and Local Government on reforming council tax in Wales, and I call on the Minister, Rebecca Evans.

Diolch. Our programme for government makes a clear commitment to reform council tax to make it fairer. The co-operation agreement that we've entered into with Plaid Cymru reaffirms that aim, and today I want to set out the first initial steps along that journey.

As Members know, council tax plays a significant role in supporting some of our most essential public services, from educating our children to caring for our loved ones to recycling our waste, to give just a few examples. But the system is in need of reform. It is our ambition to ensure the contributions made by the people of Wales are applied as fairly as possible. The council tax system should be more progressive in its design and it should be modernised in its delivery, having existed in its current form since 1993.

I am proud of our Welsh Government's achievements on council tax in the last term. We have removed the threat of imprisonment for non-payment, we have created a new exemption for young care leavers, we have improved access to discounts for people with severe mental impairments, and we have launched a national campaign to raise awareness of the available support, including our national council tax reduction scheme. I'd like to put on record my thanks to Members and local government colleagues for working with us on those important changes.

In February, I was pleased to publish a major piece of work, 'Reforming Local Government Finance in Wales: Summary of Findings', including work by the Institute for Fiscal Studies, Bangor University and other renowned experts in this field. It captures the important evidence that we need to identify the choices ahead of us and to inform the decisions that we need to take. We examined a wide range of options, from modest change through to fundamental redesigns, such as a land value tax. Those findings will help us think about the options for meaningful reform over the next five years, as well as the foundations we need to lay for more fundamental, longer term change.

I recently met local government leaders to gather their views from across Wales. They will be vital partners in helping to co-design and deliver what we set out to achieve. I've also begun to work closely with Plaid Cymru colleagues on this important shared priority. I recognise that this will be an important change, and that is why I am keen that these reforms are part of a national, civic conversation with the people of Wales. That is why I will consult, in due course next year, on an ambitious package of council tax reforms as the starting point of this journey to ensure everyone has the opportunity to contribute to this important debate.

An important first step, and a vital building block upon which other changes will follow, will be to look at options for a revaluation in Wales. Having undertaken a revaluation in 2003, Wales is the only part of the UK that has updated its council tax base since the 1990s, but the tax distribution in Wales is still almost 20 years out of date. Revaluing this term, and doing so more frequently thereafter, will give us the platform for change. It will give us the opportunity to add bands to the bottom or the top ends of the scale to better reflect household wealth and peoples' ability to pay—the first steps to a fairer system. We'll also look at changes to our council tax reduction scheme. We have continued to maintain entitlements to reductions for over 275,000 vulnerable and low-income households, and I'll shortly bring forward regulations to update the scheme for next year, where we will again be investing £244 million to support it.

However, the scheme was developed at pace following the UK Government's decision to abolish council tax benefit in 2013. Since the introduction of our national scheme, we have seen the beginning of the roll-out of universal credit. As the roll-out of universal credit scales up, it introduces complexity into the way that people apply for support and the way their entitlement is calculated. We need to ensure that our scheme takes full account of the impact of universal credit, but we could go further. We need to review the council tax reduction scheme to ensure it's modernised, easy to access and doesn't deter anyone from applying for their rightful entitlement to support. We will also look carefully with partners at the way in which we can modernise the updating of council tax bills, taking advantage of new technology as part of the wider work we are doing to improve individuals’ interaction with, and understanding of, key public services. Now is the right time to work together on making council tax fairer and more progressive. We need to think boldly. 

I want to be very clear—individuals will see no immediate changes to their bills. We have a great deal of work to do before reforms can be introduced. I'll also look carefully and sensitively, as we move through these changes, at the potential options for transitional support for those impacted by any changes. I'll ensure any decisions we take during this Senedd term keep open the potential for going further in the future. I'll continue to explore more radical ideas, such as a system more closely linked to land values as a more progressive form of raising revenue.

Finally, allied to our longer term considerations, I'm considering what reforms are needed to the non-domestic rates system. There are distinct linkages between these local taxes, and it's another key revenue stream for local services. The research we carried out last term highlighted real opportunities in this area, and reform will be necessary to ensure that the local tax system as a whole remains fit for purpose as we recover from the pandemic. 

As we face economic instability, inequality and a climate change emergency, we need to ensure the arrangements for local taxes are resilient, that they can protect funding for public services and help support our ambitions for a fairer Wales. These reforms will be significant undertakings that will need legislative time and the support of Members from across this Senedd. And I will, of course, keep Members informed of developments. Diolch.

Conservative spokesperson, Sam Rowlands.

Thank you, Deputy Presiding Officer, and thanks, Minister, for bringing forward today's statement on reforming council tax here in Wales. I'm sure Members across the Chamber welcome an announcement that consultation will be taking place next year on this, and as you describe it as an ambitious package of council tax reforms, I would, Minister, be interested to hear more of how radical you think these reforms may end up being. I note in your statement there is a desire to consider reforms to the non-domestic rates system as part of local taxation, so I'd be grateful if you could expand on this, perhaps, in your response.

I just have three points I'd just like to raise, and perhaps question on. I'd firstly like to welcome your engagement with local councils, and with leaders in particular, as you mentioned, and you've highlighted in your statement the exceptional work undertaken by councils, which, again, was highlighted and still continues to be highlighted during the COVID-19 pandemic. But we do need to understand why some of this reform is having to take place, and, according to Audit Wales, the Welsh Government's core funding for local government since 2010 has seen a 17 per cent reduction, and local councils simply haven't been funded sufficiently by Welsh Government. So, this deprioritisation of council funding has consequently seen many councils having to make tough decisions in relation to council tax increases, which has ultimately led to council tax here in Wales increasing by nearly 200 per cent since the start of devolution under this Labour Government. So, Minister, with this consultation, how will you balance the ability for councils to be in charge of their own financial destiny whilst not overburdening those local taxpayers?

The second point, Minister, is that I note in your statement and relevant press releases that an option for reform of council tax in Wales could be the revaluation of the council tax bands for the first time since 2003. I'm sure, Minister, you will be fully aware that, at the last revaluation, a whopping one out of three households received an increase in their bills as a result of the revaluation. In your statement, you do state that council tax is out of date and can be unfair. I don't think this can be necessarily argued with, nevertheless, revaluation could see hard-working families hit with those higher bills, so, Minister what plans do you have to ensure that we won't see so many people negatively affected by having those increases—those significant increases—in their council tax bill?

And then, finally, Minister, many people across Wales live on the border with England, working closely with friends, colleagues, neighbours, of course. I think it's around two thirds of the population of Wales living so close to the English border, and council tax reform could see many people in Wales put at a disadvantage to those just living across the border. So, I'm just wondering what talks you're having with your counterparts in the UK Government regarding this, and, indeed, council leaders across England. If those talks aren't already happening, when will you plan to hold those? Diolch yn fawr iawn. 

Thank you very much to Sam Rowlands for his questions this afternoon and the way in which he's approached what is a really, really significant undertaking over the course of the next Senedd term. And he does recognise the importance of consultation. And today I'm announcing that, in due course, next year, I'll be undertaking a consultation, a large-scale public consultation, in the order of around 12 weeks. And that's for the public, but also there'll be the need to undertake some really serious engagement with local government leaders and the revenues and benefits officers and so on. So, we're putting in place at the moment those structures to make sure that we have regular engagement. And I know that Sam Rowlands has particular expertise in this area, given his background in local government, so I'll be keen to explore his views on the proposals as they come forward and undertake some further discussions on that. 

There was a question in relation to non-domestic rates reform. So, today, what we're talking about is the future of reform of council tax. However, it is really important to recognise that non-domestic rates are another important part of that local government finance picture. Inside the document that I've referred to, the summary of findings—which, Deputy Llywydd, is a fantastic read and I commend it to all colleagues, as I've been doing since we published it in February—it does set out all of the research that we undertook over the course of the last Senedd term, looking at different options for council tax. So, it explores some of those radical options that Sam Rowlands was describing, such as a land value tax, but it also talks about the work we're starting to pursue in terms of reform of non-domestic rates. And that work is more in its infancy than the council tax work, because we've made so much progress over the last Senedd term. But, as I say, non-domestic rates are a really important part of that picture, and it's impossible, really, to see the two sides of that local government finance coin separately from each other. 

Some really important questions about any transitional arrangements and what the impacts might be on households. So, the Institute for Fiscal Studies undertook research for us over the course of the last Senedd term, and I'm really pleased that we were able to work closely with them on that. And it explores whether or not a less regressive system could be possible through the introduction of a revaluation or a revaluation with additional bands, or a proportional system without bands. And that does conclude in the research that our current system is now out of date, it's regressive, it's distortionary, although the research did also recognise that we're the only part of the UK to have revalued since the 1990s. And understanding now the impact of the revaluation on citizens, councils and local economies is going to be absolutely vital in taking this work forward. And the IFS work does help us to do that.

So, that work estimated that undertaking a revaluation and keeping the current nine bands would move around 25 per cent of properties up bands, 26 per cent would move down bands, and around 49 per cent would stay the same. But, obviously, there are implications in terms of different local authorities being affected in different ways. But part of what we're also looking at would be to increase the number of bands, which obviously would change that picture as well. So, lots of work for us to be doing as we move forward, but I think the questions that have been identified about the implications for households and for local authorities are the right ones and the ones that we'll need to pursue in the period ahead. And alongside that, then, to look at transitional arrangements for those households that might be affected. That's something that I'm keen to explore in due course, and also keen to have that engagement with the UK Government, and we'll be reaching out to them. I've talked to them, as I've talked to everybody since February, about the summary of findings document, and I've commended it to the UK Government as well. 

The Plaid Cymru spokesperson, Llyr Gruffydd. 

Diolch, Dirprwy Lywydd. Look, we have it in our power in this Chamber to radically reform what is one of the most regressive taxes that we have, actually. It's a legacy of the Thatcher era. It's grossly unfair, because it levies almost four times as much as a proportion of wealth on the poorest as it does the richest. Now, that's not something that we should tolerate, and that is something that needs to change. I'm glad that, as a result of the co-operation agreement between the Government and Plaid Cymru, we are now facing up to that, challenging that, and hopefully changing that as well. The current regime is outdated, it's unfair and it's inconsistent as well. We all know of villages maybe hundreds of yards apart where the disparity is hundreds of pounds in the bills that they pay every year. So, as the Minister said, this is the beginning of a journey, and the three-year co-operation agreement will take us part of that journey, but let's make a good start at least.

I'm glad that the Welsh Local Government Association has today welcomed this announcement. I think that's positive because, obviously, as key stakeholders go, they're probably one of the most key ones in this context. But it is going to be a broad process where all stakeholders are invited to be part of that discussion. Now, we as a party in our manifesto committed to reforming council tax and to, longer term, of course, actively considering a single property tax based on the principle of a land value tax. So, with that in mind, I'll just ask a couple of questions.

In order to assess the real implications of a land value tax, we need more data, of course. That's become clear in some of the work undertaken by the Bangor University report. The first recommendation in that report was to go about gathering the necessary data in a more meaningful way, perhaps. So, can I ask you what work the Government has done or intends to do to gather that data in order to lay the foundations for the discussion that we need to have on a land value tax?

Thinking that there's been no revaluation for 20 years does tell us a lot about where we are and how outdated the situation is. So, would you agree with me that we need to move to a more dynamic footing, where revaluation happens more regularly, whilst of course being aware of the need to create mechanisms that even out the peaks and troughs that would emerge as a result of doing that?

And finally, you refer to new techniques or technologies in your statement. What sort of things do you have in mind in that context? Thank you.

Thank you very much for those questions and for the way in which we've already started working collaboratively and jointly on what is a really important shared endeavour. All of those points that you made at the very start of your contribution, in terms of how unfair council tax currently is and how regressive it is, just really give the context of this work and why it's so important that we take forward the agenda and make some good progress now in this Senedd term.

I'm also really pleased that the WLGA has welcomed this piece of work and the way in which, again, they've been so willing to engage on what is going to be a really big and important piece of work. They are absolutely key stakeholders. We're currently, as I mentioned in response to Sam Rowlands, putting in place those structures that will help us to ensure that we have access to the necessary expertise throughout this piece of work, and the WLGA obviously is a key partner in that. 

In terms of the land value tax, the Bangor University study did present us with the first ever detailed consideration of a local land value tax in Wales, and it had a real focus on the practicalities of implementation, rather than the conceptual ideas of a land value tax. There does need to be some further work now. I think what we had in the Bangor University study was really an initial feasibility report, due to the scope of it, but I think that if we do need to move forward further we should look to the key potential future considerations that would require us to outline the requirements for a comprehensive cadastral database. Obviously, we need that before we can even start to move forward on that agenda. We'd need to discuss the feasibility of that with partners and time frames, costings, and consider opportunities to link with the wider devolved taxes agenda.

We also need to understand the implications of land ownership and land use in Wales, and whether there would need to be any changes to the planning system as a result, and to undertake a statistical analysis of agricultural land, which of course would be part of our considerations in terms of how this may or may not include agricultural land. And then obviously we'd need to undertake a fuller analysis of the legislative and devolution requirements. Replacing council tax, non-domestic rates, or both, with a land value tax is really a fundamental departure from what's been a centuries-old statute and most likely would require several Acts of the Senedd, and obviously that would be a really complex, lengthy exercise, but of course, it could bring us opportunities then in terms of the modernisation of and consolidation of the law as well.

We'd have to look to how we overcame some of the constitutional obstacles. The Government of Wales Act confirms local taxes to fund council expenditure and local government finance as being devolved matters, however, the quasi-devolved nature of the valuation function means that the Welsh Government must seek permission from the UK Government to change the valuation function in any significant way, so obviously discussions to be had with UK Government on that as we move forward on this really important agenda.

I absolutely agree with the points that Llyr Gruffydd was making about having a more dynamic system, where we have more regular revaluations. I think there are some quite exciting opportunities for us here, because now, of course, we've got the Welsh Revenue Authority and we collect the land transaction tax, so we have a regular, live, updated and real-time picture of house prices here in Wales. So, we're looking at ways in which we can exploit that, and potentially create a system where we have access to data not just for the purposes of local taxation, but actually for helping us understand the picture in relation to second homes and what we can glean from that to help develop policy, and you could include information about the energy efficiency of properties, for example. So, a huge opportunity for us here in terms of using or creating a new database that would be part of this work going forward, and that applies to the revaluation work just as much as it does to any work that might need to be taken forward in future in terms of land value tax. But, obviously, lots of exciting opportunities for us to do things differently and to do things better, and I'm very much looking forward to working with Plaid Cymru on that.

Firstly, can I welcome the statement? The property valuation is nearly 20 years out of date. It is almost certain that values will have gone up. There's also that values will have changed relative to other properties. Of course, the advantage of a tax on property values is that it's very difficult to avoid, compared to income tax. Council tax is set on band D and all other band payments are based on that. Properties in band A pay two thirds the amount charged on band D, and properties in band H pay twice band D. What that means is a £40,000 house pays two thirds of a £120,000 house despite being a third of the value; a £420,000 house pays twice as much as a £120,000 house and three times as much as a £40,000 house. We also have a situation, which is called the Blaenau Gwent problem, where over half the properties in Blaenau Gwent are in band A.

We know this whole system is unfair. The payment is not proportional to the value and is skewed to those living in lower value properties paying more, and we know that the value of properties is probably the best indicator of wealth we've got. Will the Minister consider a revaluation with narrower bands and with no upper limit, and revaluations at least every five years? Will the Minister also consider returning business rates to local authorities? And thirdly, would not a land value tax mean—not mean—that there'd be no social housing in areas of high land value?

I'm really grateful to Mike Hedges for that series of questions and I know that this is an agenda that he is also very passionate about. At the start of his contribution, he gave us some really stark examples, really, as to why this work is so necessary in terms of council tax being regressive at the moment, and needing to change in order to become fairer. I think that the fact that we're at the same time as this work going to be undertaking a review of the council tax reduction scheme, and an evaluation of our discounts and exemptions and so forth, is really important because we can't take those pieces of work in isolation, and any support that we can provide to households needs to be done in a way now that will be cognisant of the new values and so forth.

All of those questions that Mike Hedges has described will be part of the consultation, where people will have opportunities to provide views on them, so that point about where the upper limit should lie, those points about a larger number of narrow bands and so forth, so there will be opportunities to contribute those ideas as part of the consultation, which will take place next year. What we're outlining today is the broad way forward rather than specific proposals for the way forward, but those questions, I think, again are ones that we'll have to grapple with in the period ahead.

Thank you, Minister, for the statement. I think, as we've all heard today, everybody welcomed the opportunity to revisit council tax. I think we're all agreed that it's not a particularly good tax, and we've seen that from the huge amount of arrears we've seen over the years, which have increased by 42 per cent to over £156 million-worth of arrears. So, I think there is scope for a fairer system, and I was very pleased that you said you'd need to make things as fair as possible, and Llyr's view that it is grossly unfair at the moment.

It's fairness that I do want to focus on, because I think we have to take a very cautious approach when we reform council tax in Wales that we don't actually disadvantage a whole swathe of people. For example, in my own constituency, it's recognised that generally properties are of a higher value, and what follows then is obviously higher council taxes. But it's known that Monmouthshire, for instance, has large areas of people who are cash-poor but asset-rich, so, Minister, how are we going to make sure that our reforms, or your reforms, take into account people's ability to pay that tax, rather than simply just basing it on how much property they've got, or what it's worth? I think it's really important that we look at that closely.

I'm also very pleased to hear what you've been saying around business rate reform. That is a key part of the bigger picture, especially. I welcome working very closely with local authority leaders—that's absolutely fundamental and the WLGA are well-placed to advise us on the best shape for things moving forward. But a fundamental point is about actually making sure local government is funded right. We don't want to just see this a quick fix, trying to lever in more money to support local authorities. It's got to be done—

The Member needs to conclude now.

—in a thought-out way. Sorry, Deputy Llywydd. So, Minister, I look forward to the statement in February, and just look forward to understanding how better you will work with councils to change that council tax system. Thank you.

Thank you very much for raising those issues. You began by talking about council tax arrears, which of course is a concern for us when we find individuals and families in that situation. Council tax collection rates are actually very high, but the overall impact for those facing debt and arrears is of concern, and that's why I'm really pleased that we've been able to agree with local government the council tax protocol for Wales. That is a document that sets out the good practice guidance for the collection of council tax, again developed in full collaboration with local government and endorsed by Welsh Government and the WLGA, and signed up to now by all 22 local authorities. That really sets out the good practice approach for local authorities and debt advice agencies to ensure that any action they take is proportionate, is fair, is consistent, and provides the basis then for a more constructive relationship with council tax payers, particularly those who are struggling to pay.

So, again, this is an example of the good work that was achieved over the previous Senedd term, but something that we obviously need to build on, because we do still have a system that is unfair. I think it's really good that that's recognised from all quarters of the Senedd. I think transparency is really important in this agenda as well, which is why we've been pleased to be publishing all of the research that we received over the course of the last Senedd term. And of course it's distilled down into our summary of findings document.

In that vein of transparency, the Institute for Fiscal Studies report has done some analysis by household types, and it does indicate that bills, if we went for the revaluation without the additional bands, and so on—so it's just one indicative example—it does suggest bills may increase for pension-age couples and working-age couples without children, but then bills could reduce for lone parents, single pensioners and couples with children. So, it's important that we undertake that distributional analysis of all the work that we undertake to understand the impact on households, and what, if any, transitional arrangements we would need to put in place to support them, and then to make sure that the council tax reduction scheme and our suite of exemptions and discounts are fit for purpose for any new system as we move forward.

Finally, Ken Skates.

Diolch, Dirprwy Lywydd. Minister, thank you for your statement today. First of all, would you agree that the 22 local authorities across Wales have been absolutely incredible in supporting vulnerable people, communities and businesses during the whole pandemic, and that it demonstrates the value of public services at a very local level? Of course, reform of council tax is overdue, but there are other ways that the Welsh Government has been supporting councils in delivering vitally important enabling projects, like the Wrexham Gateway in north Wales and the global centre for rail excellence in mid and south Wales, both supported by Welsh Ministers through local authorities. Would the Minister reaffirm the Government's commitment to supporting such job-creating magnets alongside, of course, councils raising revenue through a reformed system? And finally, Minister, I'd be very grateful if you could just once more assure Members that there will be no sudden changes to Bills, and that the new system will address the unfairness of council tax. 

I'm grateful to Ken Skates for raising these issues and giving me this opportunity to place on record my thanks and the Welsh Government's thanks to all 22 of our local authorities, who have done absolutely incredible work supporting communities through the pandemic, but then, as Ken Skates sets out, going beyond that in terms of the ambition that they have for their areas. Those great examples of the Wrexham Gateway project and the global centre for rail excellence show some further ways in which the Welsh Government can work with and support local government in their ambitions to create and develop economic well-being in their areas, and provide those sustainable, skilled, important jobs. I think our work goes far beyond the work that we've been doing over the course of the pandemic, important though that is. I think that we've got lots more to celebrate with local government as well. And then, finally, just to confirm that there will be no immediate changes as a result of today's statement. What I'm setting out is the direction of travel and a commitment to consult widely next year, before we firm up proposals as to what a fairer council tax system might look like in future. 

Thank you. Minister. We will now suspend proceedings to allow change-overs in the Chamber. If you wish to leave the Chamber, please do so promptly. The bell will be rung two minutes before proceedings restart. Any Members who are arriving after the change-over should wait until then before entering the Chamber.  

Plenary was suspended at 16:17.

The Senedd reconvened at 16:28, with the Deputy Presiding Officer in the Chair.

Croeso nôl. Before we start this second session, Peter Fox would like to make a clarification for the record. Peter.

Diolch, Deputy Llywydd. It was remiss of me in the last session not to declare an interest as a county councillor for Monmouthshire County Council, so I'd like to do that at this point. Thank you.

Thank you. That is now on the record.