Reply to Bevan Foundation blog "Time to talk about tax and the NHS "by Victoria Winkler on 19th January

What are taxes for?

It was a joy to read Victoria Winkler’s article titled “Time to talk about tax and the NHS” on the Bevan Society blog. Since being elected in 2011 most of the discussions I have heard in the Senedd have been around reducing taxes in order to grow the Welsh economy rather than the need for taxation to pay for public services.

Taxation exists to pay for public services, too many people believe that we can have the same quality of public services as Scandinavia but have a taxation system which is more like that of the USA. It is not by random chance that those with the highest tax levels have the best public services and those with lowest tax levels the poorest. It is because taxation is necessary to raise the money to pay for the public services we all need.

Quality public services, be they health, education or infra structure come at a substantial cost to the public purse and the only way of paying for them is via taxation. Taxation can be on income, profit, consumption/ expenditure or value of land and property or a combination of all of them but if people want quality public services these are the taxes needed to pay for them.

Whilst as Victoria points out nobody likes to pay taxes and some, both individuals and companies, are expert at reducing their tax payments,  quality public services mean that if some people do not pay then either public services suffer or others have to make up the shortfall. Every time tax cuts are made they are shown as beneficial and they appear to be to those who are paying less tax. The affect of these reductions on government income have on public expenditure on services such as health and education completely ignored until the cuts start affecting people.

The more difficult a tax is to avoid the more unpopular it is with the rich and powerful. By far the most difficult taxes to avoid are the property taxes (non domestic rates and council tax). There are no tricks such as using internal company transactions or having non domiciled status to avoid paying the tax. The buildings be they residential, manufacturing, commercial or retail are not movable and the tax becomes liable on the property and has to be paid.

If we desire quality public services then we have to, via taxation, pay for them. This is not the start of a campaign for higher taxes but it is a continuation Victoria’s linking of taxation with expenditure. Remember the old adage you only get what you pay for.

 

Senior Manager's Pay

Senior managers pay in the public sector cannot be looked at in isolation from the private sector.

Senior managers in the private sector are paid substantially more than those in the public sector.

This includes the former publicly owned utilities which have moved into the private sector.

Some have remained such as water including Welsh Water or Dwr Cymru as monopoly suppliers. The energy industry has moved from a monopoly to an oligopoly. This means that according to game theory, the decisions of one firm therefore influence and are influenced by the decisions of other firms in the industry. Which means senior salaries and senior salaries tend to follow each other.

The investigation by the Public Accounts committee included both public authorities and those who receive the bulk of their money from the public purse.

On recommendation 2 senior management pay in local government used to be easy.

Depending on the type and size of an authority a salary band existed for the chief executive. Following that the other senior staff were paid a percentage of the chief executives salary. This covered directors and assistant directors with staff below that paid on the APT scale.

Like most things that have gone wrong the change can be traced back to the Tory Government of 1979 to 1997.

The government wanted to remove the salary restraint and to bring market forces to bear and to allow local authorities to attract chief executives from the private sector.

What we have seen, certainly in Wales, is almost all the Chief Executive posts going to people already in Local Government, and often working for the same authority.

Salaries have risen substantially above the JNC salary level.

In England over 25 Chief Executives earn over £200,000 per tear with the Councils run by different political parties.

One of the ways that salaries have increased is by the use of consultants who produce comparisons based on the average.

Whilst those chief executives above the average do not generally seek a review those that are below often do.

What happens as the lower paid chief executives increase their salary the average moves up and the chief executives of the larger authorities seek rises to restore their differential. Thus there is an ever increasing average.

These increases are compounded by the advice of consultants on the salary needed to recruit “the best” which again moves the average.

I, whilst I accept I am in a small minority, would like to a reversion back to the JNC scale for chief officers.

The other way chief executives of local authorities have to increase their pay is by payment for additional duties such as returning officer.

Can I commend Swansea Council for including all the chief executives payments within the basic salary?

Turning to senior pay in the education sector.

Again Head-teacher pay used to be graded on the size of school. Another one of the Tory reforms alongside local management of schools was the ability to raise a head teacher who reached the top of one grade on to the next in order to keep outstanding head-teachers at a school and that more than one increment could be given each year for outstanding performance.

It is amazing how many outstanding head teachers we have in Wales.

Further Education Principals, following another Tory folly of moving them out of local authority control have seen their salaries soar.

Again the twin methods of comparison with others and the need for a high salary to attract the best, who often currently or used to work for the organisation and almost exclusively worked in Further Education has led to soaring salaries.

I am not sure that pay committees, I have served on several, however well informed and well meaning will be able to stop the continuing ratcheting up of salaries.

If senior public sector salaries are to be stopped rising and in the future reduced I suggest that as an absolute minimum that recommended salaries for each wholly funded public sector organisation are produced.

It is strange how things change, 25 years ago local authority chief executive salaries and councillors allowances were strictly controlled. Then Councillors payments went to local determination and then returned to strictly controlled by a remuneration panel.

Senior officer and chief executive salaries are now dealt with via local determination but I believe need to be dealt with via a review board.

local authority settlement 2015/16

Local Authority settlement

First, the Local Government Settlement needs to be looked at in the context of the Westminster cuts to public expenditure.

 

By 2015-16, the Welsh budget will be £1.5bn lower in real terms than in 2010-11 and the amount available for capital investment will be 30% lower than it was at its peak in 2009-10. 

The long period of sustained reduction has had an impact on all services, even those that have been relatively protected. The fear is that, in future years, if the Tory Lib Dem coalition continues in Westminster, things will only get worse.

 

The Tories in the 1980s and 1990s engaged in an attack on local government but the scale of the reductions now are far greater than then

 

Whilst I cannot predict with any accuracy what each local authority in Wales will do I can predict what will happen somewhere across Wales

 

Council tax will increase and in many cases by nearly 5%.

Charges for Council services, where they have local discretion, will be increased.

 

Charges will be brought in for services currently free

 

Non statutory services will be closed

 

Discretionary provision will disappear, the 2 and 3 mile limits for school transport will be strictly enforced

 

public toilets will close or the county and county borough councils will try and pass responsibility to community councils

 

Branch libraries will either close or be passed to volunteers to run

 

Opening hours of leisure facilities will reduce

 

Sports pitches will be passed on to local teams to manage

 

Day centres will close

 

Local Authorities will look to pass costs on to health boards

 

People will be paying more for poorer services

 

Opposition Councillors in every Local Authority, aided by Assembly members, will criticize the cuts and support the demonstrations in opposition to them

 

There will be those who see the solution to tens of million of pounds in cuts is the reduction in the number of councillors or in councillors allowances.

 

If all the councillors in Wales were unpaid it would not meet a quarter of the planned cuts in Swansea alone

 

Probably the worst thing that will happen is that all authorities will become similar.

 

Today RCT has amongst the best nursery provision in Britain a continuation of mid Glamorgan’s policy

 

Swansea Council has an excellent record on culture and the arts

 

Education and Social services will take an increasing proportion of the council budgets.

How will these cuts affect health

Local government provides a variety of services that contribute to the health and well being. For instance, if local authorities are unable to provide timely social care packages for those leaving hospital then bed blocking will occur. If Local Authorities do not intervene with home care provision soon enough then that will inevitably increase the risk of hospitalisation.

 As budgets become stretched then slowing down assessment and the production of a care package for hospital discharge could be the only way of staying within budget.

In order for some people to be discharged from hospital adaptations to their homes are often needed. The disability facilities grant is managed and funded by local authorities.

 Yet if there is insufficient funding available for the work to be done then the patient often cannot be released from hospital despite having no medical need to stay there.

Environmental health workers check food safety in premises where food is prepared. If there are less of them then obviously visits will take place less often and the chance of food poisoning such as salmonella will increase.

Of course, all these are statutory services. But if they are fully protected then the discretionary services would be hit disproportionately hard.

Councils can reduce expenditure on road maintenance and street lighting but doing so increases the chance of accidents occurring and will add to the pressure on accident and emergency departments.

In a country where lack of exercise and unhealthy lifestyles are contributing to an obesity epidemic the last thing that the health of the nation needs is the closure of leisure facilities or a huge increase in their cost.

 Local authority run leisure centres and swimming pools provide an opportunity for people to engage in exercise at a reasonable cost. It will not improve health and fitness if they are either closed or prices are increased to such an extent that they exclude a large proportion of the public.

There are of course efficiency savings and invest to save opportunities such as more 3g and 4g pitches to allow greater use of sports facilities.

Local authorities should be looking to use either the Welsh Government’s invest to save initiative, or their own reserves in order to reduce on going expenditure by investing to save.

Local authorities can collaborate more to save money, especially with back office functions such as payroll. But the savings likely to be achieved will be around the edges.

If we continue to substantially reduce spending in fields other than the health service there will be big trade offs and health could be the loser. Health is not only about treating the ill and injured but also about ensuring preventative initiatives are in place.

 Local government is a major provider of preventative services. Large cuts in local government expenditure and a reduced provision of services could damage the overall health of the nation. We must remember that to keep Wales healthy local government has a major role to play

1995/6 Reorganisation

One of the advantages of reorganizing local government ever 22 years is that there are still people around who were involved at a senior level the last time.

As the Chair of Finance of West Glamorgan before reorganisation and of the City and County of Swansea after as well as being part of the shadow board I was closely involved with the reorganisation that created the City and County of Swansea. This reorganisation involved splitting West Glamorgan and Lliw Valley Councils and merging them with Swansea Council.

The first surprising thing that happened was the number of senior staff who retired. For example despite West Glamorgan being split into two the Chief Executive, Director of Education and the Director of Social Services, as well as all the senior highways staff at Swansea City Council, were not available to the new organisation. There was a loss of a huge amount of experience and knowledge as well as a substantial drain on the pension fund. When we started the recruitment process we were concerned about the number of senior staff left without posts but the worry soon became filling senior posts with suitably qualified staff.

Then there was the need to integrate ICT systems as all the staff needed to be placed on the same payroll and personnel systems.  All purchasing, accounting and payment systems had to be put on the same system. The telephone system needed to be integrated and staff relocated to the appropriate offices. This turned out to be both time consuming and expensive.

On the financial side both Council Tax and rents had to be harmonised within the same Council which meant both Council house rent and Council tax rises for the former Lliw valley residents. Whilst Council house rents could be harmonised over several years Council tax had to be equal on the first bill sent out by the new authority. Whilst the Council tax rise in the former Lliw Valley area was relatively modest elsewhere in Wales in the former Islwyn council area the Council tax rise was substantially larger.

Whilst it was difficult to allocate all costs correctly, the cost of reorganisation was over 5% of the total budget of the new authority.

Having read the “Williams commission” report that the ICT costs of the 1990s will not occur this time and the only costs to worry about will be the staff redundancy costs. As the voluntary mergers occur it will be interesting to see if they really have solved the ICT cost and compatibility problem.