Council Tax Valuations in England and Wales

NATIONAL AUDIT OFFICE

REPORTBY THE COMPTROLLERAND AUDITORGENERAL

CouncilTax Valuations in Englandand Wales

ORDEREDBY THEHOUSEOFCOMMONS TOBEPRINTED 30MARCH1994

LONDON:HMSO f7.40 NET 320 COUNCIL TAX VALUATIONS IN ENGLANDAND WALES

This report has been prepared under Section 6 of the National Audit Act 1983 for presentation to the House of Commons in accordance with Section 9 of the Act.

John Bourn National Audit Office Comptroller and Auditor General 16 March 1994

The Comptroller and Auditor General is the head of the National Audit Office employing some 800 staff. He, and the NAO, are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public sector bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources. COUNCILTAX VALUATlONS IN ENGLANDAND WALES

Contents

Page

Executive summary 1

Background 4

Main findings and conclusions 8

Was the banding exercise completed on time? 8

Were all properties banded? 8

Were properties put in the right bands? 9

Are proposals to change bandings properly and promptly handled? 19

What is being done to maintain complete and accurate lists? 22

Did the tendering and contract arrangements secure proper controls 23 and value for money for the taxpayer?

Appendices

1. Chronology of the Council Tax valuation exercise 28

2. Organisations consulted by the National Audit Office 29 -1 ~..~..~.-_... _~.__ -~--- .--Te~~.... j-3.2 s COUNCILTAX VALUATIONS IN ENGLAND AND WALES

Executive summary

1 This summary records the results of a National Audit Office examination of the Council Tax bandings given to domestic properties in England and Wales by the Valuation Office Agency. The main banding work was carried out by the Valuation Office and private sector valuers in 1992 to provide the basis for the introduction of Council Tax on 1 April 1993.

Was the banding 2 The Council Tax came into operation as planned on 1 April 1993 reflecting the exercise fact that the banding of all properties in England and Wales had been completed completed on time? on time. Whilst the valuation of individual domestic properties is a relatively straightforward professional task, the completion of 21 million bandings to a 12 month deadline was, by any standards, a significant achievement.

Were all 3 The direct National Audit Office examination was necessarily selective and could properties banded? not therefore positively confirm that all properties were banded. However, the steps taken by the Valuation Office and other evidence suggest that the final valuation lists are unlikely to have significant omissions.

Were properties 4 The correct banding for a property is, like all valuations, a matter of professional put in the right judgement. Valuers had to weigh up many factors - the size, layout and location bends? of a property, sales of similar properties and the price which might reasonably have been expected on the valuation date. The National Audit Office did not second guess professional judgements on individual valuations but examined, first, the way in which the Valuation Office planned and controlled the work and, second, the bandings given to an independent sample of some 12,000 properties sold around the valuation date.

5 The Valuation Office planned and controlled the work using lists provided by local authorities. The lists were checked against previous domestic rating records, recognising however that these had not been comprehensively updated since 1988. Some 80,000 “key properties” were established throughout England and Wales to provide all valuers with common valuation reference points. The Valuation Office set a 10 per cent valuation tolerance level to reflect acceptable differences in professional judgement, and, for quality control, independently checked samples of all banding work. These arrangements worked well and private sector and Valuation Office valuers achieved a consistent level of accuracy.

6 Examination confirmed that around three quarters of the National Audit Office’s independent sample of some 12,000 properties were given a band corresponding to the purchase price. Adjusting the purchase price to take into account the 10 per cent valuation tolerance brought around 91 per cent of the sample into line with the bandings given. An inconsistency between an individual purchase price and the banding of the property does not necessarily mean that the banding is wrong.

1 COUNCILTAX VALUATIONS IN ENGLANDAND WALES

Similar properties can and do sell for different prices and valuers had to take into account the weight of relevant sales evidence as a whole. Subject to that important proviso, the results suggested that, for England and Wales as a whole, around 19.3 million properties were banded correctly, around 900,000 properties could be (but are not necessarily) in too high a band and around 1.1 million could be (but are not necessarily) in too low a band. As expected, bandings were in general more accurate for lower valued and similar properties in urban areas and less accurate for higher valued properties and those in rural areas.

7 The National Audit Office concluded that in general the banding of all properties was carried out to a level of accuracy that met acceptable professional standards, given the time constraints and the statutory limits on valuation methods. The Valuation Office were satisfied that the 914,000 or so proposals to change bandings was about the level to be expected from an exercise of this size and timescale.

Are proposals to 8 The Valuation Office received 914,000 proposals for rebanding (four per cent of change bandings all properties) by the statutory deadline of 30 November 1993. They had settled properly and 261,000 cases by the end of February 1994, against a target of 280,000 by 31 March promptly handled? 1994. But there are wide variations in how quickly cases are being resolved by local valuation offices, with proposals being cleared most quickly in urban areas consisting mainly of low value properties and most slowly in offices covering Outer London and rural areas in southern England.

9 Not surprisingly, the majority of proposals settled to date have been those where decisions on banding were relatively straightforward. For most of the proposals outstanding the accuracy of the banding is unclear and these are likely to take longer to resolve. The Valuation Office aim to settle 730,000 proposals (80 per cent) by the end of 1994 and the rest as quickly as possible in 1995. The estimated cost of dealing with each proposal in 1993-94 is somef115, part of which relates to the work done by valuation tribunals.

What is being 10 Appropriate steps are being taken to maintain lists up to date. But property values done to maintain are likely to change over time and it may become increasingly difficult to band complete and new properties accurately, particularly if they are of innovative style and accurate lists? construction. Although there are presently no plans for a rebanding exercise, the Valuation Office are well placed to monitor changes in national and regional property values to help to determine whether a revaluation might be required in the future.

Did the tendering 11 There was significant competitive tendering for work between the Valuation and contract Office and private sector valuers, and between private sector firms. The Valuation arrangements Office took a number of steps to ensure that tendering would result in satisfactory secure proper work and provide value for money. These included a detailed pre-qualification controls and value process, an independent unit to evaluate tenders, and a computer model to identify for money for the the cheapest combination of Valuation Office and private sector bids. taxpayer?

2 COUNClLTAXVALUATlONSINENGLANDANDWALES

12 The tendering generated a high level of competition which indicates, in general, that the Valuation Office will have secured the lowest cost for much of the work carried out, without sacrificing standards. The average cost of winning private sector bids was El.58 a property. The estimated Valuation Office cost - produced on a full cost basis and therefore not directly comparable with the private sector bids was El.81 a property.

13 The Valuation Office estimated that in England competition produced savings of between E3.9 million and fZ4.5 million when compared to the estimated costs of having the work done by either the private sector or the Valuation Office alone. A comparable estimate could not be produced for Wales, where 50 per cent of the work was allocated to the Valuation Office at the start of the exercise and they did not compete with the private sector for any of the remaining work.

i 3 COUNCILTAXVALUATIONStNENGLANDANDWALES

Council Tax Valuations in England and Wales

Background

1 The Council Tax came into effect on 1 April 1993. The tax liability for each household depends on a number of factors but varies according to a band based on the capital value of the property. To provide the basis for the tax, around 21 million domestic properties in England and Wales had to be valued and assigned to one of eight broad bands (Table 1). The bands ranged in England from under E40,000 (Band A) to over E320,OOO (Band H) and in Wales from under f30,OOO (Band A) to over !Z240,000 (Band H). Figure 1 opposite shows the number of properties in each band at 1 April 1993 and the way in which the amount of tax for each band varies.

Table 1: Ranges of Bands

Valuation Bands Range OfValues England A Not exceedingf40.000 B Exceedingf40,OOO but not exceedingf52,OOO C ExceedingE52.000 but not exceedingf68,OOO D Exceedingf68,OOO but not exceedingf88.000 E Exceedingf88.000 but not exceedingf120.000 F Exceedingf120.000 but not exceedingf160.000 G Exceedingfi60.000 but not exceedingf320.000 H Exceedingf320.000

W&S A Not exceedingf30.000 El Exceedingf30,OOO but not exceedingf39,OOO c Exceedingf39.000 but not exceedingf51,OOO D Exceedingf51.000 but not exceedingf&,000 E Exceedingf66.000 but not exceedingf90,OOO F Exceedingf90,OOO but not exceedingf120,OOO G Exceedingf120,OOO but not exceedingE240.000 H Exceedingf240,OOO

Source:Section 5(Z) Local Governmentfinance Act 1992

Table 1 showsthe bandingsprescribed to valuationsof domesticwow&s in Englandand Wales,

z Valuation and banding of properties was the responsibility of the Valuation Office Agency of the Inland Revenue. The Local Government Finance and Valuation Act 1991 and the Local Government Finance Act 1992 set deadlines for the introduction of the Council Tax and allowed the Valuation Office only 12 months to complete the valuations. The chronology of the exercise is shown in Appendix 1. The exercise as a whole cost some E74 million, including some E36 million for the bandings (Table 2 opposite).

4 COUNCIL TAX VALUATIONS IN ENGLAND AND WALES

Figure 1 (a): Number 01properties in each band at 1 April 93

Figure 1 (b): Relative tax due in each band

300

250

200

1.50

100

50 0 A s c 0 E F c H Bands

source: valuation office

Figure1 showsthe numberof propelties in each bandat 1 April 1993 in Englandand Walesand the way in which the amount of tax for each bandvaries excludingany adjustments.

Table 2 : Costs of Council Tax Bandings

Activity fmtllion fmitlfon Preparation 9.6 Banding- PrivateSector 19.4 ValuationOffice 16.7 36.1 Management 6.6 Productionof lists (and computersupport) 21.9 Total 74.4

Source: ValuationOfffce Note: Figuresrepresent cost. chargedto the Departmentof the Environmentand the WelshOff&.

The cost of the CouncilTax bandingexercise was some f74 million. The bandingwork alone cost some f36 million.

5 COUNCILTAX VALUATIONS IN ENGLANDAND WALES

3 The Acts required the valuer to consider the price for which the property might reasonably have sold on 1 April 1991 and stipulated certain restrictions and assumptions to be made when banding properties (see Box). Private sector valuers had no right of access to property. The Valuation Office were given statutory rights of access, where necessary, with effect from March 1992. But in practice, because of the short timescale, inspections had to be external. This restriction on inspection created certain difficulties: for example an extension to the rear of a property which increased its value would not be taken into account in the banding unless it featured in the records of the property held by the Valuation Office OI it could be seen from the road. On the other hand, the assumption on state of repair meant that no reduction would be made for a property in a poor state of repair even if this was evident from external inspection. The statutory assumptions required the valuer to imagine that the property was in a reasonable state of repair having regard to its age, character and location.

Bandings were to be based on the value which a domestic property might reasonably have been expected to realise on 1 April 1991, if sold on the the open market by a willing vendor. The main statutory assumptions to be made on all the properties banded were that:

l the property was in a state of reasonable repair: . there was vacant possession;

l the property was either freehold or leased for 99 years; and

l there was no development value.

Contracting out valuation work

4 The 1991 Act also allowed for valuations to be carried out by private firms. Contracting out was necessary because the Valuation Office estimated that they only had the capacity to carry out half the work if they were to meet the statutory timetable. In determining the balance between Valuation Office and private sector work, an agreed minimum amount of work was reserved for each local valuation office; but although the Valuation Office as a whole were guaranteed a minimum amount of work, they were restricted to a maximum amount they could win in open competition (see paragraph 57).

5 Starting in September1991, the Valuation Office divided England and Walesinto contract lots and advertised for private sector valuers to help. By tbe end of the year, the Valuation Office had signed contracts with some 300 companies. Although the exercise was controlled at a national level, the banding work was done locally by the Valuation Office’s local valuation offices and by private sector valuers with local knowledge of the locations and properties to be banded. By July 1992, contractors had banded around 12 million properties (57 per cent) and the Valuation Office nine million (43 per cent).

6 In Scotland, the banding of all properties was carried out by local authority Assessors, working under the direction of the Valuation Office [acting on behalf of the Commissioners of Inland Revenue) not by the Valuation Office themselves. The Assessors were responsible for the completeness and accuracy of valuation

6 COUNCILTAX VALUATIONS IN ENGLAND AND WALES

lists. The Valuation Office liaised with the Assessors to ensue a consistent approach to banding was used between Scotland, and England and Wales. The Scottish exercise is not considered in this Report.

7 Provisional lists of bandings were made available for public inspection on 1 December 1992. The final lists were sent to local authorities by 1 April 1993 when the tax came into operation.

Proposals to change bandings

8 Council taxpayers and other interested parties were allowed until the end of November 1993 to make proposals to correct banding over or under valuations. After that, proposals to change a banding can only be made in certain circumstances, for example where there has been a material reduction in the value of a property caused by partial demolition or a physical change in the locality. The Valuation Office received 914,000 proposals (860,000 in England and 54,000 in Wales) by the November deadline, two thirds of these by June 1993. They had settled 261,000 proposals at 28 February 1994 against a target of 280,000 by 31 March 1994; they aim to settle 730,000 proposals by the end of 1994. The remainder of these initial proposals are to be cleared as quickly as possible in 1995. Until proposals are cleared tax is paid on the basis of the initial banding. Where the Valuation Office and the taxpayer cannot agree on the change proposed, it falls to be determined by an independent valuation tribunal.

National Audit Office examination

9 The National Audit Office examination concentrated on the following key questions:

. Was the banding exercise completed on time?

. Were all properties banded?

. Were properties put in the right bands?

. Are proposals to change bandings properly and promptly handled?

. What is being done to maintain complete and accurate lists?

. Did the tendering and contract arrangements secure proper controls and value for money for the taxpayer?

IO In the course of the examination, the National Audit Office interviewed officials and examined papers at the Valuation Office’s headquarters; examined records of the banding exercise and taxpayers’ proposals at ten local valuation offices in England and Wales: compared the bandings given to a sample of properties with details of actual purchase prices; and sought the views of organisations with a relevant interest (Appendix 21.

7 COUNCILTAX VALUATIONS IN ENGLANDAND WALES

II The approach and methods adopted were discussed and agreed with the Valuation Office and the work was carried out between August and December 1993. Mr W H Rees, a member of the Lands Tribunal from 1973 to 1989, was employed to provide expert advice on valuation methods and made a valuable contiibution to the Report.

Main findings and conclusions

Was the banding exercise completed on time?

12 The Council Tax came into operation as planned on 1 April 1993 reflecting the fact that the banding of all properties in England and Wales had been completed on time. The Valuation Office also met all the interim deadlines, laid down in the Local Government Finance Act 1992, for producing draft lists of banded properties.

13 Whilst the valuation of individual domestic properties is a relatively straightforward professional task, the completion of 21 million bandings to a 12 month deadline was, by any standards, a significant achievement.

Were all properties banded?

14 The direct National Audit Office examination was necessarily selective and could not therefore provide positive confirmation that all properties were banded. However, the steps taken by the Valuation Office and other evidence suggest that the final lists are unlikely to have a significant number of omissions. For example:

Checks of initial lists

At the start of the banding exercise the Valuation Office were advised by the Department of the Environment and the Welsh Office that the address lists provided by local authorities would not be completely accurate. Based on the community charge records, the lists would identify taxpayers rather than individual properties. The Valuation Office therefore checked the initial lists received from local authorities against previous records for domestic and non-domestic rates and other records they held of purchases of properties.

Contractual incentives to find properties not OR the initial lists

A pricing policy was adopted to provide private sector valuers with a financial incentive to identify errors and omissions in the lists. Contractors were paid a unit price for all bandings correctly submitted, whether or not they were on the original address list.

Results of external review

Once the bandings were made, local authorities were sent draft copies of the lists to enable them to compare property details with their records. The Audit Commission have confirmed that most local authorities considered that the quality of the lists was acceptable; most found a rate of discrepancies between COUNCILTAX VALUATIONS IN ENGLAND AND WALES

their own records and the draft and provisional lists supplied by the Valuation Office of two per cent or less. A survey of local authorities, in a report published by the Joseph Rowntree Foundation, also found that, generally, the number of initial discrepancies in valuation lists sent to authorities by the Valuation Office was very low, although the error rate was not quantified.

National Audit Office checks

The properties used by the National Audit Office to check the general accuracy of bandings (see paragraphs 30 and 31) were also used to check the completeness of the lists. Details of some 13,700 properties were sent to local valuation offices for checking, and some 90.6 per cent were identified. The remainder could not be identified for two main reasons; incomplete or changed addresses, and new properties with a plot number, but no full address (see paragraph 56). However, with further detailed research at the local offices visited, similar to that used in the banding exercise, the National Audit Office were able to identify the banding for these properties. Only one property was found not to have been banded during the main exercise and is now being banded by the local office.

Properties identified since the initial lists were produced

The Valuation Office had banded some 372,000 properties, including both new and altered properties, in the eight months between the end of the main banding exercise and the introduction of the Council Tax in April 1993. By November 1993 a further 47,000 properties had been added.

Were properties put in the right bands?

15 The correct banding for a property is, like all valuations, a matter of professional judgement or opinion. The National Audit Office did not attempt to second guess professional judgements on individual valuations but examined the way in which the Valuation Office themselves had planned and controlled the quality of work done. The results are summarised in paragraphs 17 to 29 below. And to provide a general indication of the accuracy of the bandings, the National Audit Office compared over 12,000 bandings with the purchase price of properties sold on or around 1 April 1991 (the valuation date). The results of this comparison are dealt with in paragraphs 30 to 37.

16 The general conclusion from the National Audit Office’s examination was that the banding of properties was carried out to a level of accuracy that met acceptable professional standards given the time constraints and the statutory limits on valuation methods. The Valuation Office were satisfied that the 914,000 proposals to change bandings (paragraph 42) was around the level to be expected from an exercise of this size and timescale.

* Audit Commission report - Council Tax Implementation - Survey of Billing Authority Preparations April 1993. ** “Implementing the Council Tax” published by the Joseph Rowntree Foundation March 1994.

9 COUNCILTAX VALUATIONS IN ENGLANDAND WALES

Steps taken to make sure properties were banded consistently

17 The range of properties to be valued, and the mix of private sector and Valuation Office valuers, made it important to ensure that all bandings were accurate within acceptable valuation tolerances, were consistent and met the statutory requirements, irrespective of whether the work was done by the Valuation Office or by private sector valuers. The Valuation Office therefore:

. established a wide range of common valuation reference points, or “key properties”, for use locally by all valuers;

. provided all valuers with copies of domestic rating records;

. defined at the outset an acceptable tolerance level - set at 10 per cent - to reflect likely differences in professional judgement;

. produced practice notes on all aspects of valuations for use by both Valuation Office staff and private sector contractors;

. specified in contracts with the private sector the quality control methods to be applied by the Valuation Office:

. operated a quality control system to sample check all banding work; and

. held regular co-ordination meetings with private sector contractors.

Key properties

18 Valuation reference points or “key properties” were established by the Valuation Office to ensure consistency and accuracy. Having divided the country into 1,800 contract lots of approximately IO,OOO properties each, the Valuation Office identified the main property groups in each lot (e.g.“pre-1919 rural cottages and farmhouses” or “post-war local authority housing”). Within these groups they then identified a number of key properties which were valued and given a band. The Valuation Office used details of sales of similar, nearby properties as a guide to the valuation of key properties. This also determined how values would be affected by likely variations (e.g. if properties had a better than average location or a larger plot). Figure 2 opposite provides an example of a key property.

19 Information on the key properties was made available to all Valuation Office and private sector valuers as a guide to banding and will continue to be useful in the banding of new or altered properties, since valuations for banding purposes continue to be made by reference to the valuation date of 1 April 1991.

20 The National Audit Office examined the number and range of key properties identified by the local offices they visited. The examination confirmed that:

. for a typical contract lot of around 10,000 properties, there were on average between eight and nine different property groups. And for each group there were on average some four to five key properties.

10 COUNCILTAX VALUATIONS IN ENGLANDAND WALES

Figure 2: Example of a Key Property

Council Tax - Key Property

, Bandin@ appropriate lo valuation amount (Enpland)

, Valuation dBrlVedfro”l IIn.. *- /:1’1!“’ sales n.R- 1 if 85,000 lnlormation

, Valueof Characteristics Y~fl&VlS of the in similar property properties to the key property

source: valuafionoffice

. both the property groups and the numbers of key properties reflected significant variations depending on the nature of the location. In one contract lot in Birmingham, the variation between property types meant that the local valuation office had identified over 100 key properties in 14 property groups. And in Mertbyr Tydfil, one contract lot had 13 property groups and 260 key properties. Elsewhere, a preponderance of similar properties meant that fewer key properties had to be identified; for example, the Liverpool local valuation office needed to identify only two property groups with 17 key properties in one contract lot.

. the volume of sales details gathered for each key property varied considerably and was low for certain types of property. This was particularly so for local authority housing and one-off rural properties. Since the valuations of key properties were largely based on sales details, this tended to limit their effectiveness in locations with large numbers of local authority or rural properties. Where this was the case, valuers needed to rely on their local knowledge and judgement to a greater extent.

11 COUNCILTAX VALUATIONS IN ENGLANDAND WALES

21 The National Audit Office calculated that nationally the Valuation Office had established over 80,000 key properties reflecting the sales details for some 320,000 comparable properties. This provided a valuable cross-check and safeguard for the accuracy of banding.

Valuation records

zz The Valuation Office had two main sources of information about properties to provide further help on valuations. Firstly, the Valuation Office’s details of sales, which are provided by solicitors as part of the conveyancing process, helped in judging the state of the market for most types of property. Secondly, the Valuation Office’s domestic rating records showed the basic size and layout of properties and other details such as the numbers of bedrooms and bathrooms. In many cases, this information was sufficient to allow a property to be banded “at the desk” with no physical inspection, given the stipulated assumptions on other aspects of a property, such as state of repair. This was particularly so in areas containing a number of similar properties.

23 To allow the work to be completed on time, the Valuation Office had to place a large reliance on such bandings “at the desk”. In their staff planning, they estimated that over 90 per cent of bandings would be made this way. Private sector valuers carried out bandings on essentially the same basis as the Valuation Office. They were provided with copies of domestic rating records and using their local knowledge could carry out valuations “at the desk” and make external inspections where necessary. The Valuation Office did not ask private sector or their owe valuers to record whether a banding was actually made “at the desk”.

24 When utilising sales evidence to band properties, valuers were expected to have regard to the weight of evidence available and to apply their judgements in a consistent manner for properties in any one locality. The domestic property market is imperfect and similar properties can and do sell for different prices. Figure 3 illustrates how, when taking into account the weight of sales evidence available, properties may be given different bandings to those indicated by sales prices.

Figure 3: Interpreting sales evidence when banding identical properties

Bandingindicated by satesgrtcs: &52,500 f51.500 s3,ooo f50,500 f53.000 (BandC) (Band6) (BandC) (Band8) (BandC)

Bandtnggiven: BandC BandC BandC BandC BandC BandC BandC BandC BandC BandC

source: valuationoffice

Note: Band range BandB greater than f40,OOObut less than f52,OOO Band Cm-ater than f52,OOObut less than f68.000

This figure shows how the weight of sales evidenceis usedto band similar propertiesconsistently but may result in bandingsdifferent from those indicatedbv individualsales rxices.

12 COUNCIL TAX VALUATIONS IN ENGLAND AND WALES

25 As previously noted, valuing properties in this way made substantial use of the existing Valuation Office records. However, the National Audit Office noted that the Valuation Office had not updated their domestic rating records comprehensively since 1988, since rates were to be replaced by the Community Charge in 1990. This meant that some of the information could be out of date for the purposes of banding. However, the Valuation Office were satisfied that where existing records were insufficient for the purposes of valuation, or were regarded as suspect, an external inspection would normally have been made.

Quality CLWUITXW~

26 The Valuation Office set up a system of quality control to sample check all banding work. Each contract lot to be banded was split into no more than twenty batches, each of roughly 500 properties. A quality control sample, of either 25 01‘ 50 properties, was taken from each batch, before it was issued, and banded at the desk by a senior Valuation Office valuer. Batches were then issued to valuers, one a week, over a 20 week period. Local offices checked completed work against the quality control sample for each valuer every week. Batches were rejected if there was a predetermined number of differences between the checker’s and valuer’s opinion of the banding. Work in urban areas was expected to be completed to a higher standard, with no more than two differences of opinion permitted. For work in rural areas no more than four differences were allowed. And in mixed areas a target of no more than three differences was adopted. If the required standard was not met, all the work in that batch was rejected, had to be done again and was subjected to a further quality control check.

27 The quality contiol checker examined all the bandings which differed from those expected and would discuss with the valuer the reasons for these differences. Differences of opinion could be accepted for one of two reasons:

. additional information arising from the valuer’s external inspection. For example, the property might have had an extension increasing its value but which was not noted on the records available to the quality control checker; 0*

. the difference of opinion could be within the 10 per cent valuation tolerance set by the Valuation Office. For example the valuer might consider that a property was in the bottom range of band C while the checker believed it to be in the top of band B. Band B might be adopted, with the checker nevertheless acknowledging that the initial decision was within the valuation tolerance.

Figure 4 overleaf provides some examples of differences of opinion arising during the quality control checks and how these were resolved, while Figure 5 overleaf shows that the ten per cent valuation tolerance means that properties valued at the margin of a band may have been correctly banded when in either of two bands.

28 The National Audit Office examined the results of quality control at ten local offices and found:

. the Valuation Office’s quality control arrangements operated as planned but more work than expected reached the quality standard at the first attempt. In their initial calculations. the Valuation Office assumed that the work could

13 COUNCIL TAX YAIJJATIONS IN ENGLAND AND WALES

Figure 4: Examples of differences of opinion between quality control checker and valuer Valuer’s Checker’s Resolution of difference band band Valuer’s higher hand accepted: c B Goodvantage point. Betterthan averagelocation. Garage. Band C accepted, E C Nowtwo propertiesconverted into one. ValuationOffice records incorrect. Band E accepted. Valuer’s lower hand accepted: B C Localauthority bungalowof very poor construction.Band B accepted. C 0 BorderlineCID, but generalarea suggestshigh band C. BandC accepted. Checker’shigher band accepted: C 0 Propertysold for fB2,OOOon 14 February1990. Band D accepted. F G Five bedroomsand a doublegarage. Banded F in error. BandG accepted Checker’slower band accepted: B A Above bandA but in poor location.Band A accepted E 0 Propettywas a small detachedhouse. Banding guides indicateE only for large detachedhouses. BandD accepted. Neither checker’s nor~aluer’s band accepted: E A Properly shown an ValuationOffice records as caravan,but now replacedwith new detached house.Band D would be appropriate.Band II accepted.

Source:National Audit Officeanal!& of ValuationOfice records. The figure shows the wide rangeof possible reasonsfor differencesin opinion betweenthe valuer and the quality control checker.

Figure 5: Impact of valuation tolerance on banding of properties

A BCO El F IG H I I I I 1 1 I 0 50 100 1.50 200 250 300 350 400 f Thousands

Source: NationalAudit Office

Figure5 showsthat the 10 per cent valuationtolerance means that propertiesvalued at the margin of a band may have beencorrectly bandedwhen in either of two bands.The figure showsthe bandingsin England.The positionwould be similar in Wales.where band ranaesare 75 per cent of those in Enaland.

14 COUNCIL TAX VALUATIONS IN ENGLANDAND WALES

be completed on time provided that no more than 30 per cent of batches were rejected. But the National Audit Office found that only some three per cent of the 1,100 batches they examined had been rejected because they failed to reach the required standard at the first attempt. As expected there were a large number of differences of professional opinion between the valuer and the checker in the quality control sample (on average 18 per cent). Most of these differences were resolved satisfactorily, given the valuation methodology and tolerances used, without the batches being rejected. The pattern was consistent both across the country and between private sector and Valuation Office valuers. Indeed the Valuation Office sought wherever possible to hold advance discussions with contractors on value levels generally in order to avoid differences arising unnecessarily;

. in resolving differences the higher band was taken for around 57 per cent of properties and the lower band for 42 per cent (Table 3). This pattern was consistent both across the country and between private sector and Valuation Office valuers;

Table 3: Which band was accepted when quality control revealed diferences?

VClkM Band accepted: Higher LOWU Other TOM Private sector 59% 40% 1% 100% ValuationOffice 54% 45% 1% 100% All valuers 57% 42% 1% 100% Source:National Audit Officeanalysis Table 3 shows that thorc was a slight tendencyto acceptthe higher banding,when there was a differenceof opinion betweenthe valuer and the quality control checker.This pattern was similar betweenboth private sector and ValuationOffice valuers.

. in resolving differences the valuer’s opinion was taken more often (in 76 per cent of properties) than the checker’s. The Valuation Office considered that this was predictable since valuers would, in the more difficult cases, have made an external inspection ofthe property and would therefore be in a better position to give an accurate banding. The pattern varied, both across the country and between private sector and Valuation Office valuers (Table 4). However, differences between valuers could occur for a number of reasons, particularly where the properties or areas to be banded were diverse. In some

Table 4: Whose opinion was accepted when quality control revealed differences? V&Xl Opinion accepted: Valuer Checker Neither Total Private sector 61% 17% 2% 100% ValuationOffice 69% 30% 1% 100% All valuers 76% 23% 1% 100% Source:National Audit Officeanalvsis

Table 4 shows that there was a tendencyto acceptthe opinion of the valuer ratherthan the quality control checker, when there was a differenceof opinion betweenthe two.

15 COUNCILTAX VALUATIONS IN ENGLANDAND WALES

local offices, for example, the valuer’s opinion was accepted for 97 per cent of properties. In other offices, the checker’s opinion was taken for 75 per cent of properties; and

. the Valuation Office did not know the valuation amount, only the banding, adopted by a valuer and did not, therefore, have abase from which to calculate the valuation tolerance. Valuers and checkers could discuss their opinions on a property’s value within a band, although this was not recorded formally. The National Audit Office examination could not therefore confirm that the quality control process accurately reflected the tolerance level adopted.

29 In England and Wales as a whole five contracts with the private sector were not completed because required standards of quality could not be confirmed. In two cases the local valuation office took over the work. In three cases the next lowest priced private sector bidder took over the work.

National Audit Office examination of the accuracy of bandings

30 The professional skills and judgements involved, and the importance of local knowledge, meant that it was not possible for the National Audit Office to assess the accuracy of valuations for individual properties. However, the National Audit Office obtained the purchase price of a large sample of properties to see how far the intended level of accuracy had been met. The sample gave a statistically representative, national picture of the banding of these properties, compared to actual purchase prices.

31 From the details of properties mortgaged to a national building society, around 18,500 properties were identified where a mortgage valuation had been given in March or April 1991 and the property sold subsequently. As far as practicable, the sample excluded properties not meeting the statutory valuation assumptions - such as the sale of local authority properties, sales not at arms length and other non-open market transactions.

32 Local valuation offices were provided with addresses of the property and were asked to identify:

. the actual banding given to the sample of properties;

. whether the banding wasmade by the ValuationOffice or the privatesector;

. whether there had been a proposal to change the banding; and

. if the banding had been changed following the proposal, the new banding given.

33 On receipt of this information, the National Audit Office compared the banding given to that suggested by the purchase price. The purchase price was used as representing the nearest reasonable proxy to the open market value required by legislation. The methodology identifies properties where the purchase price is inconsistent with the banding. However, it is important to recognise that such an inconsistency does not necessarily mean that the banding in question is wrong. As explained in paragraph 24 above, similar properties can and do sell for different

16 COUNCIL TAX VALUATIONS IN ENGLAND AND WALES

prices, and valuers had to take into account the weight of relevant sales evidence as a whole. Bandings will sometimes have been accurate even where they were out of line with an individual purchase price, for example:

. where the sale had been “forced”;

. where the property sold was not in a reasonable state of repair or had been altered since the date of sale; or

. where the purchase price differed significantly from the typical price of other similar properties in the area (Figure 3).

34 The National Audit Office sent out addresses of 13,700 properties to local valuation offices (some 4,800 of the original sample of 18,500 were not sent out to ensure each local office received a broadly similar number). Some 12,400 properties were identified, a response rate of 90.6 per cent. The remaining 9.4 per cent could not be identified in the valuation lists (see paragraph 14).

35 This sampling exercise showed that around 76 per cent of properties had been given a banding that corresponded with the purchase price, or that this was so after taking into account further information provided by the building society on improvement costs and mortgage valuations. Adjusting the purchase price to reflect the 10 per cent valuation tolerance used by the Valuation Office (as illustrated in Figure 5) indicates that 91 per cent of the sample corresponded with the bandings given. A further six per cent were in an adjacent band to that suggested by the purchase price (Figure 6).

Figure 6: Valuation accuracy indicated by Building Society sample

Bandingcorresponds to Bandingcorresponds to Bandingwithin oneband valuationtolera”Ce of that indicatedby of 10 per cent purchaseprice

Source: NafinalAudit Officeanalysis

Figure6 showsthe [email protected] indicated by the building society sample.The actual bandingwas comparedto the bandingsuggested bv the wchase Driceand agrees in 76 wr cent of the samDIe.

17 COUNCILTAXVALUAnONSINENGLANDANDWALES

36 Subject to the important proviso in paragraph 33 above, the results suggested that:

. around 19.3 million properties (90.8 per cent) were banded correctly, within the assumptions made in legislation and the valuation tolerance of 10 per cent used by the Valuation Office; and

. around 2.0 million properties (9.2 per cent) may not have been banded correctly, and, of these, around 900,000 could be (but are not necessarily) in too high a band and around 1.1 million could be (but are not necessarily) in too low a band.

37 The sample also indicated that:

. the accuracy of bandings was not affected by who had done the valuation, the results being broadly similar between Valuation Office valuers and private sector valuers (Figure 7). The results suggest that the quality control procedures used by the Valuation Office were effective in producing consistency in the valuation lists; and

. the accuracy of bandings was greatest for the cheapest (Band A] properties and less accurate for properties in higher valuation bands (Figure 7). Higher value properties are far fewer in number and tend to be more individual in situation, design and character. Purchasers tend to be less dependent on raising mortgage finance and the amount they are prepared to pay is more heavily influenced by individual preference. It is correspondingly more difficult to interpret and apply the small amount of evidence available to achieve consistent bandings.

Figure 7: Private Sector and Valuation Office bandings within tolerance level - -

I 0 E F 0 Bands

Source: NationalAudit Officeanalvsis Figure7 showsthat the level of bandingaccuracy was not affectedby who has donethe valuation.It also showsthat the level of accuracywas greatestfor the cheapest(Band A) properties.There were too few propertieswith a purchaseprice indicatingBand H to give statisticallyvalid results.

38 The National Audit Office also examined at the local offices visited 142 settled proposals to amend bandings. This exercise concentrated on those bandings which the Valuation Office had categorised as clearly wrong and where the banding had been changed. The aim was to check whether the original banding was accurate, given the valuation methods, or whether a genuine mistake had been made.

18 COUNCIL TAX VALUATIONS IN ENGLAND AND WALES

39 In general, changes to bandings were normally the result of information that was not available to the original valuers, usually because the taxpayer had agreed to allow the Valuation Office to inspect the property internally or get access to the rear of the property. In other words, the original bandings were accurate, within the constraints imposed by the statutory limits and conditions on the valuation methods used. Figure 8 provides examples of proposals leading to a change in banding.

Figure 8: Examples of proposals leading to a change in banding

Originalbanding Reasonfor rebanding Revised banding BandD Propetty was bandedas one house,but was split into three flats. Property BandA given to three was rebandedas three separateflats. properties Band D Properly was a small mid-terracehouse. Larger neighbouringhouses were Band 9 in Band 0. Salesof comparablehouses suggested Band 9 was appropriate. Band E Propertywas a former kennelsnow convertedinto living accommodation. BandA It had a basic woodenconstruction with no gas. drainageor central heating.No comparableproperties. Band F Propertywas a large, good quality detachedhouse, fully centrally heated Band E with a double garage.It was purchasedfor f113.000 in May 1991 which equatesto Band E. Band F Property boughtfor f135.000 in May 1991.An extensioncosting f60.000 Band G not visible from the road was later built. BandG was appropriate. Band H Propertywas partly used in a farm business.Comparison with similar Band G propertiesand inspectionsuggested it should have beenvalued at the lower end of BandG.

Source:Natafional Audit Ofice analvsis

The figure showsthe wide rangeof reasonswhy propertiesmay be rebandedfollowing a proposalfrom the taxpayer.

Are proposals to change bandings properly and promptly handled?

40 Taxpayers were allowed an initial eight month period in which to make a proposal to the Valuation Office if they felt the banding of their property was wrong. Since 30 November 1993, proposals to change a banding can only be made in certain circumstances, mainly where there has been a material reduction in the value of a property caused by partial demolition or a physical change in the locality. Where someone becomes the taxpayer for the first time in respect of a property, they gain the right to make a proposal within the following six months.

41 In line with the principles ofthe Citizen’s Charter, the Valuation Office established targets for responding to proposals which they classified in three ways:

category 1 “Clearly wrong”

To make the taxpayer an offer, within 60 days, to reband the property if the initial banding was clearly wrong;

Category 2 - “Clearly right”

To let taxpayers know within 90 days if the Valuation Office believed the original banding was correct and that they intended to defend that decision; and

19 COUNCIL TAX VALUATIONS IN ENGLAND AND WALES

Category 3 - “Accuracy of banding not clear”

To make contact with taxpayers within 120 days and give them a named contact within the Valuation Office for further discussion.

42 The Valuation Office received more than 914,000 proposals for rebanding (4.3 per cent of all properties banded) by the statutory deadline of 30 November 1993. Two thirds of these were received by June 1993. The majority (88 per cent) were in Category 3, ie it was not clear whether a banding mistake had been made or not [Table 5). In total, the Valuation Office had settled 261,000 cases (29 per cent) by the end of February 1994, against a target of 280,000 by 31 March 1994. They aim to settle 730,000 (80 per cent) by the end of 1994 and the remainder as quickly as possible during 1995. Proposals not settled in six months have to be referred to a valuation tribunal for subsequent listing and determination. The Valuation Office will still try to settle these proposals, but the case will be heard by a tribunal if there is no satisfactory settlement. By the end of February 1994, the 56 tribunals in England and eight in Wales had received 610,000 appeals and made decisions for 1,843 of these. The majority of cases sent to the tribunals are expected to be settled without the need for a hearing and a decision. Tax will be collected on the basis of the original banding until the appeal is resolved. The Valuation Office estimate the average cost of dealing with a proposal in 1993-94 to be some f115, part of which covers the cost of work done by the valuation tribunal.

Table 5: Number al orooosals to chanoe a banding received and sellled caiegorf Ofproposal Numbersreceived Numberssettled by 28 February1994 1 -Clearly wrong 82.000(9%) Note 1 2 -Clearly right 23,000(3%) Note 1 3 - Accuracyof banding not clear 809,000(88%) Note 1 Total 914,000 261,000 Source: ValuationOffice

Mote 1. The ValuationOffice have not yet collatedcentrally the numberssettledin eachcategory. 2. Numbersreceived are estimatesbased on ValuationOttice sampling exercises. Table 5 showsthat the majority of proposalsreceived are those wherethe accuracyof the bandingis not clear.

43 The Valuation Office are currently undertaking a special exercise to assess the extent to which their local offices have met the targets for responding to proposals noted in paragraph 41. Results are expected in April 1994.

44 By the end of November 1993 the rates of proposals across the country varied considerably, from 0.8 per cent of the valuation list in the Easington local authority area to 20 per cent in the Isles of Scilly. As the Valuation Office had expected proposal rates were generally lowest in urban areas with mainly Band A properties. In the local authority areas of Manchester, Sunderland and Stoke on Trent, for example, proposal rates were all below 1.3 per cent. Rates were generally higher in rural areas or where properties were of higher value and more diverse. In the local authority areas of Kensington and Chelsea, Reigate and Banstead, and Ceredigion for example, proposal rates were over twelve per cent.

20 COUNCILTAX VALUATIONS IN ENGLAND AND WALES

45 The numbers of proposals to change bandings can represent a significant workload for individual local valuation offices, even when the proposal rate is relatively low. The Colchester office, for example, had 15,500 proposals, even though the rate was only 4.7 per cent. The average number of proposals for each local office was 8,700, ranging from 1,600 in Sandwell to 18,500 in Enfield.

46 By the end of February 1994, the Valuation Office had settled 29 per cent of all proposals made. But there are wide variations in how quickly cases are being resolved by local valuation offices. Proposals are being cleared most quickly in urban areas consisting mainly of low value properties (Bands A and B): Halifax, Sandwell, Rochdale, Middlesbrough, Bolton and Sunderland local offices have all settled over 40 per cent. They are being cleared most slowly in offices covering Outer London and rural areas in southern England, where properties are generally of higher value and more diverse: the offices in Dorchester, Lambeth, Redbridge and Reigate have all settled less than 20 per cent of proposals.

47 Most local valuation offices cover several local authority areas. The settlement rates for these areas show a far greater variation: from Rhondda where 66 per cent of proposals had been settled down to Teesdale with six per cent. This probably reflects the fact that valuation offices do not prioritise proposals by local authority area but by date of receipt and whether they are categorised as “clearly wrong” or “clearly right”. And clearly the difficulty of individual cases, the willingness of the parties to discuss and the overall numbers of proposals in each area may also be relevant factors.

48 The majority of the proposals settled to date have been those where decisions were relatively straightforward - either there had been an obvious banding mistake or the banding was clearly correct. This trend was noted during the National Audit Office’s local examinations and confirmed by the Valuation Office even though they do not yet have reliable information centrally on the category of settled proposals. Most proposals outstanding are cases where the accuracy of the banding is most open to question and are therefore likely to take longer to resolve. The Valuation Office are monitoring settlement targets regularly to see how these more difficult proposals are dealt with to ensure that the targets are met both nationally and for each local office.

49 The Department of the Environment and the Welsh Office have already given publicity to the Valuation Office’s targets for settling proposals, and their performance against those targets, to inform taxpayers of the progress being made. As proposals are settled, there may be a need to review the bandings of similar properties. The Valuation Office confirmed that their local offices automatically take steps to address this matter.

50 The National Audit Office found that, in their building society sample of properties, around 3.3 per cent of taxpayers had made a proposal to amend their banding. Around 12 per cent of these had been settled by September 1993. These percentages were broadly in line with the national percentages at the time of the examination. Banding had been reduced in almost all ofthe cases settled reflecting the priority given to tackling the “clearly wrong” category first.

51 In the sample there was a clear link between the level of banding accuracy and the number of proposals made. Proposals were made for only 0.7 per cent of the 76 per cent of properties whose banding was that indicated by the purchase price.

21 COUNCILTAX VALUATIONS IN ENGLANDAND WALES

For the remainder the proposal rate was 10 per cent for those properties within the valuation tolerance adopted and 14.5 per cent for those outside. The proposal rate for those properties which differed by more than one band from that suggested by the purchase price was 16.5 per cent (Figure 9). The majority of proposals (83 per cent) had been made where the purchase price suggested that the actual banding was too high, and there was, of course, a financial incentive for taxpayers to appeal against bandings which they considered were too high. Taxpayers who considered their band was too low were less likely to appeal.

Figure 9: Proposal rates in Building Society sample

BandingECorrespond 10 p”rchaEeprice 76%Of Eample iM”mgECOIreEPO”d to Yat”at!On,Okra”CB .15%Of SmlPlB BandingsO”fSld8 Ml!mO” iOlNa”CB.6% or Sample EmdimgEmre than oneIland dinerent 3%or Sampie 0 5 10 15 20 PBlmnt

Source: NationalAudit Officeanafvsis Figure9 showsthe proposalrates in the building society sample accordingto the level of bandingaccuracy suggested by the NationalAudit Mice analysisof the purchaseprices. It showsthat there was a clear link betweenthe level of accuracy and the numberof proposals.

What is being done to maintain complete and accurate lists?

82 The continued completeness and accuracy of the valuation lists depends on three factors:

. that bandings are sufficiently accurate at present;

l that the lists areamended where appropriate to reflectthe resultsof settled proposals of similar properties; and

. that changes to the lists - from new, altered or demolished properties - are made correctly.

53 The current level of banding accuracy has been examined above (paragraphs 15 to 39). But relative property values are likely to change over time and it may become more difficult to band new properties accurately, particularly if they are of innovative style and construction and because of the remoteness of the valuation date (1 April 1991). Although there are no plans for arebanding exercise, the statutory provision does exist and the Valuation Office are well placed to monitor changes in national and regional property values to help to determine whether a revaluation might be required in the future.

22 COUNCILTAX VALUATIONS IN ENGLAND AND WALES

54 Where bandings are changed as a result of settled proposals the Valuation Office policy is to review the bandings of similar properties. At present there is no information available centrally to identify the extent to which lists are being amended for this reason. However the National Audit Office noted that such action was being taken, where clearly appropriate, at the local offices visited. For example, a proposal to amend the banding of a one-bedroomed flat resulted in a revised banding being given to all the one-bedroomed flats in the block concerned.

55 Local authorities are required to inform the Valuation Office of changes to properties on the Council Tax list. This includes new, altered and demolished properties. The Valuation Office have set up a system for dealing with this information and revising the valuation lists where appropriate, and this will assist in the monitoring referred to above.

56 The National Audit Office did, however, note a problem in identifying the correct address of new properties. These are often sold and occupied before getting a full postal address; and up to that point they are referred to only by plot numbers. The Valuation Office may therefore be aware of a new property and its sale price, but not have the full address to update its records and enable the property to be banded. A solution to this problem is only possible by liaison between the Valuation Office and other organisations, including the Post Office, local authorities, the Land Registry, the Ordnance Survey and statutory undertakers (gas, electricity, water and telephone providers). The National Audit Office note that work is in hand to develop a unique property reference number system and recommend that this continues to be folly pursued.

Did the tendering and contract arrangements secure proper controls and value for money for the taxpayer?

57 The arrangements for determining the amount of banding work to be done by the Valuation Office, and consequently the amount that would be open to private sector competition, differed as between England and Wales. Overall, the Valuation Office estimated that they had the capacity to band 50 per cent of all properties in the time available. In England, the Valuation Office agreed with the Department of the Environment that they would reserve a third of the banding work for themselves and compete with the private sector for the remaining work. For this remainder, the Valuation Office would establish a cash ceiling to limit the total work they could undertake to no more than half the bandings in any local office. In Wales, the Valuation Office agreed with the Welsh Office that they would carry out half of the banding work and that the private sector alone would compete for the remainder. This reflected the nature and composition of domestic properties in Wales and the availability of resources in the Valuation Office.

58 For the purposes of tendering, the Valuation Office divided England and Wales into contract lots of approximately 10,000 properties each, ranging from 3,600 to 27,500 properties. For the two thirds of lots open to competitive tender in England, the Valuation Office then awarded contracts to the lowest bidder as between the local valuation office and private sector firms, provided no local office exceeded its predetermined cash ceiling (Figure 10 overleaf). In Wales, contracts for which the private sector competed went to the lowest bidder in all but one case, where the work had to be given to the Valuation Office for lack of an acceptable private sector bid.

23 COUNCILTAX VALUATIONS IN ENGLANDAND WALES

Figure IO: Results of competitive tendering for bandings in England

1 I I I

Source: ValuationOffice Figure10 shows that the ValuationOffice won 10 per cent of the banding of all propelties in England,in competitionwith the PrivateSector. in additionto the 33 per cent of propertiesreserved for them.

59 The National Audit Office noted that the Valuation Office had taken a number of steps to ensure that the tendering process would ensure satisfactory standards of work and provide value for money. These included:

. a prequalification process to ensure that contracts were awarded to firms with the professional competence, capacity and financial viability to undertake the work. As part of this process, applicants had to band correctly five property types, selected by the Valuation Office, for each lot they were interested in;

. an independent unit - consisting of consultants, the Valuation Office and the Department of the Environment (in Wales, the Welsh Office) - to evaluate tenders and make recommendations on the award of contracts to the relevant tender boards: and

. a computer model to identify the cheapest combination of Valuation Office and private sector bids for all the contract lots in each local office. This took into account private sector discounts and the local office ceiling of 50 per cent.Private sector bids consisting of asingle unit pricefor eachvaluation in a lot were compared to the Valuation Office’s own bids. Valuation Office bids were calculated on the basis of full costs adjusted to reflect the complexity of the lots. Complexity was assessed according to the nature of the local valuation office (for example, urban or rural) and an estimate of the number and types of properties to be banded.

60 The National Audit Office examination confirmed that the tendering process generated a high level of competition:

. There was significant interest in tendering for the work from a large group of potential applicants. The Valuation Office received 3,800 prequalification applications, of which 82 per cent (3,100 applications) were accepted as

24 COUNCIL TAX VALUATIONS IN ENGLAND AND WALES

valid: and 73 per cent of valid applications (2,300 applications) were invited to tender (Figure 11). There were 1,850 tenders from private sector valuers, comprising 6,000 bids for 1,240 contract lots covering 14 million properties;

Figure 11: Private Sector applicants

POtenualaDPIIca”ts 14,000

.~.__....___...... _.... ~ ~ Tag- ~ Plssualltylngappmauons 3.800

source: valuationoffice

Fioure11 shows the lame UOUDof mtential amlicants interestedin tenderingand the successive~mces~es by which wkning contractsweredkided. ”

. Winning private sector firms quoted a wide range of unit prices, from 19p to E10.95 a valuation (average E1.58). Some of the very low prices quoted arose where a single straightforward valuation could be read across to a large number of similar properties;

. The tender boards awarded 512 contracts to 337 private sector companies for 12 million valuations (56 per cent of valuations) in 1,052 lots. The boards accepted the lowest private sector bid in virtually all these lots. In 11 lots, the lowest bids were not accepted because greater savings were possible from companies offering discounts, should they win more than half the lots in any local office area. In 239 lots, the Valuation Office bid, although lower than the winning private sector bid, was not accepted because of the local office cash ceiling [paragraph 57);

. A number of private sector valuers won several contract lots. Two companies won 44 and 43 lots each; a further 13 companies won 10 01‘more lots;

. The Valuation Office won 188 lots for 1.9 million valuations in competition, with an estimated total cost of E3.8 million. The unit cost of these Valuation Office valuations ranged from El.23 to E3.12 a valuation (average E2.04). The average for all Valuation Office valuations was El.81;

25 COUNCIL TAX “ALUATtONS IN ENGLAND AND WALES

. Winning Valuation Office bid prices were higher than winning private sector prices, on average. The National Audit Office note that the Valuation Office were required to bid at full cost, whatever the degree of difficulty of a lot. No such restrictions applied to the private sector;

. There were 17 lots where only one private sector bid was received and one lot where no bid was received. Of these, the Valuation Office accepted II single private sector bids, two lots were allocated to local valuation offices and further bids were obtained for the remainder;

. On IO bids the Valuation Office intervened to seek further clarification because tbe bids submitted were more than 70 per cent below the next lowest bids. Further information confirmed the soundness of the valuation methods proposed. (Figure 12 provides three examples of intervention).

Figure 12: Examples of Clarilication al Low Cost Bids Case1: The lowest unit cost A company bid l9p a propertyfor two lots in a denseurban area of generallysimilar propelties.The companywas lamiliar with the area.

The bid was basedon two qualifiedstaff using ValuationOffice records, inspections and local knowledge

There were five other bids for each lot. Bidsfor a lot of 17,000propelties rangedfrom 74p to E2.48.The bid gave an estimatedsaving of f9.300 (74 per cent) comparedto the next lowest cost. Bids for a lot of 15,000propelties ranged from 98p to E2.50.This gave an estimatedsaving of f11.900 (84 per cent). The ValuationOffice bid f1.31 a properly for each lot.

This caseshows that a very low bid was acceptablebecause of local knowledgeand consistentproperty types. Case 2: Desire for work in a diflicult economic climate Onecompany bid 46~ a property for a lot of 7,000 propelties. and 46~ a propertyfor a lot oi 8.000 properties.in a dense urbanarea. The companymade many salesin the area but had little currentwork.

The company plannedto makeinspections by driving around,and for qualifiedstaff to cross-checkbandings.

The six other bids for the first lot rangedfrom f2.00 to f20.00 a property This gave an estimatedsaving of f10.800 (77 per cent). Theten other bids for the secondlot rangedfrom f2.20 to f20.00 a propelty. The bid gave an estimated saving of f13.700 (76 per cent). The ValuationOffice bid was f2.01 a property for each lot.

This caseshows that a low bid resultedfrom local knowledge.proposed methods and desirefor work in a difficult economicclimate. Case3: The greatestsaving A companybid 49p a propelty for 10,300propelties in a predominantlyurban area.The companydid muchwork for local developmentcorporations. The companyplanned to usetheir recordsand to inspect unusualpropelties externally.

The three other bids rangedfrom f3.70 to f6.00 a property.The bid gave an estimatedsaving of f33.100 (78 per cent) The ValuationOffice bid was f2.26 a property.

This caseshows that a low bid arosefrom local knowledgeand proposedmethods. It showsthat clarificationof low bids allowedthe ValuationOffice to makesignificant savings.

Source: ValuationOiike records

61 In general, the high level of competition generated by the tendering exercise indicates that the Valuation Office will have secured the lowest cost for much of the work carried out, without sacrificing standards. The tendering process generated further savings in three ways:

26 COUNCILTAX VALUATIONS IN ENGLANDAND WALES

. The Valuation Office asked bidders to offer discounts if they should win more than half the lots in any local office area. This generated savings ofC317,OOO of which E243,OOO represented reductions to bids which were already the lowest in the area concerned;

. In lots where only one or no private sector bid was received, the Valuation Office intervened to obtain further bids. In total this generated savings of S499,000, representing some 23 per cent of the original bids; and

. Further enquiries into 28 bids, mainly to clarify prices and to correct mistakes made in the tenders, generated net savings of El4,000.

62 The Valuation Office estimated that in England competition produced savings of between f3.9 million and E4.5 million when compared to the estimated costs of having the work done by either the private sector or the Valuation Office alone. However, the National Audit Office note that:

. The ceiling set for the work allocated to each local office meant that the Valuation Office’s bid, although the lowest, was not accepted for 239 contract lots. The winning private sector bids for these lots totalled E7 million, some f2.1 million higher than the rejected Valuation Office bids. Had the Valuation Office accepted lower Valuation Office bids they would have had to transfer staff between local offices. They considered that this would be impractical partly because of the tight timescale involved but also because it would, in practice, have added to the cost, thereby reducing or possibly eliminating the price advantage in the bid. About a quarter of the low bids not accepted were in four local offices, Doncaster, Ipswich, Lincoln and Ulverston, whereas spare capacity was mainly in the Liverpool, Newcastle and Sunderland local offices and the London and West Midlands regions; and

. The actual costs of the Valuation Office work cannot be calculated accurately because the Valuation Office do not have a full time-recording system. The bids submitted by the Valuation Office cannot therefore be compared against the actual cost of completing the work.

63 A comparable estimate could not be produced for Wales, where 50 per cent of the work was allocated to the Valuation Office at the start of the exercise and they did not compete with the private sector for any of the remaining work.

27 COUNCIL TAX “AL”ATmNS IN ENGLAND AND WALES

Appendix 1 Chronology of the Council Tax Valuation Exercise

April 1991 I Government proposes Council Tax, to begin April 1993 May I Legislation 1~ me

July

-August

-September

-October

r November

7 December

-Janualy 1992

-February

-March

April

-May

--June

:ompilationof valuation lists -July COmplCtlOn01nine million mm(Is ’ =:onicevalu.n 1yd”l li%fEII”,,0 IOcdlB”,horm -August prepare10, Pilli”Q -September

-October

-November

~ December

+mry 1993

-~ February 1Proposals to changebandings / -March “!/St’s Jyx,Oa”thoms April 1stApril ,993 CwlCiITa” COmeE into enmt: faxpays maypmpars P cnln#s to -May r---~-~~~theIrbanding 1ItaPPPaR mrrect -JUW

July

-August

-September

-October

November

28 COUNCILTAX “AL”ATIONS IN ENGLAND AND WALES

Appendix 2 Organisations consulted by the National Audit Offke

The National Audit Office contacted the following bodies during the study:

Association of District Councils

Association of Metropolitan Authorities

Audit Commission

The Chartered Institute of Public Finance and Accountancy

Department of the Environment

The Institute of Revenues Rating and Valuation

London School of Economics

The Scottish Assessors’ Association

Welsh Office