Taxbase Projections for Three-Year Settlements Andrew Presland Department of Communities and Local Government (DCLG) Local Government Finance Analysis Team DEFINITION OF TAXBASE The number of Band D equivalent properties in a local authority’s area used for Formula Grant distribution purposes. The national total in October 2005 was 17.9 million. Timing • Phil Woolas announced the Government’s intention to implement three-year finance settlements in a statement to the House of Commons in July 2005. • The first settlement, announced in Autumn 2005, covers the two remaining years of Spending Review 04 (2006-07 and 2007-08). • From 2008-09, three-year settlements will be fully aligned with the Spending Review cycle. • Settlements for 2006/07 and provisional 2007/08 needed to use projected taxbase figures for October 2006 and October 2007 respectively, with projections being based on validated reported figures for earlier years, as reported on CTB1 returns to the former ODPM. POSSIBLE METHODS OF FORECASTING / PROJECTING TAXBASES Data • Rolling taxbase figures forward using: • Household projections (based on population projections) • Recent trends in house completions • Recent trends in relevant planning applications • Housing growth predictions from annual monitoring by Regional Assemblies • Recent trends in taxbases POSSIBLE METHODS OF FORECASTING / PROJECTING TAXBASES Methodology • Sophisticated • Fitting linear regression lines for each local authority • Exponential smoothing • Henderson curve moving average (weights following bell shaped curves) • Simpler • Applying average annual increases by local authority (varying number of years, and weights) REVIEW OF METHODOLOGIES National sum of absolute differences between reported and projected 2004/05 and 2005/06 figures for all options considered 300 Sum of absolute differences (thousand) 250 200 150 100 50 0 One Year Tw o Year Three Year Tw o Year Three Year Three Year Four Year Linear Average Average Average Weighted Weighted Weighted Weighted Regression Average Average Percentage Percentage Projection methodologies 2004/05 2005/06 PREFERRED OPTION: TWO YEAR AVERAGE (GEOMETRIC MEAN INCREASE) Sum of absolute differences between reported and projected 2004/05 and 2005/06 figures for two-year average (geometric increase) method by Government Office Region 35 Sum of absolute differences (thousand) 30 25 20 15 10 5 0 Yorkshire & West Midlands South West South East North West North East London East Midlands East Humber Government Office Region 2004/05 2005/06 PREFERRED OPTION: TWO YEAR AVERAGE (GEOMETRIC MEAN INCREASE) Percentage difference between reported and projected 2004/05 figures for all local authorities for two year geometric average method 3 Barking & Dagenham (2.84%) Lambeth (2.52%) 2 1 Percentage difference 0 -1 Mansfield (- 1.48%) -2 -3 -4 -5 City of London (- 5.13%) -6 Local authorities PREFERRED OPTION: TWO YEAR AVERAGE (GEOMETRIC MEAN INCREASE) Percentage difference between reported and projected 2005/06 figures for all local authorities for two year geometric average method 4 Lambeth (3.77%) 3 Hackney (3.39%) 2 1 Percentage difference 0 -1 -2 -3 Welwyn Hatfield (-3.41%) -4 -5 -6 -7 -8 City of London (-8.34%) -9 -10 Local authorities PREFERRED OPTION: TWO YEAR AVERAGE (GEOMETRIC MEAN INCREASE) 44%, 77% and 95% of all local authorities 2004/05 projected taxbase figures within ± 0.25%, ± 0.5% and ± 1.0% of 2004/05 reported taxbase respectively. 23%, 45% and 75% of all local authorities 2005/06 projected taxbase figures within ± 0.25%, ± 0.5% and ± 1.0% of 2004/05 reported taxbase respectively. Average annual percentage increase betw een 2003/04 and 2005/06 (geometric mean) 1 Percentage 0.8 increase 0.6 0.4 0.2 0 Yorkshire & West Midlands Sout h West Sout h East Nort h West Nort h East London East Midlands East England Humber Region PREFERRED OPTION: TWO YEAR AVERAGE (GEOMETRIC MEAN INCREASE) Local Authority Level • Local Authority average annual taxbase increase varies from 6.50% for City of London, to -0.93% for Barking & Dagenham. • Greatest average annual taxbase increases City of London 6.50% Tower Hamlets 2.27% Fenland 2.14% • Greatest average annual taxbase decreases Barking & Dagenham -0.93% Hammersmith & Fulham -0.76% Ealing -0.52% LOOKING AHEAD • Will be able to compare projections with actual figures for October 2006 when CTB1 returns for October 2006 have been received later this year. • Expect to use methodology in due course to produce projections for October 2008, October 2009 and October 2010, to cover the three years of the Comprehensive Spending Review (2008/09, 2009/10 and 2010/11). COMPARING WITH DCLG HOUSEHOLD PROJECTIONS • Nationally the taxbase and number of households are both projected to increase by an average of 0.9% per year between 2005 and 2007. • Similar patterns of increase can also be seen at Government Office Region level. • But the projected increases in numbers of households tend to be slightly higher than increases in taxbases in London, the South and the East, and slightly lower in parts of the north.