Using fines to raise public revenues

Posted on August 25, 2016 · Posted in Accounting & Business

Public bodies across the world are developing new strategies to deal with the loss of traditional sources of revenue, such as taxes and central government grant.  Many are considering innovative approaches to raise new sources of income to enable them to maintain long-standing spending commitments.  Some are turning to fines for misbehaviour as a way of making up for the lost revenues.

 

The most extreme example is probably in Ferguson in the United States, where policing has been used to impose fines on low level offences.  While the most commonly cited example has been jaywalking, just as striking is the city’s penalty for allowing weeds to grow too high – a fine of $102 may be imposed in Ferguson, compared to as little as $5 in other US cities.  An investigation by the US Department of Culture, following street riots, concluded: “Ferguson’s law enforcement practices are shaped by the City’s focus on revenue rather than by public safety needs.”

 

Less dramatically, there are also allegations in the UK that local authorities have turned to imposing fines to increase revenue.  Under the Clean Neighbourhoods & Environment Act 2005, councils were empowered to impose fixed penalties on residents who persistently left their bins out on pavements on the wrong days of the week, or failed to take them in after being emptied.  This generated a fixed penalty notice of £75, with a maximum fine of £1,000 if the penalty was ignored.  In the 2011/12 year, some 5,000 fixed penalty notices were issued by councils for breaches of wheelie bin rules.  Nottingham City Council alone levied 853 fines in the year.

 

Three years ago, the Government intervened to put a limit on councils’ ability to levy fines on waste offenders, following a strong campaign from some tabloid newspapers.  Sir Eric Pickles, the then communities secretary, said: “For too long barmy bin rules have allowed local authorities to slap fines on law-abiding people who make innocent mistakes.  Putting out your rubbish should be a simple process and it is ludicrous that we have a system where a milk carton in the wrong bin, or a wheelie bin a few inches out of place can lead to people facing bigger fines than shoplifters.  We’re bringing common sense back and reining in the town hall bin bullies.”

 

Councils did, though, retain their power to impose fines on severe instances of waste mismanagement, such as leaving bags of rubbish on the street, or fly tipping.

 

There have also been complaints about councils’ use of fines for some traffic offences.  In the 2010/11 year, Liverpool City Council issued 71,738 penalty charge notices to motorists who used bus lanes.  This generated up to £4.3m, leading to allegations that the practice was motivated by a desire to raise revenue, rather than to manage traffic flows.

 

Joe Anderson was elected as mayor and executive leader of Liverpool City Council in 2012.  The following year he responded to a media campaign by reversing the policy.  A spokesman for the council explained: “The mayor has experimented to see the effect if we scrapped most of the bus lanes.  He was clear he did not want them used as a ‘cash cow’.  We had about 25: now we have four, which are only used some times of the day.”

 

Councils in England, outside London, have been told by the Department for Transport that they should not seek to raise revenue from bus lane enforcement.  Instead, says the guidance, fine income should be used to cover the costs of setting-up, operating and maintaining bus lanes schemes, including the cost of installing and managing CCTV cameras.  Any surplus revenue should go on public transport or local road improvements.

 

That guidance applies only to England.  In Northern Ireland, a new system of bus lanes was introduced in Belfast last year, with enforcement by the Department for Regional Development through a network of bus lane cameras.  This raised £1m in fines in the first five months, in which around 26,000 penalty notices were issued.

 

There are also allegations that councils impose unreasonable fines for breaching car parking rules.  Analysis conducted for the RAC Foundation concluded that English councils raised £1.4bn from parking tickets, permits and penalties in the 2014/15 year, generating a surplus over costs of £700m.  The Foundation claimed that Scottish local authorities raised revenues of £75m from parking penalties and the running of off-street car parking, generating a surplus of £36m.  Edinburgh City Council alone achieved a surplus of over £17m, said the RAC Foundation.

 

Steve Gooding, director of the RAC Foundation, commented: “It must be tempting to think of the income from fixed penalties as a handy top-up for cash-strapped councils. But what we need to remember is that a penalty should only be arising when someone has done something wrong. Ideally, the threat of a penalty should be enough to deter people who are tempted to break the rules. High levels of penalty income are a sure sign to the council that a different approach is needed to achieve the right traffic outcome.”

 

Luke Bosdet of the AA is also unhappy. “Is it acceptable for councils to make a surplus from parking tickets?  In principle, no: because the idea of parking penalty notices is that it should be a deterrent.  So when you get councils or anybody else issuing a ticket for parking infringements and acting on an industrial scale, then it has little to with deterrence.  Councils and parking operators have been doing it for so long that they have come to expect it.”

 

As with the ‘rubbish fines’, the Government reacted angrily.  Local government minister Brandon Lewis told the Daily Telegraph two years ago: “This Government is taking action to rein in the town hall parking bullies.”  He described the widespread imposition of car parking fines as “an unjust form of arbitrary taxation, corrupting Britain’s justice system and fleecing innocent drivers”.  This was, he added, “an affront to fundamental constitutional principles and civil liberties in Britain, contrary to the long-standing principles of Magna Carta and the Bill of Rights”.

 

The difficulty with these arguments, claims the Local Government Association, is that they are based on factually incorrect analysis.  Department for Transport guidance specifies that councils must use any surplus from car parking fines on traffic management and improvement schemes.  A spokesman for the LGA described the criticisms from the RAC, AA and others as “rubbish”.  It is a “myth that councils make a profit from parking,” says the LGA.  “The reality is income is spent on running parking services and surpluses are spent on essential transport projects, such as tackling the £12 billion roads repair backlog and creating new parking spaces.”

 

Despite this, the perception that local authorities are using fines to top up income persists.  “People expect fines to be proportionate and only to be issued for serious transgressions which pose a danger or inconvenience to others,” says Jonathan Isaby, chief executive of the TaxPayers’ Alliance. “But in many cases it is hard to shake the suspicion that fines are being used increasingly as way of extracting extra revenue for local authorities.”