HC Deb 03 April 1980 vol 982 cc728-38

2.2 pm

Mr. James Hill (Southampton, Test)

It is a pleasure for me to put forward what I would term two direct ways of raising taxation, both of which are unpleasant in their sheer nature. First, I refer to the Layfield report and the discussions on the possible abolition of domestic rates. Layfield reviewed, amongst other things, the present rating system and the committee received evidence from those who favoured the wholesale abolition of rates, some reforms within the existing system or radical reform.

The response of the Labour Government to the Layfield report was a Green Paper, published in May 1977. There was basic agreement with Layfield which said that the advantages of the present rating system outweighed the disadvantages and that the system should be retained in the absence of a preferable alternative. I believe that if domestic rates were replaced by a revenue received from income tax, the basic income tax would have to be increased by 4½p in the pound. In reply to questions, I have been told that this would be the sum required.

The Conservative Party, to which I proudly belong, strongly favoured the abolition of domestic rates. It was one of the tenets of our 1974 election manifesto. However, the May 1979 manifesto, while not dismissing the abolition of domestic rating from Conservative Party policy, clearly stated: cutting income tax must take priority for the time being". There have already been strong pressures in Parliament for a rethinking of the rating system. Last November my hon. Friend the Member for Aldridge-Brownhills (Mr. Shepherd) introduced his Domestic Rating (Abolition) Bill, and the issue was again given a considerable airing. Several commentators writing in the Local Government Chronicle have suggested alternative rating systems, as has the National Union of Rate Payers Associations.

I am not looking for a complicated system. My suggested solution is a phasing out of the domestic rate over a considerable number of years, even to the extent of a 10-year phasing-out programme.

My submission is fully supported by my right hon. Friend the Prime Minister. In an article last year in The Daily Telegraph, Mr. Edward Taylor, a well-known name in this House, wrote: Her dislike of rates as a form of taxation was made clear in a keynote speech in September, 1974, when she proclaimed: 'Rates are unfair because they are not related to ability to pay. The retired pensioner pays the same as his neighbour with a working family in a similar house. They are not related to services received. The basis of valuation gives rise to inconsistencies' Therefore, it is clear that my right hon. Friend would still consider, even at a much later date, phasing out the domestic rate.

The facts are surprising. The values involved are high, but this year the total yield from the rates is about £6,100 million, of which £2,800 million comes from domestic rates and £3,300 million from industrial and commercial rates.

The problem is this. When the Government are dealing so effectively with the reduction of direct taxation, how can they take on this further load? Even though Back Benchers on both sides of the House would like there to be a change, there is no pressure to make it within the next year or two. But I believe that within the the next three or four years we could at least make a start. On the assumption that the economy is going along the way that my right hon. and learned Friend the Chancellor of the Exchequer has predicted, there would be strong pressure from Conservative Back Benchers to consider phasing out the domestic rate.

The domestic rate is iniquitous. Every hon. Member must have received many letters on the subject, certainly from elderly people. Today's levying of rates on only one person per household ignores the great social changes that have occurred—including the emergence of the working wife and the great increase in the incomes of employed sons and daughters residing at home. All those in the household enjoy the benefits of the services provided by the local authority, but not all contribute to the cost, apart from their taxes paid to central Government.

The position that I have described is the main plank of the campaign. No one objects to paying taxes on income received. What the vast majority of people object to is paying taxes for services that they do not take advantage of or that are not provided for them. Lay-field missed a great opportunity to point the way to a more economic and rational system of financial administration simply by chasing the illusions that were there at the time and ignoring the facts.

I am not advocating the total abolition of the system. However, it would lead to many economies, both direct and indirect. Rationalisation of the taxation system could be achieved by financing local government services from the only equitable and adequate source of taxation—the national pool. Pressure to abolish domestic rates will recur again and again.

We are committed to a fair society. There is nothing fair about a man improving the fabric of his building and perhaps adding heating or space only to find that he is the object of a rate increase. I have served on valuation panels and I know that such a man would have little chance of getting his assessment changed or of fighting the increase. The whole thing is a higgledy-piggledy mess of bureaucratic nonsense. There seems to be no solution. We have been hoisted by the fact that local government reorganisation committed local authorities to greater expenditure. Local councils have to find the money. A person may be able to claim a rate rebate. However, many are unable to do so, and the unfortunate are forced to pay more and more each year. The abolition of the domestic rate is only a long starter compared with what is beginning to happen.

In 1973, 10 regional water authorities were set up in England and Wales. Each authority was made largely autonomous and was given considerable control over financial policy and the collection of charges. The Bill was enacted on 1 April 1974. Prior to that date, water had been supplied to domestic consumers by many statutory water authorities. The disposal of waste water, sewerage, surface water and the supervision of other services connected with water, such as river management and pollution services, fire-fighting, street-cleaning and amenity services, had been part of a local authority's responsibilities.

The bills for water supply, commonly known as water rates, were quite small. Consumers have never been eligible for rate support grant or for rate relief on the water rate, although rateable value was used as a basis for calculation. The sewerage and environmental services were part of the general rate. They therefore qualified for rate support grant and for rate relief.

The anomaly in the water services charges is already apparent. Since 1 April 1974 regional water authorities have been responsible for these services. They have also been responsible for collecting charges. These charges, when separately billed, are of a considerable and significant sum. That has hit the public like a bolt from the blue. In some households the water service charges exceed the rates. Obviously, a person can get a rate rebate on the domestic rating side of the bill.

It is increasingly important that all hon. Members should hear and reflect the views of their constituents. As a result of using the gross rateable value as a basis for calculating those two charges, they are subject to all the objections that are applied to the general rates. One is that they are quite unfair to small households.

As a result, inequality has crept in, which completely disregards the fact that water service charges are a direct tax. Water is a service that one cannot deny oneself. It cannot be switched off or turned down, as in the case of heat. It is impossible to avoid a large bill, computed on the rateable value of one's house.

In my area the Southern water authority has received many objections. We should put an end to the foolish gossip that part of the reason is that members of regional boards drive around in 12-cylinder Daimlers or fly to Japan to see how water there is refined. The public will begin to doubt the managerial ability of water boards if such increases continue.

When the Southern water authority took over in 1974–75 there was no increase. The very next year—and it obviously found a lot to do in that time—there was a 40 per cent. increase. In 1976–77 the increase was 3 per cent. in 1977–78, 18 per cent., in 1978–79, 5 per cent., in 1979–80, 4 per cent. and in 1980–81, 29 per cent. It is a compound increase. The total percentage increase for 1980– 81 is 135 per cent. more than the 1974–75 rate. Over the same period, projected to 1980, the rise in the retail price index is 139 per cent.

I do not deny that perhaps work left undone or delayed has been brought forward. I am sure that the increases can be explained in many ways. Wage settlements in the not-too-distant past will have been partly responsible. Nevertheless, the water authorities' public relations officer must begin to indicate to the people receiving these bills that not only are the charges justified but that they are carefully monitored within the regional system, and more and more people interested in the consumer side will be encouraged to join the boards of regional authorities.

Politicians will not be able to defend water authorities. They are completely separate. They have their own financial structure. They are completely free under the 1973 Act to make profits. They cannot look to the Government for any losses. Unless the public feel that water charges will be more fairly imposed—and we all know that they are completely unfair at present on a figure plucked from the head of a valuation officer—my hon. Friend, the Under-Secretary, who works so hard in his Department, will face ever-increasing problems.

In reply to a question on 25 July, my hon. Friend said: The water industry is currently considering the question of future charging systems, and in particular how far charges can be better related to demand. I am sure that that is right. He went on to say: Water authorities have the power, in cases of hardship, to make certain arrangements."—[Official Report, 25 July 1979; Vol. 971, c. 587–8.] I am not sure what those arrangements are, but I am sure that my hon. Friend will do his best to press them. [Interruption.] I am not overruning time, Mr. Deputy Speaker. We started a little late and I am sure that you will be courteous enough to recognise that.

Mr. Deputy Speaker (Mr. Richard Crawshaw)

We were two minutes late in starting. The hon. Member has now spoken for 17 minutes.

Mr. Hill

That sounds a fair time for two such momentous and grave topics. I should have thought that matters of direct taxation would be of great interest to hon. Members present.

Mr. A. P. Costain (Folkestone and Hythe)

On a point of order, Mr. Deputy Speaker. Will you help the House? Is this subject of such importance? Will you advise how long the House has to debate this item?

Mr. Deputy Speaker

The times are set out for all hon. Members to see. We were due to begin debating this subject at 2 pm. The hon. Member for Southampton, Test (Mr. Hill) was right. We began at 2.2 pm. However, we must not go too far into the time allowed for the next debate, otherwise the last subject will not be debated at all.

Mr. Hill

I would be the last to do that, Mr. Deputy Speaker. I have had to wait too often myself.

I urge my hon. Friend the Under-Secretary to beware of the siren voices trying to establish another consumer council for the water industry. That is the last thing that we need. Responsibility must be taken by the regional water authorities and I do not think that it would serve a useful purpose if we were to retrace our steps in the direction of another consumer authority.

I had a great deal more to say, but I know that my hon. Friend has some interesting replies to give. He must be aware of the feeling about the abolition of the domestic rate and the inequity of the water services charges. I am sure that he will have the good will of the House if he is able to give us some hope for the future.

2.21 pm
The Under-Secretary of State for the Environment (Mr. Marcus Fox)

I shall do my best to pull back a few of the minutes about which you made such an impassioned plea, Mr. Deputy Speaker.

I am grateful to my hon. Friend the Member for Southampton, Test (Mr. Hill) for giving the House an opportunity to discuss this subject today. I know of his long involvement in local government. I well remember an occasion when I tramped the streets of Southampton with him to good effect. I think that Southampton won the cup that year and my efforts and those of my hon. Friend had a good effect on government generally.

In the spring, rates are very much in the news and they are not popular. Rates are a highly visible form of tax. One receives a bill, and one has to put one's hand in one's pocket. It is not surprising that any rate increase inevitably attracts criticism.

I do not pretend that I am happy with the general level of rate increases this year. They are higher than the Government would have wished. But I know that I do not have to remind my hon. Friend that decisions on rates are matters for individual local authorities. We did all we could to keep rates down, but authorities throughout the country have made their own judgments about what they can afford to spend. I need hardly say that it is Conservative councils, which are aware of economic reality, which tend to occupy the lower end of the range. Labour councils—including all the old familiar overspenders—are at the top, as usual.

During the long Committee stage of the Local Government, Planning and Land (No. 2) Bill, we are looking at this vexed question in order to find a solution.

The most important element of the rating decision is the volume of expenditure which a local authority is undertaking. Different authorities have different conditions and needs to deal with, so the decision will vary a great deal between one authority and another.

With occasional exceptions, the volume of local authority current expenditure has grown steadily each year for many years. We have acted to reverse that trend. For the current year 1980–81, local authorities have been asked to spend 2½ per cent. less in volume than they did in 197879. Last week in the public expenditure White Paper we published plans for further reductions in the years ahead. In 1981–82 local authority current expenditure is expected to fall by about 2 per cent., in 1982–83 by about 1 per cent., and by a further 1 per cent. in 1983–84.

That is the general pattern. It is an area in which the Government can be involved and one hopes that that will be reflected in rate bills in the future. We could simply go on paying more from central funds, but I am delighted that my hon. Friend made it quite clear that he supports our underlying objective in this context as in so many others.

It is the only way which tackles the underlying problems of the economy—high taxation, too much unproductive public sector expenditure and high interest rates—and so contributes to the overriding goal of economic recovery. I hope that all those who blindly call for the preservation of expenditure levels which we simply cannot afford will recognise the vital need for the reductions we are seeking in local authority expenditure.

The size of the Government's contribution is another key factor in the local budget. For 1980–81 we have maintained a fair balance between the interests of the taxpayer and the ratepayer. We have kept the level of grants at a steady 61 per cent. of the relevant local authority expenditure, and we have made a stable distribution which halted the drift of grant away from the shire counties, such as Hampshire, and ensured that no authority suffered a heavy loss of grant.

My hon. Friend invited me to discuss the abolition of the domestic rating system. He was right to mention it as one of our longer-term objectives. We have never said that this can be done quickly. I welcome his suggestion that we should phase it over a period—in this context my hon. Friend mentioned 10 years. No one believes that it can be done speedily. We have made it clear in our manifesto that other taxation objectives must have priority. Nevertheless, I assure my hon. Friend that we are actively examining the possible alternatives to the domestic rates. My hon. Friend spoke of Layfield. Many other views have been put before us and there are alternatives. It is important that when the time is ripe we should opt for the right solution. I promise that this question is being considered very seriously.

On the question of rate relief, people do not understand the numbers involved in help of this kind. About 4 million ratepayers are eligible for this form of relief—about one-fifth of the total. The average rebate given is about £56 a year. This Government increased the allowances in the scheme last November and took the opportunity to remove the anomaly which penalised recipients who were in work. Again, that is part of our general strategy which my right hon. and learned Friend the Chancellor of the Exchequer outlined in his Budget Statement.

I turn quickly to the question of water charges. I welcome my hon. Friend's views on this matter. He only reinforced my own. I accept that this is an area of considerable controversy. My postbag day after day reminds me of the unpopularity of water charges. My hon. Friend drew my attention to the Water Act 1973 and the way in which the 10 autonomous, self-financing regional water authorities were set up. Under that Act the authorities must be self-financing. There is no way in which we can move away from section 30, because if we gave relief to one section it would mean that the cost was borne by someone else. If we relieved the domestic ratepayer, the extra charges would fall on industry and as a result there might be loss of employment.

There is considerable misunderstanding in the country about the way in which the water authorities operate. Perhaps there is a job to be done here in terms of communication. My hon. Friend spoke of public relations. It is true that the image presented by the water authorities is not always the best. It was unfortunate that the move towards direct billing was made by the last Government at a time of high inflation. In normal circumstances of the water bill being separated from the rates bill, there would have been a balancing factor in that the rates bill would have been reduced proportionately. It would not have been reduced by exactly the same amount—life is not like that—but there would have been some reduction in the rate bill. Unfortunately, that never happened. The rates bill has continued to increase and the extra charge of a water bill also arrives through the letter-box.

Also, this year the water bills in certain areas have arrived before the rates bills. If anything, that compounds the problem. Here is something new which is seen as an extra charge. I accept that water bills are now of considerable magnitude. My right hon. Friend the Minister of State has seen every chairman and chief executive, or is in the process of seeing them, to discuss with them personally what are their objectives and the way they operate. We expect and, indeed, demand of them that they should be accountable.

My hon. Friend invited me to talk about ways in which we could make these bills more acceptable. I accept that the failings of the domestic rating system apply equally to water charges, both being based on rateable value. The corollary is that, once we change the domestic rating system, there is no way in which our system of water charges will continue. Some authorities have already moved away from that system. There is partly a standing charge based on cost and then another figure based on rateable value. So the two will follow each other. There may be a further inducement to get on with the task about which my hon. Friend has reminded the House and which was a commitment in our manifesto.

I assure my hon. Friend that we are looking at every possible way in which we can keep control over our water authorities. Without that, expenditure will continue to soar. We are looking at alternative ways in which measurement can be deduced and on which charges can be based. One idea is metering. Two water authorities, I know, are carrying out a number of experiments. Nothing will be absolved from our investigation. I am sure that is what my hon. Friend is asking for more than anything else.

I hope that I have been able to reassure my hon. Friend. We have no intentions of forming another consumer council. I do not wish to mention this in the same breath but, immediately we came to power, we in the Department of the Environment turned our attention to those dreaded beasts called quangos. I hope that my hon. Friend can now sleep easy, assured that we have no intention of forming any new body to tackle this problem. We see it principally as a Government problem and a ministerial problem.

Despite this year's rate rises, we are tackling the question of domestic rates in four ways. We are reducing local authority expenditure in so far as we can control it. We are keeping up the level of grant. We are attacking inflation. In the longer term, we are seeking alternatives to domestic rates. I ask my hon. Friend, with his usual good sense, to be patient. I am sure that he will get what he is asking for in time.