§ Question again proposed, That the Bill be now read a Second time.11.51 am
§ Mr. Anthony Grant
I was referring to the methods whereby alternatives to the present rating system could be devised.
The three most attractive methods are a sales tax, local income tax and a poll tax. Although I much favour the taxing of spending rather than the taxing of working, and although the sales tax works satisfactorily in many countries where a federal system exists, in a crowded island such as Britain it would not be a practical proposition. It is not much of a starter because of such problems as cross-border shopping and trading.
A local income tax would be much fairer than the present system. However, although in future there may be, through computers and other methods, a more convenient way of collecting it, the present administrative and bureaucratic objections are so great as to warrant rejection of that idea. Therefore, the most attractive alternative is the poll tax. It can be simple, easy to collect and, provided that there are not too many alternatives, it could be inexpensive to collect.
Paragraph 7.14 of the Green Paper "Alternatives to Domestic Rates" shows that a £30 per head poll tax could yield approximately £1,200 million in revenue. The present domestic average rate payment per domestic hereditament throughout the country is about £236 per year. Therefore, if one assumes that the average household consists of two adults per hereditament, allowing for empty properties, one understands that, in order to get a complete transfer to a poll tax, it might mean that £ 120 per head would be necessary.
Such a tax, as Opposition Members have said. might be too regressive and burdensome to begin with. I therefore conclude that a combination of a poll tax arid a much reduced domestic rate might be the proper alternative. However, I believe that the poll tax must be used and developed.
Three ways exist in which the present domestic rate, in the short run, and before we manage to put through these major reforms, could be reduced and, thereby, some relief given to the hard-pressed ratepayer. First, a tremendous amount of saving can be achieved by encouraging what is called "privatisation"—the use of private enterprise in local authorities. For example, the amount of refuse collection carried out by private enterprise amounts to only 1 per cent., compared with much more—between 20 and 30 per cent.—in the United States and with higher levels too in other countries.
I declare an interest in the Pritchard Services Group, a subsidiary of which secured a contract in Wandsworth which will save the people of that borough a great deal of money. There is, of course, also the example in Southend. If that idea can be translated throughout local authorities, the saving to ratepayers will be substantial.
§ Mr. Grant
My second point is rather more controversial but it is a belief I have held for a long time. It is obvious to anyone that the biggest item on the rate demand is education. The biggest category on the education bill is teachers' salaries. Who is responsible, by 1115 statute, for maintaining the supply of teachers in Britain? Under the Education Act 1944 and other Acts, the Secretary of State for Education and Science is responsible. Therefore, it is a national responsibility and it would be of substantial relief to the ratepayer if the cost of teachers' salaries were transferred from the rates to the Exchequer.
Two arguments are advanced against that idea. First, it is said that money thus saved would be frittered away by spendthrift councils rather than given as benefits to ratepayers. However, that argument could be overcome simply by proportionately reducing the rate support grant to account for it. Secondly, it is said that the transfer would interfere with local choice. However, local choice nowadays is much more imaginary than real. There is no real local bargaining over teachers' pay. Bargaining is conducted nationally through the unions under the Burnham system.
§ Mr. Grant
No, I prefer not to give way for a reason I will explain at the end. I was saying that the idea of local choice is somewhat illusory so far as teachers' pay is concerned.
My third suggestion is one which will specifically help London ratepayers but it might act as an example elsewhere. We do not want any more local government reform after the last upheaval but London ratepayers generally, and especially those in my constituency, would benefit if the Greater London Council were abolished or substantially altered. Its housing function has largely—in my view wisely—gone and it would have no education function if ILEA were abolished, as I believe it should be. The GLC has proved itself incapable of dealing with London Transport. Recently it wasted £250,000 of London ratepayers' money on advertising in The Guardian. That was an abuse of an authority's function.
A small part of the GLC could be maintained to deal with certain roads, perhaps the river frontage, and some amenities and planning. Apart from those functions I believe that County Hall should be turned to a more useful purpose. The most useful one that I can think of is that of a London Transport museum.
I hope that the Minister will take my suggestions on board and consider them. I must apologise to my hon. Friend and to the hon. Member for Edmonton (Mr. Graham) because I am about to leave the Chamber for a short while. I have been in my place since the debate started but I am to attend the memorial service of a much loved former colleague, the late Sir Douglas Glover. Some hon. Members will remember him very well.
The Bill is a blunt instrument. We do not have to agree with all the options but I hope that, as a means of stimulating reform of our crazy rating system, it gets a Second Reading.
§ Mr. Christopher Murphy (Welwyn and Hatfield)
The "abolition of rates torch" appears to be handed from one Conservative colleague to another as each Session of this Parliament leads to the next. As a past holder of the flame, I congratulate my right hon. Friend the Member for 1116 Stafford and Stone (Sir H. Fraser) on ensuring that it burns brightly by introducing this Bill, which I am privileged to co-sponsor.
I congratulate also Ministers at the Department of the Environment on producing the Green Paper "Alternatives to Domestic Rates". The Green Paper was requested by many hon. Members, including myself, and the debate that I instigated on 1 June 1981 gave the Under-Secretary of State for the Environment, my hon. Friend the Member for Pudsey (Mr. Shaw), the opportunity to say that our wishes were to be met, for which we were most grateful.
Recognising the Government's commitment to the abolition of the domestic rating system, one is immediately struck by the wealth of options that are being put forward. Clearly there is a need to find an acceptable method of providing local authorities with finance that is neither archaic nor unfair, but it is imperative that the objective is not lost in a welter of good-intentioned but differing schemes that might prevent us from arriving at a solution sooner rather than later.
It is surely self-evident that we must act quickly to end the current domestic rating system. That is in the interests of those whom we seek to serve and it is one of their dearest wishes. I appeal to the Government to ensure that legislation on this crucial subject is carried within the lifetime of this Parliament.
I am sure that all my hon. Friends recognise that there is a danger that alternative local forms of taxation might not greatly improve the situation for the already hard-pressed household, although I have a reasonable faith in a poll tax to overcome the major difficulties. Should that prove to be so, we should not refrain from considering raising all or at least the greater part of the cash required through national taxation and distributing it to local authorities, which to an extent is the system that we now operate.
The councils would then keep their freedom to decide how those assigned revenues should be spent, according to their needs, as well as in line with their statutory obligations, and still maintain local accountability. It might be possible to allow a relatively small additional sum to be raised by individual councils, subject to certain limits, in much the same way as parish councils have the right to levy up to a 2p precept. That could be done perhaps by way of a poll tax to cover the cost of special requirements. Fees and charges, as well as lotteries, could provide an extra source of finance. In addition, greater emphasis on privatisation would help to reduce local government costs.
Though I accept that the abolition of domestic rates is the priority commitment, the Bill has the great advantage of seeking to abolish the complete rating system. That is definitely to be applauded. There can be little justification for non-domestic rates and water rates continuing to be levied under the old iniquitous system.
The industrial and commercial ratepayers in my constituency of Welwyn and Hatfield feel just as strongly about the need to abolish rates as do my domestic ratepayers. I believe firmly that we have an obligation to those people to overcome their problems at the earliest opportunity.
Non-domestic rates are having an increasingly detrimental effect on the wealth-creating and job-creating sector of our economy, to a large extent in consequence of excessive rate demands by local authorities, over which there is no control or sanction. Business men suffer acutely 1117 from "taxation without representation". The net result of the rate that they pay is a tax on production rather than on the results of production.
While assessing the alternatives to the domestic rating system we should not ignore the implications for the non-domestic ratepayers as well. It is to be hoped that as decisions are made on abolishing domestic rates the Government will consult the business and commercial community about the abolition of non-domestic rates.
Water rates payers are placed in the illogical situation of having their water charges based on outdated hypothetical rented values rather than on consumption. In the way that other modern essentials such as gas and electricity reflect use, so, too, must water, with an increased commitment by water authorities to water meters.
The Bill emphasises the determination to end the rating system. Although the considerable problems in finding acceptable alternatives are fully recognised, the inherent good sense of such a measure will be applauded throughout the country.
The Republic of Ireland faced the same problem some years ago and showed clearly in its inimitable Irish style how political will can eradicate rates. Councils there still strike a rate, but the Dublin Government cover the amount, thus leaving the householder to pay Op in the pound. Perhaps that is a solution with a touch of blarney, but it is a solution none the less.
§ 12.3 pm
§ Mr. Neil Thorne (Ilford, South)
I congratulate my right hon. Friend the Member for Stafford and Stone (Sir H. Fraser) on his success in the ballot and on his choice of subject. I admire his technique of concentrating the Government's mind by demanding the abolition of the present rating system. I shall watch with interest the reactions of the Minister and of the Government Whips to the proposal. My right hon. Friend has more experience of such things than I do, and, therefore, whatever happens is hardly likely to be a surprise to him.
I do not agree with much of what my right hon. Friend has proposed. The present system has existed since the time of Queen Elizabeth I. For most of that time it has been considered to be a fair tax as the size and location of the accommodation, whether residential, industrial or commercial, was for a long time an indication of the ability to pay. However, in more recent years those responsible for running local government have, on the one hand, had a wide range of extra responsibilities thrust upon them by successive Governments, and, on the other, have acquired the taste for financial engineering and profligacy. Spend, spend, spend at the expense of those who must pay the local tax has been the order of the day in some areas.
We note that only one-sixth of the cost of rates is paid by voters. For those reasons, the burden of rates on property has become unbearable and the demand for the abolition of rates has become a popular cry. Several options have been put forward, including local income tax, sales tax and a poll tax.
Income tax is already too high and is responsible for the black economy. Previous Governments have levied income tax at an even higher rate than at present and this has forced the taxpayer to look for ways round it. It has caused much growth in the black economy and consequently yielded false figures for unemployment.
1118 A sales tax is also impractical, because, in a country of this size, any substantial variation in the tax charge would cause a major alteration in shopping patterns and would be unfair to traders struggling to make a living. A local petrol tax would be especially unfair and in heavily taxed areas would cause an enormous waste of fuel. One can imagine what would happen if the petrol tax in London were paid to Mr. Livingstone and the tax rate immediately outside Greater London was much lower. The entire population would spend their weekends driving out from London to fill their tanks with cheaper petrol.
The poll tax has been criticised, especially by Opposition Members, who believe that it might discourage their supporters from including their names on the voters' list. I do not share that view. We must move towards the American system of self-assessment in tax matters. Ft would be simple to include a declaration on the rate payment form so that everyone over the age of including foreign nationals resident here, would be included. Obviously students and others would require an adjustment of their allowances to take account of that.
A modest flat rate charged on all adults would acknowledge both the ability of householders to pay and the cost to the local authority of the services provided. A s it would not provide sufficient revenue on its own. some form of local property tax would be inevitable. We must recognise that if property were not taxed on a local basis it would soom attract the eye of a future Government, as few countries do not have some form of property tax.
Commercial and industrial rates should be based on capital values, and an urgent revaluation is needed to correct the unrealistic distortion caused by out-of-date valuation lists. The rate poundage on commercial and industrial property should be assessed nationally and the figure should be laid down by the Government, as they are the ones who have to pick up the cost of unemployment benefit if taxes are so high as to make employers lay off their labour. Employers already pay for refuse collection and other services. For them, therefore, rating is a form of property tax.
Residential property should also be dealt with on a capital basis. The present system, which arises out of rental value, creates an unfair distortion which is particularly disadvantageous to flat dwellers. The hon. Member for Hackney, South and Shoreditch (Mr. Brown) said recently that many of his constituents lived in flats which attracted far higher rateable values than some houses on the South Coast. That is because there is these days much more evidence of rentals for flats than for houses. The whole exercise should therefore be on a capital basis.
As a chartered surveyor, I should like to see a much simplified form of valuation. I believe that some form of banding is merited, so that the calculations will be less intricate. Moreover, alterations to property, which are an essential right in a broadly-based property-owning democracy, should not be taken into account between valuations unless the alteration exceeds 10 per cent. of the size of the hereditament.
If local taxation were based on a modest poll tax, with a nationally determined commercial and industrial rate paid to the Government and distributed in rate support grant, this would leave the balance to be raised from local residents, who actually have the privilege of electing their local authorities. In a well-managed local authority area the rate poundage could be very low indeed. In areas in 1119 which the local authority is profligate it would be considerably higher, but the solution to that would then lie entirely in the hands of the local electors.
§ Mr. John Heddle (Lichfield and Tamworth)
I join other hon. Members in extending congratulations to my right hon. Friend the Member for Stafford and Stone (Sir H. Fraser) not only on the selection of this relevant subject, but on its timely presentation today. My right hon. Friend has presented his Bill just 12 days after Mr. Hugo Young, in his much-read and much-respected column in The Sunday Times, speculated on the idea that a Cabinet meeting earlier this month had suggested that wholesale rate reform might not feature in the life of this Parliament. The point was then taken up by Philip Webster, the local government correspondent of The Times, last Friday.
The timeliness of the debate is enhanced by the appearance on the steps of the offices of Avon county council this week of representatives of the south-western branch of the Confederation of British Industry, protesting at the swingeing increase in rates levied by the council on industry and commerce in the area.
The debate is even more timely in that I share with my right hon. Friend the privilege of representing a seat in the West Midlands, where only yesterday, as reported in today's Birmingham Post, Walsall metropolitan borough council decided to levy a 22 per cent. increase on ratepayers across the board.
§ Mr. Stokes
We have heard a great deal recently from the hon. Member for Walsall, North (Mr. Winnick) about how bad things are in the West Midlands. Surely one of the most dreadful things is this rate increase in his own borough.
§ Mr. Heddle
My hon. Friend the Member for Halesowen and Stourbridge (Mr. Stokes) is a most assiduous attender of Friday debates, which are in themselves a pleasure as they usually enable hon. Members on both sides to reach some consensus, some agreement and accommodation on matters of mutual interest. It is therefore depressing, indeed, to note once again not only that the Labour Benches are completely denuded—save only for the hon. Member for Edmonton (Mr. Graham), who is himself an exception in any event as he is a regular attender, and we are pleased to see himbut that the Social Democrat Benches and those occupied from time to time by hon. Members representing the Liberal cause are completely vacant. The Liberal and SDP voice on rating reform will therefore go unheard.
§ Mr. Tristan Garel-Jones (Watford)
I thank my hon. Friend for giving way, and I apologise to the House for having just come into the Chamber. However, I am sure that he knows that I am a regular attender at Friday debates. Does it not surprise my hon. Friend that the Social Democratic Party, which makes such play of the fact that it is the defender of Parliament, shows such contempt for Parliament, not only on Friday, but in general? The Members of that party simply do not come to the House.
§ Mr. Heddle
I am obliged to my hon. Friend.
The hon. Member for Croydon, North-West (Mr. Pitt) spoke about the Liberal alternative to the present rating 1120 system, and subsequently we heard the views of the hon. Member for Woolwich, East (Mr. Cartwright), representing the Social Democratic Party. My right hon. Friend's Bill is timely, because it enables us to put under the parliamentary microscope the views of those two parties, which have decided to come to an accommodation, either in the short term or in the long term.
The hon. Member for Croydon, North-West said that the Liberal Party maintains its romantic and historic attachment to site value rating as well as to levying a further charge on an already hard-pressed electorate by way of local income tax and a regional tax. In answer to an intervention by my hon. Friend the Member for Grantham (Mr. Hogg), the hon. Gentleman did not tell us whether the Liberal Party was in favour of establishing a further tier of local government in the form of regional government.
§ Mr. Douglas Hogg
Was it not clear from what the hon. Member for Croydon, North-West (Mr. Pitt) said that his party's scheme could be implemented only if it were associated with yet a further reform of local government? Anyone who heard his speech must have assumed that the Liberal Party was calling for a further reorganisation of local government.
§ Mr. Heddle
My hon. Friend is right. I hope that other Conservative Members, and, indeed, the hon. Member for Edmonton, on behalf of the Opposition, will continue to press the Liberal Party and the Social Democratic Party, because we, as elected Members of the House, have a duty to the electorate as a whole to endeavour to press them to explain their policies and say how much they would cost. After all, we in the Conservative Party have to do that.
There is a further reason why my right hon. Friend's Bill is timely. It enables Conservative Members to hear from the hon. Member for Edmonton the Labour Party's view on local government reform. I have the greatest respect for the hon. Gentleman, as I think he knows, but I do not have the same respect for the views of the right hon. Member for Manchester, Ardwick (Mr. Kaufman), the Environment Shadow spokesman. Perhaps the hon. Member for Edmonton will today explain his party's policy on local government reform, with particular reference to rating reform. At the annual conference of the Labour Party last year the right hon. Member for Ardwick said that the only alternative was local income tax.
In an endeavour to elicit the views of the Social Democratic Party, I intervened in the speech of the hon. Member for Woolwich, East. The hon. Gentleman had reminded us that he had been a member of the Layfield committee, which had been set up by the Labour Government in 1974. He did not answer my question. I asked him to confirm that the Layfield committee of inquiry into local government finance, which reported in 1976—which report the Labour Party did not debate and on which it took no further action—recommended that local income tax should be considered as a possible additional form of local taxation, but not as a substitute for the amount of money raised through the rating system, towards local government finance.
Given the remarks made almost 12 months ago by the right hon. Member for Ardwick on behalf of the official Opposition, I hope that the hon. Member for Edmonton will advise us of the official Opposition's position.
As is usual and right on such occasions, I declare an interest. I am consultant surveyor and a consultant partner 1121 to a firm of chartered surveyors, which I believe derives very little income from handling rating appeals. Therefore, my interest is tenuous. However, I am a fellow of the Rating and Valuation Association, which is in favour of the rating system almost as it stands. In that I am at variance with it and come closer to the views of my right hon. Friend the Member for Stafford and Stone. However, the association gave me considerable help by providing me with background statistics and data prior to the booklet that I wrote nearly two years ago on behalf of the Conservative Party entitled "The Great Rate Debate".
The House is the fountain head of a very adult and much-respected democracy. We are described as the Mother of Parliaments. Perhaps we are also the father of local government. Unfortunately, the son has almost outgrown his father and has become something of an embarrassment to his parents. Local government, which is largely funded by the rating system, is now big business. Hon. Members have said that local government now costs £30 billion per annum. That is about one-quarter of the nation's total expenditure and about 6.5 per cent. of the gross domestic product.
However, local government provides about 10 per cent. of our jobs. One in ten work in local government. My hon Friend the Member for Harrow, Central (Mr. Grant) pertinently pointed out that the cost of local government could be reduced and that the burden on the shoulders of domestic and industrial ratepayers could be alleviated if local government's power to recruit labour were reduced and if it were to put out as much work as possible to the private sector. I refer, for example, to the repair and maintenance of housing. Park maintenance could be put out to local horticulturists. I could name 10 to 20 different trades that could do the work more effectively and efficiently—and probbly much more cheaply—than local government.
The rating system is under great threat. There are probably 365 different reasons for hon. Members to criticise the rating system. However, there are 365 options available. Therefore, hon. Members must reach a consensus. The chorus of resentment will continue to grow until it reaches a crescendo. Britain will witness the ratepayers' rebellion similar to that that took place in California. It is the Government's duty to recognise that. Local accountability is under cross-examination and, perhaps most importantly, local democracy is under threat.
That is why I agree with many of the views expressed by my right hon. Friend the Member for Stafford and Stone. He regretted the fact that the Government paid only scant regard to the contribution made by industrial and commercial ratepayers in the Green Paper "Alternatives to Domestic Rates". The consultation period expires on 31 March. I accept that my hon. Friend the Under-Secretary of State may not be privy to the Cabinet discussions, but I should like to press him gently. In his column in The Sunday Times, Hugo Young speculated on those discussions, as did Philip Webster in last Friday's edition of The Times. Will my hon. Friend ensure that the Green Paper is debated on the Floor of the House as soon as possible after 31 March?
The time is ripe for a wholesale overhaul of local government finance, with a view to reconciling permanently the relationship between central Government and local democracy. Failure to do so—and this is what frightens me about the views of the right hon. Member for 1122 Ardwick—will sound the death knell of local government. It will herald the entrance of municipal socialism and, at a stroke, we shall arrive at the threshold of a corporate State. That is why time is not on our side. The lifetime, of this Parliament—this shorthold—expires in 1984 I sincerely hope that our shorthold will be renewed and become a long leasehold. One accepts that in a democracy it is unlikely to become an ecclesiastical freehold. It is no coincidence that unless we act now—before 1984—the Orwellian concept of 1984 and the corporate State might just happen. I underline that rating reform, root and branch, should be part and parcel of the Government's programme.
Hon. Members have already recited the reasons why their constituents and mine criticise the present system. I do not propose to till the same soil again. I do not propose to put under the microscope of the House the defects of the alternatives, such as the poll tax, propounded in the Green Paper. I agree with the hon. Member for Woolwich, East about that. I agree that a poll tax, if used as a substitute for the rating system, would be highly regressive. The Green Paper says that to replace the domestic rating system with a poll tax would cost the equivalent of £:1.20 per head a year. There are at least two adults in most households and that means that it would cost £240 per household. That would bear heavily upon the poorer members of the community. Unless it was coupled with an effective rate rebate scheme, it would not be a suitable alternative. Setting up an effective means of rate rebate would simply mean transferring money out of the Government's pocket to local government's purse. The object would be defeated.
My hon. Friend the Member for Ilford, South (Mr. Thorne) dwelt on the possibility of a local sales tax. That would put up the cost of living in shopping basket terms. It would put up the cost of food and favour the big cities and conurbations where most of the large stores and supermarkets are situated. It would discriminate against the small towns and villages. Most importantly, it would discriminate against the small shopkeepers who serve small towns and village communities so splendidly.
§ Mr. Douglas Hogg
Not only that; a sales tax would not remove the need for some form of Government support for local government finance.
§ Mr. Heddle
I agree wholeheartedly. The local payroll tax principle would be singularly inappropriate at present with falling output and rising unemployment. Such a tax would tend to fall most harshly on labour-intensive industries, as opposed to capital-intensive industries.
§ Mr. Garel-Jones
Will my hon. Friend explain the complications that could arise from cross-border shopping.
§ Mr. Heddle
I am grateful to my hon. Friend for giving me the opportunity to endorse and confirm what he has said and to explain again that it would favour the large cities and conurbations and discriminate against the small towns and villages. The practical effect of that would be that people living, for example, in the mother of the Midlands, the beautiful city of Lichfield, would drive to the Minworth hypermarket on the outskirts of Birmingham or to the Birmingham Bullring at nine o'clock on a Saturday morning.
§ Mr. Heddle
They probably do not know what delights await them in Watford, but I would rather retain their custom in Lichfield, so I shall not be tempted down the M1 to the constituency that my hon. Friend serves so assiduously.
It is vital that not only the House, but the ratepaying public should understand the implications of the introduction of a form of local income tax. About £4.6 billion is raised in domestic rate revenue. Substituting local income tax for that would cost the equivalent of a 6p increase in the standard rate of tax. About £5.6 billion is raised through the industrial and commercial rate element and if the whole rating system, including that element, were abolished, the cost would be equivalent to an increase of 13p in the standard rate.
In order to regenerate British industry and to get Great Britain Ltd. to balance its books and play an active and vital role in the world economy, it is necessary to increase the incentive to work and not reduce it. Increasing the standard rate of tax by 6p or 13p would be a disincentive to work and would encourage more people to ask "Why should I bother to work?"
The hon. Member for Woolwich, East served on the Layfield committee and I hope that he will bear in mind the cost of administering a system of local income tax. The Layfield report said that the introduction of local income tax, either as a substitution or an addition, would require the recruitment of another 12,000 civil servants by the Inland Revenue. In 1976 the report estimated the cost of that increased administration at £50 million. Inflation in the intervening years has increased that figure to well over £100 million.
Do we need another 12,000 tax-gatherers and can ratepayers and taxpayers afford another £100 million on top of our national debt?
§ Mr. Douglas Hogg
Does my hon. Friend recall that the Layfield committee said that the total public and private costs—it emphasised the private costs—would be well over £100 million? If we inflate that figure by four years of increases in costs, we are talking of about £300 million.
§ Mr. Heddle
My hon. Friend anticipated my remarks. The cost borne by the Inland Revenue would have to be matched by a similar sum borne by employers. Therefore, the 1976 figure of £50 million rises to £100 million.
§ Mr. Richard Shepherd (Aldridge-Brownhills)
I am grateful to my hon. Friend, who has a neighbouring constituency to my own. I am sure that he is aware that the Inland Revenue is introducing computers and that towards the end of the decade it will be able to make many of its transactions in a computerised form. Does that not alter my hon. Friend's calculations? Has he made any adjustment in his estimate of the cost of revenue collection?
§ Mr. Heddle
The computerisation of income tax is referred to in the Green Paper, but my hon. Friend will know that such computerisation will not come on stream for at least 10 years. The reform of the rating system is urgent and cannot wait that long.
The hon. Member for Woolwich, East wishes to intervene. I shall give way to him and then bring my remarks to a conclusion, because I know that other hon. Members wish to speak.
§ Mr. Cartwright
The hon. Gentleman makes a fair point about the cost of administering a local income tax scheme. I would make exactly the same point about computerisation. The Layfield estimates were based on a non-computerised approach. The sad thing about comparing the Green Paper estimate with the Layfield estimate of date is that the length of time needed to bring in local income tax is now even longer than at the time of the report. Does the hon. Gentleman agree that if there were a real political drive and commitment to introducing local income tax the time could be reduced?
§ Mr. Heddle
The hon. Gentleman addresses his question to the wrong person. I said earlier that I did not believe that local income tax, either in substitution or as an additional form of taxation, is a suitable alternative, because it would increase the standard rate of tax and reduce the incentive to work. I am not a convert to the concept of local income tax.
I am a convert to the 13 recommendations that I shall put to the Minister. Some have already been mentioned. I was particularly interested in the comments of my hon. Friend the Member for Fife, East (Mr. Henderson). I believe that the solution lies in a pot-pourri of alternatives. We must retain a form of local property taxation. All other Western democracies have done so. Countries which, from time to time, have bowed to ratepayers' anger and abolished the rating system have, with the notable exception of Eire, always reintroduced a form of local property tax.
I start from that basic premise that some form of taxation brought about by the ownership of property should be the base for raising local revenue, but it should be linked directly to those who benefit from the services provided by the local authority. Only then can they, as voters, go to the polls at municipal, district and county council elections, and, as "shareholders", agree with what the "directors"—the councillors—have done and determine whether they have provided a return on the money paid. That is where the present system, whereby the major contributor to the rate fund—the industrial and commercial ratepayer, who by hand and brain creates wealth and jobs—is totally disenfranchised.
One of my recommendations, although not top of my priority list, is to reintroduce the business vote. I accept my hon. Friends' criticism that, in electoral terms, save in one or two marginal wards, it will not make a great deal of difference. But it was petty party political prejudice that persuaded the Labour Government in 1969 to enact the Representation of the People Act, which denied the industrial and commercial ratepayer the right to decide how the local council should spend his money.
The American War of Independence came about because of taxation without representation. If the good health of local democracy is to continue it must be made democratic by the reintroduction of taxation with representation.
§ Mr. Richard Shepherd
What is my hon. Friend's concept of voting by local businesses? Many businesses in both our constituencies are owned by large corporate bodies, perhaps with headquarters in London. Who would exercise the vote, and what numbers does my hon. Friend envisage?
§ Mr. Heddle
My hon. Friend and I have discussed the matter informally recently. Time is against me, so I merely 1125 remind the House that the Local Government Act 1972 enabled local employers to nominate a member of staff, provided that he had been employed with the firm for 12 months, to stand for election to a council although he may not be a ratepayer in the borough in question. In that way, industry and commerce could have a voice. At present it has no voice, no vote and no sanction.
§ Mr. Garel-Jones
Will my hon. Friend make it clear to the House—and to others in the country who may be following the debate—that those of us who are advocating the business vote are not in any way suggesting that the number of votes should be linked to the amount of money paid into the rate fund? That is an absurd allegation that is frequently made by the Opposition. Will my hon. Friend make it clear that we are not making such a suggestion, and that this is much more a matter of principle than of any particular effect that it is likely to have on voting patterns or results of elections?
§ Mr. Heddle
I am most grateful, as always, to my hon. Friend. I agree with him. It is a question of principle. We are talking about local accountability and local democracy, yet we are denying the right to vote to those who contribute so much in terms of rate revenue and the provision of jobs, and who also have to pay for other services, such as refuse disposal over and above their rate contribution.
My hon. Friends have referred to the enormous part that the education budget plays in the equation. The teachers' salaries element of the rate support grant should be transferred from the county councils to Whitehall, where they are negotiated nationally through the Burnham committee. That would reduce the rateable revenue and the rate base very considerably, because 70 per cent. of all local government expenditure is on education, and 70 per cent. of that 70 per cent. relates to teachers' salaries.
If that were taken out of the equation, rateable values would be reduced very considerably, and therein would lie the large reservoir between the amount paid and the amount that the local authority would wish to raise. It would enable the local authority to go to its electorate and say "This is what we want to raise, this is what we want to raise it for—may we have your vote and your endorsement of our policies?"
The amount that an individual pays in rates should be an allowable deduction for income tax purposes. That is the practice in Australia and New Zealand, and I have not heard any good reasons why it should not be done in Britain.
I agree with my hon. Friend the Member for Ilford, South, who suggested that the assessment of domestic properties should be on a capital value basis rather than on a hypothetical, outdated, rental value basis. I agree with him wholeheartedly about banding in that respect.
I do not think that hon. Members have dealt in sufficient detail with whether relief should be granted to those on low incomes and to the disabled by way of rebates on charges made by water authorities. Such rebates were available to them before local government reorganisation in 1974, and that practice should be restored.
Legal aid should be available to ratepayers to enable them to challenge their rating assessments in the valuation courts, because the system is incomprehensible. If they were entitled to legal aid, those who raise the rate could be subject to cross-examination. The present system 1126 unduly favours those who consume services but do not pay rates. Council tenants appear, perhaps, to be protected from the effect of rate increases. Consequently, any increase in their rent—which includes a disproportionately small element of the rate—is blamed upon the Government, but perhaps wrongly. Perhaps they should direct their fire at the profligacy of the local authority. Therefore, the rent and rate components should be separated so that the council can be seen by its tenants to be accountable and to be prudent, although I accept that the arrangements for rebates and benefits should be lumped together.
Furthermore, rating revaluations should take place once every five years, and they should not be fudged or procrastinated for short-term political purposes. I, too, believe that Crown properties should be rated properly in the same way as commercial and industrial property. Also, the Government should deny local authorities the right to levy void rates. If one is not occupying premises beneficially, one does not receive the services. Ipso facto, one should not pay rates. However, it is true that the Government have moved some way in that direction in the Local Government, Planning and Land Act 1980, by allowing local authorities to levy void rates only up to 50 per cent. of the total.
Mothball relief should also be given. The CBI has made this point, and I incorporated it in my Ten-Minute Bill last June—the Rating (Business Premises Relief) Bill. If a firm is not using all its machinery productively because of the recession, the local authority does not have the right to receive a rate for machinery that is idle and not contributing to the prosperity of the company. Large businesses in industry and commerce should be able to pay their rates by instalments, just as the domestic ratepayer and the small business man are able to do, because cash flow to commerce is at least as important as cash flow to the councils.
I wholeheartedly agree that, as we have accepted the derating of agricultural land and buildings since 1929—it was introduced when the British economy was at the depths of a world-wide recession—we should recognise today the position of industry and commerce and have, as part of the equation, industrial derating either in whole or in part.
With those 13 recommendations, I suggest to my hon. Friend the Minister that time is not on our side, that the patience of the ratepaying electorate is running out and that, whatever Hugo Young said in The Sunday Times on 14 February, it is our duty as Members of Parliament to transmit the anger, concern and frustration of our constituents—domestic arid non-domestic—to the Government.
§ Mr. Ted Graham (Edmonton)
For those hon. Members who have been in the Chamber all morning, this has been an enjoyable, good-humoured and valuable debate. Of course hon. Members on each side of the House will consider the matter from different points of view, but there is a common thread, which is that there is much dissatisfaction with the present system. The argument u ill be whether we can provide a better means of raising the local element of the money that must be spent on local services.
I wish to begin, as most hon. Members, by congratulating the right hon. Member for Stafford and 1127 Stone (Sir H. Fraser) on initiating this debate. He has struck a popular chord not only in Britain but in the House. Reference has been made to other debates initiated by hon. Members here today. I believe that we cannot have too many debates or arguments because I am as interested as other hon. Members in the subject. However, today we are asking when we shall come to a conclusion about the best means that we can deploy.
§ Mr. Garel-Jones
As the hon. Gentleman expands on the way in which the Opposition will consider the problems, will he try to reassure the House and Watford borough council, which is Labour-controlled and with which I hope to have a series of discussions, that the Labour Party will approach the problem with the intention of arriving at a consensus with the Government? It is important if we are to reform the rating system that it should be done with some sort of all-party agreement. We cannot have a party political disagreement on such an important matter.
§ Mr. Graham
That should be avoided if at all possible. However, by the nature of this aspect, we are concerned with public expenditure and not only how it should be raised, but also about the things on which it should be spent. There will be some differences across the Floor of the House on the levels of public expenditure. The Opposition are committed to satisfying the needs of their constituents and the people of Britain. If those needs must be met by raising moneys locally or nationally, we are prepared to will the means to do it.
§ Mr. Bob Cryer (Keighley)
Will my hon. Friend not accept that the rates question is now to the forefront purely because the Secretary of State for the Environment embarked on a deliberate vendetta against local authorities by cutting back on the rate support grant so that the local authorities controlled by Labour councillors, desperately trying to maintain services to people, are bound to consider an increase in rates revenue—although that may be unpopular—in order to help the weakest in society: the mentally handicapped, the old, and the sick? Local authorities are desperately trying to help them and the blame for their present difficulties lies fairly and squarely on the backs of the present Tory Government.
§ Mr. Graham
I substantially agree with my hon. Friend's remarks and I intend to deploy my main argument to show that the Under-Secretary of State for the Environment has much explaining to do today in defending the present attitudes of his Department and Secretary of State on the rates and local expenditure issues.
However, I am delighted to see the right hon. Member for Stafford and Stone in his place because I paid tribute to his initiative in again bringing this matter before the House. I also pay tribute to the Government for bringing forward the Green Paper at this time. However, I share the view of the right hon. Member that the Green Paper was, in effect, bland—all things to all men—and that it certainly would not be the answer to the problems that he fairly described.
I assume that in a civilised society it is our responsibility to arrange our affairs so that our people's needs are met by a system of support, both from the centre 1128 and locally. I have not detected many arguments this morning for meeting the needs. Our argument concerns how the money is raised and who pays for it. Those who talk of abolishing rates give it credence by suggesting that somehow or other it is possible not only to reduce, but to make more equitable and painless the raising of revenues for local services.
The blunt truth is that, however it is done, public expenditure must be paid for by the public. A thread which ran through some of the Government speeches decried local expenditure levels per se. The Government are tackling this issue by deciding that the man in Marsham Street knows best—whoever he may be. The Opposition reject that approach; not of limiting central funding or grants, but of hog-tying the ability of locally elected people to decide what they consider is best and needed for their electors. We are anxious, of course, to hear not only what the Government have to say about the motion and Green Paper, but whether they intend to legislate this Session.
The hon. Member for Lichfield and Tamworth (Mr. Heddle) is the latest of many of his colleagues anxious to know about the reports of what Hugo Young alleged to have heard recently as "a fly on the wall" in No. 10.
With the rating system, the House has many options. The present Prime Minister played a major part as Opposition environmental spokeswoman in 1974 and it is as well to remind the House of the manifesto pledge then given to the country. On transferring expenditure, the Conservative manifesto stated:First, we shall transfer to central government in the medium term, the cost of teachers' salaries up to a specified number of teachers for each local education authority. Expenditure on police and the fire services will qualify for increased grants from the Exchequer. We shall see that this saving is passed on to the ratepayer.Fairer taxes.Secondly, within the normal lifetime of a Parliament we shall abolish the domestic rating system and replace it by taxes more broadly based and related to people's ability to pay.
§ Mr. Graham
Exactly. In its manifesto the Conservative Party stated what it would do if it formed the next Government. In its 1979 manifesto it did not take up the earlier statements on rating. The Prime Minister merely stated in the preamble to the manifesto on which
Conservative Members were elected:It contains no magic formula or lavish promises. It is not a recipe for an easy or a perfect life.On more than one occasion when the 1974 pledge has been raised it has been said that although rating reform is important and will be accomplished it will not be accomplished in the lifetime of one Parliament.
On 14 February in his column in The Sunday Times entitled "Inside Politics", Hugo Young wrote:Last December another solemn commitment was given, this time to reform the domestic rating system, and a Green Paper was published to which even at this moment interested bodies are preparing weighty responses. What the Cabinet decided was, in effect, that they were wasting their time. If not exactly futile, this time-consuming consultative exercise will not bear fruit during the lifetime of the present Parliament. There will be no Bill in the next and last Session. This is what Mr. Heseltine, the responsible Minister, was seeking time for. He was advised not to try too hard.Many hoops have been tossed about the Chamber during the debate but what conclusions does Hugo Young believe the Cabinet came to on 4 February, only three weeks ago? He wrote: 1129Nothing decided now, it was established, could be brought into effect before 1988. So it was concluded 'Why take on a burden which would not win a single vote in 1988?We understand from Hugo Young that the winning or losing of votes is crucial when we are considering reform of the rating system.
§ Mr. Graham
That is right. We do not have to rely on Hugo Young alone when trying to establish the Government's intentions this Session. The Local Government Finance (No. 2) Bill is being considered in Committee and during the Committee's deliberations the following exchange took place:
§ "Mr. Kaufman
My hon. Friend says that Parliament may be legislating for several decades—a generation or more. We need to know from the Government whether that is so. The Minister said that this is an interim measure. We have not yet been told whether the first four clauses are interim, although we asked him about that. He did not feel it appropriate to answer us then. But now we read in the press that the Government have abandoned their intention of carrying out rating reform in this Parliament.
§ Mr. Kaufman
If the Minister cares to deny that, we shall be most grateful to hear it. I am sure that my hon. Friend will gladly give way to him for such a denial, which the Committee, the House and the whole country would welcome. However, if it is true that the Government have abandoned their intention to carry out rating reform——
§ Mr. Tom King
I am happy to deny that."
—[Official Report, Standing Committee , 23 February 1982; c. 287.]
In other words, the Government have not abandoned their intention to carry out rate reform.
§ Mr. Murphy
The hon. Gentleman referred to the Conservative Party election manifesto of 1974. I remind him that in the 1979 election manifesto the commitment to the abolition of domestic rates was restated, but with the added and understandable proviso that the reduction of income tax must take priority. Does he not agree that that was a responsible way of approaching the abolition of domestic rates?
§ Mr. Graham
What the hon. Gentleman has said is substantially what I have said. The priority to abolish domestic rates has been downgraded. The hon. Gentleman was entitled to mention that reducing income tax took priority over rate reform. He is aware that a close scrutiny of the situation will reveal that there has not been a reduction in the standard rate of income tax.
§ Mr. Graham
That is right, but the people are more heavily taxed now than they were in 1979. So much for that election pledge.
The Minister has an opportunity today to tell the House whether the words of his right hon. Friend the Minister of State should be accepted or whether the opinion of Mr. Hugo Young is to be given credence.
The present rating system has few friends in the House or in the country. Before we go overboard against the present system without having thought the matter through, we should acknowledge that it has a number of features that we may regret losing under some other system. By and large there has been a carte blanche condemnation of the present system. I shall not advocate that the present system should remain in totality. However, we need to remind ourselves of some of its commendable features.
1130 If rates were wholly or partly abolished, there would be a need for a new form of local tax. If local government does not have a local source of revenue it is arguable that it would disappear and be replaced by local administration or services with all decision making at the centre. Rates are a cheap tax to collect and are difficult to evade.
The financial, general and rating statistics of the Chartered Institute of Public Finance and Accountancy for 1980–81 show that 402 rating authorities is England and Wales estimated that it would cost them £123 million to raise £11,312 million in rates. I shall put the proposal for the abolition of domestic rates into perspective. Even after taking into account domestic rate relief and rate rebates, domestic rates still produce about £3,600 million to £4,000 million in a year. If that amount had to be raised by an increase in national taxation, about 6p would be added to the basic rate of tax.
§ Mr. Graham
They are the figures for England and Wales.
The present system of domestic rates can be and often is criticised as an imperfect and unfair method. Representations have been made to me by action groups of the National Association of Ratepayers and my local ratepayers' and residents' associations.
The simple solution of the National Association of Ratepayers is to abolish all rates and to heap the burden on central taxes. I can imagine the Government's reaction. Hon. Members have said that the 30p rate of income tax should be reduced to 25p, and at present there is an attempt to do so. If the rates burden is heaped on central taxation, that 30p would certainly rise to 36p.
I shall make the following proposals in favour of the present system. Rates are cheap to collect. They allow concessions to be made easily and discreetly for the elderly and others. They are based on property rather than on individuals. They are therefore difficult to evade. They are familiar—they may not be liked, but at least they are well understood—and, once fixed, the amount payable is easily calculated by both the ratepayer and the local authority. Before abandoning the present system, we should heed those advantages.
§ Mr. Murphy
The hon. Gentleman asserts that raves are well understood. Will he reflect on that? It is my experience, and I suspect his also, that constituents are often unsure who is responsible for which service and do not understand which part is the county rate and which the district rate, let alone the intricacies of the rate support grant. I wonder whether the hon. Gentleman's description is accurate.
§ Mr. Graham
I disagree that people do not understand the system which has existed for so many years and has been changed many times. I believe that the principle of rating is well understood. It is well understood that the rates are based on the valuation of the rental income which could accrue. I can appreciate that people do not know who is responsible, to whom they pay rates and why waiver rates seem to be increasing, but, although the system may be disliked, it is well understood.
§ Mr. Garel-Jones
I am sure that the House is grateful to the hon. Member for his careful and responsible approach to the problem. In describing the lines along 1131 which the Opposition are thinking—I accept that they must be tentative—will he reassure the House, as I requested at the outset, that the Opposition will seek all-party agreement on the matter? Although there may be disagreements between Labour and Conservative Members about how and at what level expenditure should be made, I am sure that he agrees with me that there can and should be agreement about the new method of raising revenue.
I reject the assertion of the hon. Member for Keighley (Mr. Cryer) that the Government are in some way trying to discriminate against Labour councils. Last year, Watford borough council, which is Socialist-controlled, received a more favourable settlement than any of the other councils in Hertfordshire, more of which are Tory-controlled. As my hon. Friend the Member for Welwyn and Hatfield (Mr. Murphy) knows, most Tory councils in Hertfordshire and hon. Members representing that area campaigned strongly as a result of the especially favourable treatment which Socialist-controlled Watford received from the Government. I hope that the hon. Member for Edmonton will reject the idea that this is some form of party political game. It is important for the country that a consensus should be achieved.
§ Mr. Graham
On the latter point, many Conservative-controlled councils have been aggravated by the way in which the proposals, which they neither wanted nor liked, turned out, and I imagine that some London boroughs are now reflecting on the strictures placed on them by the Government in the light of what has happened with the supplement this year.
The hon. Member for Watford (Mr. Garel-Jones) will understand that in the matter of consensus the major responsibility must lie with the Government to propose what they feel is best and it is the job of the Opposition to react. I shall describe what the Opposition have in mind. I am grateful to the hon. Member for Watford for saying that he appreciates that our proposals must be tentative. That must be so, not least because of the time scale and because we are in Opposition. I imagine that the Government are anxious to minimise any disturbance, which could be catastrophic, in carrying out plans, and to achieve maximum collaboration. If any major change is possible "any change will be major and have significant repercussions: otherwise it is not worth while—the Opposition want to play a constructive part in it.
The incredible mess that the Government got into in attempting to legislate piecemeal on local government expenditure and the purpose of rate expenditure is well known. Against the wishes and experience of all who work in local government, they bludgeoned through the Local Government, Planning and Land Act 1980. The unloved block grant provisions were condemned root and branch and were passed only through a squalid deal with Conservative supporters in another place. There is no argument about that. All three major associations of councils opposed the system, but we now have to live with it.
My right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) and his successor, my right hon. Friend the Member for Manchester, Ardwick (Mr. Kaufman), have given notice that a future Labour Government will repeal the block grant provisions and I 1132 am happy to reaffirm that pledge today. Any system that the Labour Government consider to take its place, if the present system still prevails, will return to local government the power to take local decisions on how to raise the funds required to meet the needs of local communities, keeping central determination for the allocation of taxes in accordance with national imperatives and yardsticks. We would abandon any pretence that central Government know best what local people need. There would be no nauseating hypocrisy and talk of giving councillors freedom and independence and the right to run their own affairs while strangling, starving and bullying them into submission.
§ Sir Ronald Bell
The hon. Gentleman has made a very important statement. Does it mean that there would therefore be no question of attempting to force comprehensive schools upon local authorities which do not want them?
§ Mr. Graham
The hon. and learned Gentleman will know that I am not here as a spokesman on education, but it is well known that Labour Party policy supports comprehensive education.
Nor would we leave out of our considerations the examination of raising revenue from agricultural land. Unlike domestic, industrial and commercial property, agricultural land is exempted under the present system. There is a strong case for including such land as a source of revenue in a thorough-going review of the rating system.
The right hon. Member for Stafford and Stone seeks to widen the net for catching revenue, but agriculture is specifically excluded. In The House Magazine, in which he fairly set out what he hoped that his Bill would accomplish, he referred tothe need to make the impact of local taxation more widely felt and understood. At the moment 7,000,000 ratepayers enjoy some form of relief and as the burden of domestic rates is increased so the number of those responsible for paying full rates and responding politically is likely to diminish".If we are serious about considering alternatives to the present domestic rating system, we should include the possibility—I put it no higher than that—of a change in the present derating of agricultural land as a source of some income to achieve that object.
There is not much to be said to for a local sales tax, which might be extremely regressive. It would be administratively cumbersome for traders to account for the tax collected. Moreover, as a number of hon. Members have said, it could significantly distort shopping patterns. I give one illustration. If local authority A declared a 15 per cent. tax on petrol sales and neighbouring authority B only a 10 per cent. tax, consumers might be encouraged to buy petrol in area B to the detriment of traders in area A.
A sales tax would be more regressive than rates. It would impinge on all the purchasers of goods, regardless of ability to pay, but administration would be more complicated if traders had to inspect pension or social security books before making tax-free sales and pensioners and recipients of benefit might be unwilling to advertise their position in order to obtain tax concessions from shopkeepers. The yield would be uncertain and budgeting would be far more difficult.
The local income tax option is one that the Labour Party would not rule out, in whole or in part. It is often 1133 canvassed as a logical and a more equitable means of raising local revenue. Certainly, it is well worth considering. First, however, we should decide whether we want a local income tax as a means of reducing the rate burden, or as a means of cutting the Exchequer grant. If we had a local income tax option, I see little sense in keeping down the upper limit by statute or ministerial direction. We are told in the Green Paper that the domestic rate, if replaced by local income tax, would call for a 5p additional income tax for local purposes. Incidentally, Layfield suggested a maximum of 8p.
We are serious about local democracy, whereby local people approve what their councils propose. When a local community wants to expand a service, is told what it will cost, and votes for a council pledged to carry out its wishes, surely that local income tax revenue source should not be inhibited.
If the national income tax base is amended to accommodate a local income tax to make the local income tax administratively feasible, we are told that certain simplifications will be needed. However, greater simplicity in income tax often implies less fairness, equity and progression in tax rates. I emphasise, therefore, that a local income tax is a possible runner, and the Labour Party is considering it closely.
§ Mr. Richard Shepherd
Is not the central criticism of a local income tax the same as the one that the hon. Gentleman made about a local sales tax, that it will encourage people who are subject to higher local income taxes to move to other areas, and that that would be at the expense of possibly poorer areas? Because of the distribution of income throughout Britain, there are already biases in certain areas which enable them to have lower taxes to fund their own expenditure. A local income tax would compound the problem.
§ Mr. Graham
At this stage we should look at a combination of the present rating system with a local income tax pitched at a certain level. We should look at the element of national taxation and the amount that will be subvented for local expenditure. The hon. Member is right to the extent that if a person wished to pay as little tax as possible he would have the option of moving to an area with a low local income tax. With it, of course, comes a low level of service, by and large. Therefore, we must consider the quality of the services that are provided by locally raised revenue.
§ Mr. Shepherd
I thank the hon. Gentleman for giving way again. That is part of what I said. I also said that already in the income distribution across the country the higher income groups tend to collect together. So there are already local authorities which, by a lower local income tax, generate much higher revenues than other areas which unfortunately have merely low incomes.
§ Mr. Graham
The hon. Gentleman is right. There is the problem of balance, and there is the problem of each local community having to decide its own priorities against the background of its own resources. The Government have the major responsibility of legislating as to what that community can or cannot do.
I want to say a word about the poll tax, which has received some support and some condemnation. The Green Paper, which has been of great help, shows that it would work out at about £120 per adult. However, we 1134 believe that a poll tax is regressive. A party point was made by the hon. Member for Lichfield and Tamworh, but what the hon. Member for Woolwich, East (Mr. Cartwright) said is perfectly valid. Regardless of who a person votes for, there is a tendency for people not to vote in local elections—or, sadly, in national elections A poll tax of perhaps £120 of £150 levied on the basis of a person's presence in a house on a certain date, or on the electoral register, could be an inhibition. This should not inhibit people from going on the register, since all could be treated alike.
§ Mr. Henderson
Nowadays, practically all electoral registers—certainly those in. Scotland—are produced by computers. There is no need for the traditional concept of the electoral register being made on a specific night in October and coming into force the following February. There is no technical reason why the register could not be up to date at all times. That would be very helpful in other respects as well as in this case.
§ Mr. Graham
The hon. Gentleman has demolished the argument that ipso facto the person who does not wish to pay the poll tax can evade being on the register. However, the more opportunities that there are for evasion under any system, the greater will be the cost to those who do not evade the system. A poll tax is a crude and unattractive alternative to the domestic rates.
The word most frequently used these days in Government circles is not "abolition", but "reform" of the rating system. So be it. The Opposition will look at a reform of the present rating system as a part of a major restructuring of the total taxation system. That will involve more progression in income tax rates, the introduction of a wealth tax, changes in company taxation and a constant and unremitting running battle against tax avoidance and evasion.
§ Mr. Douglas Hogg (Grantham)
It is always a pleasure to listen to and to follow the hon. Member for Edmonton (Mr. Graham). He brings to these debates an openness of mind and a sense of candour and generosity which, regrettably, is not true of all hon. Members. My only regret is that there are not more of his hon. Friends behind him to benefit from his experience and the lessons that he gives.
I join with other hon. Members in congratulating ray right hon. Friend the Member for Stafford and Stone (Sir H. Fraser) on bringing this Bill before the House. He has done the House a great service by giving an important impetus to the debate on rates. He and other hon. Members are right to emphasise the sense of injustice and resentment that people feel about the rating system.
Two criticisms can be made of the rates. First, the obligation to pay is in no way related to the ability to pay. Secondly, there is an unfortunate and unjustified discrimination between the householder and the non-householder. That sense of resentment will not speedily 30 away. We must think urgently about our proposals for reform.
I am sceptical of the idea that one can simply replace the present system of financing local government expenditure. Many hon. Members talk about local income and sales taxes. The hon. Member for Edmonton and my hon. Friend the Member for Ilford, South (Mr. Thorne), 1135 fully dealt with the issue of local sales taxes. A local sales tax is not desirable. It would discriminate among areas and distort the local economy. In particular, it would affect those who have no vote, such as the commercial undertaker.
I am more sympathetic to local income tax. I was impressed by the speech of the hon. Member for Woolwich, East (Mr. Cartwright) who has now temporarily left the Chamber. His case requires careful consideration. Its substance was twofold. First, that the Government's subvention should be reduced to a minimum. Secondly, that a distinction should be drawn between the two major tiers of local authorities, giving the power of rating to the junior tier, district councils, and the power of raising money through a local income tax to the senior level, county councils. That argument must be considered carefully.
Perhaps the hon. Member for Woolwich, East has not taken all the problems into account. My hon. Friend the Member for Lichfield and Tamworth (Mr. Heddle) referred to the cost, and that point needs no further refinement. My hon. Friend also pointed out that there would be an immediate and substantial on-cost to wage earners. That is not in the national interest and would not be readily acceptable. I think that the hon. Member for Woolwich, East acknowledged the justice of my point that most county authorities would find it extremely difficult to raise sufficient funds through a local income tax.
As a result, if that system were adopted we should still need a mechanism for supporting most county council areas. I speak of county council areas, because I happen to represent one, but the same applies to most great metropolitan areas. Therefore, although there is merit in the hon. Gentleman's argument, he did not give sufficient weight to the objections. Although I do not rule the system out, I view it with scepticism.
Having said that, I am under some obligation to suggest an alternative. We could reduce the sense of injustice by a carefully balanced package of reform, which would contain three elements. I would transfer responsibility for one or more major areas of expenditure to the central Exchequer. Education is an obvious candidate. There are three ways of approaching the issue. First, we could make central Government responsible for the education service. I am against that idea, because it would be unacceptable to local authorities. Secondly, we could transfer responsibility for teachers' salaries or education staff salaries—which are slightly different—to central Government. Thirdly, my right hon. and learned Friend the Member for Runcorn (Mr. Carlisle), a former Secretary of State for Education and Science, pointed out that we could make a block grant that is directly related to the needs-related expenditure requirement. He made that suggestion on 16 February 1982 and it should be given serious consideration.
Therefore, first, I would transfer a major area of responsibility that is presently borne by local authorities to central Government. Secondly, the rate burden paid by individuals should be made tax allowable. Indeed, I support the remarks made by my hon. Friend the Member for Lichfield and Tamworth. Rates should be tax allowable and deductible against income tax. However that is not to say that there is no argument about the level. We could argue that there should be a ceiling or that tax should be 1136 deducted only at basic rate. Those who are below the tax threshold but who are not on supplementary benefit would not gain anything from such an approach. Therefore, we might have to build into the system some form of credit payment. These matters are the subject of discussion, debate and negotiation. The principle is that rates should be tax deductible, otherwise there is double taxation, and that is objectionable.
The third element in the package is a capitation or poll tax. I agree with the hon. Members for Edmonton and Woolwich, East that in part it is regressive. However, that objection carries weight only if one endeavours to raise a major sum by a capitation tax. Limiting the amount to, say, £1,000 million would involve a payment of about £25 per head. The same objections do not arise as when raising a larger sum.
I take the broad view that reform is needed. Any such reform should contemplate the retention of rates. We must transfer to the central Exchequer a major area of financial expenditure presently borne by local authorities—for example, education. Rates should be tax deductible, subject to discussions. There should be a capitation tax, set at a fairly low level. That package of measures, in various proportions, would go a long way towards alleviating the sense of injustice felt by our constituents.
I represent Grantham, in Lincolnshire, which is a rural area. My constituents and I are struck by the fact that Front Bench Members and Departments of State do not fully appreciate the difficulties of those who live in rural areas. We are constantly reminded, perhaps rightly, of the great difficulties experienced by people who live in the city centres. I do not denigrate that. There is a problem, but my constituents experience great problems living in country areas. There are many schools to run, and many roads to maintain. Transport is a major problem. One can go on multiplying the difficulties that rural areas face. I believe that in setting the rate support grant insufficient weight is placed on sparsity. I hope that the Under-Secretary of State will take on board the fact that hon. Members who represent rural areas believe that insufficient weight is given to the sparsity factor. He is a reasonable man and anxious to please and has always been most helpful.
I have been criticising my hon. Friend, albeit mildly, but in Lincolnshire we are grateful to my right hon. and hon. Friends who make these decisions for the substantial increase that we received this year in the transportation grant. That has well-nigh doubled, and for that we are grateful.
§ Sir Albert Costain
I represent a seaside resort. We have difficulty in the amount that we have to spend on tourists and day trippers who come from the towns. The ratepayers in my constituency feel aggrieved that they do not get sufficient credit for that.
§ Mr. Hogg
My hon. Friend is right. His constituents are fortunate in having such an assiduous representative who brings these points to the attention of the Ministers responsible. I am sure that his constituents will be grateful.
Another point concerns agricultural land. I am sorry that the hon. Member for Edmonton has temporarily left the Chamber. Nevertheless, no doubt he will take the points on board.
If we were starting from scratch, we would probably not exempt agricultural land from rating. It is difficult in 1137 the abstract to construct a reasonable argument for doing so. But we are not starting from scratch. I bitterly oppose any suggestion that agricultural land should be brought into the rating system.
I have two arguments in support of that general proposition. First, the farming community plans its investment on certain factual assumptions. One factual assumption, justified by experience, is that the income generating asset—land—will not be subject to rating. That has been the experience for many years. To introduce a rating element would distort the assumptions and impose substantial burdens upon an industry which, even after a slight recovery in 1981, has a level of profitability substantially below that of four or five years ago.
§ Mr. Richard Shepherd
Does not the proposition about imposing taxation apply to all other areas and to businesses in particular, and also when there is a variation in rates?
§ Mr. Hogg
That is not as attractive an argument as my hon. Friend the Member for Aldridge-Brownhills (Mr. Shepherd) seems to think. The reason why it is not attractive is that people make their investment decisions on factual assumptions. The factual assumption, justified by history, is that agricultural land will not be subject to rating. That has been so for decades. To introduce it now, and certainly to introduce it suddenly, would have a crippling effect on the industry.
My hon. Friend the Member for Aldridge-Brownhills represents an urban constituency. Understandably, his interests are directed towards the advancement of his constituents. That brings me to my second argument. If we bring agricultural land into rating, costs inevitably will be substantially increased. Farmers will not be able to absorb those costs. My hon. Friend has probably not read the 1982 agriculture review. I do not blame him. Why should he? Farmers are over-borrowed. The cost of servicing is high and the level of profitability is not as good as it was in 1976.
§ Mr. Hogg
That may be so, but I am dealing with farming. My hon. Friend would do well to consider that, if we seek to impose upon agriculture an additional burden, output costs will be increased. The farmer will recover that cost from the consumers, some of whom are my hon. Friend's constituents. His constituents would not like that much. My hon. Friend should pause for reflection before making that proposal.
I conclude as I began by thanking my right hon. Friend the Member for Stafford and Stone for giving us the opportunity to discuss an urgent and important matter.
§ Mr. John Stokes (Halesowen and Stourbridge)
This has been a good debate. My right hon. and hon. Friends must regret that for most of the four hours only one Member for the Labour Party has been present—although for a short time there were two—and there has been hardly any representation from the Liberal or Social Democratic Parties. On a subject as important as rates, that is deplorable.
I support the Bill. It has been supported by many right hon. and hon. Members from the West Midlands and elsewhere in England. I am particularly glad to support my 1138 right hon. Friend the Member for Stafford and Stone (Sir H. Fraser), because he and I were in politics together at Oxford in the middle 1930s, 45 years ago. I can sty truthfully that today we both hold the views that we held then. I know that my right hon. Friend will not mind if I say that he was then, in part, an eccentric and is now, in part, an eccentric, although, of course, an attractive one. The House could do with many more like him, although I cannot agree with everything that he said in his interesting speech.
The Bill is short and to the point. It would compel the Government to devise a proper balance in the financial arrangements between central and local government and would bring greater fairness to domestic ratepayers and to commercial and industrial ratepayers. By forcing the Government to spread the rate burden more fairly, it would bring home to all electors in local government a sense of financial responsibility, which, sad to say, is often lacking.
Looking back, most people would agree that the Government, in the early 1970s, made a catastrophic mistake by reorganising local government as they did. Not only were old place names destroyed for ever, but people lost their familiar landmarks which were so loved in England, and the new authorities, so often remote from those whom they were supposed to serve, allowed a vast new bureaucracy to be created which has been more difficult to control than even the Civil Service. The creation of new water authorities—which has not been mentioned today—caused similar, if not greater, problems.
Rates are so high largely because of the swollen staffs employed by many local authorities and because salaries are too high following the Clegg report, which based its recommendations on erroneous comparisons between public and private enterprise. Now that the Government are rightly demanding economies in local government, councils are tending to reduce services instead of cutting out unnecessary staff. For instance, I am told that many architects' departments in local councils are still at full strength even though there has been such a diminution in the rate of council house building. If ratepayers had the real democratic control that they should have, such excesses would not be allowed.
The present system of rating is so manifestly unjust that it must be altered. Whereas many old people on low or fixed incomes are householders and ratepayers, many younger wage and salary earners who, as we all know are comparatively well off, but do not own property, get off scot free. I was interested to hear the origin of the phrase "scot free" from my right hon. Friend the Member for Stafford and Stone. I shall always remember it.
The present state of affairs should not be allowed to continue. It means that councils can be extravagant and increase rates because they know that many voters are not ratepayers.
§ Mr. Graham
Surely the argument ought to include the fact that, although many people do not pay rates, they may pay taxes and a considerable proportion of that tax paid to the Government is sent back to local authorities to support local services.
§ Mr. Stokes
As always, the hon. Member has been fair. However, he has not covered the whole argument, but only part of it.
1139 There is another gross unfairness in the present system. Commercial and industrial property is rated without having any representation. In the West Midlands this has had a particularly baleful effect on many companies that are struggling to survive in the world recession. One of the most respected companies in the area, GKN, which has large businesses all over the West Midlands, has made its protests loud and clear, but I doubt whether the Labour-controlled West Midlands county council has the sympathy and understanding of industry that a council in that part of the world ought to have.
Most people also agree that there should be a review of which charges should properly fall on local ratepayers and which should be taken over by taxpayers. An obvious area for consideration is education, which takes such a high proportion of local authority budgets. There is much to be said for all education expenditure, or at least teachers' salaries, falling on the national Exchequer.
When the Government consider a new system of rating—I hope that they will do so in this Parliament—it will be necessary to look at the structure of local government. I believe that the GLC could be abolished, along with the metropolitan and county councils. In the words of W. S. Gilbert, they "never would be missed" and great savings could be made.
When private manufacturing industry is cutting the number of its employees to the bone, it is outrageous that there have been such small economies in local government staffs. A rating system that was more accountable to every adult living in a locality would make councils much more accountable to ratepayers.
I should like the present system of rates to be superseded by a poll tax paid by every adult. There would have to be an arrangement to ensure that it did not bear too heavily on the less well off, but I believe that it would prove to be the most practical solution.
I am glad that my hon. Friend the Member for Harrow, Central (Mr. Grant) mentioned the important role that the private sector could play in doing some of the work that councils carry out by direct labour. That would lead to not only greater efficiency, but a considerable reduction in costs. One has only to see employees of local firms clearing or sweeping the roads, or digging up paths, to appreciate the enthusiasm with which they do their work. In addition, their productivity is much higher than that of council employees.
Much as I admire my right hon. Friend the Member for Stafford and Stone, I do not agree with his somewhat revolutionary remarks about the feudal structure of this country, but the Bill has produced a good debate and if it forces the Government to think radically and rapidly it will have served a useful purpose.
§ Mr. Richard Shepherd (Aldridge-Brownhills)
I join other hon. Members in paying tribute to my right hon. Friend the Member for Stafford and Stone (Sir H. Fraser) for giving us the opportunity to debate a central issue, which, as my hon. Friend the Under-Secretary of State for the Environment knows, has concerned a number of hon. Members for a long time. I remember my hon. Friend replying to an Adjournment debate last June on the domestic rating system.
1140 I am pleased to follow my hon. Friend the Member for Halesowen and Stourbridge (Mr. Stokes), who has diligently represented the interests of businesses and ratepayers in the West Midlands for many years and in difficult times. My hon. Friend the Member for Grantham (Mr. Hogg), who is temporarily absent from the Chamber, with his usual forensic expertise, cut a swathe through many of our prejudices and misconceptions about the rating system and the pressures on it.
I take issue with one point, albeit in my hon. Friend's absence. One of his assumptions grieves me and must grieve other hon. Members representing industrial and urban constituencies. In representing an agricultural constituency, he assumes that increases in agricultural costs can be passed on to the consumer. Manufacturing industries would be flourishing if that were so. Having to respond to the nature of market discipline controls and restrains prices. One of our great problems is that the agriculture industry assumes that it can pass on costs per se. The assumption is reinforced by the CAP. My hon. Friend's proposition conspires against the consumer.
I wholeheartedly support the splendid motion to abolish the rating system. The central consideration is whether we are satisfied with the present constitutional arrangements between central Government and local government. If we are satisfied, we should merely consider means to trim or to redistribute the way in which a local authority, accountable to a local electorate, raises its funds.
In time and with diffidence I have come to the clear belief that the only way to achieve financial sanity is to return to the Government the responsibility for funding local government. I do not necessarily mean to take away from the local authority the administration of its services, but merely to ensure that they are wholly funded from the Government. The centre is best placed equitably to raise funds. As I have always argued, the means should be through PAYE.
I advance that cause in the full understanding that it shifts the responsibility from local authorities to raise funds to meet their perceived needs. My conclusion is reinforced by an article in my local paper, the Express and Star, yesterday, which gives notice of a rate rise of 22 per cent. It states:Rates in Walsall must go up by 22 per cent. to protect hundreds of council jobs and maintain essential services, so the town's Labour policy chiefs have decided.The rise is a staggering increase of 26p in the pound on rates bills.It means that the average ratepayer, living in a three bedroomed house, will be paying more than £450 a year—an increase of £82 in the past 12 months.Such sums are not inconsiderable. They should not be regarded separately from central taxation.
§ Mr. Henderson
I believe that my hon. Friend's local authority is Labour controlled. Mine is Conservative
controlled. The day before yesterday it spent time arguing whether the rate increase should be 1p or 1½p. Does that not show that the problem is as much the responsibility of local authorities as of the Government? If all funding came from the Government, would not the local elector lose his ability to make a judgment on the local authority?
§ Mr. Shepherd
My hon. Friend's point has value. I am concerned about the capriciousness with which rates are levied and the variation in rates, even in similar localities. I am impressed by the diligence of my hon. Friend's local authority in restraining rate increases, but in the past year 1141 in the borough of Kensington and Chelsea rates were increased by about 50 per cent. because the Government altered the basis on which they calculated the sum to which the borough was entitled.
§ Mr. Heddle
I am concerned about the direction in which my hon. Friend's thoughts are moving. I believe that they will lead to centralism, in which case local councillors in the Walsall metropolitan borough would become mere pawns and puppets of the Government.
My hon. Friend has just referred to the swingeing rate increase of 22 per cent. in Walsall, which will have an enormous effect on jobs in his constituency. Would he consider the record of the Walsall metropolitan borough council in collecting rent revenue? Would he agree that the £3 million which the Walsall metropolitan borough council is owed by its tenants, and which it will conveniently write off, illustrates that if the local authority was responsible for raising its own money it would be even more responsible for ensuring that it recovered the amount that it was rightly due to receive by way of rents?
§ Mr. Shepherd
I am grateful to my hon. Friend for his intervention. He is familiar with the circumstances of my own authority, as his constituency adjoins it. I agree that we have to concentrate on the relationship between the centre and local government. The only way, perhaps, in which to enforce accountability and responsibility on an authority is to make it responsible for raising the greater proportion of its funds, if not all of them. But I am nervous of going along that path, for the truth of life is that to change an authority, or to change the ratepayers' perception of the duties and responsibilities of an authority, takes time.
Over recent years, partly by legislation in this Chamber and partly by our own response to our constituents, we have encouraged the belief that, generally speaking, the services and duties of local authorities and of authorities in general should be ever increasing. My fear or anxiety is that a local authority, when addressing itself to its responsibilities—which have accrued enormously over the past 20 years or so—goes through a tremendous shock period while it retreats back to a perception of what a community can afford.
My central theme over the recent months in which we have talked about the question is that one cannot look separately at local authority rates and Government finances. They are one central tax burden. The problem is that in this Chamber we have encouraged the belief that in some curious way they are separate. When I urge on the Government that they should increase a service or impose a duty, that is often done without a full appreciation of what it means to a local authority in revenue terms. That is the great difficulty that has grown up over the past 20 years.
In order to get a perception of the burdens that we are placing on local authorities, we have to look at the problem from the centre. That is why I wholeheartedly support the intention behind the Bill, although not all the statements of my right hon. Friend the Member for Stafford and Stone.
I have grown up in a community which looks back to the historical origins of local government as some sort of Renaissance borough which provided a poor law for its citizens, and gave a local dignity, pride and identity to the community—the beginnings of nationhood. That is 1142 perhaps part of the romantic history of local government. It has become a much drearier thing in recent years, because it has become all-pervading and increasingly the instrument of the Government in providing national services locally. While recognising that, how do I also pay deference to and recognise some of the worthwhile qualities of local government and the ability of a local community to distinguish what is its own particular pride?
In addition to Government funding I would give a local authority the right to raise a poll tax of some sort, to be fixed perhaps annually in the Budget, so that the authority could raise in that way a tax of no more than £10 per elector.
§ Mr. W. R. Rees-Davies (Thanet, West)
I hope that my hon. Friend will not go too far in that direction. I am sure that he recognises that one would need the two taxes, a poll tax and also!a supplementary tax—or perhaps the transfer of teachers' salaries to the central Budget. Whatever system is used, the two taxes are needed. If people paid as much as they pay for their television licence in a year—£48—that would raise about £2 billion, or the whole of the district council taxes, and still leave something towards the county precept. The hon. Gentleman must agree that £10 would be too low.
§ Mr. Shepherd
My hon. and learned Friend may not have understood, or perhaps I did not state it clearly enough, the purpose behind my abolition of the rate s, which is to transfer to the Government the whole cost of local government. However, in order to recognise a local authority's ability to expand upon its sense of identity and spend money on the matters that are of importance to the local community, I would give it a limited ability to raise money along the lines that I have set out.
In my local authority, which covers three constituencies and has an electoral population of about 200,000, if the local councils were to determine to raise £10 per elector, that would be £2 million. That is still a considerable amount of money to spend on, for example, local swimming baths or on a project close to the local community. That is the element that I would give to the local authority.
The burden of my argument today is to support that of my right hon. Friend the Member for Stafford and Stone by saying that I believe, although recognising the great constitutional implications, that it would be better, in the interests of the community, to accept that times have changed since we placed those burdens and duties on local authorities and that we should take away the rights of local authorities to levy domestic rates.
§ 2.1 pm
§ The Under-Secretary of State for the Environment (Mr. Giles Shaw)
There can be no doubt that the debate about the Bill of my right hon. Friend the Member for Stafford and Stone (Sir H. Fraser) has produced another excellent Friday morning. Those of us—the hon. Member for Edmonton (Mr. Graham) is one—who appear to have been on the formula for Friday mornings for some weeks now, welcome the high standard of the debate today. Therefore, I add my congratulations to my right ho a. Friend not only on his good fortune in winning a significant place in the ballot, but on his radical zeal in bringing before the House a measure of such importance.
It is interesting that there has been a wide range of contributions. For the benefit of those who have not been 1143 keeping a score, the poll tax, as one of the alternative measures offered by the Green Paper, has attracted the greatest numerical support among hon. Members in the Chamber today. Some five or six hon. Members have, in one form or another, found a use for the poll tax, some in whole and some in part—a very marginal part according to my hon. Friend the Member for Aldridge-Brownhills (Mr. Shepherd). Local income tax has attracted two supporters. It may be significant that both came from the other side of the House. The hon. Member for Edmonton gave it a fair wind and the SDP spokesman, the hon. Member for Woolwich, East (Mr. Cartwright), also felt that that was a direction in which his party might wish to go.
My right hon. Friend the Member for Stafford and Stone believed that a poll tax of £50 might have a part to play. However, he was looking for a system that would broaden the base of the existing revenue-raising power. That was a matter reflected by several hon. Members. Both my right hon. Friend and my hon. Friend the Member for Lichfield and Tamworth (Mr. Heddle) discussed agricultural rating. The position under the Rating Act 1971 has added to the exemptions of agricultural buildings that are free from rates any building used for the keeping or breeding of livestock. That also includes birds kept for the production of food. There is a reasonably wide exemption from agricultural rating.
The general breadth of my right hon. Friend's remarks shows that we should be considering pretty hard the way in which local authorities have operated their finances. He particularly referred to the ravages of capital expenditure cuts which have been such a feature over the past 10 years or so of local authority spending, when the revenue accounts were increasingly higher on extremely large work forces and bureaucracies maintained at ratepayers' expense. My right hon. Friend the Secretary of State has been keenly conscious of the need to reverse that process and that is why we made so much progress on those aspects.
The hon. Member for Croydon, North-West (Mr. Pitt), who is not in his seat, raised the matter of site valuation rating. In his absence, I remind the House that the Layfield report was damning on that aspect; it concluded that the proposal would not provide a suitable or firm enough base for raising local revenue, that the practical difficulties were formidable, that a decade was needed to put it into use and that there would be a long period of transition thereafter. So much for the Liberal Party's efforts to introduce site valuation rating.
§ Sir Ronald Bell
I remind my hon. Friend that the SDP-Liberal alliance partner of the hon. Member for Croydon, North-West was too polite to describe that matter as nonsense, but made it fairly clear that he thought that it was.
§ Mr. Shaw
I doubt whether that will be the last element of disagreement between those two uneasy partners.
My hon. Friend the Member for Fife, East (Mr. Henderson) raised a most interesting point when suggesting that poll tax would have a useful balancing role to play, particularly for those authorities which exceeded their expenditure guidelines or my right hon. Friend's attempts, in Government terms, to restrain local authority spending. His suggestion would have a fairly dramatic 1144 effect on a local citizen registered for payment of the poll tax.
The hon. Member for Woolwich, East clearly believed that a reduced central Government grant was necessary as he would prefer more local authority direct financing and more emphasis to be placed on income tax. He stated that some 5.5 million people currently pay income tax but do not pay rates. That was a fair observation.
My hon. Friend the Member for Harrow, Central (Mr. Grant) also felt that poll tax might have a role to play. He said that income tax would be far too costly to administer at local level and, of course, added his considerable voice to the many others calling for the abolition of the Greater London Council.
My hon. Friend the Member for Welwyn and Hatfield (Mr. Murphy) rightly emphasised the importance of reducing costs. This argument has been bedevilled by the fact that the rating system has recently been used as a most repressive system to raise infinitely more money, over shorter periods and from a decreasing number of ratepayers, than local authorities have been wont to do for generations previously. Therefore, he is right to say that emphasis should be laid on attempts to reduce costs.
My hon. Friend the Member for Lichfield and Tamworth asked for the business vote to be re-introduced. If he examines the Green Paper, he will note on page 52 that when the vote existed before 1969, of the 2 million business ratepayers in England and Wales, only 150,000 were entitled to vote. There are vast discrepancies in his understanding interest in ensuring that that proportion of the contributors to the rate fund have a say in the electoral mechanism. It is not merely a matter of reintroducing the system that existed in the earlier part of this century.
§ Mr. Rees-Davies
Before my hon. Friend leaves the poll tax, as a question of fact, are the figures right which were put in another place, that the average sum needed for districts, if they raised their funds by way of a poll tax, would be approximately £25 per year per person on the electoral roll and that that would broadly cover the district? Of course, it would need to be supplemented by another form of taxation. However, can my hon. Friend say what sort of figure his Department would have in mind for the payment of the poll tax by an individual on an electoral basis, assuming that every person on the electoral roll—which must include their Lordships—would be levied?
§ Mr. Shaw
My hon. and learned Friend is correct in quoting the Layfield conclusion. The conclusion in paragraph 7.14 in the Green Paper states:A flat-rate poll tax at an average rate of, say, £–25 £30 a head a year, for example, could raise £1,000–£1,200 million. The cost of enforcement could not be expected to be proportionately reduced, however, although a scheme of poll tax at low rates would be somewhat cheaper to enforce".The main argument about a poll tax concerns the exemptions that would have to be made in levying the tax. There has always been an understanding that many persons who would be registered for it would come into the disadvantaged category and should not be charged at the full rate. The extent of the exemptions would clearly have an effect on how far local authorities could raise their total revenue from that source.
The hon. Member for Edmonton gave us—I think for the first time—some official observations from the 1145 Opposition Front Bench on this issue. It was interesting that he was somewhat in favour of widening the tax base to include agricultural land. He did not feel that a sales tax would be a suitable vehicle and he did not rule out the prospect of a local income tax. He was disinclined to consider that a poll tax would be suitable as he found it too regressive.
The hon. Gentleman's main concern was to ensure that local taxation is set within a total national tax review and is part of a package of tax reform. I understand that that is what the Labour Party might wish to see done. We take a different view because we believe that the impost of the rating system is such that it requires urgent examination and reform.
My hon. Friend the Member for Grantham (Mr. Hogg) argued strongly that we should transfer education to the Exchequer. That argument was echoed by other of my hon. Friends. That would be one way of reducing substantially the burden of the rating system. My hon. Friend, too, felt that a poll tax would have a part to play.
My hon. Friend the Member for Halesowen and Stourbridge (Mr. Stokes) was rightly critical of local bureaucracy and the unfairnesses which the rating system produces. He felt that a poll tax on adults would be acceptable.
My hon. Friend the Member for Aldridge-Brownhills concluded his remarks by saying that, although there is a strong case for a poll tax at a marginal rate, he is more concerned about a total transfer of the local tax system to the central Exchequer. I think that my hon. Friend is the only hon. Member strongly to advocate a total removal of local government finance to the centre.
§ Sir Albert Costain
How does my hon. Friend answer the argument that if people are taxed when registering for voting it will not seem as if they are buying votes?
§ Mr. Shaw
This is a matter for consideration. In replying to the debate I am not involved in taking up the pros and cons of each of the options that are set out in the Green Paper. I am anxious to ensure that all the comments made by hon. Members are taken into consideration—I can assure them that they will be—in the Government's review prior to determining how they should proceed from the Green Paper.
My hon. Friend the Member for Folkestone and Hythe (Sir A. Costain) is right to draw attention to the substantial problems that are linked with registration for poll tax purposes. That is one of the reasons why the hon. Member for Edmonton and his party are not greatly attracted to it.
I wanted to take up the comments made by those who have participated in the debate to emphasise that there is a wide range of view and a genuine anxiety to make progress. There is a genuine need to respond to the Government's consultation paper. Therefore, we are extremely grateful to my right hon. Friend the Member for Stafford and Stone that he has introduced the Bill at this time to allow this wide-ranging debate to take place.
It comes as no surprise to hon. Members that the debate about rates has gone on for many years. Domestic rates have been on the statute book for almost four centuries. They have had an extremely long life as a means of levying a contribution from local householders towards the cost of local services. Their longevity must imply that for most of those centuries domestic rates have done their job in an acceptable and effective way. I noted how many 1146 comments were made that showed that the system might have a permanent role to play if sufficient modifications were made. There was not a complete rejection of the idea that the domestic rate was a tax that could be made more equitable, given some careful reappraisal.
In recent years, as hon. Members are aware, the system has not enjoyed as much acceptance as for past hundreds of years. The system has been giving problems. Those problems have been so serious that the Government rare fully convinced of the need for radical reform, including, if necessary, the abolition of domestic rating, as proposed by my right hon. Friend in his Bill. That conviction is reaffirmed in the Green Paper.
It would be no exaggeration to say that the debate on the reform of the rating system is almost as old as the system. However, it was the problems of the massive rate increases in recent years that followed the reorganisation of local government in the mid-1970s that threw the shortcomings and inequities of the present domestic rating system into sharp relief. Some of those increases in the mid-1970s were enormous and far outpaced the rate of inflation.
But it was not only the size of the increases that sapped public confidence. It was also the fact that the burden of providing the finance for local services often appeared to be shared on an arbitrary and unreasonable basis between householders and non-householders and between different classes of ratepayer. The heavy rate increases imposed by some authorities over the past two years have again brought those doubts to the fore and further weakened the credibility of the system of domestic rating in its present form.
The result of that upheaval in the mid-1970s and the alarm that it gave rise to on the part of the ratepayers was the appointment by the Government of the committee of inquiry into local Government finance, known as the Layfield committee. It published its report in 1976. [am glad that this point was brought out clearly by my hon. Friend the Minister for Lichfield and Tamworth. The report's main recommendation was the introduction of a system of local income tax to supplement, not to replace, the existing rating system. The committee was drawn to that solution mainly on the grounds that it would reinforce local accountability.
The Labour Government published a Green Paper in May 1977 rejecting the arguments for a supplementary local income tax. No doubt the hon. Member for Edmonton will be able to review his party's stance on that. Apart from deciding to move to capital valuation rather than a rental basis for rating domestic property, the Labour Government offered no radical proposals for reform of local revenues.
The Conservative Party in its manifesto of 1979 said clearly that, while reducing taxation must take precedence for the time being, the abolition of the domestic rating system still remained an objective. The recent Green Paper is an important step forward in the process of discharging our long-held commitment to the reform of domestic rates.
The reaction of some people to the Green Paper has been that it is no more than a sort of "Son of Layfield", going over the old territory. For the most part, such comments have been intended to be slighting, though in fact comparison with Layfield can perhaps be regarded as a modest compliment. It is certainly true that the broad issues of local government finance, including the question of whether new local revenues are needed, have been 1147 examined repeatedly and more or less thoroughly over the years. Layfield laid down much useful groundwork on the issues discussed in the Green Paper, and the report is a major work that is bound to be a fixed point of reference for any further examination of matters of local government finance.
I must make it clear that the Green Paper does not claim to be the final word on the subject. It offers a range of options. It does not lay claim to the Layfield report's breadth or depth in considering local government finance. The Layfield committee's terms of reference were:To review the whole system of local government finance in England, Scotland and Wales, and to make recommendations.
§ Mr. Shaw
The House will indeed be told that before I sit down.
The terms of reference of the review which produced the Green Paper are narrower and more specific. They are, in effect, to consider alternative ways of raising the £4.8 billion raised at present through domestic rates. That much narrower intention is backed up by a clear commitment to reform on the part of the Government.
Perhaps I could turn now to the major criticisms levelled against the way in which the present domestic rating system works. Most of the criticisms that we hear from ratepayers concern fairness in some way or other, as today's debate has reflected. In the words of the Green Paper:The burden of domestic rates is shared unfairly between different kinds of household.For example, a single person, perhaps a widow living on her own in what was her family home, on a modest fixed income' finds that she must pay the same through the rates towards the cost of local services as the family in a similar house next door which may consist of husband, wife and children, one or more of whom may be earning.
There are three separate but related elements in the problem. The first is that a household with only one person in it is likely to draw much less on local services than a household with several members, although their rate bills are the same for similar accommodation. Simply, in terms of the value that each household gets for its money, it can clearly be argued that this is unfair.
Secondly, the size of the two households' rate bills is not directly related over the whole range of incomes to ability to pay. Some people argue that this problem has become something of a myth nowadays, and that the solitary widow and the larger household struggling to make ends meet on a modest income are protected from hardship by the rate rebate scheme. It is certainly true that rebates help, and that they have the effect of relating rate bills to income for the worse off. But any Member of Parliament or councillor knows from his postbag that the anomaly has certainly not been eliminated by the rate rebate scheme.
Thirdly, only heads of households are directly liable to contribute through the rates to the cost of local services. This means, for example, that no grown-up child living in a household headed by one of its parents has any personal liability to local taxation.
There are other problems, too. Some people criticise the extent to which rate bills vary in different parts of the 1148 country, notwithstanding the principle of equalisation on the basis of rate poundage on which the present rate support grant system operates—a system, incidentally, that is infinitely to be preferred to the previous system which was based purely on the local authority's history of expenditure. Others feel that the hypothetical rental basis of rateable values sometimes produces unfairly high assessments for flats compared with those for houses.
At this stage in our consultations I do not intend to say a great deal about the options in the Green Paper. The House has contributed a great deal of useful thought on these matters today. I shall say a word, however, about the presence of a reformed system of domestic rating, which my right hon. Friend's Bill would appear to sweep away altogether, as one of the options in the paper.
First, one cannot consider what to put in the place of the present system without at the same time considering the present system itself.
§ Sir Hugh Fraser
The Bill would sweep away the present method of assessment of rates, not rates themselves.
§ Mr. Shaw
I am grateful to my right hon. Friend for the correction. The Bill, of course, seeks toAbolish the power of local authorities and water authorities to levy rates on the present system of assessment.However, I put it to my right hon. Friend that, although it is on the technicality of assessment, I am sure that it would remove entirely the authorities' method of raising revenue by that means.
The shortcomings of the present system tell us about the pitfalls that alternatives would have to avoid. Experience of the present system is the source from which we have to derive the criteria that we have to apply when we try to assess the strengths and weaknesses that this or that new local tax will produce. I am sure that every hon. or right hon. Member who has spoken today will have observed this for himself. So the chapter on domestic rates in the Green Paper is there very largely as an essential part of the process of defining the terms in which discussion of the alternatives must take place.
Nevertheless, reformed domestic rates also appear in the Green Paper as a genuine option in their own right. A number of hon. Members reflected that view here today. I accept that, for some people, this is an unwelcome inclusion. Perhaps my right hon. Friend is one of those people. I say to them and to my right hon. Friend that domestic rates are a tax which has been shown by long experience and in varying circumstances to be practicable, has virtues from the point of view of enforcement, accountability and financial control, and which we could not reasonably have ruled out of consideration altogether in the light of the arguments advanced for it by many, and particularly by the local authorities. I can assure the House, however, that the Government's opinions on the matter are genuinely open. In particular, I assure my right hon. and hon. Friends that there is no truth whatever in suggestions that have appeared recently in the press that the Government have decided, before the consultation period on the Green Paper has even come to a close, that there will be no radical reform. I should like to make it clear that the Government have not reached any conclusions and will not do so until after 31 March this year, which is the closing date for comments on the Green Paper.
1149 So I say to my right hon. Friend the Member for Stafford and Stone that, in introducing his Bill and pressing the Government to fulfil their commitment to reform, he is pushing at an open door. I hope that it emerges from everything that I have said that he and the Government are absolutely at one on the need for a better way than the present system of domestic rates of raising money from local people towards the costs of their local services.
However, for the moment—this is an important issue—there appears to be, for the moment, no consensus, be it in local government, among academics, among the professions or among ratepayers themselves, about the direction that reform should take, although I agree with my right hon. and hon. Friends who have said today that there is a clear consensus that reform is desirable. That is clear to us all. Where we move from there is infinitely more debatable. For that reason, as I am sure my right hon. Friend in his generous heart of hearts knows, I have to say to him that his Bill is not acceptable to the Government. He would not want me—and it would be discourteous—to go into the complications of its drafting, and say that it is deficient in this or that technical respect, or that its effect would differ from its intention in this or that way, such as the possible confusion between the method of assessment and the system itself. The first problem is that his Bill would abolish the rating system from 1 April 1983, without putting anything in its place. His radical zeal, which we have always admired, had its place in making that decision when he drafted his Bill.
My right hon. Friend can, of course, quite reasonably say that the legislation that would be required to set up a new system of revenues is a job that is beyond the resources of a Back Bencher, and that the Government should take it on. But, as I have explained, we are not in a position to do so at present, because we do not yet have the information that we need to decide on what the new system of revenues should be. The Government's aim is clear enough: it is to make progress as rapidly as possible towards a new or reformed system of domestic rates which will be seen to be fair and which will be more widely acceptable, both among those who currently contribute towards the revenues concerned and among those whose job it will be to operate the system and put the revenues to good use. It is that kind of consensus that we hope it will be possible to achieve out of the results of consultation on the Green Paper, for which we have set a closing date of 31 March 1982. It would not be responsible, in the meantime, if this House were to accept in principle that a major source of the revenue of local government should be abolished from next year without provision for an alternative source of income.
This brings me to the second major problem, which is one of timing. As the Green Paper makes clear, it is simply not possible for any fundamental change in the local taxation system to be put into operation overnight. For one thing, radical change would have to be preceded and accompanied by close and detailed consultations of the interests concerned to make sure that we ended up with a sound and workable scheme. This in itself would rule out the date of 1 April 1983. The need for integration with computing developments currently taking place on arrangements for value-added tax and pay-as-you-earn would delay the introduction of a local sales tax or income tax——
§ It being half-past Two o'clock, the debate stood adjourned.