HC Deb 25 April 1989 vol 151 cc925-32

Motion made, and Question proposed, That this House do now adjourn.—[Mr. John M. Taylor.]

11.58 pm
Mr. Brian Wilson (Cunninghame, North)

The poll tax legislation has given rise to much injustice, many anomalies and some cruelties. I do not suggest that the aspect upon which I am concentrating tonight is by any means the most damaging consequence of the introduction of the poll tax. My deepest concern is, and will remain, for those low income families for whom a second home of any kind is but a distant dream and who have enough trouble keeping one roof over their heads in part because of the poll tax.

I raise the question of the standard community charge and its specific impact on the Isle of Cumbrae because that is a constituency issue of considerable importance. A serious injustice is involved, and there are wider implications. There is an easy remedy which the Govermment should be able to accommodate without loss of ideological face. I hope that by raising this debate on the Adjournment tonight I shall finally encourage them to contemplate that remedy.

The Abolition of Domestic Rates Etc. (Scotland) Act 1989 does not allow local authorities to vary the standard community charge on second homes within their own boundaries. The legislation allows each authority to set a multiplier of between one and two on the personal community charge in order to arrive at the standard community charge. In the case of Cunninghame district and Strathclyde taken in conjunction, the personal community charge is £278. Therefore, a multiplier of two means a standard community charge of £556 per property.

If I may pre-empt what I confidently expect to be the Minister's reply, I suspect that he will inform the House that it would have been open to Strathclyde and Cunninghame to set their standard community charges at a multiplier of one, thereby halving the burden on the owners of second homes. However, if he does so, the Minister will know that he is being disingenuous. More important, everyone with a specific interest in the Isle of Cumbrae who learns of this debate will know, for at least two very good reasons, that he is being disingenuous.

One of those who will know that the Minister is being disingenuous is the former Member of Parliament for Cunninghame, North, who raised this matter in similar terms in Committee when the Bill to abolish domestic rates was being debated in the previous Session.

In the first instance, in making its own calculation of what the poll tax would be in each local government area, the Scottish Office worked on the assumption that a multiplier of two would be set. If Strathclyde had forgone revenue by setting it at less, I have no doubt that, under certain circumstances, the Minister would have attacked the authority for its fecklessness. There is no question but that local authorities were expected to set the multiplier at two, and that it would have been quite unreasonable to expect them to do otherwise.

There is a second reason why the Minister cannot with any degree of credibility say that the multiplier should have been set at the minimum level of one. Local authorities were confronted with an unreasonable dilemma. If they spared Cumbrae and ignored the Scottish Office's assumptions by going for a multiplier of one, they would have given even more substantial savings to the owners of large and very large second homes, which exist, often too plentifully, in areas where circumstances are entirely different from those in Cumbrae.

The irony is that, while the owner of a tiny second home in Millport who was paying £100 in rates before the new system took effect is now asked to pay an additional £446, the owner of a large second home in one of the more scenic parts of Strathclyde, who was paying £1,000 in rates on that second home, is now offered a saving of £554, give or take a few pounds to take account of district variations. If the local authorities had opted for a multiplier of one, the owner of the tiny second home would still be £178 worse off, but the owner of the large second home would be £722 better off. Even greater inequity, as well as loss of revenue to the local authority, would therefore arise if the multiplier were set at one.

It almost goes without saying that the owners of large second homes, who are to make substantial savings under the standard community charge, are also the people who are likely to make substantial savings under the personal community charge. They are doubly and quadruply rewarded, while the very different kind of people who, by and large, own tiny flats in Millport will, in many cases, be doubly penalised, on their first home and in their second tiny home, until they quite simply cannot maintain their link with Millport and the Isle of Cumbrae. The same problem arises in some other parts of Scotland, where the ownership of a second home is far from synonymous with personal wealth, but arises from an extremely wide range of circumstances.

I am very grateful to Mr. Sandy Morton of Millport, who has kept me plied with statistics, a few of which I offer to the House. Of the 1,300 properties on Cumbrae, fully half are second homes. That is the nature of the place, and the economic basis on which it survives. By and large, they are used regularly at weekends throughout the year, and not just for a few weeks in summer; by and large, they are extremely modest properties which would not be suitable for use as first homes. That is the key fact that distinguishes my argument from a general defence of holiday homes, in which I would not engage.

The modesty of those second-home properties, usually tiny and often with shared facilities, has been reflected in the rate bills. Until April they generally ran at a little more or a little less than £100, and were sometimes as low as £50. Last year the total amount of domestic rates collected on Cumbrae, covering both the resident population and those in second homes, was £146,554. This year the proposed take in poll tax and standard community charge is £390,312—an astonishing increase of £243,658, which cannot be sustained either by the island's economy or by many of the ordinary folk who will be asked to contribute.

The effect can already be seen. At least 60 small flats have been put up for sale, while many others are being emptied of their effects in an attempt to circumvent the standard community charge for at least a limited period. Incidentally, I would be interested to hear the Minister's comments on the length of standard community charge "holiday" that local authorities are expected to grant before the charge takes effect.

As might be expected, there is widespread concern on Cumbrae about the implications for the island's future. Is that future to involve an increasing number of empty, derelict properties? Certainly no one will buy a one-room flat with outside lavatory for the privilege of paying £556, and more in subsequent years, in standard community charge. My concern, however, is not only for the economy of Cumbrae; it is also for the people involved. I have received many sad letters, some from elderly folk for whom a little seaside flat is the one luxury in life which is now being put beyond their financial reach. Often it has been in the family for many years.

At the same time—here is the paradox—owners of large holiday homes are laughing all the way to the bank. I ask the Minister to recognise the inequity of the position, and to act. The remedy is simply to allow local authorities to vary the level of standard community charge within their own areas to take account of the level of amenity enjoyed. That involves some degree of recognition that the standard community charge is de facto a property tax. It bears no relation to the number of people using the property, the length of time for which they use it or the demands made on local government services. That admission should not be too much for the Minister to swallow.

I know that Strathclyde regional council has asked the Secretary of State to introduce emergency legislation to allow authorities discretion to vary the second home multiplier to reflect the size of the properties involved, and I fully endorse that request. This is not a matter of ideology, but one of common sense.

Throughout Scotland, many people will be waiting for a response to the debate. They will include the gentleman who telephoned me today to wish me well with it. Like many people who have a family connection with the highlands, he rescued the four walls of an old croft house from total dereliction. It is in a remote part of Sutherland with absolutely no services, and he paid rates of £43. Now he is asked—as a reward for 20 years of his own labours—for a standard community charge 10 times that amount. It is crazy.

There are hundreds of anomalous circumstances throughout Scotland relating to the standard community charge. That has been recognised by everyone, irrespective of political persuasion, except the Minister and the Scottish Office. All of these anomalies could be resolved and a lot of worry and sadness relieved by the simple remedy that I have proposed tonight.

12.10 am
The Minister of State, Scottish Office (Mr. Ian Lang)

I welcome the opportunity which the hon. Member for Cunninghame, North (Mr. Wilson) has given me through this debate on the standard community charge in Cumbrae to put on record the progress which has been made in implementing the community charge, and to correct certain misunderstandings which, regrettably, appear to have been given wide currency—in particular about the standard community charge. The hon. Gentleman may be surprised to hear that I agree with him at least on one point. There can be no doubt that the level of standard community charge set by Strathclyde region and Cunninghame district will cause hardship to the owners of second homes on Cumbrae. However, that hardship could have been avoided, as I will show later in my remarks. To put the blame on the Government for introducing the community charge is quite wrong.

As we explained when we began our reforms of the way in which local government is paid for, one of the conditions we set was to introduce a tax which would promote local accountability by being paid by almost all of those who benefit from local services. This was one of the major shortcomings of domestic rates. We acknowledged that domestic rates had certain technical advantages. They were highly perceptible to ratepayers—so perceptible indeed that there was a massive outcry from all over the country following the revalution in Scotland in 1985. The revaluation demonstrated very clearly two of the major weaknesses of domestic rates. Rates bills went up for reasons which had nothing whatever to do with the spending policies of local authorities, and indeed for reasons which the domestic ratepayer simply could not understand. And they were paid by little more than half of all adults. The community charge gives the vast majority of adults a direct financial interest in local spending decisions and, together with our other reforms of local government finance, establishes a clear link between changes in expenditure and changes in local tax bills.

From now on, the increased local accountability we have under the community charge will encourage all local taxpayers to take a very much closer interest in the spending policies of their local councils. They will be keeping a very close eye on the value for money they get from the community charges they pay, in terms of the level and quality of the service they get in return. I am already getting a very clear impression that this is beginning to work in practice—particularly in rural areas. The abolition of domestic rates and the introduction of the community charge has been a major undertaking. It has gone remarkably well with about 99 per cent. of the full adult population now registered. There is, however, one aspect of the change where, in practice, performance has fallen far short of what we could reasonably have expected. That is the level of community charge which authorities have set. Of course, the level of standard community charge relates directly to the level of personal community charge. We provided the most generous level of grant settlement for many years and this should have enabled local authorities to set moderate community charges. However, with local authority current expenditure budgets 12 per cent. higher than last year—well above the increase required to maintain services—community charges in many areas are higher—in some areas, much higher—than necessary.

Mr. John Home Robertson (East Lothian)

The Minister is technically abusing the opportunity given him by my hon. Friend the Member for Cunninghame, North (Mr. Wilson) to deal with a very specific problem of a standard poll tax that affects people who have very small holdings on the island of Cumbrae. How on earth he thinks he can get away with suggesting that this general new tax he has brought forward is beneficial in rural Scotland will certainly escape most of our constituents in rural Scotland. Will he do my hon. Friend the courtesy of replying to the specific points relating to his constituents which have been put not only by my hon. Friend but also by Mr. John Corrie, the former hon. Member for Cunninghame, North, when he warned in Committee of this very effect of the standard poll tax on the poll tax legislation?

Mr. Lang

It is important to set the scene in which the situation we now see in Cumbrae has arisen, and the levels of community charge are important in that context. If the hon. Member for East Lothian (Mr. Home Robertson) does not understand the relationship between the community charge levels, both personal and standard, and the spending decisions of local authorities, he does not understand one of the fundamental principles of the community charge.

It is not unreasonable to suggest that many authorities appear to have taken advantage of the turbulence caused by the introduction of the community charge to expand their activities and spend more. Perhaps they thought they could conceal this from their local charge payers. Certainly, in comparing this year's community charge level with last year's rates, payers should not forget that rates—had they remained in existence—would have risen substantially this year as a result of local authority spending decisions. Strathclyde region budgeted for increased expenditure this year of some 10 per cent., and Cunninghame district council budgeted for increased expenditure of some 17 per cent.

Because the standard community charge is—for reasons I shall explain in a moment—linked to the level of the personal charge, standard charge payers as well as personal charge payers have been affected by those spending decisions.

The standard community charge was developed in recognition of the fact that, following abolition of domestic rates, local authorities would lose income from rates on houses used as second homes but would not gain any compensating revenues from the personal community charge if there is no sole or main resident in the second home. To make up for that potential loss of revenue, and to reflect the fact that local authorities continue to provide services to houses used as second homes, the 1987 Act makes provision for a standard community charge—to be levied by local authorities in respect of dwelling houses that are not the sole or main residence of any person.

Under that Act, the standard charge is set at between one and two times the personal community charge at the discretion of the local authority. Therefore, the standard charge applies, by and large, to houses used as second homes, and we are here concerned with the change in liabilities that their owners face following abolition of domestic rates and their replacement by the standard community charge.

In some areas the use that can be made of second homes throughout the year is limited, while the stock of second homes in some localities can be quite large. Cumbrae—where, I understand, it is estimated that more than half the housing stock is used as second homes—is exceptional. But in any event, local authorities must pay regard to all homes in their areas in determining the provision of local authority services. Personal charge payers would reasonably regard it as inequitable if owners of second homes located in their local authority areas were exempt from any contribution at all to local authority costs.

We concluded that a charge of from one to two times the personal charge would be a reasonable contribution to seek from second home owners. However, in keeping with our wish to leave local authorities with as much discretion as possible, we decided not to prescribe a particular level but to leave local authorities with discretion over a wide range to set the charge with regard to their own local circumstances. It was envisaged that one of the factors that local authorities will take into account is the extent and nature of use of houses as second homes in their areas.

No advice nor encouragement was given to local authorities in Scotland by the Scottish Office that could be taken by local authorities as implying that we expected them, let alone required them, to set the multiplier at two—the maximum level permitted.

Mr. Wilson

I take issue with the Minister's last comment that local authorities were not given any guidelines, when the projections clearly set the expectation that a multiplier of two would be applied. The Minister also said that local authorities are expected to take account of the use to which second homes are put. The degree of use to which second homes in Cumbrae are put is fairly high. In many cases they are used at weekends throughout the year. Is the Minister saying that the Government believe that, because of that relatively high level of use, a high multiplier should be adopted by the local authority? Would not a much more satisfactory approach be to consider the nature of the property, rather than the number of weekends people stay at it?

Mr. Lang

No, that is not my belief. Nor is it our purpose to imply to local authorities what level of multiplier they should set. However, it is right that local authorities themselves should assess the situation in their own areas and decide policy in the light of the prevailing circumstances.

In determining the allocation of rate support grant, the revenue assumptions adopted by the Scottish Office include the assumption that income generated by the standard charge multiplier would be equivalent to that generated by a multiplier of two. That is in line with conventions used in determining the allocation of grant, which assume that local authorities maximise their revenue-raising possibilities where discretion exists. If we were to distribute grant under other assumptions, it might be argued that the distribution would be to the disadvantage of authorities having limited revenue-raising possibilities and to the advantage of those having greater scope for rating revenue because of local circumstances. But it does not imply that we expect or require local authorities to set charges at their maximum, any more than the introduction of a limit on the rate of increase in non-domestic rates implied that local authorities were being prevented from putting up non-domestic rates by a lower amount than that permitted by the maximum. Nor does it have significant financial implications in Strathclyde.

In setting their standard charge multiplier, local authorities should have had regard both to the spending objectives and to the burden that would be placed on standard charge payers. The fact they have chosen, almost without exception, to set a multiplier of two suggests that they have no intention of tailoring their spending plans to take account of the burden on standard charge payers. Indeed, it appears that they concluded that standard charge payers should pay the maximum possible. The burden that this has placed on standard charge payers has been compounded by high levels of personal community charge set by many authorities.

The hon. Gentleman suggested that there was an easy remedy by varying the multiplier within regions and districts. This would probably be administratively difficult, and certanly it implies judgments relating to the nature of different properties, and would bring us back very close to a property tax, from which we have been moving away. However, the potential loss of income in this situation is very small indeed. Had Strathclyde chosen to go for a multiplier of one, the loss of income would have been £2,170,000, or 0.13 per cent. of its budgeted expenditure. In Cunninghame district the loss would have been £108,000, or 0.7 per cent. of budgeted expenditure.

I acknowledge, of course, that local authorities could have maintained their spending plans, had a lower standard charge multiplier, but set even higher levels of personal community charge. I am not surprised that authorities were cautious about adding further to the levels of personal community charge that they have set. But if, for example, Strathclyde region and Cunninghame district had set a multiplier of one—half the level that they have chosen—the additional cost to their personal charge payers would have been only around £1, or one third of 1 per cent. of the community charge level. Rather than do that, the local councils have chosen to impose a burden on second home owners in Cumbrae, which, instead of increasing their costs by 36 per cent. this year, as a multiplier of one would have done, has actually increased them by no less than 172 per cent. How the councils can justify their action I do not know.

I really wonder whether the region and district gave any serious thought to the effect of a multiplier of two on their standard charge payers. They must have appreciated that in many cases, of which Cumbrae is an example, there would he a substantial increase in the burden placed on individuals in meeting their local taxes. It must be concluded that they assumed that what they were doing was in the circumstances reasonable. I have no difficulty in acknowledging that for those who own second homes in Millport—and there are over 700 of them in Cumbrae—the consequences seem unreasonable.

It has been argued that, as second home owners are not local electors, local councils will not be sensitive to the interest of second home owners in their areas. While they may not always be able to exercise this direct influence over local councillors, there are, of course, many other ways of registering views, and I certainly have had a considerable amount of correspondence, both from within my constituency and as a Minister at the Scottish Office, expressing concern about the level of the standard charge being set by local authorities. This correspondence has included strong representations from those with an interest in Cumbrae. I cannot believe that councils can remain impervious to expressions of concern of this kind, even when it comes from those not on the electoral roll. We shall, therefore, be looking to councils to consider very carefully next year, when it comes to determining the levels of the standard charge and what sort of properties in their area are likely to be affected, whether, taking account of the area as a whole, it is either necessary or reasonable to levy a standard charge based on a multiplier of two on second home owners.

12.23 pm
Mr. John Maxton (Glasgow, Cathcart)

For a long time I have listened to ministerial replies to Adjournment debates and to debates about the poll tax, but that is the most disgraceful and utterly shameless response to an Adjournment debate that I have ever heard. The Minister failed to answer most of the basic points that had been made by my hon. Friend the Member for Cunninghame North (Mr. Wilson). He failed to say what he might do to alleviate the situation of those who own holiday properties in my hon. Friend's constituency. As usual, he tried to pass the buck to the local authorities.

The Minister fails to recognise that the community charge is a property tax with none of the fairness of the old rating system, which bore some relationship to the size of the property and the ability of people to pay. If the Duke of Argyll chooses to make Inveraray castle his second home, he will pay the same standard community charge as is paid by somebody living in a one-room flat with no toilet on the Isle of Cumbrae. That is a grossly unfair burden.

The Minister says that it is all the fault of the local authority; its expenditure is too high. Strathclyde increased its expenditure by 10 per cent.—only 2 per cent. above the current rate of inflation. Cunninghame district council increased its expenditure by 17 per cent., which is double the present rate of inflation. Even if its expenditure had not been increased to take account of inflation, the community charge in Strathclyde would have been only £45 to £50 less than it is now. In Cunninghame it would have been only £2 or £3 less than it is now.

One of my constituents has written to me about a holiday flat in Cumbrae. It has no bath and no toilet. There is cold water only in that one-room flat. Last year the rates were £56. The bill this year is £565 for that flat. Even if Strathclyde had not increased its expenditure, even by the rate of inflation, that person would still be paying £450 more this year than he paid last year. Even if Strathclyde had set a multiplier of one instead of two, that person would still be paying £200 more than he paid last year. There is no fairness in such a system.

I have a friend on the island of Arran. He is the managing director of a distillers company. He has a second home on Arran. It has five bedrooms but he will pay exactly the same rates—£565—as my constituent will have to pay.

Mr. Wilson

The Minister has made no attempt to solve the dilemma that local authorities face in having to give such large handouts to the owners of large holiday homes. That will be noted in Cumbrae. The blandness, emptiness and total unhelpfulness of the Minister's reply will be read with great anxiety on the Isle of Cumbrae.

Mr. Maxton

It will be read in that way throughout Strathclyde.

Mr. Wilson

Throughout Scotland.

Mr. Maxton

Yes—wherever there are holiday homes. That was my point about this acquaintance of mine on Arran. He has a big house. His rates will be halved, or even more than halved. How can that be fair? It is within the Minister's power to do something about it. He could do exactly what is to be done in England and Wales. The multiplier there is to be zero to two. He does not give us even that. Strathclyde wants to be able to vary the multiplier according to the—

The motion having been made after Ten o'clock on Tuesday evening, and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at twenty-eight minutes past Twelve o'clock.