§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Nicholas Baker.]11.57 pm
§ Mr. Graham Riddick (Colne Valley)
My purpose in calling for this debate is twofold. First, I wish to raise some of the concerns and problems which many of my constituents have about the community charge. Secondly, now that the Government are committed to carrying out a review of the operation of the community charge, I wish to explore some of the changes which could be and need to be made. Before I do so, I welcome the appointment of my hon. Friend the Member for Enfield, Southgate (Mr. Portillo) as Minister for Local Government and Inner Cities, and I welcome his comments on his appointment that he is there to listen to other hon. Members and to councils for the various suggestions that they may have on how to improve the workings of the charge.
I do not think that I would be being particularly controversial or disloyal if I were to say that the way in which the community charge has been introduced this year has left something to be desired. Introducing a new charge or tax will always throw up problems—as, for example, some of the anomalies which have arisen over second homes, but some of the more serious problems should have been foreseen.
The Department of the Environment's experience of how local authorities operate, and the experience in Scotland last year, when the community charge was introduced there for the first time, should have alerted us to the likelihood that councils, and Labour councils in particular, would jack up budgets and with them community charge bills in the hope of blaming high bills on the Government who introduced the new system. Indeed, a number of councils, including my local Labour-controlled Kirklees council, went for creative accounting last year by using more of their reserves than was prudent, which inevitably meant that there was less in reserve to keep down community charge bills this year.
If rates were still in existence, this year Kirklees council would have needed to raise them by 35 per cent. to bring in the same amount of money as it is raising through the community charge. The fact that it has set such a high community charge is somewhat immoral; it is certainly highly cynical. It did so because it could then blame the Government for introducing the system, rather than placing the blame where it truly lies—with the council because of its profligacy and inefficiency.
We should have written it into the legislation that no council could increase its budget by more than the rate of inflation in the first year of the changeover to the new system of local government finance. It appears likely that more central Government grant will be provided for local authorities next year. It would make sense for the Government, and it would be acceptable to the public, to legislate so that no council can increase either its budget or its community charge next year by more than the rate of inflation. Obviously, there would be scope for prudent councils to reduce spending, but my proposal would ensure that additional money provided to reduce community charge bills would be used for that purpose.
I feel that the Treasury was unwise to refuse to pick up the cost of the safety net in the first year. Many of the councils that have had to fund that safety net are 716 Conservative. The cost of that led to them having to levy a community charge higher than that warranted by the actual cost of local services. That diminished the accountability element. However, the greatest cause of concern has undoubtedly been the large increases in the amounts payable in community charges this year as against rates last year.
In my constituency where there are thousands of terraced houses with low rateable values, many patriotic Englishmen and women, especially pensioner couples and young married couples, have had their bills increased from between £200 and £250 last year to between £500 and £600 this year. That is a great deal of additional money for such people to find. Many pensioners do not qualify for rebate because they have been prudent during their lives and have savings which, while not providing a great deal of additional income, prohibit them from claiming rebates. That is especially so in Yorkshire, where folk tend to be rather canny and like to save for a rainy day.
I have to report to my hon. Friend the Minister that the transitional relief scheme, intended to soften the blow for such people, has not worked as intended. Whatever else the Government decide to do, they must provide proper, long-term help for them. I hope that my hon. Friend will examine closely the interplay between transitional relief and the safety net in Kirklees and ensure that decisions related to them help to keep down community charge hills.
I have always supported the principle of the community charge—that is, that everyone should contribute to local government services. It is interesting to note that a recent Gallup poll showed that the majority of the general public also accept that principle. However, there are concerns —and two in particular—about the community charge. The first is that the levels set by local authorities are too high. Secondly, there is a perception that the community charge is not fair because it is a flat rate tax. Of course, the irony is that that wholly ignores the fact that some 25 per cent. of charge payers are in receipt of rebates and that the majority of local government finance comes from central Government, who raise most of their finance through progressive taxes such as income tax.
If community charge levels had been set at between £100 and £200, the public would have accepted its flat rate nature—but because they are so much higher, there is a feeling that the system is unfair. To secure the public acceptance that will ensure that the charge works properly, the Government must either substantially reduce charge levels or make it relate to people's ability to pay—or provide a combination of the two.
I should be happy to see police and fire expenditure taken from local financing, and the community charge reduced accordingly. However, to do that as well as provide extra grant to reduce charge levels across the board would be extremely costly for the Treasury. That is why I believe that it would be sensible to make the charge relate more to people's ability to pay. If the Government do that, they will negate overnight the political flak to which they are being subjected.
Two years ago, I supported the banding of the community charge when I supported the so-called Mates amendment to the Local Government Finance Bill. I still believe that banding would be the most appropriate change to make. It is always easy to argue for a general, uncosted principle, so I shall present a concrete idea. I advocate a three-band system. It would comprise a standard band of community charge payable by 717 individuals having an income above £8,500 and up to the threshold at which the top rate of income tax is payable. I use the figure of £8,500 because it is already a threshold figure used in tax law and in relation to benefits in kind.
The second band would be the standard community charge plus 25 per cent., payable by those paying the top rate of income tax. The third would be the standard charge, less 25 per cent., payable by those having incomes below £8,500. The rebate scheme would still be there to help those at the very bottom of the income scale.
Crucially, local authorities would not need to know the intimate details of people's incomes. Everyone would be liable to the highest rate, with the onus on the individual, in making an application to the local authority, to obtain an Inland Revenue certificate based on his previous year's income to prove eligibility for a lower charge rate.
§ Mr. Hugo Summerson (Walthamstow)
How would a housewife, or some other person who stays at home, be treated under my hon. Friend's system? I refer to the individual who has neither income nor earnings of their own.
§ Mr. Riddick
My hon. Friend draws attention to one of the anomalies that is frequently raised at my own surgeries. The system that I propose would ensure that non-working mothers looking after their families at home, for example, would pay the lower band of community charge—which would be not only fair but widely welcomed.
The administration of the system I describe would not be too complex for local authorities or the Inland Revenue to undertake—contrary to the argument that might be made by some of my hon. Friends. If such a scheme were to be introduced, the current average community charge throughout England of £363, plus the average rate of inflation—which next year is likely to be in the region of 6 per cent.—could be used as the starting point for the top rate. In that way, no one would pay more in real terms next year than this year. The average top band level, indexed for inflation, would be £385, the middle band £307, and the lower band £231. In my own area of Kirklees, the figures would be £308, £246 and £185 respectively.
With the top band next year similar to this year's community charge, we would not produce the same yield as this year's community charge income of £13 billion. I am indebted to the House of Commons Library for its help with my figures. It estimates that there would be a shortfall of £3.2 billion, based on the figures I have quoted and taking into account the savings that would be made on rebates and transitional relief. The Library suggests that an average middle band of £350 per person could be achieved with an additional Government grant of only £2 million.
All sorts of figures have been bandied about in the press as to how much extra money the Secretary of State for the Environment is trying to get out of the Treasury. Quite a bit of flexibility is built into my system. I ask my hon. Friend to confirm that, contrary to what I have read in certain newspapers, the Government have not ruled out banding, and that the current review will consider my proposals.
A few other problems and anomalies must be sorted out. The Government are committed to introducing 718 legislation to clear up the anomalies relating to caravans. I welcome that commitment. A constituent came to my surgery as recently as last Friday and told me that, having moved house a short while ago, she now has to pay the standard community charge on her previous home, despite the fact that she is trying to sell it—so far without success. That kind of problem must be addressed.
Service men are faced with a real problem. Recently, I have been lucky enough to spend some time with the Army in connection with the armed forces parliamentary scheme, and the problem was put to me on many occasions. Service men have to pay the full community charge, wherever they are based in barracks. Many of them have bought houses to provide them with a home base while leading such a nomadic life. In most cases, they have to pay the standard community charge times two on their homes. A number of bitter complaints have been made to me about that. The Minister must look into the problem, together with his Ministry of Defence colleagues.
I hope that the House and the Minister will accept that I have made constructive suggestions, in marked contrast to the normal style of our debates on the community charge. Opposition Members are interested only in scoring cheap party political points. They never submit alternative proposals. The public would accept the community charge if we made appropriate changes. We could then turn the spotlight on Labour's draconian alternative. Anyone in my constituency who owns his or her own home would pay substantially more under Labour's proposals for a roof tax than they now pay through the community charge. Only last week, I received a parliamentary answer which showed that a man on average earnings in Kirklees would pay well over £1,000 if a local income tax were to be levied.
There is no easy alternative to the community charge. I hope that my hon. Friend, the Cabinet and my right hon. Friend the Prime Minister will bear in mind and implement some of my proposals so that the community charge no longer looms large on the political agenda. There are two far more important and fundamental battles that the Prime Minister has to fight: first, to ensure that the regeneration of Britain's enterprise economy and industrial base continues and, secondly, to fight off the Euro-fanatics on the Continent who, in their quest for political union, wish to take power from the British people and Parliament. Let us get the community charge right so that these vital tasks are not blurred.
§ Mr. Deputy Speaker (Mr. Harold Walker)
Does the hon. Gentleman have the consent of both the hon. Member for Colne Valley (Mr. Riddick) and of the Minister?
§ Mr. Janman
I am grateful to my hon. Friend the Member for Colne Valley (Mr. Riddick) for giving me 30 seconds or so in which to make one or two comments on what he said.
The most important part of his speech related to the fairness of the community charge and to the ability to pay. As one who voted for the legislation on Second Reading but did not vote for the Mates amendment, I must say that my hon. Friend's basic philosophy—of dealing with this point through the creation of three bands, not based on 719 arbitrary income levels but on those who pay no tax, those who pay at the standard rate, and those who pay at the higher rate—is to be commended. My hon. Friend the Minister should look closely at the practicalities of moving in that direction.
I still believe, as I did on Second Reading, that the community charge is a much fairer system than were the rates, and with a slight touch on the tiller, I believe that we can show the British public that we are prepared to listen to their views on the charge, and to make it fairer. In that context, my hon. Friend's proposals are worthy of further scrutiny in detail. If the Government make the charge fairer, it will be to their great credit.
§ The Parliamentary Under-Secretary of State for the Environment (Mr. Christopher Chope)
I am grateful to my hon. Friend the Member for Colne Valley (Mr. Riddick) for giving us this chance to discuss the community charge, and for the kind remarks that he made about my hon. Friend the Member for Enfield, Southgate (Mr. Portillo). I know that the latter has spent a great deal of time since taking up his post listening to views expressed by our right hon. and hon. Friends and by people outside the House —and taking their views seriously.
I sympathise with my hon. Friend's concern that household bills in Kirklees may in the long run be relatively higher than they were under the system of domestic rates. There is no good reason why they should in future be any higher than community charges elsewhere in the country, however. The aggregate external finance that we give to authorities each year should allow all authorities to levy the same community charge—before the safety net—for a standard level of service.
Historically, rateable values in Kirklees have been low, which, under the old rating system, would have meant that ratepayers in other authorities would have provided extra help through the grant equalisation scheme. The grant equalisation scheme was not universally popular, since it ignored the ability to pay of people in highly rated properties. More than 40 per cent. of homes which had above-average rateable values are occupied by households with below-average incomes.
The effect of the safety net, low rateable value grant and transitional relief is to ease the change in finance systems for authorities such as Kirklees. On the other hand, businesses in Kirklees stand to be significant gainers from the change in local government finance systems and the introduction of the uniform business rate. My hon. Friend did not mention this, but the general rate poundage for Kirklees in 1989–90 was 346.1p, compared with the average for all authorities of 258.3p. With the introduction of the uniform business rate, businesses in Kirklees will be able to look forward to a real reduction of some 25 per cent. in their rate bills.
My hon. Friend said that there would have been a 35 per cent. increase in domestic rates in Kirklees under the old system because of the council's spending policies as applied this year. I whole-heartedly endorse his condemnation of the spending policies of the council. He will know that Kirklees very narrowly missed being included on the charge-capped list of shame. Kirklees benefited considerably from support through the safety 720 net. However, its response was to spend about £117 a head over its standard spending assessment. It escaped capping only by falling within the de minimis provision.
My hon. Friend will recall the meeting which he, my hon. Friend the Member for Batley and Spen (Mrs. Peacock) and a delegation from Kirklees council held in February with my right hon. Friend the then Minister for Local Government and Inner Cities. The meeting discussed in detail the application of the standard spending assessments to Kirklees, and as we have said before, we are prepared to listen to the evidence and arguments for any changes to the methodology of our spending assessments.
There has been substantial comment on either alternative methods of local taxation or variations on the theme of the community charge: indeed, even the Opposition have made a half-hearted attempt. I am grateful to my hon. Friend for the contribution he has made to the debate, and I agree with him and the vast majority of people in this country that the fairest method of raising money to pay for local government is a charge on individuals. That has the double attraction of spreading the burden on paying for local services and increasing accountability—something which has been sadly lacking in the past, but which I am sure in the longer run will greatly influence the local democratic process.
My hon. Friend spoke of the need for the Government to re-examine their policies. Of course, we are looking closely at how the community charge is working in its first year in England and Wales. As my right hon. Friend the Secretary of State has made clear, we are reviewing a wide range of issues, and it is important that, by the time that we make the rate support grant settlement for next year—that is, in a few months' time—we shall have resolved all those matters and announced our conclusions. The basic principle remains the same, however: almost everyone should make some contribution to the cost of local services from which all people benefit.
A system of capital value rates—which the Opposition have courted—would bear many of the less virtuous traits of the old rating system. It would reduce accountability, place a tax on home improvement and relate only poorly to the ability to pay. By no means does it follow that an increase in the capital value of a property is matched by a correlating increase in the income of the individual.
A local income tax would do little better. It would be exorbitantly expensive to administer, and even if a local income taxation system were to be integrated with the existing national taxation system, between 12,000 and 13,000 extra staff would be needed in the Inland Revenue alone. The number of those contributing to the cost of local government would be substantially reduced, and thoe who did have to pay could find themselves paying more than the lion's share. For example, we have calculated—and my hon. Friend has confirmed—that in Kirklees a local income tax bill for a person on a taxable income of £12,000 could have amounted to over £1,000 in 1990–91.
My hon. Friend has spoken about the attractions of banding the community charge. Those who promote the idea of banding will, however, have to address a formidable series of objections. Any scheme that involved basing the level of charge on the income tax status of the individual would be difficult and lengthy to implement. The vast bulk of income tax is collected through PAYE. The Inland Revenue does not have complete or up-to-date records of all taxpayers, as for most people it does not need 721 them—and it hardly needs to be said that it has no records of people who do not pay income tax. My hon. Friend addressed those problems in his speech.
All the models for banding that we have seen so far have suggested a fairly restricted number of bands, generally based on those who do not pay income tax, those who pay at the lower rate and those who pay at the higher rate. That, indeed, is what my hon. Friend has proposed this evening. In the first place, those who pay no income tax will generally be entitled to community charge benefit, which can reduce a person's bill by up to 80 per cent. As my hon. Friend will know, one in four people will receive benefit: some £2.5 billion will be distributed, around £1 billion more than was the case through rate rebates and community charge benefit in Scotland last year. That will mean that, for the least well-off in the community—to whom it matters most—the community charge will be related to the ability to pay.
In the second place, a banding system would have a cruelly punitive effect on those who cross the bands. Those who move from below the income tax level, or from the middle band to the higher band, would at worst risk a net drop in their disposable income—or, at least, a discouragingly high marginal tax rate until they had moved well above the threshold.
Those on high incomes already pay significantly more through income tax. In fact, the top 10 per cent. of households pay about 15 times more than the bottom 10 per cent. towards the cost of local services. If we were to ask all those who are on the higher-rate tax band to pay an additional 50 per cent. of their community charge, that would only raise revenue sufficient to reduce the bills of those on the standard rate tax band by some £10 a year. My hon. Friend recognised the fact that, notwithstanding his banding proposals, there would still be a significant shortfall in income from the community charge, which would have to be made up by the national Exchequer or, in effect, the national taxpayer.
§ Mr. Riddick
I should like to push my hon. Friend gently and ask him to confirm that the Government have not ruled out the possibility of banding the community charge, and that that is one option being considered under the review. Will he confrm that he will be happy to talk to me? Perhaps I can take him through some of my proposals in more detail.
§ Mr. Chope
If I may, I should like to continue, as this debate was introduced by my hon. Friend the Member for Colne Valley (Mr. Riddick) and the hon. Member for Cunninghame, North (Mr. Wilson) did not participate in it.
The measures which we have taken to ease the effects of the transition have been an important factor in respect of the uniform business rate and the community charge. The safety net provides assistance to people in those areas where rates have traditionally been very low. In Kirklees, people have benefited to the tune of £107 per head. Low rateable value grant provides an additional layer of protection, providing an extra £25 per head in Kirkless.
Transitional relief targets assistance on people in low-rated value properties, regardless of whether they are living in an area benefiting from the safety net. Because in Kirklees there is already substantial help through the safety net, the Government's assumed community charge for Kirklees is £220. This means that, where there were two or more charge payers in a household on 31 March, relief will have been awarded where the rates bill was less than about £280. More than 30,000 people in Kirklees will benefit from that relief.
§ Mr. Chope
I shall deal with a point made by my hon. Friend the Member for Colne Valley. He believes that extra protection over and above what has been given so far should be provided for people in low-rated properties. One option would be, of course, to base transitional relief on the actual charge that an authority sets. We have already made it clear, however, that the purpose of transitional relief is not to underwrite spending levels above those that we have assumed. The assumed charge for each authority, which was the basis of the transitional relief scheme, represents broadly what the charge would have been if authorities has sought to raise from their residents an amount consistent with their behaviour in 1989–90 and with the total standard spending figure of £32.8 billion.
The main problem in Kirklees is not that the SSAs have been incorrectly assessed; nor is it that the——
§ The motion having been made after Ten o'clock 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-seven minutes past Twelve o'clock.