HC Deb 02 June 1992 vol 208 cc783-97 8.30 pm
Mr. Nigel Jones

I beg to move amendment No. 3, in page 2, line 29, after first 'in', insert '1992 and'.

The amendment relates to other types of businesses which have benefited from the uniform business rate. The Government's clause speeds up the reductions in rate bills for those who will benefit and ensures that, by 1993–94, such business ratepayers will obtain their full reductions. Our amendment will give them all those gains this year. We support what the Government have done, but we would like to push them a bit further.

Mr. Redwood

I urge the House to reject the amendment as it is not well targeted and it is an expensive proposal. It will cost £475 million in the current year, and the hon. Gentleman has not said where that money might come from, whether he is proposing some compensating tax increase or yet more borrowing with possible dangers for interest rates, which would damage the businesses that he is setting out to help.

I wonder whether the hon. Gentleman has reconsidered his remarks on Second Reading when he said: It is possible that the Government's measure is more effectively targeted"—[Official Report, 19 May 1992; Vol. 208, c. 216.] than the Liberal one. I urge the hon. Gentleman to reaffirm that. Our measures are exceptionally well targeted to deal with the problems that arose from revaluation and to add to the transitional relief that we set out previously.

I urge the House to support the Bill as unamended and, thus, to reject the amendment.

Amendment negatived.

Clause 3 ordered to stand part of the Bill.

Clauses 4 to 10 ordered to stand part of the Bill.

Bill reported, without amendment.

Motion made, and Question proposed, That the Bill be now read the Third time.

8.35 pm
Mr. William O'Brien (Normanton)

I remind hon. Members that the Bill is necessary for the Government to bring about the proposals made in the Budget to amend the Local Government Finance Act 1988 as it relates to transitional arrangements governing increases and decreases in non-domestic rate bills. Clause 2 limits the increases in rates to business rate payers to no more than the rate of inflation, which, in the current year, is 4.2 per cent.

Any action by the Government to amend and improve the iniquitous 1988 Act and to improve the quality of life of those people affected by it will always receive the support of the Labour party. That was made clear by my hon. Friend the Member for Sheffield, Brightside (Mr. Blunkett) on Second Reading. Sadly, the principle of clause 2 does not apply to poll tax payers in general, because it covers non-domestic properties. The Bill, with its 10 clauses, significantly amends the 1988 Act, but it is a pity—I refer to the rebate scheme—that it does not consider the abolition of the 20 per cent. rule for poll tax payers.

We are witnessing, as we have witnessed in the past, with the abolition of that part of the 1988 Act which referred to poll tax payers, the failure of the Government and of the Conservative party to provide a reasonable system of local government finance. We are reminded that taxpayers are paying dearly for that Act. I remember clearly how the current Secretary of State for the Environment fought hard in Committee and in the House, supported by the Minister of State and other Tory Members, to introduce that Act and to implement it. We are now witnessing the results of that bad legislation, because this Bill has had to be introduced to amend it.

The Government's proposals—in 1990, following the passage of the Local Government Finance Act 1988—were doomed to failure from the start. My hon. Friends and I, along with the present President of the Board of Trade, said that the whole scheme would fail, and tonight we are seeing some of the results of that failure.

We must now give urgent consideration to the whole issue of compensating local authorities, because the cost to them of re-billing will be very expensive indeed. The Department of the Environment has suggested that the re-billing cost per unit will be about 85p per transaction. On Second Reading, the Under-Secretary of State promised that the national non-domestic rate pool will be fully compensated for any reduction in the rate yield that is due to the Bill. Local authorities will be allowed to net off reasonable costs of re-billing from NNDR payments. We shall look carefully at any evidence from authorities that NNDR payments in the first month of the year have not kept pace with the profile of payments to the Department set at the beginning of the year, and we shall consider adjustments if they prove necessary."—[Official Report, 19 May 1992; Vol. 208, c. 226.] There is clear evidence that there has been delay in payments in the first month of the year by small businesses. That has happened in anticipation of what would result from the announcement in the Budget. It was natural that people would react in that way, having been told that there would be a change in the rate demand. In turn, local authorities face a cash flow problem as a result of rates not being paid in the first month of the year as well as in May. I trust that the Minister accepts that the plight of local authorities, because of their cash flow difficulties, must be considered. That state of affairs has come about because of the announced rebate scheme.

Wakefield district council has made a careful cost-per-unit study for re-billing purposes. It has estimated that the cost will be nearer £2 per unit than the 85p suggested by the Department of the Environment. The costing done by Wakefield took every detail of the exercise into account.

The Minister must also accept that, when a relatively small number of bills must be redistributed, as will happen in Wakefield's case—the figure will be about 2,000—there will be no post office reduction for delivery charges. The formula suggested by the Department in discussions with local authority associations took into account a benefit for local authorities resulting from a post office discount for additional billing. That is another factor pointing to the way in which the Department of the Environment has got its re-billing average costs wrong.

Because of the way in which the Government have handled the whole rebate issue, many local authorities, including Wakefield, are finding that, in addition to going through the process of printing and issuing the original bill, they must add to the bill an amendment covering the rebate, explaining how it came about. That must be done by Government directive. Because it is not necessarily possible to include all that information on the one bill, additional work has had to be undertaken by local authorities, much of it involving manual work. That additional activity has been carefully costed by Wakefield's finance department.

I hope that the Minister will look carefully at the additional problems faced by local authorities. It is clear that the formula originally put out by the Department is inadequate in relation to the information that local authorities are having to provide as part of the re-billing procedure. There is every reason for the Department to re-examine the matter—

Mr. Redwood

indicated assent.

Mr. O'Brien

—and I gather that the Minister agrees that further examination is required.

Mr. Redwood

It might help if I tell the hon. Gentleman at this juncture in the debate that we are consulting the local authority associations on our estimates of the re-billing cost. They were based on community charge re-billing costs, about which we knew. We shall, of course, also take into account any representations that the hon. Gentleman may make, because we want to arrive at a fair and sensible figure.

Mr. O'Brien

The Minister will have before him the figures that have been supplied to me by Wakefield district council and the reasons why that council considers that the Department is totally out of touch with the problems being faced by local authorities.

We must not forget that, in addition to the re-billing exercise, local authorities are still having to contend with the poll tax that is still in place. In other words, in addition to the poll tax recovery programme—the resources involved in that process are extensive in many areas—local authorities are having to maintain the register and handle inquiries about rebates and so on. Local resources are stretched to the maximum because of the need for authorities to carry on with business as normal, in addition to recovering the poll tax and maintaining the register. I hope that the Minister will take that matter into account also.

I am sure that the local authority associations will make those and other points to him when he meets them. I, too, will be giving him my views about the reconsideration that is necessary by the Department of the work that local authorities are having to face because of the re-billing exercise.

An organisation called the Forum of Private Business has made representations to the Department about the way in which the problems facing small businesses need reconsideration. The Bill introduces a scheme to help small businesses over the next three years, until the implementation in April 1995 of rates based on the revaluation that will take place next year. The Forum of Private Business has asked, because there is such a long time between valuations, that the Government, instead of making minor adjustments to help small businesses get over certain problems, look at long-term solutions for helping small businesses. In the interests of these small businesses, we should be introducing a policy to sustain local businesses. The way to do that is via a rebate scheme.

I put to the Minister the argument made by the Forum of Private Business. Small businesses are extensive. Some 5 million provide employment and wealth. They are the seedcorn of future development. Therefore, it is important that any action taken by the Government should be on a long-term basis rather than a minor operation to get them over a difficult period—in this case, the high reassessment of properties and the protracted recession.

In the two years 1985–27, small firms created 500,000 jobs, so we are talking about a large part of our community. Small firms employ over one third of the private sector work force. They produce nearly a quarter of our turnover. We support the Bill because it helps, albeit in a minor way, these small firms.

The Association of District Councils has produced a report called "Small Firms in Britain", which draws attention to the remarkable growth of small firms through the 1980s. If we are to sustain that growth, it is important that help to small firms is on a long-term basis.

Mr. Redwood

Can the hon. Gentleman clarify the size of the scheme that he has in mind? How many firms and what sort of money does he think should be given by way of reduction of rates bills to small firms? This would put some flesh on the bones that he is setting out.

Mr. O'Brien

Firms would be judged on their ability to pay. This must be done through the local authority, because this is a national tax on business. We consider that to be wrong and the Institute of Directors shares that view. I have here a document from it, published on 18 May 1992, which I am sure that the Minister will have received as well. It says: Whilst the Bill addresses a short-term problem arising from the transition of the UBR and 1990 rateable values coinciding with the recession, it does not remove the need for longer term reform. The Government has still to produce a clear vision of the proper role of local government, without which it is impossible to decide the most appropriate division of responsibilities between central and local government, the most appropriate structure of local government and the most appropriate method of financing local government (the IOD favours a reduced role) but with the local government sector having greater autonomy". The Institute of Directors has it right. There should be greater involvement of local authorities in helping small businesses.

We are not saying that a figure should be put on the rebate or what the reduction on rates should be. That is why, when the hon. Member for Cheltenham (Mr. Jones) moved the Liberal Democrat amendment, I said that additional resources should be channelled to those people who have difficulty in meeting rate bills. The Forum of Private Business has reported that the largest single cost upon small businesses is rent and rates. If we are to help these people, we should take into consideration what they are saying and they are saying that rates are too high. A rebate scheme would help them.

Mr. Bowis

Will the hon. Gentleman elaborate a little on his policy? As I understasnd it, he seeks ultimately the abolition of the present system and a return to the rating system. He also advocates the abolition of capping. Therefore, he is advocating an open-ended commitment to a rebate for small businesses, because there is no capping of the amount that can be imposed by councils on the businesses in their areas.

Mr. O'Brien

The hon. Gentleman is the first to mention capping. I was referring to a rebate scheme for businesses that find it difficult to pay their rates. That should be done by agreement between local authorities and small businesses. Business and domestic ratepayers should agree with the local authority on the level of services that they demand, and what they are prepared to pay for those services. I am against capping of local authorities, because I believe that the level of services should be decided in that way.

Mr. Bowis

The Labour party has said that it would organise the rates so that there was a ratio between domestic and non-domestic rates. Therefore, the commitment is open-ended. How much money is the hon. Gentleman suggesting should be in the rebate fund?

Mr. O'Brien

I am saying, and I repeat—

The First Deputy Chairman of Ways and Means (Mr. Geoffrey Lofthouse)

Order. I hesitate to intervene, but the hon. Gentleman is referring to much that is not in the Bill. I hope that he will confine his remarks to what is in the Bill.

Mr. O'Brien

My remarks are at all times directed to small businesses. That is why, in response to the hon. Member for Battersea (Mr. Bowis), I said that there was no set level for the rebate. That would be a matter for agreement between small businesses and their local authorities. It would be based primarily on a business's level of income. Therefore, one cannot put a figure on the amount. If additional resources are to be made available and if the Government are contemplating long-term programmes to help small businesses, that is the way that they should approach the matter.

I am not alone in making that point. In Committee, the hon. Member for Ealing, Acton (Sir G. Young) referred to the same principle. He said: We have heard a number of examples of some people who are well off and who vote but will not have to pay because they are exempt. We have heard other examples of people with no money but who will have to pay. That underpins the argument that many of us have put forward. The way to get round the anomalies and exemptions is to link the whole thing to the ability to pay."—[Official Report, Standing Committee E, 28 January 1988; c. 208.] Any small business should have its rates linked to its ability to pay. That should be the result of a contract between local authorities and the small businesses. That is borne out by the Institute of Directors, the Association of District Councils and the Forum of Private Business. All those organisations make the same point. They are not members or supporters of the Labour party. I doubt whether the Forum of Private Business is affiliated to any political party. The Government should take note of what they are saying.

Therefore, when the Minister is considering long-term support for small businesses he should consider the observations made by the Institute of Directors, the Association of Local Authorities, the Association of Metropolitan Authorities, the Association of District Councils, the Association of County Councils, the Forum of Private Business and other pressure groups which are telling the Government that the 1988 Act is not working and that this minor Bill will not resolve the long-term problem that small businesses face. I also ask him to consider carefully the problems that local authorities are facing as a result of the Bill.

9.1 pm

Mr. Nigel Jones

I assure the Minister that we on the Liberal Democrat Bench welcome the moves made in the Bill. Any help for small businesses is good news. Small businesses are the life blood of our country, and without them we would not be a successful nation.

The uniform business rate has been a disaster—almost as much of a disaster for many businesses as the poll tax was for many individuals. The Local Government Finance Act 1988 will go down as one of the worst pieces of legislation that the Government have introduced in their long term in office. We welcome the moves made in the Bill, but we regret that the Government have been unable to go any further.

9.2 pm

Mr. Morgan

I want briefly to mention certain aspects of the Bill that have not yet been fully covered. As the hon. Member for Cheltenham (Mr. Jones) said, the Bill is an attempt to plaster over the problems caused by the hideous errors perpetrated by Nicholas Ridley, a previous Secretary of State for the Environment. The Local Government Finance Act 1988 (Amendment) Bill 1991—Ridley was wrong mark I—attempted to do forst domestic rates what this Bill—Ridley was wrong mark 2—attempts to do for the business rate.

All those who voted for the community charge legislation—that is the first time that I have used the phrase "community charge": as a member of the human race, I usually call it the poll tax. One can usually tell whether Conservative Members are members of the human race by whether they use the phrase "community charge" or "poll tax". It is a simple litmus test. The Minister is clearly not a member of the human race. Several times tonight he has referred to the community charge, even though it is dead. Perhaps one day he will join us.

A problem arises with business rates when a revaluation occurs at the top of a particular type of economic cycle—such as that from 1986 to 1988, which marked the high tide of Thatcherism. The runaway boom of that period affected in particular the retail, commercial, and property development sectors—but it has since gone into reverse.

Mr. Deputy Speaker

Order. The hon. Gentleman is straying rather wide. The Bill concerns the business rate and has nothing to do with the economics of the past, booms, or anything of that nature. I shall be grateful if the hon. Gentleman will stick to the Bill.

Mr. Morgan

I beg your pardon, Mr. Deputy Speaker. The purpose of my introductory remarks was to illustrate that the Bill would not be required but for the problems that arise when a revaluation occurs at the top of a particular type of highly biased and probably never to be repeated economic cycle, which causes particular problems to fall on the small business and retail sector in south-east England.

The high values originally set must now be adjusted downwards by the Bill, to meet a situation that could occur in any subsequent revaluation, in any decade. If a particular business sector or region is booming at the time a revaluation is made, the figure will be wrong. When the cycle reverses three or four years later, the companies will say, "We shall go bankrupt, or you will lose the election because we shall vote against you."

In 1990, the Government abandoned their 1988 legislation, saying, "For gawd's sake, someone bung small businesses a few bob, and see if they will still vote Tory in the next election." Some of them did and some did not—but enough of them voted Tory to return a Conservative Government, and now they are trying to undo the legislation introduced by Mr. Ridley, which was voted for almost sheeplike by so many Conservative Members.

Extraordinarily high values were placed on shops and offices in the south-east, but extremely low values were placed on factories—particularly in the north. The hon. Member for Bath (Mr. Foster) said that the shops in his constituency had been knocked for six. That is the inevitable consequence of the timing of the revaluation, which occurred in the middle of the 1986–88 shopping boom. Everyone thought that there would be more shops and high-value boutiques of the type characteristic of towns such as Bath and Cheltenham which suck in tourists and casual travellers. Whent that cycle reverses and the economy goes bust instead, the business men cannot possibly continue paying high rates. One must have a measure which allows special contributions, to save such businesses from massive bankruptcies.

Are the Government telling us tonight that they are offering not just a short-term, papering-over-the-cracks solution, but one that will meet the boom-or-bust economic cycle that has benefited shops and offices in the south-east in the past, but which has now reversed and is moving the country's economic motor away from retailing, property development, as can be seen at Canary Wharf, and the south-east region to other regions of the country? It is not good enough for the Government to say, "This year, we'll give them a few bob. This year, we'll produce a one-off measure to refund the system that we put in place in 1988." This country and its local government must have a predictable, calculable, and fair system of raising money from domestic and business rates.

Ministers have not said a word today about how they have solved the medium-term problem, or how they propose to do so. All we have heard is, "Let's plaster over the cracks made by the Local Government Finance Act 1988 and the changes introduced in 1990. Please do that, just for now." Small businesses are screaming, bankruptcies are sweeping the country, and shops, hotels, computer centres, business parks and all the other parts of the economy that were booming five or six years ago are now experiencing a severe slump. Some way must be found to reduce the tax burden which was set at the peak of the economic cycle back in 1987–88.

We still want to hear some apology for the mistakes that the Government made when they 'nationalised' this aspect of local government finance in the 1988 Act. We want them to explain how they intend to lay out principles which will enable finance officers, finance committees and local councillors to see the way ahead, and to plan a reasonable level of expenditure without hanging on Ministers' every word each year, because they need to be able to plan more than three or four months ahead—beyond the next Minister's speech.

We also want a promise from the Government that there will be no more of the nonsense that we have been hearing lately. For instance, we do not want the owners of offices to be so terrified of the non-domestic rate that they expect to be stuck with that they strip their offices and remove all usable equipment, thus avoiding payment of any rate. Back in the industrial slump of 1980–82, factory owners in the west midlands were taking the roofs off their factories to avoid paying business rates, and the same could happen with Canary Wharf—Tarzan's very own tree, if I may refer briefly to the President of the Board of Trade. What would happen if huge new developments stripped their offices, rendering them unusable? Apart from the reduction in asset values, an additional burden would then fall on other business rate payers.

The Government have got themselves into an unholy mess since 1988 as a result of their arrogance. I have not yet observed any signs, from the Minister or from Conservative Back Benchers, that any lesson has been learned from that mess.

9.12 pm
Mr. Paul Murphy (Torfaen)

I shall speak mainly about Wales, as I did on Second Reading. I am sure that the Minister is aware of the problems that affect the Principality, but if he is not, the Parliamentary Under-Secretary of State will no doubt draw them to his attention.

On Second Reading, the Opposition emphasised their main caveat on the Bill. We wish to do the same this evening, albeit briefly. We shall, of course, support the Bill, because business people throughout England and Wales will be better off as a result of the changes it makes. The consequences of the 1988 Act were, generally speaking, disastrous, both in regard to the poll tax and for many small businesses. I hope that the Bill will go a small way towards alleviating those difficulties.

We must always remember, however, that the two sides of the House differ to a significant extent on what is and what is not a business rate, or a business tax. The Opposition believe that the present system is a business tax; we also believe that a business rate should be raised locally, spent locally and locally accountable, on the basis that finance is the essence of local democracy. The combination of the business rate that we are discussing and the proposed council tax—which will be with us in 1993—means that only a small percentage of the income now derived by local authorities will be raised locally. That is not good for democracy or for local government, and it is not particularly good for those who have to pay local taxes. Local government is at serious risk if its revenue-raising powers are taken away. Although the Bill is important, we do not support the principles that underlie it.

My hon. Friends the Members for Normanton (Mr. O'Brien) and for Cardiff, West (Mr. Morgan) referred to a number of practical problems with the Bill. I hope that the Minister will refer to them when he winds up the debate. Arrears are building up at an alarming rate in many local authorities in England and Wales as a result of the introduction of the business rate. In addition, many local authorities, including some in Wales, face the serious problem of non-payment of the business rate. Many people believe the business rate does not have to be paid until the Bill has gone through all its legislative stages.

I appreciate that payment of the business rate will be backdated, but many business people do not appear to do so. Therefore, the Government should make it absolutely clear how non-payment of the business rate will harm local authorities. The income of many local authorities has been seriously affected. The loss of interest as a result of non-collection particularly harms those parts of the country that can least afford it.

My hon. Friend the Member for Normanton referred to computer systems and said that a number of local authorities have had to resort to manual systems to deal with the changes that have already been made and that are about to be made with regard to the business rate. I hope that the Government will provide practical help to local authorities, in the form of both software and hardware. I hope, too, that there will be closer liaison between local authorities, the Department of the Environment and the Welsh Office to overcome those practical problems and to deal with the difficult area of local government finance that local authorities will have to face up to during the next eight months.

The changes will cost £25 million in Wales alone. In addition, there will be many administrative costs. On 1 April 1993, local authorities will have to introduce the brand new council tax. The practical difficulties caused by the combination of the two tax changes will lead to considerable strains on local government finance and on manpower and the way that they deal with their business.

The Government should think carefully about the fact that they have postponed discussion in the House of the rate support grant settlement for both England and Wales as a direct result of the instability that these changes have caused. Furthermore, the standard spending assessment is very difficult for laymen and experts to understand. On top of that, local authorities are faced with capping. All these issues with which the Bill deals means that there could be considerable instability and, in some local authorities, financial chaos in the months ahead, unless the local authority associations and the two Government Departments that are responsible for them get together quickly to solve it.

When I look at local government finance in 1992, I wonder whether it is any more stable and any less chaotic or difficult to understand than it was a quarter of a century ago when we discussed, in Green Papers, royal commissions and so on, the changes that we needed to make to local government finance. Nothing much has changed.

There is a Welsh dimension that is different from the English. It seems that there is to be no local government reform of any substance in England. However, the Secretary of State for Wales has said that he intends to go ahead with the main changes in local government reform that he announced before the general election. Those changes in council tax and business tax must be coupled with the fact that there might be substantial changes in the structure and nature of local government in the Principality in the next two years. Those changes will be so dramatic that the county council elections might be abandoned and the two tiers of local government merged into one system of unitary authorities.

Local authorities are expected to budget properly for their respective areas during the next few weeks and months. How can they do that properly with all the uncertainty, instability and changes in transitional relief that have been thrust upon them in recent months and years?

I believe that the Bill is relatively meaningless unless it is seen in the context of all the other changes that will be put upon the people of Wales in the next year. My hon. Friend the Member for Normanton and my other hon. Friends believe that there must be a settling down period in local government, particularly local government finance. We have seen too many changes in the past few years. Some of those changes, such as the poll tax, have been catastrophic and calamitous.

Mr. Morgan

Too much polyfilla and not enough bricks and mortar.

Mr. Murphy

My hon. Friend is right.

The controversial council tax that will be in place in the next few months does not help. There have been disputes over valuations and there will be even more disputes when the appeal tribunals become operative after the council tax has been set up. The business rate is constantly changing and the rules are altering all the time. That means that the business community is fast losing confidence in the way in which it has to pay its taxes or rates. The credibility of our local government system is now at stake. During the next few months before the summer recess I urge, and beg the Minister to talk seriously to local government in England and Wales about the problems of instability facing local authorities. If he does not, I fear for the future.

9.22 pm
Mr. Redwood

The hon. Member for Normanton (Mr. O'Brien) began by saying that the Bill is a significant amendment to the Local Government Finance Act 1988. He concluded by saying that it is a trifling proposal, or words to that effect. In that, he was echoed by his hon. Friend the Member for Cardiff, West (Mr. Morgan). Let me clarify what we are doing and what we agree and disagree about.

The Government are improving the basis of the transitional relief scheme so that businesses can obtain relief from their bills, especially those which faced largish increases over a number of years as a result of the revaluation. We are not changing the fundamental base of business rates introduced by the 1988 legislation, which was to give businesses the pledge that the poundage would not rise by more than the rate of inflation.

That remains the fundamental divide between the Government and the Opposition. We are saying to businesses that, once the valuations are stabilised, as they will be when transitional relief is fully exhausted and worked through, nobody's bill will increase by more than the rate of inflation. Business never enjoyed such benefits under a Labour Government and when there was a scheme which allowed Labour and Liberal local authorities to impose their own level of business rates in each locality.

Mr. William O'Brien

On Second Reading, the Minister said that, there was a possibility that the transitional relief system may not be achieved by businesses because it may be influenced by revaluation next year. He has just said that, when the transitional relief system has been exhausted, we shall be back to a level of no more than the rate of inflation. How does he reconcile those two comments? Perhaps he will tell us why he has changed his mind since 19 May.

Mr. Redwood

The hon. Gentleman should listen. I said that the rate of inflation would apply to the poundage being charged, and that a stable valuation base was necessary for people to enjoy that benefit in their bills. The lack of a stable valuation base and the long gap between revaluations led to our introducing transitional relief to ensure that increases would not be too great. We are offering more generous treatment this year. In the Budget, we recognised that some businesses were under cash flow pressures, and this is one of a package of measures to give additional relief.

The big divide between the Labour and Conservative parties is that we are offering the pledges of regular revaluations to avoid the problem of a big backlog—and a big jump as a result—in the change in valuations, and the poundage will not rise by more than the rate of inflation. Labour is proposing a return to a system whereby Labour and Liberal local authorities can choose to increase rates by the amount they wish. They are saying that business should pay and pay again if a local authority chooses to tax it.

Where are the Opposition's proposals to improve accountability and to give business a vote and some influence over council decisions? I see no proposals at all. We have offered protection to business, because we believe in it, and we want it to flourish.

Mr. Murphy

Does the Minister agree that the logical consequence of that argument is that local government raises no revenue?

Mr. Redwood

That is not the logic of the argument. At the beginning of the next financial year, we shall introduce an accountable local tax to raise revenue. Individuals will, rightly, have the vote and will have more influence over what their local authorities can choose to spend. Elections will be held on how much value councils get for the money that they spend and how much money they are raising within the generous overall controls of capping, which will apply where we feel that people need to be protected from the extremes of Labour or Liberal authorities.

Mr. Murphy

Perhaps I can put it another way. Only 11 per cent. of the income of Welsh local authorities is raised locally. That cannot be right for democracy. If 90 per cent. is raised centrally, will not 100 per cent. eventually be raised by central Government?

Mr. Redwood

There is no proposal before the House to abolish all local taxation. The House recently passed legislation confirming the council tax, with all its details worked out from the centre, which needed to be worked out a year in advance so that councils would have time to build the computer programs and get on with planning a smooth transition.

I hope that the Labour party will calm down about local taxation and will recognise that this fair proposal has been modified following consultation and that the council tax should be the means of raising local incomes so that local democracy, in which I hope both sides believe, can have full rein. I look forward to seeing the proposals of the hon. Member for Torfaen (Mr. Murphy) for a massive increase in the amount of money raised locally from individuals, which now seems to be what his party is implying. It would be interesting to all those facing their council tax bills next year to hear that the Labour party does not think that they pay a big enough proportion and would like to see more money raised from them.

The hon. Member for Normanton has not answered my point about accountability for business.

Mr. O'Brien

The Minister appears to forget that his Government increased VAT to help to pay for local government finance. Will he assure us that there will be no further increases in VAT to finance local government? The Minister should remember that his Government increased VAT, which affects everyone. We are saying that local taxation should be based on the ability to pay.

Mr. Redwood

My right hon. Friend the Prime Minister was very clear on VAT in the general election campaign, and I have nothing to add to his very clear statement. It is a cheap and silly debating trick for the hon. Member for Normanton to introduce that point.

The Conservative party is firmly behind the council tax, which will go in on time. The Labour party should have the decency to say, "Yes, we will live and work with that system because here is an opportunity for local democracy"—in which it claims to believe—"and for an independent source of local finance based on property". That is what the Labour party wanted, although it never had a sensible, workable proposal which bore examination or stood up to proper scrutiny.

The big divide between Labour and Conservative in the House is over whether or not we offer business some protection from large and specific increases in poundage in particular localities. We say that we should, that we do and that we will. The fundamental principle of the 1988 legislation is not challenged by the Bill.

The Liberal Democrats wish to go over to site valuation, which would be ruinous to many small businesses in the south. I hope that one day someone will write a good analysis of how bad an impact that would have, so that all can see what an absurd idea the Liberal Democrats support.

Mr. Morgan

The Minister says that the Bill does not breach the principles of the 1988 legislation. I remember sitting in this same spot when Mr. Ridley explained the virtues of the legislation, especially in respect of the business rate. He said that the entire transitional relief scheme would be self-financing. The Bill involves Exchequer financing. How can the Minister sit there, with his usual straight face, and tell the House that the Bill is not a breach of the fundamental principle of the business rate for which he voted? All the sheeplike Back-Bench Conservative Members voted for that as well.

Mr. Redwood

The hon. Gentleman keeps shifting his ground because he cannot win on the ground that he chooses first. The big principle is whether local authorities are left with the discretion to increase taxes in any way that they like on businesses which do not have the direct relationship with them through the vote which individuals have. On the question of Exchequer funding, I have already explained that the purpose of the Bill is to bring before the House the part of the Budget measures which allocate more moneys from general taxation and from public borrowing to help the business sector. That is perfectly reasonable in the context that I have described.

We want to offer more cash flow help to business, and we have decided to make the terms of the transitional relief scheme, which were always part of the original proposals, more generous. I thought that the two major parties agreed on that, and I hope that the hon. Member for Cardiff, West (Mr. Morgan) will now see that it is reasonable to offer that additional assistance—[Interruption.] I said clearly that the big principle in the 1988 legislation was whether local authorities had the right to increase bills themselves in any way they saw fit—[Interruption.] That was the principle that the Labour party has tried to establish in the debate—[Interruption.] That is the principle that we have opposed.

Mr. Deputy Speaker (Mr. Michael Morris)

Order. I am having great difficulty hearing the Minister because of sedentary remarks. I should be grateful if the whole House would listen to the Minister.

Mr. Redwood

You are very courteous and helpful, Mr. Deputy Speaker. Opposition Members are a little rattled because they are not making any progress in their rather weak arguments tonight.

I will repeat some helpful points for Opposition Members. I and my officials will study carefully any representations made by Opposition Members on the question of re-billing costs and the cash flow to local authorities. I take up the point mentioned by the hon. Member for Torfaen. The position has been made very clear. Businesses should carry on paying the instalments and bills that they have received until such time as the rebilling exercise has been completed, assuming the safe passage of the Bill through both Houses and Royal Assent.

I am grateful to Opposition Members who have done their bit to help to speed the legislation. The best help that we can all offer business is to ensure the smooth and rapid passage of the Bill through the House so that the rebilling exercise can be carried out quickly and effectively and so that people get the benefit of the legislation as promptly as possible.

We shall, of course, study any cost analysis that the hon. Member for Torfaen may have on a reduction in rebilling costs. We have a basis for our own calculations and we are consulting the local authority associations. I reaffirm a point I made in other forums in answer to the hon. Member for Torfaen. We intend to consult and liaise closely with individual local authorities and with local authority associations. My right hon. and learned Friend the Secretary of State and I have already met the local authority associations on more than one occasion since we took over our present tasks.

I have recently toured different parts of the country to meet local authority representatives, and I intend to do as much of that as time and business pressures permit. I like to see for myself what is happening on the ground, to listen to the views of local authority officers of all political persuasions and to meet people in my offices in Whitehall and here in Westminster.

The hon. Member for Cardiff, West attacked the system when he said that it was not calculable or predictable. That is exactly what a national business rate with a specified rate of increase in poundage will be when compared to Labour's system where the poundage would move around as well as the valuations. The more regular the revaluations, the more stability there will be from the valuations. The successful completion of a quinquennial review will help to stabilise the system compared to the long gap in the previous case.

The hon. Member for Torfaen was worried about the degree of change and stability in the system. There are changes in local government at the moment. However, my predecessors made a sensible point of passing legislation and setting out the main points of the council tax as early as possible, thus leaving people with more than a year in which to plan against the background of that legislation and the main principles of the proposals now coming before us for final implementation.

With regard to structure reform, I was not sure whether the hon. Member for Torfaen suggested that he admired the Welsh model and not the English model or the other way around. He seemed to argue it both ways. Let me reassure him that the Government do not lack enthusiasm for a sensible reform of local government in England as well. I hope that we shall shortly announce more proposals to flesh out the details that have already been passed in legislation. They will make it clear that there will be a structure review in the English shire regions which will start soon when we can make the necessary arrangements and announcements.

Mr. William O'Brien

I have listened carefully to the Minister's response. I referred to the Forum for Private Business; I am sure that the Minister has received a copy of the circular that I have received, in which the chief executive states that the forum is prepared to work with the Government in respect of small firms. He also states: This is a critical time for small firms, many of whom are suffering cash flow problems with less support from the banks. It is not just a matter of rents and rates. Other issues are involved with regard to the cash flow of small firms. Will the Minister consider what the forum for small businesses has said and, if necessary, will he enter into discussions and listen to what the forum has to say about the important issue of cash flow?

Mr. Redwood

My hon. Friend the Under-Secretary of State for the Environment who is responsible for local government affairs will meet the forum on 1 July if all goes according to plan. He will listen carefully to what its members have to say. Several Ministers over many months have listened to what the forum has had to say. They have read its surveys and have had meetings with representatives. Undoubtedly, the forum helped to influence the Chancellor's and the Government's decision to announce a package of measures in the Budget to help business cash flow of which this Bill is but one.

The voice of business through the forum and through other channels of communication to Government does not go unheard. I promise that my hon. Friend the Under-Secretary of State will meet the forum soon and that he will listen to those specific points. The hon. Member for Normanton should bear in mind that we have announced and are carrying through a substantial package of relief from business rate increases which we hope that the forum and other small business representative groups and small businesses themselves will welcome.

I trust that the House will give a swift passage to this legislation. The Bill will be very welcome in the business community, and I hope that it will receive its Third Reading without any further Division.

Question put and agreed to.

Bill accordingly read the Third time, and passed.

9.38 pm
Mr. Bob Cryer (Bradford, South)

On a point of order, Mr. Deputy Speaker. I wonder whether you have had a request from the Leader of the House to make a statement about the legislation that is to be considered in Committee tomorrow, in view of the delightful and welcome news that it appears that the Danish people have very sensibly voted against the Maastricht treaty. If that is the case, it means that the whole of the treaty paraphernalia will collapse and that the business which is to occupy the House for the next two days will be completely wasted. Therefore, it would seem sensible for the Leader of the House to make an early business statement so that we may take into account the good news from Denmark.

Mr. Deputy Speaker

I confirm to the hon. Gentleman that I have heard nothing about that matter, but I imagine that members of the Government have listened to him.

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