HC Deb 11 April 2003 vol 403 cc587-94

Motion made, and Question proposed, That this House do now adjourn.—[Jim Fitzpatrick.]

2.30 pm
Norman Baker (Lewes)

I am grateful for the opportunity to consider an important issue for my constituents: council tax increases in East Sussex. I am glad that the Under-Secretary of State, Office of the Deputy Prime Minister, the hon. Member for Shipley (Mr. Leslie) is in his place. We last crossed swords in an Adjournment debate about Lord Birt, and he skilfully avoided answering any of my questions. I look forward to a better response today. I am sure that he will help and not simply read out a prepared statement, but try to engage with some of the questions that I ask.

Council tax increases are a highly political issue but I shall try to approach it as far as possible in a non-party political way. I hope that the Under-Secretary will respond in the same spirit. I have received more letters of complaint about the council tax than I have ever previously received as a Member of Parliament, and more letters about local taxation than when I was leader of the district council and the Conservatives introduced the poll tax. Clearly, the issue has incensed the population in my constituency and others throughout the country. I have received bucketloads of complaints. There is little to be said in favour of that except perhaps that it keeps the Royal Mail in business.

In my constituency, there has been an increase of approximately 20 per cent. in the council tax, which comprises an increase of 39 per cent. by the police authority and 20 per cent. by the county council. The district council's increase is less than 10 per cent. but considerably more than inflation for Lewes and Wealden district. There are three possible reasons for that significant increase. I should be grateful if the Under-Secretary would respond to them.

First, there appears to be a switch from national to local taxation. I reached that conclusion not least from a parliamentary answer, which the Under-Secretary gave on 7 April to my hon. Friend the Member for Colchester (Bob Russell) when he listed the average council tax increase for each year from 1997 to date. In 1997, the average increase in the country was 6.5 per cent.; in 1998, it was 8.6 per cent.; in 1999, it was 6.8 per cent.; in 2000, it was 6.1 per cent.; in 2001, it was 6.4 per cent.; in 2002, it was 8.2 per cent; and this year it is 12.9 per cent. Those increases are way in excess of the rate of inflation.

The Under-Secretary will doubtless say that the settlement this year is very good, that local government has received something in excess of inflation and that every council in the country has benefited. Will he solve a genuine conundrum? If the settlement is as good as he says, why is the average council tax increase 12.9 per cent. throughout the country? Does he seriously argue that every council, whether Labour, Liberal Democrat, Conservative or independent controlled, is profligate? Why is the increase so high if the Government have been so generous? The equation simply does not work, and we need an explanation.

I have examined the position of Lewes district council in some detail since it is the primary district council in my constituency. In the period since the Government took office, inflation has been equivalent to 15 per cent. In that time, external support for Lewes district council has risen from £5,182,125 to £5,469,278—an increase of 5.5 per cent. against an inflation increase of 15 per cent. In other words, the annual increase in external support from the Government has been less than 1 per cent. every year. External support as a percentage of the net budget between 1997–98 and 2003–04 has decreased from 63.5 per cent. to 51.2 per cent. To put it another way, external support from the Government for band D property has increased from £148.12 to only £150.59. In other words, over that six-year period, there has been an increase in actual terms of only 1.7 per cent. in external support. The council tax for a band D property has risen over that period from £82.15 to £143.49—an increase of 74.7 per cent., compared with the external support increase of just 1.7 per cent. Those figures from the district council illustrate the serious shortfall in external support from the Government, way below the rate of inflation. If that is mirrored in authorities across the country, it is perhaps not surprising that big council tax increases have resulted.

Significant extra costs have also been put on to local authorities, not least in the form of the increase in national insurance payments, which will make a big dent in their resources for which they have not been able to budget. There is also a Government assumption—as I understand it, a Treasury assumption—that there will be a 6.1 per cent. increase in the level of assumed national council tax to be raised locally across the country. So, even with the Government's generosity—as it will no doubt be described—they still expect council tax revenue to rise by 6.1 per cent., which is way in excess of inflation. I can only assume, therefore, that Government policy is to increase council tax in excess of inflation across the country. If that is their aim, they have certainly achieved it.

A further reason For the problem is the switch of resources from the south to the north, although the Government strenuously deny this. The fact is that research carried out by the Chartered Institute of Public Finance and Accountancy shows that, in relation to band D properties, the increase in the Government grant to local authorities in the north of England this year has been between £208 and £244, while the increase for the south of England has been between £135 and £183. In other words, local authorities in the north have done substantially better than those in the south. Consequently, the increase in council tax for north of England authorities is around £98, while the increase in the south varies between £135 and £161.

To put that another way, the analysis from the Office of the Deputy Prime Minister shows that the average increase in council tax is 8.7 per cent. in the north-east and the north-west, 9.2 per cent. in the east midlands, 10 per cent. in the west midlands, and 10.3 per cent. in the Yorkshire and Humberside region. Those tend to be Labour areas; I shall put it no more strongly than that. In the south-west, which is predominantly Liberal Democrat, however, the increase is 13.8 per cent. In the east of England, the increase is 15.1 per cent., and in the south it is 15.7 per cent. Those areas tend to be Conservative, although they are not exclusively so. The Government's system would therefore appear— inadvertently, no doubt—to favour the authorities in the north, which, by and large, tends to help Labour councils.

Gregory Barker (Bexhill and Battle)

I am listening carefully to the very powerful points that the hon. Gentleman is making. Like him, I have been inundated by an extraordinary number of letters from constituents, particularly the elderly, many of whom are finding that this year's council tax increase has wiped out their pension increase with one blow. East Sussex has a very high number of pensioners—more than 25 per cent. of the population—who are on fixed incomes. Does the hon. Gentleman agree that the Government are apparently able to get away with this resource shift because the complexity of local government funding allows them, like a conjuror, to switch the cups under which the money is hidden? The reality is that although the formula grant might have gone up by 5.9 per cent. in cash terms, the effect of education damping on the formula spending share—and therefore on the potential grant that the council could expect—has meant that East Sussex has lost more than £14 million. Change in the floor grant provision has meant that it has lost more than £9.9 million. The average formula grant increase should have been £15.7 million, but it got only £10 million—

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. The hon. Gentleman must not make a mini-speech.

Norman Baker

Thank you, Mr. Deputy Speaker. I have seen those figures similarly produced and I concur that they are accurate, as far as I am able to tell. Local government finance is complicated and difficult to access, and I make the general point to the Minister that there is a need to simplify it to make it more accountable and, therefore, more democratic, irrespective of whatever increases apply.

The hon. Member for Bexhill and Battle (Gregory Barker) leads me on to my next point: why has there been a change involving distribution from the south to the north? I am prepared to give the Government the benefit of the doubt as they have a new system for analysing where grant should go. They have changed the formula, which happens to have produced such a result. I shall accept that if it is the case that the Minister makes, but, unfortunately, if that is what happened, the arrangement is flawed as it assumes, wrongly, that people who live in the south are necessarily able to absorb big council tax increases. They are not.

The hon. Member for Bexhill and Battle referred to pensioners. Many people in my constituency and in East Sussex happen to be property rich, but poor in terms of disposable income. They may have been living for a long time in a family house that they inherited and which may be a band E or F property. On the face of it, such people may have a great deal of capital, but they have little income to spend. They are facing huge increases that, often, they cannot afford. The Chancellor has introduced measures, which I acknowledge, to help people at the poorer end, but they do not always compensate for such enormous council tax increases as we are seeing this year.

I make a further point to the Minister. Ministers always seem to think that East Sussex is a rich county and that it is part of the rich south-east—the leafy suburbs of West Sussex and Surrey. East Sussex is not a rich county. It is continually shown up, even in Government figures, as one of the poorest counties in the country, with large areas of deprivation. This year, East Sussex county council has received the second-lowest grant of any county council in the country, which suggests that there is something seriously wrong with the formula that the Government apply.

I shall refer briefly to another factor, which is minor but worth putting on the record. Last year, I am bound to say, the East Sussex administration adopted a rather stupid position of macho posturing in suggesting that it could cut services and keep the council tax increase down, which it duly did to 4.9 per cent. I believe that that policy sent a message to the Government that the council could absorb a large council tax increase, so, to that extent, it is complicit in achieving the current position. However, that is a minor contribution overall, and the other factors that I have referred to are more important.

I say to the Minister honestly and sincerely, and I hope he responds in like fashion, that people in my constituency are seriously suffering as a consequence of the council tax rises. They face 20 per cent. increases, which they cannot afford. They do not know where the money will come from, and even what the Chancellor has given in his Budget and in previous Budgets to help those at the lower end does not compensate for rises of this magnitude, year on year on year.

Such increases cannot go on. I have referred to the average increase each year. The lowest in any year since the Government came to power was 6.1 per cent. In every other year, the increase has been higher, and this year it is double that figure at 12.9 per cent. across the country and 20 per cent. in East Sussex. The Chancellor rightly says that he has been quite good at keeping inflation down. He has been successful in that regard, but that only highlights even further the disparity between inflation, which is low, and the enormous council tax increases. Where are people going to find the income to make up that gap between the inflation rate, index-linked benefits and the council tax increases? I do not think that they can necessarily find it.

The Government need to look at that issue—on a non-party basis, I hope, but really seriously—because people out there are suffering. The Government need to have a mechanism in place, and I do not mean capping councils, to ensure that next year the average council tax increase comes in at about the inflation rate, which it has not done in any year since the Government took office.

The Government need to commit themselves to not switching taxation from the national to the local pot, and they need also to examine the impact of their changes to the arrangements for what used to be the standard spending assessment, which is now the formula spending share. They have led to the disparity between north and south. The Government must consider in particular the poor people in East Sussex, which is a poor county, even judged nationally, compared with many others.

As the Minister will know, my party has suggested a £100 cut for every council tax payer in the country, funded by an increase in the tax rate for the top 1 per cent. I have no problem with the idea of redistributing wealth. It may seem strange that I should say that, and we may well hear a rebuttal from the Minister, but I think there is a case for it, particularly when council tax rises are so enormous. It is one way of taking the sting out of that increase. I hope that the Chancellor will consider the idea, or at least a similar measure.

The Government should, however, go beyond that and consider whether council tax constitutes a fair way of raising money locally. The poll tax was disastrous, a nightmare, and it was vital to get rid of it. The council tax was introduced at relatively short notice, and it has not been hugely successful. It has proved a great deal better than the poll tax, but it is creaking at the seams now. It is a beast of burden that is becoming overladen. It is time to think about its abolition and the introduction of local income tax. A fairer system of local government finance is long overdue.

2.46 pm
The Parliamentary Under-Secretary of State, Office of the Deputy Prime Minister (Mr. Christopher Leslie)

I congratulate the hon. Member for Lewes (Norman Baker) on securing the debate. I was also interested in what was said by the hon. Member for Bexhill and Battle (Gregory Barker) about representations from his constituents.

A couple of simple, obvious points need to be made. Although they are simple and obvious, I will make them none the less. The first is a defence of local democracy. Decisions on council tax are ultimately local decisions: it is for councillors elected by local people, and accountable to them, to make their own decisions about local budgeting and hence about the council tax rate.

The Government believe in giving local authorities more freedom and flexibility. That is why we have tried to dispense with some ring-fenced grants that have sometimes meant the binding of pots of money. We still give a significant amount of grant to local authorities. but we have been able to increase overall grant levels, allowing local democracy to thrive as much as possible to maintain accountability.

Although there have been the average council tax levels cited by the hon. Gentleman, it is not true that every council has increased its tax significantly. Some, of course have chosen to do so: Wandsworth, famously, has increased its tax by about 50 per cent., and there have been other increases in single figures. Each authority has its own circumstances, and makes its own choice about its council tax rate.

The second simple and obvious point is often made, but I want to make it again. The Government have put significant amounts into local government services. There has been one of the most generous local government settlements ever—a 5.9 per cent. direct grant increase across the country. Taken along with other specific grants, that becomes about 8 per cent. extra, or £3.8 billion. For the first time we have been able to ensure that all authorities receive an increase in central Government support above the rate of inflation. The value of that should not be questioned. Real-terms increases in local government funding since 1997, when the Labour party came to power, amount to 25 per cent. The last Administration had a much more dubious record.

Norman Baker

I ask this genuinely and with puzzlement. If those figures are correct—I am sure that the Minister is an honest chap, and is telling me the facts—why is the average council tax increase 12.6 per cent.? If the Minister is giving councils money above the inflation rate, why are councils under every kind of political control imposing such huge rises?

Mr. Leslie

It is not quite as simple as "councils under every kind of political control". I did not want to be overtly partisan, but the typical Conservative authority is increasing its council tax by around 16 per cent. Labour councils are raising theirs by significantly less, and Liberal councils by somewhat less. We have a new formula grant system in place following an extensive review. The system has changed significantly. I suspect that some local authorities, not all, may have used that as a cover for increasing council taxes significantly but, as I say, the generous extra grants going in mean that there are no good excuses for excessive rises in council tax.

Gregory Barker

If what the Minister says is the case, why do the chief executive—not the political leader—and the other treasury officers of East Sussex county council clearly specify and spell out that in underlying real terms the council is losing £29.9 million? They have not invented that sum. It is a real sum based on factual calculations.

Mr. Leslie

There is no truth in the suggestion that East Sussex county council is losing any Government grant. On the contrary, it is getting an increase in grant from central Government of 3.8 per cent., which is above the rate of inflation. It is not the same as other councils have received. I think that Hastings borough council has received a 5.8 per cent. increase, and Lewes district council an 8.1 per cent. increase. The interesting thing about East Sussex county council is the budget decisions that it has taken. Its councillors decided to increase the budget by, I think, 9.3 per cent.. Not all councils have chosen to increase their budget by that amount. There may be perfectly good legitimate local reasons for that or there may not: it is not for me as a Minister to intervene. That is a local decision, but local people need to ask searching questions about why the decision was taken to increase the aggregate budget by 9.3 per cent.

The hon. Member for Lewes suggested that there had not been very good grant increases, particularly for Lewes district council. He is wrong to compare the raw cash figures in 1997 with the amount of grant now. They do not provide a like-for- like comparison of the services that have been provided by that specific grant. There have been a number of changes in function. For example, council tax benefit administration and housing benefit administration have gone from being funded from a general grant to being funded from specific grants. In the past three years, overall grants to Lewes district council have increased by about 5 per cent. year on year on a like-for-like basis. That is a reasonable and generous settlement.

As I say, in looking at some of the different figures, the budget decisions of those local authorities need to be taken into account. Other factors have come into play in determining whether they have had more or less of an increase. The area cost adjustment has been an issue for East Sussex county council—I will come to that if time permits—but in Eastbourne, Rother and Wealden, population loss has been a significant factor.

The 2001 census has come out. In some district council areas, there was an over-estimate of how many people resided in those areas. Those changes, as they fed into the formula—we give money to local government on a per capita basis and then have top-ups for deprivation and other factors—have meant that those authorities have not gained as much as they may have expected.

In Eastbourne there was a 3 per cent. population loss. In Rother there was a 7.1 per cent. population loss and in Wealden a 2.2 per cent. population loss. That means that their grant increases have been around 3 per cent. In Lewes, which is of particular concern to the hon. Member who secured the debate, there has been a recorded population gain of 5.4 per cent., which in some ways has been the prime driver behind the 8.1 increase in grant for the district council.

The hon. Member for Bexhill and Battle mentioned council tax perhaps being particularly burdensome for pensioners, the elderly and others who have difficulties with paying. I am always concerned about those people who find great difficulty in paying their council tax. That is why people on low incomes have help available to them through the council tax benefit system, which can meet some or even all the council tax liability, depending on the income that individuals have. Obviously, I urge anybody who has not applied to contact their local authority and take up that benefit if they think they are eligible.

I am sad to say that the hon. Member for Lewes rehearsed the oft-repeated myth about the council tax grant moving from the south to the north. There are many good examples of authorities in the south getting very significant increases in grant support. As I have said, Lewes district council received 8.1 per cent., which by any measure is a very generous increase in local authority grant. Many other authorities in the south have received well above average increases: Buckinghamshire has received 6.4 per cent., Bedfordshire has received 7.1 per cent., Cambridgeshire has received 8.5 per cent. and Wiltshire has received 8.9 per cent. Those increases are well above the rate of inflation—in some cases, three or even four times above it.

Norman Baker

Can the Minister therefore explain why authorities in the south-east have average council tax increases of 15.7 per cent. this year, whereas local authorities in the north-east, for example, have increases of 8.7 per cent.? Are people in the south-east who run councils twice as profligate?

Mr. Leslie

No, but there are other factors that certain commentators might want to look at, such as the absence of county council elections or London borough elections this year. It is interesting to note that Wandsworth cut its council tax the year before the London borough elections; now, a year later, there is a 50 per cent. increase. It is noticeable that, in terms of decisions taken by some counties and London boroughs, there tends to be a correlation between when elections occur and council tax figures. However, as has been pointed out, it would not be proper for me to suggest a causal connection between those factors.

The grant levels have been extremely significant, and some very important changes were made to the formula. The area cost adjustment is now much more sensitive to local needs. I suspect that some concern has been expressed in East Sussex about some of those changes. The ACA used to be calculated at a crude level, involving concentric circles around London. It did not really compensate areas outside the south-east for some of the high wage costs that they face. The new system uses local wage evidence in a much more sophisticated way. In replacing the old system, it recognises that the south-east is still the most expensive region, after London, in which to recruit and retain staff. On East Sussex's claim that we have not reflected its wage pressures, the ACA is based on local labour market evidence and statistics, so ACA top-up does take into account local labour market pressures. Other local employers face very similar recruitment, retention and wage demand issues.

The hon. Member for Lewes also mentioned the Liberal Democrats' pledges on ways to reduce the council tax burden. He talked about their being able to make a £100 reduction in the council tax system. I am not sure that the sums add up, and I would be very worried about such a claim, given their past record. The Government have, however, decided to examine the council tax issue a little more thoroughly, and particularly the question of the amount raised locally, compared with that raised through central Government grant. We want to look at that connection in terms of accountability. A "balance of funding" review will commence shortly, under the chairmanship of my right hon. Friend the Minister for Local Government and the Regions. So we are looking at the current financing arrangements across the piece.

The Liberal Democrat proposal that worries me a little more—there are advantages and disadvantages to all systems—is that of an income-based local tax. I want to put on the record my worry that such a system could lead to different tiers of local government each setting their own income tax. That might weaken local accountability, particularly if the tax were collected centrally. It could also disadvantage inner-city and more deprived areas that, for example, have a predominance of poor households. Such areas might not have the income generation capability to support significant spend. Those are issues that the Liberal Democrats must address.

East Sussex county council and East Sussex's district councils are all getting above-inflation grant increases, so attention must turn to the budgeting decisions of locally elected councillors, who must explain their council tax figures. Nationally, the Government are investing record sums—billions extra—in local government services, and we have consistently increased grants to local government since taking office. As I said, some 25 per cent. extra—

The motion having been made at half past Two 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 Three o'clock.