HC Deb 04 February 2004 vol 417 cc744-7
2. Ms Meg Munn (Sheffield, Heeley) (Lab)

What progress has been made with the balance of funding review. [152480]

The Minister for Local Government, Regional Governance and Fire (Mr. Nick Raynsford)

The balance of funding review is making good progress, and is now looking at a number of proposals, suggested in the public consultation, for reforming current local authority funding arrangements. The review will report in summer 2004.

Ms Munn

I thank my right hon. Friend for his answer. I understand that one option being considered is local income tax, which is particularly favoured by the Liberal Democrats. I urge him to ensure that the administrative difficulties of such an arrangement are fully explored, including what it would entail and its likely cost. I am sure that he would not want to repeat any of the problems of the poll tax.

Mr. Raynsford

I can confirm to my hon. Friend that we are considering a range of options proposed during the consultation, including the suggestion of a local income tax. However, although we are ready to look at options that will take greater account of people's income, unlike the Liberal Democrat party, we are not seduced by back-of-the-envelope calculations and unrealistic assumptions about administrative costs. The Lib Dem proposals for a local income tax would not only create huge administrative complexities and costs but open serious loopholes, enabling large numbers of people, including some of the wealthiest in the country, to evade any contribution to the cost of local services. That is not a sensible way forward.

Mr. David Curry (Skipton and Ripon) (Con)

It is nice to see that the Minister had prepared such a good impromptu response to that question. Does the review include an examination of capping powers? Does he intend to cap every council and preceptor, with the exception of combined fire authorities, that seeks an increase in council tax revenue of more than 5 per cent?

Mr. Raynsford

The right hon. Gentleman will know that the balance of funding review is looking at the long-term issues relating to the balance of funding between central and local government sources. The specific issue of capping is topical, for obvious reasons. The Government have made it clear that we expect all authorities, including fire and police authorities, to budget prudently. We have also made it clear that we expect local authorities to look for council tax increases in low single figures, and I have already written to some 54 authorities that have indicated that they were considering unreasonably large increases. We take our responsibilities seriously, and we are determined to ensure that the levels of council tax are brought down so that people are not confronted with unreasonably high tax demands.

Mr. Curry

That is an interesting choice of words. The Minister is now talking about budgeting prudently. A few weeks ago, he was waving a big stick at anyone who proposed an increase of more than "low single figures"—that was the expression that he used over and over again. He has sent out letters to some councils that are proposing increases of barely more than 5 per cent. and to others proposing increases in the teens. However, some councils that propose increases in the teens have not received a letter. Who is going to get all these billets-doux? Should not the Minister employ a better cuttings service, so that he can find out more about what is happening? When is he going to send a billet-doux across the river to the new Labour candidate for the mayoralty of London?

Mr. Raynsford

It is appropriate for the right hon. Gentleman to talk about getting a better cuttings service, given the Conservatives' record in power of cutting services. [Interruption.] That was not a rehearsed answer, either. We have written to 54 authorities about which we have had indications that they might be considering increases in excess of 5 per cent. That is not necessarily an indication of the level at which we will cap, but it is right that authorities should be aware that the Government attach great importance to achieving increases in low single figures. That is the basis on which I have written to those authorities, and if there are others considering large council tax increases to whom I have not already written, I hope that the right hon. Gentleman will help to supply that information in respect of Tory authorities—which are among those proposing the highest increases—and I will be very happy to write to them.

Andrew Bennett (Denton and Reddish) (Lab)

Will my right hon. Friend consider placing in the Library the working documents for the balance of funding review? Will he also make it clear that we shall continue to have a problem with local government finance until someone can come up with a practical, buoyant and progressive system of local taxation?

Mr. Raynsford

All the working papers for the balance of funding review are already on our website, and I shall have no difficulty in meeting my hon. Friend's request for copies to be placed in the Library. As I said in response to an earlier question, we are looking at a range of options, including those that would allow greater consideration to be given to income, but I would not want him to underestimate the complexities involved in the Liberal Democrat proposal to substitute a local income tax for the current council tax. The whole field of local government finance is littered with examples of over-optimistic and ill-thought-out proposals for change that have produced perverse and unsatisfactory consequences. The Conservatives were responsible for the poll tax; the Liberal Democrats seem to be rushing into a rather similar proposal. We will look at the matter prudently and take decisions based on a sensible appraisal of realistic options.

Mr. Edward Davey (Kingston and Surbiton) (LD)

I am glad that the Minister is looking at our proposals so carefully. If he wants to work with me, I would be happy to take him to those countries that have a local income tax system that is cheaply administered, fair and effective. Will he comment on a document on his Department's own website, produced by the New Policy Institute, which talks about the effects of council tax band revaluation in 2007? In particular, will he comment on the finding that council tax bills for Londoners in band C properties will increase by an average of 15 per cent. because of revaluation alone, while bills for those in band H properties will remain the same? Does he think that that is fair? If not, why do not the Government save the £200 million cost of the revaluation and scrap this unfair tax?

Mr. Raynsford

I am glad that the hon. Gentleman has looked at the evidence on the website relating to the items discussed at our last balance of funding review. Perhaps he would like to go further and consider the detailed analysis of the New Policy Institute, which suggested various amendments to the current banding system to address exactly the problem that he has identified. It is because we are looking seriously and intelligently at problems, and seeking ways of finding effective solutions, that we will come up with sensible suggestions, rather than the half-baked proposals that the hon. Gentleman's party comes up with.

Mr. Jon Owen Jones (Cardiff, Central) (Lab/Co-op)

Will my right hon. Friend reject as completely unfair and unprogressive any system of taxation that allowed millionaires to live in mansions and pay no council contributions at all, while hard-working families with modest means would pay thousands of pounds more?

Mr. Raynsford

I can give my hon. Friend a very simple answer: yes.