Local Taxation

HC Deb 10 February 2004 vol 417 cc1331-83 4.17 pm

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

I beg to move, That this House believes council tax is unfair, should not have been introduced and should be replaced by a system that reflects people's ability to pay. Today's debate on the council tax is about fairness in local taxation. Most people agree that fairness may be in the eye of the beholder when the judgment is about the object of one's affections. However, when the object is taxation policy, surely the judgment is less subjective.

The usual meaning of fairness in the context of taxation is progessivity. Simply put, that means that it is fair that a person's tax bill should increase at least in proportion with their income. It means people paying according to their means; taxpayers paying what they can afford, and tax related to ability to pay. That is not a difficult concept and I hope that it is not controversial. Yet when we apply the fairness test to council tax, what do we find? The poorest pay the most in proportion to their incomes. Whether they are pensioners, low-paid public sector staff or low-paid private sector employees, those on modest incomes pay more in council tax. It is the reverse of fairness and progressivity.

We are not considering a little unfairness, with the poorest paying a smidgen more, but gross, grotesque unfairness—unfairness not seen since the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) extolled the virtues of the council tax in the House.

Mr. David Borrow (South Ribble) (Lab)

The hon. Gentleman said in his introduction that fairness must be perceived in terms of income. Does he accept that fairness in terms of ability to pay is not only a matter of income but of wealth and that both must be taken into account when judging whether a tax or a basket of taxes is fair?

Mr. Davey

The hon. Gentleman is right that we should consider all aspects of a person's wealth when considering overall tax policy, but I wonder whether he wants to force people out of their homes by taxing them through council tax. I would rather ensure that that part of property wealth is taxed through inheritance tax when people die, or through stamp duty when they move. That is the fair way of taxing property. It is much fairer for local taxation to be based on ability to pay—on income.

Dr. Julian Lewis (New Forest, East) (Con)

There is a certain déjîvu to this debate—I am thinking back to the community charge, which was introduced before the hon. Gentleman and I were in this House. If we had a local income tax, what would happen where a household had three or four wage earners who all paid that tax, whereas previously just one householder had paid the council tax? How would the hon. Gentleman avoid the same sort of demonstrations and upsets that attended the community charge? Is not this the Liberals' version of the poll tax?

Mr. Davey

I am grateful to have a Conservative intervention so early because I will be asking every Conservative MP who intervenes on me today two questions. First, do they think that the council tax is fair; and secondly, what is their policy on council tax? This House needs to know the Tory party policy.

Mr. Patrick McLoughlin (West Derbyshire) (Con)

On a point of order, Madam Deputy Speaker. The hon. Gentleman has just said that he will ask every Conservative Member who intervenes two questions. Will it be in order for us to get up and answer those questions? If we are asked questions, it is only fair that we have the chance to answer them.

Madam Deputy Speaker (Sylvia Heal)

The occupant of the Chair always tries to be fair to all hon. Members, so I think that we will wait and see as the debate progresses.

Mr. Davey

Madam Deputy Speaker, I can assure hon. Members that if some of them want to answer those questions, I shall allow them to intervene.

I can tell the hon. Member for New Forest, East (Dr. Lewis) that the difference between our proposal for a local income tax and the community charge is that one is related to ability to pay and the other is not. Under one scheme, millionaires paid the same as dustbin men; under the other, they would not. That is the difference, and that is why this party stands for fairness and his does not.

Mr. Lindsay Hoyle (Chorley) (Lab)

I understand the point that the hon. Gentleman is trying to make, but I wonder whether he shares my worry that the wealthiest in this country usually have the best accountants, who ensure that they pay only a very limited amount of income tax. How would those wealthy people contribute to the hon. Gentleman's local scheme?

Mr. Davey

I am interested to hear Labour Members defend the very richest in the land. The hon. Gentleman should speak to his right hon. Friend the Chancellor, because if he is failing to administer the tax system properly, this House ought to know about it.

Mr. Mark Field (Cities of London and Westminster) (Con)

rose—

Mr. Davey

I know that Conservative Members are desperate to answer my questions, and I promise that I will give them the chance to do so, but I want to make some progress.

I shall give the House some measure of the unfairness of council tax. Let us start with households. The richest households pay just 2 per cent. of their income in council tax, but the poorest pay 7 per cent., which is more than three times as much. That figure alone should worry the House, but I am afraid that there are worse examples. Let us look at pensioners. According to the Office for National Statistics, the poorest 20 per cent. of pensioners pay on average 7.1 per cent. of their income in council tax, taking into account council tax benefit and single person's discount. Hon. Members may have examples of pensioners who are paying far more—perhaps 20 or even 30 per cent. of their incomes. I have some such examples in my constituency, but on average, the poorest 20 per cent. of pensioners pay 7.1 per cent. of their income in council tax, which is nearly six times more than the richest 20 per cent. of non-pensioners. They pay just 1.2 per cent. of their income in council tax.

That is unfairness on an extraordinary scale, and it goes a long way towards explaining why there has been a revolt against council tax in this country.

Sir George Young (North-West Hampshire) (Con)

Returning to the question that the hon. Gentleman did not answer, is it not the case that the millionaire to whom the hon. Member for Chorley (Mr. Hoyle) referred will pay nothing at all under the hon. Gentleman's proposals and that, by definition, the less well off will have to make good the difference?

Mr. Davey

The right hon. Gentleman ought to know better, as I believe he served in the Treasury in years gone by. Under this Government, and under the previous Conservative Government, the Inland Revenue has cracked down on people who evade tax. He ought to be ashamed, because he is saying that this House cannot implement the tax legislation that it passes. That is a very bad precedent to set, and Government figures in fact show that people on higher incomes pay more in income tax, but less in council tax.

Mr. Andrew Turner (Isle of Wight) (Con)

Does the hon. Gentleman accept that he appears to be confusing those who are rich, which is a measure of capital, with those who have a high income? Somebody can be rich and still have nil income, and therefore pay nothing through a local income tax?

Mr. Davey

If the hon. Gentleman had been listening closely, he would know that I was not doing that. I said that those people with assets and property could be taxed through inheritance tax and stamp duty, and that that was the fair way to do it. I therefore answered that question.

Mr. Eric Pickles (Brentwood and Ongar) (Con)

Will the hon. Gentleman explain what is the Liberal Democrat position with regard to those people who receive remuneration through shares? How will he tackle that with a local income tax? How will he square it with increased share ownership, which is one of the Liberals' aims?

Mr. Davey

I do not know whether the hon. Gentleman fills in a tax return at the end of the year. These people will, however, and they will therefore pay local income tax on it, as is the case in many other countries.

Mr. Pickles

My question is simple, and an answer to it will help the House enormously. Will people pay local income tax on what was referred to as unearned income—yes or no?

Mr. Davey

I am afraid that if the Inland Revenue, under current rules, classes that as income, local income tax will apply to it. If national income tax applies to income, local income tax will apply to income. That is the simple policy that we propose.

It is interesting how concerned Conservative and Labour Members are. They are rattled, we know that they are rattled, and that is why "Focus" editors up and down the country are putting out leaflets on the subject.

Mr. Hoyle

Will the hon. Gentleman give way?

Mr. Davey

I will do so in a second. I want to make a little progress.

There is a revolt against local council tax across the country. What is interesting, however, is that the complaints are not just against one council, and they are not just against councils controlled by the Labour party, the Lib Dems, or the Conservatives. There have been complaints against council tax across the country. The anger is nationwide, and it is against the council tax system.

That is probably why opinion polls on council tax have shifted so sharply in recent times. Only a year ago, 57 per cent. of the public blamed local councils for the council tax rises, while a mere 29 per cent. blamed the Government. Now the position is reversed: 39 per cent. blame the Government, while only 24 per cent. blame councils. People have sussed it out. The national Government are responsible for the council tax system—councils do not choose the local tax system that they use or the local government finance system. That is the job of Ministers, and this lot have opted for the Tory council tax, which is why people are so worried about it.

What is bizarre about the Government's choice is that it is despite the recommendations and advice of the independent Audit Commission, which echoes the views of the public. It said last December that the council tax system is fundamentally flawed. That is why the House must debate the motion, put matters right and get rid of the council tax.

Huw Irranca-Davies (Ogmore) (Lab)

Does the hon. Gentleman recognise that one of the greatest and most antagonistic issues with the current council tax is the failure to re-band for too many years? Will he therefore applaud the Labour-led Welsh Assembly Government for introducing a change by spring 2005, which will mean that greater variety exists, instead of lumping everybody together in bands that are 13 years out of date?

Mr. Davey

If the hon. Gentleman thinks that re-banding is going to solve the problem, I am afraid that he does not understand the post-war history of local government finance. I recommend to him a text that I read in Greece during the recess, when I was boning up on local income tax, which shows that in every decade since the second world war, a local taxpayers' revolt has taken place, whether on rates, poll tax or, now, council tax. The truth is that successive Governments since the second world war have asked local taxation, whether it is on property, individuals or per capita, to do far too much. That is a problem that we must solve, whether through the balance of funding review or our approach.

Huw Irranca-Davies

If there is a history of revolts year after year—I will read the pamphlet to which the hon. Gentleman referred—what increased burden on the taxpayer does he anticipate, if any, under the Liberal Democrat proposals? Back in September, we were talking about possible increases of 3 per cent., 4 per cent and so on. Will it be a zero point gain, or will people who pay the local income tax have an increase within the first couple of years?

Mr. Davey

No, they will not. The policy is designed to be revenue-neutral overall. It is not a tax-raising but a tax-neutral policy. The aim is to shift tax-raising power from central Government to local government, which is done in many other countries.

Mr. Hoyle

rose—

Andrew Bennett (Denton and Reddish) (Lab)

rose—

Mr. Davey

I am going to make some progress, but I promise to give way in due course.

Our motion is pretty clear. The first part says, very simply, that this House believes council tax is unfair". I look forward to hearing from many Members, particularly Conservative and Labour Members, whether they disagree with that part of the motion. If they are going to stand up and put on record that they think the council tax is fair, I am sure that their electors will want to know that.

Mr. Hoyle

rose—

Mr. Davey

I will give way, because I am worried about the hon. Gentleman's health.

Mr. Hoyle

While the hon. Gentleman worries about my health, I will ask him a question that will give him something else to think about. Does he know how many airline pilots and people who work abroad have their salaries paid into overseas accounts? The one thing that the previous Government established was that people move but properties do not. That is why they had to return to the old system. How would the Liberal Democrats begin to collect tax from those who are paid abroad in offshore accounts—and there are a lot of them—and how would they assess what those people should pay? Or—this is the key question—would they put the burden back on to the people who are employed in the United Kingdom?

Mr. Davey

I will not be worrying about the hon. Gentleman's health again.

What we are arguing is that the national income tax base should remain, and that local income tax should go on to it. If there is a problem with people not paying income tax now, it should be sorted out by the Chancellor of the Exchequer. He should make sure that they pay their dues.

As I learnt during my sojourn in Greece, many other countries operate a local income tax. It is a tried and tested policy. It works in very left-wing countries like the United States of America and Switzerland; it works in very right-wing countries like Sweden, Denmark, Finland and Norway. The hon. Gentleman may suggest that there are difficulties, but I am afraid that he is wrong.

Andrew Bennett

rose—

Mr. Davey

I give way to the Chairman of the Select Committee.

Andrew Bennett

The hon. Gentleman says that his proposal is revenue-neutral. All the upsets over the council tax and the poll tax have related to the problem of those taxes going up. Will the hon. Gentleman now admit that a local income tax will have to keep going up if councils are to provide extra services?

Mr. Davey

It is revenue-neutral compared with what otherwise obtains. [Laughter.] I am surprised that Members laugh. Obviously if more is to be spent, tax revenue will go up. That is what has happened under the poll tax and the council tax. Members may wish to deny the facts, but I am afraid that they will have to face them.

One of the real benefits of a local income tax for local government is its buoyancy. Unlike council tax, which must rise every year just to keep pace with inflation, local income tax rates could stay the same because more money would come in as employment and earnings increased. [Interruption.] Of course, the rates could go down if locally elected councillors and local communities wished. That is what has happened in other countries.

Mr. Graham Stringer (Manchester, Blackley) (Lab)

Will the lion. Gentleman give way?

Mr. Davey

No, I will not.

When I made my point about the council tax being unfair, I expected Conservative Members to leap to their feet. I am sure that they will in a second. I expected them to do so because their Front-Bench spokesman, the right hon. and learned Member for Devizes (Mr. Ancram), has said that the council tax is as fair a tax as you will find". A tax that makes the poorest pay more is a fair tax, according to the Tory Front Bench.

Mr. George Osborne (Tatton) (Con)

rose—

Mr. Davey

Does the hon. Gentleman want to intervene now?

Mr. Osborne

I am grateful to the hon. Gentleman for giving way, but I suggest that he answer my questions, rather than trying to turn the tables. Students are currently exempt from council tax. Can he confirm that under the Liberal Democrat proposal, any holiday earnings that they accrue would be taxed?

Mr. Davey

That depends on whether they earn more than the personal allowance. For the current financial year, 2003–04, there is a tax-free sum of £4,615. If they earned less than that, they certainly would not pay.

This is an interesting point that I am sure will be made again during this debate. Conservatives will be desperate to point out the losers under this policy, but they will not point out the gainers. They will not point out that 70 per cent. of people will either gain or be largely unaffected. They will not point out that pensioners and those on low or modest incomes will gain massively. They will not point out that our policy is a major tax cut for some of the poorest in our society.

We have heard today from the right hon. and learned Member for Folkestone and Hythe the "moral case" for low taxation. The problem is that his party is the party of unfair tax, not low tax. That is its history and heritage, and that is what it keeps supporting.

Mr. Mark Field

I am an obliging sort of chap, so I shall partly answer the hon. Gentleman's question. I believe that the council tax is a fairer tax than inheritance tax. In terms of elderly pensioners, his party is playing to the gallery by proposing a local income tax. I would like to know by how much Liberal Democrats envisage increasing the inheritance tax take, which would of course affect the estates of many elderly folk, who may not be around for much longer, and who want to pass on their assets to the next generation. They need to be told about that, in advance of the so-called advantages that a local income tax will offer them.

Mr. Davey

We have no plans to increase inheritance tax, but it is interesting to note the hon. Gentleman's point, which is that inheritance tax is somehow unfair. In some cases, we are talking about people who have literally millions, yet he seems to suggest that on their death, such money should be in no way taxable. That would clearly be wrong.

Mr. Andrew Turner

Will the hon. Gentleman give way?

Mr. Davey

No, I have given way to the hon. Gentleman before. The problem for the Conservatives is that in terms of local taxation, they have "form" as long as your arm. That is mainly because they have not got a clue about fairness. I refer them to a debate on the poll tax that took place on 18 April 1988. The then Conservative Minister said—[Interruption.] I shall come a little further up to date with the same person in a moment, if Conservative Members will be patient. In 1988, the then Conservative Minister said: The proposal that we seek to put in place of that discredited system"— he was referring to the rates—

Mrs. Angela Browning (Tiverton and Honiton) (Con)

On a point of order. Madam Deputy Speaker. No one on the Conservative Benches can answer for what happened in 1988, apart from my right hon. Friend the Member for North-West Hampshire (Sir George Young), who voted against the proposal in question.

Madam Deputy Speaker

That is a point for debate and not a point of order for the Chair.

Mr. Davey

As I was saying, the then Conservative Minister said: The proposals that we seek to put in place of that discredited system are much better related to ability to pay." —[Official Report, 18 April 1988; Vol. 131, c. 639.] The Minister in question was the right hon. and learned Member for Folkestone and Hythe, the current leader of the Conservative party. He was telling the nation that the poll tax was fair, but wait—fairness is apparently a concept that can change. On 11 November 1992, a certain Conservative Minister—there are no prizes for guessing his constituency—said: I am confident that the council tax will be seen to be a fair replacement for the community charge".—[Official Report, 11 November 1992; Vol. 213, c. 873.] The council tax is fair, according to the Conservatives. I can assure them that if they fail to change their mind in that regard—if they fail to vote with us tonight—they will be seen by the public not just as the inventors of the council tax, but as the arch-defenders of this discredited system.

The Tories have a bit of a problem at the moment—the problem of being a true party of opposition. They have no policy on tuition fees, they backed the Government on Iraq, and the Prime Minister hoodwinked them on weapons of mass destruction. On council tax, they are incapable of telling us about their alternative—or at least, their leader is.

Mr. Andrew Turner

Could the hon. Gentleman help those of us who do not have to travel abroad to get our summer sunshine—we who live on the Isle of Wight—by explaining why he said to a Labour Member that we were asking the tax system to do too much, but then said later that he expected the local taxation system to be given more responsibility, and to take a greater role in the funding of local services?

Mr. Davey

I will come on to that in a few moments, but the hon. Gentleman knows that I have discussed that matter with him. When a local income tax is in place, it is possible to slash national income tax and reduce some of the subsidies going to local government, allowing local income tax to take the strain. The hon. Gentleman knows that, because I have spoken to him privately about it.

Mrs. Browning

rose—

Mr. Davey

I will not give way, as I want to make some progress.

Only 10 months ago, when the current leader of the Conservative party was the shadow Chancellor, he was jumping on the council tax bandwagon. He told The Daily Telegraph that he would change the system of council tax when we come back to office. Spotting a scoop, the journalist pressed on and asked the then Tory shadow Chancellor how he would change the system. His reply was short: "I don't know". So we have "I don't know" from a man who has spent years studying local government finance as a Minister. The right hon. and learned Member for Folkestone and Hythe has more ministerial knowledge on that subject than any other Member of the House and has the distinction of having introduced two new local taxes—the poll tax and the council tax—but now the Tory leader does not know.

Mrs. Browning

Will the hon. Gentleman give way?

Mr. Davey

No.

As I said, the Tory leader was shadow Chancellor a few months ago, presumably in charge of the Conservative tax policy, yet he did not know. Perhaps he has run out of ideas. Well, I have some good news for him. His successor as shadow Chancellor, the right hon. Member for West Dorset (Mr. Letwin) has been thinking. He sketched out the latest Tory thinking in a little noticed interview for The Independent on 10 December last year. According to that newspaper, he said that, in "the short term", the Conservatives would come up with some answers to the problems caused by soaring council tax bills. In the short term—yet we are still waiting for their answers. The newspaper report continued: The Tories may propose that the share of council budgets raised locally is increased from 25 per cent. to more than 50 per cent. and the council tax is likely to remain under their plans. I am grateful to the right hon. Member for West Dorset for those fascinating words, not least because they amount to the only official Front-Bencher policy that the Tories appear to have on council tax.

Dr. Julian Lewis

On a point of order, Madam Deputy Speaker. I appreciate that we are having what is called an Opposition day debate, but does that mean that the Liberal Democrats should spend the entire debate talking about the Conservative Opposition? Is it conceivable that they should talk about the policies of the Government?

Madam Deputy Speaker

Order. I have no doubt that the spokesman for the Liberal Democrats will, when he continues his speech, include some comments about the Government.

Mr. Davey

You are absolutely right, Madam Deputy Speaker, and you rightly anticipate my remarks, but I have not yet finished with the Conservatives.

What might the words of the right hon. Member for West Dorset mean? To double the amount of money that councils raise locally, they will presumably have to be given some new tax, or council tax will have to go up. I am a fair and generous person, and given that the Conservatives have not mentioned any new tax and have said that they will keep council tax, I have drawn the obvious conclusion. Council tax will double under the Conservatives. All households will, if they re-elect the Conservatives, see council tax bills of more than £2,000.

Let us consider what that would mean for average band D council tax for different regions. Under the Tories, people in the east of England would have to pay double the council tax—£2,230. In the east midlands, it would be £2,250 and in London, it would be £2,160—and I could go on. It is a brave policy and "Focus" editors will be interested in explaining it. However, we will refuse to help the Conservatives sell that policy nationwide if they can tell us that they have a different policy.

Mr. Pickles

The hon. Gentleman is being courteous to the House, but can he reconcile what he has just said with the answers that he gave to the distinguished Chairman of the Select Committee, when he said that incomes and expenditure of councils would rise? I would be grateful if he would tell the House how much the doubling of local income tax would cost.

Mr. Davey

To most taxpayers, nothing, because national income tax would be cut to offset it. It is, as we have said, a neutral tax policy. I was rather disappointed by what the hon. Member for Brentwood and Ongar (Mr. Pickles) had to say, and wonder whether the Tories have a different plan. If they want to tell us their plans for council tax, we should be very interested to hear them. Until then, we will continue to tell the public that the shadow Chancellor has said that the Tories want to double council tax.

There is some fresh thinking going on in the Conservative party. Last week, I stumbled across a paper written in 2002 by a certain Mark Nicholson, deputy chairman of the Ealing Southall Conservative association. It was entitled "No Representation without Taxation—"

Mrs. Browning

On a point of order, Madam Deputy Speaker. The Minister is a generous and understanding man. Would it not be appropriate for him to change places with my hon. Friend the Member for Brentwood and Ongar (Mr. Pickles), so that my hon. Friend can answer the debate when the time comes? Clearly, Labour Members are not involved in the debate, and they could all have a cup of tea.

Madam Deputy Speaker

I shall leave hon. Members to make their own decisions about staying in the Chamber.

Mr. Davey

The paper in question was published by the Bow group. Its executive summary states that local government should raise a far higher proportion of its costs through local taxation. We agree. It goes on to say that a local income tax should supplement council tax to allow councils to become self-financing, and that the national rate of income tax should be reduced to compensate for the introduction of the local income tax, leaving the overall tax burden unaltered by the reforms. It is an interesting document, although not exactly Liberal Democrat policy, as it proposes an extra tax and would retain council tax. "Focus" editors would probably call it the "Tory two-tax solution", but it is at least coherent, and spelled out in detail over 46 pages.

I am grateful to that leading Conservative thinker for his explanation of how a local income tax would work and benefit people. This Conservative member of the Bow group says that a local income tax would improve accountability, protect less affluent areas, improve transparency and not require "any great additional administration". I have decided to send a copy of the pamphlet as a gift to the right hon. and learned Member for Folkestone and Hythe, so that he can get a few ideas. After all, he was chairman of the Bow group in days gone by.

Mr. Stringer

Will the hon. Gentleman give way?

Tim Loughton (East Worthing and Shoreham) (Con)

Will the hon. Gentleman give way?

Mr. Davey

No. I hope that the Conservatives will come to their senses on this matter, and join our campaign for fairer local taxation, even if that means that Opposition Front-Bench Members have to apologise for getting local taxation so badly wrong twice in one political generation.

Tim Loughton

Will the hon. Gentleman give way?

Mr. Davey

I will, as I am about to turn to the Government lot.

Tim Loughton

I am greatly relieved about that. Before the hon. Gentleman tells us what the mutual aid officer of the Little Piddling in the Marsh Conservative branch had to say on this subject some years ago, will he return to what he said about proposals for increasing the share of taxation that comes from local tax? Does he not realise that that has been happening in practice already? In West Sussex, the share of local spending met by national Government grant five years ago was about 75 per cent.—the average for shire counties—and is now 56 per cent. That has happened not because we have raised council tax by enormous amounts, but because the grants to counties such as West Sussex have been slashed and the money has gone elsewhere. That is another example of the equalisation of the rates that the hon. Gentleman is talking about. Will he also explain—

Madam Deputy Speaker

Order. That is a rather lengthy intervention.

Mr. Davey

I am grateful to the hon. Gentleman, as his was one of the first interventions this afternoon with which I could feel any agreement. There is no doubt that the Government have manipulated the grant system, and that their operation of local government finances has not been fair. It must be said that the Government learned most of their lessons from the previous, Conservative Government, but he is right to point out that there have been many examples of unfairness.

The Government should be most ashamed of their record on council tax. Before 1997, most people thought that a Labour Government would be committed to fairness, especially in taxation. However, the fact that the unfair council tax has survived for nearly seven years under Labour is hard evidence to the contrary. The problem for the Government is that retaining council tax undoes all their attempts to do good works elsewhere. Those attempts include winter fuel payments, free television licences for people over 75, tax credits—the Chancellor of the Exchequer can reel them off. They may all have been designed to help pensioners and the less well-off, but are the recipients truly grateful when their extra cash has to be set against the highly visible and rocketing council tax?

Last year, the basic pension went up by 2.6 per cent., but the average council tax rose by 12.9 per cent. Council tax takes a record share of the basic pension; on average, it is more than 20 per cent. That unfairness is felt by many erstwhile Labour voters.

Although the Government are like the Tories, in that they do not have an answer to council tax unfairness, they have at least set up the balance of funding review and the process has, so far, been relatively transparent. The only problem is that Ministers are busy ruling out options before the review has even concluded. I very much regret that, as the review could turn out to be a real shambles.

Andrew Bennett

The hon. Gentleman is doing the House a disservice; he is spending his time making knock-about points, but there are serious issues in the balance of funding review. If he has confidence in a local income tax system, should he not spend most of his speech trying to explain it to the House so that we can see whether it has any validity and can make a contribution to the review?

Mr. Davey

The hon. Gentleman anticipates me—I was coming to the balance of funding review. As he knows, we have published full details of our policy; it is on a website and easily accessible, and we are receiving many favourable comments. He should have already seen it.

The Government's review is supposed to be looking into 12 new revenue sources—at the last count. On the ODPM website, we are told that the review is considering a reformed council tax, a localised non-domestic rate, a local income tax, a localised vehicle excise duty, a localised stamp duty on property transfers, a local sales tax, a local land tax, tourist taxes, new council charges, street works charges, local congestion charging and new, unspecified, environmental taxes.

Some of us felt that 12 new taxes were a bit over the top, but we were reassured by the Government's comments to The Guardian in October, after those proposals appeared on the website. Ministers were said to be looking at a local income tax as an alternative to council tax and a means of allowing local councils to raise more of their own funds". Indeed, the Minister for Local Government, Regional Governance and Fire was reported as saying that replacing council tax with a local income tax was one of the three frontrunners in the review.

That was music to our ears, but unfortunately, that commitment lasted only 24 hours. That was how long it was before No. 10 Downing street barged in to close down the options and the Prime Minister made it clear that he opposed local income tax. He was at it again when he appeared before the Liaison Committee last week. He repeated his opposition to local income tax and went on, in words that were almost identical to those used by the leader of the Conservative party, to say that the trouble was that he himself did not know what the answer was. So the leader of the Conservative party does not know and the Prime Minister does riot know. That is extremely worrying. The House should be very, very worried. The Prime Minister knows about weapons of mass destruction but he does not know how to reform council tax.

Mr. Stringer

I have been listening carefully as the hon. Gentleman has developed his arguments on funding for local services and I understood him to say that he wanted less dependence on and interference from the centre. In that case, how can he support a local income tax that would require more intervention and more redistribution from the centre than any tax that has been considered since the 1981 Green Paper?

Mr. Davey

If the hon. Gentleman were right, he would be right to criticise me, but unfortunately he is completely wrong. The whole point of a local income tax is that it would build a local tax base into the grant formula, so distribution would be automatic—there would not be more intervention.

The Government must look at the problem more closely. The Audit Commission, in its report on council tax rises last year, stated: The review that the Local Government Minister is chairing on the future funding of local government needs to address the fundamental flaws in the local tax system". Those flaws have led to massive council tax rises and if they are not addressed, no amount of threats and capping will save the Government from blame. After all, if, having set up the review, Ministers decide to do nothing, they will deserve to get the blame. They must realise that tinkering with council tax reform will not solve the balance of funding problem. It might make a dreadfully unfair tax slightly less unfair, but it will not stop the gearing effect that is producing above-inflation council tax rises.

Last Thursday, we held a ridiculously short debate on the local government grant settlement, which touched on some of those problems.

Sarah Teather (Brent, East) (LD)

On the grant settlement, does my hon. Friend agree that it is hypocritical to discuss capping council tax or complain about rises in council tax when the Government grant settlement forces a particular council tax outcome? The Government provide a grant based on the difference between what they think local government should spend and the assumed national council tax level. In the case of Brent, council tax must therefore rise by 8.7 per cent. to reach the assumed national council tax level. Brent effectively has two options: it can either set an inflation-busting council tax or it can cut central services that the Government think that it should provide.

Mr. Davey

My hon. Friend has explained in detail how the council tax system is failing. The Audit Commission says that there are perverse effects where central Government try to insert their tentacles into all aspects of local authority budgets, preventing local authorities from making sensible decisions and pushing them into silly ones. That is why the Government's capping solution is simply not the answer.

Mr. Parmjit Dhanda (Gloucester) (Lab)

The other side of the coin in respect of the argument made by the hon. Member for Brent, East (Sarah Teather) involves authorities such as Liberal Democrat Cheltenham, which is close to my constituency. Last year's settlement, which included capital, was about 12.5 per cent.; the hon. Gentleman discusses the gearing effect, but Liberal Democrat local authorities such as Cheltenham multiply it by putting council tax up by 13.9 per cent.

Mr. Davey

The hon. Gentleman fails to mention the rules, restrictions, ring-fencing and passporting that force councils to take decisions, many of which they do not want to take. That is the problem.

Mr. Adrian Sanders (Torbay) (LD)

When the Government claim a 5.9 per cent. increase in their contribution to local government expenditure, it applies only to 75 per cent. of that expenditure and is therefore worth less than that percentage rise. Furthermore, when a local authority sets its budget, it must deal with a public sector inflation rate of around 7 per cent.

Mr. Davey

My hon. Friend is right, and the situation is worse than he suggests because the 5.9 per cent. increase does not apply to national non-domestic rates. The flawed system needs reform.

Mr. Borrow

Will the hon. Gentleman give way?

Mr. Davey

No, I will not give way again because I want to make progress.

The system is flawed and a problem for the Government is coming down the track. In 2007, several million properties will change council tax band. Some people will enjoy a windfall tax cut; others will see their council tax bills suddenly jump as their houses are re-banded upwards by one or even two bands. It is difficult to know the balance both between losers and gainers and between regions, but initial analysis by the New Policy Institute on the Office of the Deputy Prime Minister website gives us some hints. For example, in London most homes now in band C will go up at least one band and face a tax hike of 15 per cent. on top of annual council tax rises. Those households will, in the main, be on low or modest incomes and contain pensioners and public sector workers—band C homes in London are not mansions.

A no-reform option from the balance of funding review will sentence such families to a massive hike in a grossly unfair tax, with nothing to show for it just after the next election, which may be the point that Ministers are grappling with. Maybe they think it convenient that the revaluation will occur after the next election. However, I warn the Minister that if the Government cannot promise reform before or at the next election, I hope that they will have the honesty to mention that prospective tax rise in their manifesto, because if they do not do so I promise him that others will. The balance of funding review is a huge opportunity for local government and local taxpayers if Ministers have the courage to take it.

Ministers know where this party stands on the balance of funding because we have made submissions and published our detailed proposals. Indeed, we have set up a website containing those plans and even answered the questions from the Minister for Local Government, Regional Governance and Fire on our policy. We urge Ministers to consider our policy seriously, and we are prepared to get round the table and discuss it with them. I hope that Ministers in the ODPM can persuade the Prime Minister to get round the table.

Mrs. Lorna Fitzsimons (Rochdale)(Lab)

It is not good enough for the hon. Gentleman to say that the details are on a website. This is a debate that his party asked for on the Floor of the House. I should like to know which of my constituents will have to pay more tax, when the hon. Gentleman says that other people will have to pay less. Who?

Mr. Davey

It is very rich for Labour Members and Conservative Members to complain that our party is not publishing its detailed policy. We have published it. It has been widely reported. We are very happy to put it to the balance of funding review. The vast majority of the hon. Lady's constituents would pay less tax under local income tax.

I want the hon. Lady and her hon. Friends on the Front Bench to persuade the Prime Minister of the virtues of local income tax, and I suggest a strategy: tell him that they have a local income tax in the United States. That might just tip the balance. Tell the Prime Minister that they do not have it in France. but they have it in countries as diverse and wealthy as Japan, Switzerland and Sweden.

A local income tax is a policy whose time has come. I commend the motion to the House.

5 pm

The Parliamentary Under-Secretary of State, Office of the Deputy Prime Minister (Phil Hope)

I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof: welcomes the current work of the Balance of Funding review of how local government in England is funded; notes that the review is receiving evidence on a number of possible reform options suggested in public consultation; awaits with interest the report of the review in summer 2004; and urges local authorities to set budgets for 2004–05 which deliver value for local taxpayers. It is always good to debate the important and complex subject of local government finance. It is a chance to have a good Liberal Democrat baiting session, which I think Conservative Members have enjoyed.

Unlike the Liberal Democrats, the Government take this issue very seriously. It is currently the subject of our balance of funding review. I listened with great interest to the speech of the hon. Member for Kingston and Surbiton (Mr. Davey) and his attacks on the Conservative party. It was most interesting to hear all of that, but we are here to debate the serious issues facing the country today.

I have one preliminary point. The hon. Gentleman might have chosen a better day for today's debate, since the Minister for Local Government, Regional Governance and Fire and I are both involved today in the Committee on the Fire and Rescue Services Bill. My right hon. Friend sends his apologies for being unable to be here for the start of the debate, as he is still in Committee. Dedicated and talented though he is, he cannot be in two places at the same time.

It may be helpful if I start by briefly setting out some background. First, I refer hon. Members to the recent generous grant settlement for local authorities in England. This is the essential context of the issues facing the local government finance system and the reality of what is happening now.

Last Thursday, my right hon. Friend put before the House proposals confirming that the total of formula grant would be £46.1 billion in 2004–05, an increase of 5.5 per cent. compared with 2003–04. On top of that, specific grants take the overall increase to no less than 7.3 per cent.

Of course, it is not a one-off increase. It is part of a programme of sustained growth in investment in the vital public services delivered by local government.

Overall Government funding to local authorities is up by 30 per cent. in real terms over the past seven years. That is in stark contrast to the previous four years, when year-on-year cuts were the norm—a 7 per cent. real-terms cut over that period.

Conservative Members may wish to forget their responsibility for the realities of life in that era, when real-terms cuts were the order of the day. However, those involved in local government, including some of my hon. Friends and me, do not have such short memories. They know the change that has occurred. They know that in 2004–05, for the second year running, all local authorities receive a real-terms increase in formula grant on a like-for-like basis.

As the hon. Member for Kingston and Surbiton said only last week, it is a generous settlement…the settlement is far more generous than anything ever proposed by the Conservatives." —[Official Report, 5 February 2004; Vol.417, c.990.] I am grateful for that recognition.

I am pleased to say that in recent grant settlement we have removed ring-fencing from some £750 million of specific grants, and thus reduced the ring-fenced grant from over 13.3 per cent. to about 11 per cent. of the total grant. That is part of our commitment to reverse the trend on the ring-fencing of grants to local authorities.

Mr. Pickles

Will the hon. Gentleman concede that ring-fencing is still slightly over three times the level that the Government inherited in 1997?

Phil Hope

The hon. Gentleman makes a fair point, but the direction of travel is now definitely right, with less ring-fencing and therefore more freedoms and flexibilities to local authorities.

I come to council tax rises.

Mr. McLoughlin

I should like to take the Minister back to what he said a few moments ago. He was talking about the amount of money by which the Government have increased the grant to local authorities. Given that what he says is true—and I do not argue with his figures—why have our constituents seen such a large rise in council tax over the past few years, when in the years when he says there was a reduction in council grant there was actually a smaller increase in council tax levels?

Phil Hope

I was coming to precisely that point. Given the generous grant settlement for next year and the scope for efficiency improvements, our view is that local authorities can and should deliver council tax increases in low single figures in 2004–05, so we are now looking at proposed council tax rises very closely. We are pleased that initial indications suggest that many authorities have listened and are planning increases in low single figures. For example, Southampton is talking about a council tax increase of 2.9 per cent.; Birmingham, 1.5 per cent.; Dudley, 1.5 per cent.; Derbyshire, 2.9 per cent.; and Suffolk, 3.9 per cent.

Mr. Ivan Henderson (Harwich) (Lab)

Is my hon. Friend aware of the situation with my local council, Tendring district council, which is run by the Conservatives? In May last year, the Conservatives on the council said: Your Conservative district councillors have implemented the lowest Council Tax increase in Essex and one of the lowest in the UK". The increase was 2.5 per cent. because the Government were so generous in giving them a good increase previously. Less than six months later, they were advocating an increase of 30 to 45 per cent. Is not the serious concern regarding such councils either that they are playing games for elections or that they are bad financial managers? They need to be looked at seriously.

Phil Hope

My hon. Friend makes an excellent point. Despite significant extra investment, some local authorities—he has just quoted his own. Tendring— have not listened, and they have indicated that they will impose large council tax increases. I shall give some examples of authorities proposing very high rises. Torbay is proposing a 17.5 per cent. increase; Leicester, 14 per cent.—a subject of debate in the House last week—Milton Keynes, 11.1 per cent.; Dover, 17.1 per cent.; Warwick, 24 per cent.; Waverley, 14 per cent.; Rother, about which we had a debate in the House last night, 13 per cent.; Medway, 15 per cent.; and Brighton and Hove, 13 per cent. Those are simply unacceptably high council tax increases.

My right hon. Friend the Minister for Local Government, Regional Governance and Fire has now written to no fewer than 65 local authorities about which we have seen reports of council tax increases that are not in low single figures, and he is planning to call in some authorities. It appears inevitable that the Government will have to use their capping powers this year.

Mr. Pickles

Will the hon. Gentleman confirm whether the letter has now gone to the Mayor of London?

Phil Hope

I cannot confirm at the moment whether the letter has gone to the Mayor of London. There is a complicated debate between the Greater London authority and the Mayor, but he will receive a letter if he is considering such an increase. Indeed, no sooner have I answered the question than I am holding in my hand the letter that has gone to the Mayor of London.

The hon. Member for Kingston and Surbiton prayed in aid the Audit Commission to explain the increases. saying that they were all the Government's fault. Let me remind him that the chairman of the Audit Commission said, in commenting on the settlement, that there are a number of factors behind the rises this year and that trying to find a single point of blame is not only counter-productive, but simply not borne out by the evidence. It is interesting that, although we are still gathering information about council tax increases, our initial reports show that the average increase in Labour councils is about 5 per cent., but Conservative councils are coming in at about 7 to 8 per cent.—and, yes, hon. Members will be glad to hear that Liberal Democrat councils are coming in at about 8 to 9 per cent. Perhaps one reason why we are hearing about alternatives to the council tax is that Liberal Democrat councils cannot budget awfully well.

Mr. Edward Davey

Will the Minister confirm that Liberal Democrat councils had the lowest rises last year?

Phil Hope

I am discussing the council tax for next year, and Liberal Democrat councils are coming in with much higher figures than the others, although the Tories are not far behind.

I come now to the balance of funding review, which is the essence of today's debate.

Mr. Pickles

I am grateful to the hon. Gentleman for giving lots of information. Will he tell us which political party has the lowest council tax, band for band? Would that be the Conservatives?

Phil Hope

Unfortunately for the hon. Gentleman, the average band D council tax in Conservative councils is now higher or equal to that in Labour councils, so the previous position, which I think he was trying to put, no longer applies.

Sir Paul Beresford (Mole Valley) (Con)

Will the Minister give way?

Phil Hope

I want to move on to the balance of funding review, if I may.

The review's steering group has met several times over the past few months. It discussed the principles of a successful local government finance system, held a public consultation and commissioned independent research, all of which is publicly available. It is now discussing possible reform options. I shall take a moment to emphasise one of its research findings. Many members of the public are not clear where accountability for local government services lies or where the money comes from. However, what matters to them is not where local authorities get their money, but that services are efficiently delivered. According to the review's research, there seems to be no sign of a direct link between balance of funding and local election turnout. That was a surprise to many of us.

What are the options for reform of balance of funding? The hon. Member for Kingston and Surbiton talked about 12 options, but the review is examining four. Given today's debate, hon. Members will be interested to learn that one of them is indeed local income tax. The others are a reform of council tax, the relocalisation of business rates, and a mixed option of smaller taxes or charges. I should emphasise that the fact that the review is hearing evidence on different options is not an indication that the Government accept that the balance of funding must be changed, nor that they favour any of the reform options. One difficulty with an open debate is that it can be open to abuse. If all information is published on websites so that people can engage in the debate openly, the inevitable party politicking starts and positions are misrepresented. The hon. Member for Kingston and Surbiton did that, and I shall come back to it later.

The hon. Gentleman asked whether we had ruled anything out, but one option that we are not considering is a return to the Tories' failed community charge, or the poll tax as it was popularly—or, perhaps, unpopularly—known. Many hon. Members will remember that one of the consequences of that rushed reform was that value added tax increased to 17.5 per cent. to raise an additional £140 per community charge payer in central Government support. That is one reason why a considered approach to these matters is essential, rather than a knee-jerk response based on slogans such as "Axe the Tax" or "Scrap the Cap". There is nothing like a good Liberal slogan—frankly, they are nothing like good Liberal slogans.

Mr. Edward Davey

rose—

Phil Hope

I shall give way to the hon. Gentleman, who will no doubt give me another slogan.

Mr. Davey

Will the Minister confirm that, although he has ruled out the community charge, he has not ruled out the local income tax?

Phil Hope

I am looking forward to reaching the part of my speech about the local income tax, but first I want to talk about something that the hon. Gentleman skipped over during his speech: reform of council tax. Many responses to the review consultation said that there were serious problems with council tax, including the questions of fairness with which he opened the debate, but most suggested that it could be reformed rather than abolished. The tax was widely accepted until recently. It has advantages—for example, it is relatively easy to understand and collect. Indeed in 2002–03, local authorities in England collected more than 96 per cent. of the council tax due within the financial year.

Mr. Borrow

Does my hon. Friend agree that any Government should be reluctant to give up a property tax in favour of increasing an existing tax, as the Liberal Democrats propose? If the Government were to do that, the likelihood is that a future Chancellor would resurrect a property tax because it makes sense to have a good basket of taxes, of which a property tax should be part.

Phil Hope

My hon. Friend is a renowned expert in the field and I am grateful for his excellent point.

What kind of reforms to the council tax might we be talking about? Such changes include the revaluation of domestic properties, to which we are already committed and which is currently planned for 2007. That will ensure that a council tax bill is based on the up-to-date value of a house rather than its value in 1991. I make the especially important point that the revaluation is not designed to raise more tax overall. Our 2001 local government White Paper made clear that its overall impact would be neutral. The hon. Member for Kingston and Surbiton misses the point. At the same time as revaluation, we will consider the case for changing the existing bands. Quoting revaluation without taking into account band changing, as he did in respect of London properties, is disingenuous

The point came through strongly from the consultation that council tax should reflect more closely people's ability to pay and mirror with more accuracy variations in property values. Ways of doing that mentioned during the review include introducing new bands or a regional banding system. I make it clear that we are not committed to any particular changes. Before changing the banding system. we would need carefully to examine the impact on groups such as pensioners on low or fixed incomes living in high value properties. It simply will not do for Liberal Democrats to scaremonger by quoting selectively from documents from the balance of funding review or for them to avoid key questions from hon. Members in all parts of the House about their proposal to increase stamp duty and inheritance tax.

Another key issue identified by the reviewers is resolving problems relating to council tax benefit—an inbuilt way of achieving more progressivity in local taxation, which the Liberal Democrats say they want. Council tax benefit helps people on low incomes, including many pensioners, with their payments. The problem is that many people are not aware of their right to that money—1.4 million are eligible but not claiming. Some who are aware are put off by the perceived stigma of claiming a benefit and are reluctant to claim other than the state pension. It is for local and central Government together to do all they can to ensure higher take-up. We are already abolishing the restriction that limits the maximum council tax benefit for property in bands F, G and H from 1 April. We are also considering whether other improvements can be made to the system.

Mrs. Annette L. Brooke (Mid-Dorset and North Poole) (LD)

Is not the Minister making the argument for local income tax? The poverty trap that he described, with people either not claiming council tax benefit or just missing out, is where the tax really hits people.

Phil Hope

I am intrigued by the hon. Lady's intervention because the motion does not mention local income tax but states that council tax is unfair, should not have been introduced and should be replaced by a system that reflects people's ability to pay. The motion does not say that council tax should be replaced by local income tax—although that was mentioned by the hon. Member for Kingston and Surbiton. I have demonstrated how we can reform council tax by re-banding and benefit changes that will better relate to people's ability to pay. I am surprised that the hon. Lady cannot support those reforms, given that their outcome matches the Liberal Democrat motion.

Replacing council tax completely with local income tax is the solution favoured by the hon. Member for Kingston and Surbiton and his colleagues. The balance of funding consultation showed support in some quarters for replacing or supplementing council tax with local income tax—or at least considering the case for doing so. The Prime Minister has made it clear that the Government do not favour replacing council tax with local income tax, but we are certainly prepared to listen to reasoned arguments. Local income tax is one of four issues on which we are asking expert organizations—in this case, the Chartered Institute of Public Finance and Accountancy—to provide further evidence on the pros and cons. It will give a presentation at the next meeting of the balance of funding review steering group in March, which will be attended by Liberal Democrat and Conservative members of the Local Government Association.

Liberal Democrats have focused on the importance of relating local government tax sources to the ability to pay—by which standard, as was indicated by the hon. Member for Mid-Dorset and North Poole (Mrs. Brooke), they argue for the superiority of local income tax. Council tax can be made more progressive for the lowest income tax group by increasing the take-up of council tax benefit. I hope that all right hon. and hon. Members will help to resolve that issue by fully supporting our campaign.

The argument is made that local income tax works so well and is so popular in other countries that it should be introduced in Britain. International experience does not justify that rosy picture. It certainly does not justify abolishing our domestic property tax and relying entirely on local income tax. Last week, the hon. Member for Kingston and Surbiton said that he would be happy to take my right hon. Friend the Minister for Local Government, Regional Governance and Fire to countries with a local income tax system. I advise them to wrap up warm, because the only country in Europe to rely on a local income tax is Sweden. Other EU countries rely partly on a property tax, as my hon. Friend the Member for South Ribble (Mr. Borrow) said. Spain and Italy are increasingly reliant on such a tax. Only five countries in Europe have a local income tax, and in four of them—Belgium, Denmark, Finland and Italy—it is one of several forms of taxation. All that information is available on the website of the Office of the Deputy Prime Minister.

As various countries have been bandied about, hon. Members should be aware that comparisons between UK local government finance systems and those of other developed countries do not compare like with like. Different countries have different political and legal systems, their terminology and data are often incompatible with ours, and state finance systems do not stand still. I fear that the proposals for a local income tax advocated by the hon. Member for Kingston and Surbiton would result in disruptive and complicated changes to the tax system. First, they would do little to improve the flexibility available to local authorities. The Liberal Democrats would increase the proportion of local funding from central Government by using £1.7 billion of their proposed higher rate tax increase to increase grant and keep local income tax bills down to 4p in the pound.

Mr. Edward Davey

It is 3.75p.

Phil Hope

I would not like to get the figure wrong, but I can readily envisage it creeping up to 4p under the Liberal Democrats. They will use £1.7 billion to keep the local income tax bill down. Authorities in poor and deprived areas will collect less income tax than the richest areas, so the hon. Gentleman's proposals would mean that poorer authorities would become more heavily dependent on grant. There would be less flexibility and a worse gearing effect for those authorities than at present.

Secondly, there would be substantial costs, which are not mentioned in the Liberal Democrats' proposals. They would combine their local income tax with an increase in the level of personal allowance to £5,000, but that would cost an extra £2.4 billion—

Mr. Davey

rose—

Phil Hope

I have tried to do the maths, and shall see if I have got it right before giving way to the hon. Gentleman.

The Liberal Democrats will raise £4.7 billion from their tax increases for the higher paid. They will spend £1.7 billion on local income tax, and £2.4 billion on raising the threshold for income tax. They will then use an additional £2 billion to abolish university tuition fees—that emerged in a press release issued by the leader of the Liberal Democrats before Christmas—and £1 billion to pay for care of the elderly. That adds up to £6.7 billion, all of which will be paid from an increase in taxation of £4.7 billion. The Liberal Democrats are therefore £2 billion short.

However, it does not end there. My right hon. Friend the Prime Minister has drawn attention to other spending pledges by the leader of the Liberal Democrats. There are 70 such pledges on top of that £6.7 billion, including free eye and dental checks, a new community safety force and cutting primary class sizes. We would all like to have those wonderful things, but how will the Liberal Democrats pay for them, given that they are at least £2 billion short?

Mr. Davey

I want to put the hon. Gentleman out of his misery. We have made our spending package clear in letters to the Prime Minister, and the fact that he does not appear to take our word for it is a disgrace. If the hon. Gentleman reads the document in which those figures appear, he will see that it is clear that the £5,000 allowance would be introduced when our proposals are implemented. If implemented in 2003–04, we would stick with the current allowance of £4,615. It is a disgrace that the Government and Ministers are not prepared to accept what we have said in a published document.

Phil Hope

The hon. Gentleman has just demonstrated why the Liberal Democrat figures cannot be trusted—they simply do not add up.

Finally, the Liberal Democrats' proposals on local income tax have weaknesses that they have not considered. They have two ideas for collecting the tax—one is to collect it during the year through tax codes, the other is to collect it at a standard rate across the country, then settle up with individual taxpayers to reach what they should have paid at the end of the year by using the year-end adjustment process. The Liberal Democrats do not appear to have taken into account in their costings the additional costs for employers arising from the first proposal. Employers would have to deal with local income tax rates for every local authority in which their employees lived, and would have to account separately for the different amounts of local income tax subtracted from their employees' wages. The Liberal Democrats simply have not considered that in their costings for local income tax.

Matthew Green (Ludlow) (LD)

Clearly, the Minister has not been involved in administering PAYE in a small business. It is already the case that virtually any employee will have a different PAYE code from another because of the many different circumstances that can apply.

Phil Hope

I do not think that my PAYE form has a location code on it. Under the Liberal Democrat proposals, I would have a variety of location codes depending on where I lived, where I worked and where I paid my income tax.

Andrew Bennett

Does the Minister accept that one of the problems is that many people pay council tax on more than one property? Would not considerable difficulties arise in trying to apportion their income tax commitments between two different properties?

Phil Hope

I have no idea of the answer to that, but it is not my problem. It seems that the Liberal Democrats would offer choice to everybody, leading to goodness knows what chaos.

Mr. Davey

It is interesting that the Minister does not know the answers to these questions, because they are in the document from which he quoted and the letter that I wrote to the Minister for Local Government, Regional Governance and Fire. Either he is not communicating with the Office of the Deputy Prime Minister or he cannot read.

Phil Hope

The correspondence between my right hon. Friend and the hon. Gentleman makes for entertaining reading, because it is full of questions but offers precious little in the way of answers from the Liberal Democrats.

The second option would be an odd compromise that would satisfy no one—a local income tax under which most of the time the bill that one paid had nothing to do with the rate set by one's local authority. How would such a system promote local accountability and flexibility, and how would it aid the taxpayer in understanding how much money their council was asking from them or spending on services? In addition, given that the mechanics of the tax system mean that underpayments or overpayments would not be fully settled for months or years, it would be doubly complex and unpredictable for individual taxpayers, local authorities and the Inland Revenue. When it comes to a local income tax, a slogan sounds good, but the reality is unacceptable.

The third issue that was highlighted by the balance of funding review consultation was the relocalisation of non-domestic or business rates. For the past 10 years, although local authorities have collected business rates they have not set the level of rates or kept the proceeds. Now, central Government set a national business rate and redistribute the money to areas on a per capita basis. Relocalisation—a return to the pre-1990 system—is not something that the Government have favoured in the past, but there is strong demand for it from many in local government. Most consultation responses from councils argued that relocalisation would resolve the balance of funding problem and encourage better partnerships with local businesses. However, many in the business community would be strongly opposed to any change to the level playing field for business. The balance of funding review is continuing to address that problem.

The fourth and final option that is being considered in the public consultation is the mixed option of smaller taxes or charges, which is sometimes called the basket option—I think that the chairman of the Local Government Association calls it the cornucopia option. The LGA is among those who are keen to explore this option, which covers a wide range of possibilities that build on the freedoms already given in the Local Government Act 2003, including localised vehicle excise duty, localised stamp duty on property transfers, land value taxes, hotel bed taxes and more charges for the use of local services. I have not got time to go into more detail, but I stress yet again that because the Government are listening to evidence from interested parties who favour those options does not necessarily mean that they are the Government's favoured options. If Members want openness and transparency in debating these issues, it is important that they do not pretend, as did the hon. Member for Kingston and Surbiton, that there are 12 new taxes. That is an unacceptable way to conduct the debate.

I welcome the debate, which has given a good airing to some important issues. People will have more to say, and we look forward to hearing it. Those of us who are directly involved—myright hon. Friend the Minister for Local Government, Regional Governance and Fire is here—will take careful note of all the points that have been raised. It is clear to us that many people have serious concerns about many aspects of the local government finance system, especially gearing and the impact of council tax rises on taxpayers with fixed incomes. It is also clear, however, that there are no easy fixes or quick wins. This Government will not return to the dark days of the Tory poll tax, nor will we be conned by Liberal Democrat proposals for an uncosted and unworkable local income tax—instead, we will analyse the options carefully. In the meantime, local government and the people it serves can be satisfied that the Government are committed to providing and supporting local services.

5.29 pm

Mr. Eric Pickles (Brentwood and Ongar) (Con)

It is a pleasure to see the Minister for Local Government, Regional Governance and Fire in his place. My right hon. Friend the Member for Skipton and Ripon (Mr. Curry) would have liked to participate in the debate, but he is awaiting news of the birth of his first grandchild. We look forward to the time when he can come to the Dispatch Box and say, "We are a grandparent."

The debate has been interesting so far. Interventions from my hon. Friends and Labour Members did an effective job of destroying the Liberal Democrats' local income tax plan. I am therefore left with the slightly humbler task of bayoneting the wounded.

At times, I felt sorry for the hon. Member for Kingston and Surbiton (Mr. Davey). For him, the past few months must have been a living hell. He has been saddled with the most unworkable and impractical of all Liberal Democrat policies; no extended sojourn on the Greek islands could possibly have made up for that dreadful task. The policy was devised when the Liberal party was a single entity and its activists were bearded, sandal-clad men of a certain age and earnest young women sporting tank tops. It belongs with such other Liberal Democrat policies as giving the vote to prisoners, legalising cannabis while simultaneously banning smoking in public and outlawing goldfish from funfairs. It is the hon. Gentleman's misfortune to have to try to make the misdirected policy credible. I tell him, with oodles of affection, that he sadly failed to do that today.

The hon. Gentleman's response to the Minister's 10 questions dated 14 October was a master class in why one should always ignore letters from political opponents. In the autumn, Liberal Democrat headquarters supplied a draft motion on local income tax to their groups on local councils. Among my many duties, I monitored those debates. I apologise to the Whip because I am sure that I shall get into terrible trouble with my party hierarchy, but I have a confidential report on the debates from central office. In a spirit of openness and glasnost, I am prepared to risk discipline by reading out its main conclusions.

One must understand how one should read a central office report, and I admit that the first two points are predictable. [Interruption.] There may be some pleasant surprises for the hon. Member for Kingston and Surbiton in the report. The first point states: Conservative councillors…were well prepared for when the debate occurred in council", which is nice; it is good to know that. The second point emphasises: Conservative councillors are united against the motion put forward by the Lib Dems. The third point is a little worrying for the hon. Gentleman. It states: Where it has been debated Lib Dems are often ill prepared and ill informed of the particulars of the motion. In several cases the motion was not unanimously supported by all Lib Dem members. Oh dear! I cannot imagine that. There is some comfort for Labour Members because the document states: Labour groups are generally voting against the Motion en bloc. I have a list of those who did not, which is available for a reasonable fee afterwards. The fifth point stresses: Media attention around the motion has been poor. Oh no!

Let us take some random examples, which I have highlighted for the convenience of reading them out. On Bournemouth, the document states that two Liberals abstained. (on an amendment to their own motion—one of them is the husband of the Lib Dem MP. I have no idea who that is. In Devon, the Lib Dem opposition said that the main anomaly with the local income tax policy was that young couples with a big mortgage, children and heavy outgoings would be 'very hard hit' by the local income tax policy. That does not seem terribly on-message. Let us move to Harrogate, about which the document states: The proposer and the seconder were extremely cagey on the LIT proposal and seemed reluctant to even say that they supported it instead of saying that the motion was one of principle rather than specifics. We can sympathise with them.

In Norfolk, I read that Liberal Democrats tried to disguise the tax as the sort of locally raised tax that everyone could support and the proposer made great play of the fact that she had never mentioned local income tax. I have just two more examples, and it is hard to say which is my favourite. This one was my favourite until I got to the last example. It is from Poole, and says: Lib Dems said…that the regional income tax was no longer a policy and made mutterings and shouted about savings being made from local income tax. I think that that is pretty good, but this last one is the best. It is from Somerset, and says: Their cause was not helped by David Laws MP for Yeovil's website which showed under 20 per cent. supporting their idea of local income tax! We look forward to what the various "Focus" teams say. We even heard a report of a Liberal Democrat leaving the Chamber rather than debating the issue. I thought that that was cowardice until I heard the hon. Member for Kingston and Surbiton speak today; now it seems like wise tactics.

Mrs. Brooke

I am sure that as I was inadvertently referred to I can make a brief response. It is true that at a Poole council meeting my husband abstained on a Conservative amendment. However, my point in intervening is to ask the hon. Gentleman to tell us whether the Conservatives proposed alternative policies in all the council meetings to which he has referred, or whether all those councils were simply satisfied with the council tax.

Mr. Pickles

Indeed, I will come to that point. I am sure that the hon. Lady's apology to her party will be noted and that it will not at all affect her chances of success.

When the Minister was kind enough to take an intervention from me, he suggested that band D levels were equal between Conservative and Labour councils. However, according to the latest figures, which are for last year, the Conservative level was £1,030, the Labour level £1,111 and the Liberal Democrat level £1,129. Given that councils have not determined their figures for this year, what the Minister said to the House on that was clearly inaccurate. Would he like the opportunity to withdraw his earlier comments?

Phil Hope

indicated dissent.

Mr. Pickles

I am sorry about that, because the facts speak for themselves.

I shall refer in a few moments to the point that the hon. Member for Mid-Dorset and North Poole (Mrs. Brooke) made, but first I have some comments on local income tax. Much has been made of the effect that the tax would have on different categories of person. Council tax is based on two adults sharing a house, with a discount for single occupiers, reflecting a crude recognition of the use of local services. Many families with two people working would be worse off under the Liberals' proposals, and families on average earnings would be particularly badly hit. It is important for the House to remember that in most households with two people working, they are doing so from necessity to make ends meet. As the Sunday Express has pointed out with some force, there would be a tax blow under a local income tax, with bills rising by 60 per cent.

Let us aid consideration of the matter by using the figures that the hon. Member for Kingston and Surbiton supplied. Let us assume a local income tax rate of 3.75 per cent., and take a couple on average male and female earnings paying an average council tax bill under this year's tax system. Whether they live in England, Scotland or Wales, local income tax would be more expensive for them than the present system. In England—

Matthew Green

rose—

Mr. Pickles

I shall just give the hon. Gentleman the figures; then he can dispute them. In England, the couple would pay an extra £547 a year, in Scotland an extra £510 a year and in Wales an extra £471 a year. Were there a third or fourth person earning in the household, there would be a heavy extra burden. A son or daughter still at home with their parents and just starting out at work would find the tax very heavy.

Matthew Green

It would be helpful if the hon. Gentleman confirmed that the median household income in the UK is £21,700, and not the £48,000 that the Conservative briefings quoted in the Sunday Express suggested is the average household income. I would love to know where all those people earning that amount are.

Mr. Pickles

I am sorry that the hon. Gentleman disputes our figures, because they stand the test of scrutiny. We are talking about average male earnings— I do not think anyone would dispute that that figure is £525 a week—and average female earnings, which are £396 a week. Those are the facts—[Interruption.] The hon. Gentleman should face reality. People on average earnings will lose out under his proposals, and the Liberal Democrats' blindness to that fact is leaving them looking utterly foolish.

David Taylor (North-West Leicestershire) (Lab/Coop)

I am reluctant to rise to the defence of the Liberals, but will not the hon. Gentleman accept that there can be an enormous difference between median income and mean income because of the distorting effect of the many huge household incomes at the upper end of the spectrum? It is therefore fair of the hon. Member for Ludlow (Matthew Green) to quote the figure of £21,700.

Mr. Pickles

I am not disputing what the hon. Gentleman says about the difference between median and mean incomes. I choose my figures carefully—[Laughter.] They are based on income, because we are debating a local income tax. It is right to take into account the level of people's incomes in such a debate. The hon. Member for North-West Leicestershire (David Taylor) should remember that the proposal is for 3.7 per cent. on top of existing base rates, and is based on incomes between £5,000 and £100,000.

Students, student nurses, apprentices and young trainees are exempt from council tax under the Local Government Act 1992. The Local Government Act 2003 goes further in removing their joint and several liability if they live in a house with non-students. Yet under the Liberal Democrats' plan, students who work hard will pay local income tax. I am indebted to their document "Labour's unfair council tax: the facts"; I think that we are right to rely on the facts. The document contains a question and answer section that includes the question: Will students have to pay? The answer is: Only if they are already paying income tax, e.g. earnings during holidays and so on. It is no use trooping through the Lobby to oppose the Government on variable fees while at the same time proposing a measure that will increase student indebtedness.

Most students do not pay income tax, but it is worth noting the research carried out by NatWest bank, which shows that 53 per cent. of students have a part-time job during term time and 20 per cent. of all students earn more than £100 a week. Many students work full-time during their vacations to top up those earnings. Most student nurses now earn enough to have to pay income tax. In addition, it is estimated that 75 per cent. of them now have to do part-time work to supplement their income while studying, and would therefore have to pay extra in the form of local income tax.

While pensioners are protesting, and some are even going on strike, it takes the genius of the Liberal Democrats to find a system that would make a significant proportion of them pay more, especially those who have worked hard and saved for security in their retirement. The poorest pensioners receive council tax benefit and do not pay council tax. One fifth of pensioners in Britain are in receipt of that benefit. Seventy-one per cent. of all pensioners receive income from their own investments. That income would be taxed under the Liberal Democrats' proposals. With a local income tax of 3.75 per cent., the average pensioner couple in the top quintile of pensioners would be an extra £563 a year worse off. That is on top of the Liberal Democrats' 50 per cent. income tax band, their regional income tax band, their regional national insurance contribution, their business land tax, their toll tax and their parking tax. It begs the question: is there anything that the Liberal Democrats do not want to tax. The hon. Member for Ludlow (Matthew Green) was unhappy with the Sunday Express, so let us consider the opinion of the Daily Mail, a very fair paper. It commented in January: The Liberal Democrats put forward their own plans for local income tax which would hit the middle classes hardest". To be fair, that is a clear and stated aim of their policy. As their leader said on BBC Radio 4's "Today" programme: Middle classes £ should pay more for a better society". One aspect of Liberal Democrat policy that I particularly look forward to exploring on the doorstep in my constituency is the commitment to keep resource equalisation through a grant. The level of local tax will therefore still be at the whim of central Government, and the rate of local income tax charged in some localities will be higher. That point was made tellingly by the hon. Member for Manchester, Blackley (Mr. Stringer) in an intervention. It is helpful that the Liberal Democrats have provided confirmation: It may be that areas which currently have very high council taxes will have a slightly higher local income tax". Again, that comes from the Liberal Democrats' document, "Labour's unfair council tax: the facts", so it must be a fact.

We also have the advantage of the interesting letter from the Minister for Local Government, Regional Governance and Fire. He asks the hon. Member for Kingston and Surbiton a reasonable question: How would the redistribution of funds between areas operate? And he makes the reasonable point that London and the South East currently generate 33 per cent. of total Council Tax revenue but 45 per cent. of total income tax revenue in England". The hon. Gentleman made the mistake of replying to that. He says in his letter, at point 7: Inter-regional redistribution would of course be necessary £The exact figures would depend on the final grant system adopted, which would of course be one tailored to a LIT system". I can imagine myself on the doorstep. After the usual pleasantries, my script would be, "I'm really sorry that Brentwood's local income tax is going up. But your local Liberal Democrats think that the money would be better spent on services in Bradford." The good folks of the Ongar road will be queuing up with their piggy banks saying, "Please take away our money and give it to Bradford. We've seen the pictures from up there. We know the kind of suffering you had in your early life. Give them the money." I do not think it will be like that.

Matthew Green

Can the hon. Gentleman name a local tax system that does not have a formula that redistributes money through some sort of grant settlement of some degree? For instance, the standard spending assessment was the formula introduced by the Conservatives to go with council tax, and the Government have now introduced the formula spending share.

Mr. Pickles

Of course I cannot do that. That is the point. The redistribution system for local income tax would make it worse. Everything must have a redistribution process, but this would not make that redistribution process fairer; it would make it unworkable.

Mr. Edward Davey

Justify it.

Mr. Pickles

I will happily justify it with the point that the Minister for Local Government, Regional Governance and Fire made in his letter. It is as plain as a pikestaff, and it is a telling point. I will read it to the hon. Gentleman again. I am sorry if I am embarrassing him by reading out his marvellous work: London and the South East currently generate 33 per cent. of total Council Tax revenue but 45 per cent. of total income tax revenue in England". If the hon. Gentleman has not grasped that, it probably explains why the Liberal Democrats tabled the motion.

Mr. Davey

Will the hon. Gentleman give way?

Mr. Pickles

Oh dear; all right.

Mr. Davey

What the hon. Gentleman has not grasped is how the grant system would have to work. If at present the council tax base of any local authority is in the formula, obviously it could not be retained for a local income tax. It would be bizarre in the extreme to include a council tax base in the formula when a local income tax was operating. There would be significant changes in the grant formula, which would override everything that the hon. Gentleman has said.

Mr. Pickles

With respect, I do not think that it is I who has not grasped the point. It is the hon. Gentleman who needs to grasp this if he wants to hold on to his southern seat: his proposal will more than extend the redistribution from the south of England to the north. In fact, I think I might go on the doorsteps of Kingston and Surbiton to ensure that the hon. Gentleman makes that point.

Let us set aside for a moment the inconsistencies of local income tax. Let us set aside the extra cost, and set aside the unworkability. The problem with local income tax is that it misses the point. The problem is not so much the form of the tax as the fact that it has risen by 70 per cent. since 1997. We need to examine why that is before we can consider ditching such an easy tax to collect.

The council tax has become the Government's favourite stealth tax. The Government have enjoyed the headlines about increased public spending without having to fund it directly. Instead, they have indirectly forced councils to fund national Government diktats through the council tax, and through the distorted mirror of its multiplier.

In opposition, the present Prime Minister promised that he had no plans to increase taxation. Of course we now realise that we should not have taken those words in terms of their ordinary meaning. What we should have done is view the pledge in its totality, to use a fashionable phrase. What the Prime Minister could not get through the front door of income tax he has chosen to introduce through the back door of council tax.

The Government's abuse of council tax is the clearest indication that it is impossible to increase public expenditure without increasing taxation. The fact that the public now blame the Government for these rises is the clearest possible indication that old Abe Lincoln was right: you cannot fool all the people all the time. Ring-fencing, specific grants and the introduction of passporting have pushed many services directly on to the backs of council tax payers.

There are six councils in the country that are in a "100 per cent. passporting" position, which means that there is nothing extra for hard-pressed services such as care for the elderly and vulnerable children, or even for day-to-day services such as refuse collection, planning enforcement and environmental controls. Those councils are Richmond upon Thames, East Sussex, Windsor and Maidenhead, Southend-on-Sea, West Sussex and Bromley. All are Conservative controlled except Windsor and Maidenhead, which is controlled by the Liberal Democrats.

In other councils. passporting covers more than 90 per cent. of grant increases. The Minister for Local Government, Regional Governance and Fire said on Thursday: Those are real-terms increases that are well above the rate of inflation, and we expect local authorities to work within the finance available to them, and to look for economies in order to deliver value for money and quality services to their residents."—[Official Report, 10 February 2004; Vol. 417, c. 967.] That is meaningless when the Government have unbalanced authorities' budgets.

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

Will the hon. Gentleman give way?

Mr. Pickles

It is a real pleasure to give way to the Minister, fresh from his Committee.

Mr. Raynsford

When the hon. Gentleman's party was in power, local authorities received grant increases below the rate of inflation but were given a similar exhortation to deliver better services and keep council tax down. If he regards our settlement—a 5.5 per cent. increase in formula grant and a 7.3 per cent. increase in total grant—as inadequate, will he tell us how much more his party would put into local government expenditure to achieve his objectives?

Mr. Pickles

The Minister knows the answer to that. It is not just a question of money; it is a question of the burdens. It is a question of unbalancing—

Mr. Davey

The burdens?

Mr. Pickles

I shall deal with the burdens in a moment. In fact, the list is the one that the hon. Gentleman read out. I know that he feels a little bruised because his figures did not add up.

The Minister must consider the fact that the council tax has gone up by 70 per cent. since his Government took office, yet nothing like those figures occurred when the Conservatives were in office. He says that he is giving more money to local authorities, but he is increasing the burdens on them, and increasing expenditure by making them do likewise without matching their funds. So from national insurance contributions to the pension tax, the Government have given with one hand and taken away with the other. They have imposed on local councils a purpose and a burden that councils were not intended to carry.

Let us consider the comprehensive performance assessment and best value. The local government information unit estimates that the annual cost of external inspections of local government is £600 million, and that the indirect cost of inspections, compliance, council staff time and so on is an additional £400 million. For most local authorities, the number of premises to be licensed will increase between five and 10 times, and there will be no additional funding for start-up costs. I raised this issue with the Minister, who offered the pious hope that eventually we will be able to work out a system of charges that will provide recompense. But start-up charges are immediate. Councils have an immediate cash crisis, and these factors will immediately add to that crisis.

Local authorities had to comply with the Freedom of Information Act 2000 by July 2002, with full openness coming into effect by 2005. [Interruption.] My hon. Friend the Member for Cotswold (Mr. Clifton-Brown) says from a sedentary position that the Minister admitted the other day that there was a problem with licensing, and that is my recollection, too. We should also consider the Homelessness Act 2002, EU environmental directives, the Care Standards Act 2000, the Travel Concessions (Eligibility) Act 2002, e-government targets, the cost of asylum seeker dispersal and care, and emergency and civil contingency planning following 11 September. Moreover, the Criminal Records Bureau increased fees for standard and enhanced disclosures by 142 per cent. in July 2003, at an estimated additional cost to councils of £15 million a year. Bed-blocking fines are costing an estimated £10,000 to £15,000 a week, and there is also the school budget pressures caused by passporting.

The recent ICM opinion poll that the hon. Member for Kingston and Surbiton quoted was compiled by the Conservative group on the Local Government Association. It is not the first time that the Liberal Democrats have quoted Conservatives in aid of their argument, and this time we are happy to lend them our support. That poll shows that 39 per cent. of the public put the blame on the Government. That is a 10 per cent. increase on last year, and a complete reversal of fortune for all the Minister's efforts. Nobody is buying his argument.

The independent Audit Commission makes it clear who is to blame. Its report, entitled "Council Tax Increases 2003–04: Why Were They So High?", which was published in December last year, shows that the burdens imposed by central Government have increased local authorities' costs. Page 9 states: National cost pressures taken together account for about £2.3 billion of the total increase in councils' spending of £4.3 billion. In other words slightly more than half the total increase is due to national pay and price inflation, increased national insurance and general population growth". It also states:

The causes of increased spending by councils included …national policy priorities, such as the requirement to increase funding for schools by the amount determined by government or to meet national waste recycling targets". It also refers to the changes in allocation of funding that have hit many councils. It mentions the redistribution from London and the south to the midlands and the north—

Mr. Raynsford

rose—

Mr. Pickles

Does the Minister want me to give way because he thinks that I am quoting from the wrong passage?

Mr. Raynsford

If the hon. Gentleman's thesis is right, why does the chairman of the Audit Commission, James Strachan, clearly state that there were a number of factors behind the rises and trying to find a single point of blame is not only counter-productive but also simply not borne out by the evidence."?

Mr. Pickles

I think that the Audit Commission is ticking off the right hon. Gentleman for all his wild assertions about political control. I am quoting from the Audit Commission's written report, not a press release, and the report dismisses the Government's claim that last year's high rises were due to councils not being up for re-election. It states: We could find no evidence of a statistically significant relationship between either budget or council tax increases and the length of time until the next council election". The right hon. Gentleman's argument therefore collapses. The report also noted that the political control of councils made no difference to the rises and saw the size of the grant as the central factor. That is what it says in the main text of the report, and no one's press release can undermine what the report states.

In conclusion, council tax has become unpopular because of the abuse of the system and because no one now trusts the fairness of the grant system. The council tax is also unpopular because under Labour it has shot up by 70 per cent. As The Independent put it: The council tax may be unpopular, but the alternatives are worse. The message is clear: to restore confidence we must reintroduce fairness into the system, redress the balance of funding and start trusting local government.

Several hon. Members

rose—

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. Front Benchers' speeches have taken up 104 minutes of the 163 available. In order to allow all the Back Benchers who wish to contribute to the debate to do so, I suggest a self-imposed time limit of about 10 minutes.

6.1 pm

Huw Irranca-Davies (Ogmore) (Lab)

May I explain first why a Member of Parliament from Wales such as myself should venture into the debate when the Chamber today is peopled largely—with the notable exception of the hon. Member for Brecon and Radnorshire (Mr. Williams)—with English Members? It is because, as with so many other policies, the repercussions of today's debate, coupled with an Assembly review running alongside the current balance of funding review, will have major repercussions across the border. There are voices of discontent out there—whether it be in Cardiff, Canterbury, Oldham or Ogmore—and people are greatly disconcerted over recent rises in council tax levels. No one in the Chamber should ignore that.

Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)

I reinforce that point by saying that the same concern extends north of the border to Scotland. If we are to have a major reform in respect of local income tax, it would be more easily done if introduced across the United Kingdom.

Huw Irranca-Davies

My only proviso would be that, as a great supporter of devolution, I welcome the differential. Sometimes it can be a little annoying, but I welcome the freedom to implement policies differently. As the hon. Gentleman knows, the Treasury has given a massive tranche of funding to Ministers in the National Assembly for Wales to pass on to local authorities.

The Government have commissioned an ongoing review of council tax to explore future options and, as I mentioned. the Welsh Assembly Government have also considered the matter and are paying close attention to what we are saying in the House today.

I commend the Liberal Democrats on their choice of debate today, because council tax has had a massive impact on my constituents. Like many others, my constituency has seen large increases in recent years and many people agree that the position either is, or is rapidly becoming, untenable. Politically, as I have no need to remind my hon. Friends, including those on the Front Bench, our constituents look to us to bring forward carefully crafted proposals, so I ask my Front-Bench colleagues not to rush the proposals, no matter how much the Opposition or the media want us to introduce a hasty policy, which might help Conservative Members to snap up a few political crumbs. Our electors will not thank us for introducing badly thought-out measures.

All too often the headlines in the right-wing press have singled out one or other Government policy and screamed, "This is Labour's poll tax". In my two years in the House, I must have heard that on at least a dozen occasions already. However, when we talk about the council tax, we are haunted by a spectre of the past —the real, Conservative poll tax. Before us waits the spectre of a possible future—the local income tax. If it is the only source for local government financing, it could well become the next poll tax, as I shall explain. I must say to my right hon. Friend the Minister that, if we fail to reform and renew the existing council tax adequately, we could find that our present policy could mutate before our very eyes into another poll tax.

I commend the Liberal Democrats on their ability to climb aboard a political bandwagon. It is world class. They have spotted something that is currently unpopular, and come up with an eye-catching, if flawed, idea. They have proceeded to flog that poor horse until it has keeled over.

I do not blame them. That is the nature of politics in opposition. Labour Members remember our 18 years in opposition, and Liberal Democrat Members have had to live with 100 years in the wilderness.

Mr. Edward Davey

I have here a piece of paper containing quotations from the general election manifestos produced by Liberal Democrats and our predecessor parties since 1983. Each manifesto contained a proposal for local income tax. That is some bandwagon.

Huw Irranca-Davies

Despite my warm words, I cannot commend the Liberal Democrats on their blinkered focus on a local income tax. Their proposals resemble a promise to fix up an old house, using a sledgehammer only and ignoring the other tools in the box. There is more danger that a sledgehammer will bring the house down than accomplish any good or complicated repairs. The Liberal Democrats, with their blind allegiance to a single option, could truly be called the house wreckers of local government.

Mr. Roger Williams (Brecon and Radnorshire) (LD)

Will not any reform of the council tax merely alleviate the symptoms, and not cure the complaint? The complaint is the unfairness that lies at the heart of the council tax.

Huw Irranca-Davies

I agree with the hon. Gentleman about unfairness, but I hope that the present exhaustive and thorough review of the balance of funding will produce an analysis based on evidence. Using that analysis, we can make decisions. That is the way to go about things; we should not leap ahead and adopt a policy just because it looks politically attractive. The Liberal Democrat proposal on local income tax can be rendered in two or three words in a little manifesto statement, but I would need to have the evidence before making a decision to move in that direction.

Matthew Green

If the review is so thorough, why has the Prime Minister ruled out one option before it has even begun—and before the Chartered Institute of Public Finance and Accountancy has given the evidence that it was asked to give? The Prime Minister has ruled out one option, with no regard for the information that is available.

Huw Irranca-Davies

The hon. Gentleman must be as confused as I am on this matter. I have read statements in the media that flatly contradict his version of events. Some newspapers, and especially the right-wing press, assert that nothing is being ruled out of consideration. It has also been stated—wrongly, but the same point has been raised in this debate—that the Government will bring in a dozen different new taxes. My right hon. Friend the Minister has made it clear that nothing is being ruled out of the review, but that people should not assume that Government policy will use only one of the tools available in the toolbox.

I want to go back into the mists of time, to February 2003. The Liberal Democrats' alternative Budget promised all voters that the adoption of a local income tax would result in a cut of £100 in council tax bills. That claim was repeated in the party's local election manifesto, entitled "Power to the People"—with its echoes of the Tooting popular front—and in the by-election at Brent, East. It is pretty clear then, that between February and September last year, the Liberal Democrats were offering a very catchy promise of "£100 in your pocket".

However, a curious trick had taken place by December. That catchy promise of £100 back with every Liberal Democrat vote had shrunk. The right hon. Member for Ross, Skye and Inverness, West (Mr. Kennedy) suggested in The Guardian of 8 December that the amount would be £70. From September to December, the amount fell by £30, yet only two days later his colleague, the hon. Member for Truro and St. Austell (Matthew Taylor), was insisting that it was still £100. However, for the moment, let us stay with the leader of the Lib Dems and the tenner a month shrinkage. If the amount saved continues to decrease by £10 a month, it will be down to no saving at all by the time the balance of funding review reports in the summer. The public will be no worse off, but they will certainly be no better off either.

One question jumped out at me when I considered the pay-as-you-earn option for local income tax: how do the Liberal Democrats plan to plug the funding gap they will cause by missing out the 500,000 people who do not have a salary but receive dividends? Some of the wealthiest people in the country would be missed out. Has there been a calculation of that lost tax take? How much extra will have to come from those who pay through a PAYE system? If the Liberal Democrats cannot tell us today, will they tell us in the press releases after the debate?

I refer briefly to an article provided by the Library—I commend the excellent work of the Library staff. It was published in The Observer on 1 February 2004. Part of the headline was "Another Fine Mess" and it was subtitled: If you hate dealing with one tax return a year, consider coping with two. Mention was made earlier of the American example. In the article, Brendan Donnelly, a director of the Federal Trust stated that local taxation is infinitely more complicated than people think …There would be so many winners and losers among the public, and many would be distributed in a highly unpredictable way. Apart from the over-simplistic platitude that the poor will be better off and the rich will not be, we have failed to get an answer about exactly who the winners and losers will be. If the system will be unpredictable, have the Liberal Democrat policy wonks already come up with an analysis of where the knife will fall? Who will it affect across the UK and, to be parochial, who will it affect in Ogmore? I am still not clear about that and I do not think that Liberal Democrat Members are clear about it either.

We must actively consider change, but we must not leap prematurely into wholesale changes that could worsen the situation. Despite a real-terms increase of 30 per cent. to local government in England since 1997, and a commensurate transfer of funds to the Welsh Assembly Government, many local authorities have had massive increases in local taxation.

David Taylor

My hon. Friend is forensically dissecting what remains of the Liberal income tax policy, but does he recognise that the unease to which he referred about council tax rates in Wales, which also exists north of the border, is significantly cushioned by the generosity of the Barnett formula? The formula certainly needs review in parallel with the balance of funding review undertaken by the Chartered Institute of Public Finance and Accountancy. I declare an interest as a member of CIPFA.

Huw Irranea-Davies

That point alone could fill an entire debate. The complexities of the Barnett formula, especially when we consider proposals for regional assemblies, may not have the beneficial effects in Wales that some Members on the Opposition Benches and some people in the nationalist community claim. We need to treat the matter with great caution.

The Government were right to set up the balance of funding review in April 2003. My understanding is that no options have been ruled out, but that, at present, nothing has been ruled into Government policy. That is the right way to play it. Based on the evidence, local income tax certainly has a role to play in the debate and it may even have a partial role in the eventual solution, but to pretend that it is the magic bullet fools no one except some headline writers who believe that there can be simple solutions. It is rather like believing in the tooth fairy; it is reassuring, but at some point we need to put away such things.

We should let the review get on with its work, and look at some of the proposals, including aspects of local income tax, that are worth considering. I commend the review group for its work—the quality of the research, the extensive consultation that is being carried out and the willingness to explore all options. That is quite contrary to what has been put to us by some Opposition Members today.

I want to put to the Minister some of the feelings of my local authority—Bridgend county borough council. It dislikes the over-zealous use of ring-fencing, although that is primarily conducted by the Welsh Assembly Government, and it would also welcome the flexibility of a return to non-domestic rates in one form or another—I throw that in for the Minister's consideration. It does not have an appetite for pure local taxation as the prime way forward because it recognises that central Government funding has advantages, not least of which is the equalisation function. For all the criticism of central Government funding, it is the mechanism by which we can ensure that deprived areas and rural areas are adequately rewarded.

Whatever happens in the review, its very existence is an explicit recognition of the unsatisfactory current situation and, most notably, the seemingly unmanageable regressive element of the council tax system. The criteria are correct, so any alternative system should balance stability for local authorities; predictability of income; sufficiency of resources looking more than one year ahead; allowing local authorities to respond to local circumstances; and variety of income. Relying on one source of income is the way to disaster. I would not rule out elements of the Liberal Democrat policy, but a wholesale transfer to it would be dangerous.

On the necessity of equalisation, I do not envy those wise people who are trying to juggle the often conflicting criteria, but I applaud their efforts and watch their progress with interest. Earlier, I referred to a well-argued article by Neasa MacEarlean in The Guardian, and its closing statement is apt. It states: If we get a sophisticated debate going in the run-up to the next election, we could end up with a more sensitive tax system that will serve us for decades to come". The corollary is that, if this debate is unsophisticated and dabbles in simplicity for the sake of spinnable, winnable headlines, we risk ending up with another poll tax, albeit a local poll tax.

Whatever the outcome of the review, I urge the Minister to adopt certain principles. We must examine an appropriate measure to devolve powers and funding, but the process must not be wholesale. We need a mix of funding rather than an over-reliance on a single source, equalisation within central funding and minimum standards that guarantee that wayward councils will not revert to slashing services as a response to tighter times. Whatever the solution, it is patently not local taxation. The wise solution is more complex and we must be honest with the electorate and not paint them a mirage of a promised land of low, lovable, local income tax.

6.18 pm

Sir Paul Beresford (Mole Valley) (Con)

When I considered this debate, I realised that we would probably have some knowledgeable contributions, particularly on national issues, so I decided to examine the matter from a local perspective.

My local council is, unsurprisingly, called Mole Valley district council. As with many local councils, particularly in the south-east, it has had considerable difficultly with the size of the council tax, not the method. It was hurt in this round: after the adjustment in the formula, which predominantly went back to the Department for Work and Pensions, the transferred grant was sent through and it received an increase of £14,000, which is about 0.4 per cent. A little bit of Government panic money came down to it—another £25,000—giving it the grand total of a 1.2 per cent. increase.

Mole Valley council felt fairly sore. Fortunately, although it is under no overall control, the Conservatives and the independents used this year to look for efficiency savings and resisted yet another year of Liberal calls for vast increases in expenditure—many hon. Members will have noted that the Liberals are quick to dispense other people's money. In this case, the Conservatives and independents made some savings and managed to keep the proposed increase down to 5 per cent. The Mole Valley Liberals called every saving a cut and suggested an 18 per cent. rise in council tax. Going by the reaction at the council meeting when the final decision was made, the Liberals complained that the 5 per cent. increase was too much while also complaining about the cuts.

As many hon. Members have recognised, the council tax has, in the main, worked quite well. I agree with the Government that many authorities have the opportunity to make enormous savings, but many just do not try. For example, why is it that Hammersmith and Fulham's bin collection costs twice as much per head of population as its Conservative neighbour's? That is a little gem of a question that I am sure the Minister of State will think about and have a reply of some sort to when he winds up the debate.

The Government's contribution to high bills must be acknowledged. It includes the changes in local council procedure and structure, the effective removal of market testing, the huge volume of targets, the number of reviews and reports required by central Government, and the direct controls on the size and direction of spending-just some examples, in addition to those already mentioned. Last year the Minister introduced his new grant system. It was not fair, but as the Minister said to the Office of the Deputy Prime Minister: Housing, Planning and Local Government Committee, it had to involve an element of rough justice. It was certainly rough, but it was a bit short on justice. Many of the needs indices were subjective—as the Minister put it, We had to make choices. The Government did make choices, and many were politically motivated. The Committee warned the Government, but the Minister ploughed on. The money moved from the south-east and London to the urban north. The Government denied that that was the effect of their changes, but the Audit Commission—much quoted today—said that it was. Many local authorities. especially in the south, lost huge sums year on year. For example, Surrey lost about £39 million. Around the country, but especially in the south-east, council taxes rose, often by large amounts.

The Liberal Democrats' proposal is the local tax—their long-term bandwagon. As ever, they claim that it would be fair. They always claim that until one lifts the glossy lid and finds a bin full of expensive problems for local authorities. That is not even to mention the prospect of having local finance directors and councillors examining one's tax declaration. The Liberal Democrat estimate of 3 per cent. is considered by experts to be incorrect: the true figure is probably nearer 6 or 7 per cent.

The local income tax—like the poll tax, but even more so—would mean technical and administrative problems, and costs would be horrendous. Local authorities would have to locate every taxpayer for collection and keep track of those who moved in each financial year. That would apply even if the tax were collected centrally and dispensed locally. I understand that the Inland Revenue does not have the home addresses of most PAYE taxpayers and only a nominal address for some others. When the Revenue has an address, it is often a taxpayer's home, but it may not be. It may well not be the only home, let alone the main home.

Mr. Edward Davey

Will the hon. Gentleman give way?

Sir Paul Beresford

I shall not give way. I am very aware that the opening speeches were especially long, and that my right hon. Friend the Member for North-West Hampshire (Sir George Young) is in his place and desperate to make his speech.

No consideration has been given to the situation in which, for business or other reasons, earners have two or more residences. If the tax were set at 5 per cent., would an individual with two properties pay 10 per cent. or would the 5 per cent. be split between councils? If so, how would it be split? One wonders. If the tax were collected centrally, the money dispensed by Government would have to be on a per head basis, in which case rural areas would be hard hit, or on a formula basis, which is the source of the present complaints. Any central collection and distribution would effectively remove any real local government autonomy.

As has been mentioned, because the tax year correction is retrospective, adjustments, either up or down, would cause a large measure of uncertainty. That would mean that local council taxes would have to supplement balances, and reserves would have to be increased considerably. The readjustment would be complicated by each local council having to seek out individuals retrospectively, further adding to administration costs.

I would be one of the first to recognise some of the problems with the poll tax. I set a zero poll tax twice, and one of the biggest single savings was of the annual £2 million cost of collection. Similar costs, at today's prices, would apply to the Liberal Democrat local tax.

The Liberal Democrats make great play of local decisions, but only when it suits them. If local councils set their own local tax, the problem of accommodation addresses would arise. It would be interesting to see how many people would appear to move from Lambeth, or Hammersmith and Fulham, to Wandsworth, at least for tax purposes. The local tax idea is fraught with problems and has huge prospects for unfair results. It should not be taken seriously.

6.24 pm

Mr. David Borrow (South Ribble) (Lab)

In view of the time, I shall be brief. I should like to make a few general comments on issues around taxation and then specifically on the review of local funding.

In 1975, I started my career as a local taxation professional, and I declare an interest as a member of the Institute of Revenues, Rating and Valuation.

In 1976, the Layfield report came out, following the 1973 rating valuation. It raised issues similar to those that we are discussing. The report included all the sorts of issues that are currently being considered; it raised all the problems with local income tax—the nature of raising the money and all the other technical difficulties [Interruption.] If the Liberal Democrats will listen a little longer, I shall deal with certain issues and they may learn a little.

There is no truly fair tax. All a Government can do is try to put together a basket of taxes on different things in the right combination, in the hope that they can tax enough different things to achieve a fair basket. That means taxing property, wealth, income and expenditure. Those are the main sources of taxation on individuals. The way in which that combination is put together is crucial to whether the tax system is fair.

Income tax on its own is not fair, because it ignores wealth. It ignores the fact that, if there is only a tax on income, a working couple with kids, paying off a mortgage and struggling with all the expenses of starting out in life, may have a higher income and so pay more income tax, but not be as comfortably off as a wealthy retired couple with a low income, but £200,000 in the bank and their mortgage paid off. We must recognise that fairness in taxation means looking at it as a whole.

A property tax is essential in any basket of taxes. Because of its very nature—the fact that property does not move—such a tax is easy to collect. Not only in this country, but in many others across the world, it is seen as ideally suited for a local government tax, rather than a national Government tax. That is one reason why, whatever comes out of the review, a local property tax needs to be part of the system that we end up with. Whether it is the only local tax is a different matter, but it needs to be a part.

The existing council tax is unfair, because the bandings are not sufficient. There should be more bands at the top and the bottom. That can be dealt with when the revaluation takes place. We also need to ensure a proper balance between the different bands. At present, those in a low band pay more than they should, and those in a high band pay less than they should, taking the value of the property alone. There is quite a lot of scope to improve the existing system.

If we look at local government funding as a whole, we see that the reason for the current problem with council tax increases is the gearing system, which means that 75 to 80 per cent. of local government income is dependent on the decisions of central Government. Of that chunk, about a quarter to a third is geared to the nationalised business rate, which is linked to inflation, and the remainder comes as Government grant. So the only bit that councils have any control over is the 20 to 25 per cent. That percentage is higher than it was 10 years ago, but it is a small percentage linked to the council tax. Replacing the council tax with a local income tax would not change that problem, because councils could still control only a small proportion of council income.

We need to increase local government's tax base. We need to look again at the localisation of the business rate and restore that to local authorities. One of the matters that Layfield looked at in 1976 was whether it was possible to introduce other forms of local tax in addition to the property tax.

Local income tax may be a possibility, but my view is that it would be complicated and difficult to introduce because of the existing structure of local government, with small shire districts of about 100,000 people such as those that I represent and the two-tier system. Local income tax is possible with a regional system or with much larger local authorities, as in the United States, where local income tax seems to work better.

I was reminded of my hon. Friend the Minister's constituency—Corby—when comments were made about the buoyancy of local income tax. Local income tax is all right when the economy is booming, living standards are increasing and income tax yield is going up every year. However, 10 or 15 years ago, when the steel industry collapsed in Corby and the town struggled for a number of years, those who were running the local authority had to try to deliver all the services although its tax base—the workers—was wiped out at a stroke. To an extent, that happened in my own authority, when Leyland Trucks got into difficulty in the early 1990s. If local income tax is the only tax that local authorities control, they are vulnerable to the ups and downs not just of the national economy but of the local economy. The smaller the local authority, the more vulnerable it is to those changes.

The Liberals need to think again about their policy. I can understand why it is viewed as sexy and the sort of thing that goes into "Focus" across the country, but people move away from it when they consider it. If the Liberals seriously felt that they had a chance of winning the next election, that commitment would disappear from their policy by the time the manifesto was written.

6.31 pm

Sir George Young (North-West Hampshire) (Con)

It is pleasure to follow my hon. Friend the Member for Mole Valley (Sir Paul Beresford) and the hon. Member for South Ribble (Mr. Borrow), who have spoken with authority and brevity, and I will certainly seek to match them on brevity.

The Liberal Democrats, who have made this proposal, need to stand back and look at the overall structure of taxation. There are taxes on income, on expenditure and on capital or assets. They propose to abolish a tax on capital or assets—council tax is almost exclusively a tax on home ownership—and to replace it with a tax on income. They assert that that will be fairer, but I remain to be convinced.

A number of residential properties in my constituency are owned by companies or trusts and a substantial amount of council tax is levied on them at the moment. That could be lost, to be made good by a rise in income tax on the average punter. Other substantial properties are owned not by companies, but by individuals who are not domiciled in this country and may legitimately pay no tax in the UK. Their contribution would also be lost. Finally, some properties are owned by wealthy individuals who are domiciled in this country but have so arranged their affairs to make ingenious use of tax allowances that they pay little or no income tax. They live off their capital, and I am sure that they will be interested in the Liberal Democrat proposal to reduce their tax burden at the expense of those who are less well off.

I have looked at the website, and the Liberal Democrats make it clear that they want to abolish the council tax and replace it by Inland Revenue and pay-as-you-earn measures. That would not capture a range of people, and that lost income would have to be made good. So some arguments of principle need to be addressed before reducing taxes on capital and replacing them with taxes on income, and there are some important practical and distributional consequences, as well as possibly an impact on incentives. If 3p in the pound were added to the basic rate of income tax, it would help to make this country less competitive internationally and add to the incentive to take tax avoidance measures. I do not put too much emphasis on this, but related to that is the view of some economists that house prices will rise if a tax on houses is abolished. The Government have tried to damp down buoyancy in house prices by using stamp duty. It follows that, if the tax on houses is reduced, prices may go up, with consequences for marginal first-time buyers.

I have considered the impact of the proposals on my constituency. At the moment, the average council tax bill in Test Valley is £1,042 a year. To raise the same amount of money would require a local income tax of 4.3 per cent., yet a household with one person on average male earnings and another on average female earnings would end up paying a yearly local income tax bill of £1,670; so having got rid of the council tax, that couple would pay £628 a year more. I know that the Liberal Democrats keep saying, "We expect 70 per cent. of households to be better off", but I remember my Government saying that about the poll tax. The reality is that it is not households who vote, but voters. I do not believe that 70 per cent. of my constituents would be better off.

I shall touch on one or two specific issues in the time available. Let me start with what I call visibility. How visible would the new tax be? At the moment, I receive a bill in April from Test Valley borough council setting out how much I must pay. I have a standing order for 10 months, which I see on my statement, so I know exactly how much money has gone where. That keeps me focused on the cost of local government and allows me to compare my band with those in other local authorities. Under one of the Liberal Democrat proposals, there would simply be less visibility. A flat sum would be deducted from my pay each month, along with my national income tax, national insurance, contributions to the Members' fund, give-as-you-earn, and all the rest. The tax would be less visible, which would reduce the accountability of local government and the transparency of its costs. It would get lost in my transactions with central Government, instead of being a stand-alone transaction with local government. There would be a complicated settling-up process at the end of the year, although which tax year's return would be used as the basis for the settling up is not quite clear.

There is a further point that has not been mentioned in the debate. How would my town hall know what the tax base would be when setting the rate at the beginning of the year? At the moment, it knows with some certainty how much in the pound a certain amount of council tax will raise—it has a fixed, immovable tax base. Under the Liberal Democrat proposal, it would not know how much it would raise from a specific rate of tax. I suspect that councils would aim high so that they would have a margin.

What percentage of the tax would be collected? Some 96 per cent. of council tax is collected at present. Do the Liberal Democrats really think that local authorities would get the same return from central Government?

Mr. Edward Davey

Will the right hon. Gentleman give way?

Sir George Young

I shall, but the time will come out of the hon. Gentleman's colleague's winding-up speech.

Mr. Davey

As in other countries, the Inland Revenue would tell local authorities their income tax bases at the beginning of the year and guarantee that from the Exchequer.

Sir George Young

But how would the Inland Revenue know whether I would stay in that area for the whole year? How would it know what my income would be? The Inland Revenue might have an idea about how much I will earn in the current year, but I have to tell the hon. Gentleman that it is quite often wrong. Under his proposal, the tax would not have the same fixed base on which it could be levied as the council tax. I listened attentively to his opening speech, but he did not begin to address that point. Under the system, there would be questions of where I lived and whether I would have to pay twice. At the moment, the Inland Revenue is relatively relaxed about the address from which I send off my tax return, as long as it gets one. Under the new system, it would be vital that the address was right.

The hon. Gentleman said that an advantage of his proposal was that it would provide a buoyant source of revenue. I am not sure that I want local government to have a buoyant source of revenue. [HON. MEMBERS: "Ah!"] No, I want authorities to have a threshold through which they must go each year before they put up the council tax. I want them to justify their increases year in, year out. The hon. Gentleman wants local government to have a buoyant source of tax revenue so that it does not have to answer the difficult questions that are asked at the moment. I consider what the Liberal Democrats see as an advantage to be a disadvantage.

The real problem at the moment is that too much weight is put on the council tax. It was invented some 14 years ago when the average amount paid was around £500. It could bear that amount of traffic without too much damage to its structure—it is like a bridge with a weight restriction. However, many of my constituents are now paying four-figure, not three-figure, amounts.

The hon. Member for Kingston and Surbiton (Mr. Davey) asked at the start of his speech what could be done. I would keep the council tax and complement it with another tax, perhaps a variable vehicle excise duty, for the sake of argument. That would be a much better response to the challenges facing local government than those that he proposed. The debate has shown that the House does not want to axe the tax; it wants to axe the Liberal Democrats.

6.39 pm

Matthew Green (Ludlow) (LD)

This debate has shown that if the arguments used by Conservative and Government Members are the best that they can throw at us, we are on fairly firm ground. As to the comments by the Under-Secretary about the date of this debate, that was not in the gift of Liberal Democrats. I am sorry that the Minister for Local Government, Regional Governance and Fire could not be present for the start of the debate because he was in Committee. Originally, our Opposition day was Wednesday, but, quite rightly, it was moved because of the Hutton report. The Minister can make cheap jibes, but this debate was originally intended for the day on which the Hutton report was published.

The hon. Member for Brentwood and Ongar (Mr. Pickles) and others used as a theme how much a working couple would pay under our proposals and those of the Conservatives. Two weeks ago, one of my excellent local newspapers, the Ludlow Journal, published an article about a young couple named Charlotte and Scott Downes from Burford. Charlotte is 24 and Scott is 30. They both work and have a four-year-old daughter. They went to the press from choice—that was not down to me. The paper reported: Mrs. Downes said she and her husband were a couple who worked to pay their own way and didn't expect others to do it for them. 'We support ourselves but I can work only 20 hours a week and get £4.50 an hour. Scott works full time and gets just £5 an hour'. Such wage levels are common in my constituency. Charlotte Downes went on to say: We have to pay around £3,500 a year in rent and we have to clothe and feed themselves. We don't get 10 and 20 per cent. increases in what we earn but that is the sort of increases we have been getting in Council Tax over recent years. We are already paying over £1,200 a year in Council Tax"— presumably under band D— and now it's set to go up yet again. As well as asking their permission to quote them, I did some calculations. On the basis of those figures, that couple's joint income is just over £16,000 a year, which is quite common in my constituency and puts them above council tax benefit levels. Currently, they pay £1,200—a hell of a chunk out of £16,000, on top of the other taxes that couple have to pay and their cost of living.

If we scrapped council tax and implemented our proposed local income tax bands with a national average of 3.75 per cent., that couple's local income tax bill as a household would be £260. They would be £900 a year better off than under the current proposals that are being defended. According to the information revealed by the right hon. Member for West Dorset (Mr. Letwin), under the Conservatives, the Downeses would pay £2,400 council tax. On the assumption that that was done by cutting national income tax—I will not claim that the Tories would increase the burden of taxation nationally—by 3.75 per cent across the bands, that would save the Downeses £260. Overall, they would be £900 a year worse off under the Conservative proposals–unless the Tories have another policy that they have not yet revealed. We would love to know.

At the other end of the scale, the local Member of Parliament—myself—earns £55,000 a year.

Mr. Hoyle

No, £56,000.

Matthew Green

I will work on £55,000 as a round figure.

My current council tax for my band E property is £1,400 a year. Under my party's proposals, I would pay local income tax on just over £50,000 of my income, taking the personal allowance into account, but council tax would be scrapped. My local income tax bill would be £1,900 but I would save £1,400 in council tax, so I would pay £500 more. I think that I should. Under the Conservative plans outlined by the right hon. Member for West Dorset, I would pay council tax of £2,800 but save £1,900 on my income tax bill, so I would be £500 better off under the Tories' current plans. I say that I should pay more and that the young working couple from Burford should pay less. Conservative proposals would reverse that. The Government may be trying to come up with new proposals, but they are going nowhere fast.

In the short time available, I shall tackle a few points that were made in our debate. The Minister cited some countries that used local income tax. He needs to go back to his officials because he did not mention Switzerland or Norway, both of which use local income tax, as do many other countries. He should ask his officials to take another look at countries that use such a system—Switzerland certainly does so. The hon. Member for Ogmore (Huw Irranca-Davies) made some well-argued points. He clearly favours a hybrid system, but the danger of that is that the cost of collection is likely to be greater. Council tax raises £19 billion a year, 4 per cent. of which—about £670 million—is the cost of collecting and administering benefits. If we added another tax system on top, it would be hard to escape the conclusion that administration costs would be higher. One or two other Labour Members found a hybrid system attractive, but they must consider how those administration costs would be met. More would be spent on bureaucracy, so the return would be smaller.

The hon. Member for Mole Valley (Sir Paul Beresford) said that local income tax would not be levied at 3.75 per cent. of earnings, but at 6 to 7 per cent. The figure of 3.75 per cent. is based on the local income tax rate for earnings between £5,000—the personal allowance—and £100,000, where we would set a cap. The figure of 3.75 per cent. is not just based on the standard rate. If the tax were based on that rate, 6 or 7 per cent would be a possible figure. However, because the tax is levied across the board, the figure is 3.75 per cent. We must therefore be careful to specify what portion of income the tax is based on.

The hon. Member for South Ribble (Mr. Borrow) mentioned the Layfield commission, and we got excited because we thought that he was going to tell us what its conclusion was. However, he swallowed his words and could not bring himself to say what it was. The Layfield commission pointed out that local income tax is not perfect—every tax has pros and cons—but it recommended it after assessing a range of local taxes. The hon. Gentleman could not bring himself to say that the Layfield commission recommended local income tax. He talked about buoyancy, and gave Corby as an example of a local community where our proposals would have a disastrous impact. At the moment, people without income receive council tax benefit and extra money from the Government kicks in. However, revenues can be affected if something happens that has a major impact on an area. I hope that that does not happen to communities, but if it does the authorities step in. I think that something similar would happen if a local tax system were introduced.

The right hon. Member for North-West Hampshire (Sir George Young) asked what we would do with a property owned by a business rather than an individual. That is a fair point—we would tax the owners as businesses, which would either pay uniform business rate or our replacement for UBR, details of which I shall not go into.

Sir George Young

How does the hon. Gentleman know which properties are involved?

Matthew Green

We would know at which property someone was registered for income tax purposes—[Interruption.] I am being reminded that capital gains tax exemption is another way of finding out.

Our debate has shown that the Tories are in denial. Council tax is an unfair tax—we cannot escape that conclusion. Labour Members have admitted that council tax is inherently unfair. The Conservatives introduced one unfair tax—the poll tax—only to replace it with an equally unfair tax. It is time for the unfair council tax to be scrapped and replaced with a tax that is based on ability to pay and is fair to the people who are paying it.

6.49 pm

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

I apologise for having been unable to attend the start of this important debate. As my hon. Friend the Under-Secretary explained, it has been difficult for us to cover this debate as well as the Committee on the Fire and Rescue Services Bill. However, I listened to all the points that hon. Members have made since my arrival. I shall respond to those, but I must first repeat some of the points made by my hon. Friend the Under-Secretary, because they are crucial, and the message seems not to be getting through in some quarters.

This Government have given continuing year-on-year increases in grant to local government, now totalling £46.1 billion—30 per cent. more in real terms than the figure that we inherited in 1997. This year, we increased formula grant by 5.5 per cent. and total grant by 7.3 per cent—that includes specific and special grants. That represents a sustained growth of investment in our public services, in stark contrast to the 7 per cent. real-terms cuts that applied between 1993 and 1997. I must also emphasise that those increases in grant have benefited all authorities, irrespective of political control—contrary to the impression that the right hon. Member for Skipton and Ripon (Mr. Curry) tried to convey last week, when, presumably prompted by Conservative central office, he uncharacteristically lapsed into the use of wholly spurious and bogus statistics. Conservative-controlled councils received on average slightly larger grant increases this year than Labour authorities—6.2 per cent. as against 5.9 per cent.—[Interruption.] My hon. Friends may not be happy about that, but it is important to put the record straight. Yet despite that, Conservative councils are threatening large council tax increases that will punish their unfortunate council tax payers. If the example of Conservative-controlled councils is bad enough, wait until we get to those that are under the control or influence of the Liberal Democrats, who seem to think that the sky is the limit for council tax rises.

There is absolutely no justification for unreasonably large council tax increases, given the generous Government grant increases that all authorities received this year. We have not only increased grant, but extended freedoms for local authorities, reversing the trend on ring-fencing—a point raised by my hon. Friend the Member for Ogmore (Huw Irranca-Davies). In the recent grant settlement, we unfenced £750 million-worth of grant—hardly a centralist measure—and the Local Government Act 2003, to which he also referred, contained several important freedoms for authorities, especially the new borrowing system and the rights to trade, to charge and to vary discounts.

Mr. Pickles

Will the Minister give way?

Mr. Raynsford

Very briefly, but the hon. Gentleman will know that my time is limited.

Mr. Pickles

The hon. Member for Ogmore (Huw Irranca-Davies) was kind enough to acknowledge that the level of ring-fencing is now roughly three times the rate that the Government inherited. Will the Minister confirm that?

Mr. Raynsford

I will confirm that the trend in ring-fencing is going down—it has gone down to 11 per cent. from 13 per cent. last year, and we are on target to reduce it, as we pledged, to below 10 per cent. next year.

Given the good grant increases and the additional freedoms, there is no excuse for unreasonable council tax increases. That is why we have made it clear that if necessary we will use our capping powers. The public are unhappy about the unreasonably large council tax increases of recent years, and we share their concern. We will not stand aside or duck the issue when councils levy, year on year, continued unsustainable increases in council tax. Given the generous grant settlement for 2004–05 and the scope for efficiency improvements, our view is that local authorities can and should deliver council tax increases in low single figures.

I have already written to 65 authorities to express concern at reported increases in excess of 5 per cent., and I am pleased to say that many have written back to me to make clear their intention to restrict increases to low single figures. Some indicated that the press reports about larger increases were incorrect; others have clearly acted to bring down their originally higher estimates. That is very welcome. Some, however, have not, and I therefore plan to call in some authorities that did not provide satisfactory replies. We would much prefer not to use our capping powers, but it appears inevitable that we will have to do so this year.

Let me consider the points that were made in the debate. The hon. Member for Brentwood and Ongar (Mr. Pickles) gave us an amusing tour of Liberal Democrat operations, but he was painfully silent about the Conservative alternative. That is a comment on the party of the poll tax. Perhaps on this occasion he is showing some discretion.

My hon. Friend the Member for Ogmore highlighted the complexity of local government finance and issued a warning about the unpredictable consequences of major changes such as the Liberal Democrats' local income tax. I entirely agree with him.

The hon. Member for Mole Valley (Sir Paul Beresford) claimed that the new grant system redistributes grant from the south to the north. I have some figures for him and I hope that he will listen because allegations of skewed allocation of grant are unfounded. The figures are averages for whole regions, not selective figures for individual councils, and they show the change in grant in 2004—05, compared with 2003—04. In the south-west, the average increase is 5.5 per cent.; in the south-east it is 5.6 per cent., and in London it is 5.4 per cent. That compares with a national average of 5.5 per cent.

Let us consider the increases in the three northern regions. In Yorkshire and the Humber it is 5.0 per cent.; in the north-east it is 4.8 per cent., and in the north-west it is 5.2 per cent. [Interruption.] I understand that some of my hon. Friends from northern regions are not happy with that, but I hope that the figures make it clear that there is no question of a shift in grant from the south to the north, as our political opponents allege.

My hon. Friend the Member for South Ribble (Mr. Borrow), who is an expert on the matter, highlighted the complexity of local taxation and the unfairness of simply taxing income. He emphasised that fairness requires a balance between different tax sources, including a property tax.

The right hon. Member for North-West Hampshire (Sir George Young) made a telling point about the impact of tax changes. He highlighted the Liberal Democrats' claim that 70 per cent. would be better off under local income tax and reminded hon. Members that the Conservative Government in which he served had promised the same of the poll tax. Not surprisingly, we all laughed.

The hon. Member for Ludlow (Matthew Green), who replied for the Liberal Democrats, alleged that the Government were going nowhere fast. He is wrong on both counts. We are not going fast because rushing into change is a recipe for disaster. indeed, it led to the poll tax. The Liberal Democrats are in danger of rushing into change. We are going somewhere and considering the issues carefully. We do not adopt the Liberal Democrats' approach. The only adage that I shall cite, with all modesty, is "Fools rush in". We do not intend to do that.

The focus of the debate has been the Liberal Democrats' proposal for a local income tax. They propose nothing less than the wholesale abolition of a property tax and its replacement with a local income tax, which local councils set at whatever level they believe that they need. As the Liberal Democrats put it, "Axe the tax" and "Scrap the cap". However, two slogans do not add up to a working local government finance system. If we did as the Liberal Democrats suggested, it would make us one of only a tiny number of countries in the world that have no property tax at all.

Local income tax would be a major departure and we need to examine its practicalities and implications carefully. The balance of funding review will do just that in early March when the Chartered Institute of Public Finance and Accountancy gives a presentation on the issue. However, the Liberal Democrats have been much more cavalier in their approach, brushing aside any voices that urge caution in their rush to produce a new slogan.

As anyone who has studied the complex subject of local government finance will testify, there are no quick and easy fixes. Those who pretend that there are simple and painless solutions—"Axe the tax"—are no more than peddlers of fantasies, snake oil salesmen who claim to offer a cheap and cheerful remedy.

We have given councils sustained, above-inflation increases in grant and more freedom from ring-fencing. We expect councils to budget prudently for low council tax increases. The public deserve nothing less. If they do not do so, we will have no option but to cap those councils that have imposed unreasonable council tax increases on their tax payers. In the longer term, we need to create a workable, widely accepted system. We are doing that by working through the balance of—

Mr. Andrew Stunell (Hazel Grove) (LD)

rose in his place and claimed to move, That the Question be now put.

Question, That the Question be now put, put and agreed to.

Question put, That the original words stand part of the Question:—

The House divided: Ayes 53. Noes 435.

Division No. 51]	[6:59 pm
AYES
Allan, Richard	Davey, Edward (Kingston)
Baker, Norman	Doughty, Sue
Barrett, John	Ewing, Annabelle
Beith, rh A. J.	Foster, Don (Bath)
Brake, Tom (Carshalton)	George, Andrew (St. Ives)
Breed, Colin	Gidley, Sandra
Brooke, Mrs Annette L.	Green, Matthew (Ludlow)
Bruce, Malcolm	Hancock, Mike
Burnett, John	Hermon, Lady
Cable, Dr. Vincent	Holmes, Paul
Calton, Mrs Patsy	Hughes, Simon (Southwark N)
Campbell, rh Sir Menzies (NE Fife)	Keetch, Paul
	Kennedy, rh Charles (Ross Skye & Inverness)
Carmichael, Alistair
Cotter, Brian	Kirkwood, Sir Archy

Lamb, Norman	Stunell, Andrew
Laws, David (Yeovil)	Taylor, Matthew (Truro)
Llwyd, Elfyn	Teather, Sarah
Marsden, Paul (Shrewsbury & Atcham)	Thomas, Simon (Ceredigion)
	Thurso, John
Oaten, Mark (Winchester)	Tyler, Paul (N Cornwall)
Öpik, Lembit	Weir, Michael
Price Adam (E Carmarthen & Dinefwr)	Williams, Hywel (Caernarfon)
	Williams, Roger (Brecon)
Pugh, Dr. John	Willis, Phil
Rendel, David	Wishart, Pete
Robertson, Angus (Moray)	Younger-Ross, Richard
Russell, Bob (Colchester)	Tellers for the Ayes:
Salmond, Alex	Mr. Alan Reid and
Sanders, Adrian	Sir Robert Smith

NOES
Abbott, Ms Diane	Caborn, rh Richard
Adams, Irene (Paisley N)	Cairns, David
Ainger, Nick	Campbell, Alan (Tynemouth)
Ainsworth, Bob (Cov'try NE)	Campbell, Mrs Anne (C'bridge)
Ainsworth, Peter (E Surrey)	Campbell, Gregory (E Lond'y)
Alexander, Douglas	Campbell, Ronnie (Blyth V)
Allen, Graham	Caplin, Ivor
Ancram, rh Michael	Casale, Roger
Anderson, Janet (Rossendale & Darwen)	Cash, William
	Caton, Martin
Arbuthnot, rh James	Cawsey, Ian (Brigg)
Armstrong, rh Ms Hilary	Challen, Colin
Atherton, Ms Candy	Chapman, Ben (Wirral S)
Atkins, Charlotte	Chapman, Sir Sydney (Chipping Barnet)
Atkinson, David (Bour'mth E)
Atkinson, Peter (Hexham)	Chaytor, David
Bacon, Richard	Chope, Christopher
Baird, Vera	Clapham, Michael
Baldry, Tony	Clappison, James
Banks, Tony	Clark, Mrs Helen (Peterborough)
Barker, Gregory	Clark, Dr. Lynda (Edinburgh Pentlands)
Barnes, Harry
Baron, John (Billericay)	Clark, Paul (Gillingham)
Barron, rh Kevin	Clarke, rh Charles (Norwich S)
Battle, John	Clarke, rh Kenneth (Rushcliffe)
Bayley, Hugh	Clarke, rh Tom (Coatbridge & Chryston)
Beard, Nigel
Begg, Miss Anne	Clelland, David
Bellingham, Henry	Clifton-Brown, Geoffrey
Bennett, Andrew	Clwyd, Ann (Cynon V)
Bercow, John	Coaker, Vernon
Beresford, Sir Paul	Coffey, Ms Ann
Berry, Roger	Cohen, Harry
Best, Harold	Colman, Tony
Betts, Clive	Connarty, Michael
Blears, Ms Hazel	Conway, Derek
Blizzard, Bob	Cook, rh Robin (Livingston)
Blunkett, rh David	Cooper, Yvette
Boateng, rh Paul	Corbyn, Jeremy
Borrow, David	Corston, Jean
Boswell, Tim	Cousins, Jim
Bradley, Peter (The Wrekin)	Cranston, Ross
Bradshaw, Ben	Cruddas, Jon
Brady, Graham	Cryer, Ann (Keighley)
Brazier, Julian	Cryer, John (Hornchurch)
Brennan, Kevin	Cummings, John
Brown, Russell (Dumfries)	Cunningham, rh Dr. Jack (Copeland)
Browne, Desmond
Browning, Mrs Angela	Cunningham, Jim (Coventry S)
Bryant, Chris	Cunningham, Tony (Workington)
Buck, Ms Karen	Curtis-Thomas, Mrs Claire
Burden, Richard	Dalyell, Tam
Burgon, Colin	Darling, rh Alistair
Burnham, Andy	Davey, Valerie (Bristol W)
Burnside, David	David, Wayne
Burt, Alistair	Davies, rh Denzil (Llanelli)
Butterfill, Sir John	Davies, Geraint (Croydon C)
Byers, rh Stephen

Davies, Quentin (Grantham & Stamford)	Heathcoat-Amory, rh David
	Henderson, Doug (Newcastle N)
Davis, rh David (Haltemprice & Howden)	Henderson, Ivan (Harwich)
	Hendrick, Mark
Dawson, Hilton	Hendry, Charles
Dean, Mrs Janet	Hepburn, Stephen
Denham, rh John	Heppell, John
Dhanda, Parmjit	Hesford, Stephen
Dismore, Andrew	Heyes, David
Djanogly, Jonathan	Hill, Keith (Streatham)
Dobbin, Jim (Heywood)	Hoey, Kate (Vauxhall)
Dobson, rh Frank	Hood, Jimmy (Clydesdale)
Donaldson, Jeffrey M.	Hoon, rh Geoffrey
Donohoe, Brian H.	Hope, Phil (Corby)
Doran, Frank	Hopkins, Kelvin
Dorrell, rh Stephen	Horam, John (Orpington)
Dowd, Jim (Lewisham W)	Howard, rh Michael
Drew, David (Stroud)	Howarth, rh Alan (Newport E)
Duncan, Alan (Rutland)	Howarth, George (Knowsley N & Sefton E)
Duncan, Peter (Galloway)
Duncan Smith, rh lain	Hoyle, Lindsay
Dunwoody, Mrs Gwyneth	Hughes, Beverley (Stretford & Urmston)
Eagle, Maria (L'pool Garston)
Edwards, Huw	Hughes, Kevin (Doncaster N)
Efford, Clive	Humble, Mrs Joan
Ellman, Mrs Louise	Hunter, Andrew
Ennis, Jeff (Barnsley E)	Hurst, Alan (Braintree)
Evans, Nigel	Iddon, Dr. Brian
Farrelly, Paul	Ingram, rh Adam
Field, rh Frank (Birkenhead)	Irranca-Davies, Huw
Field, Mark (Cities of London & Westminster)	Jack, rh Michael
	Jackson, Helen (Hillsborough)
Fitzpatrick, Jim	Jackson, Robert (Wantage)
Fitzsimons, Mrs Lorna	Jamieson, David
Flight, Howard	Jenkin, Bernard
Flint, Caroline	Jenkins, Brian
Flook, Adrian	Johnson, Alan (Hull W)
Follett, Barbara	Jones, Helen (Warrington N)
Forth, rh Eric	Jones, Lynne (Selly Oak)
Foster, Michael (Worcester)	Jones, Martyn (Clwyd S)
Foster, Michael Jabez (Hastings & Rye)	Joyce, Eric (Falkirk W)
	Kaufman, rh Gerald
Foulkes, rh George	Keen, Alan (Feltham)
Francis, Dr. Hywel	Keen, Ann (Brentford)
Francois, Mark	Kennedy, Jane (Wavertree)
Gale, Roger (N Thanet)	Key, Robert (Salisbury)
Gardiner, Barry	Kidney, David
Garnier, Edward	Kilfoyle, Peter
Gerrard, Neil	King, Andy (Rugby)
Gibb, Nick (Bognor Regis)	Kirkbride, Miss Julie
Gibson, Dr. Ian	Knight, rh Greg (E Yorkshire)
Gillan, Mrs Cheryl	Knight, Jim (S Dorset)
Gilroy, Linda	Kumar, Dr. Ashok
Godsiff, Roger	Ladyman, Dr. Stephen
Goggins, Paul	Laing, Mrs Eleanor
Goodman, Paul	Lait, Mrs Jacqui
Gray, James (N Wilts)	Laxton, Bob (Derby N)
Grayling, Chris	Lazarowicz, Mark
Green, Damian (Ashford)	Lepper, David
Griffiths, Jane (Reading E)	Leslie, Christopher
Griffiths, Nigel (Edinburgh S)	Letwin, rh Oliver
Griffiths, Win (Bridgend)	Levitt, Tom (High Peak)
Grogan, John	Lewis, Ivan (Bury S)
Gummer, rh John	Lewis, Dr. Julian (New Forest E)
Hague, rh William	Liddell, rh Mrs Helen
Hall, Mike (Weaver Vale)	Liddell-Grainger, Ian
Hall, Patrick (Bedford)	Lidington, David
Hamilton, David (Midlothian)	Lilley, rh Peter
Hammond, Philip	Linton, Martin
Hanson, David	Lloyd, Tony (Manchester C)
Harman, rh Ms Harriet	Loughton, Tim
Harris, Tom (Glasgow Cathcart)	Love, Andrew
Hawkins, Nick	Lucas, Ian (Wrexham)
Hayes, John (S Holland)	Luff, Peter (M-Worcs)
Heald, Oliver	Luke, lain (Dundee E)
Healey, John	Lyons, John (Strathke/vin)

McAvoy, Thomas	Raynsford, rh Nick
McCabe, Stephen	Redwood, rh John
McCafferty, Chris	Reed, Andy (Loughborough)
MacDonald, Calum	Reid, rh Dr. John (Hamilton N & Bellshill)
McDonnell, John
MacDougall, John	Robathan, Andrew
McFall, John	Robertson, John (Glasgow Anniesland)
McGuire, Mrs Anne
McIntosh, Miss Anne	Robertson, Laurence (Tewk'b'ry)
McIsaac, Shona	Robinson, Geoffrey (Coventry NW)
Mackay, rh Andrew
McKechin, Ann	Robinson, Mrs Iris (Strangford)
McKenna, Rosemary	Roche, Mrs Barbara
Mackinlay, Andrew	Rooney, Terry
Maclean, rh David	Rosindell, Andrew
McLoughlin, Patrick	Roy, Frank (Motherwell)
McNamara, Kevin	Ruane, Chris
McNulty, Tony	Ruddock, Joan
Mactaggart, Fiona	Salter, Martin
McWalter, Tony	Sarwar, Mohammad
Mahmood, Khalid	Savidge, Malcolm
Mahon, Mrs Alice	Sawford, Phil
Mandelson, rh Peter	Sedgemore, Brian
Mann, John (Bassetlaw)	Selous, Andrew
Maples, John	Shaw, Jonathan
Marris, Rob (Wolverh'ton SW)	Sheerman, Barry
Marsden, Gordon (Blackpool S)	Shepherd, Richard
Marshall, Jim (Leicester S)	Short, rh Clare
Martlew, Eric	Simmonds, Mark
Mawhinney, rh Sir Brian	Simpson, Alan (Nottingham S)
May Mrs Theresa	Skinner, Dennis
Merron, Gillian	Smith rh Andrew (Oxford E)
Michael, rh Alun	Smith, Angela (Basildon)
Miliband, David	Smith, rh Chris (Islington S & Finsbury)
Miller, Andrew	Smith, Geraldine (Morecambe & Lunesdale)
Mitchell, Andrew (Sutton coldfield)
	Smith, Jacqui (Redditch)
Mitchell, Austin (Gt Grimsby)	Smith, John (Glamorgan)
Mole, Chris	Smith, John (Glamorgan)
Moonie, Dr. Lewis	Smith, Llew (Blaenau Gwent)
Moran, Margaret	Spelman, Mrs Caroline
Moss, Malcolm	Spicer, Sir Michael
Mountford, Kali	Spink, Bob (Castle Point)
Munn, Ms Meg	Spring, Richard
Murphy, Denis (Wansbeck)	Steen, Anthony
Murphy, Jim (Eastwood)	Steinberg, Gerry
Murrison, Dr. Andrew	Stevenson, George
Norman, Archie	Stewart, David (Inverness E & Lochaber)
Norris, Dan (Wansdyke)
O'Brien, Bill (Normanton)	Stewart, Ian (Eccles)
O'Brien, Stephen (Eddisbury)	Stinchcombe, Paul
O'Neill, Martin	Straw, rh Jack
Osborne, George (Tatton)	Streeter, Gary
Owen, Albert	Stringer, Graham
Page, Richard	Stuart, Ms Gisela
Paice, James	Sutcliffe, Gerry
Palmer, Dr. Nick	Swayne, Desmond
Pearson, Ian	Swire, Hugo (E Devon)
Perham, Linda	Syms, Robert
Picking, Anne	Tapsell, Sir Peter
Pickles, Eric	Taylor, David (NW Leics)
Pickthall, Colin	Taylor, Ian (Esher)
Pike, Peter (Burnley)	Taylor, John (Solihull)
Plaskitt, James	Taylor, Sir Teddy
Pollard, Kerry	Thomas, Gareth (Clwyd W)
Pond, Chris (Gravesham)	Thomas, Gareth (Harrow W)
Prentice, Ms Bridget (Lewisham E)	Timms, Stephen
Prentice, Gordon (Pendle)	Tipping, Paddy
Prescott, rh John	Todd, Mark (S Derbyshire)
Prisk, Mark (Hertford)	Touhig, Don (Islwyn)
Prosser, Gwyn	Tredinnick, David
Purchase, Ken	Trend, Michael
Purnell, James	Trickett, Jon
Quinn, Lawrie	Turner, Andrew (Isle of Wight)
Rapson, Syd (Portsmouth N)	Turner, Dennis (Wolverh'ton SE)

Turner, Dr. Desmond (Brighton Kemptown)	Williams, rh Alan (Swansea W)
	Williams, Betty (Conwy)
Turner, Neil (Wigan)	Wills, Michael
Twigg, Derek (Halton)	Wilshire, David
Twigg, Stephen (Enfield)	Winterton, Ann (Congleton)
Tynan, Bill (Hamilton S)	Winterton, Sir Nicholas (Macclesfield)
Tyrie, Andrew
Vaz, Keith (Leicester E)	Winterton, Ms Rosie (Doncaster C)
Viggers, Peter
Walley, Ms Joan	Woodward, Shaun
Ward, Claire	Woolas, Phil
Wareing, Robert N.	Worthington, Tony
Waterson, Nigel	Wright, Anthony D. (Gt Yarmouth)
Watkinson, Angela
Watson, Tom (W Bromwich E)	Wright, Tony (Cannock)
Watts, David	Wyatt, Derek
White, Brian	Yeo, Tim (S Suffolk)
Whitehead, Dr. Alan	Young, rh Sir George
Whittingdale, John
Wicks, Malcolm	Tellers for the Noes: Mr. Fraser Kemp and Joan Ryan
Widdecombe, rh Miss Ann
Wiggin, Bill

Question accordingly negatived.

Question, That the proposed words be there added, put forthwith, pursuant to Standing Order No. 31(Questions on amendments), and agreed to.

MR DEPUTY SPEAKER forthwith declared the main Question, as amended, to be agreed to.

Resolved,

That this House welcomes the current work of the Balance of Funding review of how local government in England is funded; notes that the review is receiving evidence on a number of possible reform options suggested in public consultation; awaits with interest the report of the review in summer 2004; and urges local authorities to set budgets for 2004–05 which deliver value for local taxpayers.

Mr. Patrick McLoughlin (West Derbyshire) (Con)

On a point of order, Mr. Deputy Speaker. Can you confirm that, if there were a Division, it would be deferred?

Mr. Deputy Speaker (Sir Michael Lord)

There are no deferred Divisions at the moment.