Balance of Funding Review Report

HC Deb 20 July 2004 vol 424 cc177-89 1.31 pm

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

With permission, Mr. Deputy Speaker, I shall make a statement about the balance of funding review report, which is published today, and about the Government's response. Before I begin, I should like to say a word or two about the speculation we have seen at the weekend and in yesterday's press that the Government have plans for huge increases in people's council tax bills. That is simply untrue. I shall say more about it when I come to the report's conclusions on council tax.

The review started in April 2003. I chaired the steering group, which included my hon. Friend the Economic Secretary to the Treasury, and the Under-Secretary of State, Office of the Deputy Prime Minister, my hon. Friend the Member for Corby (Phil Hope), as well as other senior figures from central and local government, the academic world, business, the union movement and professional bodies.

The remit of the review was to establish the nature and priority of the balance of funding issue and to identify and analyse options for change, setting out the pros and cons of each. We commissioned research, held a public consultation and sought further evidence on the main options for reform raised in the public consultation. We held nine meetings in all. All the papers presented to us are available on the website of the Office of the Deputy Prime Minister. I must first record my thanks to the steering group members, to everybody who responded to the review's public consultation last year and to those who presented papers to the group. Secondly, I should like to welcome the report published on 16 July by the Office of the Deputy Prime Minister: Housing, Planning and Local Government Committee following its inquiry on local government revenue. There is significant common ground between the Committee's conclusions and those of the balance of funding review. The Government will reply formally to the Committee in due course.

As those who read the report will find, some of the press speculation of recent days has been wholly misleading and inaccurate. As the report makes clear: The Review has been conducted for the Government, not by the Government. It follows that this report is not a statement of Government policy. It is rather an analysis of issues and options. Although it draws some conclusions, in line with its remit it does not make recommendations. It has always been the case—indeed, it was included in the terms of reference—that the review would simply set out the pros and cons of a range of short and long-term options. As the report states quite clearly, the aim of the review was not to provide a detailed blueprint for reform, but to gain consensus at this stage of the argument on the broad issues, and to agree what the most likely options were, as the basis for more detailed work in the future. So we are at the start of this process of further work and there is a great deal more detailed thinking to do.

I shall set out the main conclusions of the review. First, like the Select Committee, the review concludes that there are strong arguments for shifting the balance towards more local funding. However, that depends on the feasibility and desirability of any measures to achieve it. It would have to be possible to achieve satisfactory equalisation of needs in the distribution of resources between local authorities alongside any greater local revenue raising.

Secondly, again like the Select Committee, the review concludes that council tax should be retained but reformed. It has important advantages as a local tax. However, in the opinion of the group, it will need reform in order to help people on low incomes and to reduce the impact of revaluation. Further work will be needed on the options for such reform. A fair and effective system of council tax benefit will be a vital component of any reform package. It is clear, for example, that levels of take-up of council tax benefit among pensioners and others on low incomes remains low in comparison to other benefits.

As for council tax bands, the report concludes: There is a clear case for reviewing council tax bands and the ratios between them at the time of revaluation. I should point out that the Government have always made it clear that we would want to consider these issues with other stakeholders ahead of revaluation. But the report adds that particular care is needed to ensure that council taxpayers on low incomes living in high value properties are not unfairly affected. It goes on: Further detailed work is now required on how council tax might be reformed, based on a clear vision of the direction of travel. Far from proposing a trebling of people's council tax bills, the review states that

the aim should be to avoid significant changes to the overall liabilities of taxpayers. There has been much comment in the media about the ideas submitted by the New Policy Institute. It is certainly true that the NPI gave evidence to the review on changes to the banding structure and its ideas are well documented in the report. Its original paper for the review has been available on the website of the Office of the Deputy Prime Minister since January. However, these are the NPI's ideas and they are not Government policy. Indeed, they are not recommended by the review.

Thirdly, the review concludes that the only way to achieve a major shift in the balance of funding is to supplement a reformed council tax with relocalised business rates or a local income tax or a combination of both. None of these options would be easy and further work would be required here, too. Fourthly, relocalisation of business rates could give councils greater incentives to promote economic development and improve links with business, as well as altering the balance of funding. However, business has serious concerns, including potential risks to its productivity and competitiveness.

Fifthly, although a local income tax would be more progressive and more buoyant than council tax, it would also be less predictable as a result. Considerable further work would be required to address the substantial technical and administrative issues and costs, as well as the impact on individuals and employers, before firm conclusions could be reached on the feasibility or desirability of a local income tax. In that respect, the report makes difficult reading for those who regard local income tax as a simple solution. As we say in the report, the devil is very much in the detail. I note that the Select Committee takes a similar view. Sixthly, the review concluded that smaller taxes or charges do not provide the potential for major change in the balance of funding. The case for and against each such option should be judged on its own merits.

I turn now to the Government's response. We are developing a new 10-year vision for local government. We want local government to be more effective and more accountable. A fair and sustainable finance system is crucial to that. We welcome the balance of funding review report as a major contribution to the debate. The review could not look at everything. However, while it does not make recommendations, it has reached a number of important conclusions defining the issues, narrowing down the options and assessing the case for change, as well as investigating much of the preliminary detail. It provides a sound platform from which to go forward. The Government can accept right away that council tax should be retained but reformed. It is clear that council tax is far from perfect and that changes are needed. We are, for example, working with colleagues in the Department for Work and Pensions to improve take-up of council tax benefit. That work will continue.

The report flags up the need for more work before decisions can be taken on how council tax should be reformed or on the possible means of shifting the balance of funding. These matters need to be considered carefully and in detail. We must keep up the momentum, but we must also ensure that any changes are soundly based. As I said earlier, the press speculation that the Government are planning a council tax shake-up that will lead to huge rises in council tax is untrue. Any suggestion that we have opted for any particular course of council tax reform is just plain wrong. The review concludes that the detailed case for and against some kind of sub-national approach should be considered. It is right that we should do this, but not because we want to hit middle England—precisely the opposite. We need to consider options for regional banding in order to ensure that areas of high property price growth such as London and the south-east are not unduly affected by revaluation. One thing is clear: there are no easy answers. The subject needs extremely careful examination and detailed consideration; it is far too important to be a political football.

We have therefore decided to set up an independent inquiry, to be undertaken by Sir Michael Lyons to look into these matters and to report back by the end of 2005 to my right hon. Friends the Deputy Prime Minister and the Chancellor of the Exchequer. Sir Michael is very widely respected and brings to the task a wealth of local government and other relevant experience. I can think of no one better able to take forward the work that the balance of funding review has begun. Hon. Members will recall that Sir Michael has a distinguished background in local government. He is currently director of the Institute of Local Government Studies at the university of Birmingham, and between 1994 and 2001 he held the position of chief executive of Birmingham city council. He was recently appointed as deputy chair of the Audit Commission. He is a member of the Treasury's public services productivity panel and was a member of Sir George Bain's review of the fire service. In 2004, he reported to my right hon. Friend the Chancellor on the relocation of public sector jobs away from London and the south-east.

The inquiry will consider, in the light of the report by the balance of funding review and other developments such as new funding arrangements for schools, the detailed case for changes to the present system of local government funding. It will make recommendations on any changes that are necessary and how to implement them, and it will take evidence from stakeholders.

In particular, the inquiry will make recommendations on how best to reform council tax, taking into account the forthcoming revaluation. It will assess the case for providing local authorities with increased flexibility to raise additional revenue and for making a significant shift in the current balance of funding. It will conduct a thorough analysis of options to complement council tax, including local income tax, reform of non-domestic rates and other possible local taxes and charges, as well as the possible combination of such options. It will consider the implications for the financing of possible elected regional assemblies, as well as any implications that its recommendations have for other parts of the United Kingdom.

The Government now look forward to a period of focused study by the independent inquiry that will build on the balance of funding review's work. We can then take firm decisions on the best way forward in putting in place the fair and sustainable system of local government finance that is our objective.

Mr. Philip Hammond (Runnymede and Weybridge) (Con)

I thank the Minister for his statement and for letting me have a copy of it in advance, together with a copy of the report of the steering group.

I associate the Opposition with the Minister's thanks to the organisations outside Government that served on the steering group. It has been a valuable exercise in raising awareness of the issues involved in local government finance. I congratulate the ODPM Committee on the publication of its report, which usefully complements the work of the balance of funding steering group, although we do not necessarily support all its recommendations.

The only people who will not welcome analysis of the future options for local government financing and the assessment of the advantages and disadvantages of each are those who have already made up their mind in advance of hearing the arguments. Will the Minister confirm that the Liberal Democrat policy of replacing council tax with a local income tax is wholly discredited by the balance of funding review and by the Select Committee report? Does he agree that a local income tax would do nothing to address the balance of funding, would increase dependency on Whitehall handouts, and would hammer hard-working families with soaring tax bills?

The Minister made great play of his claim that the review is a report to Government, not a report by Government. In fact, the review steering group was chaired by the Minister, and two other Ministers and senior civil servants served on it. When he announced it in January last year, he billed it as his major review of local government funding. In his statement, however, he made it clear that the Government are not going to tell the public, this side of a general election, precisely what their plans are. They are not going to allow individual council tax payers to see precisely how much they will pay in increased local taxes as part of the raft of third-term tax rises that this Labour Government are planning. Instead, they are going to bury their plans in yet another inquiry that will report after the general election, leaving a double whammy in store for local taxpayers in 2007, with the already planned revaluation on top of these proposals. Many ordinary families whose only crime is to live in areas where house prices have risen rapidly over the past few years will be alarmed at the proposals for an increase to a 10-band council tax system.

Today, the Minister tried to distance himself from that aspect of the steering group's report, especially the input from the New Policy Institute. However, just a few weeks ago he told the ODPM Committee: You will be aware that we took a lot of detailed evidence, particularly from the New Policy Institute … I do not think it would break too many confidences and anticipate the conclusions of the review to say that we obviously looked with some interest at those. In 2003, in the Standing Committee that considered the Local Government Bill, the Minister said that the Government would look favourably on increasing the number of bands in the council tax system.

It is clear to anyone who makes an objective reading of the review and of what the Minister has said on the record that the Government's preferred option is a retention of the existing council tax system, but with massive increases in the council tax payable for those living in higher-value properties, meaning that those who live in areas where house prices have risen most could find themselves paying three times as much as at present. That would punish ordinary families and pensioners on modest incomes who happen to have lived for a long time in a home that is now worth far more than one that they could afford to buy. The true reason for the Government's interest in an increased number of bands and a higher multiple of band D being payable in the higher bands is simply the Treasury's desire to tax the unrealised, illiquid, notional wealth represented by rising housing values—a sort of crude wealth tax by stealth.

As if that is not bad enough, the review calls for further work on a supplementary income tax that would be levied in addition to, not instead of, the council tax. Is not that supplementary income tax a back-door way around the Prime Minister's pledge not to increase income tax at all?

Will the Minister answer a couple of specific questions? If the balance of funding needs to be adjusted in the interests of local accountability, does the Minister accept that there is also a case for allowing greater local discretion over the balance of spending, with more priorities being set locally and fewer set nationally? If so, can he, in the light of last week's statement by the Secretary of State for Education and Skills, clarify the Government's intentions on funding education and confirm their commitment to reducing the levels of ring-fencing from the record highs that they have reached under this Government?

We welcome the Government's recognition of the burden that their council tax increases place on those on lower incomes. Does the Minister recall, however, that before the 1997 general election the Chancellor announced the end of means-testing for elderly people? Will not his proposals for mitigating the impact of his council tax increases on pensioners result in an increase in the means-testing of those pensioners?

Turning to business rates, will the Minister confirm that for as long as equalisation remains in its present form, neither repatriating local business rates to local councils nor retaining a national system with a higher cap on the annual increases will redress the balance of funding issue? All it will do is deliver more revenue to the Treasury. Will he give the House an undertaking that if the Government opt for the route of repatriating business rates, they will recognise the fact that businesses have no democratic input into the local authorities that tax them and must therefore be protected from discriminatory and unfair differential taxation, in the interests of equity and of maintaining the competitiveness of British business?

The original motivation for embarking on this balance of funding review was stated to be a desire to improve local government accountability through achieving a better balance between locally raised and centrally raised taxes. Since then, however, the Government have panicked in the face of growing public outrage at the level of council tax—up 70 per cent. since 1997, with the comprehensive spending review projecting a further 20 per cent. increase over the next three years.

It is not the system of council tax that is the problem; it is Labour's fiddled funding and the bureaucratic burdens imposed on local government, forcing it to unacceptable levels. With the average band D council tax now costing almost £100 a month, and many people on low incomes finding that council tax is the single largest outgoing in their monthly budget, it is no wonder that the pressure is on. The real solution, however, is to reduce the burdens on local government and to adopt fairer funding formulas that will reduce the very high gearing levels experienced by many local authorities.

Because of the huge increases in council tax, running at three times the rate of inflation year after year under Labour's fat Government, no change is not an option. But neither is ignoring the underlying problem. Before operating on the patient, we need to diagnose the real underlying sickness: excessive burdens imposed on local government by Whitehall, with a constant torrent of red tape and regulations spewing out of the over-mighty, interfering ODPM, and a fiddled grant settlement. Only when the underlying disease is tackled will the various options for the reform of local government finance be able to deliver the desired result. In the meantime, hardworking families and pensioners across England face the prospect of yet higher bills from 2007, as a result of revaluation and rebanding. That will be the Minister's Department's contribution to Labour's third-term tax rises.

Mr. Raynsford

The hon. Gentleman made a good start, but the longer he went on, the more he lost the argument and the House. I appreciate his comments about the review being a valuable exercise in raising awareness, however, and I join him in welcoming the Select Committee's report.

The hon. Gentleman asked about the Liberal Democrat policy of replacing council tax with a local income tax, and I can confirm that the review reached the clear conclusion that that would not be the right way forward. We foresaw that huge administrative, technical and distributional difficulties would be associated with the introduction of a local income tax; they are spelled out in considerable detail in the report. Only the hopelessly naive or over-optimistic could believe that this is a simple exercise. It is not.

The hon. Gentleman queried the fact that this was a report to Government rather than by Government, making the point that I had chaired the review and that two Ministers had served on it. However, he failed to recognise the fact that three councillors from other parties, including one Conservative councillor, served on the review, plus a large number of people with no political affiliation and entirely independent credentials. It was a large, inclusive body, and most people—including representatives of the hon. Gentleman's party—congratulated us on the inclusive way in which we had conducted the review. It was all-encompassing and, therefore, a review to Government.

The bulk of the hon. Gentleman's speech was based on Conservative scaremongering, about which we have heard a certain amount over the last couple of days. I detected a degree of frustration on his part that both the statement and the balance of funding review have clearly shot the Conservatives' fox. Far from being a report that spells out an arrangement that will lead, in their words, to massive increases in council tax, it makes it quite clear that the aim should be to avoid significant changes to the overall liabilities of taxpayers. Retention, with reform, of council tax is our policy. A massive increase in council tax is pure Opposition scaremongering, and is wholly unfounded.

The hon. Gentleman asked about the case for greater flexibility for local authorities, and I wholly endorse that. That is why we have introduced the prudential borrowing regime this year, which gives local authorities the freedom to borrow on their own discretion, dismantling the highly centralist and restrictive borrowing controls that his party introduced when it was in government. He also asked about business rates. The report sets out the arguments about relocalisation—and the business community's concerns about that fairly and objectively, and presents a series of options that will have at their heart the need to reassure businesses that they can contribute to local services, which they recognise the need to do, without being vulnerable to unreasonable and excessive demands.

The hon. Gentleman spoke at considerable length about the claimed additional tax burden. I would simply refer him to table B.12 of the balance of funding review, which shows that, in real terms, the average local tax per dwelling in 2004–05 remains below the level that applied in 1990–91, when his party was in government and had just visited the disaster of the poll tax on the country. We are not going to make the same mistake.

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

I thank the Minister for his statement, and for his original decision to carry out the balance of funding review. But, having decided on a review, have not the Government now decided just to review that review? Is not the new Lyons review all about ducking the hard decisions on council tax, rather than taking them? Does not the Minister realise that dither and delay simply mean more years of the unfair council tax?

This Government were prepared to risk the lives of British servicemen and women in Iraq on the basis of a dodgy dossier, yet after 15 months of detailed expert study, Labour is incapable of taking a decision on the future of council tax. The Minister talked about ideas for tinkering with council tax. Does he not realise that none of them will end its unfairness? Indeed, is it not a key finding of the review that even a reformed council tax would not help the balance of funding problem? Does not his support for revaluation and new council tax bands place a double threat of higher tax directly over the heads of millions of tax payers?

Will the Minister confirm that the Government have no intention of coming clean on their council tax hike until after the general election? If the Government will not tell the people their real plans, will he tell the House what the difference now is between Labour and the Conservatives on council tax, given that the Tories also have no policy? Ministers are to be congratulated on one thing: their willingness to eat humble pie on local income tax. The report says that a local income tax would be more progressive … than council tax. So why will the Labour Government not commit themselves to fairer taxes, not higher taxes?

Does the Minister not realise that today's further delay in tackling the balance of funding amounts to a betrayal of local government? Is he not allowing the Prime Minister the room that he wants to continue to attack local democracy? Is it not the Government's real policy to change the balance of funding simply by nationalising the funding of schools? Will the Minister confirm his personal view, given at the Institute for Public Policy Research on 10 May, that Whitehall control of education was not a "magic solution" for the balance of funding, and that centralising education finance was a "bizarre suggestion"?

Today's report could have been written by Lord Butler: it was good on analysis but weak on conclusions. The Deputy Prime Minister might have been acting in good faith when he set up the review of council tax, but today's report shows that he is not competent to take the decisions that council tax payers want.

Mr. Raynsford

One could not help but notice the sound of a needle trapped in the single groove of a cracked gramophone record, repeating "Lord Butler" and "Iraq" over and over again. That seems to be the only noise that the Liberal Democrats can make at the moment. They should at least be aware that this debate is about local government finance. There will be a full opportunity for them to voice their other concerns later.

The hon. Gentleman claimed that the Lyons review would duck the issue. If he really believes that, he does not know Sir Michael Lyons, or the very considerable capability of the man and his commitment to achieving a lasting and effective reform of local government finance. These are not easy issues. The hon. Gentleman knows very well that they are complex issues that require a great deal of careful, painstaking thought. He also knows that an inclusive group of some 20 members from a range of backgrounds and political parties—including a Liberal Democrat councillor, who we welcomed on board the balance of funding review—which helped to achieve a consensual approach, is not the body to take hard decisions on the intricate, detailed issues that will determine the long-term future for local government finance. That is why we have invited Sir Michael Lyons to undertake the review, and I am confident that the outcome will be very positive indeed. This is certainly not tinkering, but, as the hon. Gentleman made that charge, I shall make the point to him that we do not introduce ill-thought-out proposals and assume that they can be implemented simply with the wave of a hand. It is much harder than that.

The hon. Gentleman talked about increases in council tax. The Liberal Democrats have the unenviable record of the largest increases in council tax of any political party. Their increases averaged 6 per cent. this year, compared with 5.4 per cent. from Conservative councils, and 4.7 per cent. from Labour councils. I also remind him that the councils with the highest increases last year, which we debated last night on the capping order, were Liberal Democrat Shepway in terms of district councils, and Liberal Democrat Torbay in terms of unitary authorities. His party has an unenviable record, and he would do better to talk to his members about keeping council tax down rather than to give lectures here.

Finally, on local income tax, the balance of funding review has made a balanced and objective assessment. It has identified both the potential advantages—the hon. Gentleman has highlighted the point of greater progressivity—and the considerable disadvantages and technical obstacles that need to be examined far more carefully than his party has ever been prepared to do.

Andrew Bennett (Denton and Reddish) (Lab)

I congratulate my right hon. Friend on getting Sir Michael Lyons to take the work forward. Will he also accept, however, that some aspects of the work are urgent, particularly getting council tax benefit take-up improved, which ought to be in place by next April? A revision of the amount of money being paid by local citizens compared with businesses is also needed, and should be in place quickly. If we are to have extra bands, they must be in place so that the revaluation, which starts next April, can take them into account.

Mr. Raynsford

I thank my hon. Friend for his comments, and I congratulate him on the thorough and thoughtful report that the Select Committee, under his chairmanship, conducted and published. I agree that Sir Michael Lyons is a formidable figure to carry forward this work, and that we should make rapid progress on issues such as take-up of council tax benefit, in relation to which there are real problems. That is why the Department for Work and Pensions is already undertaking work to improve council tax benefit take-up, and I assure him that we will continue to work closely with it to tackle this problem with the urgency that it deserves.

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

I feel sorry for the poor old Minister. He knows very well that we could have got to this point after 15 minutes with officials, 15 months ago, instead of spending 15 months in laborious working parties. At no stage did he or his office give the impression that they were simply working towards some provisional outcome. This is a funk, and it is a gold-plated, comprehensive funk.

Will the Minister make it clear to Sir Michael Lyons that this is supposed to be about the balance of funding? Will he therefore ask him to examine seriously the argument for relocalisation of business rates to anchor businesses in the community and to give the community a stake in the success of business? That would be an extremely positive outcome and very good for local democracy.

Mr. Raynsford

The right hon. Gentleman said that this could have been done in 15 minutes with officials. The hallmark of his party in government was an ill-thought-out reform that probably did have only 15 minutes' advice from officials, because the officials would undoubtedly, had they been given more time, have told it that the poll tax was an extremely foolish venture. We do not intend to repeat that mistake. We are doing this thoroughly, carefully and rigorously, and Sir Michael Lyons will be continuing the work that the balance of funding review has undertaken.

The right hon. Gentleman has considerable experience of this matter. He spent most of his ministerial time trying to live down and repair the damage created by an ill-thought-out and rushed reform of local government finance. He should appreciate the importance of a measured, sensible and thorough approach.

Mr. Bill O'Brien (Normanton) (Lab)

I thank my right hon. Friend for his statement this afternoon. I hope that he will continue to pursue this direction, and that a property-based tax will continue to apply to local government. I remember clearly the Committee that considered the poll tax: I was a member of that Committee, and the Leader of the Opposition was at that time one of the keen advocates of the poll tax, which failed miserably, and a property tax had to be introduced. I therefore consider keeping a property tax to be in the best interests of local government.

My right hon. Friend referred to council tax banding in his statement, and said that a review of council tax bands is to take place. May I suggest that a regular review of council tax banding is also important, and that additional bands would be welcomed by members of the special interest group of municipal authorities, because a fairer balance is required in relation to tax bands? May I also—

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. That is quite sufficient. We must make speed.

Mr. Raynsford

Thank you, Mr. Deputy Speaker. I very much agree with my hon. Friend that the maintenance of a property tax as the basis for local government finance is the sensible way forward, which is the conclusion that the review has reached and that the Government have accepted. On the question of a review of banding, which he raised, we believe that that needs to be considered carefully, because there are considerable implications, both in relation to fairness and equity, and in terms of the impact of revaluation, which is due to come in from 2007. We are confident that the Lyons inquiry will be able to examine carefully those issues, building on the evidence that has been presented to the balance of funding review, and coming forward with firm suggestions to deal with those complex issues in the most equitable and fair way.

Mr. Henry Bellingham (North-West Norfolk) (Con)

On the subject of relocalisation of business rates, further to the point raised by my right hon. Friend the Member for Skipton and Ripon (Mr. Curry), does the Minister agree that it is vital that he and his fellow Ministers consult widely with all the small business organisations, many of whom have bad memories of what happened in the 1980s, when many of their members were put out of business by excessive increases in business rates? Will he undertake today to enter into full consultation?

Mr. Raynsford

I have announced today that the Lyons inquiry will involve consultation with stakeholders, and I have absolutely no doubt that Sir Michael will want to engage with representatives of the business community. I mentioned specifically small business, and I am sure that that is a grouping whose views will also be taken on board. The balance of funding review acknowledges exactly the fears and anxieties that the hon. Gentleman has voiced. It sets out three options, and it sets out the safeguards that it would view as appropriate were there a move towards relocalisation. His real concern, however, is further consultation, and I assure him that that will happen.

Jim Knight (South Dorset) (Lab)

I welcome the review and the further work that the Minister has announced. Can he confirm that the review so far has found no magic way of freezing funding of local government and local government finance, and yet maintaining services? Would not the implications of such a policy—the policy of the Conservative party—be either massive cuts or massive increases in council tax?

Mr. Raynsford

My hon. Friend makes an extraordinarily good point. There is no magic way of maintaining and improving services, which the public want, while at the same time making massive cuts in local authority spending, which is the policy of the Conservative party. Its policies, if pursued over the spending review period, would result in a reduction of £4.8 billion in local government spending. That would have a drastic consequence for services run by local authorities. It is precisely because we do not have any illusions about magic solutions that we have approached this whole issue in an extremely hardheaded and rigorous way, and we intend to continue that approach.

Sir Patrick Cormack (South Staffordshire) (Con)

Having spent 15 months chairing this review, and sifting all the evidence, to what provisional view has the Minister come as to the correct balance of funding?

Mr. Raynsford

When the hon. Gentleman has a chance to read through the review in detail, he will see that there is no single appropriate figure. The review makes the point that areas of considerable deprivation receive substantially more Government grant because of that deprivation. In evidence to the Select Committee, I quoted the London borough of Newham, which currently receives 90 per cent. of its funding from central Government. Even were the balance of funding changed from the current national average of 25:75 to 50:50, in the case of Newham, all other things being equal, its balance of funding would probably still be 20:80. There is not a magic national figure. The report acknowledges, however, the importance of trying to ensure that local government has greater accountability for its spending, and that a shift in the balance of funding would undoubtedly help to achieve that.

Mr. Patrick Hall (Bedford) (Lab)

I thank my right hon. Friend for his statement. As he will know, many of my constituents are keen to engage in any consultation undertaken by the independent inquiry. I know that he does not want to pre-empt the outcome, but must not three elements be addressed if we are to reform council tax properly? First, there is the regressive nature of banding. Secondly, there is the unfairness to council tax payers of the nationalisation and capping of the business rate by the Conservatives. Thirdly—

Mr. Deputy Speaker

Order. I think that two are sufficient.

Mr. Raynsford

I well recall the lively and interesting public meeting on this subject that my hon. Friend organised in his constituency. I was delighted to have an opportunity to meet his constituents and talk about a number of the issues involved. I assure him that we are committed to continuing consultation as we proceed with our work on the balance of funding. As for banding and the future of the business rate, they will be central issues for the Lyons inquiry to consider.

Mr. Harry Barnes (North-East Derbyshire) (Lab)

Along with my hon. Friend the Member for Normanton (Mr. O'Brien), I served on the Standing Committee that dealt with the poll tax—and if there was ever fiddled funding, that was it. Why has it taken us so long to make fairer arrangements for the council tax? It is an easy enough process, involving extra bands at each end and larger steps between the bands. My hon. Friend and I will not be here in autumn 2005, and we should like the process to be completed by then.

Mr. Raynsford

First, as my hon. Friend will know, we have made a number of changes to the grant distribution formula to increase fairness. The Government have not been inactive in pursuing changes that have enhanced the fairness of the existing local government finance arrangements. Secondly, as my hon. Friend will also know, the revaluation is due to come into effect in 2007. Any changes of the order that he has described—the process is, in fact, more complex than his question implied—should be introduced according to the same timetable to avoid unnecessary turbulence and repeated alterations, which cause difficulty to both individuals and local authorities.

Mr. Clive Betts (Sheffield, Attercliffe) (Lab)

I welcome my right hon. Friend's statement about council tax bands and benefits, but does he accept from the review and the Select Committee that if we are to have a radical change in the balance of funding there are only two ways in which to proceed? Either there must be a shift in the amount of income that local government controls through localisation of the business rate, or there must be a reduction in the amount of spending that it controls through centralisation of control over school budgets. Does my right hon. Friend accept that the vast majority of his hon. Friends would like him to take the route of increased local democracy rather than that of increased central control?

Mr. Raynsford

My hon. Friend made an important contribution to the Select Committee's report. He will know that the issues are complex, and must be approached in a measured way. I think that the report has done just that, and I am confident that the Lyons inquiry will follow in the same tradition.