§ 3.28 p.m.
§ The Minister of State, Department of the Environment (Baroness Blatch)
My Lords, I beg to move that the Bill be now read a second time.
This Bill prepares the way for the introduction of the council tax in 1993. It has two purposes. First, it strengthens our capping powers in the run-up to the introduction of the new tax. This will ensure that local authorities will not be able to indulge in the overspending which was such a marked feature of the transition to the community charge. Secondly, it will allow us to make a start on the banding of all domestic properties in Great Britain in preparation for the council tax. So, as noble Lords will appreciate, this is a significant measure.
I shall deal first with the extension of our capping powers. But, before doing so, I wish to address, head on, the arguments about the principle of capping. The experience of the previous two years is one which we are determined should not be repeated: local authority spending rose by a quarter as councils used the changeover to the new system to camouflage vastly increased spending. It is faced with these facts that we have now reluctantly concluded, as my right honourable friend said in another place, that strong capping powers are an essential element of any system of local government finance.
In introducing the community charge we had high hopes that the increased transparency of local authority spending decisions to chargepayers would allow local people to hold their authorities to account. Unfettered local accountability is the ideal. But we have learnt the bitter lessons of recent experience. The facts show clearly that the ideal is unachievable. Accountability in itself has not proved sufficient to restrain excessive spending by local authorities.
The contrast between our experience this year—when the Government announced their intentions for capping in advance —and the previous year is marked. In 1990–91 local authority expenditure rose by 13.5 per cent. and was nearly £3 billion above the amount 269 we considered appropriate. In 1991–92 local authority budgeted expenditure is only ½ per cent. above the amount provided for in the settlement. The results speak for themselves. We have learnt the lessons of experience.
In such circumstances the Government cannot stand idly by. Not only would this be at odds with our responsibility for the overall management of the economy and the control of inflation, but it would also allow authorities to impose unnecessary burdens on their chargepayers. We are prepared to accept our duty, to manage the national economy and to protect chargepayers from the consequences of excessive spending. I am afraid that the same cannot be said for the apposition, who have made clear that they will have nothing to do with capping.
Notwithstanding the success of our capping strategy this year, there is a strong case for strengthening our capping powers. In England and Wales we have previously been able to take action only against those authorities setting budgets above £15 million. That exemption mirrored the similar provision under the rate capping regime. When rate capping was introduced we made clear that this exemption reflected the relatively low level of expenditure incurred by such authorities and hence their small effect on the total of local government spending. We also thought, perhaps naively, that the effect on the local tax of spending decisions by such districts would be small. I have to say that, yet again, time has moved on.
While a large number of districts setting budgets below £15 million have done so prudently and sensibly, there are others which have greatly burdened their charge payers. This year over 100 authorities set budgets above their SSA and in about 40 cases did so by £26 or more per head; that is, they added £26 or more to the charge. In some cases the overspending is very considerable indeed. But, under the existing powers, we were unable to take action to protect the charge payers of Derwentside, who were asked to pay an extra £95 to meet the costs of overspending by their authority, or Harlow—an extra £83—or Elmbridge —an extra £73. I could continue.
Moreover, the cynical way certain authorities sought to manipulate their budgets cannot be shown more graphically than in Thurrock or Maidstone. Both these councils contrived to set budgets of £14.99 million: or perhaps it was just a coincidence—a coincidence which put £50 on the bills of the people of Thurrock and £32 on the bills of local people of Maidstone.
The need for us to be able to act to protect such charge payers is clear. There is, likewise, compelling evidence for the need for stronger capping powers in Scotland. Under the present Scottish legislation my right honourable friend has taken action against only one authority—Lothian Region. That is notwithstanding the fact that Scottish authorities chose to increase their charges this year by an average of 30 per cent. That outrageous increase was despite a very fair grant settlement of 10.4 per cent. which should have enabled local authorities to keep charges at reasonable 270 levels. There are also two new and connecting arguments which give strong support to the steps which we are now taking.
First, it is imperative that we are able to take action to prevent, on the introduction of the council tax, the kind of spending-up which accompanied the introduction of the community charge.
Secondly, as noble Lords will be aware, the Government have announced and implemented a permanent and fundamental shift in the burden of paying for local services from local to national taxation. As a consequence, we are providing very substantial additional resources to local authorities. We are determined that this additional money should be used to keep charges down and not to fuel higher spending.
I turn now to the provisions of the Bill. Clause 1 will remove the £15 million statutory exemption from capping for authorities in England and Wales. Clause 2 deals with Scotland and will bring the Scottish capping powers into line with those in England and Wales. The clause will amend the Scottish capping powers to enable my right honourable friend to take capping action where he is satisfied that an authority's planned expenditure is excessive or there is an excessive increase in planned expenditure over the previous year. For the first time my right honourable friend will be able to take action against excessive increases in budgets. He will also, for the first time, be able to set out the principles by reference to which he will take his capping decisions. The success of this strategy in England this year amply demonstrates the benefits of such a change.
My right honourable friend the Secretary of State has made clear that it is our intention to announce our provisional criteria for capping in advance of budget setting by authorities. That is why we are seeking rapid enactment of this measure. We hope that all authorities will follow the example of the vast majority of authorities in England this year and set sensible budgets. It is our aim, as this year, to achieve as much as possible by deterrence and as little as possible by actual capping. If an authority, whatever its size, budgets excessively, the Bill will allow the Government to take action to protect all charge payers from the consequences.
I turn now to valuation. Clauses 3 to 6 of the Bill deal with the task of allocating all properties in England, Wales and Scotland to bands. They are the first step towards our firm objective to introduce the council tax in April 1993. These clauses are paving clauses, enabling progress to be made on the banding task. We will bring a Bill before the House later in the year when we have fully considered all the responses that we have received to the consultation paper which we issued on 23rd April. That Bill will cover the details of the council tax. Today we are dealing with a paving measure to enable work to begin on the exercise of banding.
My right honourable friend has made clear in another place that there will be no need for precise valuations of every dwelling for the council tax. That is a significant difference from, and a great 271 improvement on, a rating system. Instead, we intend to allocate each property to one of seven broad bands. The Bill provides the necessary powers.
Our proposals also mean that those living in a property in the lowest band will pay two-thirds of the amount paid by those living in a property in the middle band in an area. People living in a property in the highest band will pay two-thirds more than those in the middle band. That means that a couple in a highest band property will pay two-and-a-half times as much as a couple in a lowest band property. In this way we will avoid the disproportionate bills for high price areas that were such an undesirable feature of the rates. Our proposals will also mean low bills for those living in low priced properties throughout the country.
With this basic fabric our council tax will be a sound and practical tax for local government. Woven into that fabric we also propose that there will be a personal discount of 25 per cent. for those living alone.
Moreover, where the first or second adult in a property is a student, or a student nurse, apprentice or youth training trainee, each will receive a full personal discount. If there were no other adults in a household of students, the household would receive two discounts amounting to 50 per cent. of the bill.
We also plan a rebate system. Those with incomes above the income support level will contribute on a sliding scale towards the council tax. Those on income support, or with incomes at equivalent levels, will pay nothing. Our proposals for rebates will meet up to 100 per cent. of liability to the council tax.
This package has already been widely welcomed. The provisions in the Bill that we are considering today will enable progress to be made when we have considered the comments and suggestions which we have received during the consultation period.
Clauses 3 to 6 of the Bill cover two vital aspects of the preparation that is necessary to introduce a sound and practical council tax in April 1993. First, they provide the power for the allocation of domestic properties to bands to be carried out. Secondly, they ensure that the right information is available to those engaged on the task for them to do a proper job.
I should like to concentrate my remarks this afternoon on two specific points which I know are of interest to the House: the number of bands to be used and the way in which the exercise of banding is to be carried out.
We have made clear that it is our intention to have seven bands. We shall, of course, listen carefully to all suggestions that are put to us. However, I have to say to the House now that we considered many possibilities before coming to that view. We believe that the problems of detailed valuation which plagued the rates can be overcome by adopting a banding system. But for banding to work there can only be a small number of bands. The more bands there are, the greater the administrative task involved and the greater the likelihood of disputes and appeals. We also believe that the difference of two-and-a-half times between the bill of a lowest band property and a highest band property is the right difference.
272 Seven bands give the right balance between those considerations. It gives broad bands of values and a reasonable ratio between the bills of properties in each band.
Our proposals do not imply that an individual valuation will need to be made of each property. That is why we provisionally estimate that the banding task can be carried out for a sum of £250 million—£11 for each property. Even so, £250 million is a large sum of money. The exercise needs to be carried out cost effectively to keep within our budget. It also needs to be carried out to time, to deliver a council tax in April 1993. We can achieve that. We can do so by using the private sector where there is great expertise, which it must be right for us to use.
We intend that the allocation exercise should be carried out soundly and consistently across the country. The Bill provides for the Commissioners of Inland Revenue to mastermind the exercise. For Scotland, the Bill also provides that the valuation shall be carried out by the local assessors, in recognition of their experience and skills in these matters.
The allocation of 23 million properties to bands is not an exercise to be taken lightly and we are committed to undertaking the task in a sound and practical manner in order to deliver a sound and practical council tax in April 1993.
We have set out our firm intention of introducing a council tax in April 1993. We have been advised that to do so requires urgent action if the preparations are to be properly made. We have listened to that advice and have brought this Bill before your Lordships today. It paves the way for the introduction of the council tax in April 1993. By strengthening our capping powers we can be confident that expenditure will be restrained and that charges will be at acceptable levels.
By making an early start on the banding exercise we can be confident of an orderly introduction of our new tax. The Bill is a key measure to ensure we secure our firm objective of introducing a fair and practical council tax in April 1993. I beg to move.
§ Moved, That the Bill be now read a second time. —(Baroness Blatch.)
§ 3.42 p.m.
§ Lord McIntosh of Haringey
My Lords, the House is grateful to the Minister for her exposition of the Bill's provisions although she went wider than the present Bill in an attempt to defend what is in it. It is a great pleasure to be able to welcome the noble Baroness, Lady Hamwee, to the House. I have had the honour of working with her on an inquiry into the need for affordable housing in central London. I am well aware of her distinguished work in London planning. I know that she will be a distinguished addition to the House. I am only sorry that she is in the wrong party. We very much look forward to hearing her maiden speech later this afternoon.
When the Bill came before another place, a Conservative Back-Bencher—I believe that it was Mr. Robert Adley—said that his heart sank when he saw another Bill with "Local Government" being the first two words in the title. I must confess that my heart 273 sinks as well. I do not know which number Bill this is since 1979—I think we are up to 53 or 54—but it has reached the stage where I do not remember what the subsequent words are. The honest thing would be to call it the Local Government (No. 54) Bill, rather like a shelf company, instead of trying to ring the changes with different additions to the words "local government". This is a bad local government Bill. It is another example of hand-to-mouth legislation on local government and another example of a forlorn attempt by the Government to undo the damage they have done in their own recent legislation.
We have yet to come to the big climb down—the Local Government (No. 55) Bill—for which the Minister has given us a trailer and which will no doubt be before the House in the autumn. That is the Bill in which all the fine words about the poll tax, accountability, the wickedness of local government and the admirable restraint of central Government will come home to roost, because that is the Bill in which everything that has taken up many hours of your Lordships' time over the past few years will be undone. This Bill is a preparation for that.
The only thing for which one can be grateful in relation to this Bill, in contrast to the previous one, is that the Government, in this House at any rate, have stopped the Bill being treated with the contempt with which it was treated in the other place. I am grateful to the Lord Privy Seal, the Minister and all others involved in the decision that the Bill should have a proper consideration in the House, with proper intervals between stages, rather than being rushed through in one day like the previous Bill.
Above all, the Bill is a self-evident retreat from the principle of accountability which was claimed to be the benefit of the poll tax. It is a preparation for the acceptance of something we all said at the time the poll tax was introduced: that the only sensible way to finance local government, at least in part, is on the basis of property taxation. The sad thing is that having led the troops to the top of the hill and down again, we find that the bottom of the hill is not what it was; in other words, a rating system which, with all its defects, to some extent represented ability to pay is now to be replaced by a debased version of the rating system in which there will be, as we heard from the Minister, only seven bands and in which the difference between the lowest and the highest will be a factor of only 1:2.5. That is a blatant attempt to protect the rich and to ensure that those who, under any other system of taxation, will be paying for the services which they use to a substantially greater extent than the poor, will not be paying the proper amount. When that Bill comes before the House we shall oppose that part of the provision.
The history of local government finance in recent years has not been happy or consistent. If we go back only as far as 1989–90 we find that locally based funding of local government was at a level of 57 per cent. of the total, having been increased from about 45 per cent. when the Government came into office in 1979. By 1991–92 (the current year) the gross figure is not 57 per cent. but 22 per cent., and the figure after rebates is 14 per cent. That means that local resources 274 under the control of local authorities are responsible for only one-seventh of local government finance. I shall deal with the SSAs in a moment, but that means that for every pound local authorities want or need to raise above that which is authorised by Marsham Street, £7 has to be raised from local poll tax payers. That is in direct conflict not just with what local politicians think but with everything that anyone who has paid any attention to local government over the years—I include the Minister, though not the Secretary of State, in that number—has said time after time.
I hesitate to go back as far as Layfield, but page 240 of the Layfield Report of 1976 states:If local authorities are to be accountable, they should be responsible to their electorates for both the expenditure they incur and the revenue they raise to finance it, particularly for increases in both".In what they have been doing over the past few months—let alone over the past few years—the Government have, in effect, been attempting to reduce accountability and to go against all the principles they proclaimed to be their attitude towards local government finance.
In turning from the general issue of accountability to the particular case of capping, I can do no better than quote what the Secretary of State wrote in a famous article in The Times on 10th May 1990. It is especially relevant to consideration of the Bill. He wrote:One solution advocated is the introduction of a general 'cap'; no council allowed to increase its charge bill or its expenditure by more than a stated percentage. But does anyone think that so obvious an idea never occurred to any of us before? In the early 1980s we crawled over the capping option but finally rejected it.To cap or control, central government has to choose figures so far above the average that only a limited number of extreme cases are caught. And those below the cap have an implied licence to spend up to it. To extend the cap by lowering its incidence increases the risk of legal challenge. Furthermore, to design such a system effectively would negate accountability and be an act of centralized political power outside our experience. On these grounds alone it should be resisted".Those are wise words, to which the House would do well to pay attention. If it does so, the House will treat the Bill with much less respect than it is receiving from the Government Front Bench and than it received on the votes in the House of Commons.
The change that has taken place in the Government's attitude is not just between a Secretary of State out of office and a Secretary of State in office. It is a change that has taken place in official statements from the Government's Front Benches here and in the Commons over a short period of time. At the end of 1987, Mr. Michael Howard said about capping:We are only taking such powers because of the appalling record of a dozen or so authorities".The noble Earl, Lord Caithness, said much the same thing in this House on 14th June 1988. Now, the Secretary of State says and the Minister has today repeated it:strong capping powers are an essential aspect of any local government finance system". [—Official Report, Commons, 3/6/91; col. 55.]Only one of those statements can be true they cannot both be true. The statement that, 275strong capping powers are an essential aspect of any local government finance system",negates every argument on which the poll tax was introduced only three years ago. It certainly negates any argument about accountability. It is a confession of failure by this Government.
The crux of capping is that it has to be based on some kind of concept of what the right level of local government finance expenditure will be. For the Government, there is only one right concept of what financial expenditure should be. It is the view taken by government, the view taken by the Department of the Environment in Marsham Street. That is what the standard spending assessment is and it is why the extension of capping is an extension to all local authorities of budgeting from Marsham Street rather than budgeting in local authority areas by those who best know their community and its needs.
It is no good saying that some local authorities go in for excessive spending. Excessive spending in this Government's definition is simply spending over their assessment. Of course there will be differences. It is, as Lord Leverhulme said about advertising: half his advertising expenditure was wasted, but he did not know which half. The conclusion to be drawn from this brings us back to the wise words of Denis Healey: "You don't get a chicken farm out of the red by starving all the chickens". That is exactly what the Government seek to do with local authority expenditure.
It is noticeable that, in a recent report, the Audit Commission confirmed that there is a lack of confidence in the standard spending assessment among local government politicians and professionals. That issue is firmly brought before your Lordships' House because of the extension of capping which the Bill proposes.
In Clause 2 there is additional provision for Scotland. I am not an expert on the subject, although I intend to be one, if I can, before the Bill reaches Committee stage. As I understand it, the 1966 Act for Scotland said that capping should apply if local authority expenditure was unreasonable and excessive. Again, as I understand it, "unreasonable" is a word which has a legal sense. The Bill now proposes to remove the word "unreasonable" and replace it by the word "excessive". That means that "excessive" is defined as being something the Government do not like, something above the standard spending assessment. Therefore, at Committee stage there will be opposition to some of the provisions in Clause 2 for Scotland.
I turn to the final part of the Bill, the issue of valuation; in other words, the preparation for the proposed introduction in 1993–94 of what is politely called the "council tax" since no more accurate name can be thought of by government.
The problem about all these provisions is that they are being made at a time when not only is consultation in process but the Government have not made up their mind about a large number of issues. The Minister has given us a foretaste of what the council tax Bill will say in the autumn, and we must be grateful for having that 276 on the record. However, it still does not explain the basis on which these assertions—they are not conclusions, they are assertions—are made. First, in Clause 3(3), why is the decision as to whether the valuation should be on capital value or on some other basis left to regulation? This is a matter on which Ministers appear to be divided.
There is still no clarity as to whether the valuation is to be on the basis of individual properties. Clause 3(1), the money provision, allows it to be a valuation of all domestic properties in Great Britain. Clause 3(3) provides for a list of all domestic properties, but Ministers in another place appear to indicate that something less than that, a more rough and ready valuation, will be acceptable. I warn them that, if that is the case, there will be huge numbers of appeals on grounds of fairness between rough and ready bands which make substantial differences to people's incomes.
No, my Lords, I am sorry but this Bill is not good enough. It is not only a pathetic attempt to deal with damage done to local government by government policies over the years, but it is in effect further evidence of government misunderstanding about the proper relationship between central and local government. I can do no better than quote from The Times, whose first leader on Friday 14th June, stated:The bill is an offence against local democracy far more outrageous than anything M. Delors is proposing for monetary and political union. Michael Heseltine is, in effect, telling local councillors that their work is of tin-pot insignificance: they cannot be trusted with access to the public purse and should delegate their discretion upwards to a bountiful and ever-wise Treasury".It is not as though there were no alternative. We have made it clear, and we have been supported by all the local authority associations, whatever their party, which have responsibility for collecting revenue, that we could now, as from 1st April 1991, go to 100 per cent. rebates instead of the 80 per cent. rebates. We have made it clear that we could go now or certainly from 1st April 1992 back to the rates on 1973 values in preparation for a more considered return to a fair rating system. This Bill is a paving Bill, but it paves the way slowly towards the wrong scheme when the right scheme is available and could be implemented quickly.
§ 3.58 p.m.
§ Lord Ross of Newport
My Lords, I do not wish in any way to offend the Minister. She is excellent at her job and gave us another first-class exposition of the Bill this afternoon. However, there are many reasons why I wish to see this Government out of office, and soon. The one which I put top of my list is the quite desperate need to restore pride and confidence in local government. Incidentally, if one of the tenets of Majorism is to give more choice to the people, charge capping locally elected authorities is a funny way of going about it.
I had hoped that the Secretary of State, who went out of office and who gave the impression that he was aware of the sad state of the relationship between national and local government, would do something positive about it. But, alas, no, the message is still the 277 same. Apparently councils just cannot be trusted to manage even the most minor of budgets. Every authority will now come under the capping regime.
As I listened to the Minister explain the Bill to us, the only point that came into my mind was that local democracy has broken down altogether. We have reached an absolute nadir in the history of central and local government relations. It is a quite appalling state of affairs where only 14 per cent. of local spending will be raised by the so-called council tax and the rest will be provided by the Government to be distributed as they think fit. That is a recipe for disaster. That policy stands on its head the former policy of this Administration, which was, quite rightly, moving in the opposite direction. Indeed councils were having to raise something like 50 per cent. of their own money. I feel that central funding of no more than 30 per cent. should be the target to aim for.
The Bill is of course a panic measure to try to rectify some of the harm brought about by the poll tax, but it most certainly is not in the best interests of the administration of local services in Britain. With the opting out of schools and hospitals, the cessation of council house building and universal budget capping, one might as well run everything from the centre. But the fact is that the man in Whitehall certainly does not know best. He will inevitably not only spend more in the long run but make a complete hash of the whole business. That has already happened in that at least £4 billion has been lost on the poll tax alone.
I have been rereading The Case for Local Government by Jones and Stewart published in 1983. I only wish that Ministers in the Department of the Environment would do the same. I believe that when the noble Lord, Lord Joseph, re-entered office in 1979 he sent lists to his officials of speeches and books that he wanted them to read. Perhaps we should try to do the same. The Case for Local Government states that the great strength of local government is that,it can provide democratic public control over bureaucracy in organisation far more effectively than can be achieved in large national bureaucracies headed by Ministers or appointed boards".Local government operates on a scale that can be seen and comprehended and that makes it vulnerable to challenge. I can only repeat a comment I have made many times in this House. Annual elections and proportional representation would work wonders in our council chambers.
We are only too well aware of the bitterness that now pervades the council chamber in Liverpool, where brave people are trying to rectify a desperate situation. Those people surely deserve our moral support, whatever our party affiliations. I have much sympathy for Councillor Rimmer at this time and wish him well. Every morning I listen to Government Ministers on Radio 4 harp on at every opportunity about overspending authorities. Due to that constant repetition there is much ill-feeling both within and outside council chambers throughout the country.
When I left another place in 1987 I set up a commercial property division for a well-known firm of estate agents in the Isle of Wight with the prime objective of trying to attract badly needed new investment in both the commercial and industrial 278 fields. To achieve that objective I needed the co-operation of local government. I obtained that co-operation from local government officers. However, I then approached the Conservative chairman of housing on the Medina Borough Council—I had previously regarded him as a friend as he and I, with others, had set up the Isle of Wight housing association—to ask for his help and advice. He told me it was more than his life was worth even to be seen publicly in the street with me. He added that I just did not know the feeling against me. I realised I had some enemies but I did not realise that the situation was quite as bad as that. That conversation convinced me that it was time for me to leave.
I have enormous admiration for the courage of city councils such as those of Glasgow, Birmingham and Sheffield that have gone ahead and transformed local facilities. Those councils have given their citizens something to be proud of, but will they be able to meet the payments on the debts they have incurred? The portents are none too good. The Midlands Electricity Board even cut off the electricity supply to a Birmingham school last week because the bill had not been paid. I hope that that was just an oversight.
Another area where some of our cities have done well is in the development of their airports. Manchester and Birmingham come immediately to mind. When I was a Member of the Transport Select Committee we asked operators what they thought of these local airports. They said that they liked using them. The people they were gunning for were those in the British Airports Authority. One has only to ask someone who uses those airports how they feel about them to get an idea of how highly they are rated. My wife flew from Birmingham airport the other day and she said it was a delight to do so. Customers much prefer our municipal airports, but this Government will privatise those airports if they remain in power. That will be yet another nail in the coffin of local government. No doubt privatisation of those airports will result in greater profits for BAA.
I wish to pay tribute to the London Borough of Richmond, which has been particularly successful in the field of waste reclamation. I look forward to hearing the noble Baroness, Lady Hamwee, speaking later in the debate in this connection. When has all this alleged overspending occurred? Perhaps it occurred when the poll tax came in. I do not know where the money has been spent because all I see around me are libraries that are closing, that are threatened with closure or that are open only for part of the week. I see art collections being sold off and swimming pools closing. I see schools where music lessons are being withdrawn. The situation in Warwickshire is desperate and that is a Conservative administration. Theatres are being closed everywhere. Houses are being shuttered up as there is no money to renovate them. The maintenance of school buildings has been further delayed. The current situation must be reversed, and soon. Let us give our democratically elected councillors a chance to cut Whitehall down to size. This Bill will do nothing except make a bad situation a great deal worse.
279 I believe that there is much to be said for a property rate as well as a local income tax. We on these Benches have argued the case for a local income tax time and time again. I shall not go over the ground again today. But I wish to put it on record that I believe that a banding system can be made to work. After all, Layfield recommended both systems. I also have much sympathy with the views of the Audit Commission which in its recent response to the Government's discussion paper called for the return of the business rate to local authority control. The noble Lord, Lord McIntosh, referred to that. It is an utter disgrace that the Government have done absolutely nothing to lessen the burden of this ever-increasing charge on commerce and industry. It is increasing over a five-year period.
In the old days when one appealed against the business rate, one paid at the former rate until the assessment was confirmed or an agreement reached with the valuation officer. That is not the case today. I am told that some 60,000 appeals are still outstanding. I have a personal grudge in this connection. I consider that both assessments on commercial properties I own are far too high. One of them is certainly much too high. However, I have not heard a dickeybird from the valuation office since May of last year when my appeal was acknowledged. I am now told that I am not likely to obtain a meeting with the valuation officer before next Autumn. I must pay at the upper rate while all this is going on. I resent having to do so, as I am certain that the assessment is way over the top. Others must be suffering in a similar fashion. Surely some derating to help business and industry is now long overdue. The Chancellor could have made some provision in his budget in this regard.
What is certain is that house valuations will have to be put out to private sector qualified surveyors if targets are to be met. There are plenty of qualified surveyors about as their firms have sold out to companies such as the Prudential and they are hanging around with not much to do. I nearly volunteered to do the job myself.
If house valuations are to be carried out properly, most, if not all, houses will have to be inspected. In another place it has been said that a surveyor can stand at the end of a street and place a value on all the houses in it. I believe that that could be done only in a limited number of cases. I used to live in a terraced house. The house on my left-hand side was worth about half what my house was worth, while the house on the right was worth about double what my house was worth. A surveyor could not have stood at the end of the street and placed a value on every house. That would not have worked. The AMA has asked whether every property is to have an individual assessment. I have heard the secretary general of the RICS say that that would not be the case. I believe people will expect their houses to be properly inspected and assessed. Perhaps the Minister will confirm that that is the case.
If houses are to be individually assessed, the sum of £250 million referred to in the Bill is wildly optimistic. There will have to be a fair and rapid appeal system. Appeals cannot be delayed year after year. There will 280 also have to be provision for fairly regular revaluations. They can be carried out quite easily if the property market stays reasonably quiet. However, we know that the property market goes up and down like a yo-yo. It usually goes up rather than down, and on occasions it goes up in leaps.
I have also calculated, on the basis of the Government's examples, in terms of the rates that I should be much better off owning a flat in central Westminster than my place of residence, with my country cottage as my second home. I cannot afford both but from the rating point of view that would be the way to do it. On the basis of Table A, I calculate that I shall face a rate on my house in south Shropshire of £471, whereas in Westminster the rate would be £136. With the 50 per cent. allowance for a second home, I should be £100 per annum better off and still the owner of two homes. As Norman Tebbit's secretary rightly pointed out, that is hardly equitable. It is not on.
The noble Lord, Lord McIntosh, made this point. Just as the old rate support grant formula was grossly flawed, so are today's SSAs. One year the rate support grant was so wrong that it allowed Bath not to set a rate at all and I think that two other towns were in the same position. It was patently obvious that it had been worked out incorrectly. I suggest that SSAs are also wrong in many cases. We need an independent outside body such as the Audit Commission to verify the accuracy of the redistribution of central funding as far as possible, although it can never be an exact science. That is why it is so wrong.
Under the current proposals, banding is likely to prove just as unacceptable as the poll tax. There will have to be changes and the Government should listen to some of the representations that have been made to them. I can only wish this Bill, which will no doubt become an Act shortly, an early demise.
§ 4.12 p.m.
§ Lord Gisborough
My Lords, the principle of the new council tax is to be welcomed. It can be recognised as fair by the people who will have to pay it. Being broadly based it will be hard to evade and it will be easier to administer because there will be no need for a register.
However, the Government's proposed bands for the council tax are based on national average house prices, which hit residents in London and the South East hardest. If the tax is to be seen as fair by all there is a strong case for regional banding. It is widely recognised that the drawback of a tax system based on capital values is that it disproportionately hits people who live in areas with higher house prices. For example, under the Government's national bands only 1 per cent. of homes in London will fall into the lowest band whereas in the North 47 per cent. of households will be liable for the lowest rate of tax. In Barnet, no fewer than 47 per cent. of houses fall into the top band.
Under national banding 18 of the 33 London boroughs will be worse off under the council tax than under the community charge. A proposal for banding has been prepared by the LBA. It is based on average 281 regional house prices so that people living in similar properties will pay the same for a standard level of service wherever they live.
The fact that somebody lives in an area where house prices are high does not necessarily mean that they have a higher disposable income. Indeed, in times of high interest rates those with large mortgages are likely to be worse off. The size and type of house which a person occupies can be seen as related to their income. The capital value cannot because of the wide disparities in house prices between the regions.
The amount of Government grant which local authorities will receive under the new finance system introduced with the council tax will depend on the amount authorities will be able to raise locally. Thus, in areas such as London where house prices are high more money will be raised through the new tax and boroughs will receive less in grant. In effect, therefore, the London taxpayers will be subsidising the services enjoyed by their counterparts further north.
Another problem with the national banding proposals is that frequent revaluations will be required. It was precisely such revaluations which discredited the rating system. The problem is that there are huge regional variations in the rate of increase in house prices. For example, between 1987 and 1991 house prices in London have increased by just 6 per cent. compared with 34 per cent. in the UK as a whole and 84 per cent. in the North West region. Fluctuations on that scale mean that there will have to be revaluations as houses move into higher bands. With regional banding, however, that will not occur because the regional band will be able to shift in line with the market conditions prevailing in a region. If prices increase across a region that region's average house price will increase and the bands will merely shift upwards. Revaluations will need to take place only if the prices of certain houses increase relative to other houses in the region.
Regional banding would retain the fundamental principle of government proposals. That is recognised in Scotland and Wales and it would be only equitable to extend it to England. Failure to do so would result in the same difficulties and opposition which were generated by the community charge.
§ 4.15 p.m.
§ Baroness Hamwee
My Lords, I thank noble Lords for the welcome I have received from all sides of the House. I thank the noble Lord, Lord McIntosh, for his very kind comments. I wondered whether he would go or: to talk about 57 varieties of local government Bill; perhaps we shall reach that point.
I am aware of the convention that maiden speeches in this House should not be controversial. I shall, of course, endeavour not to be controversial, and I am sure that your Lordships will understand that any strength of feeling which may come through is borne not of a wish to be controversial but of 13 years' experience as a local councillor.
Everyone involved in the saga of local government finance which has unfolded over recent years must feel 282 like the man in the joke: where does one start when constructing a system of local government finance? Certainly not from here.
We should all be asking ourselves the three fundamental questions: Will the new tax be fair? Will it be efficient? Will it be accountable? I can spend no time on the questions of fairness and efficiency because in my first speech in this House it would not be right for me to speak for too long, but fairness is fundamental. Every tax must be linked to the ability of taxpayers to pay.
I should like to mention the value of good local government, both for its services and for its accessibility to those whom it serves. I know that that will strike a chord with this House, which has a fine and deserved reputation for its responsiveness to public opinion. If we are to deal with the reform of tax before the structure of local government —and many people, not just politicians, have said to me in the past few weeks that surely structure comes before tax— then we must ensure that the tax does not jeopardise the future of good local government.
The effect, and I believe the underlying objective, of so many local government changes which have taken place over recent years has been the centralisation of powers and services. The extension of capping to all districts proposed by this Bill will mean that there will be almost no room at all for local decisions. The Minister referred to budget levels in a number of authorities over the past couple of years. I would say in response to that point that authorities will find it almost irresistible—and they should not resist—to try to anticipate what government regulations will be and to work within those regulations, but up to the limit in order to do their best for their communities. In the current climate of constraints on government spending local authorities will almost be bound to set the highest budget within those limits.
One of the most recent comments on local decision making has come from the Audit Commission in a report which has already been referred to. The paper deals primarily with the mechanisms for implementing the new tax but the Audit Commission felt it necessary to address the broader implications. It said that it,believes that local links between taxing and spending are important, and that local authorities, despite their many imperfections, are better placed to deliver local services sensitive to local needs than are central government agencies or non-elected local bodies".That is a sentiment with which I entirely concur.
The Audit Commission's recommendations included scope for additional revenue-raising schemes and some fiscal powers for local authorities and increasing the proportion of expenditure raised from the council tax itself.
I have been speaking about tax but the debate should really be about services. Tax is necessary as a facilitator of services and it is the local authorities which are sensitive to the needs and aspirations of their own communities. I have never understood the accusation, which is made rather more by members of political parties than it ever is by the public, that expenditure on any particular item is somehow for the benefit of councillors. I appreciate that power has its dangers, but I believe that most councillors of all 283 political complexions take the decisions that they do in order to do the best by their own communities, not for their own self-aggrandisement. Many of us have spent a great deal of effort in ensuring value for money for our own communities in order to spend what we have in the best way.
Reference has been made to the small proportion of local government funding that is now raised and will be raised at a local level. Not only that, but high gearing figures of one to six, seven and even eight have been talked of; in other words, that 1 per cent. on or off spending means, say, 8 per cent., on or off the council tax. Those aspects of the proposal must also make the new tax less accountable.
We need accountability of local government and stability. More party political controversy undermines respect for government. One of the unfortunate side-effects of which I have been aware over the past 10 years or so is that good candidates have been deterred from standing for the local authorities. Why should people make the personal and family sacrifices that are undoubtedly required in order to run a system devised by other people with so little flexibility? Local councillors understand that power and responsibility are linked and they would like to exercise responsibility, but for that they need scope.
What is not a party political point is the stablility that proportional representation would give by ensuring representative government. I say that even coming from the London Borough of Richmond-upon-Thames where, in 1986, 52 per cent. of the votes gave my party 94 per cent. of the seats and, last year, 48 per cent. of the votes gave us 92 per cent. of the seats. That is in some ways comfortable, but frankly it is unfair both to Conservative and Labour voters.
I say that this is not a party political point. The MORI state of the nation survey for Rowntree which was published recently showed more than twice as many people in favour of proportional representation as against it. There were more in favour across all the political parties and, perhaps what is most significant, among those who professed to have no interest in politics at all.
Finally, perhaps I may return to my concern for the scope of local decision-making. My concern is not for the politicians. Like mine, every good authority consults both on its services and on the consequent level of tax. There is a danger that nothing will be left on which to consult and the voice not just of our local councillors but of our communities will be stifled.
§ 4.24 p.m.
§ Baroness Flather
My Lords, it is my great privilege to congratulate the noble Baroness, Lady Hamwee, on her maiden speech. It was thoughtful and I was impressed by the picture that she drew of what councils and councillors should aspire to do. She struck a chord with me across the political divide because my background, like hers, is in local government. I offer her many congratulations. I am glad that we have yet another voice to speak in your Lordships' House on local government.
284 I have strong feelings about the Bill; I make no apology for that. I was a member of the Royal Borough of Windsor and Maidenhead Council until last month when I did not seek re-election. That was just as well because I probably would not have been re-elected anyway. Windsor and Maidenhead was a Tory council for two decades. It is now a hung council, not because there are tons of rubbish on the streets, or because it does not believe in value for money, or because it has any union trouble. It is hung because the voters have given their verdict on the community charge.
The council has always accepted the rules made by central government and, I can assure my noble friend the Minister, will continue to do so. In 1978, when the Labour Government asked local government to cut expenditure, we complied. Some neighbouring authorities did not. What a heavy price we paid! That year, 1978, became the year on which GREA—grant related expenditure assessment—was based until phased out by the community charge. As we had been as economical as possible, our needs were considered to be less than the needs of those who continued on their merry way. In spite of that, during the 16 years that the rating system operated, the royal borough rate started at 13 pence in 1974 and ended at 14 pence in 1989–90, with very small fluctuations in between. Not only did domestic ratepayers benefit; so did business ratepayers.
That position was not achieved by imprudent mortgaging of the future. It was the result of sound, long-term financial management policies which not only provided stability for local ratepayers but enabled the council to improve facilities and services for the people of the borough. It probably needs to be said that the people of the royal borough expect, and I believe are entitled to expect, good and improving services. They are not satisfied with anything less.
Against that background, once again we faithfully and conscientiously implemented the community charge legislation in 1990. The difficulties implicit in that task are now well known and widely accepted. They were multiplied for us by the totally inadequate method of distributing central government grant. That is based on the formula that the Government use to assess what each authority needs to spend on the basis of providing average services with average efficiency.
The best demonstration of how arbitrary that formula can be is a comparison between the royal borough of Windsor and Maidenhead and the neighbouring borough of Slough. The formula indicates that Slough needs to spend over twice as much per adult as the royal borough does—£204 as against £101. That is just on district services. It does not include county services. Slough has a few problems that we do not have arising out of the more urban nature of its environment. We have problems that it does not have, such as the cost of coping with 4 million tourists. In practice, the average level of spending per head in the two authorities is quite similar and all the local evidence suggests that their need to spend is also quite similar. But the government formula says otherwise. It means that, other things 285 being equal, Slough's poll tax will be £103 less than the royal borough's, just in respect of district services. Let me hasten to add that no criticism of Slough is intended. After all, it has no more control over its far more generous SSA than does Windsor and Maidenhead. The problem is that the SSA says that Slough needs to spend twice as much, not just in relation to Windsor and Maidenhead, but twice as much as it spends itself.
The Government's response so far has been that they have consulted widely and that the matter has been well researched. That is cold comfort to those who have lost control over their finances and who have been punished by the electorate for it.
One may well say that this is all about the bad old days. But, sadly, that is not so. The new grant arrangements under the proposed council tax will be the same as the old SSA. The consultation paper states that,the SSA system is based on extensive research and provides about as fair a way of assessing needs as can be devised".The tables and the consultation paper indicate that under the new system Slough is likely to spend £7.8 million. However, the total grant support to that authority will be in the region of £13 million. It follows that not only will Slough not need to levy any district tax at all but it can spend another £5 million before having to do so. Perhaps it will give a handout to the royal borough. Can that really be the best formula capable of being devised?
The Government's stated aim is to bring all authorities within the capping regime. It will therefore he vitally important that the measures used for setting capping limits are seen to be fair. The main criterion to be used would be the council's proposed expenditure against this very same formula for council spending. If the standard spending assessment formula has little or no credibility with many district councils, capping will be a very bitter pill indeed to swallow.
Along with my noble friend Lord Gisborough, I must express deep concern about the way in which valuations of properties for banding will take place. The property bands will not be based on local valuations but will be placed around a national average value. As my noble friend said—I repeat the point to make sure that it is carefully taken on board— this will mean that a family in Windsor and Maidenhead will pay more council tax than a similar family in a similar house in Manchester because the house is placed in a different area.
It may be argued that disposable incomes in the South East are higher and that therefore it is only right and proper that the council tax should be higher. But all indications are that the differential in property values is much greater than the differential in incomes. Certainly, the most equitable way to overcome the difficulty would be to have regional banding, particularly as the Government have given a clear indication of their intention to stay with the seven bands. Huge numbers of properties in my area will necessarily come within the higher upper limit. There 286 is a very good argument for stretching the bands to a higher upper limit, thus achieving greater fairness in the tax burden.
The consultation paper does not rule out the concept of regional banding, and I urge my noble friend to take a careful look at the possibility of introducing it in England. I believe that Scotland and Wales in any case will have their own separate bands, based on average values there. Local government has gone through far too many changes. This time we must come up with a solution which will endure and which, most importantly, will be demonstrably fair to all.
§ 4.32 p.m.
§ Lord Cockfield
My Lords, with your Lordships' indulgence, I occupy the blank space which appears on the list of speakers for the benefit of those of your Lordships who feel that attendance at this debate is more important than attendance at the Gold Cup at Ascot. First, I join my noble friend Lady Flather in congratulating the noble Baroness, Lady Hamwee, on a most interesting maiden speech. It was also a very impartial speech and lived up to the best traditions of this House in that respect. I am quite sure that that impartiality will not survive as far as the Committee stage of the Bill, nor do I believe that any of us would wish it to.
I have no quarrel with either the principles or the policy underlying the Bill. Indeed, in many respects, it represents an ingenious solution to an intractable problem. I doubt, however, whether it will prove a permanent solution—any more than the alternative policies promoted by the parties opposite will provide a permanent solution. The tragedy is that a small number—possibly a very small number—of irresponsible local authorities have created a problem which in the end has had to be dealt with by quite disproportionate measures. Over the years we have seen the use of an increasingly large sledgehammer to crack an increasingly obdurate nut.
I believe that we shall find a solution not by restricting the powers of local authorities but by increasing the sense of responsibility of the people who vote in local authority elections. That may well require—I wish to go no further—a measure of proportional representation. One may indeed need to go further than that and have a system of compulsory voting, so that every single resident knows that he or she bears personal responsibility for the policies and expenditure of the authority in whose area he or she lives.
Having made those general remarks, there are two specific points that I should like to make. First, I should like to draw attention once again, as my noble friend Lord Boyd-Carpenter has done on more than one occasion, to the problems created by the system of precepting, which means that a profligate local authority—I do not say that they are all profligate—can compel another local authority to collect its revenue for it. I do not say it in a partisan spirit but that is one of the factors that led to the downfall of 287 ILEA and the old GLC. In so far as one can have them, single tier authorities get over that problem; elsewhere, the problem remains.
The other point that I wish to raise is one touched upon by the noble Lord, Lord Ross of Newport. It is widely believed, and there is evidence to support the view, that the Inland Revenue is unable to cope with the work arising from the unified business rate. Admittedly, bringing in the private sector will be of considerable help and support. But I cannot believe that it will entirely take the burden off the shoulders of the Inland Revenue. We must ask how the Government propose to address the problem.
There is another difficulty; namely, the risk of conflict of interest. Those of us who, in the past, and indeed today, have unfortunately been involved in conflict with the authorities over matters of this kind inevitably have turned to professional advisers, either surveyors or estate agents, to act on our behalf. What will happen if our advisers are now found on the other, and possibly the wrong, side of the fence? It would be a serious error to believe that there will not be a great deal of quite contentious work arising from this exercise.
Perhaps I may also say that the problem of valuation of apartments is very much greater than the problem to which the noble Lord, Lord Ross of Newport, referred. The value of an apartment will depend not only on its size and facilities, which will differ from one apartment to another in the same block, but also on the floor on which it is found, its aspect (whether it is looking north or south) and many other factors. Indeed, where I live, but for banding, which I do not want to pursue at this stage, it would be impossible to value any of the apartments without looking at every one of them individually.
I do not say that these are not problems that can be overcome but they are difficult problems. It is important that the Government should address their mind well in advance to these practical issues. It is not good enough just to get the policy right—as I said, I have no quarrel at all with the policy—but one also has to ensure that the implementation of that policy is efficient and effective.
§ 4.40 p.m.
§ Baroness Blatch
My Lords, I join all other noble Lords who have given a generous welcome to the noble Baroness, Lady Hamwee. She made an interesting and most thoughtful speech. Her enormous experience of local government is already being brought to bear. The noble Baroness comes here with a good reputation not only for being competent in local government but for a wide range of other interests. We look forward to hearing more from her, even though I suspect that I shall be the butt of much of her criticism as we progress with this Bill. However, I look forward very much to her contributions in the House.
A number of points were raised during the debate. I must come back to a point with which the noble Lord, Lord McIntosh, opened. He was lamenting the number of local government Bills that have passed 288 through this House. I believe that he is on record as saying that almost the first Bill that will pass through this House if, heaven forbid, the Labour Party ever came to power will be a local government Bill to take us back to what I believe to be the bad old days of the rates. It would be accompanied by a measure to abolish any limit on local government spending. That would be followed by another local government measure which would introduce something similar to this Bill; that is, a valuation Bill for laying the groundwork for a complicated range of measures to be brought in to replace the council tax. I therefore make no apologies for this Bill. It is the way forward for local government.
Criticism was also made of the smaller proportion of local government revenue raised at local government level. We are on record as saying that the level is about right. I noted with interest that the Liberal Democrats do not agree; they would increase the proportion. That needs to be noted by the great British public, who have told us with a loud and consistent voice that one of the problems is the volume of money raised locally. That needs to be considered.
Regarding unlimited local spending, one needs to look back only a year to see just what the level would be now and how much greater it would be this year had unlimited and unfettered spending been permitted at local level. One needs to look only at Liverpool at this moment to see enormous agonising over balancing the books. Had it not been for the measures in place there would have been no agonising; spending would have been let rip and be out of control in that city.
On the point raised by the noble Lord, Lord McIntosh, and the noble Baroness, Lady Hamwee, about gearing, spending above SSA and raising £7 from the charge payers, that is not the case. Nationally for spending at SSA central government broadly provide £7 for each £1 raised from the charge payers. For each £1 above SSA, the same amount must be raised from the charge payers—not £7 for each £1. In short, it is pound for pound on accountability—each extra £1 spent will mean £1 extra local taxation.
The noble Lords, Lord McIntosh and Lord Ross, suggested that we had not made clear the basis on which a valuation would take place or whether there would be a valuation for each individual property. A value will be attached to each individual property, but my right honourable friend made it clear that banding will be on the basis of capital values. There is no question about that. It is also clear that properties will be banded individually. They will not need to be given a precise value to the nearest pound. Putting properties into broad bands will be much easier than detailed valuation.
In response to the interesting criticism from my noble friend Lord Cockfield—perhaps not criticism but ensuring that the Government realise that there is a challenge in the practical application of the banding system—I point out that the fact that the banding is broad will reduce the number of problems. There is no difference between my right honourable friend in another place and his colleagues. The main basis will be capital values. However, we have proposed that 289 factors such as adaptation for the disabled should be taken into account and disregarded where that would lead to a lower charge. I believe that that would be welcomed in this House.
The noble Lord, Lord McIntosh, referred to the rich receiving more from local authorities and said that therefore they should pay more. It is wrong to believe that people with high incomes do not pay their fair share. They pay their fair share in income tax, much of which is used to pay grants to local authorities. The top 10 per cent. of households by income pay 15 times more towards local government than the bottom 10 per cent. In any event, one of the features which discredited the rates was the myth that all those living in expensive properties could afford to make a limitless extra contribution to local government. For people without large incomes that means hardship, and often that hardship is experienced by the elderly.
My noble friends Lord Gisborough and Lady Flather were concerned about regional banding. If the council tax is to be a readily understood tax, and if it is to be a tax which varies according to property values, a system of national bands is the right approach. All other methods have been properly considered in the course of arriving at this decision. This way a house worth £80,000 faces the same bill everywhere. Of course those living in properties with higher values pay more. Under the old rates a property with a value twice as high as another faced a rates bill twice as high. In Barnet, where the average value is four times as high as that in, for example, Middlesbrough, rates bills would be four times higher. We have specifically designed our proposals to avoid disproportionate contributions from higher priced areas. Our approach to banding means that the largest bill is only two-and-a-half times the lowest for spending at the standard level. Regional banding would distort the careful balance that we have struck to gibe a fair, simple and readily understood basis for local taxation.
A number of other points were raised, but during the detailed discussion at Committee and Report stage of the Bill we shall have ample opportunity to examine them. It remains for me to say that we are determined to protect all charge payers from high bills in the run-up to the introduction of the council tax. We are not prepared to see the very substantial extra money we are providing to local authorities being used to support higher spending rather than to keep charges at reasonable levels. These new powers we are seeking do not represent, as noble Lords opposite have claimed, an attack on local democracy.
I do not recognise the local government described by some this afternoon. Authorities which budget wisely have nothing to fear. But experience has shown that sharpened accountability is not itself sufficient to ensure expenditure restraint. These are the facts. The stronger capping powers we are seeking are, I believe, the right response to those facts, and one from which I fear those opposite would shrink.
The powers we are seeking on the allocation of properties to bands will mean that essential preparatory work can begin as soon as possible. Our 290 aim is simple. It is the orderly introduction of the council tax in April 1993. This Bill is the first legislative step towards that goal and I commend it to the House.
§ On Question, Bill read a second time, and committed to a Committee of the Whole House.