HL Deb 20 March 1991 vol 527 cc676-99
Lord Hooson

rose to call attention to the case for strengthening the financial base and autonomy of local government by replacing the community charge with a local income tax; and to move for Papers.

The noble Lord said: My Lords, when, together with my noble friend Lord Holme of Cheltenham, I put down this Motion last Thursday for debate, there was no inspired leak from the Department of the Environment. There was no hint that we were about to have what I believe to be the second highest rate of VAT in Western Europe. I have reflected upon the disclosures that have been made in the past two or three days, and I believe that it is even more important that we have the debate today. The Government seem to have a speciality of making policy on the hoof, so to speak, by inventing new policies as a reaction to a difficult situation. They do not foresee the consequences of the policy.

I have no doubt that the Ribble Valley by-election concentrated certain minds and shattered certain illusions. Over the past three days, we have reached an absurd situation with regard to the future of local authority finance: how it is to be raised; the functions, structure and responsibilities of our local government system; and what is an acceptable level of VAT.

The Government give the impression of being in a state of panic and of running scared, and to be about to try another bout of lightning reform to try to mitigate the damage caused by a policy which was itself implemented on the hoof. I shall come to the genesis of the poll tax presently. When I opposed the introduction of the poll tax in Scotland in your Lordships' House on 17th March 1987, I said: Perhaps I may say on behalf of the Alliance that it is important that we appreciate that the question of local government and its functions and what role we require local government to play in the future cannot be separated from the way in which we raise finance for it .… this Bill provides a remedy which is worse than the evil that it is trying to reform".—[Official Report, 17/3/87, col. 1353.]

The Government were arrogant and stupid about the poll tax. They were not in a mood to listen or heed and now they have resorted to another panic measure.

There have been only two thorough investigations into local government finance during this century. The first was under the Liberal Government in 1914; then a departmental committee on local taxation was set up under the Labour Government in 1974, and its report was published in 1976. This committee of inquiry was chaired by Sir Frank Layfield who is probably the greatest authority on the subject in the country. He headed a committee of 16, which covered all parties and people who were not in any parties. Between them, the committee members had a great deal of knowledge and experience and were a fine cross-section of the community.

Evidence was given to them by a large number of organisations and individuals. The list of witnesses takes up no fewer than 19 pages as an annex to the report. Among the organisations which gave a great deal of evidence to the committee were the Conservative and Unionist Party and the Scottish Conservative and Unionist Party. Not a single individual or organisation which gave evidence to that committee even suggested that there should be a community charge or poll charge.

A study of the proposal did not even warrant one sentence in the report. That is not surprising because it is an entirely regressive tax. Its introduction by the Thatcher Government, in the absence of any proposal of the kind to the Layfield Committee, shows how ill-considered, ill-thought out, unwise and ill-judged it was. On 18th April 1988, Mr. Norman Tebbit said: I am an unrepentant supporter of the community charge and have been ever since I invented it in the early 1970s".

I believe that it was invented centuries ago. Wat Tyler's rebellion was a rebellion against it. Nevertheless, let us accept Mr. Norman Tebbit's legitimate claim to paternity. Of course the attitude of the Government, until the composure of their minds by recent events, can be summed up in the words of Mr. David Hunt, the present Secretary of State for Wales, when Minister for Local Government. On 3rd March 1990, only a year ago, he said: I believe the community charge will come to be accepted for what it is: simple, straightforward and above all fair. But it will also do local government a power of good".

As the main element for strengthening the financial base and autonomy of local government, it has proved to be entirely unacceptable. It has not done local government any good at all.

This afternoon I shall invite your Lordships' attention to the case for local income tax which was thoroughly investigated and approved of by the Layfield Committee in its recommendations, after hearing and considering detailed evidence and hearing other alternatives. The committee considered it as an addition to the rates. It is quite clear that, local government finance now having fallen into such an incredible mess, and the present Government being in such a complete panic, the Government are now trying at short notice to find an alternative to the poll tax. Any such proposals by them will inevitably have to be regarded as interim and short term, particularly if they go back to a hastily considered property tax and/or retain any form of the poll tax which has proved so expensive and difficult to administer.

Therefore, particularly if the result of the hasty unscrambling is to undermine local government itself even further, it behoves everyone to look at the merits of local income tax as considered and recommended by the Layfield Committee. I quote from page 208 of the committee's report, Command Paper 6453 on its conclusions on local income tax, contained in paragraph 104: A locally variable tax on all personal incomes could:

  1. (i) raise substantial sums;
  2. (ii) enhance the accountability of local authorities by bearing on the inhabitants of the area concerned;
  3. (iii) bear on individuals according to their incomes; and
  4. (iv) be a feasible proposition if operated by the Inland Revenue, making use of the PAYE system for Schedule E incomes and provided the present national scheme was simplified".
The Layfield Committee concluded, after consultations with the Inland Revenue, that a local income tax scheme could be integrated into the national tax system. At annex 25, page 450 of the report, it sets out an outline scheme for integrating local income tax into the national tax system. I am content to accept that scheme as a possible structure for a local income tax. It was thoroughly looked into and researched by the Layfield Committee, which concluded that a local income tax should be integrated within the administrative framework of the national system for personal taxation.

The committee had before it three research papers which it had commissioned on the way that local income tax was raised in states in the United States, in Canada and in Sweden. As your Lordships know, other countries in western Europe have reverted to the personal income tax and local income tax.

Therefore, I wish this afternoon to concentrate not on the technical details which were investigated by Layfield and considered at length, but on the reasons for the advocacy by the Liberal Democrats and many other interested bodies of the advantages of a local income tax as a main component in putting local government finance on a sound and long-term basis.

At this stage I should make clear that we accept the Layfield view that the local tax on personal incomes should be based on place of residence, for the greater part of local authority expenditure relates to the provision of such things as education and social and environmental services and they relate to where people live. We think also that it is important, as we set out in our Motion, that the autonomy of local government should be safeguarded. It should not become simply a tool of central government.

Of course, adjustments may be necessary in relation to certain properties such as second homes and so on. I do not exclude the consideration which I know my noble friend Lord Holme will touch upon: site value rating, as an addition. The Liberal Democrats base their view that local income tax is preferred to any other form of revenue raising as the main source of revenue from individuals for local government on the basis that it meets four crucial requirements: first, that it is based on an ability to pay. VAT is certainly not based on an ability to pay. Secondly, it must meet the crucial test of accountability. Thirdly, it must be capable of producing a substantial and regular yield. Fourthly, it should be easy to collect with the national income tax.

I return to the Layfield Committee report and its conclusion, page 190, where paragraph 37 states: The foregoing description has indicated that a local income tax … on personal incomes, levied according to where people live, is the only serious candidate for a new source of local revenue that could give a substantial yield and at the same time maintain or enhance accountability".

VAT will give a substantial yield, but it is unfair. It will not maintain or begin to enhance local accountability.

I wish to turn to the crucial question of ability to pay. Every person in this country old enough to purchase anything in a shop pays national taxes. He or she does so by means of VAT and it is payable, however poor that person is. The average earner or below average earner pays a higher proportion of income in VAT than do the higher earners. It is a regressive tax.

Last night the BBC demonstrated on its computer the benefits and the disadvantages of the announcements made in the Budget in regard to this matter. We have long accepted that the obligation to pay income tax to support our national expenditure should be based on ability to pay. It is fair, reasonable and just that this should be so. Exactly the same principle should surely apply to expenditure at a local level on services provided locally. There is no distinction to be drawn in principle between services provided nationally and services provided locally. Mr. Michael Portillo, the Minister responsible for local government, said on 19th October 1990 that taxes on people's homes are unfair and property values bear little relation to people's ability to pay. He also stated in the same speech: Accountability is beginning to work. Local democracy is being reborn".

I am bound to say that was a stillborn hope.

Whether a person lives on his or her own in a rambling run-down house with many rooms but cannot afford to run a car, or whether there are four able young people all on high salaries sharing a flat or a house, each with an expensive car in a garage, does not alter the fact that they should all pay towards local expenditure in accordance with their ability to pay. Quite apart from the inherent impracticability of the poll tax, it was an utterly unfair tax and one which was totally unacceptable to right thinking people in our community.

I turn to the matter of accountability. We on these Benches believe in local democracy. We are opposed to the centralising tendency of this Government. It is our belief that that tendency has been enhanced by the developments of the past two or three days. It is of fundamental importance to bear in mind the fact that the essential quality of local income tax is that the tax rate borne by any individual on his income should be set by his local authority. Rates of tax will vary from place to place, and will be subject to upper limits set in the national interest. Layfield deals extensively with this matter. There should be considerable discretion in the setting of the tax. My party proposes that there should be a uniform tax throughout the country with rebates at the end of each year.

This limitation on discretion would have to be made in the interests of national demand management. There are precedents for that in Canada, Sweden and other countries. However, on one's annual income tax demand there would be a clear indication of the amount of tax that was required to meet the local demand in the area in which one has one's principal home. Therefore there would be a clear link between the services provided by local authorities and the local income tax levied. What we have in mind is that national government and Parliament can insist —and do insist—on certain minimum standards to be achieved through local authority services such as education, police services, roads and other services. But there would have to be a much clearer and better defined relationship between central and local government with regard to how these national standards and their financial obligations should be met. That relationship should not be decided in a panic situation as a result of emergency measures to rid the populace of the unfair burden of a mistaken and unacceptable tax. The relationship should be carefully thought out.

Thereafter the main responsibility for the level and pattern of expenditure on local services should be firmly placed on the shoulders of the local authority. As I have said, we deplore the undermining of local government that has taken place over the past few years. We accept that all governments should have at their disposal instruments which enable them to exert influence and control to a degree on local expenditure. However, many of the decisions in which central government now interfere at a local level could best be made without that interference by people who are elected to consider specifically the needs and circumstances of their own areas and to respond to the views and preferences of the people living there.

We take the view that we would be a much happier society in this country if more responsibility was given to local government. We believe that many of the decisions which affect everyday life should be taken by elected people who are responsible to the electors of their areas. It seems to me that the events of the past few days which have been the result of a panic reaction foreshadow the most drastic undermining of local democracy this century. The consequences of the actions that have been taken in the past few days have not been thought out.

I turn to a further great benefit of personal income tax which concerns the amount and certainty of it. Our national income tax yields annually huge sums for national expenditure. The rate of taxation has decreased considerably in the past few years, thanks largely to the income brought in from indirect taxation, particularly VAT and North Sea oil revenues. We tend to forget about North Sea oil revenues. If a considerable chunk of local expenditure is to be met by a local income tax, the national rate levied by way of taxation would probably fall a little. However, one thing is certain. Raising money through a local income tax thoroughly integrated into the present system of collecting income tax nationally would be a far more certain way of raising money and making sure that those who are liable to pay do so. The huge unproductive superstructure which local authorities have been forced to set up to administer and police the unacceptable poll tax could be dismantled. I hope the Minister will be able to tell me what the overall cost of setting up the poll tax has been to date in Scotland, England and Wales. That must be an immense sum. We would no longer have a situation in which many of the people Parliament had decreed should pay towards local government expenditure escaped from that obligation. I shall repeat a statement that I made in your Lordships' House on 17th March 1987 when I said: The poll tax is the most primitive of all taxes, and it is the most unsatisfactory".—[Official Report, 17/3/87; col. 1351.] Now, at last, I believe the Government appreciate that fact.

It has always appeared to me somewhat ridiculous to consider the question of raising funds for local government expenditure separately from the question of the functions of local government and the set-up of local government. In another place in 1971 or 1972 I opposed the local government reform legislation on the basis that we should have unitary all-purpose authorities in my native Wales and an elected council, that is a council for Wales, above them. I also proposed regional councils for England. I expressed a view then which I repeat today. I do not believe we should decide such matters as the set-up of local government without considering at the same time local government finance, its boundaries and what functions one wishes local government to perform.

There is a great deal of debate now on the matter of whether our unitary authorities should be county councils or district councils. I believe that in certain areas district councils would be more appropriate as they are much closer to the people. In other areas I can think of, county councils might be more appropriate, but not where large geographical areas are involved. I live in a large county and most local government officials spend a great deal of their time in motor cars as they have to travel a great deal. The whole matter depends on what is acceptable, reasonable and sensible to the people in the area concerned. One must consider where their loyalties lie and which council encapsulates the sense of community which is so necessary in local government. I believe that in my own part of mid-Wales the unitary authority should be the district council because of long historical allegiance and the physical set-up of the area.

I intend to cut my speech a little short, even though we have quite a lot of time available. I have referred to the fact that there would have to be clear lines of demarcation drawn on those parts of local government expenditure which should be met not from national taxation but from local taxation. Let me take education as an example. We have universal education demanded nationally; we have set up a national curriculum and we require national standards to be achieved. That is the minimum requirement. It seems to me that that minimum requirement should be met clearly from national taxation and should be reflected by way of direct grant to the local authority. It should be assessed in relation to each unit of local authority at least a year in advance.

However, in certain areas—and I am sure that mine is one of them—there would be a tremendous demand for further expenditure on education to provide additional facilities to study music, for adult education, for additional nursery provision and so on, and that should be met from local income tax.

It is quite clear that, in the process of deciding what is paid nationally and what is paid locally, regard should be had to the difficulties of any given area. For example, an inner city community might require a larger national grant; a remote rural area may require a larger proportionate national grant because of the difficulties and additional expense of meeting national requirements. But the administration of education, the carrying out of the requirements of national government, as well as the provision of additional facilities, should be under the firm control of the local authority. It does not matter what autonomy one gives to schools. Who is to provide supply teachers? Who is to co-ordinate the activities of schools, unless the matter is firmly delegated to the local authority?

I wish to conclude by saying this. I put down this Motion last Thursday, in order to try to get the Government to give a little more considered and mature thought to what should replace the community charge, because it was quite obvious to me by then that it would have to be replaced, and to influence them to produce a measure which they had carefully considered and which had been analysed and its consequences foreseen.

We have now lurched from attacks on all adults to pay for local government, to attacks on all individuals who buy goods in our shops, including children, to pay for the deficiencies in the financing of local government. The Government ought, for their own sake, to hesitate before going any further down this path. Relief might be necessary from the community charge—and I entirely agree with that —for we do not want another crisis in local government finance as a result of what the Government are going to do in a panic. My Lords, I beg to move for Papers.

6.53 p.m.

Lord Monson

My Lords, I am stunned to find myself with no direct experience of local government, the sole participant from the Back-Benches in this evening's debate particularly as the subject matter is so very topical. The beautifully chosen timing of this debate, upon which the noble Lord, Lord Hooson, must be congratulated, permits a non-expert like myself to fantasise about what the right honourable Member for Henley, in his unenviable hot seat, might have in store for us; an opportunity which one gathers will be no longer available 24 hours from now.

The rates, for all their many imperfections, were something which we had grown used to, and not all of us found them as inherently objectionable as, let us say, the noble Lord, Lord Jenkin of Roding, who I am sorry is not here tonight. However, this broad acceptance of—perhaps it would he better to say resignation about—rates would certainly not have survived revaluation. That would have proved almost as controversial as what we have at the present time. So it makes good sense to start again from first principles, provided that these are tempered by political realism.

One of these first principles surely is that, just as there should be no taxation without representation so the reverse should apply; there should he no representation without at least a certain minimum of taxation, and the poll tax certainly fulfils those requirements for those who actually register and pay.

Incidentally, it is a great fallacy to claim, as some do, that this principle of no representation without taxation does not apply at general elections. It most certainly does. True, not everybody pays income tax, but even non-smoking teetotallers who do not run a car pay VAT, as the noble Lord, Lord Hooson, has pointed out. They also indirectly pay tax on petrol and derv, both as bus passengers and, more indirectly, as customers of shops to whom goods are delivered by road. So it is in the interest of every single voter to vote for prudent and efficient central government.

There is another fallacy which goes like this: there are vast numbers of people who cannot afford to contribute anything towards local government. That is nonsense. An interesting survey by the London Business School, published at the end of November, revealed that an astonishing 80 per cent. of the adult population would pay up to £200 for the privilege of watching BBC television. If 80 per cent. of the population are prepared to pay an extra £129 for the luxury of improved television they are certainly capable of paying at least £129 for necessities and luxuries provided by their local authority.

The requirement of any new tax is that it should not leave any group vastly worse off, or vastly better off, than under the old regime and certainly not suddenly; nor should it be perceived as grossly unfair. Here, of course, the poll tax in its present form failed dismally and I frequently criticised it for that. But it need not have happened in that way. The poll tax could have been phased in over five years. It could have been banded roughly according to income or the value of property. Or national taxation, including income tax, higher rate tax, national insurance contributions, allowances for mortgage interest relief, pension contributions, and so on, could have been adjusted so that people in general would, broadly speaking, be in the same net position as they were under the old rates assuming —and this is crucial—that they lived in a reasonably efficiently run local authority area.

I can only imagine that the reason why the last did not happen—that is, the adjustment of national tax rates to make them more progressive—is that a large section of the public would have been intellectually incapable of grasping a trade-off between lower central taxation and higher local taxation; and the old maxim that there is no gratitude in politics would have been proved right once again.

Any new tax should also, ideally, be cheap to collect. Here, again, the poll tax fails badly, though it is not unique in that. Witness the curious way in which successive governments foolishly started to dispense with stamp duty, which is an extremely cheap tax to collect, very difficult to evade and, provided that it applies to the disposal of property rather than to its acquisition, can act as a rough and ready form of capital gains tax. Instead, the Government go in for more and more complex schemes—BES, extremely complicated capital gains calculations, and so on —all of which are extremely costly both to the public and to the Government.

A new tax should also be difficult to evade and here, again, the poll tax does not score well. The Government could, of course, get around this by calling the public's bluff—given that they are constantly annoyed that the community charge is termed the"poll tax" by the public and the press —and make it a true poll tax. In other words, they could say, "If you don't pay, you don't vote in local elections". Of course, the public could, in turn, call the Government's bluff by saying, "That's fine by me. I would rather keep the money" and they probably would, given that only 30 per cent. of the population vote in local elections in any case. That would leave local authorities even more short of funds than they already are as a result of the high incidence of non-payment at present.

How would the proposals set out by the noble Lord, Lord Hooson, measure up? I confess I have not studied the Layfield Report and, for that reason, I have only tenuously grasped his proposals. Provided that there were no personal allowances so that tax was levied on the first pound of income upwards, they would certainly meet the criterion of "no representation without taxation". They would also largely meet the requirement that nobody should be vastly better off or worse off than under the old rating system; the exception being those of the mega-rich who are wholly domiciled in this country. There would be an amazing collapse of house prices in certain London boroughs. I think that I heard the noble Lord, Lord Hooson, say there would be some upper limit to his tax but I do not know whether that applies to the percentage rates or to the individual.

In saying that a local income tax would be easy to collect I have to say that there would be certain snags, and I will come to those in a moment. In theory, it would also be difficult to evade but the reality is somewhat different. For example, there are a very substantial number of expensive house and flats, particularly in London, owned by wealthy people from overseas who spend only a few months a year in this country and who pay little, if any, United Kingdom income tax. Many of these people probably avoided registration for the poll tax, but all of them would have been liable, directly or indirectly, for rates —and quite rightly, because of course empty houses are much more likely to catch fire or to be burgled than occupied houses, notwithstanding that there is less refuse to be collected.

However, that is not the only snag. Unless the link between local income tax and the local authority is tenuous—and rather to my surprise the noble Lord said it would be, which would make a nonsense of the whole idea of local accountability—what about the fact that so many people, particularly those who work in London, live in quite a different local authority area from the one in which they are actually employed? What about people in the black economy who pay little or no tax? What about the self-employed, whose incomes are not known until well after the year end? Quite often in the case of farmers, artists, actors or salesmen working mainly on a commission basis, their assumed income for the year is based on the previous year's income but it could be very much lower for one year than anticipated because of a change in their fortunes, thus totally upsetting a local authority's revenue calculations. What would also upset local authority calculations would be the sudden financial collapse of the largest employer in the area, throwing thousands onto the dole. Again, that would lead to a massive shortfall.

No, following the Chancellor's ingenious shifting of much of the burden of local authority funding on to VATI find it hard to believe that poor people pay more VAT than those who are better off, given that so many items like food and children's clothing are exempt, but I suppose I have to take the noble Lord's word for it; however, I should be very interested to see his figures—one is driven to the conclusion that in the absence of any will to make the poll tax more progressive some form of property tax has to be the only answer. However, there are a number of essential provisos and safeguards of which I will list only three.

First, it should certainly not follow Mr. Nigel Lawson's scheme, which would involve no revaluation until a house or flat changed hands, apart from annual indexation in line with the RPI. This would most definitely suit me down to the ground. I bought my London house 31 years ago, when real house prices were at rock bottom. My neighbour, who bought an almost identical house two years ago at the height of the boom, would not be so pleased because his rates would be rather more than seven times mine. Secondly, the powers to cap—so unsuitable when every voter pays, or is meant to pay, the poll tax—must be retained and strengthened if there is to be a reversion to any form of property tax which is paid only by a minority of those on the electoral roll.

Finally, I have one other novel suggestion—I hope that the noble Lord, Lord McIntosh, is holding on to his seat—should a property tax be introduced. I do not propose that we go back to 1946, when only those who paid rates were able to vote in local elections, but suggest a rather fairer half-way house. Everybody on the electoral roll would be able to vote once in local elections, in their capacity as citizens. That minority which would actually pay rates would have an additional vote and so would be able to vote twice in recognition of the fact that they pay the piper. This is not so much the principle of "no representation without taxation" but rather the principle of slightly enhanced representation as a quid pro quo for being singled out for taxation.

7.6 p.m

Lord Holme of Cheltenham

My Lords, I join my noble friend Lord Hooson and the noble Lord, Lord Monson, in referring to the timeliness of this debate. It is an extraordinary piece of parliamentary serendipity that between the Scylla of the Chancellor's Budget yesterday and the Charybdis of the Statement tomorrow by the Secretary of State for the Environment this small river of common sense can flow through your Lordships' House. Many millions of words have been said and written about the poll tax and I propose to add a few more of my own in your Lordships' House this evening.

I believe that the poll tax is more than a failed policy: it is a very major failure of the whole system of government in this country. In fact, I think the poll tax is probably the biggest single administrative governmental blunder in peacetime in this century. Before framing that assertion I found myself studying the history of great mistakes in this century and I came up with the groundnuts scheme. Of course, the noble Baroness, Lady Blatch, will not remember that any more than I do directly, but I have read about it and seem to remember that it resulted in the resignation of a Minister, the then Colonial Secretary. All I can say is that the poll tax makes the groundnuts scheme look like peanuts.

I think that in any rational, accountable and open system of government there would be some sort of investigation of how this great blunder occurred, and those who were guilty of sins of omission or commission would be identified and would in some way or other be held responsible for what has happened. We have not even had that little word "sorry" from the Government. Perhaps the noble Baroness will remedy that omission this evening, or perhaps being in government means never having to say you are sorry! At all events, I hope that we can get some acknowledgement of the fact that a very great blunder has been made because that would be healthy for our whole system of government. I suspect that that will not happen; but if it does not I trust that at the coming election, when the Government face their final reckoning at the ballot box, they will find the words "poll tax" engraved on their hearts.

The worst aspect about this tragic blunder is that it still is not over: it goes on and on and on. Like the tar baby of the Uncle Remus stories the Government find themselves stickily attached to their own misdeeds; and yesterday's gimmicky Budget illustrates just how serious the situation is and shows that it is still unravelling.

I think we should be quite clear as to what the effect of Mr. Lamont's sleight of hand will be. Not only will local councils have to face yet another series of administrative dislocations and extra interest costs to cover the new borrowing that will now be needed to bridge the Government's credibility gap, and not only will the tax system have been abused for what seems to be a transparent electoral purpose, but the whole relationship between central and local government will have been changed for ever and, in our view on these Benches, changed for the worse.

Of course there is a long-standing case for the reform of the structure and functions of local government; and that review should have come first. There would then have been a case for reform of the system of financing local government; and that should have come second. Finally, as a result of these reforms there might well have been a case for tax changes; and that should have come last. A democracy that has succeeded in reversing that process, starting yesterday with a gimmick, which it then attempts to turn at very high speed into a principle, does not seem to me to be fully worthy of the name of a democracy. Are we not behaving exactly like the elective dictatorship to which the noble and learned Lord, Lord Hailsham, drew our attention 15 years ago. We have reached a situation of constitutional nonsense on stilts.

A great question of principle underlies this whole debate. It was very well put last week in a leading article in the Independent, which said: We have a choice between some form of local solution and some form of central solution".

If we genuinely want local government in Britain we should aim to raise and spend money locally using government subventions to equalise somewhat between prosperous and poor areas but otherwise respecting local autonomy, as my noble friend Lord Hooson said. In practice, despite the history of the post-war Conservative Party, the Government have decided that the gentleman in Whitehall knows best. We are witnessing an unprecedented centralisation of power in the hands of government in London.

Given the experience of the noble Baroness in local government, I wonder how it can be thought right to bring increasingly into Whitehall the functions of local government and the decisions that affect local people, and that we centralise what many of us hoped and believed would be a local democratic system. The solution to be put forward tomorrow to these problems, which has been foreshadowed by the Chancellor of the Exchequer, is that effectively local government will become a puppet play put on by Whitehall and Westminster. There will be shadow puppet plays in the localities but all the real decisions will be made in London.

As my noble friend said, a local income tax is not only fair, and by definition easy to collect, but it is genuinely local. I see that the noble Baroness disagrees. No doubt she will tell us why she does so when she replies. I am sure she will concede that income tax is rather easier to collect than the poll tax. There is a very much lower incidence of people not paying income tax than of people not paying the poll tax; particularly in Scotland, as we have painfully discovered in the past two or three years.

I want to try to respond to the point which, to put it positively, must have been in the Government's mind when they launched themselves on the slippery path of the poll tax. No doubt they were looking for local accountability. They were trying to strengthen the connection between locally elected councillors and their constituents. They were trying to achieve greater responsibility and accountability in the system. I believe that a local income tax, particularly if combined with proportional representation (which would eliminate some of the extremist minorities which have given local government such a bad name) would have provided precisely the accountability that is now so lacking.

My noble friend said that I would refer briefly to site value rating. Historically, that was the main policy of the former Liberal Party. We see some application for the site value principle in place of the uniform business rate. Businesses would be taxed locally according to the value of the site which they occupy. That is not perfect but I ask the noble Baroness to tell us what proposals the Government have for the reform of the uniform business rate which seems almost as unpopular in the business community as is the poll tax with the general public at large.

I make one or two final observations. We have all seen the process of the poll tax produced by a strong Prime Minister acting on an acquiescent Cabinet acting on a docile Conservative Party acting on an enfeebled House of Commons. It is a sequence that does no credit to our constitutional arrangements. If ever there was a time for careful deliberation to consider first the structure and functions of local government, then its financial needs and then how the money should be raised, that was it. If the Government were not to accept Layfield, as I think they should have done, the situation cried out for a Royal Commission.

It is a very exciting part of the new dispensation in Downing Street that Royal Commissions will now be allowed. Surely it is not too late for this country to use its institutional genius, which strangely seems to have atrophied in recent years, to appoint a Royal Commission to consider these matters in the right order and come up with the right conclusions. We should fear the possibility of another spatchcock solution produced at short notice for electoral reasons. The constitutional nature of what we are doing, which was referred to this afternoon in the debate on Government business, is such that measures are being pushed through that will together fundamentally affect the quality of local democracy and our democratic life in this country in a way which does not reflect deliberation or care and which does not bother to obtain a wide basis of support.

Unless constitutional change of the kind that we are undertaking has some wider basis of democratic support than the will of the leadership of one party, I do not believe that it will command public confidence.

7.16 p.m.

Lord McIntosh of Haringey

My Lords, I hope that noble Lords will forgive me if I view the debate with somewhat modified rapture. I do not agree that the timing is particularly good. We had an excellent debate instigated by the noble Lord, Lord Rippon of Hexham. If I am to hear attacks on the poll tax, I much prefer to hear them from the Conservative Benches. They are the more genuine for being the more profoundly concealed in recent years.

I do not believe that a serious political party ought to table a Motion for a debate of this kind and not put forward any speakers other than the proposer of the Motion and a Front Bench spokesman to reply. We ought to be jealous of the opportunity given by these limited Opposition debates and make sure that we bring forward matters for discussion which arouse rather more interest at least from the party which tables them than has here been the case. That is not to say that I have not enjoyed some of the speeches. I enjoyed the first 20 minutes of the speech of the noble Lord, Lord Hooson. However, this is not the way to deal with the serious matters which are before Parliament and the House this week. That is not to say that I believe for a moment that the way adopted by the Government is the right way to proceed.

We are experiencing an extraordinary week. On Monday a little Bill seeking to enshrine the principle that Marsham Street knows best about the details of local government expenditure was pushed through and completed its passage through this House. Within hours comes a leak—we are told from Marsham Street itself—indicating that despite all the talk earlier in the afternoon about capping the measure is for one year only and that there will be major changes in the whole basis on which local government finance, structure and everything are to be put before Parliament. It was the quick fix.

On Tuesday we had the quick quick fix. In other words, not only do the Government propose—we gather that it will take place tomorrow—after inadequate consideration and inadequate consultation, to make radical changes to the whole structure of local government, but they now propose, within a period of only a few days, to go back on what had been said about local authority expenditure in the coming financial year 1991-92 and, as was well said by the noble Lord, Lord Hooson, to transfer from a completely unjust tax to the next most unjust alternative available, the very unprogressive value added tax. We shall see what that means in legislative terms tomorrow.

If the leak means anything, we shall also have a clearer indication of what will happen in the following years if this country has the misfortune to continue to be governed by the Conservative Party. In the circumstances, the House will forgive me if I do not talk further about the wider issues raised by local government finance. It is not that I am unwilling to kick the poll tax when it is down. I do not think we should be in politics if we are not willing to kick our opponents when they are down. It is that I believe there will be better opportunities to do so. I am sure that parliamentary time will be afforded to enable us to do that.

Before I turn to local income tax in detail, I wish to say a word to the noble Lord, Lord Monson, about the proposal he made which he thought would shock me. If I understand him aright, he is proposing that in addition to the first vote given to all adults, a vote should be given to those who actually pay over the cash for the property tax which he recommends as an alternative to the poll tax. That would not reflect the way in which people have thought about property taxes. I speak now as an opinion pollster. We asked the very simple question immediately after the 1987 election, "Do you pay rates?" Seventy-five per cent. of the adult population answered yes. That means that other adults in the household who may not be handing over the cash themselves see themselves as contributing to the rates. It means in particular that council tenants who pay their rates as part of their rent, and not directly as rates, see themselves as paying rates. Those are the people who would be semi-disenfranchised by the proposal made by the noble Lord. They would have one vote, but it would be a lesser vote than that of others.

Lord Monson

My Lords, if one third of the people pay rates, then only that third would have the extra vote. I believe it is fair to say that the noble Lord was once the victim of the loony Left. Does he agree that students, for example, do not pay rates and do not consider themselves as paying rates? Students at universities and polytechnics have nothing whatever to lose, and possibly a great deal to gain, if they vote for loony Left candidates. That is the type of thing that I am trying to minimise.

Lord McIntosh of Haringey

My Lords, that was a very strange intervention. First, I rather resent continuous harping back to the loony Left. Secondly, the noble Lord is just plain wrong. When there were rates, students paid rates. They paid them because the halls of residence in which they lived were accountable for rates and therefore it affected the fees that they paid. If they lived in digs their landlords or landladies were paying rates and the rent that they paid to the landlords and landladies reflected the rates paid. Students paid rates the same as everyone else. Virtually all adults except those who were exempt because of rebates paid rates. To include only those who hand over the cheque or cash for this extra vote is irrational and in contravention of the facts about property taxes as we know them.

I turn to the Motion put down by the noble Lord, Lord Hooson. I note that he talks about "replacing the community charge with a local income tax". As I understand it, the Motion suggests local income tax as the only locally raised source of revenue. That is what "replacing" means. All other revenue would be raised centrally. I shall refer to other points that he raised later. They were very strange.

It would be futile to conceal that I have been a supporter of local income tax for many years. My view has been published on a number of occasions. I can hardly change my spots simply because my party took a different view afterwards. I am on record publicly as supporting it.

I have read the Layfield Report rather more carefully than the noble Lord, Lord Hooson, including the other parts of the argument in paragraph 142 which led the Layfield Committee to come down against local income tax rather than in favour of it, as the noble Lord implied. I was not impressed by the arguments against local income tax. I thought that the Inland Revenue was being reactionary. When it talked about the difficulties of collection I considered that it had not thought them through properly. When I compare the difficulties of collection of the poll tax with the estimate which Layfield made of a collection cost for local income tax of £ 100 million, I am even more convinced that Layfield was wrong to listen to the Inland Revenue's arguments.

I was particularly unimpressed by the argument which the Inland Revenue put, which the committee accepted, that one could not possibly have local income tax at district level because of the complexities of people moving from one area to another. Again those difficulties have been dwarfed by the difficulties that we have seen relating to the poll tax. I do not believe that the committee was right to be impressed by those arguments.

Reading again the Layfield Report, I am confirmed in the view I then took which was reflected in the note of reservation by Professor Alan Day. He argued, quite sensibly, that one ought to consider different categories of local authority expenditure, applying a sensible economic political and social judgment to them, and then decide what source of revenue was appropriate to each. He divided local authority expenditure into those areas which were the local administration of central services in which it is entirely appropriate that central government should apply minimum standards and give local authorities the power to top up the expenditure. He then considered as a separate category those services which depend largely on charges to users. He believed that we should consider those in a different way. Finally, he considered those categories which reflect a local view of the services which are necessary for a decent society in the neighbourhood. I paraphrase his words.

He set two criteria for the consideration of local income tax. First, what proportion of local services were the local administration of central services? The higher the proportion which falls into that category the poorer the argument for local income tax. Secondly, how much of grants or taxation power could be delegated to local authorities? The more power that can be delegated to them the greater the argument for local income tax.

On balance Professor Day came down in favour of local income tax because he believed that local autonomy required a greater delegation of powers of decision about the level of local services. However appropriate it might be for local authorities to administer locally central government policies, the degree of autonomy necessary for services required for a decent society was the consideration for determining the balance of local authority services and therefore for determining the financial system to back it up.

I believe that Alan Day was in that note the only person who fully anticipated yesterday's Budget. He said that there was a case for a smaller property tax and "additional VAT or corporation tax". If the bookies had read that passage more carefully, they would not have been quite so taken aback by the Chancellor's suggestion yesterday.

Having been a supporter of local income tax, I came to listen to the arguments put for it by the noble Lord, Lord Hooson. I was really taken aback because, unless I misunderstood, he talked of a uniform national level of local income tax with rebates as appropriate in different areas. That is a recipe for centralisation more extreme than any that I had ever thought possible from the Liberal Party. He then compounded the argument by saying that he agreed with central funding for the basic services of education, with the possibility of top-ups to meet local needs. That may be what the Secretary of State proposes tomorrow, although I sincerely hope not. It is certainly not local democracy as we in the Labour Party understand it. It hands straight to central government the most significant and necessarily local of local authority services.

Finally, the noble Lord spoke as though an upper limit should naturally be laid on local income tax by the Treasury. One of my fears about local income tax has always been that it would be much too easy for the Treasury to cap it. The Treasury could always argue to Cabinet that economic management required that there should be some almost theological limit on the proportion of gross domestic product which should be levied through the direct tax system. I have disagreed with that argument since it was expressed 15 years ago by the noble Lord, Lord Jenkins of Hillhead, then a member of the Labour Government, and I disagree with it now. The version of local income tax proposed by the noble Lord, Lord Hooson, invites such Treasury interference. Under the circumstances I have no hesitation in rejecting the version of local income tax proposed by the Liberal Democratic Party as being neither liberal nor democratic. It is certainly not in support nor in favour of local autonomy.

7.31 p.m.

The Parliamentary Under-Secretary of State, Department of the Environment (Baroness Blatch)

My Lords, while thanking the noble Lord, Lord Hooson, for providing the House with yet another opportunity to address the subject of local government I wish to share the comments of disappointment expressed by the noble Lord, Lord McIntosh. I am disappointed because the debate, short as it has been, could well have been subsumed by the debate initiated by my noble friend Lord Rippon of Hexham.

My disappointment was compounded by the contribution of the noble Lord, Lord Holme of Cheltenham. He did not speak to the Motion but spent his time criticising the Government in respect of the Budget yesterday and his own views on the community charge. That was a great disappointment.

However, our review is the most wide-ranging in scope that has ever taken place. Previous reviews have concentrated on either structure or finance but not the two together. The Motion before us today is concerned with only one aspect of the review. But the questions of what local authorities should do, how they should be organised and how they should be financed are interrelated in a number of different ways. The review is looking at all these issues together. An interim statement will be made shortly.

Although there have already been announcements about the community charge for 1991–92 it is important not to see the current review simply as a review of the community charge. Before yesterday's Budget we had already announced a number of changes for next year which were designed to provide help to a great many charge payers. The Government had already announced extra support of more than £4 billion for local government and for charge payers. The Chancellor of the Exchequer announced in his Budget speech yesterday that the Government are providing a further £4.3 billion of extra grant to local authorities in Great Britain in 1991–92 to permit a major reduction in community charges.

Accordingly, the Government will shortly be introducing a Bill which on enactment will mean that the community charges which authorities have set for 1991–92 will he replaced by new lower charges. Each new charge will be £140 lower than the one it replaced, or zero in those cases where the original charge was less than £140. The average charge in England will be £252 compared with £392 which local authorities have set. Charge payers in all authorities will pay less than this year.

The community charge reduction scheme will continue to help those who will still face large increases over their last rates bill. Although the total help that will need to be given through this scheme will he much reduced by the lower charges announced today I expect that, together with the effect of community charge and other benefits, it will mean that the average charge actually paid in England will be less than £170.

The Bill will also require grants to be paid to charging authorities in England and Wales and to local authorities in Scotland. It is our intention that the grants paid under these provisions should provide full compensation for the community charge income foregone and should also fully reimburse authorities for their reasonable additional administrative costs as a result of the reduction in charges. In England we intend to advance the distribution of the non-domestic rates pool to off-set the inevitable cash flow losses which authorities will incur as a result of this measure. Broadly similar funding arrangements are intended for Scotland and for Wales.

Our review of local government is based on a strong desire on the part of the Government to re-establish a more stable relationship between central and local government. That was spelt out in detail in the debate initiated by my noble friend Lord Rippon. We have been anxious to ensure that local government itself is closely involved in the process. We have held discussions with the leaders of the local authority associations and we have asked for their views on the wide range of issues relevant to the review. We have recently received their responses to our detailed set of questions and are considering them.

We have invited all political parties to contribute to our review to ensure the widest possible participation. This offer has been accepted by the Liberal Democratic Party, the Scottish National Party, Plaid Cymru and the Ulster Unionist Party. I believe that they each recognise that we have genuinely listened to and considered what they have to say. It is therefore a matter of real regret to the Government that the official Opposition has not responded positively to our invitation. Instead it has set a narrow precondition that we should have committed ourselves from the outset to the abolition of the community charge—

Lord McIntosh of Haringey

My Lords, on that basis it may be possible for us to agree to take part in the review after tomorrow.

Baroness Blatch

My Lords, I do not stand in the way of the noble Lord if he wishes to contribute to that debate. But, as I have said, the review is much wider than that. It is a great pity that the Opposition has denied itself the opportunity to participate in a debate which is of immense importance to all our citizens and which will shape the kind of local government that we have for the foreseeable future.

This intransigence shown by the Opposition has been repeated again and again. We hoped that it might reconsider its position or at least spell out for public scrutiny its proposals. Local representatives of the Labour Party have not been as reluctant to participate as has the parliamentary party. Labour leaders of councils have taken part in discussions with my ministerial colleagues and me. We have also had many constructive letters from the leaders and chief executives of Labour-controlled authorities. They have decided not to let slip a great opportunity to contribute to the debate. Why cannot their national counterparts do likewise?

No such doubt could enter your Lordships' mind as far as the advocates of a local income tax are concerned. The noble Lord, Lord Hooson, has put their case eloquently this afternoon. The Liberal Democrats have published detailed figures for the effect of their proposals in every local authority in the land. They have met the Secretary of State for the Environment to put to him and to discuss their objectives for local government.

Notwithstanding some differences of interpretation of the Liberal Democrats' figures the Government are grateful to them for setting out their case. It has helped the review considerably in its consideration of local government finance.

A number of previous inquiries and Green Papers have set out the considerations against which any local government tax should be measured. These include accountability, fairness, ease of collection and the relationship between local and national taxation.

The noble Lord, Lord Hooson, has put the arguments for a local income tax. He and his colleagues believe most passionately in the rightness of their proposals and, as I have said, I am grateful to him for spelling out those proposals clearly. Noble Lords will understand that it is difficult for me to take up these arguments without appearing to prejudge the outcome of this aspect of the Government's review. But I believe that there are some difficulties with a local income tax which your Lordships' House will want to weigh in the balance when considering this particular Motion.

I have to say that the picture which the noble Lord, Lord Hooson, presents is all too simple and attractive. But it ignores some very real difficulties of philosophy and practice which would attend a local income tax. I shall try to draw these to your Lordships' attention in as dispassionate a way as possible and without prejudice to the outcome of the review. The money raised by the community charge in 1991–92 would mean an average increase in income tax rates of 3 or 5 pence in the pound, depending upon whether it was decided to choose to maintain yesterday's budget changes, which was not made clear by the noble Lord, Lord Hooson, in the course of the debate. In some areas the income tax rates would be substantially higher than that and the Liberal Democrats would allow local authorities to spend what they liked without any fear of capping. Alternatively, as a result of what has been said today, would they support limits on local government spending? I believe from what has been said that a form of limitation is to be contemplated. If not, that would surely be a recipe for substantially higher tax rates in many areas. Your Lordships will wish to consider whether that reversal of direction may not place too large a burden of taxation directly on incomes. Rather interestingly, we have now heard about a shift of £17 billion—which is the cost of education—on to the national exchequer. That is an interesting new dimension to the application of local income tax.

A local income tax could well lead to problems of fiscal migration. This is the process by which people with the highest incomes would move to the area with the lowest tax rate. Those who paid no local income tax would have an incentive to move to the high tax, high spending areas and demand services at no cost to themselves. This would create a vicious spiral by which tax rates in some areas would go higher and higher as less people were left to pay the local income tax. It is a recipe for instability.

The Liberal Democrat proposals have within them a suggestion that part of the burden of high spending —and by that I assume high spending over the assumed spending of any Liberal Government—should fall on business ratepayers in an area. We have just ended the system by which local business could be taxed excessively by the local authorities in which they were situated. Business would not welcome a return to that position.

A local income tax would be a buoyant tax. The revenue raised by the tax would increase from year to year as incomes rose, without any need to change tax rates. We have to ask whether this situation would encourage accountability or whether it would simply reduce the restraints on local authority spending.

We also have to ask whether it is a suitable tax for local government. I have in mind that for administrative simplicity, income tax rates are only increased or reduced in half a penny or one penny steps. This would make it very difficult for local authorities to determine their spending plans. With a 5p tax rate, the smallest increases or decreases in tax revenue which could be considered would be 10 per cent. or 20 per cent. of their total revenue. That does not commend the tax as a local source of revenue nor seem to enhance accountability.

Another difficulty is one of predictability of yield. This could be a particularly difficult problem with fiscal migration, which I have already mentioned, but the tax yield, especially for small local authorities, could vary considerably with economic circumstances. Local government needs a steady and predictable source of income.

Your Lordships will also wish to consider whether a local income tax would in fact give a fair distribution of the bills for local authority services. Would it be right that a person with a taxable income of £50,000 would pay 10 times as much for local authority services as someone with a taxable income of £5,000? Should there be an unlimited degree of redistribution of the tax burden within a local authority area? Is a highly redistributive tax of this kind right for financing local government services or is it appropriate only for national taxation?

Several noble Lords have this afternoon criticised the community charge as being expensive and difficult to collect. I recognise that the advocates of local income tax have striven hard to design a collection system which is cheap and workable. But, your Lordships will want to consider whether the Liberal Democrats have not made unsustainable assumptions about the way in which the national income tax works or have suggested a solution which would remove the main virtues of the PAYE system which are that it greatly simplifies the tax affairs of most people and means that they have little or no direct contact with the Inland Revenue.

With the present national income tax system, the Inland Revenue does not need to maintain a detailed record of where every individual lives at every point in time. It needs a contact address but this need not necessarily be the taxpayer's main residence, the place at which he would presumably be liable to a local income tax. So the introduction of a local income tax collected by the Inland Revenue would mean that the Inland Revenue would in effect have to establish a national register of everyone's address.

Lord Holme of Cheltenham

My Lords, in their review have the Government studied the experience of other countries—notably, the United States—where, as the Minister will know, state income tax is collected without any of the apparent problems to which she refers? Has that been included in the review?

Baroness Blatch

My Lords, indeed the Government are studying the taxation systems of many other countries. However, we must start from where we are. We have a system of national taxation where the national taxation office does not have detailed information about every single taxpayer in the country. The PAYE system which operates here has little detailed information about individuals, particularly places of residence.

Lord McIntosh of Haringey

My Lords, there is nothing difficult about it. Every taxpayer has an address and postcode. All one needs to do is to punch in the postcode as well as the tax reference and map that information to local authority boundaries. There is no difficulty at all.

Baroness Blatch

My Lords, my understanding is that it is the national taxation office which will be interested in the amount of money taken from the individual. Global sums of money will then be given back to local authorities. I am talking about the Liberal Democrat system of local income tax and not that of the noble Lord, Lord McIntosh. However, if the noble Lord has a simpler system which will work, we shall he pleased to hear about it.

Most people who pay income tax do so through the PAYE system which ensures that on every pay-day the employer has deducted precisely the amount of income tax due. At the end of the year the taxpayer has paid precisely the right amount. This makes the tax affairs of most people simple. The Liberal Democrats suggest that this approach could be continued if the PAYE system charged in addition to national income tax, a local tax rate which was higher than the rate to which people were in fact liable.

In other words, most people would be expected to put up front, as the noble Lord, Lord McIntosh, pointed out, a sum of money which is not related to what is needed by a local authority but a global sum which is greater than that required by a local authority. At the end of the year taxpayers would claim a rebate from the Inland Revenue. That would prove to be a very complex system.

The local income tax rate would be set at a fixed rate nationally at the beginning of the tax year; for example, 7p in the pound. Employers would operate the PAYE system as normal deducting both national income tax and this notional single rate across the country for local income tax. The Inland Revenue would assign the proceeds of the local income tax to local government and pass that back to the areas in which the taxpayers live. Hence, the addresses would be needed.

At the end of each year taxpayers would be responsible for calculating their own local income tax liability and for making a tax return to the Inland Revenue which would issue refunds or demands, depending upon the situation, to individuals based on those returns. To encourage people to make returns the initial local income tax rate would be set at a level where perhaps 80 per cent. of people would receive a refund. Therefore, the initial levy would be higher than that required by local authorities.

It is also not clear how the Liberal Democrats propose to treat individuals with more than one home. We assume that people owning two homes must nominate one local authority as the place of residence and pay the tax rate for that authority. The authority containing the second home would receive no income. Perhaps I may take my own circumstances as an example. Who would compensate Southwark council for what is the equivalent of the standard charge if I chose to pay my local income tax to Cambridgeshire? Or are the Liberal Democrats suggesting that I pay a local income tax of approximately 5p, 6p or 7p in the pound to Cambridgeshire and also pay an additional 5p, 6p or 7p in the pound to Southwark? That particular issue has not yet been addressed.

The noble Lord, Lord Monson, asked an interesting question. He said that unless we had proper representation without taxation, that begged the question whether we were to stop income tax from every pound of earned income; in other words, disregarding personal allowances. That would require registration of all income earners irrespective of whether they fall inside the national taxation system; that is, anyone below the national income tax threshold. Again, that begs an enormous bureaucratic problem.

I promise the noble Lord, Lord Hooson, that I shall pass on his suggestions, including his very radical one.

The noble Lord, Lord McIntosh, suggested that what happened yesterday interfered with the local authority budget. What happened in the Budget yesterday makes no difference whatever to local authority budgets. I do not know whether that was a slip of the tongue. What it will seriously impact on is the cost of local authority services to charge payers.

Finally, noble Lords will want to consider the extent to which a tax deducted directly from the pay packet at the same rate wherever a person lived would aid accountability. The noble Lord, Lord McIntosh, has already queried that link of accountability, and I join with him in that. Apart from taking more tax than was necessary initially, I understand that the idea of an end year rebate is intended to help here. But would it present a clear relationship between spending levels and the amount of tax paid? Would the actual tax payment be sufficiently visible to taxpayers?

There has been considerable interest as to what stage the review has reached and what the outcome will be. Several noble Lords have referred to recent press speculation. I have already said that the review is considering the structure of local government, the functions that local authorities provide and the way in which local authorities should be financed. I am unable to say more in that regard at this time. However, the review is making good progress.

We have had an interesting but short debate about the Liberal Democrats' proposals for local government finance. I hope noble Lords will share my doubts that a local income tax is not the straightforward and simple solution to local government taxation which the Liberal Democrats seek to present. There are considerable objections to a local income tax of both a philosophical and practical nature.

7.52 p.m.

Lord Hooson

My Lords, I am grateful to the noble Baroness for the courtesy and detail of her reply, which I shall read with the same great interest with which I listened to it. She will not be surprised to learn that I disagree with many of her arguments. It is right to say that in the evidence given before the Layfield Committee, many of the objections raised by the noble Baroness were dealt with and carefully considered. Foreign experience did not bear out many of the matters to which she referred.

I defend the timing of this debate for this reason. It is obvious that when the Government are announcing matters that will have a real effect on the future raising of local government revenue, it is important for the public of the country as well as the Government to know that a local income tax is not only put forward in detail by the Liberal Democrats, but also has been considered in depth by the Layfield Committee.

Perhaps I may say to the noble Lord, Lord McIntosh, that he does not seem to have read the Layfield Report properly. The last paragraph of the proposals at page 300, paragraph 67, just before the reservation paper by Professor Alan Day, says, There is a strongly held view amongst us that the only way to sustain a vital local democracy is to enlarge the share of local taxation in total local revenue and thereby make councillors more directly accountable to local electorates for their expenditure and taxation decisions. On balance, we consider that the administrative cost involved in introducing a local income tax for this purpose would be justified. After many decades of uncertainty in the realm of local government finance the time has come for a choice on the issue of responsibility".

That concluded the report and it certainly came down in favour of a local income tax.

I totally accept the argument of the Layfield Committee that there should be a limit to the amount of the rate of local income tax. That is obvious. Otherwise, a local authority can set up in competition with the national government on such matters as redistribution of income. If there is not a limit the local authority can usurp the position of the national government. Though we are firm believers in local autonomy and local authority independence, we do not believe that the local authority—for example, Lambeth—should be under a local income tax and able to challenge national authority.

It has been an interesting debate. I was interested to know that there were various differences between what we may call the "McIntosh version" of local income tax and that of the Liberal Democrat. Not having investigated the matter in detail, I have followed what is sensible to follow; that is, a two-year investigation by Layfield.

Baroness Blatch

My Lords, I am grateful to the noble Lord for giving way. It was remiss of me not to refer to the specific question asked by the noble Lord, Lord Hooson, regarding the cost of collecting the community charge. The cost of collecting the community charge is approximately twice that of collecting the rates. It is our assumption that it will cost about the same to collect local income tax.

Lord Hooson

My Lords, I am grateful for that information. Can the noble Baroness put her finger on the details?

Baroness Blatch: My Lords, not at this moment.

Lord Hooson

My Lords, I am obliged. I am grateful to all those who took part in the debate, which has been a helpful contribution to the wider debate on raising revenue for local government. I beg leave to withdraw the Motion standing in my name on the Order Paper.

Motion for papers, by leave, withdrawn.