Westminster Hall Sitting of 9 April 2003

Preamble
[MR. JOE BENTON in the Chair]

Council Tax
Motion made, and Question proposed, That the sitting be now adjourned.—[Jim Fitzpatrick.]
9.30 am
Mr. Patrick McLoughlin: I am grateful for the opportunity to debate council tax and pleased that so many of my colleagues are here to support me. A crisis is building: all our constituents face massively increased council taxes.
In view of the number of people present, at least on the Conservative Benches, I shall limit my remarks so that others may participate. I am delighted to see the hon. Member for High Peak (Mr. Levitt) in his place, because we share a district council. A number of his constituents live in the Derbyshire Dales district council area, which I shall mention later.
The nominations for the council in Derbyshire Dales closed last week. Of the 39 seats, 13 are not contested by any party other than the Conservative party. The hon. Gentleman could not find a single Labour candidate to stand in any seat in the part of the district that he represents. When nominations closed, there were 39 Conservative, 19 Liberal and 12 Labour candidates—a fairly dismal performance by the Labour party, perhaps owing to the fact that few Labour candidates could possibly defend the way in which the Government have treated Derbyshire Dales. We have been treated especially shoddily, and I shall explain why—or perhaps the Minister can explain why; I shall show how.
The average increase in council tax in 2003–04 is 12.9 per cent.—four times the rate of inflation—and average bills will be £908 compared with £804 for 200–03. Many people in band D will for the first time face a council tax bill of more than £1,000 a year—the highest that there has ever been. For six years in a row, council tax has risen by three times the rate of inflation. Since 1997, average council tax bills have increased by more than 60 per cent., by an average of £413 for the typical household. That is just one of the 53 tax increases that we have experienced during the lifetime of the Labour Government—all of them brought in covertly, so that the Government can argue that they have not increased taxation. They are fooling nobody. Everybody knows that the large increases in council tax are not the responsibility of the local councils; the Government are directly responsible for them.
During the period of the 60 per cent. increase, inflation has increased by 16 per cent. No wonder many of us receive letters like the one that I received today from a constituent who writes:
"I know you are only too aware of the increases we have seen in recent years in Derbyshire County Council's council tax bills. I have sent letters to various Councillors and politicians in the past but to no avail. How can they justify such increases? We are informed that inflation is running at below 3 per cent., but each year we are seeing increases in double digits. We purchased our
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cottage in 1975 for a relatively small amount but yet now we face an annual council tax bill of £2,000! We are on very low incomes and have to be very careful with our budget. It seems to me that the Labour Government simply throws money at problems without looking how existing funds can be used more effectively and efficiently."
That letter speaks for many people who are thinking about the council tax bill that comes through their letter box and that they have to pay.
The Minister for Local Government and the Regions said that
"there is no reason why councils cannot continue to improve services while sticking to reasonable council tax increases."—[Official Report, 5 December 2002; Vol. 395, c. 1068.]
The Government claim to be increasing the central grant for local councils, but that increase is overshadowed by the orders from Whitehall to increase spending on schools and social services. As Sandy Bruce-Lockhart, the leader of Kent county council, said:
"Only council tax rises can fill the gap".
One reason for council tax increasing is shortfalls in education funding. I have received many complaints from schools: despite what the Government say about putting extra money into education, that money is not filtering through to schools. They are short of money, so how can the Government keep arguing that they are massively increasing spending in schools?
Bob Spink: Is my hon. Friend aware that although the Government have given schools funding for staff costs increases of about 3 per cent., the actual increase in staff costs is nearer 6 or 7 per cent., taking into account national insurance, pensions, pay spine compression and other factors? Should not the Government come clean and be honest with our constituents about how they are denying schools funds?
Mr. McLoughlin: The Government have tried to get away with that, but what has happened and what is happening in council tax is now being exposed. I am grateful to my hon. Friend for making that point.
There have also been huge rises in police bills. We knew what the new funding formula was for. It was to punish thrifty councils that had tried to keep council tax low and to move money to Labour heartlands, which is exactly what the Government have done. The new funding formula is said to be easier to understand. I look forward to the Minister's explanation of it, because not many people believe that it is easy to understand. Admittedly, the former system was not particularly easy to understand, but we had become accustomed to it. The new system has brought the Deputy Prime Minister's understanding of the English language to the council tax funding formula and the way in which it is being imposed.
Mr. Edward Davey: I have a great deal of sympathy with the hon. Gentleman's remarks about what the Government have done to the grants system. Did Conservative Governments ever use the grants system to favour individual councils? [Interruption.]
Mr. McLoughlin: My right hon. Friend the Member for Skipton and Ripon (Mr. Curry), formerly the Minister of State responsible for such matters, says yes.

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In some inner-London Labour councils we saw that problems needed to be addressed through the funding system. It would be difficult to do that through a local income tax system, which the Liberal Democrats propose, although their party headquarters has told them not to talk about that too much.
I am glad that the Liberal spokesman intervened, because I must admit that his party has brought a new open vision to local government. That was demonstrated by the Liberals on Derby city council, who said openly that they were opposed to what the council was doing with council tax—they thought that the tax was too high and too great a burden on council tax payers in Derby. How did the Liberals vote in respect of the council tax-making power? They said that they were against it, so one might have hoped that their vote would follow their voice. Unfortunately, however, they abstained. [Laughter.]
Sir Paul Beresford: Surrey has had a similar problem with the Liberals. They delivered a local "Focus" pamphlet and a Surrey-wide leaflet throughout my constituency. The "Focus" said that the council tax increase was down to the Tories, and the Surrey-wide leaflet said that it was down to Labour. That is typical of the Liberals—they were trying to hit at both sides at the same time.
Mr. McLoughlin: I am grateful to my hon. Friend. We must expose the Liberals' doubletalk on these issues. We shall do that in Derby. We believed what they said; it was not too much to ask them to follow through with their vote.
Mr. Roger Gale: Does my hon. Friend agree that the Liberal party is at least consistent in its endeavours to have it both ways at once? Canterbury city council in Kent asked its chief executive to write to Members of Parliament complaining about the shortfall in Government funding for local authorities, while the leader of the council, Councillor Alex Perkins, is trying to blame the Conservatives for the increase in council tax in Kent.
Mr. McLoughlin: As my hon. Friend says, that is typical. We should not spend too much time on the Liberals, because they are irrelevant to the issue of local government funding. I want to consider other matters.
There has been a huge increase in the burden on council tax payers. In London, there has been a 29 per cent. rise in the Mayor's levy. One of the first things that the Labour Government did on taking office was raid the pension funds of £5 billion a year. Industry and the public sector are paying for that.
People on fixed incomes are especially hard hit by council tax. A third of the increase in the basic state pension since 1997 has been taken back by higher council tax alone. Conservative councils have, on the whole, attempted to keep the burden of council tax lower than other councils. They charge £81 less on band D homes than Labour councils and £99 less than Liberal Democrat councils, which helps young families. The independent Audit Commission stated that Labour
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councils have dirtier streets, less recycling and higher truancy rates in schools. By contrast, local residents are more satisfied with the public services in Conservative-run councils. As I said, in my local council, 13 seats are unopposed by either of the two other parties and 13 councillors have already been appointed without election.
There can be no doubt whatever that there has been a shift of resources to Labour heartlands. I have been listening to the council tax debate for many years and I have noticed that in the past few months the Government have concentrated on Wandsworth council, which has imposed a huge increase—
Mr. David Watts: Massive.
Mr. McLoughlin: As the hon. Gentleman says, it is a massive increase. Wandsworth council tax band D will rise by £181 this year.
Mr. Watts: The hon. Gentleman talks about increases in council tax. Will he say what Wandsworth's council tax will rise to? I think he will find that it will still be lower than the national average.
Mr. McLoughlin: I am grateful to the hon. Gentleman—I was about to make that point. Wandsworth council's tax increase is 45 per cent., which translates into an increase of £181. However, in Islington council tax will rise by 21 per cent., an increase of £182. The hon. Gentleman is absolutely right: in 2003–04, Wandsworth's council tax will be £584 whereas Islington's council tax will be £1,049.
Mr. David Curry: That includes the levy.
Mr. McLoughlin: My right hon. Friend reminds me that that includes Red Ken's levy—the Livingstone levy.
I am conscious of the time, so I shall cut several of the points that I intended to make. However, I want to ask the Minister to explain how Derbyshire Dales district council's budget increase was determined. In the past month, there has been a great deal in the news about target-bombing, precision targeting and accuracy. I must say—although it gives me no pleasure to do so—that that is exactly what we in Derbyshire Dales feel has happened to us. Amber Valley borough council's budget was increased by £696,000, Bolsover's by £492,000,Chesterfield's by £635,000, Erewash's by £648,000 and High Peak's by £565,000. North East Derbyshire district council's budget increased by £528,000; and South Derbyshire's by £472,000. However, the Derbyshire Dales district council's budget was increased by £52,000 a year, £19,000 of which goes to the Peak park.
The Parliamentary Under-Secretary of State, Office of the Deputy Prime Minister (Mr. Christopher Leslie): I am terribly sorry to disabuse the hon. Gentleman, but Derbyshire Dales' increase was not £52,000. He merely repeated that figure from a previous debate in January. The figure excludes the transfer, with which local government associations are happy, of housing benefit

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and council tax administration that has been added to the £52,000 that went to Derbyshire Dales. The hon. Gentleman has given the wrong figure.
Mr. McLoughlin: The Minister is right: I did use that figure a few weeks ago. The Minister for Social Exclusion and Deputy Minister for Women, who answered that debate, made exactly the same point that the Under-Secretary has just made. However, the increase that he mentioned has gone to every other council in Derbyshire as well. Therefore the figure that 1 gave was the one that the Government announced in November. Those figures, which apply to all Derbyshire councils, were provided to me by the chief executive of the Library of the House of Commons, but they also appear in Government answers to parliamentary questions. I could find the relevant papers if I had the time.
Why will the people of Matlock get an increase of £1.91 while the people of Chesterfield get extra Government funding of £8.71? Why will the people of Tansley get an increase of £1.91 while the people of Leigh in Amber Valley get an increase of £7.50? Why will the people of Bakewell get an increase of £1.91 while the people of Buxton get an increase of £7.88? Why will the people of Tideswell, which is in the High Peak constituency, get an increase of £1.91 while the people of Buxton get an increase, as I have just said, of £7.88?
People who live in the same area are treated very differently by the Government. The argument advanced for the new funding formula was that it would be clearer and more transparent. It is not, and the problem is of the Government's making. The council tax increases that we are seeing are not acceptable. They are the fault of one Government Department—the Office of the Deputy Prime Minister.
9.48 am
Mr. David Drew: I am delighted to take part in the debate. If nothing else, the lectures on council tax give some relief from lectures on Iraq and hunting. I am sympathetic to some of the case advanced by the hon. Member for West Derbyshire (Mr. McLoughlin), but I do not draw the same conclusions. There is an argument for making council tax subject to ability to pay according to one's income. Nevertheless, the previous Government were right to look at replacing the dreaded poll tax with a property-based tax. For all its faults, the rates system had some merit, and if we could make the council tax more transparent perhaps we could gain greater support for it.
We should be looking for a relationship between the expenditure of local government and the way in which local government funds that expenditure. We should try to make it as transparent as possible and introduce an element of ability to pay. That involves property.
Sir Paul Beresford: The Minister of State with responsibility for these matters said that he was looking for transparency or simplicity and fairness in council tax, but that he latterly accepted that if it is transparent
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and simple it is not fair and that if it is fair it is not transparent. How did he manage to muck up both, because it is neither transparent nor fair?
Mr. Drew: If the hon. Gentleman lets me advance my argument, I shall try to explain how we got into difficulties and what we need to do.
I do not believe that there is a better alternative to council tax for raising revenue locally. The Liberal Democrats will get on their hobby horse and talk about local income tax, but that would lead to as many problems as it would solve; likewise with the American system and the sales taxes that some European states have considered introducing.
Let us examine the nature and aims of council tax. My criticism is that it establishes too inflexible a relationship between the way in which we raise funding and spend the money. The ratio of the fixed relationship between band H and band A causes a problem in many parts of the country. It is wrong to cap at the top end and it is certainly wrong to have a limit on properties that have never been equivalent to band A. I have always campaigned to obtain a new band for park homes, but there may be other, lower priced property. The difficulty with council tax is that it is based on gearing and whatever a council receives in central Government grant is disproportionate in terms of what it must then raise from council tax.
My hon. Friend the Member for Regent's Park and Kensington, North (Ms Buck) received a fascinating parliamentary answer a few days ago when she asked for a breakdown showing how gross council tax income related to the overall level of council expenditure. Surprisingly in these days when we believe that central Government grant dominates the amount that is spent by local authorities, South Oxfordshire district council raises 74.3 per cent. of its income from council tax. That is at one extreme and at the other is the City of London—I know that it is an anomaly—which raises only 2.2 per cent. of its income from council tax. Hackney borough council raises 9.6 per cent. from council tax and, just to put it on the record, Stroud district council is in fourth place, receiving 58.2 per cent. of its income from council tax.
One reason why people are being turned off by local democracy is that they see no relationship between what they spend and what they receive in services. The fundamental principle that has caused things to go wrong—it is largely the fault of the previous Government—has been the use of central Government grant to bail us out of a series of problems. In many parts of the country, that has had a wholly disproportionate effect because, if councils want to spend more, the gearing effect is at least three to one and so much more money must be raised in council tax.
Mr. Gale: Will the hon. Gentleman explain why a 3.5 per cent. rise in Government grant in Kent is described as an increase, when the increase in costs imposed on Kent by settlements from central Government is more than 6 per cent.?
Mr. Drew: I am just about to answer that point, so I am glad that the hon. Gentleman led me on to it. There is a ratchet effect because too much money is raised

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through the central Exchequer. I accept that if we were to raise more locally, there would have to be a reduction in the amount that we raise in tax in other ways or there would be the usual double whammy effect. The hon. Gentleman put his finger on the problem. One of my criticisms about councils is the way in which they use base budgeting. I have always said that and did so when I was a councillor in a previous incarnation. Councils spend in the current year what they spent in the previous year with a little added on for inflation and additional responsibilities.
Councils are working at the front end of the Government's priorities—in education, policing and social services—so inevitably expectations of performance impose pressure on them to spend more resources. However, they are also doing other things. I am glad to see the right hon. Member for Skipton and Ripon (Mr. Curry) in Committee discussing the waste issue, as he is Chairman of the Select Committee on Environment, Food and Rural Affairs. The issue has come home to roost. Waste management is likely to be a very high expenditure area and, whether we like it or not, will fall to the responsibility of the local authority and then to the individual householder. If ways are found to charge people other than through council tax, it will be much more expensive, especially for those who live alone.
I am all in favour of giving older people a proper, sensible supplement, but we would still be encouraging people to live alone, and there is much evidence that waste management and other services are disproportionately more expensive for single households. Yet we still give the single person's discount. We need to examine carefully the ways in which councils not only raise but spend their money. There is a need for greater transparency and we need to ensure that councils are careful with those funds. We should also move away from the notion of cost plus, baseline budgeting, which simply ratchets up each year what councils are raising. We saw how they had to make up the additions this year by raising council tax.
I hope that the review will be a fundamental one, because there is a danger that we shall consider changing the grant formula but fail to examine the relationship between central and local government or question how we want to allocate and fund services. I hope that the Minister will consider root and branch change and that we shall return to a better ratio between what is raised locally and what is raised through the Exchequer. It will then be clear to people how they are getting value for money through their councils. At the moment, that is totally unclear. I make my usual complaint that the situation is made much worse where there are at least two tiers of government—three in rural areas—as it is difficult to break down who does what. That simply causes confusion among the electorate.
My constituency, Stroud, has done relatively well this year and has kept its council tax increase down. However, that has been blown away by the county and, in particular, the police authority. I could spend all the time available to me on that argument, but I will not. However, I will just say that the police authority has been underfunded, and I have some sympathy with it. It
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has supposedly been asked to catch up with authorities that are comparable to it, which is where obfuscation arises and where it is difficult to make comparisons.
I make a plea that we consider the reality of what is being provided on the ground, rather than the spin surrounding what an average property costs in one council area compared with another.
Several hon. Members rose
Mr. Joe Benton (in the Chair): Order. Before I call the next speaker, it might be appropriate to mention that several hon. Members have indicated that they want to speak. It would obviously be most satisfactory if we can accommodate everyone and allow adequate time for the Opposition spokesman and for the Minister's reply. I therefore appeal to hon. Members to keep their contributions as brief as possible.
9.58 am
Mr. David Curry: This is the first year of a new system of local government finance. The mountain laboured for several years; the Labour Opposition promised that they would change the system, but the Labour Government found it to be much harder than they had thought and, at the end of the day, the labouring mountain has delivered a mouse of a new system.
The Government were anxious that there should be no absolute losers, so the first thing that we should do is admit that the aggregate amount of money available for the settlement is relatively generous. However, there are always relative losers and relative winners. We have already had floors and ceilings, or toppings or tailings, to enable some redistribution within the control totals, but there has been some complaint about that. The main impact of the new system is not simply the dragging of funds towards northern metropolitan authorities, although that has been a consequence, but a much more general redistribution. In London, for example, funds have been dragged away from some of the outer-London boroughs.
There has been a general change in the way in which funding is distributed. Looking at the tables that the Library helpfully produced, one sees that Merseyside is an obvious winner, although the increase is very modest in Merseyside. South Yorkshire is a winner and quite a number of the metropolitan authorities are clearly winners, but there are also widely distributed losers, as well—we are not talking purely about the larger northern metropolitan authorities. That is a preliminary point that must be made.
I have been considering what has been happening in the shires, because I represent a constituency in North Yorkshire, while it still exists—we will have to wait and see how the regional assemblies legislation progresses to know whether it will continue to do so. We have posted an 11.5 per cent. increase in council tax. I leave aside a large increase in the police grant, because that is a separate issue and I am trying to be fair to the Government. I want to arrive at my conclusion about their culpability by a rational process rather than by prejudice. We will see at the end of my speech whether I reach the same conclusion as my hon. Friend the Member for West Derbyshire (Mr. McLoughlin).

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The easiest way to consider local government funding is to say that, in effect, there are three chunks of funding for a local authority. The first chunk corresponds to what the Government describe as a reasonable increase in council tax, which in North Yorkshire's case is about 5 to 6 per cent. That corresponds to inflation, national insurance contributions, teachers' pay and pensions—it is worth noting that in inner London the teachers' pay increase is 4.6 per cent., which is significantly higher than in the rest of the country—the standards fund, about which there is a debate because that is being folded into the general totals, and the demands on social services.
The Government say, "We've given you the money for those things. That's where it should end—there is no reason for any increase in council tax beyond 5 to 6 per cent. Anything above that is unreasonable." I know from my ministerial experience that the word "unreasonable" is wonderfully useful to Governments. They could not do without the words "appropriate" and "reasonable". The whole Government would collapse if those two adjectives were not available for use by Ministers.
Unfortunately, we then come to the second chunk, in relation to which we have that wonderful new invention, resource equalisation. The Government have increased the spending power of local authorities on the assumption that the council tax covers that because local authorities have been spending above what was the standard spending assessment. However, that is a false assumption because local authorities do not have the council tax cover for that increase in expenditure. However, the Government have not provided a grant for it. That is why we have that second chunk of increase in council tax, which in North Yorkshire amounts to something like 5 per cent. The new formula spending share, which replaces the SSA, falls short in that respect. We in North Yorkshire estimate that the shortfall is some £10 million. That must be found from council tax, otherwise a severe pruning of services becomes necessary.
The third chunk is the small chunk that relates to discretionary expenditure in response to local demands. In my constituency, for example, for years and years the highways authority has been the Cinderella and has spent below the SSA in order to meet the Government's demands to push passported money through into education, and to meet increasing demands on social services. Every Member of Parliament knows that the social services sector is under more pressure as more elderly people become dependent on care. If somebody goes into care as a self-funder and then is no longer able to pay, there is no Government support in respect of that person. That is a major liability. There are also increasing and entirely justified concerns about vulnerable young people: after a series of spectacular cases, every local authority in the country is desperately anxious to ensure that it has in place thorough safeguards in relation to looking after young people, so that it does not get a Victoria Climbié case or the equivalent in its area. That is a natural reaction.
Discretionary expenditure responds to local demand in relation to youth services, social services and highways. In North Yorkshire, discretionary expenditure adds another 2 per cent. to the total increase, taking it up to 11.5 per cent. Will the
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Government tell me why and how such an increase is unreasonable? If they dispute the figure, what figures do they believe are correct?
Things will be worse in future. I am wearing my sheep tie in the expectation of being fleeced, as today we have the Budget, which will no doubt indicate that, for reasons with which we are all familiar, the next public expenditure rounds will be much more difficult than the current one. The Minister might not have the amount of money that he has had in the past to put into the local government settlement.
On top of that is the promise in the Local Government Bill of the division and revaluation of council tax bands. Everyone expects that band A will be subdivided, because in many cities—for example, east Lancashire towns such as Blackburn, Burnley, Rossendale and Hyndburn—the value of many properties is nowhere near £60,000. One can buy a house for half that in those towns and in others such as Newcastle and Salford. If council tax bills are cut to correspond to a minus-A band, there will be a significant revenue shortfall for local authorities, particularly those in which properties are concentrated in the bands at the bottom of the pyramid that represents the hierarchy of bands. If those authorities do not have properties at the top end to compensate, resource equalisation will become even more important in the local authority formula.
Authorities such as that of my hon. Friend the Member for West Derbyshire and mine will be hit even harder by the dragging away of funds. The settlement has been extremely unfair to my local authority. The unfairness has been made even worse by the absurd huffing and puffing of the Government about unreasonable demands. The authority has had its hands tied behind its back.
It is terribly inconvenient that the Audit Commission has just given an A for excellence to almost all the local authorities that the Government most hate. Let us take the wonderful case of Wandsworth, which the Minister loves passionately. I thought that I might make some inquiries about that excellent authority. It is, of course, matched by Westminster, which is also an A authority. Wandsworth decreased its council tax last year because it realised a significant number of assets in pursuit of Government policy; for example, in the rationalisation of schools and the disposal of the related assets. The Government have been pressing local authorities to realise the best price for assets—that is a Treasury rule. The council was able to reduce its reserves and hand money back to the taxpayer. As a Conservative, I think that that is always an extremely good plan.
Mr. Leslie: The right hon. Gentleman makes an interesting case. He said that he would be rational rather than prejudicial. From his assessment of Wandsworth, does he think that the fact that there is no election this year might have something to do with the council tax rate?
Mr. Curry: No, I do not. As my hon. Friend the Member for West Derbyshire said, Wandsworth can hold up its head, as it is still charging one of the lowest council taxes in London, despite the increases. We

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should consider why the increases have been necessary. A former leader of Wandsworth council is in the Chamber. I am doing his work for him.
Sir Paul Beresford: Is my right hon. Friend aware of the Government's rather mixed feelings about Wandsworth? The Minister's colleagues are busy telling Wandsworth to cuts its council tax increase at the same time that Education Ministers are telling it to increase taxes to put more money in schools.
Mr. Curry: The Government make a great thing of getting rid of ring-fenced grants. They have finally accepted that far too much money is ring-fenced, that it should be put back into the kitty and that local authorities should be given more responsibility. However, no one passed that message to the Department for Education and Skills, so while the Office of the Deputy Prime Minister says one thing, the Department for Education and Skills, in its usual Stalinist style, tells local authorities that they have to pass the money straight through, even local authorities in which total spending on education was more than the grant. The Government are actually taking money from other functions such as social services and insisting that it be directed to the education service.
This year, the Government grant to Wandsworth was increased by 3.5 per cent. However, the teachers' pay increase in inner London was 4.6 per cent. and there will be associated pension increases for teachers and local authority workers, as well as the 1 per cent. increase in national insurance contributions. The council has prudently made provision against a shortfall of some £70 million in the interim valuation of its pension funds—prudence dictates that more and more local authorities will have to do that in future.
Finally, there is the great Livingstone levy—£50 out of £181 going straight to Ken. That levy has gone up by 82 per cent. in three years. Do not blame me—I did not give levy powers to the Mayor of London. We all knew what would happen, so there is no point in complaining. It has happened entirely as forecast.
I wish I lived in Wandsworth. I live in Lambeth, which is a great pain. It is convenient, but, by gosh, it is financially punishing. I wish I lived in Much street, which is divided between Lambeth and Wandsworth, because I could live on the Wandsworth side and think how fortunate I am and how much I am saving.
I promised the Minister that I would come to a rational conclusion. All Governments need to modify and amend the local government formula. It is entirely true that efforts to make a formula fairer make it more complicated. Groups of local authorities used to come to see Ministers. Ministers do not meet local authority delegations any more, but in the old days they used to come in delegations. Representatives of local authorities such as those of the Webber-Craig group in south Yorkshire and Lancashire used to argue a case based on certain social indicators. Sometimes Ministers said that the case made sense, but that the situation might be that little bit more complicated.
The Government say that by creating a new system they have achieved simplicity and fairness, but that is manifestly not the case. They have to defend a system
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that has their finger and thumbprints all over it, in which the winners and losers are perfectly clear. The sensible thing for Government to do is just shut up and stop making idiotic threats. They should sit in the hole and not dig, but not get out of it because they might get hit by the flak. The sensible thing for the Minister to do is to tell the Deputy Prime Minister to stop talking about unreasonable increases or nasty things that he might do in future years. He must realise that he cannot win on this matter—he does not deserve to win, but, for heaven's sake, do not let him lose even more badly than he is already doing.
10.11 am
Matthew Green: I congratulate the hon. Member for West Derbyshire (Mr. McLoughlin) on securing the debate. It was very brave, perhaps foolhardy, for him to do so because we should not forget that council tax is, after all, a Conservative tax. I was going to be even harsher on the Conservatives until the right hon. Member for Skipton and Ripon (Mr. Curry) gave a superb exposition of the changes to the formula. It is a shame that some of his colleagues on the Front Bench do not follow his example.
If we consider council tax, we can see some fundamental problems with it. The first is that it is one of the few taxes that has no natural buoyancy. Each year, the revenues coming in do not increase with the growth of the economy. Revenues from most other taxes, such as income tax, national insurance and even VAT, will increase as the economy grows. The Government receive more money and can meet inflationary costs as a result of that increase. Revenues from council tax will always be the same as last year, unless one makes an increase and passes it on to the electorate.
Every year, council tax will have to be raised to meet inflationary costs. There will be variations throughout the country. Some councils will set a zero increase one year, and others will set huge increases, but the reality is that council tax must be raised in line with inflation to cover inflationary costs, without all the extra burdens that the right hon. Member for Skipton and Ripon so eloquently described.
Council tax is a completely unfair tax; it is not based on ability to pay. If we take the example of a pensioner on a modest income of £150 a week, that person will have a family income of about £7,500 a year, but will probably pay at least £1,000 a year in council tax. That is a huge slice of their income. MPs pay a proportionately much smaller part of their income in council tax. The reality is that those who defend council tax are effectively saying that pensioners should pay more as a proportion of their income than MPs should—that pensioners should bear the burden, not us.
The other problem with council tax is that the variation between the top and lowest band is a ratio of 3:1. Those living in the very smallest properties—a single person living in a tiny flat, for example—will pay three times as much as people living in the largest properties. The largest properties may have many rooms, and many people may live in them—a large family, or many different families. That in itself is an iniquity, and as a small step we should see an increased number of bands to deal with it, but that is tinkering with the problem.

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The right hon. Member for Skipton and Ripon was correct about the effects of resource equalisation. The Government have, with their change this year, effectively assumed that every council throughout the country will set the same rate of council tax. We realise that there will be variations, but if the formula works its way through over a number of years, virtually every council in the country will set the same rate of council tax. The annual banter between the parties about who has the highest rate for the average band D property, among other things, will disappear because everyone will be setting broadly the same rate of council tax. The effect of resource equalisation will be that to all intents and purposes we shall have a national council tax rate.
One problem with the existing system is that everyone quotes band D; the rate at which that is set depends on the type of property in an area. If there are many low-value properties—those in band A and B—as there are in many northern areas, band D would need to be set at a high rate, because the amount of money coming from the low-value properties would need to be geared up. If, however, the council was in London or the south-east—perhaps Westminster or Wandsworth—where property values are high and there are many high band properties, a relatively low band could be set because there would be a higher rate of tax from which to get the income. In fact, despite all the argument about Westminster and Wandsworth setting low council tax, if one considers the average council tax per household, those councils have just about the highest rate in the country. That is the effect of the high-value properties. Neither Labour nor the Conservatives would like us to talk about such figures, because they do not suit their reasoning.
Every year a huge set of spurious statistics is bounced around by the other two parties and the reality is that neither party addresses the fundamental problem, which is that the tax itself must go; it needs to be scrapped. The tax must be replaced with one based on the ability to pay—yes, we favour a local income tax. The Conservatives, especially, jump up and down and say, "Well, that is completely ridiculous. It would not work and it would be really expensive." However, that system is used in America and most of Europe and it is not that difficult; in fact, it is quite simple. I understand that Treasury computers even have spare fields left to take into account the one piece of information that they would need—where someone lives—and deal with local income tax. The Treasury has been prepared for it for years. We must move on to a tax based on the ability to pay and there is probably more than one way of doing so.
As we go into the next set of local elections—or any local elections, or the general election—the clear message on council tax is not, "We shall vote for this lot of councillors or that lot." Whoever people elect to be councillors in the local elections, those will make only a tiny difference to the council tax. Fundamentally, the overall rises are largely dictated by what happens in central Government, whichever party is in power. When people go to the ballot box they should be deciding whether they want council tax to be kept.
The Government do not seem to have made up their mind, although they are undertaking a review, so I will give them the benefit of the doubt at the moment. However, let us hope that they decide to change the tax
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to something based on the ability to pay. Let us give them the benefit of the doubt while they are thinking about that. Nevertheless, let us be clear that every time that someone goes to the ballot box and votes for the Conservatives, they are voting to keep council tax and to keep year-on-year above-inflation increases. Every time that people vote Liberal Democrat, however, they are voting to scrap council tax and replace it with one based on the ability to pay.
10.18 am
Mr. David Watts: I am grateful to be able to take part in this important debate. I congratulate the Government on introducing a fairer system that increases resources to local authorities and gives them a secure future. The funding system should lead to no cuts in public service, reasonable tax increases and a stable funding base for local government.
I am pleased to see so many members of the Pol Pot party here—those who believe that the world started in 1997 and want to forget the events that brought us to the election of the Labour Government. I should like to take them back to some of the problems that we faced and the reasons why we needed change. Many of my hon. Friends, and certainly a lot of Labour councillors in the north-west, are fed up to the back teeth of hearing whingeing Tories and Tory councils.
One accusation made against the present Government is that they have fiddled the system. May I take hon. Members back to 1989, when a fiddle took place under the Tory Government? My own local authority lost £10 million that year. Millions of pounds were transferred from Labour to Tory authorities in one year in what must have been the biggest fiddle of local government funding. Not prepared to deal with the fact that they had caused the closure of the coal mining industry in my constituency and created mass unemployment, the Tory Government savaged council taxes by transferring resources away from areas such as St. Helens. The poorest councils had the poorest grants and the highest council tax. There was a real need for change.
We have heard about Wandsworth and Westminster. I used to say that if my local authority in St. Helens had received the same grant per head as Westminster, there would have been no council tax at all, there would have been no cuts in public services and every constituent could have been sent to Spain for a holiday. That gives Members some indication of the scale of the fiddle that went on to achieve the aims of the last Tory Government, one of which was to demonstrate that Tory councils were far more efficient than Labour councils.
Sir Paul Beresford: Does the hon. Gentleman accept that Tony Travers and Rita Hale are two so-called independent experts?
Mr. Watts: No.
Sir Paul Beresford: Well, most people do, including the Government and Select Committees who have taken advice from them. During the last Tory Government, both of them said independently that the means of distribution using verifiable needs indices was the fairest

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method possible. They have been significantly silent this time round, except that Rita Hale helped the Select Committee with their condemnatory report on this procedure.
Mr. Watts: One can find consultants who will say anything. The best way of describing a consultant is someone who borrows a person's watch to tell them the time. To be frank, I would not take too much notice of any individual pieces of research conducted by a consultant.
The system is not perfect. As my hon. Friend the Minister knows, I am opposed to floors and ceilings, as they ensure that local authorities such as mine, which have been desperately looking forward to a change in the system, are prevented from receiving resources to which they are entitled. It is a fact that Westminster will continue to receive £30 million more than it should under the new system—the figure for Wandsworth is something like £17 million. Those two local authorities have since 1989, been receiving millions of pounds of public money to which they are not entitled, and the Labour Government have built in a system that will maintain that indefinitely.
I do not believe that everything in the garden is rosy. I ask the Government, once again, to consider changing the floors and ceilings system as quickly as possible. The present system means that Westminster, Wandsworth and similar councils are still managing to maintain very good services at a low cost to the taxpayer. At the same time, areas such as St. Helens are facing undue levels of council tax, while the council is not able to provide the sorts of services that people need.
Turning to individual grants, we have all made cases for our own individual constituencies, but I remind Members that my local authority, even with the change, receives £85 per head less than the national average, despite the fact that it covers an objective 1 and single regeneration budget area and that we still have high levels of unemployment and poverty. That cannot be right. The sooner the floors and ceilings are changed to move resources to areas such as St. Helens, the better.
Tory councils have been whingeing regularly for the past few months, but I have always thought that such councils were featherbedded by the 1989 system, and that they are inefficient, ineffective and wasteful. I would like massive changes to make them more accountable to their local taxpayers. The present system introduced and advocated by the Government does not mean that high council tax increases or cuts in public service are inevitable. Local authorities will have to deal with problems in the same way as my local authority has done for many years. They should ensure that they are as efficient as mine is.
The second point on which I take issue with my Government is that of the grading of local authorities. We have heard from Opposition Members about the performance of Westminster and Wandsworth councils and that the Government have classified them as grade I local authorities, and I take that on board. However, if councils are receiving £30 million or £17 million more than they should, it is no wonder that they provide grade 1 services. I suspect that if resources
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were removed from those local authorities, they would not do as well as they have done in the past. Although my local authority was given a very good grade, it would probably achieve grade I status if it received the same level of funding as Westminster or Wandsworth receive, or if it received the funding available after the floors and ceilings were removed.
Mr. Curry: Given that one of the local authorities that received the largest amount of money in the country is Hackney and that whenever we categorise local authorities we always have to create a special category at the bottom labelled "Hackney", does the hon. Gentleman believe that his correlation between service and money is holds true in all circumstances?
Mr. Watts: I do not believe that it is true in all circumstances. There are examples of poor Labour local authorities, but Hackney has some severe problems that most local authorities do not have to face. There are underlying reasons why Hackney has particular problems, and I would not like resources to be moved away from areas in which there are proven high levels of deprivation.
The 1989 system that was introduced by some of the architects on the Conservative Benches meant that the poorest local authorities with the biggest problems had massive resources taken away from them and given to some of the richest local authorities. I ask right hon. and hon. Members to think about the fact that if they examine the average council tax in most areas, they will find that the highest council taxes are still being levied in the poorest areas. Far from the new system being unfair to councils such as the ones represented by Conservative Members, there is still some way to go before we deal with the deprivation in our areas.
I congratulate the Government, who have devised a system that means that there should be no cuts or massive increases in rates. If there are, they will be the responsibility of the Tory councils and not the Labour Government.
Several hon. Members rose ߞ
Mr. Joe Benton (in the Chair): Order. For order's sake, I shall call one more speaker and then move on to the winding-up speeches.
10.28 am
Mr. Keith Simpson: I congratulate my hon. Friend the Member for West Derbyshire (Mr. McLoughlin) on initiating this debate. I also congratulate the hon. Member for St. Helens, North (Mr. Watts). I pass to the hon. Gentleman our praise—which the Whips should notice—for calling many councils whingers. That will go down incredibly well and all of the Labour councillors seeking re-election in my area will be very grateful to the hon. Gentleman, who has a great career ahead of him.
I will make only two points, because my right hon. and hon. Friends have already laid out the Conservatives' concerns. First, the Government cannot escape the fact that many councils have lost out under the new formula, which is seen by voters of whatever political party in the shire counties as being

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demonstrably unfair. They recognise that, which is a major political problem for the Government. Norfolk, my own county council, has demonstrably lost out.
My second point has already been mentioned. The public have finally recognised the enormous loading of costs on councils and many parts of the public sector. My hon. Friend the Member for West Derbyshire referred to what has happened in education. The Secretary of State for Education and Skills came a cropper in Norfolk about that when he gave an interview in the Eastern Daily Press in which he said that schools had received new money. He was blasted away by hundreds of teachers, parents and governors who said that there had been extra money, but that all the extra costs for schools meant that they were seriously negatively affected. The right hon. Gentleman had to do a massive U-turn.
A similar problem will happen in the May elections because of the consequences for Norfolk and other areas that have had money taken away in an unfair council settlement combined with what the voter now recognises as extra costs. I shall explain briefly what that will mean for Norfolk county council, although I am sure that many hon. Members representing other local authority areas face similar problems. National insurance will cost the council, as an employer, an extra £2.8 million, landfill tax will cost £400,000, and preserved rights relating to social services will cost an extra £400,000. Fridge storage will cost £570,000, to compensate for the Government's underfunding; abandoned cars will cost £300,000, and aggregate tax £350,000. Fairer charging relating to social services will cost £1.3 million for both phases 1 and 2.
The position is unfair, even for those councils that have received extra money. The Government have loaded costs on to them, but I disagree with my hon. Friend the Member for West Derbyshire: I do not believe that that is the fault of the Minister and his Department. The Minister has little ability to do anything. The real power in the Government is the Chancellor of the Exchequer: with his Napoleonic, almost Stalinist, ability to control everything in Whitehall and at national and local levels, the blame stops with him. In two hours, the Budget will be announced. This morning, the BBC described the Budget as a being like a cup of espresso coffee, "dark and very bitter". The bitterness will be played out in the May elections, when voters will rebel against the council tax, underfunding and the national insurance. Despite wasting all that money, the Government have failed to deliver.
10.32 am
Mr. Edward Davey: This is an important debate. The reason why council tax levels are becoming such a hot political issue is not that we are facing local elections in May. In fact, council tax levels in previous years have not been such a big issue. However, they are now beginning to bite. The unfair design of the council tax as a tax is becoming even more apparent. That was obvious to many of us before, but now that it is reaching such a level, that unfairness is becoming apparent to council tax payers.
The council tax was designed as an unfair tax. It replaced the most unfair tax imaginable. When the Conservative Government replaced the poll tax, they
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thought of the next most unfair tax imaginable, and that was the council tax. There is not a tax anywhere in the world that is more unfair than the council tax, other than the poll tax, which no country now has. VAT, national insurance and income tax are far more progressive.
The fundamental problem will not go away this year; each year from now on, people will feel the pain of the council tax because of its unfairness. I shall give some statistics to show its inequity. The poorest 20 per cent. in our society pay more than three times as much in council tax as a proportion of their income than the richest 20 per cent. of people do. No other tax has that profile: it is an incredibly unfair tax. Even though most people pay far more in VAT, excise duty, national insurance and income tax, there are not as many complaints about them as there are about council tax because those taxes are largely progressive. Even VAT is progressive: the more you spend the more you pay, and the richest spend more so they pay more. The inbuilt unfairness of the council tax is what makes the debate important, and the debate will continue until this flawed tax is abolished.
I want to outline how this year's problems evolved. These are record rises in council tax—12.9 per cent. on average, which is appalling. Pain is really being felt out there. The Government's figures assumed a council tax rise of 6 per cent. However, councils are spending 2 per cent. more than the Government assumed in the formula spending share that they would. There are several reasons for that: salaries are increasing at an above-inflation rate, national insurance and council insurance premiums are higher, and there are greater pressures on social care. Those are the main service pressures that have led councils to spend, on average, 2 per cent. more than the Government assumed that they would.
If the council tax rise is assumed at 6 per cent. and spending is 2 per cent. more than was assumed, how do we end up at 12.9 per cent.? As has been said, there is a gearing effect of just over 3 to 1, so a 2 per cent. rise above the assumed figure for spending produces a 7 per cent. increase in council tax. There you have it: very simply, that is why there is a 13 per cent. increase in council tax.
Given that analysis, are the council or the Government to blame? The answer is very clear. The blame lies with the Government; there is no doubt about that. It arithmetically follows from the cost pressures that they put on local authorities and the grant levels that they set. I should be interested to learn from the Minister whether studies have been conducted in the Office of the Deputy Prime Minister, but only one conclusion can be drawn from whatever studies are conducted, and that is that the Government are to blame.
The Government have made things even worse. Sometimes, councils can try to manage things with a bit of wriggle room and flexibility. However, because of passporting—which is, effectively, a form of ring-fencing—and because of ring-fencing on top of that, the Government have prevented the councils from having any wriggle room, so they have had to go along with the cost pressures on spending. When one talks to council officers and councillors, it becomes clear that things have been even worse than that: because of the controls

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that are now in place—the reserve powers to set minimum reserves—many councils are ensuring that their reserves are built up, so they are no longer trying to reduce the council tax by raiding the reserves in particularly bad years. That is another reason why there has been a lack of flexibility and wriggle room.
Another reason is the comprehensive performance assessments. Through those, the Audit Commission has made it clear that it is looking at the performance of council services, and a premium is put on performance rather than the tax base. Because of that regulatory pressure, councillors have said, "We must ensure that the Audit Commission deems us to be performing well. so we must put money into front-line services, even if that means higher taxes." All these pressures, which are coming from Whitehall, are the reasons why we have ended up with such a high tax this year. It is central Government's fault.
Central Government have set up a balance of funding review, and we welcome that. It has a wide remit. Suggestions have been made of possible ways to reform council tax, such as the addition of bands at both ends of the scale. However, those proposals do not grasp the nettle, which is the council tax. Because that is so unfair, one will never be able to shift the balance of funding from central to local government or to get away from the appalling gearing effect. Only if local authorities have a fair tax to levy will it be possible to shift the balance of funding down to the local level. That is why local income tax is so significant.
Mr. Mark Francois: I have a point to make about fairness. For many years the Liberal Democrats have run Chelmsford borough council, part of which comes under the aegis of my constituency. My constituents in South Woodham Ferrers pay the second highest precept in the borough. They pay a great deal of money to Chelmsford, which is largely spent in Chelmsford, so my constituents hardly get anything back from the council that the Liberals run. What is fair about that?
Mr. Davey: It is interesting that the hon. Gentleman talks about fairness, as it was his Government who introduced the tax. Previous Conservative speakers in the debate have claimed that Liberal Democrats are trying to have it both ways by blaming the Government on one hand and the local Tory council on the other. Here we have a Conservative doing the same thing. First he blamed the Government for the council tax rise; now he is trying to blame the Liberal Democrat council in Chelmsford. The fact that Conservatives make such claims shows up their hypocrisy.
Mr. Francois: What is the answer to my question?
Mr. Joe Benton (in the Chair): Order. The hon. Gentleman should lower his tone, direct his remarks through the Chair, or use the normal form of intervention.
Mr. Davey: Thank you, Mr. Benton. It is clear that in the May elections, a vote for either the Tory or the Labour party will be a vote to keep the council tax—the
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most unfair tax in Britain's tax system. One can understand why the Tories are in favour of it; they introduced it, so it would look odd if they wanted to get rid of it. What is very odd is that the Labour Government have kept this Tory tax. That is astonishing. One would have thought that Labour Back Benchers, who see how it hits those on the lowest incomes, would campaign to get rid of this iniquitous, unfair tax. I make this prediction: over the next two or three years, many more Labour MPs will face up to the problem and will call for their Government to abolish this appalling tax.
10.41 am
Mr. Eric Pickles: I congratulate my hon. Friend the Member for West Derbyshire (Mr. McLoughlin) on initiating a debate on an issue that affects so many of our constituents. The concern among Conservatives is demonstrated by the number of our right hon. and hon. Friends who are present. It is clear that the large increases have also caused great disenchantment among Labour councillors: the Labour party can fight barely 65 per cent of the local council vacancies, compared with nearly 84 per cent. fought by the Tory party. The Liberal Democrats account for a pitiful 65 per cent.—1 per cent. fewer candidates than last time.
The hon. Member for St. Helens, North (Mr. Watts) did the Chamber a service in demonstrating the difference between Wandsworth and Islington. Wandsworth is a well-run authority that kept council tax down for several years until the Government's fiddled figures forced it, against its better judgment and its natural inclination, to increase its council tax, which remains lower than that almost anywhere else in London or, for that matter, the rest of the country.
Mr. Watts: Does the hon. Gentleman share my surprise that Wandsworth and Westminster have to charge any council tax, given the size of their grants?
Mr. Pickles: I thought that the hon. Gentleman's argument was that the Tories had stuck it to him, so he was now going to stick it to the Tories. I used to represent a very deprived area: every time Wandsworth received additional money, so did we, because our areas suffered similar amounts of deprivation. Distributing funds on the basis of hatred and class warfare is not sensible.
My right hon. Friend the Member for Skipton and Ripon (Mr. Curry), in a marvellous explanation of the way in which the grant operates, demonstrated the significant shift from the countryside to the town. He exposed how fiddled the figures are and made clear a point that does not seem to have been grasped by most people: this is merely the first wave of increases. They will be higher next year and even higher the year after. Record increases will continue. My hon. Friend the Member for Mid-Norfolk (Mr. Simpson) spoke most persuasively about the burdens placed on his county council.
Mr. Davey: Will the hon. Gentleman give way?
Mr. Pickles: I am just about to mention the hon. Gentleman, so I suspect that he will want to say one or two things after that. I think that his speech deserves the most attention.

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The Liberal Democrats are going to produce an elaborate system to save £100 in council tax. That was in a briefing document published as a commendable example of open government after his party's conference. We know exactly what Liberal Democrat spin doctors said that the party's representatives should do if they were pressed on local income tax. I have to say that that was in sharp contrast to the Iraqi Information Minister. They advised caution, saying: "Don't be drawn too much". But we have records, and we know that the party's current Treasury spokesman said on Valentine's day 1990 that he thought that the rate of local income tax should be somewhere between 4 and 8 per cent. Since then, local authority spending has gone up considerably.
Mr. Davey: Will the hon. Gentleman give way?
Mr. Pickles: The hon. Gentleman should be patient—I have a lot more to say.
What started as an extra 1p on income tax now looks closer to 12p on income tax. Local Liberal Democrats do not have to climb a mountain to achieve that; they have to build a mountain of red tape. I am here to help the hon. Gentleman—
Mr. McLoughlin: No.
Mr. Pickles: I am. There is an easier way to achieve that £100 cut: simply vote Conservative. On band D, the Liberal Democrats are £99 more expensive than the Conservatives. The hon. Member for Ludlow (Matthew Green) said that band D is not typical and that we should compare like with like, but by and large, the Liberal Democrats control councils very similar to those that Tories control, so the comparison is actually rather good. For band D, Labour charges £81 extra despite the fiddled figures. It seems to be something of a home goal to build one's entire campaign around reducing council tax to Conservative levels.
The hon. Member for Kingston and Surbiton (Mr. Davey) has spoken before about his support for local government. I have to say that, at a time when local government is looking for support from the Liberal Democrats, they have let local government down very badly. In the words of Lord Greaves, a Liberal Democrat peer, they have been "blackmailed, bullied and browbeaten" by the Government. Lord Greaves, a man whom many in this Chamber know and respect—he has a distinguished record in local government—has stood down from the Liberal Democrat Front Bench and is very critical of the wisdom of the party's judgment.
I hope that the hon. Member for Kingston and Surbiton will use this early opportunity to apologise to local government for what Lord Greaves calls naivety and lack of judgment. Lord Greaves said:
"Liberal Democrats will believe that they have been let down by their parliamentary representatives"—[Official Report, House of Lords, 7 April 2003; Vol. 647, c. 21.]
I give the hon. Gentleman the opportunity to apologise to the Chamber.
Mr. Davey: The deal to which the hon. Gentleman refers is something of which we are incredibly proud and
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local government is celebrating. The document from which he read gives a figure of 3 per cent. for local income tax, which completely belies all the other nonsense he spouted. The Liberal Democrats have set out our policies on local income tax, and we are more than happy to talk about them—they are not hidden from anyone. In the interests of open debate, will the hon. Gentleman tell us what his party's policy on council tax is?
Mr. Pickles: I was going to say that I am grateful to the hon. Gentleman for giving way to me, but I realise that I have the Floor.
The hon. Gentleman has uttered not a word of apology. He has lost the very thing that was probably most responsible for the success of Liberal Democrats in the House and he just dismisses that loss. I have to say that Lord Greaves knows more about income tax and local income tax than the hon. Gentleman, who is a member of a party that charges more, delivers less and promises everything.
There is no doubt that this is a lousy settlement. The hon. Member for Stroud (Mr. Drew) mentioned technical issues of gearing, claw-back and ratcheting, but we are really talking about robbery. The Government have broken the consensus on local authority funding.
Sir Paul Beresford: Not everyone agrees. I understand that when the Labour leader of Bury borough council was setting the council tax, he thanked those in the south who are paying for him to set a lower level.
Mr. Pickles: I am grateful for that information. We have been searching the country to find a Labour politician who would thank the Government openly; most of them are shame-faced. I am grateful to my hon. Friend for finding that person.
The Government have punished their enemies and rewarded their friends. We know from the independent Audit Commission exactly what the position is. We know that excellent authorities are losing money and lousy, badly run authorities are receiving additional money. The people who will be hit hardest are pensioners. as hon. Members on both sides of the Chamber have said. What the Government have given with one hand through increases in the basic state pension they have taken away through their stealth tax on increased council tax. Our constituency surgeries are taken up with worried pensioners who just want the Government to understand, but the Government will not listen.
I shall let one example speak for the many. A report in the Western Morning News on 4 April stated:
"West country pensioners protesting over council tax increases have been given yet another snub by"—
Labour—
"ministers. For almost a year they have been requesting a meeting to discuss their concerns—but to no avail. Now Devon County Council has also received a letter saying that Parliamentary Under Secretary Christopher Leslie will not meet the council's chief executive to discuss the matter.
No other alternative was offered. Albert Venison, chairman of the Pensioners' Action Forum, was not surprised. 'We have been trying to get a meeting since last year … They just don't want to know.'

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Mr Venison was furious when a letter from the office of Nick Raynsford, asked him to stop sending the pressure group's monthly newsletter."
A pensioner took the trouble to let the Government know what is happening, but they thought that that was a bit of an inconvenience—they did not want to know. If the Government find the truth inconvenient, they ignore it. The council tax increases cannot be ignored and I look forward to the Under-Secretary justifying the disgraceful increases to pensioners.
10.52 am
The Parliamentary Under-Secretary of State, Office of the Deputy Prime Minister (Mr. Christopher Leslie): I am grateful for the opportunity to make a short contribution to this debate and I congratulate the hon. Member for West Derbyshire (Mr. McLoughlin) on securing it. It has been almost like peering into a Tory spring conference. Perhaps it is his role as deputy Chief Whip on the Conservative Benches that has brought a great number of people to the debate, although consistency of argument may have been sacrificed for that. There will be another opportunity on Friday to debate council tax—although it concerns East Sussex—should any hon. Member want to listen to it.
I pay tribute to my hon. Friend the Member for High Peak (Mr. Levitt) who, as a Parliamentary Private Secretary, is prevented by the normal courtesies from taking part in the debate but who made his representations about the circumstances in Derbyshire as forcefully as any other hon. Member in that area.
Some obvious matters should be stated because they were neglected by Conservative Members. Decisions on local council tax are made by locally elected councillors. That is the purpose of local democracy and why people vote in local elections. At the end of the day, the buck stops with locally elected representatives, and people throughout the country should recognise that those councillors set the council tax and must be held accountable for that.
Mr. Curry: If that is the case, will the Government renounce now—permanently—any intention to cap this year, next year or the year after that?
Mr. Leslie: Certainly, unlike the previous Administration, of which the right hon. Gentleman was a part, which operated a crude and universal capping system and under which democracy was thrown asunder by a capping policy, we reserve the right to protect the public from excessive circumstances and are studying the current figures closely. However, we do not feel that we should override democratic arrangements unless there are strong reasons to do so.
Before talking about other matters, I want to deal with the specific circumstance of Derbyshire Dales district council, which was raised by the hon. Member for West Derbyshire. The hon. Gentleman did not talk very much about the county council settlement. The county council represents by far the largest proportion of the overall council tax bill. Derbyshire county council had a very generous settlement—a 7.8 per cent. Increase
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in the Government grant—and the hon. Gentleman's comments about the district council need to take that into account.
There are many explanations for the budget increases. Derbyshire Dales district council has taken a conscious decision to increase its own budget by 9.5 per cent. compared with the previous financial year. Even though I hear the hon. Gentleman's claims about extra pressures, which I think are rather dubious, it was that council's decision to make the 9.5 per cent. increase. For good or bad, those councillors must explain to their electorate why they have increased their budget by 9.5 per cent. That increase will be passed on to the council tax.
If one examines the census figures in relation to the new formula, one will see that there have been significant population changes in Derbyshire Dales. There has been a 2.9 per cent. reduction in the recorded population, which obviously has an impact given that the formula reflects population indices as well. That may well also account for some of the changes in the funding formula. If one takes into account some of those factors, the floor that we have been able to protect for Derbyshire Dales district council by giving it an above-inflation increase shows that the Government have made the right decision in this case. I appreciate that the hon. Member for West Derbyshire will have a different opinion about that.
It is important to note that the grant increases throughout the country have been extremely significant. Increases have been very great—totalling an extra £3.8 billion for this financial year. Since the Government came to power in 1997, there has been a 25 per cent. increase in the injection of investment in real terms. Every single council is getting more and, for the first time ever this year, receiving an above-inflation increase.
Mr. McLoughlin: Will the Minister give way?
Mr. Leslie: In the three minutes that I have left, I really must refer to the comments of other hon. Members.
My hon. Friend the Member for Stroud (Mr. Drew) discussed the nature and the fairness of council tax. He mentioned that the Government have announced that we have started a balance of funding review examining issues relating to gearing, local accountability for revenue generation and spending. There are no easy options on the issue, but a central-local balance is something that the Government have recognised in that review.
My hon. Friend the Member for St. Helens, North (Mr. Watts) welcomed the changes in the formula. I am glad that he saw them as an extra measure of fairness. St. Helens council will receive 8.2 per cent. extra funding. My hon. Friend questioned the use of floors and ceilings. Many hon. Members feel that there is a necessity for protection in that case, but we have not decided levels for future years, and I shall take his representations into account.
The hon. Members for Ludlow (Matthew Green) and for Kingston and Surbiton (Mr. Davey) attacked the council tax and posited the idea of a local income tax. To those hon. Members who argued that there should not

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be any resource equalisation—putting to one side the fact that the balance of funding review will consider all such issues—I say that in lower-income areas the effect of a local income tax would be lower revenue for those councils. How would one deal with that? Would one make cuts in deprived areas, or would even greater resource equalisation have to take place? The hon. Member for Kingston and Surbiton said that there was not enough funding. I feel that the 5.9 per cent. increase in funding is extremely generous.
It is clear from the comments of other hon. Members that they may not have seen that Conservative councils cost most and Labour councils cost least. The average council tax for 2003–04 is more than £1,000 for Conservative-controlled councils and £818 for Labour-controlled councils. Conservative councils have introduced the biggest average increase—16.2 per cent.—in council tax from this financial year.
The issue is extremely serious. The public will judge Opposition Members and their parties at the coming elections. Unquestionably, the Government have been extremely generous in terms of the investment going into local government and I commend the figures.

Organic Beef Farming
11 am
Mr. Anthony Steen: Thank you for ensuring that this matter is debated, Mr. Benton. Even though it is Budget day, it is obviously a matter that will concern many people in the country and certainly in my constituency. It is always a pleasure to see that the Minister for the Environment is present, because that means that we shall have a high-quality debate, albeit a short one, and I know that I shall get a considered, careful and sensible response.
Organic food has become synonymous with sustaining good health, better-tasting food and food free from harmful pesticides. An increasing number of consumers believe, therefore, that buying organic will reap them personal health dividends. Astonishingly, 70 per cent. of organic food sold in our shops and supermarkets originates from outside the United Kingdom, where the Demeter label, which signifies organic, is not recognised and where the Soil Association's tough requirements cannot be enforced. As a result, how do we know that organic crops grown in the third world and south American countries have never been sprayed with chemicals or that their animals have not been fed with additives? We do not. That is why organic food produced by British farmers is extremely significant. We have the Soil Association and the Demeter label, which ensure the highest standards and that the source and quality of the food that we choose to buy and eat is clearly stated.
I am most fortunate to have in my constituency of 'Totnes a number of splendid organic enterprises. As the Minister probably knows, Cranks restaurant was founded in Totnes. There is the famous Riverford farm, which pioneered organic food several decades ago, and Tor Dean farm is another outlet. A great deal of organic food is grown on the land and we have the wonderful sight of a number of pure South Devon cattle grazing on the luscious grass on the Sharpham estate on the banks of the River Dart, surrounded by spectacular countryside. The herd of 80 organic South Devon cattle has a pedigree stretching back nearly a century. It has been totally free of any disease, whether it be BSE or foot and mouth. In fact, no foot and mouth cases were identified in my constituency, which was miraculously spared that devastating disease. The herd is in prime condition and is the pride and joy of Mr. and Mrs. Richard Smith, who own it. The cattle have been reared in an idyllic environment, which in the past has resulted in the most spectacular meat, for which there is considerable demand both locally and nationally.
Since April 2002, however, the Smiths have been faced with an insurmountable problem, which is why I brought this matter to the House. There is no abattoir within a 150-mile radius of their farm in Totnes that is able to slaughter their cattle under the beef assurance scheme—a Government-funded scheme. As a result, the animals have to be sent for incineration; they are condemned to be burned because of new rules and regulations introduced last April. Those rules compel abattoirs to slaughter beef assurance scheme cattle separately, which creates a logistical problem for most abattoirs because they are forced to stop the line to process them. That requires the abattoirs to have

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separate storage space, as well as everything else. In effect, two parallel lines or abattoirs are needed for there to be sufficient space for the separation.
Before the new regulation, the Smiths had no problem at all. Langs' abattoir in Ashburton, a long-established and well regarded slaughterhouse in my constituency, was happy to take the organic cattle, but now it does not have the refrigeration space necessary to accommodate them if tests are to be carried out.
In answer to a parliamentary question that I tabled on 13 January about the position in the west country, the Minister for Rural Affairs and Urban Quality of Life stated:
"Regarding the unavailability of abattoirs to slaughter under the Beef Assurance Scheme, all licensed abattoirs are permitted to slaughter Beef Assurance Scheme over thirty month cattle, provided they are willing to facilitate their testing for BSE. On receipt of a negative test result, the carcase must be sent to a licensed cutting plant that is separately licensed to remove the vertebral column and dorsal root ganglia before the meat is released for human consumption. All licensed cutting plants are free to apply to the Food Standards Agency for an additional licence to remove vertebral column. It is a simple process, no fee is charged, and all have been encouraged to apply."
Significantly, the right hon. Gentleman continued:
"None have done so in the south west peninsula."—[Official Report, 13 January 2003; Vol. 397, c. 370W.]
EC regulation 999/2001 lays down rules for the prevention, control and eradication of certain "specified risk materials". Annex V of the regulation specifically includes within the definition of specified risk material
"the vertebral column, including dorsal ganglia, of bovine animals aged over 30 months."
Paragraph 3 of the annex states that specified material
"must be stained with a dye and, as appropriate, marked with a marker immediately on removal, and completely destroyed".
The regulations are part of EU-wide food regulations.
The Minister drew my attention to R.M. Gearing, a cutting plant in Newton Abbot Is the Minister saying that Langs' can slaughter Mr. Smith's organic cattle without separate lines and refrigeration, and that, immediately after they are killed, they can he taken to R. M. Gearing for finishing? Langs' understands that it cannot do that. Its space is confined and, more important, it does not have the money to set up two parallel lines or to provide separate refrigeration. No Government grants are available, so there is no way that Langs' can do that. What is Langs' supposed to do?
To compound all those difficulties, the Smiths are obliged to pay the Government more than £300 a year to be eligible for the beef assurance scheme, which is absolutely essential to those who breed organic cattle. To satisfy the beef assurance scheme criteria, the Smiths had to prove that they had a specialist beef herd with no dairy cattle for the past seven years—they have proven that; that their herd had been established for at least four years, unless it comprised of animals from other beef assurance scheme herds—it has been established for nearly 100 years, not four; that their herd had had no confirmed cases of BSE—no BSE or anything else for 100 years; that no feed containing mammalian meat or bonemeal had been fed to their animals during the past seven years—they have proven that; and that during the
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past four years no concentrates had been fed to their animals unless from a mill that had not used mammalian meat or bonemeal, or unless home mixed with no mammalian meat and bonemeal—they have proven that. The Smiths passed all the tests with flying colours.
The beef assurance scheme is principally designed for organic farmers because it allows cattle aged over 30 months and under 42 months to be slaughtered and sold. Otherwise, any animal over 30 months would go for incineration. The scheme was set up specifically to help people in the Smiths' situation, simply because organic cattle take longer than ordinary cattle to finish—using natural methods, it takes longer for them to grow to their optimum size. The South Devon is a large breed. Cattle are finished on grass and need an extra 12 months to reach their optimum size.
I gather from the Smiths that feeding their cattle on an organic mix of cereals, maize and oats—a kind of concentrate—would help accelerate their growth. However, the cost of such organic cereal is excessive unless one can grow it on one's own land, in which case it becomes a feasible alternative for speeding up the growth of the animals.
Unfortunately, the land on the banks of the Dart has very thin soil, which makes it impossible for the organic mixture to be grown there. Buying it in is not financially viable. Animals would not be caught by the 30-month rule, but it would be totally financially unrealistic. However, the cost of feeding the animals on an imported mixture of cereals would far exceed the price that the Smiths could receive for each animal, so that is not an option either.
Where are the Smiths supposed to go if there is no local abattoir with sufficient facilities to slaughter organic cattle under the beef assurance scheme? There is an abattoir in Gloucestershire and another in Penzance, but both would require a round trip of 300 miles in a day. Not only is such a journey costly in time and fuel, not to mention man hours, but it would put a considerable strain on the animals. As Mr. Smith said, it would be physically exhausting, financially crippling and totally unfeasible, bearing in mind that the farm is small and intends to slaughter only half a dozen cattle a month.
The result is horrifying. Mr. Smith's animals are condemned to be burned for no good reason. He is disheartened, frustrated and deeply depressed. He is proud of his animals and has an enviable track record, but he has been given so much false information about what is and is not possible that time has passed and he has been unable to make any arrangements for the cattle to be slaughtered legally. The abattoir licensing system introduced last April happened so quickly that Mr. Smith does not believe that the Government understood the consequences of the regulations and the effect that they would have on farmers like him who belong to the beef assurance scheme.
Can we imagine a more appalling waste than burning outstanding organic meat and importing dubious organic meat from tens of thousands of miles away, which creates no jobs for our farmers and no work for our people? The regulations are similar to the obscene common fisheries policy, under which fishermen are

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forced to throw perfectly good quality fish back into the sea dead if they inadvertently land them in excess of their quotas. To throw more fish back into the sea dead than one lands at port is an obscene abuse of nature and the food that it produces to feed us.
I am not sure why other European countries fare better than we do in the organic business. They seem to accommodate the current rules and regulations in a more acceptable way than we do. Imagine a French farmer who possesses 80 wonderful, prized animals being forced to send his herd for incineration because of EU rules and regulations. That simply would not happen. In the case that I described, a herd will be destroyed for all time. There will be few or no South Devon organic cattle left if the Minister does not find a solution to this problem. If an answer is not found, it will be another example of the Government failing to recognise the need to sustain our organic farmers, and inadvertently driving another nail into the coffin of the farming community.
What should the Government be doing? To put it simply, they should assist abattoirs to provide what is required to service organic farms in their area. More farmers would diversify into organic farming if such facilities were available. There is money in organic food. In Austria, 8 per cent. of the land is used for organic purposes. In Italy, the figure is 7 per cent. In Britain, it is less than half that. Why cannot the Government get behind farmers such as the Smiths and help them to survive? They do not want handouts; they want an opportunity to sell their wares legally.
A couple of months ago, Sir John Krebs, chairman of the Food Standards Agency, hinted that the over-30 month rule might soon be relaxed. If that is the case, presumably the distinction between organic beef assurance scheme cattle and non-organic cattle would disappear. Will the Minister say whether there is any foundation of hope about what Sir John Krebs said about the relaxation of the rule?
The Government appear by default to have allowed obstacles to emerge to prevent farmers from rearing traditional South Devon cattle for our home consumption. The beef assurance scheme in the Smiths' case is a sick joke. The Government have provided the Smiths with a great deal of information, but much of it has been misleading. Mr. Smith's 80 prized cattle, which could have attracted about £800 each if slaughtered and sold for consumption, are worth less than £350 each if they go for incineration. Instead of a herd value of £64,000, Mr. Smith would be lucky to achieve £28,000 in total because of the new rules and regulations.
Are the Government simply going to stand by and see another farmer forced into poverty because of their inability to see the direct effect of the new red tape introduced a year ago, and allow it to wreak the sort of devastation that could lead to a prized herd of organic South Devon cattle becoming a thing of the past?
11.14 am
The Minister for the Environment (Mr. Michael Meacher): I congratulate the hon. Member for Totnes (Mr. Steen) on making such a well documented, detailed and persuasive case. Mr. and Mrs. Smith, his constituents, will be proud of him. He could not have raised their problems more pointedly or more effectively.
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I shall start by saying something about the viability of organic beef farming and then deal with the more detailed issues relating to Mr. and Mrs. Smith. I do not think that I can answer all the questions, but I will certainly complement in correspondence what I do say.
The United Kingdom market for organic products is generally pretty buoyant and expanding, as the hon. Gentleman said, and we all wish it to expand considerably further. The market has increased in value from £40 million in 1987 to more than £150 million in 1994, to £250 million in 1998 and to £400 million in 2000. We reckon that it is currently worth about £950 million—almost £1 billion. Imports from Europe and further afield, particularly of cereals and fresh produce, account for much of the supply.
All the available evidence therefore suggests that, for the foreseeable future, the UK organic market will continue to expand. The Government are not just watching while that happens, but taking steps to ensure that it does. There is considerable opportunity for import substitution. Incidentally, the hon. Gentleman talked about whether imported organic products necessarily met the high standards in this country. Such products must be specifically authorised on the basis of an assessment by the UK register of organic food standards—UKROFS—of the equivalence of standards. In some cases, the European Commission authorises such products, but they are not allowed into the country without checks.
We are anxious to see import substitution. Our target is for the proportion of organic food supplied by UK producers to increase from its current low level of about 30 per cent. of organic produce consumed in the UK to at least 70 per cent. by 2010. That would be broadly in line with the UK's share of conventional produce. Of course there are problems of seasonality. Some products will never be commercially developed in this country, given our climate. However, local production is fully in keeping with sustainability objectives and the wider ethos of the organic movement, and UK farmers and producers could do a good deal more to meet the demands of UK consurners.
Consumers want a wide range of safe, quality foods, produced to high animal welfare standards— the thrust of the hon. Gentleman's argument about abattoirs is relevant in this respect—with minimum artificial input, at affordable prices and with year-round availability. That is a pretty testing objective. Consumers are becoming increasingly aware of the wider benefits that organic production methods can bring to the environment in terms of soil health and fertility, biodiversity and the wider landscape. I am extremely keen that we do more to promote public awareness of those benefits through the internet and more direct Government support.
Many farmers and growers in the UK have developed profitable businesses by supplying the market with organically grown produce. Mr. and Mrs. Smith have particular problems, which I shall come to, but many farmers are doing well. Indeed, I would go so far as to say that some farmers and growers might miss a good opportunity if they do not give serious thought to organic production. That may help them to maintain or improve their incomes. When combined with other, social benefits of organic farming production, conversion can provide real economic opportunities.

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The hon. Gentleman rightly asked what the Government were doing. We are committed to providing increased funds and assistance to those farmers wanting to convert through the organic farming scheme. Funding for that totals £140 million during the lifetime of the England rural development programme, which is £22 million to £23 million per year. The scheme, which is entirely voluntary, offers payments to farmers to aid them in converting to organic farming, and, from next month, to help existing organic farmers to continue farming in an environmentally beneficial way. Since the scheme was introduced in 1999, some 2,250 farmers have committed approximately 74,000 hectares under the scheme—still a relatively small amount compared with the cultivated space in this country, but it will steadily grow.
Devon, I am glad to say, has the second largest area of land in the organic farming scheme after Northumberland, with nearly 15,000 hectares and a total claim value of nearly £1 million. Organic farming is a big deal in Devon.
The number of organic beef animals slaughtered during 2002 also increased substantially, by 80 per cent., from 5,000 animals the year be fore last to 9,000 last year. The wholesale value of UK-produced organic meat increased by more than 70 per cent., from £22 million to £39 million over the same period. Those substantial increases reflect the considerable increase in the output of organic meat during the year. The organic beef price for autumn 2002 was between 220p to 230p per kg compared with a conventional beef price of about 175p. Those figures are taken from the Soil Association's report on organic Food and farming.
Organic farming is not suitable for every farm, however, and farmers must evaluate their options carefully. During conversion, output is likely to decrease without the compensation of premium prices and, as a result, the decision to convert requires detailed technical planning and financial budgeting if an organic enterprise is to succeed. It is also important to remember that not only will there be changes to husbandry techniques, but some consideration must be given to how produce will be marketed to obtain the maximum potential from organic markets and organic premiums.
In order to achieve organic status, land must be registered and have been farmed to an organic standard for a minimum of two years. Livestock can be converted either with the land—sometimes known as simultaneous conversion—or subsequently over a shorter period. However, since the animals must be fed on organic rations during conversion—that includes their forage—the conversion of a livestock enterprise is in practice finalised when sufficient land has been converted to supply the required forage.
Mr. Steen: We are talking not about conversion, but about a herd that has been in existence for 100 years.
Mr. Meacher: I appreciate that. I was addressing my remarks to the title of the hon. Gentleman's debate. I shall shortly come to his point, but I shall conclude my
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initial remarks by saying that I think it important to tell farmers and producers who are looking to convert to organic beef to secure their market before beginning conversion. Many producers have had success in marketing direct to the public and building up a relationship with their consumers, and they are able to maintain a premium higher than that achieved by those selling to processors.
Farmers and producers are also advised to work with producer groups, which help to maintain prices across the sector by co-ordinating supply to ensure continuity. Basic management advice is also essential. For example, producers may need to reduce stocking rates to run an organic system, as heavily stocked land is more likely to rely on anthelmintics for worm control. Other advice might include sourcing organic feed, manure management and veterinary treatment. As part of that process, the Department for Environment, Food and Rural Affairs offers free on-farm advice delivered by the organic conversion information service. One must not forget the retailers, who have an important role. The organic action plan records that the major retailers have committed themselves to increasing the proportion of food that they source in the UK in product sectors, when it is feasible for British producers to supply at acceptable levels of quality and price. I am personally meeting the chief executives of the major retailers to try to tie them down on the commitments that each is prepared to make.
I turn now to what the hon. Gentleman said. I accept that the requirement under the beef assurance scheme to test over-30-month cattle for BSE, and to remove their vertebral columns, has caused difficulties for some members of the scheme, including, I am sorry to hear, the hon. Gentleman's constituents, Mr. and Mrs. Smith, whose farm is near Totnes. My predecessors and my hon. Friend the Under-Secretary for Environment, Food and Rural Affairs and my hon. Friend the Under-Secretary of State for Health (Ms Blears) have responded to the concerns raised by the hon. Gentleman. This is a long saga, which I am pleased to take on and address if I can.
The Government have supported the introduction of harmonised EU BSE controls, because those provide the best overall protection for UK consumers from the risk of BSE infectivity. The EU requirement to treat vertebral column from OTM cattle as specified risk material existed from October 2000, but that was not implemented in England and Wales in the hope that a derogation could be obtained. During a visit to the UK in June 2001 by Commission inspectors from the Food and Veterinary Office, who were checking compliance with BSE controls, the UK was criticised for not having implemented the requirement. Given our support for EC-wide transmissible spongiform encephalopathies measures, the only option was to implement the vertebral column requirement. That is why it is in place.
There are fewer than 50 BAS herds, which account for a tiny proportion of total slaughterings for human consumption. Most herds are small and produce only a few OTM cattle for human consumption. It is up to BAS herd owners to make their own commercial arrangements, and I appreciate that the Smiths have

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tried to do that. The hon. Gentleman asked several relevant questions about the difficulties faced by the Smiths, especially on abattoir capacity. I understand that in the Devon region that capacity is adequate for current projections of increases in organic slaughtered stock. Nevertheless, to deal with 30 per cent. organic stock from Devon would require the total commitment of the two main beef and lamb plants in Devon and Cornwall licensed for organic slaughtering. That is unlikely to be commercially acceptable and I understand that that is a serious problem. I am told, however, that two cutting plants have recently been licensed in Devon and Cornwall.
Mr. Steen: It is not a question of cutting plants—Mr. and Mrs. Smith cannot get their animals slaughtered. I need the Minister to say whether Langs', which is the nearest abattoir, can slaughter the animals, rather than refrigerate them, and take them straight away to the cutting plant in Newton Abbot. We are dealing with a
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crisis: in the next six months the whole herd will be burned. The Minister and his officials could deal with the matter and I hope that he will help me today.
Mr. Meacher: I certainly undertake to do so. I think that the matter is probably best pursued in correspondence, in which I will give the hon. Gentleman a detailed response.
All licensed abattoirs are free to slaughter for human consumption BAS cattle aged between 30 and 42 months and they have been encouraged to do so by the Food Standards Agency. We understand that many choose not to do so because of the testing requirement for BSE and the need for the cattle to be moved to a licensed cutting plant for the vertebral column to be removed. That is the problem.
I cannot give an instant response, but I undertake to ensure that my officials look at the matter in detail and to come back to the hon. Gentleman with a fuller response.
It being half past Eleven o'clock, the motion for the Adjournment of the sitting lapsed, without Question put.