With permission, Madam Deputy Speaker, I would like to make a statement on council tax for 2006–07 and the action that the Government propose to take with regard to local authorities that have set excessive budgets. Figures released today show that, excluding the council tax element of the funding package for the 2012 Olympic games, the average council tax increase in England for 2006–07 is 4.2 per cent. With the council tax element of the Olympics, it is 4.5 per cent.
We have a mature working relationship with the Local Government Association. We have worked with the LGA to look at the pressures that councils face in the next two years, and how central and local government can manage those pressures. Under the settlement for 2006–07, which the House approved on
By 2007–08, Government grant for local services will have increased by more than the rate of inflation for 10 years in succession. That represents an increase of 39 per cent. in real terms since 1997. It can be compared very favourably with a real-term reduction of 7 per cent. in the four years up to 1997. I also remind the House of the council tax support that the Government provide to those on low incomes. Indeed, 14 per cent. of total council tax is paid through council tax benefit. Nobody who is unable to pay is made to pay, and we are working to ensure that all who are eligible do claim the benefit.
Given our significant extra investment of grant, and the continuing scope for efficiency savings, we made it very clear again this year that we expected authorities to budget prudently. It was only with the greatest reluctance, following the 12.9 per cent. rise in council tax in 2003–04, that we first made use of our reserve capping powers. However, as we said in our 2005 election manifesto, we will use capping to protect council tax payers from excessive increases. There can be no doubt that the recent, more modest increases in council tax could not have occurred without the Government making judicious use of those powers.
When we announced the provisional settlement in December, we said that we expected the average increase in council tax in England to be less than 5 per cent. for each of the two years 2006–07 and 2007–08. I set that out in a letter to all authorities. Ministers later wrote to those authorities reported to be considering setting increases of more than 5 per cent. I also wrote jointly with my right hon. Friend the Minister for Policing, Security and Community Safety to all police authorities reaffirming the Government's expectations.
I am pleased to report that the overwhelming majority of authorities have responded positively to our messages. Most authorities fully recognise the need to minimise the demands that they place on council tax payers. Regrettably, however, a very small number of them have set excessive budget and council tax increases, and it is for that reason that I am making a statement to the House today about the action that we propose to take.
I should like to remind hon. Members of the provisions of the capping legislation set out in the Local Government Finance Act 1992, as amended by the Local Government Act 1999. In order to determine whether each authority's budgeted expenditure as defined in the legislation is excessive, we must compare the authority's budget requirement for 2006–07 with that of the previous year. The legislation also allows us to determine other principles, such as the level of increases in council tax.
This year, the increase in budget requirement for authorities providing education, police and fire services is measured using the alternative notional amounts given in the "The Limitation of Council Tax and Precepts (Alternative Notional Amounts) Report (England) 2006/07", which the House approved on
Our view is that authorities' 2006–07 budgets are excessive if they show, first, an increase of more than 6 per cent. in budget requirement compared with 2005–06, and, secondly, if council tax has increased by more than 5 per cent. in the same period. As was the case in 2005–06, a single set of principles has been applied to all authorities.
Despite the principles being more stringent than in 2005–06, when authorities' budgets were judged excessive if they showed an increase of more than 6 per cent. in budget requirement compared with 2004–05 and if council tax had increased by more than 5.5 per cent, we are proposing to take action against only two unitary authorities this year, compared with 2004–05, when we took action against 14 authorities, and 2005–06, when we took action against nine authorities. The two authorities in question are Medway borough council and York city council, which have both set excessive budgets according to the principles that I have described. We are writing to those authorities today, informing them of our decision to designate them with a view to capping them in-year, and notifying them of the maximum budget that we propose to set for them.
The authorities have a statutory right to challenge the proposed caps, and they have 21 days in which to do so. If they want to challenge, we will carefully consider the information that we have required them to send us, along with any other representations they make, before we take final decisions. We will then either make an order, to be approved by this House, designating the authorities at the level of the proposed maximum budget or another level, or we will withdraw the designation and nominate them instead. Nomination would allow us either to set them notional budgets for 2006–07 for future capping comparisons or to cap them in advance for 2007–08.
Two shire districts, Aylesbury Vale district council and Wellingborough borough council have also breached the limits. However, as they have done so by very small amounts—only 12p and 9p respectively in terms of band D council tax—we are not proposing to take action against them. We have always made clear our reluctance to take capping action, because these are powers of last resort and we would prefer not to have to use them, but the public have a right to be protected from excessive council tax increases.
Under our wider localism agenda, we are giving local authorities more freedom over how they deliver services. However, that must be set within a framework of prudent financial management and value for money. The vast majority of authorities—99 per cent.—have responded well to our clear message for council tax in 2006–07, and no one would have been happier than me if the figure had been 100 per cent. However, we remain committed to taking action against those increases that we believe to be excessive.
I thank the Minister for sending me an advance copy of his statement. That is much appreciated and entirely in line with the courtesy that we have come to expect from him. I also thank him for delivering it almost a month earlier than expected. I hope that that sets a precedent and that, in future, we can see statements in plenty of time for the local elections.
The Minister talked about the amount of extra resources that he claims to have put into local authorities. Can he put a figure on the extra burdens that have been placed on local authorities? That would be interesting to know.
The figures released represent an 84 per cent. increase in council tax in the period since Labour came to office. From 1997 to 2006, the average council tax on band D properties has soared to £1,268—the equivalent of £106 a month. It is a measure of how great is the council tax burden that the current increase is £4 short of being the fourth largest increase that this Government have made in the course of their massive increases in council tax. The current increase is £5 more than last year's increase. The Minister can talk in terms of percentages, but £54 is a lot for a hard-working family. As the Chancellor might say, in his own inimitable way, "We have had increases of £59, £50, £49, £54, £75, £126, £65, £47 and £54, making a total increase of £579 since Labour came to power"—although he would probably have rattled through it much more quickly. That represents a considerable burden on hard-working families.
But one section of the community faces increases of more than £54 on this year's bill—pensioners, who face an increase of £254. Where does the Minister seriously expect pensioners just above the benefit level to find an extra £254? Can he explain why the £200 pensioners' payment has mysteriously disappeared this year? Last year, when council tax had increased by £525 since 1997, the Government felt that pensioners needed extra protection. This year, it has increased by £579 since 1997, so why do they now feel that pensioners no longer require that protection? The House can only draw the conclusion that that money was a cynical election bribe.
I have heard the Minister express concern that council tax might be a tad regressive, but are not the current figures taking his case to the extreme? When a billionaire donor to the Labour party faces an increase of £54—perhaps a bit more in other bands—and a pensioner just above the benefit level faces an increase of £253-plus, is there no better indication of the true state of the Labour party? Aneurin Bevan and Keir Hardie must be turning in their graves. This is a complete sell-out of pensioners.
Not only did I get the statement in good time, but I have also had the benefit of the Minister's press release, courtesy of "Gallery News". In it, he makes the most extraordinary statement, which I note he did not repeat on the Floor of the House. For the benefit of colleagues, it says:
"Labour councils are once again leading the way. Labour councils cost on average £190 less than Tory controlled councils and £96 less than Lib Dem councils."
What is the basis for those figures? Surely they are not the discredited figures that do not take account of the relative property values of traditional Labour and Conservative authorities. Surely they are not the discredited figures that rely on Labour authorities having a lower valuation than Conservative authorities. Surely they are not the figures that no one else uses because they fail to convey a fair picture. That marvellous set of accounts and such creative accountancy show that the Minister for Local Government is wasted in his job. He should be a fundraiser for the Labour party.
If we use the comparison on band D that the rest of the country and the House of Commons Library use, we realise that Conservative councils charge £81 a year less than Labour-controlled councils and £88 a year less than Liberal Democrat councils, despite the fact that Labour has fiddled the grant to give more money to its councils. As the independent Audit Commission put it,
"grant redistribution . . . led to some councils putting up council tax more than others. We found a clear association between the size of grant increase a council received and their increase in council tax."
Yet Conservative councils still manage to charge lower council tax. The figures that the Minister produced are the clearest manifestation that Labour is in retreat and being pushed into its heartland.
The Minister made some announcements about capping. After last year's fiasco, when re-billing cost more than the money saved, he again targets minnows. Both authorities have increases in absolute terms that are below the average increase. The Minister appears to be blinded by percentages and to have forgotten that people pay in pound notes.
In Medway, a Conservative-controlled council, this year's increase is £50, which is a 5.5 per cent. increase. That is £4 less than the average council tax increase. In York, a Liberal Democrat-controlled council, this year's increase is £49 or 5.5 per cent. That is £5 less than the average. Yet the Minister does not seem to be obsessed by percentages when it comes to his friend—and the Standard Board's friend—Mr. Ken Livingstone. The Greater London authority's increase, before the addition of the Olympic precept, is 5.5 per cent.—exactly the same figure as Medway and York.
Medway and York are capped because they have introduced increases that are below the average. Let us contrast that with three other councils. Oldham's increase for band D is £59, that of Hartlepool is £57 and that of North Tyneside is £55. What makes those increases acceptable to the Minister? Why is the highest band D council tax in the country levied in Sedgefield, at £1,490? It has a Labour district council, a Labour county council and, at least for now, a Labour Member of Parliament. Cannot the Minister speak to that spendthrift Member and try to ensure that people in Sedgefield get a fairer deal?
Every year, the council tax increases. Every year, despite fiddled figures and grant, and wishful figures provided by the Minister, Labour's tax burden increases and it digs itself further into a hole over council tax. In some parts of the country, Labour will face the consequences in May, but in most parts, the poor council tax payer must face those consequences.
First, I thank the hon. Gentleman for his kind initial remarks. Let me deal with his points in the order that he raised them. On extra resources, we have a mature working relationship with the Local Government Association that allows us to make a serious analysis of the pressures that councils say that they face. I have made it clear that the new burdens principle will be implemented, but on the basis of net rather than gross new burdens, and on a shared understanding and analysis of those pressures.
We believe that the exercise leading up to the two-year settlement satisfied the Local Government Association's major recommendations, either by establishing self-funding regimes in the case of fees—particularly in regard to licensing—or by providing the extra resources that we were able to announce in the settlement. I notice that the hon. Gentleman did not welcome that extra money but, shucks, I guess I will just have to live with that.
The hon. Gentleman said that council tax had gone up by 84 per cent. I said in my statement that the 12.9 per cent. increase some years ago had been unacceptable. It is also true that significantly more resources had been given to local councils in that period. I also mentioned the 39 per cent. real-terms increase in Government support for local authorities.
The hon. Gentleman asked about the £200 assistance for pensioners, but he failed to mention two important points. One is that about 14 per cent. of council tax is now paid through council tax benefit, and that people on full pension credit pay no council tax at all. All right hon. and hon. Members would like to see 100 per cent. take-up of council tax benefit, and I would ask Conservative Members to join us in encouraging that take-up, as many Conservative-run local authorities already do. Secondly, the hon. Gentleman ignored the other help that pensioners receive.
The hon. Gentleman's fifth question was about billionaires. I feel that it is only right to ask him what is the Conservatives' actual policy on a property tax. I must remind the House that this property tax—the council tax—was introduced by the Conservatives, and we all remember the circumstances in which that happened—[Interruption.] Well, I have asked before in the House about their policy on a property tax. Do they have a commitment to a property tax or do they not? They introduced the eight bands in 1991. It would be perfectly possible for them to put a proposal to Sir Michael Lyons' inquiry for an increase in the number of bands, so as to include a billionaires' band. Perhaps they should propose that, but I suspect that they will not.
I cannot accept the hon. Gentleman's accusation that the grant system is politically biased. That is not borne out by the facts, the figures of the House of Commons Library, or the representations that have been made to the Under-Secretary of State, Office of the Deputy Prime Minister, my hon. Friend Jim Fitzpatrick and other ministerial colleagues. My hon. Friend Mr. Turner is not in his place, but if he were, he would be reading out statements from the special interest group of municipal authorities—SIGOMA—many of which are floor authorities. It is a bit rich of the hon. Member for Brentwood and Ongar to make such an accusation, which I deny outright. Indeed, having studied the formulae and the method of grant distribution in detail for nearly 12 months, I defy anyone to come up with a formula that would achieve what he is accusing us of doing. I reject his analysis.
The hon. Gentleman referred to what he described as last year's "fiasco". In my view, however, there is a relationship between the decisions that we took last year on excessive budgets and council tax levels, and our success this year—and in future, no doubt—in keeping council tax levels down. I suspect that the hon. Gentleman is not quite sure whether he would prefer there to be higher council tax increases so that he could blame central Government, or lower council tax increases, for which he would no doubt give the credit to Conservative-run councils—but not Labour ones—in the forthcoming local government election campaign. He cannot have his cake and eat it, although he always tries to do so.
The hon. Gentleman's final point related to the comparison with the Greater London authority. I repeat for the benefit of the House that the principles involved this year and last year relate not just to council tax levels but to budget requirement levels—in layperson's terms, expenditure levels—of the authorities concerned. It is important that that point is understood.
I thank the Minister for his statement and the measured way in which he presented it, although I cannot thank him for the news that it contained.
I am sure that the Minister recognises that yet again council tax nationally is rising by twice the rate of inflation. He will know that the Liberal Democrats believe that the tax should be scrapped, not simply fudged and tinkered with. What does he have to say to pensioners across the country who, if they were paying the average council tax last year with the £200 rebate and are now paying the new average council tax without the £200 rebate, face a 25 per cent. increase in the coming year? It is fine to cap local authorities, but does he not understand that without that rebate, pensioners, the poorest council tax payers, will be hit hardest by his and the Chancellor of the Exchequer's combined decisions?
Should not local tax be based on ability to pay? Do not the Deputy Prime Minister and the Minister understand that the current system is fundamentally flawed and puts the poorest at a disadvantage when it comes to paying for local services? Will the Minister now speed up the Lyons review and make sure that that report comes to the House promptly, not delay its implementation until after the next general election, which would condemn the poor council tax payers of this country to another three years of this iniquitous system? He should bring it to the House with his reform ideas clearly in mind.
When did resistance to capping and all its works, clearly and firmly expressed by the Deputy Prime Minister when in opposition, translate into the current enthusiasm for centralising and suppressing the work of local authorities? Does not the Minister see that capping is a sign of Government failure and not of Government success? Underlying all that is the byzantine grant allocation mechanism that he and his colleagues have devised. It might or might not be politically partisan, but it is certainly partisan as between central Government and local democracy, leading to higher council tax, intolerable burdens on pensioners, cuts in services and, today, the ultimate madness, capping by this Government.
Not yet. I congratulate the hon. Gentleman on his new position and look forward to debating this important policy subject with him.
At least the hon. Gentleman's points, in contrast to those made by Mr. Pickles, are based on a policy. At least he has a policy. It is an unworkable policy, and the wrong policy, but it is a policy. He says that the ability to pay should be the criterion for a local tax. We will wait to see whether such a local income tax proposal emerges from the Liberal Democrats' internal debate. He has made it clear, however, that he believes that local tax should be based on ability to pay. Of course, that ignores all those people in hard-working families, with two or more income earners, who would pay for the difference. I suspect that the "scrap the tax" campaign—indeed, I know it for a fact—does not have details of the costs of the extra local income tax.
The hon. Gentleman asked about the timing of the Lyons review. For the sake of clarity, the Government intend to publish a White Paper on local government before the summer recess.
The timing of the announcements by Sir Michael Lyons is a matter for him, but we expect his interim report to be published in the first half of the year, and the final report to be published by the end of the year. That is the time towards which we are working.
The hon. Gentleman criticised what he described as a centralising Government. I suspect that he is not fully aware of the impact of the new local area agreements, which are bringing about an important change in the relationship between central and local government, and the working relationship that we have on a practical day-to-day level with the Local Government Association as we consider how best to implement the reduction in the performance regime and the extra financial freedoms and flexibilities that have been introduced. I am sure that the hon. Gentleman welcomes those, along with his Liberal Democrat colleagues on the LGA.
The hon. Gentleman asked about pensioners. As I said earlier, some 14 per cent. of the total council tax bill is now paid through council tax benefit, and there is additional help for pensioners as well.
The hon. Gentleman accused me, or accused the Government, of having a byzantine formula. It is not always entirely fair to cite the words of Sarah Teather, who preceded the hon. Gentleman in his job, but she criticised me for making the formula simpler when I announced the abolition of the formula spending share.
If the hon. Lady is here, she can speak for herself. Anyway, I was criticised by Opposition Members for making the formula simpler. I remind the House that the formula that I have announced today is a significant simplification of its predecessor, and that it builds on simplifications introduced previously by my right hon. Friend the Deputy Prime Minister.
Order. I seek the help and co-operation of the House. I am mindful of the amount of time that Front Benchers have taken, and I see that a good many Back Benchers wish to catch my eye. I am also aware that we have important business to follow. May I therefore ask for single questions and brief replies? I may then be able to allow more Members to make contributions.
What estimate has the Minister made of the effect of the local government pension scheme on council tax levels in 2006–07 and in subsequent years? Against the background of tomorrow's industrial action in local councils, is he still hopeful that a settlement can be found that will modernise the pension scheme?
Yes, I am hopeful, and the Government, as regulator of the scheme, stand ready to facilitate discussions between the employers represented by the LGA and the representatives of members of the scheme, the trade unions. Our policy is that the taxpayer should not be asked to pick up any additional burdens. This is a funded scheme. We have legal obligations to ensure that it is viable and, of course, legal, and we seek to do that in a way that will secure the future of the final-salary pension scheme to the benefit of all employees and of local authorities.
The crisis in social services is bound to be made worse by the formula because of increasing demands from old people's and, indeed, young persons' services, but that must be seen in the context of the crisis in the NHS as well, owing to increasingly close links between it and social services—links that the Government and most sensible people want. What steps do the Government intend to take to ensure that those two crises do not simply play against each other and cause a steady deterioration in services, both for those who look to the NHS and for those who look to their local councils?
Of course the Government recognise—and have recognised in their joint work with the LGA—the pressures faced by social services, particularly services for adults and the elderly. It would be nonsensical to deny the existence of those pressures. But those pressures, the result of largely demographic changes, also apply to central Government, which is why our policy is to ensure that budgets are balanced. Behind the right hon. Gentleman's question is a paradox. The solution that he seems to offer is further increases in council tax, but if I were to allow them, his Front-Bench colleague, the hon. Member for Brentwood and Ongar, would no doubt be the first to criticise me. Joint work is required to deal with those very real pressures. Against the background of an increase in the revenue support grant, I must point out that the amount of money going to social services has not been cut, but increased.
May I raise with the Minister the impact of the capping criteria on authorities that have historically had a low council tax, or, in the case of the Lancashire police authority, a low precept? Over a number of years, it has wished to raise its precept to its expenditure and to be in the middle rather than at the bottom of the list of authorities in respect of spending, but it has been unable to do so. That will have a considerable impact over the next few years as a result of the merger of Lancashire police authority and Cumbria police authority, which has a much higher precept. Will the Minister comment on the likely impact of the capping criteria in the light of that merger?
I understand my hon. Friend's point. Lancashire police authority has, in common with others, been reasonable in setting balanced budgets. My hon. Friend's question about the impact of the merger of his police force is a matter for my right hon. Friend the Home Secretary, who will shortly take decisions on the future composition of the police. My hon. Friend's point about the historic level of the council tax having a huge impact on the way in which the precepts have been levied has also been raised by several hon. Members. One of the major reasons I took the decision to abolish the formula spending share was to allow greater transparency so that the House and the Lyons review can make decisions on the basis of facts rather than notional figures.
Would the Minister agree that the precept that he has just announced has been damaged by the Chancellor's announcement about pensioner rebate last Wednesday? Will he answer this simple question: when the Deputy Prime Minister and the Chancellor agreed the block grant figure last December, did the Chancellor have the courtesy to tell the Deputy Prime Minister that the pensioner rebate was to be abolished?
The Government take their decisions on these matters in the round. One also has to take into account the position of the Department for Work and Pensions, which funds the council tax benefit system. What cannot be dismissed is the fact that 2.5 million pensioners, representing 14 per cent. of the total council tax budget, pay their bills through council tax benefit. The hon. Member for Brentwood and Ongar cannot get away from that. As I said in my statement, no one who cannot afford to pay the council tax has to pay it.
The Minister will be aware that it has been Government policy since 1997 to drive up the council tax at a rate faster than inflation. When will council tax be high enough and when will the Government stop driving it up beyond the rate of inflation?
I do not accept the premise of the hon. Gentleman's question. Indeed, it provides a classic example of what I call the Liberal Democrat single transferable argument. When the council tax level is beyond what the hon. Gentleman thinks it should be and Liberal Democrats have influence in local councils, he blames the central Government; but when Liberal Democrats do not have influence in them, he blames the local councils. He cannot have his cake and eat it. The Government have increased revenue support grant to local authorities by nearly 40 per cent. In the four years from 1993 to 1997, it was cut in real terms by 7 per cent.
I have not received any praise—I suppose that I should not really have expected any—for my decision on Aylesbury Vale and Wellingborough. The hon. Gentleman may think that I am going to study the figures for parish and town councils, but I am not; the legislation does not cover that level. That is a matter for the hon. Gentleman's town council, which will doubtless listen to his representations.
Hammersmith and Fulham council has already increased its council tax by more than 60 per cent. since 1997. Everyone knows that today's debt is tomorrow's council tax. Is the Minister aware that council debt in Hammersmith and Fulham, which stood at £297 million at the end of 2003, is scheduled to rise to £500 million by the end of 2009? That is an increase of more than £200 million over six years. Does the Minister agree that this gross irresponsibility on the part of Labour-run Hammersmith and Fulham council will cost council tax payers dearly in future?
I am grateful to the hon. Gentleman for raising that issue, but I advise him not to get into bandying about councils' debt figures. He will doubtless be on the doorsteps in the weeks to come, and I have to say what a superb and well-led council Hammersmith and Fulham is.
What message does the Minister have for pensioners in my Shropshire constituency, given that they have just had a 4.9 per cent. council tax increase from Labour-led Telford and Wrekin council, and that they no longer have a £200 rebate? Do the Government not realise that such increases are driving many pensioners into poverty?
I thank the hon. Gentleman for raising that point again. As I said in my statement, the average council tax increases of 12.9 per cent. that took place some years ago were regrettable. However, he must accept that council tax levels are set by local authorities. Against the background of increasing resources from central Government, and of our successful relationship with the Local Government Association on net new burdens, councils have to take responsibility themselves for the level of council tax.
In my statement and in previous answers, I pointed out that one has to look at support for pensioners and others on fixed incomes in the round. The hon. Gentleman ignores the fact that the pension credit, help with winter fuel payments and the council tax benefit system have helped to ensure that on the whole pensioners are better off. Through the council tax benefit system, this Government ensure that the poorest pensioners are given help and that those on full pension credit pay no council tax at all.
The 2006–07 settlement includes an element for population growth, but it is based on census data and is then projected forward. That disadvantages local people in high-growth areas such as Kettering, which is affected by population growth in Milton Keynes and the south midlands. Will the Minister undertake to look at this anomaly for next year?
I thank the hon. Gentleman for making that point, which he has made before in this Chamber and outside it. We did of course make changes to the use of population statistics to ensure that, alongside previous trends, future projections are taken into account to a greater extent in the new settlement—in part because of the point that he makes.
The other point I want to put on record is that the Government are entirely dependent on the Office for National Statistics for population statistics, but no doubt the hon. Gentleman, like my hon. Friends, will want to monitor the situation as the two-year settlement period pans out.
I am greatly concerned that City of York council has one of the largest council tax rises this year and that it has ended up on the capping list. The cost of re-issuing bills will be extremely high and will fall on council tax payers, so would the Minister consider removing the cap if the council gave hard guarantees to cut its spending and to make a proportionate reduction in council tax next year? Would he be willing to meet me to discuss that possibility?
Of course I would be willing to meet my hon. Friend. Last year, we gave, and fulfilled, commitments to meet all councils and Members concerned about their local authorities' budgets and about council tax capping decisions. It may be helpful to my hon. Friend if I emphasise the point that local authorities have the right to appeal against the decision, and I have an obligation to give serious consideration to their representations, as well as any made by Members.