Clause 78 - Power to change number of valuation bands
Local Government Bill

Mr Derek Conway (Old Bexley and Sidcup, Conservative)

I remind the Committee that with this we are discussing amendment No. 147, in

clause 78, page 39, line 18, at end add—

'(4B) The power under section (4)(a) above includes power to make provision for different proportions for different areas of England and Wales.

(4C) The power under section (4)(b) above includes power to make provision for different valuation bands for different areas of England and Wales.'.]

Mr John Pugh (Southport, Liberal Democrat)

Previously, I think that I stole the thunder of the hon. Member for Bedford (Mr. Hall), so I shall be relatively brief and cue him in. I do not want to make unnecessary enemies and I need every friend that I can get in this place.

I began by pointing out that the proposal is not about increasing the tax take, as it deals with a review of the distribution of the burden. There is a fair case for saying that that needs doing, and that house price inflation and the widening gap in house prices between regions have created problems for everybody in justifying the fairness of the council tax regime in the first place. I suppose that it represents a move to secure a fair distribution of the tax burden.

Given that our tax system is built around property values, I can understand the Under-Secretary finding that extraordinarily difficult, and I would not be surprised if, at times, he finds it tempting to consider the Liberal Democrat proposal for local income tax. That said, in the last sitting, I was surprised to hear the hon. Member for Cotswold (Mr. Clifton-Brown) say that the council tax is working well. That is not the perception where I come from, and we find increasingly that widows in modest houses pay more or less the same charges as stockbrokers. Given that stockbrokers are not doing so well, perhaps I should refer to footballers.

Does the Under-Secretary agree that some people, particularly those on fixed incomes who live in modest houses, have something to gain in the banding review? I am not sure whether he would go this far, but, equally, he may want to offer reassurance to people in areas where property values have stayed behind the national average that they have nothing to lose in these

circumstances, should there be an increase in respect of the property bands, and nothing to fear from a new band structure.

There are still concerns, however, and some can be teased out by discussing this probing amendment. May I sketch two extreme and very different cases? In Liverpool, the vast majority of property falls in band A. It could reasonably be argued that band A covers a range of individuals with different incomes and capacity to pay. Given that the council tax in Liverpool is not to be sneezed at—its authority was the first to break the £1,000 barrier—it could be argued that a little regional and local sensitivity is a necessity. [Interruption.] It was under Liberal Democrat administration, but that was coincidental. It did not happen because of the Liberal Democrats.

Equally, there is the issue of London properties. We are all aware of the fact that a large number of people in London have property with a high capital value, but a low income. One wonders how a national system could cope with that. Essentially, the amendment makes a case for regional flexibility. At any rate, attention should be paid to the problems that I have sketched. I am anxious for the Under-Secretary to confirm that he is at any rate aware of those problems and I hope that they can be taken on board during consideration of the legislation.

I want the Minister to confirm three things: first, that the proposal has nothing to do with increasing the take from council tax; secondly, that it will provide a mechanism to resolve clear anomalies between people with widely different incomes and properties who pay more or less the same council tax; and, thirdly, that areas with property value increases that are lower than average have the least to fear from the proposal.

Mr Patrick Hall (Bedford, Labour)

I hope that amendment No. 147, which stands in my name, adds to the exciting debate that we were having before lunch on the council tax. It addresses important issues relating to council tax, which I believe impact strongly on all our constituents. They will do so particularly after revaluation. Regular revaluation is an essential reform of the council tax system and a welcome proposal. My amendment would strengthen the opportunity for reform.

I am aware that the Government can change the price range of bands and the payment differentials separating those under the Local Government Finance Act 1992. Clause 78, through the addition of proposed new subsection (4A), will sensibly also allow the Government to change the number of tax bands beyond the existing eight.

My amendment would provide the Government with additional powers: first, the ability to introduce different bands in different parts of the country and, secondly, as an alternative approach, the ability to introduce regional variations to payment proportions. The reasoning behind the proposal is the need to address problems that have always been inherent to the council tax, but which have become far worse since 1993. As was said before lunch, there is the key question of the regressive nature of the council tax. The gap between the bottom and the top—between

bands A and H—is too narrow and the payment proportions related to those bands are also too narrow.

Under the current system, people who live in a band H property pay only three times more than those who live in a band A property, even though the price difference between those bands is at least eightfold. That point was made this morning.

Mr Desmond Swayne (New Forest West, Conservative)

I do not understand what the problem is. Why is that a problem, given that the consumption of services, for which that is the tax payable, will not differ by nearly that amount?

Mr Patrick Hall (Bedford, Labour)

Those are precisely the arguments that the Conservatives advanced with regard to the poll tax. Now we hear them again with regard to the council tax. The idea is not a good one because it is not fair. Broadly speaking, taxation should have some relationship to a person's ability to pay.

I must refer to the regressive nature of the council tax and the threefold difference between top and bottom as well as the eightfold difference in price between top and bottom. In Bedford and Kempston in my constituency, house prices range between about £55,000 and £450,000, but that is not the case nationally. One can point to house prices ranging between £20,000 and £500,000, which is a twenty-fivefold difference.

Mr Desmond Swayne (New Forest West, Conservative)

There is not the correlation that the hon. Gentleman refers to between living in an expensive house and an ability to pay. Indeed, will he acknowledge that the relationship can be inverse? Those living in expensive houses tend to have higher mortgages and, therefore, lower disposable incomes.

Mr Patrick Hall (Bedford, Labour)

It might be in the interest of the Conservative party not to develop that theme too well, as it does not bear careful examination. Of course there are examples of people in an expensive house who can barely afford it, but, generally speaking, surely we all live in the real world. The hon. Gentleman's postulation is just not reality in most people's experience.

Mr Geoffrey Clifton-Brown (Cotswold, Conservative)

The hon. Gentleman seems to be arguing for a property wealth tax. What, in an ideal world, would be the correlation between the lowest band and the highest? Would it be a direct correlation between the property with the lowest value in the country—probably £1—and that with the highest value that one could think of, which may be many hundreds of millions of pounds?

Mr Patrick Hall (Bedford, Labour)

The amendment does not propose an entirely new tax system, and you might rule me out of order, Mr. Conway, if I attempted to do so on the back of speaking to it. In support of the amendment, I am saying that, broadly speaking, we should seek to obtain a fairer rather than a less fair tax system so that it has public support and is more likely to succeed. That is the important point. The council tax is moving further from the basis on which it started.

Mr Geoffrey Clifton-Brown (Cotswold, Conservative)

The hon. Gentleman is courteous in giving way. He is now saying that his amendment would introduce a fairer system, but he has not said what, in his view, that fairer system is. The Committee might want to vote for his amendment and, although it is improbable, I might want to urge my hon. Friends to vote for it, so will he give us more detail as to his thinking?

Mr Patrick Hall (Bedford, Labour)

The hon. Gentleman clearly was not listening when I began my remarks and explained the amendment's purpose, which is to give the Government the opportunity to introduce variations in how council tax is levied so that it is fairer and more efficient in its application. I have not completed my remarks by any means, so I want to make progress and speak to the amendment, which you might think important, Mr. Conway.

Nationally, the relationship between bands A and H is even more distant than was intended in 1993. In single council tax areas and single council areas, the range can indeed be large—not as large as the national range, but considerable. For example, the difference between bands A and H is thirteenfold in Milton Keynes and thirtyfold in Hull. Other examples illustrate the inherent unfairness in the system, which benefits the well off at the expense of middle and lower-income families. It was always intended to be so, was it not?

Mr Paul Goodman (Wycombe, Conservative)

Surely the hon. Gentleman would best achieve the aim towards which he seems to want to move—his amendment does not cover the point—by trying to introduce a local income tax, which the Liberal Democrats want. That would achieve his objective far more efficiently.

Mr Patrick Hall (Bedford, Labour)

The hon. Gentleman is entitled to his opinion, but that does not directly address the points that I am making. Indeed, I have not been able to develop the points that I want to make, so perhaps I may now do so. Obviously, I am ready to give way later.

The council tax was never intended to be fair. When the Conservatives hurriedly introduced it, they got away with its inherent unfairness because it was replacing the even more unfair flat rate poll tax. Due to that very move, they avoided the criticism that might have been levied had the council tax been introduced as a substitute for the old rating system.

Mr Mark Todd (South Derbyshire, Labour)

My hon. Friend has left out part of that argument, which is that the other step that softened the blow was the Government holding down the council tax bill by switching tax to VAT. It is perhaps worth reminding Conservative Members, who live in another world, of exactly what happened in those days.

Mr Patrick Hall (Bedford, Labour)

It is interesting to re-run history, and my hon. Friend makes a helpful comment. I was not seeking to go into enormous detail, but I well remember the Conservatives' attempt, which was successful for a while, to buy themselves out of a deep hole.

Under the clause, the Government will be able to reduce some of that unfairness by introducing

additional bands. Even if they do so, however, council tax will remain a uniform system across England. As a result, the unfair effects of the huge regional variations in house price inflation over the past 10 years or so will not be sufficiently addressed. That is an important point.

Over the past decade, the price of the same types of property has gone up, on average, by 20 per cent. in parts of the north and by more than 100 per cent. in London and the south-east. I have seen figures of plus 15 per cent. in Hull, 100 per cent. for Bedford and Kempston and more than 200 per cent. for Barking and Dagenham. Of course, there are many other examples. The regional variations can mask what is going on in single council areas. For example, as was mentioned this morning, there are parts of northern towns in which houses cannot be sold and prices have fallen over the years.

My amendment would enable the Government to deal with regional variations sensibly and equitably after revaluation. I shall explain that point further. If we simply rely on the uniform national system with payment differentials and then, post-revaluation, uplift the eight council tax bands in line with average house price increases, we will likely see in well over 50 per cent. of houses in areas with below-average house price increases placed in band A. That has been mentioned by the hon. Member for Southport (Dr. Pugh).

In Bradford, for example, 44 per cent. of properties are already in band A. The New Policy Institute predicts that that will rise to 64 per cent. at revaluation. In Liverpool, 66 per cent. are in band A, but that will rise to 76 per cent. In Hull, 72 per cent. will rise to 94 per cent. That will mean no changes in council tax for thousands of households that are already paying too much because band A is too broad. Of course, that means that the trend of the council tax becoming, effectively, a flat-rate tax—a poll tax in parts of the country—will be reinforced unless changes are made.

Let me deal with areas where house price inflation is above average. In those areas, it is likely that large numbers of lower and middle-income households will jump up and band or two and face even higher council tax bills while high-value properties that are already in band H will not move, and so will pay no more. Again, that would create a divisive and unfair situation, so it is essential that revaluation, vital though that is, does not trigger distortions and unfair tax hikes differentially across the country. Unless the ability to introduce sub-national variations to council tax after the 2005 revaluation is available, that is precisely what will happen. I ask Ministers to take that on board.

The intention of the reforms that I propose is to get households with comparable incomes to pay roughly the same council tax if they live in broadly similar house types anywhere in England. A better council tax distribution is clearly needed for each council area. Band A, for example, should be applied to houses that are cheap by local, not national, standards. That is an important way to help low-paid workers and

encourage key public sector workers. The significance of that lies in the fact that the relationship between property value and household income is closest at local level.

Mr Geoffrey Clifton-Brown (Cotswold, Conservative)

May I challenge the hon. Gentleman's last statement? How does he equate a property's value with someone's ability to pay? He says that the local variation in property values equates to ability to pay. How does that affect low-paid public sector workers on a national pay bargaining system? They get paid the same wherever they are in the country.

Mr Patrick Hall (Bedford, Labour)

I am saying that, as far as council tax is concerned—

Mr Geoffrey Clifton-Brown (Cotswold, Conservative)

And incomes.

Mr Patrick Hall (Bedford, Labour)

We cannot reform the private housing market.

Mr Geoffrey Clifton-Brown (Cotswold, Conservative)

That is what the hon. Gentleman said.

Mr Patrick Hall (Bedford, Labour)

No, I said that the ability to focus on areas, and to vary council tax accordingly, would be helpful to such groups of workers, and I explained why.

The ability to introduce regional variations will be needed also if greater equity is to be introduced into the basic council tax system, which is important. That could be done by increasing the number of bands and the payment differentials between them.

Mr Geoffrey Clifton-Brown (Cotswold, Conservative)

What the hon. Gentleman proposes would make it more difficult, in some parts of the south of England, for key public sector workers to afford to live in the areas that need to recruit them. Expensive areas would have more difficulty recruiting low-paid public sector workers if their council tax were increased in the way that the hon. Gentleman suggests.

Mr Patrick Hall (Bedford, Labour)

In my view, it would have the opposite effect because there should be a good spread of all the bands in all areas; whereas if we leave things as they are and simply up-rate after revaluation, there will be no band A or B in many parts of the country, and there should be. Banding should be related to the fair spread of property values in any area, so the lowest priced property in the south-east should be in band A, just as the lowest priced property in parts of the north should be in band A, although the market value of those properties would be markedly different.

If we do not address these matters, the gap between north and south, which is unhelpful, will become greater rather than smaller, so it is important that the Government have the option of introducing regional variations. We are looking a few years ahead and predicting a situation that may or may not arise. On the evidence of the past few years, it is very likely to arise, so I should like the Government to have the ability to act. I acknowledge that these are difficult matters, but the no-change option is no option. I hope that my hon. Friends will accept that there is a need to reform council tax and that my amendment contributes to the debate about that.

Mr David Curry (Skipton and Ripon, Conservative)

In politics, the no-change option is always something that ought

to be considered very seriously. When politicians say that doing nothing is not an option, they are digging a pit for themselves to fall into. One should always look first at the case for doing nothing; that is usually better for the Government and for everyone else.

Adam Smith laid down a long time ago the qualities of good taxation, which include making tax simple and collectable.

Mr Edward Davey (Kingston and Surbiton, Liberal Democrat)

I do not know whether the right hon. Gentleman has read ''The Wealth of Nations'' recently, but will he admit that another of the principles laid down by Adam Smith was that taxation should be related to the ability to pay?

Mr David Curry (Skipton and Ripon, Conservative)

I was going to come to that; I take my Adam Smith one chapter at a time.

The great merit of the council tax is that it is eminently collectable. The rates of collection are very high, and some authorities are getting close to the maximum, so it is a successful tax in that regard. In principle, council tax was always designed to be a mixture of a tax on property and an individual charge for the cost of delivering services, so it is a mixture of the old rates and the old poll tax. It was designed to have that balance, so to assume that it should be related purely to house values is to distort its origins, and that would be dangerous.

Council tax bands have always been based on relativities, not absolutes, so the key point is the relationship between the bands. One of the merits, if it is a merit, of the present system is the narrowness of the bands, which equalises the income that local authorities receive because it does not reflect the pure price differentials of houses. If we introduced more banding or moved to a regional system of banding, a number of questions would arise. The main purpose would, as I understand it, be to relieve people in band A.

The change that most local authorities would seek to make would be to subdivide band A, and the hon. Member for Northampton, or somewhere in the south—[Hon. Members: ''Bedford.''] Yes, the hon. Member for Bedford has listed those local authorities with a high number of band A properties. Burnley is the one that we always talk about; Blackburn is another; and the hon. Gentleman has talked about Bradford and large parts of Manchester where band A properties are predominant. The only purpose of subdividing band A would be to allow certain people to pay less; otherwise there would be no point. The Minister nods.

If we subdivided band A, and there may be a good case for doing so, the first impact would be significantly to reduce the income flowing to the local authority. That could be sorted out in various ways. The local authority might hope that changing the banding higher up the scale would compensate, but in the local authorities that we have been talking about there is precious little property at the top of the scale, so there is no way that higher taxes there would compensate for a cut at the bottom of the scale. The local authority might go to the Minister for Local

Government and the Regions and say, ''Resource equalisation was a good idea. Can we have a lot more of it because our resources have gone down, thanks to voluntary action, so we need compensation?'' That would have repercussions.

Mr Patrick Hall (Bedford, Labour)

The right hon. Gentleman said that my proposal is principally about dividing band A into two bands. That may apply in the north, but unless we deal carefully with this matter, areas with high house price inflation will have no band A, band B or even band C property. Everybody's house will be in band D or above, and that would not be fair, would it?

Mr David Curry (Skipton and Ripon, Conservative)

My point is that when one talks to local authorities about what they would most like to see happen with council tax, one hears the notion of subdividing band A more than any other proposition, and that would necessarily have the impact that I described. By definition, that proposal is made in areas with precious little other than band A property, so it would have—

Mr. Hall rose—

Mr David Curry (Skipton and Ripon, Conservative)

Let me finish my train of thought. By definition that proposal would have the consequences that I have outlined. It may well be that local authorities would like also to raise the ceilings of the higher bands to accommodate rising house values at the top of the scale, but they would have to face householders saying, ''I have been in my house for 20 years, and it is not due to me that it has redoubled in value.'' They might have been part of a regeneration scheme, or they might have been gentrified. They might live in one of those parts of Lambeth where, people having constantly been told that the area is about to gentrified, it has finally happened. Their house price might double but the service would be exactly the same and their income would have stayed pretty well the same. To what extent would it be fair for a higher charge to follow purely on the incidental increase in value, of which they are not in a position to take advantage?

The measure would have that second consequence, and another possible consequence can be seen if one compares an area with a large number of low value properties, where the local authority might decide to subdivide band A, with an area that had a large number of higher value properties, where the local authority might levy a higher charge. One can see that the gap in income from council tax between the most and least endowed local authorities would get much bigger, and the Government's task of calculating, equalising and redistributing resources would therefore be much more difficult.

The purpose of my remarks is to probe the Government on how they would respond to that situation. They may find the arguments for the amendment intellectually persuasive, but it would have difficult administrative implications. How would they respond in distributing the grant, making judgments about resources and equalising those resources? The implications go way beyond any superficial argument about the fairness of the system.

Mr Desmond Swayne (New Forest West, Conservative)

It is wise to be aware that when properties were last revalued and placed in their current bands, the housing market was in the teeth of a recession, and prices were falling. Now houses stand to be revalued and rebanded, and those that would have been regarded as modest are very expensive and will be rebanded accordingly. How does the Minister see rebanding taking place? I invite him to speculate, and not to say that the matter is still entirely to be decided. Indeed, there has been much discussion, including in the Committee today, as to how that rebanding might take place.

I am aware of suggestions that the most likely new band threshold is to be £250,000, which is currently in the middle of band G. That would have a severe impact in the south-east, and certainly in my constituency, where £250,000 buys only a modest three-bedroomed house. The heaviest punishment, I suggest, is likely to be reserved for those houses in the current top band H, which are worth more than £320,000. A decade ago, such houses would have been at the top end of the market, but that is no longer the case in my constituency. Such people will find themselves rebanded in very expensive bands.

It is all very well Labour Members nodding and saying, ''The more expensive the houses, the more people ought to cough up,'' but no additional income and no additional ability to pay come from living in a more expensive property. The only person who benefits and generates more ability to spend as a consequence of rising house prices is the one at the end of the chain who is selling a house, but not buying another. Simply living in a property whose value is appreciating does not generate any additional ability to pay, which returns us to the point that the proposal was never intended to be a pure property tax.

As the debate has proceeded, I have found enlightening not so much what has been said, although that in itself has been quite enlightening, but sedentary comments from Labour Members, such as the whispering about the rich and protecting their interests. [Interruption.] Yes, we did hear it, I say to the hon. Member for Colne Valley (Kali Mountford). Is it not interesting how quickly the veneer of new Labour has disappeared? Real, old Labour is there again, complaining about the rich. Labour Members should be aware of the fire with which they are playing.

I recall the mid-1980s, when the constant complaint of middle England was the rates—the property tax. Precisely to try to deal with that huge discontent, we introduced the poll tax. It was an enormous mistake, although it was an attempt to address that problem. Of course, the Scots always complain that they were the human experiment as the poll tax was implemented in Scotland first. The reality is that the poll tax was introduced in Scotland first because the rating revaluation was due there. Avoiding an expected explosion of discontent consequent on a rating revaluation led to what I accept was a mistaken experiment.

The Parliamentary Under-Secretary of State, Office of the Deputy Prime Minister (Mr. Christopher Leslie):

The hon. Gentleman is helping us with the context as to why the poll tax was introduced. Is he suggesting that those who introduced it were well meaning and well intended in doing so?

Mr Desmond Swayne (New Forest West, Conservative)

Absolutely. Of course, the issue was the level at which the poll tax was set, which was unsustainable in many areas and led to an enormous revolt—precisely the revolt that the reform was designed to put off. However, consider what Labour is doing. These changes will hit with their full magnitude in 2007, and people who have already had council charge increases of 40 per cent. under this Government—that is equivalent to 2p on the basic rate of income tax without increased ability to pay, which does go with an income tax increase—realise that they will face the whirlwind that Labour is sowing simply because they live in a more expensive house. That is precisely what the Government are doing with these changes: middle England will explode as a consequence of what they are planning to pile on.

Mr Patrick Hall (Bedford, Labour)

Does the hon. Gentleman not realise that what he is saying in arguing against regional variations is that everyone in band A will suddenly find themselves in band E as a result of revaluation without any other reforms? He has already referred to his constituency in terms of the cost of a modest three-bedroomed house. How will that assist his lower-income and middle England constituents?

Mr Desmond Swayne (New Forest West, Conservative)

To an extent, it is for the district council that levies the rate—or the country council in my area—to adjust the rate across the bands. The reality is that we shall have an enormous consequential change as a result first of the revaluation and, secondly, the proposed rebanding. We want to hear more about that. We will be back to the problems of the early 1980s. Since 1991, we have had a consensus. By and large, people have paid up and not grumbled about the unfairness of the situation. The system is not yet broken, but Ministers are proposing to fix it good and proper according to the arrangements under discussion. They may rue the consequences of such action.

Mr Robert Syms (Poole, Conservative)

The present system is probably better than most of the alternatives. Local government and a way in which to raise money—which is never popular—is always a difficult system to devise. I was always a great fan of the rates system. Modest reform in that direction would have been better than the direction in which the Government whom I supported went, which was towards a system that was designed by people who had no understanding of local government.

As my right hon. Friend the Member for Skipton and Ripon (Mr. Curry) said, the ability to collect it is good because it relates to property and that does not move or hide, so there can be a high yield. The compromise of a 25 per cent. discount for single people pays regard to the ability to pay. The system is moderately progressive in that the top rate pays a ratio of 3:1 in relation to the bottom rate. Therefore, most people accept the differentials that people in larger houses should pay more than those in smaller houses.

We must bear in mind that the charge is for using local services, and sometimes the number of people in a household determines how many local services are used rather than the size of the house. If we consider the system in the round, it works fairly well. Although I receive many letters from people moaning about the level of band D, or whatever band they are in, few people campaign to change the system wholesale. It has certain weaknesses, such as the gearing effect, but the only way to change that is by giving business rates back to the local authorities. It was decided previously to give certain guarantees to the business community. At present, this Government are probably taking the same action. As long as business income is kept out of the equation and only about 20 to 25 per cent. comes from local payers, there will be a gearing effect that will exaggerate matters. That is regrettable, but I cannot see another alternative. I certainly do not favour local income tax.

The system works well. The only question is whether to vary the bands or introduce more bands to make the system slightly more progressive. Ministers would have to be brave and courageous to do that because most people who look forward to change think that they may benefit from it. Expectations could be built up if ideas for change were put forward that could not necessarily be delivered. One of the nails in the coffin of the Conservative Government was the poll tax regime. Further changes were made to the VAT regime to offset that, which, in turn, radicalised people on VAT. That was one of the major factors in our heavy defeat in 1997. The party had forgotten the lesson of 1929, when we reformed the rating system to derate a lot of industry. The bills went through letterboxes in 1929 during a general election campaign, which led to the second Ramsay MacDonald Government.

Mr Edward Davey (Kingston and Surbiton, Liberal Democrat)

Before the hon. Gentleman moves too far about from his point about local income tax, what does he have against a tax that is related to the ability to pay?

Mr Robert Syms (Poole, Conservative)

I have nothing against using an ability-to-pay system if it is done on a national basis. That is the fairest way to do it and it is perfectly legitimate for the national Government to make taxation progressive through national income tax. There would be many problems with implementing it on a local basis; the national approach is far better. I accept a degree of progressive taxation—but only a degree—in paying for local services, but it would be much better delivered by the Chancellor and by national policy.

Mr Edward Davey (Kingston and Surbiton, Liberal Democrat)

I do not know whether the hon. Gentleman has studied local income tax in Canada, America, Australia, Sweden, Finland, Denmark, Belgium, Holland, Norway and several other countries. Does he see any problem with the way in which it works in those countries?

Mr Robert Syms (Poole, Conservative)

I plan to visit all those countries in future to study them. I was in Finland a few months ago where I know that local government plays a much greater role. Countries have different constitutions and different systems; we have always had centralised

government. If taxation is to be progressive, and wealth is to be redistributed, it is legitimate to do so on a national scale, rather than try to micro-manage it at a local level. The system that we have works well. It is up to the Government to set out the case for major change. Eight bands are certainly sufficient.

Changes either at the top or the bottom would cause howls of outrage and could undermine the acceptance of the system in the process. There will be moans and groans this year, largely as a result of the settlement, particularly from my area of the country, but, broadly speaking, we have a system that works. When a system broadly works, even with a few difficulties, it is best to leave it alone and look for something that is not working. If the Government are really intending to stir the pot, I wish them well and, as a vice-chairman of the Conservative party, I shall look on, smiling quietly.

Mr Patrick Hall (Bedford, Labour)

I have listened carefully to the hon. Gentleman's comments. He describes the present situation, but I invite him, if he is not intending to do so, to consider the situation after revaluation. That is when the big differences will become apparent.

Mr Robert Syms (Poole, Conservative)

The bands are relative to each other and the point of a revaluation is to raise the same amount of money. There may be changes because of property prices and other changes. Whenever there is any revaluation, Governments try to have smoothing arrangements to offset some of the biggest difficulties. I am not yet convinced of the arguments for change. The hon. Gentleman has argued that there should be more substantial change, but I am concerned that this part of the Bill puts the Government in a position in which they may make a system that is not designed to be progressive. If it were more progressive, it may undermine the wide acceptance for the system. I wish them well, but I would not support it.

Mr Christopher Leslie (Parliamentary Secretary, Cabinet Office; Shipley, Labour)

It is interesting that we have heard some reasonable speeches from Conservative Back Benchers, although I disagree with some of their content. We have had some forceful—not rabid, but slightly over-enthusiastic—comments from Conservative Front-Bench Members. I apologise to the hon. Member for Cotswold for including him in that category, but some of his comments were a little bit near the edge.

We must put the amendments in context. Section 5 of the Local Government Finance Act 1992 provides for eight valuation bands, lettered from A to H, with band values differing between England and Wales. Section 5(4B) gives the Secretary of State the power to substitute new bands for existing bands. Clause 78 will amend the section by inserting a new subsection that makes it clear that the Secretary of State can vary the number of bands at the time of revaluation. The Government recognise the concern that the current bands are not sufficiently fine-graded to reflect differences in value at the top and bottom ends of the property market. The clause makes it clear that further bands could be added without new primary legislation.

My hon. Friend the Member for Bedford suggests in his amendment that we should have the ability to make regional variations in the application of the banding structures and so forth. Indeed, it is similar to amendment No. 163. I say to my hon. Friend and to the Committee that the amendments in this group are unnecessary because we already have sufficient powers under the Local Government Finance Act 1992 to cope with some of those issues, should we choose to do so.

The powers to change council tax bands or the proportions between them are exercised by order under section 5 of the 1992 Act, whose section 113(1) makes it clear that powers to make orders may be so exercised as to make different provision for different cases or different descriptions of cases, including different provision for different areas or for different authorities. So, to a large extent, the sentiment of what my hon. Friend is trying to achieve is covered in existing legislation.

Mr Paul Goodman (Wycombe, Conservative)

Given that the Under-Secretary has just said that he has the power to do what the hon. Member for Bedford wants him to do, does he intend to do it?

Mr Christopher Leslie (Parliamentary Secretary, Cabinet Office; Shipley, Labour)

That is the second part of my brief contribution. No, I cannot say what the Government intend to do. We feel that it is rather too early, long before revaluation has come along, to say what banding arrangements could be, what the gaps between bands could be, how many bands we might choose to have and what the cash limit on bands could be. All those are issues that we could face. Indeed, as the right hon. Member for Skipton and Ripon pointed out, they are all issues on which we may choose not to proceed. He made a strong case for no change, and I shall bear his advice in mind, as will my right hon. Friend the Minister for Local Government and the Regions.

The hon. Member for Southport asked a number of questions. I can certainly say that revaluation and, indeed, changes in the banding structure will not be about increasing the tax take. Our concerns will be fairness, equity and ensuring that, to a large extent, we retain a local taxation system that is seen to be as fair as possible. I believe that it is possible to improve the council tax regime, and we intend to do that. I agree that those on the lowest incomes, and perhaps those in lower-value properties, have no great cause to fear change. If that is the main point that he wants to secure, I can certainly say that I share his thoughts on it.

The hon. Member for New Forest, West (Mr. Swayne) helpfully reminded the Committee of the recession, negative equity and falling house prices of the early 1990s under the Conservative Administration. I am grateful to him for that, but I am not sure about where he found his speculative figures about £250,000 and house price banding. We have not come to any conclusion or made any decision on those matters. He suggested that there should be no change to council tax, but he must acknowledge that circumstances could arise, whether through

revaluation or the process of time, in which we might need to consider adjustments to council tax to make it more fair and equitable.

Mr Desmond Swayne (New Forest West, Conservative)

Is the Under-Secretary seriously suggesting that his Department is an ivory tower and that it said, ''Wouldn't it be nice to have the power to alter the bands,'' without considering any modelling as to how to go about that?

Mr Christopher Leslie (Parliamentary Secretary, Cabinet Office; Shipley, Labour)

My Department is certainly not an ivory tower, but the hon. Gentleman is perhaps living in another realm of the imagination—cloud cuckoo land—if he is suggesting that he has no alternative concept of how we might make the local taxation system fairer and more equitable. We are considering all options, which is why we want flexibility in the legislation. However, until we have the revaluation so that we can see how situations are changing, it is surely best not to draw conclusions too soon.

Mr Edward Davey (Kingston and Surbiton, Liberal Democrat)

I congratulate the Under-Secretary on leaving scope for the Government to be flexible in their attitude to local taxation, particularly as was shown in the terms of reference to the balance of funding review, in which it is clear that the Government could consider replacing council tax with local income tax.

Mr Christopher Leslie (Parliamentary Secretary, Cabinet Office; Shipley, Labour)

I am delighted that the hon. Gentleman has got on to his favourite subject, local income tax. His enthusiasm shines through at all stages. He advocates local income tax while we like to keep our minds open on all suggestions as they come. I can see all sorts of disadvantages to a local income tax. His Liberal authority, which perhaps covers a high-income area, may be keen, but other Liberal authorities such as those in Liverpool or elsewhere, where incomes are not particularly high, may be worried about how much income they could generate from it. I am sure that we can speculate on those issues at length. It would be interesting to see whether the hon. Member for Southport has thought through some of those matters.

The hon. Member for Cotswold took a few pot shots at the Government, claiming that our proposals would somehow damage authorities' income. He fails to recognise the level of revenue support grant that goes to local authorities. Indeed, the fact that we have increased our funding towards local government by 25 per cent. in real terms since 1997, which compares with the cut that his Administration instituted, overcomes his criticisms. He made various points about mobile homes or homes in low-demand areas. We are aware of concerns of those living in the band A property designation. We are committed to listening to the views of taxpayers and others to help to inform our final decisions on changes, if indeed we make any.

That also applies to those questions affecting those at the top of the scale. Questions were raised about band H residents. Those account for less than 1 per cent. of the total number of dwellings so there is doubt as to whether there would be a significant increase in the number of properties affected if there were new bands above band H. I hear some of the points that have been made, particularly by the hon. Member for New Forest, West who was worried about those in expensive properties. I think that I have managed to cover most of the points that have been raised by the

Committee. I hope that my explanations about our capabilities and the scope of existing legislation will persuade my hon. Friend the Member for Bedford not to press his amendment.

Mr Geoffrey Clifton-Brown (Cotswold, Conservative)

I am concerned. I was not going to put this on the record, but I had written a longish speech on the amendment tabled by the hon. Member for Bedford. I did not give it because I felt that the amendment was unlikely to come to pass. Now the Minister says that he has powers under section 112 of the Local Government Finance Act 1992.

Mr Christopher Leslie (Parliamentary Secretary, Cabinet Office; Shipley, Labour)

The hon. Gentleman means section 113(1) of the Local Government Finance Act 1992, which, of course, was passed by the previous Conservative Administration.

Mr Geoffrey Clifton-Brown (Cotswold, Conservative)

I am glad that the Minister has confirmed that he meant section 113, because section 112 was abolished by the Local Government etc. (Scotland) Act 1994. Section 113 states:

''Any power of the Secretary of State or the Treasury under this Act to make orders or regulations (other than the power to make orders under section 54(6) above) may be so exercised as to make different provision for different cases or descriptions of case, including different provision for different areas or for different authorities.''

Indeed, the Secretary of State has the power to raise different council tax bands for different regions. That is why I have begun to become really alarmed. Regional variation makes no sense whatsoever. Whatever one's view on regional bodies—we do not support them—all the hon. Members who support the amendment come from the southern, eastern and north-western regions which are diverse. The amendment would give rise to enormous numbers of anomalies and to unfairness.

Mr Edward Davey (Kingston and Surbiton, Liberal Democrat)

Can the hon. Gentleman explain why his Government passed section 113(1) of the Local Government Finance Act 1992, if it was not to allow variation?

Mr Geoffrey Clifton-Brown (Cotswold, Conservative)

Even if they passed it, they never used it.

Mr Christopher Leslie (Parliamentary Secretary, Cabinet Office; Shipley, Labour)

Let me make it absolutely clear that I am giving no indication that we will use that provision either. All I am saying to my hon. Friend the Member for Bedford is that the capacity and the flexibility to do that exists.

Mr Geoffrey Clifton-Brown (Cotswold, Conservative)

It does exist, and the Government have highlighted that fact. We are discussing an amendment tabled by a Government Back Bencher, which may indicate that the Minister is trying to widen the Government's agenda. It is an old and well-used tactic to have a Back Bencher raise an amendment when there is no intention of implementing it at a particular time, but which may be implemented in the future. I am becoming more suspicious the longer the debate goes on.

Mr Paul Goodman (Wycombe, Conservative)

As my hon. Friend said, the key point is not what is written in 1992 Act, to which he referred, but the Minister's answer to the points raised by the hon. Member for Bedford? The Minister cannot rule out the possibility that he will use the powers

granted to him under the 1992 Act in exactly the way that my hon. Friend has described.

Mr Geoffrey Clifton-Brown (Cotswold, Conservative)

The plot thickens—I will make that clear in a second. I am grateful to my hon. Friend for his helpful intervention. As my right hon. Friend the Member for Skipton and Ripon said—

Mr Christopher Leslie (Parliamentary Secretary, Cabinet Office; Shipley, Labour)

Will the hon. Gentleman give way?

Mr Geoffrey Clifton-Brown (Cotswold, Conservative)

May I develop the point a little further? The council tax is simple and easy to collect—that is one of the main dictums of tax law. Provision for different bands in different regions would remove that advantage. What would be the effect of different sets of bands on properties either side of a regional boundary? The effect may be the distortion of house prices in one region at the expense of another.

Mr Christopher Leslie (Parliamentary Secretary, Cabinet Office; Shipley, Labour)

I am listening to the hon. Gentleman's argument. He suggests that it would be wrong to have the power to apply changes in the banding structure to a billing authority or any number of billing authorities. If that is the case, why did he move amendment No. 163, which would achieve precisely that?

Mr Geoffrey Clifton-Brown (Cotswold, Conservative)

As the Minister knows perfectly well, that amendment was a probing amendment. As I have already indicated, the plot thickens and he will begin to see why we moved that amendment. One can envisage a time—[Interruption.] If hon. Members will listen, they may find out why I am so concerned and they may become concerned too.

One can envisage a time when the council tax will be used as a mechanism for raising a regional council tax. How else would the regional bodies be funded? The amendment raises the question whether the regional body, rather than the county council, would become the precepting authority that sets the rates and whether the local authority would become the billing authority.

Mr David Curry (Skipton and Ripon, Conservative)

It could not be the county council, because county councils will not exist under the regional system.

Mr Geoffrey Clifton-Brown (Cotswold, Conservative)

Precisely. My right hon. Friend is perceptive—that is precisely why what I have suggested may happen. That is exactly right. One could imagine that changes may be used as a property wealth tax mechanism to penalise higher-value rural property in favour of lower-value inner-city properties. That would further strain the rural-urban relationship, and it would be unfair. Council tax is regressive; it does not necessarily reflect ability to pay. For example, pensioners' income may have dropped but they may still live in a large house. I think that the amendments, particularly that tabled by the hon. Member for Bedford, raise all kinds of implications. We all have great difficulty with those, and I urge my colleagues to vote against the clause, because it ought to be taken out.

Mr Patrick Hall (Bedford, Labour)

We have had an interesting, informative and sometimes entertaining debate about an issue that is important to our constituents. For the record, I make it clear that no one made me contribute to the debate and no member of the Government asked me to table amendments. None the less, the debate has triggered anxiety on the part of the hon. Member for

Cotswold, whose self-confessed suspicious mind has focused on issues that show where the Conservative party stands, rather than illuminating what I think constituents are concerned about regarding the future of the council tax.

The debate concluded with the encouraging news from my hon. Friend the Under-Secretary that the power to introduce regional variations already exists, and that that option is available to the Government. My hon. Friend's comment was clearly made without any commitment for the future, but he is open-minded about the possibility of considering that initiative should it prove necessary. That is what I was looking for when I tabled my probing amendment. I sought to put down a marker on the record, and we have the Minister's response on the record, so I shall not press my amendment.

Mr Geoffrey Clifton-Brown (Cotswold, Conservative)

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Mr Geoffrey Clifton-Brown (Cotswold, Conservative)

I have a simple, short question for the Minister. Why is the clause necessary when he has already referred to section 5(4) of the Local Government Finance Act 1992, which appears to give the Secretary of State all the powers that are in the clause? I wonder whether it, and the debate that we have been having for the last hour and half, is not otiose. Section 5(4) of the 1992 Act says:

''The Secretary of State may by order, as regards financial years beginning on or after such date as is specified in the order—

(a) substitute another proportion for that which is for the time being effective for the purposes of subsection (1) above;

(b) substitute other valuation bands for those which are for the time being effective for the purposes of subsection (2) or (3) above.''

If the Secretary of State already has that power, why is it given in the clause?

Mr Christopher Leslie (Parliamentary Secretary, Cabinet Office; Shipley, Labour)

As I explained in the debate on the amendment, the clause makes sure that we can, henceforth, vary the number of bands at a time of revaluation. The current provision, in the 1992 Act, is for eight bands, and we seek to establish, beyond doubt, the flexibility to vary that number, notwithstanding the fact that we have not made any decisions about whether to use it.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 14, Noes 5.

Mr Derek Conway (Old Bexley and Sidcup, Conservative)

We may be sitting a couple of hours beyond the rising of the House, which is always a morale-boosting occasion for any Committee, so in about an hour we will suspend for 20 minutes for a comfort break, and then resume for the final couple of hours. I hope that we will make a little more progress.Clause 79 Transitional Arrangements