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Council Tax Capping

– in the House of Commons at 12:31 pm on 23rd March 2005.

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Photo of Nick Raynsford Nick Raynsford Minister of State (Office of the Deputy Prime Minister) (Local and Regional Government) 12:31 pm, 23rd March 2005

With permission, Mr. Speaker, I would like to make a statement on council tax in 2005–06 and the action that the Government propose to take in response to those local authorities that have set excessive budgets.

Figures released today confirm that the average council tax increase in England in 2005–06 will be 4.1 per cent. That is the lowest council tax increase in more than a decade, and the second lowest ever. The reason why council tax increases have come down markedly compared with previous years is twofold. First, the Government have provided another good settlement for local authorities, which was approved by the House on 2 February. For the third year in succession, all authorities will receive a grant increase in line with or above inflation in 2005–06, and many will receive substantially more. The average formula grant increase from Government is 5.6 per cent. Adding in specific grants to authorities takes the increase up to 6.3 per cent. We have increased funding for local government by 33 per cent. in real terms since 1997, which is in stark contrast to a 7 per cent. reduction in the four years up to 1997.

Secondly, the Government's judicious use of their capping powers has shown how seriously we view the need to protect council tax payers against excessive increases. In 2004–05, when we made it clear that we were prepared to use our reserve capping powers for the first time, the average increase in council tax dropped from 12.9 per cent. to 5.9 per cent. The 2005–06 increase has come down even further, to 4.1 per cent.

Given our substantial investment in local government and the scope for efficiency gains, we gave a clear message to all authorities about council tax in 2005–06. We said that we expected to see an average increase of less than 5 per cent. I set that out in a letter to all local authority leaders on 9 December. At the same time, I informed them that we were once again prepared to use our capping powers to deal with excessive increases. I later wrote to the individual authorities which, despite our warnings, were reported as proposing high increases. We informed them that the 2004–05 capping principles should not be considered a benchmark for 2005–06, thus making it quite clear that we were prepared to take even tougher capping action than we did in 2004–05.

I am pleased to say that the vast majority of authorities have responded positively to the Government's strong message on council tax. That is borne out by the fact that we now have the lowest increase in more than a decade. I congratulate all those authorities. I know that most authorities are taking seriously the need to minimise demands on their council tax payers. However, there remain a small number of authorities that have set excessive budget and council tax increases, which is why I am again this year making a statement to the House about the action that we propose to take against authorities whose budget requirements are excessive.

I should like to remind hon. Members of the provisions of the capping legislation. In order to determine whether budgets are excessive, we must consider a comparison of the authority's budget requirement for 2005–06 with that of the previous year. The legislation also allows us to determine other principles such as increases in council tax. In 2004–05, we determined a range of budget and council tax principles for different categories of authority. This was in recognition of specific factors affecting those types of authority that year. I detailed the principles when I reported to the House on 29 April last year.

For 2005–06, we made it clear that we were prepared to take tougher capping action than last time, and that the principles used in 2004–05 should not be taken as a benchmark. Our view is that authorities' 2005–06 budget requirements are excessive if they show an increase of more than 6 per cent. over their 2004–05 budget, and if their council tax has increased by more than 5.5 per cent. over the same period. These principles have been applied to all authorities.

According to the principles that I have described, nine authorities have set excessive budgets for 2005–06. They are Aylesbury Vale, Daventry, Hambleton, Huntingdonshire, Mid Bedfordshire, North Dorset, Runnymede, Sedgemoor and South Cambridgeshire. We are writing to these 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 each of them.

The authorities now have 21 days in which to respond. 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 can then either make an order to be approved by Parliament designating them at the level of the proposed maximum budget or another level, or we can withdraw the designation and nominate them instead.

Hon. Members will recall that in 2004–05, we took capping action against 14 authorities. Six were designating for capping in year, and a further eight were nominated and set notional budgets for the purpose of future capping comparisons. I am pleased to say that none of the authorities against which we took capping action in 2004–05 has set an excessive budget in 2005–06. This, and the fact that the average council tax increase in 2005–06 is the lowest in a decade, shows that although we have used it only reluctantly, capping has been effective in restraining council tax increases.

We would, of course, have preferred not to use our capping powers. We would not have had to take action if all local authorities had heeded our clear message about increases in 2005–06. However, we also have a duty to protect council tax payers from excessive increases, and we will continue to do so. The actions that we are taking represent a measured response.

If anyone thought that the Government's capping action in 2004–05 was a one-off, they will surely now think again. The message that we are giving is loud and clear. High council tax increases are a thing of the past. The public will not tolerate excessive council tax increases either now or in years to come—and neither will the Government.

Photo of Eric Pickles Eric Pickles Shadow Secretary of State for Communities and Local Government

I am most grateful to the right hon. Gentleman for giving me early sight of the statement. He has always been prompt in providing these things, and he has been customarily courteous.

The statement comes exactly one month earlier than normal—a period that occupiers of the right hon. Gentleman's office usually have for quiet reflection on which authorities to use their powers on. This is perhaps the clearest indication that the House might be too preoccupied in late April to attend to a capping statement.

I am sure that the statement would have benefited from more reflection by the right hon. Gentleman, but it speaks volumes about the Government's treatment of council tax. For eight years, they have wrung their hands and done nothing. They have watched council tax go through the roof and increase by more than 70 per cent., and they have seen a typical household bill exceed £100 a month. But now, 43 days before a general election, he has decided to do something and line up a few councils to face the guillotine, to demonstrate the firm hand of Government.

This is not the firm hand of Government—it is the slaughter of the innocents. This is a gesture to the country that the Government have noticed its pain—pain caused by this Government. We do not need to take Opposition Members' word for it: let us listen to the Audit Commission, which says that the increase in council tax is due to national pay awards, unfunded obligations and changes in grant funding. Above all, it is because the Government's favourite stealth tax is the council tax. Those authorities have one thing in common: all charge a council tax that is well below that paid by the Prime Minister's, the Deputy Prime Minister's or the Minister's own constituents.

Let us look briefly at one or two of those councils. Daventry had a council tax increase of £13.12. That figure remains £40 less than the neighbouring borough of Corby, which is run by Labour, and 10 per cent. of the increase came as a result of the withdrawal of the Government's housing subsidy. Let us look at Runnymede, which has the lowest council tax in Surrey; it is well below the Government's assumed, notional council tax figure, so the council is charging less than the Government think it should charge. The same applies to Aylesbury.

Let us look at Huntingdonshire; its large council tax increase still results in a small council tax by comparison with neighbouring authorities. Huntingdonshire has the cheapest council tax of all district boroughs in Cambridgeshire. Let us look at South Cambridgeshire, which has a council tax of £140. Last year, it set a zero increase and its council tax lagged significantly behind others. The new level of £140 makes South Cambridgeshire one of the cheapest districts in the county. The same applies to Hambleton, which has the lowest council tax in North Yorkshire. North Dorset's council tax is the cheapest in Dorset. What about the curious case of Sedgemoor? According to figures produced by that council, it is charging £107, not £119. If that is the case, those figures are well outside the capping criteria. I hope the Minister will look again at Sedgemoor, given his Department's tendency to get things wrong.

Will the cost of billing be greater than the saving in each of those authorities? Why is it acceptable for high-costing Labour authorities to continue to squeeze pensioners and hard-working families when these councils are being capped? How many of these councils are spending below the Government's notional council tax? How many are spending below the average notional council tax? Is the right hon. Gentleman going to advise local government to follow the herd instinct and avoid low increases because otherwise it will be penalised in future years? He is penalising an authority that had a zero increase last year. If capping is to be based on only 6 per cent. of budget and 5.5 per cent. of tax, will he tell me how this is different from crude and universal capping, because it looks like crude and universal capping to me? How many of these authorities received grants above the average grant that he cited?

Frankly, this show trial of a statement fools nobody. It is petty, vindictive and pointless. It does not penalise those who have caused these massive increases in council tax—the Government—but in 43 days' time, the electorate will get an opportunity to judge and to penalise. In 43 days' time, bring it on.

Photo of Nick Raynsford Nick Raynsford Minister of State (Office of the Deputy Prime Minister) (Local and Regional Government)

As the hon. Gentleman appears to know that there is to be an election in 43 days' time—[Interruption.] He will know that none of the counties are subject to my statement. I put it to him that there is a straightforward contradiction between what he said at the beginning of his speech and what he said throughout most of the rest of it. He attacked high council tax early in his speech, yet he spent the rest of it trying to excuse authorities that made high council tax increases. That is to display complete inconsistency.

To turn to the hon. Gentleman's specific questions, there is no fixed or prescribed timetable, but most people in local government think it right that there should be certainty rather than a prolonged period of uncertainty. If he is right in his presumption about what might be happening in 43 days' time, I think most people in local government would like to know in advance, rather than having uncertainty hanging over them for a long period. Although I can understand that the authorities that will be subject to the capping regime that we have announced today may not welcome it, the general view in local government will be to welcome clarity on the issue.

The hon. Gentleman referred to the process as the slaughter of the innocents. That is a misuse of language. The overwhelming majority of local authorities kept their council tax down. They knew the Government's expectation. Only a small handful of authorities have not kept the tax down. All the authorities in today's announcement proposed council tax increases of more than 9 per cent., and one of them proposed an increase of 100 per cent. He cannot on the one hand attack high council tax increases, as he did, and then, on the other, try to exonerate or excuse authorities that increase their council tax by such amounts.

On the hon. Gentleman's questions about specific authorities, he will know, as I made clear in my statement, that there is a 21-day period when we will listen carefully to any representations that any of those authorities want to make. We shall welcome representations as well as information from the authorities and we shall take that into account when we make our final decision.

Finally, I make it clear to the hon. Gentleman that all the authorities subject to the capping regime I have announced today received an increase in grant at least equal to and in many cases substantially above the rate of inflation. That did not happen when his party was in government. The Conservatives were only too pleased to cap authorities that had often received cuts in their grant from the Government. That is not the case with the Labour Government.

Photo of Edward Davey Edward Davey Shadow Spokesperson (Office of the Deputy Prime Minister), Liberal Democrat Spokesperson (Office of the Deputy Prime Minister)

I thank the Minister for his statement. He will know that the Liberal Democrats want to scrap council tax, not cap it. Will he explain what has changed his mind since his days in opposition, when he was so vehemently against capping? Will he also explain how capping relates to his 10-year vision of local government announced again today? How does it relate to his proposals on new localism, the so-called freedoms and flexibilities?

Capping is a sign of the Government's failure on council tax, not their success. If the Chancellor's one-year-only council tax rebate was really so good, the Government would not be capping councils today. Will the Minister tell us whether capping will be retained if Labour is re-elected and introduces its policy on council tax revaluation? Does he agree with the Conservative spokesman, Mrs. Spelman? In the House this month she said that a property tax must take into account changes in property values, thereby reconfirming that the Conservatives share Labour's position on council tax revaluation?

On council tax rises this year, can the Minister confirm his Department's figures, which show that the lowest council tax rises this year were in Liberal Democrat-run councils? Can he also confirm that if we take a five-year average of council tax rises, by council and by political control, Liberal Democrat-run councils have constantly delivered the lowest rises? So I agree with him that it is a bit rich for Conservative-run councils to be bleating, when it is increasingly clear that Tory-run authorities cost people more. Does he think that is why the Conservatives are having to offer their rebate?

Does the Minister agree that some of the councils being capped today, such as Tory-led North Dorset, and Hambleton, and Sedgmoor, have a poor reputation in their areas for inefficiency and the waste of council tax payers' money? Does he know that North Dorset council even budgeted for re-billing this year because it knew that its council tax rise was so high it was likely to be capped? Is not that the height of irresponsibility?

The truth about council tax is that it is the most unfair tax in Britain. As the independent Audit Commission said, the council tax system is fundamentally flawed. The Minister knows that our policy will save the average household £450 a year. He knows that scrapping council tax would avoid the threat of revaluation. Surely, rather than one-off bribes and annual capping statements, it is time the Government dealt with the underlying problem and scrapped council tax altogether.

Photo of Nick Raynsford Nick Raynsford Minister of State (Office of the Deputy Prime Minister) (Local and Regional Government)

The hon. Gentleman says that he believes it right to replace council tax with a local income tax. People who have looked carefully at the Liberal Democrat proposals for a local income tax have concluded that they contain fundamental flaws. The Select Committee on Office of the Deputy Prime Minister, which looked at this matter very carefully, said in its clear and unanimous report that the case for a local income tax was "not remotely persuasive".

I have to say to the hon. Gentleman, for whom I have a great deal of respect, that when he gives rather more attention to the detail and the impact of his proposals, he will realise the gross unfairness of what his party is proposing. He will also realise that hasty changes in local government finance—such as the poll tax—usually lead to disaster, and I would advise him to think further before pushing ahead with a proposal that is, as the Select Committee said, "not remotely persuasive".

The hon. Gentleman asked why we had changed our view on capping. We were reluctant to cap, for reasons that he will well understand and that were spelled out in our discussions on the future of local government. However, we could not ignore a situation in which many local authorities were imposing wholly unreasonable council tax increases. Those increases averaged 12.9 per cent. two years ago. It is because this Government have shown that they are determined to cap only those authorities that have acted unreasonably—we have acted in a sensitive way, not in the blanket way that Conservatives did—that we have seen a dramatic reduction in the levels of council tax. I would have thought that all Members would welcome the average 4.1 per cent. increase this year, compared with the 12.9 per cent. of two years ago.

The hon. Gentleman mentioned Liberal Democrat council tax levels, and I am pleased that there has been a significant reduction in them this year. Last year, the Liberal Democrats held the unenviable record of imposing the largest council tax increases, and I am glad that they have heeded the warnings and acted responsibly. I hope that, in future years, Conservative councils will do the same.

Photo of Mr Andrew Bennett Mr Andrew Bennett Labour, Denton and Reddish

I congratulate my right hon. Friend on getting such low settlements for council tax right across the country—that is really good news—but will he accept that the capping mechanism is generally pretty crude and inefficient? Does he agree that, when we know the outcome of the Lyons review on council tax this time next year, we should reform council tax to create a far fairer system? We should not then need, year in and year out, to use crude mechanisms such as capping or incur the problems associated with gearing, which discredit the system so much.

Photo of Nick Raynsford Nick Raynsford Minister of State (Office of the Deputy Prime Minister) (Local and Regional Government)

I am grateful to my hon. Friend for his kind words about the success in getting the level of council tax down. I do not think that that would have been possible without judicious use of our reserve capping power, but I accept that our objective is to look further at the whole field of local government finance, and when we receive the report from Sir Michael Lyons, we will do that. We will certainly want to introduce proposals, following receipt of the Lyons inquiry recommendations on the future of local government finance, to ensure that high council tax increases become a thing of the past. No one wants to see high increases; we want to see value for money, and I am only sorry that we have had to take capping action because a handful of authorities this year have not heeded the warnings and have set unreasonably high budgets.

Photo of Alistair Burt Alistair Burt Parliamentary Private Secretaries To Leader of the Opposition

This afternoon, I am seeing a delegation from multiple sclerosis centres. They are lobbying against a 45 per cent. Government-imposed increase in the charges for inspection. However, the Government are stepping in to cap Mid Bedfordshire district council for a rise of 13.3 per cent., which equates to £1 a month from the 10th lowest-charging district authority in the country. Does the Minister not see how ridiculous and pathetic his use of power is, particularly when it is set against the £100 million bill that it still outstanding against the people of Bedfordshire as a result of the Government's incompetence in settling the Yarl's Wood dispute, which they caused? This is an authoritarian measure introduced by a bullying Government who have completely lost their sense of proportion. How do you sleep at night?

Photo of Nick Raynsford Nick Raynsford Minister of State (Office of the Deputy Prime Minister) (Local and Regional Government)

The hon. Gentleman sometimes goes a little bit over the top. If he looks at the background, he will understand that Mid Bedfordshire district council has, in previous years, maintained relatively low levels of council tax increase. I am sorry that this year—exceptionally, and despite all the warnings, which were absolutely clear cut—it chose not to do so. That was not, however, because it did not receive a decent grant increase from the Government: it got an increase of 5.2 per cent. Many authorities that got lower grant increases have managed to keep their council tax levels down. He would serve his constituents better by reflecting on the unfair impact of large council tax increases from his council, and by urging the council to be more careful in its budgeting in future.

Photo of Mr Tony McWalter Mr Tony McWalter Labour/Co-operative, Hemel Hempstead

I congratulate my right hon. Friend on the service that he has done to local democracy with this statement. What these authorities have in common is that they are district authorities that propose low increases in the years in which they are up for re-election, and then ram it all on when there is a county council election and they are not faced with any accountability to the electorate. Is it not about time that this ruse was rumbled, and that proper levels of council tax were set year on year, so as to avoid these steep increases in certain years?

Photo of Nick Raynsford Nick Raynsford Minister of State (Office of the Deputy Prime Minister) (Local and Regional Government)

I am afraid that there is a tendency for some local authorities to impose very varied increases in council tax, depending on whether they are facing the electorate. I believe, however, that the electorate are increasingly conscious of these devices, and that they will punish authorities that act in that way. However, we cannot stand aside, in a year in which there are no elections for those authorities, and allow them to impose unreasonable council tax increases. That is one of the factors that is relevant to capping. Our criteria were set out very clearly, they apply to all authorities, and all authorities were aware of them. It is only those authorities that failed to heed the criteria that have put themselves into a position of being subject to capping today.

Photo of Robert Walter Robert Walter Conservative, North Dorset

North Dorset district council has a council tax level of £79.50 for a band D taxpayer. The average for all districts across the country is £140. North Dorset's neighbouring local authority of Weymouth and Portland, in the Labour-held South Dorset constituency, has a council tax of £210. North Dorset is a well run authority, but it has to cope with the new burdens that have been imposed on it by central Government. However, it will still have the lowest council tax of any local authority in Dorset, even after the increase. We heard the sideswipe from Mr. Davey earlier, but the Liberal Democrats on the council actually wanted a council tax increase of 19 per cent.

Photo of Nick Raynsford Nick Raynsford Minister of State (Office of the Deputy Prime Minister) (Local and Regional Government)

The increase that North Dorset has proposed is, at 23 per cent., one of the highest this year. It is also out of line with what the council has proposed in previous years. Again, this increase is not being proposed because the council did not receive a good grant settlement: North Dorset received a 4 per cent. increase in grant from the Government, which was better than the average for district councils. If most district councils are able to budget prudently and avoid large council tax increases, I do not see why that should be impossible for North Dorset. As I have said, however, local authorities are free to make any case that they wish to make over the next 21 days, and I shall listen carefully to their representations before we reach our final decision.

Photo of Alan Whitehead Alan Whitehead Labour, Southampton, Test

May I add my congratulations to my right hon. Friend on his efforts to ensure that the vast majority of local authorities introduced moderate and reasonable council tax rises this year? Does he agree that part of his success is due to the availability of formula funding from his Department, which is enabling good settlements to be produced this year and, potentially, in the future? Has he reflected on the consequences for council tax rises, had that formula funding availability been frozen, perhaps for this year and next? Does he agree that it would have been very difficult, even for well run local authorities, to introduce moderate council tax settlements if that had happened?

Photo of Nick Raynsford Nick Raynsford Minister of State (Office of the Deputy Prime Minister) (Local and Regional Government)

My hon. Friend is an expert in these matters, and he has done his homework. He has rightly identified the appalling consequences that would flow from the freeze in local government grants that would follow from the policies of the Conservative party. It is of course blatant hypocrisy for the Conservatives to criticise the Government—who have increased grants to local authorities by 33 per cent. in real terms over the past eight years—when their own policies would lead to putting very serious pressure on local authorities, which would force them to impose large council tax increases. That is a measure of just how confused the Conservatives are.

Photo of Mr Teddy Taylor Mr Teddy Taylor Conservative, Rochford and Southend East

Southend council, which has one of the lowest rates in the country, has avoided capping only by imposing pretty savage spending cuts, so is the Minister willing to have another look at the scandalous situation that has been created by the Government alleging that the population in Southend has fallen by 18,000, or 18 per cent., on the basis of the census returns, although every other piece of evidence shows an increase, including, for example, the number of people on GP lists? Will he have a look at something that is unfair and obviously incorrect?

Photo of Nick Raynsford Nick Raynsford Minister of State (Office of the Deputy Prime Minister) (Local and Regional Government)

We have had representations from a number of authorities on census matters. These, of course, are ultimately decisions for the Office for National Statistics, rather than the Office of the Deputy Prime Minister, but I am more than happy to pass on to the ONS concerns expressed about the validity of the census data. I give an undertaking to do that in respect of Southend. I hope the hon. Gentleman is pleased that Southend council, which was threatening large council tax increases, has moderated those increases. I am very pleased that it has. Consequently, it is not subject to today's capping announcement.

Photo of David Lidington David Lidington Shadow Secretary of State for Northern Ireland

Can the Minister confirm that council tax in Aylesbury Vale is below the level assumed by the Government when they calculate their grant support to local authorities? Can he therefore explain the logic of seeking to cap a local authority at a level below that which the Government think is right for it to provide decent public services?

Photo of Nick Raynsford Nick Raynsford Minister of State (Office of the Deputy Prime Minister) (Local and Regional Government)

It is three years since we made it absolutely clear that the formula that we use to distribute grant to local authorities makes no assumptions whatever about appropriate spending. That has been made crystal clear to authorities all over the country, and most of them understand it. I hope that the hon. Gentleman will relay that to his authority, if it is still labouring under the illusion that there is some notional level of spending that the Government expect. There is not.

We give good grant settlements to all authorities, including Aylesbury Vale, and we expect all authorities to budget prudently and keep their council tax demand as low as possible. The criteria for capping relate not to the level of council tax but to the increase in budget and the increase in council tax this year. That is a statutory obligation. However, as with the other authorities, I make it quite clear that if Aylesbury Vale wants to make representations on my announcement today, I will of course consider them very carefully indeed during the next 21 days.

Photo of Anne McIntosh Anne McIntosh Shadow Minister (Environment, Food and Rural Affairs), Shadow Minister (Transport)

Does the Minister accept that Hambleton has one of the lowest council taxes and, as my hon. Friend Mr. Pickles said, the lowest in North Yorkshire, which represents prudent spending and value for money? It is also why my husband and I choose to live there. Will the Minister admit that Hambleton finds itself in this position because of fiddled funding from the Government's grants? Why has his Department seen fit to transfer to urban or non-rural councils resources that would otherwise have been budgeted for Hambleton district council?

Photo of Nick Raynsford Nick Raynsford Minister of State (Office of the Deputy Prime Minister) (Local and Regional Government)

I am afraid that the hon. Lady has not done her figures very carefully. If she had, she would see that Hambleton district council has received good grant settlements over all recent years: a 4.4 per cent. increase in 2002–3; 3.3 per cent. in 2003–04; 4 per cent. in 2004–05; and 3.4 per cent. in 2005–06. Those are all increases above inflation, but this council has consistently increased council tax by large amounts—12 per cent. in 2002–03; 10.7 per cent. in 2003–04; 9.7 per cent. in 2004–05; and 17.6 per cent. this year, against a shire district average of 4.5 per cent. She should be explaining to her constituents why her council sees the need to increase its council tax by several times the shire district average. I am afraid that her case is not convincing.

Photo of John Bercow John Bercow Conservative, Buckingham

In light of the indefensible non-answer to my hon. Friend Mr. Lidington, why does not the Minister simply now acknowledge to the House what in his more reasonable moments he knows to be true—namely, that Aylesbury Vale district council is a moderate, prudent and responsible authority that simply seeks to sustain a decent network of services to local people in the face of a hostile Government, and that his decision to cap it while sparing all sorts of high-taxing Labour authorities that provide rotten services at rip-off prices will convince no one and represents merely a grotesque abuse of power on his part?

Photo of Nick Raynsford Nick Raynsford Minister of State (Office of the Deputy Prime Minister) (Local and Regional Government)

The hon. Gentleman cannot have been listening very carefully, because I gave a detailed response to the question asked by Mr. Lidington about the basis on which capping decisions are made. The principles are established.

Looking again at the figures, I have to say to the hon. Gentleman that we see once again an authority that has had good grant increases from this Government over recent years: 6.4 per cent. in 2001–02; 4.5 per cent. in 2002–03; 12.5 per cent. in 2003–04; 3.8 per cent. in 2004–05; and 3.1 per cent. in 2005–06. All those increases are above inflation, yet the authority has felt a need to increase its council tax by double the shire district average. He should be talking to his authority about why it is so out of line with other shire districts. However, as I have said, we will listen to any representations that his council wishes to make.