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Local Taxation

Part of the debate – in the House of Commons at 4:24 pm on 4th July 2005.

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Photo of Sarah Teather Sarah Teather Shadow Minister (Office of the Deputy Prime Minister) 4:24 pm, 4th July 2005

We need to raise a much greater proportion locally. About 30 per cent. of local authority income is raised locally, and about 70 per cent. comes from a Government grant. We should reverse that 70:30 split. There would still be an equalisation grant, but far money would be raised locally through a local income tax.

A local income tax would be much cheaper to collect—around £340 million a year. It would end the bureaucracy of 352 separate billing authorities, and everything would be done through the Inland Revenue. I shall deal with some of the other nonsense in the Tory motion. The Chartered Institute of Public Finance and Accountancy looked at compliance costs on businesses after it gave evidence to the Government's balance of funding review, and said that it was quite possible to use the coding system, so no extra administrative burden would be imposed on employers. As for local income tax undermining the incentive to work, I suggest that the Conservatives tell that to people who are paying a 20 per cent. marginal tax rate as they struggle to return to work, who find that their council tax benefit is removed.

The Conservatives do not have an answer to the council tax or to the balance of funding crisis. They have opposed every reform that has been proposed, and do not have a clue about returning tax-raising powers to local authorities. That is hardly a surprise, because under Thatcher we experienced capping, the abolition of the Greater London Council and centralised business rates. The Government are in no better position. They have already briefed their favourite journalists at The Times to the effect that they may not do anything at all about local government finance. They have an historic opportunity to do away with an unfair and unpopular tax that has been hanging around their neck since they replaced the Conservative Government. They have an opportunity to shake up local government finance radically, to localise business rates and give them back to local authorities, to get rid of ring fencing and passporting, and to introduce a tax system that would allow us to raise far more of the money locally. Will they do it? I doubt it, because new localism is meaningless. I await a further review.