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Local Taxation

Part of the debate – in the House of Commons at 4:40 pm on 4th July 2005.

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Photo of Alan Whitehead Alan Whitehead Labour, Southampton, Test 4:40 pm, 4th July 2005

The hon. Lady is right that the shadow Chancellor clarified the position shortly before the election. Indeed, he did so in February 2005. In a statement posted on the Conservative website entitled "Better Public Services, Better Value", he said:

"Last February, we set out our medium term expenditure strategy. The heart of that strategy is a path for public spending that is affordable . . . in this document we set out how we will achieve that affordable spending."

On page 2, there is a table setting out spending in 2005–08, which was allocated to priority and non-priority areas. Right hon. and hon. Members will be shocked to know that local government expenditure was considered as a non-priority area. They will also be shocked to know that other grants to local government in a devolved Administration in that non-priority group were listed to increase over a three-year period by only 1 per cent. That is equivalent to a freeze in the first two years and an increase of 2 per cent. in the third year. The policy that the hon. Lady has said is not policy, and which was amended between 2004–05, was endorsed by the shadow Chancellor in the document of 2005. That illustrates the bankruptcy of the Conservative proposals on local government.

We need to consider some aspects of council tax, including, as the Liberal Democrat amendment suggests, the way in which local government taxation is geared. The gearing effect shows that decisions on local government taxation automatically inflate in terms of the council tax-raising decision and the budget-making decision that precedes it. However, the Liberal Democrats have failed to see the central point. Indeed, the hon. Lady's predecessor, who was in the Siberian power station position of defending Liberal Democrat local income tax proposals, said that under his policy he would have to put £1.7 billion into the pot to keep local income tax rises at 3.5 per cent. for the first year. He was, I accept, very honest when he said that that amount had gone up from £1.7 billion to £2.4 billion—again, money from central Government resources. Local income tax completely fails to deal with the gearing problem in local government taxation.