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Local Taxation

Part of the debate – in the House of Commons at 5:04 pm on 4th July 2005.

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Photo of Nick Raynsford Nick Raynsford Labour, Greenwich and Woolwich 5:04 pm, 4th July 2005

No. My time is limited, and I have already given way to a member of the hon. Gentleman's party.

The local income tax system would be inherently complex, with 400 authorities setting different rates. It becomes even more complex when we take account of the fact that unlike properties people move, because that means that there must be an arrangement for apportionment between areas. There would be huge additional pressures on employers, who would have to cope with the new coding arrangements. All that leaves considerable scope for evasion. The council tax is relatively easy to collect, and is difficult to avoid.

The second problem with the local income tax is its unpredictability. That does not apply to the council tax. Local authorities could find that following the closure of an important factory, there was a dramatic fall in their revenue in the short term and no means of covering it. That is clearly a serious weakness.

Thirdly, the local income tax is inherently unfair. If the Liberal Democrat proposals exempt those who do not contribute through the PAYE system, they are essentially exempting several hundred thousand of the richest people in the country, who are living on investment income and dividends, from making any contribution to local taxation. That is a scandal. Coming from a party that talks of fairness, it is one of the most ridiculous and absurd propositions that could be advanced.

So the positions adopted by the Liberal Democrats and by the Conservatives are untenable. By way of contrast, the Government have rightly set up the Lyons inquiry, entrusting this work to Sir Michael Lyons, who is one of the foremost experts in the country. He is widely respected and is giving careful and thorough attention to the various issues. I am confident that he will produce a credible package of proposals, in line with the brief that he was given, as outlined by my right hon. Friend the Minister of Communities and Local Government. It is important that we await Sir Michael's findings before jumping to conclusions or advocating a particular course of action. [Interruption.] The hon. Member for Meriden is nodding; I counsel her to await Sir Michael's report and recommendations before jumping to any conclusions about revaluation. She will recognise that in a taxation system based on values, there will be a need for regular revaluations. I am afraid that the motion tabled in her name would have to be withdrawn or amended in the light of those recommendations.

Sir Michael's work and the preceding work of the balance of funding review, which I am proud to be associated with, give us an historic opportunity to establish a long-term framework for local government finance that provides greater certainty and greater devolution to local authorities—so that they can take decisions and raise money themselves—but which also recognises the importance of an equalisation framework in ensuring no undue disparities between areas, and gives incentives for high performance and the delivery of high-quality services. That should be our aim and objective—local government empowered to serve communities in the most effective way, with a sustainable long-term finance system that is not the subject of short-term political squabbling among parties. I hope that Sir Michael will be allowed the freedom to produce his proposals, and that the Government will then introduce sensible proposals for reform, based on his propositions.