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I beg to move, That the Bill be now read a Second time.
This short two-clause Bill is brought before the House as the legislative consequence of the Government's decision to extend the remit of Sir Michael Lyons' independent inquiry into local government funding, and the decision that followed to postpone the 2007 council tax revaluation in England.
We will come to that a bit later.
Local government is at the heart of national life and has a unique role in our communities. It plays a crucial role in delivering services, leading and co-ordinating the activities of local public, private and voluntary organisations, and making villages, towns and cities more prosperous and pleasant to live in. I pay tribute to councillors of all parties and to hard-working public servants for the way in which they have raised standards, so that the Audit Commission's comprehensive performance assessment now classifies two thirds of upper tier authorities as either "excellent" or "good".
Important changes are under way in local government. Local authorities are leading new children's trusts across the country that are bringing together social services, education, health and other services. Local area agreements enable councils and central Government to recognise and to agree local priorities, to rationalise funding streams and to support greater local leadership.
Our manifesto set out an ambitious programme of further public sector reform, continuing the improvement in neighbourhood services to make them more responsive to the needs of people who use them. Since 1997, there has been a 33 per cent. real terms increase in grants to local government. Investment and reform have gone together and have delivered.
We often hear from the Government about the huge increase given from the centre to local government. If that is the case, why has council tax gone up by so much? That is what people want to know.
I can give a number of clues. First, council taxes are set locally by local government. Secondly, local government has an extremely ambitious agenda that it is delivering. Thirdly, the one thing that certainly would push up council tax is if local government funding were cut as the Conservative party proposed at the last election. That would certainly drive up council tax—by our calculations, by about 11 per cent.
I have an embarrassment of riches, but I think that I will choose the future rather than the past.
Obviously the Minister must make a finely balanced judgment between the fiscal position on the one hand and the risk of political flak on the other. He has made his choice and will do his best to justify it today. But in the circumstances, given the plug that has to be gapped, what assessment has he made of the effect of the change in the rules on the use of capital allowances from the sale of council houses on the size of interest repayments on local authority debt?
I am a genuine admirer of the hon. Gentleman's ability to command the attention of the House, but when he talks about gapping plugs rather than plugging gaps he really does have us on the edge of our seats. He will join me in saying that the Government's decision to ensure that the proceeds of the social homebuyers scheme are returned to local authorities to help them build should be supported by all hon. Members. It would only be polite if I allowed Mr. Redwood to intervene.
The Minister is courteous in the end and I am grateful to him. What was his reaction to the weekend's press stories that if someone has taken the trouble to do up their home, put in extra facilities and paint the front door a decent colour, they will be socked in the teeth by the Government with a higher valuation?
I suggest that the right hon. Gentleman spend more time reading the Bill than the Sunday papers, because the Bill is designed to ensure that that does not happen. I am surprised to get such a lesson from the right hon. Gentleman, who, as the great believer in the market, should be arguing that a property-based taxation system should reflect the market value of properties. If he does not take that position, we can have an interesting debate on the role of markets in public life.
We believe that the changes that I have set out represent not only a big challenge but a massive opportunity for local government and we believe that opportunity is most likely to be grasped if local government is able to focus on service delivery supported by financial stability. This is the context for the changes we are debating today.
The Opposition gave the Under-Secretary, my hon. Friend Jim Fitzpatrick, the chance to set out our arguments and explain the Lyons inquiry in our recent debate on
It is in that context, and for that reason, that my right hon. Friends the Chancellor of the Exchequer and the Deputy Prime Minister extended the terms of reference of Sir Michael's inquiry to consider and review the changing role of local government and to review how the Government's agenda for devolution and decentralisation could improve services, and, in the light of this, to consider how to manage pressures on local services. That was in addition to his existing remit to make proposals on the funding of local government.
I did not hear all of the right hon. Gentleman's question, but if he said that while Sir Michael Lyons was willing to countenance up to a year's delay in revaluation but did not propose the postponement that we are proposing today, he is absolutely right; I do not seek to hide our decision behind the recommendation of Sir Michael Lyons.
As I said when I announced our decision on
As the hon. Gentleman and I have discussed before, the White Paper provides for a changed role for local government that builds on the existing strength of its relationship with schools. If, like me, he had been in Sheffield last week talking to the local authority, he would know that it does not see itself running schools. It is for head teachers and governing bodies to run schools, but the role of local authorities is to step in and to promote reform and development, which is what the best local authorities throughout the country are doing.
I am very grateful to the right hon. Gentleman for generously giving way again. It really is the merest casuistry to answer my hon. Friend Mr. Turner in those terms. I rather suspect, even though I have not spoken to my hon. Friend on this subject, that he was not looking for an essay-question response or for an evaluative answer from the right hon. Gentleman. What he really wants to know is whether the right hon. Gentleman thinks that, as a consequence of the White Paper, bills will go up overall and more money will therefore be required, or that they will go down, with the logical corollary that that involves.
Tempting as it is to be the tutee of the hon. Gentleman, council tax bills is precisely not what Mr. Turner was asking about. If John Bercow had read the White Paper, he would know that it makes it absolutely clear that it imposes no new burdens on local government. The hon. Member for Isle of Wight was actually probing our view of the role of local government in national life, and specifically in respect of education.
If I may, I shall proceed. We are here to discuss the postponement of revaluation and, tempting though it is to discuss education policy, perhaps we can stick to local government finance.
By definition, if we are not taking a decision now to revalue but are keeping our options open, all options remain open in future. But we have made it clear that we think it right to keep property tax as the basis of local taxation, to invite Sir Michael Lyons to complete his review, and to assess the role of a revalued council tax in that context.
As the House knows, at the same time as we announced the extension of Sir Michael's remit, we announced that we intended to legislate to postpone council tax revaluation. As our announcement explained, the case for revaluation—that it is right to maintain a fair alignment between house prices and council tax bands—is linked to wider questions about the structure of council tax and to the operation of council tax benefit. It is also relevant that a number of other changes in the local government finance system are imminent, including the move to three-year budgets, the review of the local government finance formula, and the creation of a dedicated schools budget located in the Department for Education and Skills.
We have reached the view, therefore, that to proceed with the current timetable for revaluation would not be sensible. We have concluded that we need the flexibility to revalue as part of a fully developed package of funding reforms, rather than as a precursor to them, and at a moment of greater financial stability for local authorities.
The right hon. Gentleman is being extremely generous in giving way. All the things that he has just announced were known when the Government decided to move towards revaluation. They have spent £60 million on it, of which £45 million was spent on software alone. Is anyone in the Valuation Office Agency working on revaluation, and how long will the purchased software remain relevant, before becoming obsolete?
I am afraid that I cannot allow the hon. Gentleman's assertion to remain on the record unchallenged. To take one obvious example, the creation of the dedicated schools budget was not known in 2003; it was a subsequent decision, so his assertion simply is not right. I shall deal with the Valuation Office Agency in a moment, if he will allow me. The software is state of the art and will be an efficient and effective replacement for the 22 million files that existed until now. The digitisation of that data forms the basis of effective government.
We reached the view that to proceed with the current timetable would not be sensible and we concluded, as I was saying, that we needed the flexibility to revalue as part of a fully developed package of reforms.
I think that the hon. Gentleman may be referring to the statement of
Although this is a short Bill, it may help the House if I explain its effects. First, it removes the requirement laid down by the Local Government Finance Act 1992 for the compilation of new lists on
Secondly, subsection (4) removes the requirement for subsequent revaluations on the 10th anniversary of the previous one, unless an earlier date has been specified by order. Until the Government have received and considered Sir Michael Lyons' final report, we cannot take a view on how frequently revaluation should occur and we therefore think it right that we should not be statutorily committed to revaluing on a rigid, predetermined cycle.
I hear my right hon. Friend's argument for postponement—I do not agree with it—but I do not understand the argument for deleting the provision for a 10-yearly cycle for revaluation. That was the subject of Government consultation in 1999–2000 and was the subject of a White Paper, which set out a commitment to a 10-year revaluation. As far as I know, Sir Michael Lyons has not been asked to comment on whether that revaluation cycle should change. I simply do not understand the Minister's logic for cancelling a provision for regulation revaluations.
My right hon. Friend Mr. Raynsford is, indeed, my very good friend and he speaks with a great deal of authority on these matters. He will know more than anyone else that at the time of the 2002 Bill there was a great deal of discussion about the requisite period. As it happens, and ironically in the current context, the Conservative spokesman in the other place wanted to reduce from 10 to five years, the—[Interruption.] Mrs. Spelman is shouting from a sedentary position. We are all disappointed that she is not speaking today and that she has left the task to others; she may be winding up the debate, but I do not know.
As my right hon. Friend the Member for Greenwich and Woolwich knows, there was considerable discussion about the period and we think that it is right to keep the flexibility created by the clause.
Finally, the Bill replaces those two provisions for revaluation, for at least 10-yearly intervals, with a power for the Secretary of State to specify the date on which a new valuation list must be compiled. Such orders will be subject to the House's affirmative resolution procedure. That was also the case in respect of the Local Government Finance Act 1992, which created the council tax in the first place. For the sake of completeness, clause 2 simply provides for the short title of the Bill and for its extent.
I can bring the House up to date with progress at the Valuation Office Agency, which was responsible for carrying out the revaluation. Immediately following the announcement, the VOA took steps to reduce ongoing expenditure and to reshape the agency to fit the new situation. Some 420 staff employed as casuals or on fixed term contracts will have left the agency by the
As we set out on
When we have had regular revaluations of business rates, they have always been fixed for the period 1990 to 1995 and 2000 to 2005. One of the arguments for doing the revaluation of council tax in 2007 was to balance the work of the Valuation Office Agency. Does the cancellation of the revaluation mean that if we reinstate the revaluation for council tax in the future, we shall be blocked from going anywhere near 2010 because of the implications for staffing?
My hon. Friend speaks as a former valuer and therefore brings his expertise to the issue. Nothing has been blocked by the Bill. The Government have made it clear that we do not anticipate revaluation occurring during this Parliament, and that is a clear statement of affairs.
The Minister says that he wants to see a modern and up-to-date database of property values. Are we to understand that the dwelling house codes and the value of significance codes are still being collected in preparation for revaluation? Or will we just have a database with nothing on it? How much will the cancellation cost in staffing terms, and will he say a little more about redundancies, early leaving and ending of contracts?
In respect of the first question, the hon. Gentleman had an exchange with my right hon. Friend the Member for Greenwich and Woolwich on
In respect of the precise costs, I have made it clear to the hon. Gentleman that some 1,250 jobs will be lost as a result of the changes. The full financial effects of that are still being worked through, but as I said on
What was the Department's forecast for the number of grannies and granddads who would go to prison if he had not taken this action to take some of the sting out of the council tax? At what level does the number of people who think that it is an unfair tax become unsupportable?
I wish to take a moment now to explain how the Bill will not in any way affect the approach being taken in the devolved Administrations, contrary to the assertions of some Opposition Members. In our debate on
The position in Northern Ireland is very different from that in England, not least because local government has continued to be funded through a domestic rating system instead of the council tax. The House will recall that Northern Ireland did not have the benefit of the poll tax. The Northern Ireland Executive commissioned a review of rating policy in 2000 and that has now led to the publishing of a draft Order in Council, which is currently subject to a consultation process.
When the Minister says that he has consulted the Welsh Assembly, does he mean that somebody has picked up the telephone and spoken to his close political colleague, Rhodri Morgan AM, or has the Minister encouraged the Assembly to discuss the matter properly? If he had done so, he would have discovered that a majority of the Assembly opposes the council tax re-banding and could vote it down.
I am interested in the hon. Gentleman's description of the situation in Wales. He will know that in 2001 the Welsh Assembly consulted on its proposal to implement a revaluation in 2005. All political parties and the Assembly's Local Government and Public Services Committee supported the proposal. The hon. Gentleman should bear that in mind before he makes such an intervention again.
I hope that the House will agree that I have been generous in taking interventions and I now wish to proceed. I look forward to hearing hon. Members' contributions later.
For the sake of completeness, I should also remind the House of the position in Scotland. The Scottish Executive commissioned its own independent review of local government finance in 2004. The review committee consulted on options earlier this year and will publish its report in the summer.
In debate with my right hon. Friend the Member for Greenwich and Woolwich, Mr. Pickles said:
"We recognise the need periodically to revalue properties for the purpose of council tax . . . We support the revaluation being made on a regular and predictable basis."—[Hansard, 7 January 2003; Vol. 397, c. 64–5.]
No one should accuse the hon. Gentleman of changing his mind too quickly, because two years later, he said:
"Any council tax system inevitably requires some form of revaluation."—[Hansard, 2 February 2005; Vol. 430, c. 929.]
A sensible man.
The hon. Gentleman's boss, Mrs. Spelman, said that
"a property-based tax must take account of changes in the value of the property."—[Hansard, 2 March 2005; Vol. 431, c. 983.]
Her boss, the Leader of the Opposition—for another few days at least—said on
The Leader of Opposition was clear: on
What could be simpler than voting for a Bill to postpone revaluation? They might even have claimed that we had stolen their policy.But I had overestimated the people who go by the title of Her Majesty's official Opposition. They still take the title literally: they oppose everything. They are addicted to opposition and repulsed by common sense. No wonder that John Stuart Mill called them the stupid party—
The hon. Gentleman should listen to this, or he will end up going into the Lobby and doing something very silly indeed.
What could be more stupid than an amendment claiming to denounce revaluation, but with the effect that it will go steaming ahead—for that is the effect of the amendment standing in the name of the Leader of the Opposition? By opposing Second Reading, by declining to give the Bill a Second Reading, the Opposition want take the brakes off revaluation. The automated valuation model, which they spent the weekend saying was such a detestation, will be whirring like there is no tomorrow if they have their way.
The Opposition talk about supporting reform, but in the words of one of their Members, they are the roadblock to reform on this occasion. I hope that all Opposition Members realise that if they support their amendment, they will be voting for revaluation to go ahead, and we look forward to reminding them of that in the years ahead.
Sir Michael Lyons has made it clear that any proposals for reform of the funding system raise complex issues, and the Government have agreed that they need to be set firmly and explicitly within the context of a clear, shared understanding of the role of local government and of councils' accountability to service users. It is for that reason that we have extended the terms of reference for Sir Michael's inquiry into local government funding. In turn, we decided to postpone revaluation from 2007. We have recognised that to proceed with revaluation at this time would not be the right thing to do. The Bill, therefore, puts revaluation on hold, and I commend it to the House.
I beg to move, To leave out from "That" to the end of the Question, and to add instead thereof:
"this House declines to give a Second Reading to the Council Tax (New Valuation Lists for England) Bill because the Bill merely delays rather than cancels the council tax revaluation, applies only to England and creates inequalities with other parts of the United Kingdom;
and because the removal of the need for revaluation of domestic properties offers taxpayers no protection against the imposition of new higher council tax bands."
Were I the Minister, given the speculation in the Sunday newspapers about his position as regards the future leadership of his party and given the Chancellor's tolerance of such matters, I do not think that I would have used the words "young pretender" in this context.
However, on that brief note of solidarity with the right hon. Gentleman, I congratulate him, because only the last Blairite on the Government Benches could have delivered that speech with a straight face. It was nothing more than a panic attack—nothing more than the fear of wipeout at next May's elections. The Prime Minister's credibility is apparently at stake, and his credibility is so low that he fears the result that the electorate will produce in May.
Postponement is not cancellation. I hope that I am not doing the Minister an injustice, but, frankly, to describe the reason for the postponement as a success of local area arrangements strikes me as stretching credulity. There is little doubt that the right hon. Gentleman is regarded as the Prime Minister's plenipotentiary on earth. So let us just have a touch of reality. For the convenience of the House, I have managed to collect the reaction of the specialist press to the right hon. Gentleman's announcement.
I have here a very nice photograph of the right hon. Gentleman scratching his ear from the Local Government Chronicle, which says, "Miliband on the run. Funding reform delay as minister ducks his first tough decision." It continues:
"The announcement was met with dismay and incredulity by many in local government, who said urgently needed reform on council tax has been sacrificed for political expediency."
In a comment piece, which is a bit tough but nevertheless I feel that my hon. Friends may want to hear it, Kerry Lorimer, says:
"David Miliband was in prime ministerial mode, making up in expansive gestures what he lacked in expertise . . . Five months in the job, maybe it's time for the new boy to grow up."
That is a bit harsh, but I felt that I had to share it.
Of course my right hon. Friend makes an excellent point, and the Minister is blushing as we speak.
Let us move on briefly to Tony Travers—a noted expert—who said:
"There must now be a risk the reform of local government finance becomes the object of near-permanent official inquiry. This issue would have been pushed into the longest of the long grass."
Under a further headline, "Miliband baulks a funding decision", we read:
"Mr. Miliband has baulked his first difficult fence as a cabinet minister."
We have an interesting piece from Mr. Raynsford in which he said:
"There is no case for postponing a review of the system, which is already 14 years old. It is getting increasingly out of date."
There is an editorial piece, "Kicked into touch again", which says:
"Yet ministers have bottled-out of grasping the council funding nettle, and passed the buck to the next PM, presumably Gordon Brown or, judging by their date for the next revaluation . . . a Conservative."
I will give way to the hon. Gentleman as soon as I have finished giving this review of the papers, but it is coming to an artistic conclusion and we should not miss anything.
Another headline reads, "U-turn is bad news for hopes of reform". That is too hurtful to read out in public. Under the headline, "Revaluation is a ticking timebomb", the Local Government Chronicle says:
"exclusive survey reveals a quarter of councils, of every type and political colour, will be in the capping zone next year."
"there is a limit to the pressure under which the system, already cracking, can be put—and it is now perilously close to collapse."
Finally, a headline says, "Local government in limbo as revaluation waits for Lyons." I have had a good look through all the press—
No, no, I have not finished yet.
The only favourable comment that I could find is in the Municipal Journal from the directly elected mayor of Lewisham, and even that was reasonably lukewarm.
As the right hon. Gentleman has assured No. 10 that he can get revaluation away from all the problems, he cannot have been very pleased with the weekend's newspapers or this morning's or the decision by The Sun to call this new tax the patio tax.
We are all capable of reading newspaper cuttings—in fact, I expect that most hon. Members who are attending this debate have already read through the newspapers on this topic—but will the hon. Gentleman tell the House whether he would have been happier if the Government had gone ahead with the revaluation?
No, I am not in favour of the revaluation, and I cannot imagine, given all the fuss, why the hon. Gentleman could possibly have been deluded into believing that I would. I apologise to him for reading out those pieces, but I wanted to bring home to the right hon. Gentleman that no one thinks that his method makes any sense. Those who wanted a revaluation think that the Minister is not doing a good job and so do those who did not want one. He has managed to unite the nation in believing that he has made a bad decision.
We are not persuaded of the need for revaluation. The purpose of a revaluation is to correct grossly disproportionate movements of the housing market compared with the last revaluation, but house prices are currently converging relative to the last revaluation. As we argued when the council tax was introduced in 1992, a system of bandings means that there is no need for regular or frequent revaluations. The only reason why Labour wants to revalue and re-band the council tax is to tax the uplift in property values that has taken place since the early 1990s.
We oppose the plans for higher taxes on hard-working families and pensioners. The revaluation has already taken place in Wales, so we will move amendments in Committee to continue the transitional relief and thus stop further tax hikes next year, after the relief is phased out.
As the Minister has said, the Bill essentially does three things. It removes the requirement for a new valuation by
I have always regarded myself as silver tongued. If I can persuade the hon. Gentleman to join me in the Lobby, perhaps we will be able to walk in arm in arm.
Just for the avoidance of doubt, will the hon. Gentleman refer the House to section 77 of the Local Government Act 2003, which specifically states that new valuation lists should be compiled and that there should be regular revaluations? If the reasoned amendment were accepted, that measure would be kept on the statute book. Does he think that allowing revaluation to proceed is the right course of action, or does he think something else? Perhaps it is time for a review of the process by which the Conservative party drafts its resolutions for the House.
The hon. Gentleman makes a reasonable point. There was a limited way in which we could draft a reasoned amendment because the Bill is narrow. If we had tried to draft an reasoned amendment of the type that the hon. Gentleman seems to suggest, there would have been a strong possibility that Mr. Speaker would not have selected it for debate. It was important to us to table an reasoned amendment so that we could discuss such an important issue.
The essential problem is this: the council tax has increased by 76 per cent. under this Government and as a direct consequence, it has become deeply unpopular. That represents a complete reversal of the public's view since Labour first came to power.
I wonder whether my hon. Friend thinks that the Prime Minister decided to postpone the revaluation because he wanted not only to protect the future career of the Artful Dodger but, more importantly, to stop the Fagin of the Labour party, Gordon Brown, yet again using revaluation not for fiscal neutrality but as an excuse to raid the pockets of pensioners and hard-working householders across the country. That is why the Prime Minister went for it—not for any other reason.
My hon. Friend makes a powerful point and could have done so within the terms of debates in this House. I have no objection to saving the skin of the Minister of Communities and Local Government. We have great affection for him on the Conservative Benches and wish him well in his future career.
My hon. Friend is wholly right to point out that when the council tax was introduced it was received with some acclaim on both sides of the House, and we did not then hear such arguments from the Labour party. I was the Minister who had the misfortune of taking the legislation through the House with Michael Portillo. We specifically looked at how property could be revalued from time to time, and I remember an exchange in debate in the middle of the night between Mr. Blunkett, who has just left the Government again, and my right hon. Friend, as he then was, about whether we should have inflatable balloons floating over people's back yards, which is no sillier a suggestion than those we have heard this weekend. This is not just a question of balancing function and who pays. The Minister of Communities and Local Government has forgotten that the whole point about whether local government finance is to succeed is where the balance lies between Treasury funding and the raising of tax locally. That is what the Government have failed to address.
My hon. Friend comes to these matters with considerable knowledge and I entirely agree with his point about the balance of funding. If I am allowed to make a little progress, I shall come precisely to that point.
It is worth reminding the House that in 1998 the Command Paper, "Modern Government: In Touch with the People", examined the popularity of the council tax and in clear and unambiguous words endorsed the tax by saying:
"The council tax is working well as a local tax. It has been widely accepted and is generally very well understood".
Yet, after seven short years, there is a very different public perception of the tax. That is best summed up by Sir Michael Lyons in his letter to stakeholders on
"Council Tax has suffered from problems relating to its rate of increase and perceived unfairness".
That is understandable when the Government cap councils that have increased council tax by a few pence a week and ignore others that have introduced increases many times that size. It is understandable when pensioners are being thrown into prison. It is understandable when a third of the increase in the basic state pension has been taken up in higher council tax for a typical pensioner.
Is my hon. Friend familiar with another aspect of council tax—that students are not required to pay it? The Government helpfully provide a CBT1 form, which is returned by local authorities to the Office of the Deputy Prime Minister each year recording the number of properties in the hands of students, but because the reporting time is in the autumn, the actual number of student properties is not known until the following spring. Students are generally slow to return their council tax demands and to get an exemption form. As a result, areas such as mine miss out to the tune of £500,000 or £750,000 and face a further problem, which is surely why people are paying too much through their council tax.
The hon. Gentleman says that my hon. Friend is wrong, but there are a number of indices of the way in which the council tax grant is developed and sometimes there is a significant time lag. If I were the Minister, I would not be so quick to dismiss that.
The Government's increased use of means-tested benefits and complex application forms has resulted in reduced take-up of council tax benefits, which means that more people on lower incomes are paying higher council taxes. Fewer than two in three eligible pensioners claim the council tax benefit to which they are entitled, compared with three out of four before Labour came to power. It is a terrible indictment of the Government that the take-up of benefit should drop so significantly under their care. The Government should feel ashamed of this unmet pensioner poverty.
The House deludes itself if it believes that revaluing property or adding further bands will cure the unpopularity of the council tax. The increase in the proportion of the tax taken from household budgets is a symptom of a desperate problem. The revenue generated by local authority's tax base has a direct effect on the size of the revenue support grant. Ring-fenced grants often distort the calls on the council tax—the point that my hon. Friend Robert Key made so eloquently a few moments ago.
The Minister of Communities and Local Government was a Minister in the Department for Education and Skills when the passporting of school funding was introduced. That led to some authorities suffering a cut in funding for other services, and to many more receiving nothing for other services.
The Audit Commission became so worried about the rise in council tax levels that it produced a report. Thanks to the Audit Commission, we all know why council tax has risen since Labour came to power. The report outlines three main areas—first, the changes in the grant formula; secondly, the implementation of Government initiatives, often unfunded; and thirdly, national pay rates.
Each year the fiasco drags on, and each year it gets worse. In a document that the Government tried to suppress, entitled "Beyond the Black Hole—a time of opportunity and challenge", the Local Government Association states that there is
"a £2.2 billion black hole in the funding for local government, equivalent to an increase of 10 per cent.—or around £100—a year in council tax bills".
I note from the Financial Times this morning that Ministers are taking the begging bowl round to find ways to reduce the council tax. It would be a wise thing to do, if they are. The bung in the settlement is equivalent to £1.4 billion. The right hon. Gentleman's political future depends on stretching that to £2.2 billion.
The Opposition's motion states that their complaint is that the Government are delaying rather than cancelling the revaluation. Does that mean that the Conservatives would never have a revaluation in the future, and would allow council tax banding to become less and less related to people's ability to pay?
The hon. Gentleman has considerable expertise in the matter, but he would have been advised to listen to what Members say in the House. I said that the purpose of a revaluation was to take care of distortions in the property market, and I demonstrated clearly that no distortion has taken place. By and large, over the past 10 years property values have realigned, and matters could be taken care of by adjusting the banding. That is an established fact.
The imbalance between central and local government funding grows, which will force Ministers towards crude and universal capping in the vain hope that public ignorance of—
I will make a little progress, if the hon. Gentleman will forgive me.
The public have rumbled the Government and have acquired out of necessity an understanding that most local authorities are just the messenger delivering the bad news of high bills. The stealthy postponement of the revaluation will not hide the true responsibility for Labour's favourite stealth tax.
Let us deal with the cost of the revaluation. During the debate a couple of weeks ago, I mentioned the rapid rise in the cost of the revaluation operation. Let me remind the House that the cost of the revaluation is spiralling out of control. In 2004, the Government estimated that the revaluation would cost £108 million. In July 2005, the cost hit £178 million, which is an increase of more than 60 per cent. Much of the £60 million that has already been spent has been lost because of the postponement, and it would be criminal to spend more.
Why have costs spiralled so significantly? Given the examples of the Child Support Agency and identity cards, the Government are renowned for their inability to keep within estimates. Is this just another example of optimism over experience? In fairness to the Government, I think that the reasons are more complex than that and go to the very heart of the revaluation.
The revaluation is much more complex than that undertaken in 1992. The 1992 revaluation, which established the council tax, placed each house into one of eight valuation bands based on 1991 house prices, with the bands being determined by primary legislation. The banding of the individual properties commenced in January 1992, and the draft valuation lists were published in December 1992. In other words, valuers knew the banding structure when they conducted their assessments. They did not need to draw up a list of numerical valuations for each property and merely had to place each property in a band.
As the Valuation Tribunal Service notes to the Local Government Finance Act 1992 state:
"It is important to remember that the legislation requires Listing Officers to place each dwelling within a Council Tax band and not to place a precise value on each dwelling".
I have told the hon. Gentleman that I will give way. He must be patient.
The short-term expediency of pushing off all the unpleasant decisions into the long grass for Sir Michael Lyons means that that approach cannot be followed. No one knows how many bands there will be or where they will be located in the 2005 revaluation. As a result, the Valuation Office Agency decided that it had to calculate a numerical property value for every home, in order to place those homes in their appropriate bands later. The relevant internal note has been deposited in the Library:
"Given the degree of uncertainty around the council tax bands in 2007, EVERY property will probably need a specific numeric valuation so, when the bandings are finally agreed, properties can be allocated their bandings quickly".
The note lays the blame firmly at the Government's door:
"No decisions have yet been reached by the Government on whether, and if so what, revisions should be made to the level and number of council tax bands. Those decisions will be informed by the outcome of the review currently being undertaken by Sir Michael Lyons due to report by end of 2005".
Since that note was written, the schedule for the Lyons report has slipped further back.
The revaluation will be more expensive, more intrusive and much more difficult to perform than the last one, when only 10 per cent. of houses were inspected and, in the valuation office's own words, the remaining houses were assessed, "at the desk". Furthermore, the number of dwelling house codes has jumped from 10 to 17.
I am grateful to the hon. Gentleman for giving way. When valuations in the current valuation list for council tax are defended, a precise valuation based on purchase prices in the early part of the 1990s is used. Does the hon. Gentleman agree that there is no difference in effect between a revaluation before bands have been set in stone and a revaluation when bands have been agreed, which was the situation before the current valuation list?
That is an interesting view, but the valuation office notes, which are extensive, do not mention it. Sadly, the notes do not agree with the hon. Gentleman.
Turning to the dwelling house codes, I took it from what the Minister of Communities and Local Government said earlier that the patio tax will be worked out in readiness for the revaluation.
The new dwelling house codes include: number of bedrooms; number of floors; lowest floor level; conservatory type and area; outbuildings; and a new system to count the number of garage spaces and parking spaces. They include the introduction of new value significant codes, which in January 2005 were expanded to cover 66 different property features, such as: balconies; near a golf course; in a conservation area; large garden; large patio; roof terrace; sea views and views of hills or lakes; and gated estates.
In other words, someone who has worked hard to manage and improve their home will be penalised and taxed more. The council tax of a low-paid agricultural worker living on their own in a modest home overlooking Lake Coniston will rocket. Pensioners who have retired to little bungalows by the sea had better watch out. Under new Labour, only the rich can afford to enjoy a view or a well-placed patio. The result is that the codes ensure that properties with these indicators are pushed into a higher council tax band. In short, the patio tax becomes a new window tax. As The Sunday Telegraph commented yesterday in its editorial entitled, "Pay per view homes",
"The plan will allow ministers to increase council tax with a minimum of Parliamentary debate. It is true that they have not found a way of taxing happiness directly. But just give them time—they will."
We should be grateful for this important lesson in life under new Labour. As a gentle summer light caresses patios and plant pots around this sceptred isle, as hollyhocks and forget-me-nots bob in the warm breeze in this green and pleasant land, we should console ourselves with the thought that this is the clearest example of there being no such thing as a free view or a peaceful garden—all must be taxed and all pleasures must be stamped out.
That is the logical conclusion for a Government who have selected Northern Ireland as a guinea pig, with so-called discrete capital values that would make the council tax more progressive and target social needs. In plain English, council tax bills in Northern Ireland will soar. It has been selected for yet another experiment that involves a variation in the council tax—the death tax, whereby deferred local tax bills will be paid by pensioners. Vulnerable people must either forfeit their children's inheritance or face the prospect of bailiffs at the door. Only the Labour party could find ways to pursue poor people beyond the grave.
The Local Government Chronicle has described revaluation as "a ticking time bomb". All that the Government have done is to wind up the clock and adjust the hands. Revaluation and re-banding will still have a devastating effect. A disaster postponed is not a disaster averted. What seems like clever politics now will seem like cowardice a few years down the road.
I regret to say that I cannot support the Second Reading of the Bill. Having said that, the speech by Mr. Pickles was extraordinary. Before he got carried away in his flights of floral fantasy, he said that he agreed with the postponement of the revaluation and with the removal of the obligation to carry out revaluation on a regular 10-yearly cycle. I would have wholeheartedly agreed with him on both counts, but he does not appear to want my support.
Everyone who has considered this issue starts from the simple proposition that if we have a system of local government taxation based on local property values, those values must be revisited periodically. No one has argued credibly that the current values based on 1991 levels should remain the basis of council tax for ever more.
The right hon. Gentleman rightly highlights that the existing framework provides for revaluation if a property's value has materially changed and it has been sold. However, that does not apply if the property remains in the hands of the existing owner. That is one of the many inherent anomalies in a system which has prolonged gaps between regular revaluations, and one of the strong arguments in favour of a regular cycle of revaluation. I was therefore especially disappointed to hear the hon. Member for Brentwood and Ongar opposing the provision of such a regular cycle.
Does the right hon. Gentleman agree that, although the council tax is based, for collection purposes, on property, the valuation is required only for distribution of grant and tax?
The hon. Gentleman tries to lead me into territory that I shall probably cover when I reach a later part of my speech. I want to set out the principles that should inform a proper system of tax based on property values that allows for revaluation. I hope that the hon. Gentleman will bear with me for a moment.
The problem with the Government's position is that, although they say that they are postponing, not cancelling, revaluation, they have given no indication about when the postponed revaluation will take place. The date of 2007 was set for revaluation after a lengthy period of consultation. The Green Paper, "Modernising Local Government Finance", which was issued in autumn 2000, invited views on whether there should be provision for regular revaluations and, if so, how frequently. It was suggested that there might be six-yearly, eight-yearly or 10-yearly gaps between revaluations.
The 2001 local government White Paper, which I had the privilege of preparing and implementing, made it clear that respondents to the consultation overwhelmingly supported the principle of a fixed cycle. The White Paper announced the Government's conclusion that there should be a regular 10-yearly cycle of revaluation, with the first being based on 2005 values and taking effect from 2007. There was a logic behind that.
As my hon. Friend Mr. Borrow pointed out—as a former valuer, he is experienced in such matters—the cycle for valuation must be co-ordinated with the current five-yearly cycle of business rates revaluations to avoid imposing unreasonable pressures on the staff of the Valuation Office Agency. It was therefore considered sensible to conduct the first revaluation of council tax as soon as possible after the completion of the 2005 business rates revaluation and well before that of 2010. That was the logic behind choosing 2007.
That was not only agreed through all the usual channels of Government but, because legislation was required to effect the decision, debated at length in 2003 during the passage of the Local Government Bill. The measure was passed, arrangements were made to begin the revaluation in 2005 and the Valuation Office Agency undertook a great deal of preparatory work. I understand that some £60 million of work had already been done before it was decided a couple of months ago to stop the process.
Does the right hon. Gentleman accept that regional property price disparities are at the heart of the case for revaluation? If so, does he accept the evidence from the Halifax that those disparities have narrowed since 2001? Does he agree that, if the trend continues, the case for an expensive wholesale revaluation is critically undermined?
No, I do not. I shall deal with the evidence from the Halifax shortly. Regional trends, which are part of the picture, conceal many local variations, with both hot spots and cold spots in any one region. The proposition that regional price differentials might be narrowing does not obviate the need for revaluation because there will be considerable variations in property prices in every region.
My hon. Friend is absolutely correct. He identifies one of the glaring inconsistencies in the Opposition's position.
If a carefully thought through Government policy that had been the subject of detailed consultation and legislation—and which, incidentally, had been defended robustly against opportunistic Opposition attacks—was now to be reversed, one might think that there would be either compelling evidence to justify the volte face or specific alternative arrangements for conducting the revaluation that the Government accept must happen at some stage. As we can see from the Bill, however, nothing has been put in the place of the current requirement for a revaluation in 2007 and subsequently on a 10-yearly cycle.
I know that my right hon. Friend the Minister of Communities and Local Government has acknowledged—and, indeed, rather celebrated—the fact that he has accomplished a U-turn on this issue. I have no problem with U-turns if they replace a poor policy with a better one, but I do have a problem with a U-turn that replaces a sensible policy with a void, a vacuum, an empty space in which a revaluation might happen at an unspecified future date, but only if the Secretary of State decides to hold one.
I have a serious problem with that strategy because, as we all know, politicians are traditionally wary of revaluations because they fear electoral unpopularity. That sentiment is not the preserve of any one party; over the years, all Governments have been reluctant to proceed with revaluations because of the possible backlash from the electorate, who are likely to be unhappy about them. It is fundamental that there should be a regular cycle of revaluations in statute, so that that process—which everyone recognises must take place in order to support a credible system of taxation based on property values—will not be postponed simply because of short-term political fears.
I agree about the need for revaluations in property-based tax systems, and about the fact that politicians are deeply unwilling for such revaluations to be carried out. Surely that argument supports the objection to having such a tax as the main local government tax.
No, it does not. If the hon. Gentleman had been listening carefully to me, he would understand that it provides a reason for ensuring that we have a regular cycle for revaluation, so that such temptations to delay can be resisted. The argument in favour of a council tax is that it is relatively simple to collect and difficult to evade, and that it meets with a high level of acceptance. There are huge problems with his party's preferred alternative of a local income tax, which is neither predictable nor easily collectable. It would also be very easy to evade, and it would be open to huge administrative costs. It would also place burdens on business and result in arbitrary consequences for households with two or more earners, who would find that they were clobbered. The hon. Gentleman will realise, when he gives a little more thought to the issue, that the electorate roundly condemn his party's proposals as unworkable, as indeed are so many of the Liberal Democrats' proposals.
I am interested in the direction that this conversation is taking. Is my right hon. Friend aware that the Minister recently said that property-based taxes were introduced at a time when services—such as water, electricity and sewerage—were based on property, while services today, including education and social services, are based on people? Do the Minister's comments suggest that the reason for the delayed revaluation might be that, in the minds of Ministers, there might not be any need for a property tax in future?
I have listened carefully to the comments made by my ministerial Friends, and they have made it clear that they do not intend to move beyond the remit of the Lyons review, which is to consider changes to and reform of the council tax, but not a replacement for it. That was the remit given to Sir Michael Lyons, and that is the premise on which we are proceeding. If, in future, alternative plans are put forward, hon. Members will obviously wish to consider them very carefully, and with considerable scepticism. The experiences of previous attempts to change from a property-based tax to a person-based tax are not happy. The poll tax was one of the most unhappy experiences in the entire history of local government finance, and very few people would want to go back in that direction.
I would like to make some progress. I have just given way, and I do not want to take up too much more time. I hope that the hon. Gentleman will bear with me.
What are the consequences of the Bill? We know that the basis of the council tax—the 1991 values—will become increasingly remote from reality as we get further away from the current valuation date. Having to calculate notional 1991 values for every new property built is nonsense. As I mentioned in our previous debate on the subject, some areas of my constituency were entirely void industrial wastelands 15 years ago, and anything built there would have had no value at all, so, now, it is slightly odd to create notional 1991 values for properties built as a result of that area's regeneration. That pattern is replicated all over the country. In addition, as the former Minister responsible for local government, Mr. Curry, rightly highlighted, there are already provisions for revaluation of some properties where those properties change hands and there has been a material change in value. The anomalies will therefore get worse.
The overwhelming majority of properties, of course, have increased significantly in value since 1991—by some 216 per cent. on average, according to the Royal Institution of Chartered Surveyors. That is part of the problem. Many people who are not familiar with the arcane nature of the council tax process can easily be frightened into believing that because their property's value has increased dramatically over the past 14 years, they will be clobbered by revaluation. That is fuelled by unscrupulous Opposition scaremongering, of which we saw a great deal in the run-up to the general election, and of which we have heard a great deal more today. That does not help to foster a serious and rational debate about the proper system of finance for local government.
As the Government have made repeatedly clear from 2001 onwards, however, the purpose of revaluation is not to increase the council tax yield but simply to bring values up to date, so that the tax is based on modern values rather than values that are increasingly remote from reality. Were the bands to be increased in line with house price inflation since 1991, most households would find themselves in the same band as before, with no increased liability for council tax. I have seen no recent Government estimates for the numbers of households whose banding would either increase or decrease under a revaluation. My right hon. Friend the Minister of Communities and Local Government has assured me that no new Government estimates have been prepared for Ministers since the election. The only official figures are those prepared previously—before the April 2005 valuation date. I am a little surprised that new estimates have not been prepared to inform Ministers' decision to postpone the revaluation, but in the absence of up-to-date official figures, we can only go on the evidence produced by well-informed commentators such as the RICS and the Halifax building society. Both indicate that the majority of households would have remained in the same band as a result of revaluation, and also suggest that more households would have gained than would have lost.
I want to ask the right hon. Gentleman a very straightforward question: if what he says is correct, what went so terribly wrong in Wales?
As we have debated frequently in the past, the situation in Wales was very different because there was an increase in yield there. The Government have always made it clear that there would be no increase in yield in England. In Wales, the yield has increased by some 8 or 9 per cent.—
Order. May I remind Members that the Bill currently before the House has no reference to Wales? I can allow some reference to what happened, but I am mindful that this Bill is for England.
I am grateful to you, Madam Deputy Speaker, for your advice. I merely wish to point out that Welsh Assembly Members supported revaluation on the basis of being told at the time that there would be no increase in yield. I warn Members of what I call the mother of Parliaments, here in London, that they could be making the same mistake.
There is no such intention in England. The commitment was to ensure a revaluation based on the current yield, with no increase in yield. In Wales, a number of changes were made: an additional band was added, which must had some impact on that process. It was therefore a very different scenario, and we should not assume that because there was an increase in Wales, there would be a similar increase in England. If the hon. Gentleman examines the figures, he will see the difference. As I said, the estimates produced by both the Halifax and the RICS show that a larger number of households are likely to gain from revaluation than to lose. I do not remember the precise figures, but about 33 per cent. of households in Wales lost and only about 8 per cent. gained. That is a very different scenario from the one that we envisage for England.
I am puzzled by the right hon. Gentleman's suggestion that there may be more winners than losers. If that is the case, why are the Government running away from their decision?
I merely said that, in the absence of official figures, evidence from the RICS and the Halifax implied if a revaluation were conducted with no increase in yield—if house price values were simply uprated in line with average house price inflation since 1991—the overall impact would be neutral, but the number of households that would gain would be larger than the number of losers. As the figures show, that is because there would be rather more gainers in the lower house price bands, and a disproportionate number of losers in the higher bands.
That brings me to my final point. If those figures are valid, it appears that the Bill will be regressive. It will result in more households on lower incomes paying more than they should because of a failure to revalue, while those in higher income bands and occupying more highly priced properties, who would possibly have paid more because the value of their properties has risen, will be spared. I cannot support a measure which seems to me to have no logic and no principle behind it, and which will have a regressive impact. It saddens me to say this, but I will not be able to support the Government tonight.
Remarkably, this is the only Bill to emerge from the Office of the Deputy Prime Minister in more than a year. We must assume that the Department has been very busy with other matters. If this is the total production of 9,000 staff and two Cabinet Ministers, we need to ask some serious questions about the use of resources. Let us face it: there is not much to the Bill. It proposes postponing revaluation for the present because the Government think that it might be politically unpopular. The tragedy is that, to cover that giant U-turn, they have also postponed Sir Michael Lyons's review of local government finance.
Is it not embarrassing for Ministers to present the Bill as the sole outcome of nearly three years of reviews of local government finance? The first review, back in 2003, recommended a review of a review. As far as I remember, the review of a review was supposed to evaluate revaluation. Now the Government have reviewed the review of the review evaluating revaluation until such time as they can review the review of the review's review to revalue.
I cannot help thinking that when the review of the review finally gets around to reviewing the review on revaluation, the Government's response will be to set up yet another review. I know that it is dangerous to rush into decisions, but this must be the most reviewed act of dithering that we have ever known.
Debates on issues such as this tend to attract quite a small crowd, and we usually see the same few faces. That means that those in the Chamber should understand better than anyone else that local government matters, and that local government finance matters. Yet today we shall spend hours arguing about the essentially technical issue of the date on which property values should be fixed for council tax purposes, rather than asking any of the more difficult questions. We should be asking how much tax should be raised locally, what taxes local government should have power to levy, and how much freedom local government should have to spend its own money. We shall discuss none of those issues in detail, however; we shall have the same fatuous debate that we have had before. We shall rehearse arguments that have already taken place.
I find the Conservatives' position bizarre. We have discussed many times before whether they want to cancel or postpone revaluation. In the course of a single speech, I heard two separate views. They have said that they want to postpone revaluation, but oppose the Bill in their amendment because it does not cancel revaluation. We will hear the same arguments again and again. The Government will try to make a virtue out of a U-turn, and will not commit themselves to anything in particular. That strikes me as a terribly wasted opportunity.
Would the hon. Lady prefer the council tax revaluation to be postponed until the review of local authority funding is published, or would she prefer it to go ahead and then have the review of local government finance?
I shall answer that question during my speech. If the hon. Gentleman listens carefully, he will hear the answer.
What is there to say about this long-awaited Bill? Not a lot, actually. It does exactly what it says on the tin. It gives the Secretary of State the power to have a revaluation whenever he fancies it, instead of according to a fixed cycle. Hon. Members who want a revaluation, including Mr. Raynsford, are disappointed by that. The idea of a statutory cycle was, as the hon. Gentleman said, to remove the choice because, as everyone knows, if one gives politicians the decision there will be no revaluation. Keith Parry's marvellous Library note for today's debate includes an historical note on postponements of rate revaluations going back to 1925, all with similarly dubious excuses. That point has been well made.
Originally, the Government set revaluation to occur after the 2005 general election because they did not want the fallout to affect their chances. Now there will not be a revaluation until after the next general election—because they do not want the fallout to affect their chances. Will there ever be a revaluation? Will the timing ever be right? Probably not, so we shall continue to have a tax that not only is inherently unfair but becomes increasingly arbitrary, based on property values that are 15, 20 or 25 years old.
Revaluation, as we have debated so many times here, leads to winners and losers. As we have seen in Wales, its effects are often unpleasant, unfair and untidy. No doubt we shall hear from Welsh Members about the impact on their constituents. The hardship felt by many who have gone up multiple bands is the reason that my Welsh colleagues have been leading calls to extend the transitional relief in Wales, so that the situation gets no worse. The problem with council tax is that the tax itself is fundamentally unfair and bears little relation to one's ability to pay, so the arbitrary nature of band shifts following revaluation is felt all the more keenly.
The hon. Lady may be pleased to know that I am not going to talk about Wales. She said that the council tax is unfair in itself. Is not it the case that that simply was not an election issue, certainly not in 1999? It was not the council tax itself that was upsetting people, but the level of tax that they were paying.
I do not accept that. I was about to do what I do every time I debate this issue here and remind hon. Members how unfair council tax is. I could spell out again exactly how much better a local income tax would be but, as I said, it is always the same people in these debates and they have heard it all before.
I would like, therefore, to focus on the Bill's greatest sin: omission. The Bill does nothing to solve any of the problems that councils and council tax payers face. Local government is in charge of raising only about 25 per cent. of its money and, thanks to capping, it is not even fully in control of raising that 25 per cent. Hon. Members will remember with incredulity our debate in July, when, in a place that used to legislate for half the world, we were reduced to telling Aylesbury Vale district council what it could do with 4p per resident per week.
Because local government funds come in the form of handouts from central Government, the money comes with a host of qualifications, criteria, rules, regulations and restrictions. It is that relationship that damages accountability. It reduces local flexibility, undermines local responsibility, hinders longer-term planning and creates huge unfairness. It often leads to accusations, which are frequently unfair, that Ministers are using the power of the grant to favour their political heartlands. That mixture of central grant dependence, passporting, ring-fencing, targets and capping leads to the annual crisis in council tax rates, which began again just last week when the Local Government Association predicted a £2.2 billion black hole.
In a previous debate, the hon. Lady said that under her proposal for a local income tax there would be a substantial element of equalisation of central Government grant, and referred to the total amount that local income tax would raise. By simple arithmetic, the figure she gave would mean that the amount of equalisation grant that remained to be distributed would be roughly the same as it is at present. How, then, would the hon. Lady's vision of local government completely free from any grants from central Government come about?
First, we have always envisaged a two-stage process. We would need to scrap council tax and implement a local income tax. We want a shift between national income tax and local income tax, cutting national income tax and raising proportionately more locally. We would leave that to local discretion, but we would also localise business rates, which—
I was trying to avoid discussing the detail of local income tax, but hon. Members cannot resist it and we get drawn into these debates.
As I said, we have a huge black hole and we will go through the usual saga: posturing by the Government, visions by councils of their spending and concomitant headlines about cuts in social services. There will then be marches against council tax rises and finally a last-minute panic—
I was trying to make a point about what the Bill omitted, but clearly we shall have to have that detailed debate elsewhere. My point is that this is a ridiculous waste of time and energy and that going through this saga is holding local government back from making decisions itself, which is vital. I am disappointed that the Bill does not include those matters because it is vital for improving public services that we have that kind of provision. We are easily distracted by revaluation, which we all know would only fuel the sense of outrage in its losers, who already hate the tax anyway.
The political implications of rocketing bills are easy to grasp. Certain Government members probably even revel in having made a barefaced U-turn on revaluation because it means that they can boast about their honesty in admitting a mistake. The Minister of Communities and Local Government, Mr. Miliband, said at the time that the Government were still moving forward—just in a completely different direction. Clearly, he is a great wit, but his position is of no help to those in local government who need to know what the Government are planning.
The bizarre argument that the Government are postponing Lyons and revaluation to allow Sir Michael Lyons to look at the issue in a more holistic way does not hold water. The date for revaluation has been set in stone since the last Local Government Act. Why did it take the Government two years to realise that voters live in houses?
Revaluation is basically a political sideshow. Postponing it does nothing to help pensioners lining up to go to prison because they cannot pay. Nor does it do anything to tackle the injustice of families on half the national average household income paying over £1,000 in council tax.
This has been a relatively short speech, but then this is a short Bill that aims low and achieves less. Frankly, there is not that much to say about it. If it is passed with no further reforms, we shall have the absurd situation of having a tax based on a poor guess at a home's value 15 years ago. But rejecting it, as the Conservatives are trying to do today, would be just as pointless, because revaluation would do nothing to make council tax fairer either. It would just make it slightly different. Frankly, neither option is appealing.
No, I am about to finish.
This is rather like asking a vegetarian whether they would prefer steak or bacon. The Bill should be withdrawn and replaced with something sensible that tackles the system of local government finance. The Government will not do that, but we will when we win in 2009. So while we wait for the power to introduce something different, we see no point in having a revaluation. It would be a costly waste of money; as we have heard, £60 million has been wasted on it already. It would be a total waste of time, given that we intend, when we are in government, to scrap the tax anyway and replace it with local income tax.
I shall not go though all of the arguments again, because we have heard how much better a local income tax would be. We have heard also that we would localise business rates and make sure that local government has a proper system of finance. Even if hon. Members disagree with me about local income tax, they should agree that this whole revaluation fiasco is merely an excuse to defer once again the crucial question of a decent financial settlement for local government. Transforming local finance is key to transforming public services. We should not waste our energy fighting over revaluation just because it is an easy political game. We should invest our energies in solving the real problems: that the council tax is unfair, and that local government is held to ransom by the current funding system.
Every minute that we fritter away on revaluation is a minute that we do not spend trying to solve those underlying problems, so I think that I had better shut up and sit down.
In getting back to the subject of this Second Reading debate, I should begin by pointing out that, as a member of the Institute of Revenues Rating and Valuation, and of the Society of Clerks of Valuation Tribunals, I have some professional involvement in this area. I have certain predetermined views on local government finance.
I should also make it clear that I see some merit in the Government's argument for ensuring that revaluation is tied to a review of, and re-jigging of, local government finance; my real concern is the length of that delay. The history of any property tax shows that the longer revaluation is delayed, the more that tax is fundamentally undermined. There was a revaluation in the years immediately after the war, when the Inland Revenue was responsible for valuing the rates. There was another revaluation in 1956, and further revaluations in 1963 and 1973. By the end of the 1980s, after various Ministers delayed a further revaluation and following the experience in Scotland, it was impossible for the then Tory Government to have another one. We ended up with the poll tax.
I am listening to the hon. Gentleman's opening shots with interest. He is comparing rates with council tax, but the situation is different. At the moment, valuation for council tax purposes is used for the distribution of grant and of the tax itself. So many of the arguments used earlier by Mr. Raynsford actually support the positions of both the Government and of Conservative Front Benchers, so long as the proportions do not change dramatically.
I shall deal with that point now. Let us contrast such revaluations with the revaluation of business rates. Since business rates were nationalised in 1990, we have stuck to five-yearly revaluations, which have been supported by all those affected. Their argument is not that because no big changes have occurred in a given five-year period, there should be no revaluation. Rather, the argument is that if comparatively small changes in relative values occur under a system of regular revaluations, the impact of each revaluation is not so massive, be it on businesses or those occupying domestic property. If we argue that we do not need a revaluation because—allegedly—there has not been a big change in relative property prices in the past 14 or 15 years, and if we have revaluations only when there is a massive change in the relative prices of property, the danger is that the impact will be huge, with a lot of winners and a lot of losers. Under such a system, it will become virtually impossible for a Government of any colour to proceed with that revaluation.
The hon. Gentleman is talking a great deal of sense. But I am concerned about the sanguine view that, because the majority of properties will stay in the same band—the point made by Mr. Raynsford—which is inevitable, given that we are talking about an average, that is somehow all right, and that the winners and losers will somehow balance out. Is it not true that the winners will be concentrated in certain geographical areas and the losers in others? My part of the world, the west country, has experienced rapidly increasing property prices—a point that applies whether one is on a high or a low income. That is the basic unfairness.
I come back to the experience of regular revaluations for business rates. When revaluations took place in the 1990s, some parts of the country experienced booms in property rents and certain classes of property had large increases in comparison with others. Provided that we have regular revaluations and some sort of transitional relief in place, we have a way of coping with the problem. We do not want to find ourselves in a position where we cannot have a revaluation because the change is so massive.
I remember looking into property values in central Liverpool in the early 1980s. At that time, rates were based on rental values of the early 1970s and many business properties in the area were attracting more in rates than in rent. At the same time, there were tenants in central London paying 10 or 20 times as much in rent as they were in rates. That reflected the change in the economy during the period. It was also reflected in changes in domestic property values, albeit to a lesser extent.
Another important problem with putting off property revaluations is that they have an impact on Government grants. The longer we delay revaluations, the longer it will be before Government grants reflect economic differences between one area and another. Liverpool got hammered in the 1980s with cuts in services and real financial problems. Had there been regular revaluations throughout the 1970s and 1980s, I suspect that Liverpool city council's budget position would have been much stronger in the 1980s because the revaluations would have reflected the recession in the city and would have fed through into the amount of Government grant awarded. We never did the revaluations, so that never happened.
I shall vote in the same Lobby as the Minister tonight, though I was tempted by the appeal of Mr. Pickles to vote in his Lobby—until he spoke. I hope that when the Minister sums up, he will provide some reassurance that we are not talking about a long delay.
I want to restate a point that I made in an earlier intervention—that the reason for having a revaluation in 2007, as against a business rate revaluation in 2005, was to even out the work load of the Valuation Office Agency, the valuation tribunals and all those involved in the valuation of rating and council tax. The danger is that we could end up with a revaluation of council tax not in 2011 but in 2013—20 years after the first council tax valuation. It is important that the revaluation of council tax ties in with the reform of local government finance because of the revaluation's impact on the amount of Government grant. Those two aspects need to be tied together under a new regime, rather than introduced separately. The timing is crucial.
I want to comment on the views of Her Majesty's Opposition. On the one hand, they complain that domestic property prices have rocketed, with huge increases all over the place, so that a revaluation will mean some people paying a huge amount more. On the other hand, they say that there has been hardly any difference, so we do not need a revaluation. Both those arguments cannot be right. I have served on Standing Committees in which Conservative Front-Bench spokesmen have said that there should be regular revaluations. There is plenty of documentation in the Library about the occasions on which Tory Front Benchers have argued in favour of having regular revaluations. Indeed, the Front Benchers currently accept the need for them, albeit as long into the future as possible.
The danger is that if we continue to put off council tax revaluation, whoever is in power in five or 10 years' time will be tempted to do a Michael Heseltine and we shall end up with council tax being unsustainable, so that it has to be ditched completely and something else dreamed up in its place. Let us do it properly. I want some assurances from the Minister that the postponement will be a short and sensible one, not one born of political expediency.
This is a grubby little Bill that reflects a very English mess. If we build new houses—and the Deputy Prime Minister wishes to build very many new houses—we will all have to pretend that they were built in 1991 for the purpose of valuation and a fictional value will be associated with them. Let us suppose that I buy one of those houses and put on a conservatory and a granny annexe—although they are unlikely to be big enough to allow the latter addition—and, a couple of years later, I sell it. It will be revalued for council tax purposes and will probably go up a band. Let us suppose that Mr. Raynsford lived next door and had decided to spend the rest of his life in his house, so he had added a conservatory, a granny annexe and an extremely well-appointed garden shed. He would pay less council tax, even though he had a much more valuable asset.
There are between 1.6 and 1.8 million house sales a year in Britain, or some 34,000 a week. Even allowing for sales of properties to which no substantive change has been made, a relatively high proportion of houses have been revalued—some more than once, depending on property turnover in the area—and that creates anomalies. Across the country, people ask, "Why on earth is he paying the same as I am? He has a much bigger house." My colleagues talk about the battles and the discontent that a revaluation would bring, but we should remember how much seething discontent can be caused by failing to have a revaluation and the continuation of the anomalies.
I know that you do not wish us to trespass beyond Offa's Dyke, Madam Deputy Speaker, but the situation in Wales is interesting. There was a revaluation in Wales because the Welsh authorities decided that they wanted to get more revenue out of the system. It was not revenue neutral, because they set out to make it into a tax-raising venture, which was very successful. However, one consequence of the present situation is that the council tax will come under increasing strain. Local government finance has a wonderful capacity to start as a dot on the horizon no bigger than a man's fist and grow to emerge as a subject of colossal emotive and totemic power. We have hit just such a rough patch in the last couple of years.
The Minister will say—I remember saying it myself and the right hon. Member for Greenwich and Woolwich also said it—that council tax yield is not the same as average council tax. Of course it is not, because more houses are built and houses are revalued, but it does provide a good rough indication of likely council tax increases. We are now destined to spend the next five or six years going through the same sequence of minatory arguments, including threats of capping and blaming the local authority. The silliest argument of all pretends that the amount of money a council raises has nothing to do with the nature of the property in its area, as though somehow there was a curious moral perversity in the fact that Westminster manages to raise more money than Burnley on the basis of its council tax stock.
More and more pressure will be felt because public expenditure is coming under strain and chickens are coming home to roost—as I forecast last year. There are reasons for a postponement for one year, and Sir Michael Lyons accepted that that was reasonable. For example, the changes in education funding and the introduction of three-year budgets make it reasonable to pause to see how all the bits will fit together. However, Ministers have suggested that we wait until there is no turbulence in house prices. What a wonderful notion. After all, the Chancellor of the Exchequer set up the Barker review to discuss why we had permanent turbulence in house prices. The link to structures is one of the most grotesque non sequiturs that I have come across, even from this Government. Ironically, we may have been living through a period when price disparities were closing to some extent. Select parts of my constituency are approaching the levels of the south, but as Mr. Heath would say, the variation regionally, and even locally, can be very significant indeed.
The right hon. Gentleman was talking about houses that had changed hands or been improved, but there is the significant problem of, for example, an elderly lady living in Rose cottage in a desirable village in my constituency. She has never improved her house and never received any income, yet the price of her property would be hugely inflated over time simply because people with London salaries like the idea of living in Rose cottage in my constituency and are prepared to pay a large amount of money for an unimproved cottage. Is there an answer to that in the council tax framework?
From my reading of the Sunday papers, I understand that the Cotswolds are no longer what they used to be because all sorts of fashionable people who own large properties in London, which are no doubt at the top of the band, have gone there and opened up little bistros. One perfectly reasonable answer for a person who is asset-rich but cash-poor, which is the situation of that lady, would be to allow her to roll up her council tax into the final estate. There is nothing inherently unreasonable about that notion, and it is worth examining.
But some people, such as those who rent, have no assets to liquidise and for council tenants in particular there is no relation whatever to the worth of their property.
If we have a property-based tax, a remorseless logic follows from it, which is that properties must reflect market value, albeit with some delay. The hon. Lady went into review of review of review. I thought that there was a Liberal Democrat review of their local government finance policy, but it appears to have passed her by. The Liberal Democrats did comprehensively badly in the south-east of England and a significant explanation for that may be the amount that bills would have hit home for property owners in the region.
It is cloud cuckoo land to think that we will have a period of no turbulence. Of course, there is a period of minimum political turbulence coming up—roughly in 2007, funnily enough, just when the revaluation was timed to hit. A Government who usually have an unfailing eye for timing appear to have missed that. The real problem is that the Government have discovered that there will be losers. They do not like losers; we cannot have losers under a Labour Government. Everybody has to be a winner all the time at the coconut shy. However, it is possible to deal with that, as I shall say in a moment.
We are heading for conflict and much barren argument. Inevitably, old age pensioners, the canon or deacon of somewhere or other or belligerent elderly ladies will turn up at our surgeries—we wish that our agent could spot them in advance—all determined to set the world to rights. I wonder how much it will cost the taxpayer by the time they have gone through that long process, but they will manage to avoid paying fifty seven pounds, four shillings and threepence ha'penny, or whatever the amount happens to be.
There is a way through, however. It is not rocket science, although I hate to use such well-worn expressions; I do not do rocket science as anyone familiar with my difficulties in handling the video will know. The first solution would be to link revaluation and re-banding. They go together; they are the salt and pepper of the process. Secondly, it would be perfectly possible to limit changes to a single band. In my part of the world, which might be described as regionally depressed, there are none the less areas that might be described by the right hon. Member for Greenwich and Woolwich as hot spots—Harrogate is one of them. We could stop that; the process does not have to be too sophisticated. There could simply be a shift of one band.
I would add an upper band. Madonna has a predilection for large houses in London and large country estates. I find it charming that someone should wish to adopt the English way of life so comprehensively and expensively, but I see no reason why she should not pay an extra bob or two at the top of the band in London for that privilege. We could also add a lower band, to catch the trailer parks or areas in industrial east Lancashire that Mr. Borrow will know about, where there is a long history of deprivation and empty property. It is possible to manage all those things.
The sensible thing is to drop all the fancy stuff. My hon. Friend Mr. Pickles was busy detailing all the sophisticated knobs and whistles that might be attached to the process. We should forget all that. The original valuation was simple, and we should keep the current one as simple as possible.
I want to return business rates to local government, with the proper safeguards. We only need to read the snappy little document put out by the ODPM to realise that when council tax was introduced in 1993–94 business rates represented 28 per cent. of local government revenue and council tax 21 per cent. However, the estimates for the current year are that the figures will be 21 per cent. for business rates and 25 per cent. for council tax. The position has been inverted. Business has had an easy ride over the past decade compared to council tax. It is possible to set up safeguards that would reassure business about abusive increases. Furthermore, we might just as well recognise the reality of education expenditure and take the education block back into central Government. That would pretty well solve the problem. We would have gone an enormously long way towards creating a sustainable council tax and we would have returned to local government a much wider range of local resources over which it had control.
The history of local government funding is dismal. It is a long tale of prevarication and delay. I once described the search for a sustainable local government funding system as like the search for the north-west passage. The problem was that first, it did not exist, and secondly, there was a terrible danger of getting stuck in the pack ice. The Government are stuck in the pack ice. If they are not careful, council tax protests, difficulty in funding public expenditure and the annual demand for some sort of bung to make things easier will cause the structure of the vessel to be crushed by the pack ice. The Government will find themselves in a wholly justified mess, which I shall rue from the point of view of my constituents but applaud in seeing the Government get their just deserts.
The worst thing is that it will be 2011 at the earliest before anything like a proper package can be introduced. There will be a long interregnum. There may be light at the end of the tunnel, but the light is entirely at the discretion of the Minister and it is a hell of a long tunnel. The light is faint and flickering and as the right hon. Member for Greenwich and Woolwich says, the Government have taken away a proposal for action and replaced it with a void. They have removed the prospect for any long-term action.
I am afraid that that is all of a piece with the Government's actions. We have backed away from a referendum on the European constitution. We have backed away from a sensible outcome for public sector pensions. We have backed away on local government funding. I just hope that the Government back away from their proposals on terrorism, the one thing that they should back away from, but we see that the Prime Minister intends to remain obdurate.
The Bill is silly. It will not get anybody out of a mess. The Government have exchanged what might have been a brief spurt of indignation for the certainty of five years of increasingly violent guerrilla warfare, which they cannot win and that will continue to gnaw away at them. It needs only one little old lady to chain herself to the proverbial railings, to turn up before the magistrates, and the Government will be right back in the syndrome. The issue is totemic. The Government cannot win because they have deliberately chosen not even to try.
My contribution will be short. When Albert Einstein wrote the general theory of relativity it was said that only three people in the world, including him, could understand it. Similar things were said when Isaac Newton wrote the "Principia". No such lavish claims have ever been made about the number of people who understand local government finance, although I suspect that over the years it has become so complicated—
The hon. Gentleman may completely understand local government finance, and I shall give way to him in a second.
Local government finance has become so complicated and difficult that I do not believe that even the gurus in the ODPM completely understand it. Now is the time, with the review of form and function, when the system could be simplified, and I shall deal with those points in a minute.
I wonder whether the vast majority of the population's lack of comprehension explains why Ministers do not seem to accept responsibility for the fact that council tax increases are a direct response to central Government policies and have very little to do with local authorities' behaviour?
The hon. Gentleman makes his point aggressively, but when the council tax was set up by a Conservative Government after the failure of the poll tax, a large gearing effect was inherent in its structure because most of the money for local government came from central Government. The hon. Gentleman should not be quite so aggressive about a point that relates to the consequence of the Conservative Government's policies of 10 or 12 years ago.
The issue before the House is relative simple. In a sense, one could say that one agrees with it or does not agree with it. It is whether the revaluation of council tax should be deferred and the power handed over to the Secretary of State to determine whether that should happen. If that were all that was being asked of the House, the answer should be no. Mr. Curry made a perfectly good point, as did two Labour Members, for regular revaluations. My hon. Friend Mr. Borrow said that the longer the revaluation is left, the more a property-based tax is undermined. What surprises me about the debate is that Labour and Opposition Members think that that is necessarily a bad thing while the Lyons review is considering the functions and finance of local government. I do not necessarily think that it is a bad idea because the council tax was introduced in a panic after the Conservative party had politically assassinated a Prime Minister. The poll tax, which Conservatives introduced because they had failed to revalue the previous rating system, turned out to be probably the most unpopular tax that this country had seen in the previous 200 years.
The council tax itself was better than the poll tax—the community charge—but is it something that, 12 years on, Labour and Opposition Members should be going to the barricades to defend? I think not. That is why I will vote in the Lobby tonight with my hon. Friends who sit on the Front Bench. If we were simply asked whether giving the Secretary of State the power always to determine when a property-based tax should be revalued was a good thing, I would say that, on its own, it was not. However, in the light of the Lyons review of form and function, it is just about justifiable to look at the situation 12 years after the council tax was introduced, after many changes have been made in local government structures and when some are still in the pipeline.
I do not want to stray too far off the point—this relates to the Government's argument about why we should delay the revaluation—but at the bottom of the debate lies what we think local democracy's future is in this country. The simple answer, which is difficult to reach, is that local people in cities, towns and shires should be able to take decisions about the matters that they want to determine and that they can relate to, and they should be able to raise a lot of that tax locally themselves. We have got the balance wrong in this country, when only between 20 and 25 per cent. of tax is raised by the council tax, and when, if taxation is considered across the board, 2 or 3 per cent. of tax is the responsibility of local democracy.
My hon. Friend was a distinguished leader of one of the largest authorities in England before his election to the House. Is he satisfied about the direction of our local government policy? Local education authorities are being neutered. Social services are standing ready for absorption by the health service. Housing departments are being coerced into stock transfers. Are we living up to the ideal, which we espouse at election times, that we believe in local government? It seems difficult to judge, does it not?
Thank you for that guidance, Madam Deputy Speaker. I shall try, with your guidance in mind, to answer the question by relating it to the revaluation and the Lyons review of local government functions and finance. The reason for the delay is that if we want to comply with those principles—I share some of my hon. Friend's fears—the council tax, which was set up in response to the crisis of a Conservative Government, simply will not bear the weight of democracy.
We should also remember in considering the revaluation that although our constituents get very excited about the council tax going up—I understand why and there is some unfairness in the system—I suspect that the Labour party's communications and propaganda do not make enough of the fact that we are still paying 2.5 percentage points of our VAT more than we were paying before 1993 to pay for the mess of the poll tax previously. I use that figure to illustrate the difficulties in using council tax, with its imperfections, as a basic tax to sustain local democracy. People in the streets are not angry that we are paying 17.5 per cent. VAT, rather than 15 per cent., but they are genuinely concerned about council tax because it increases year on year and a bill drops through the door. When Lyons looks at that, people's perceptions must be taken into account.
Does the hon. Gentleman accept, however, that the people of Wales are extremely angry that they are being singled out to pay higher rates of council tax than those of equivalent property owners in England?
I do not know whether the hon. Gentleman was in his place previously, but if he had listened to what my right hon. Friend the Member for Greenwich and Woolwich said in reply to a similar point, he would have heard him explain that the decision on council tax was taken on a different basis in Wales to raise extra money. That is not the Government's position. There is a difference, and we are not allowed to talk about that anyway, are we, Madam Deputy Speaker?
The other issue that we should consider in deferring the revaluation of council tax is its efficiency. People have been very careful and accurate to describe the council tax as a property-based tax. Of course, it is a property-based tax, but it also has an element, which is left over from some of the thoughts on the poll tax, that is related to the number of people in the household. People are entitled to a 25 per cent. discount if they live on their own. Although this might not be completely fair, I have collated two sets of statistics on the matter, which indicate that there is a problem with the council tax and its revaluation.
Some 3.5 million people are not on the electoral register. It is my contention—I have some evidence for this—that a large percentage of the people in my constituency who are not on the electoral register are avoiding paying council tax. When we consider the revaluation of council tax, it is important to know how many people pay it and how many others are ever likely to pay it. I have checked the situation regarding the houses in one of my inner-city wards. It turns out that there is a ratio of two women to one man, but if one walks around the streets of that polling district, one realises that the ratio is 50:50. The conclusion is fairly obvious: a certain degree of council tax evasion is going on, which the Electoral Commission has picked up through its study of how many people have not registered on the electoral register. If we are considering deferring the revaluation, we must look at the basic efficiency of the council tax. It is considerably more efficient than the poll tax, but not as efficient as the domestic rates were.
I know that you will not allow me to stray on to the functions of local government, Madam Deputy Speaker, but local government has shrunk. Parts of it have been pushed into quangos such as learning and skills councils and regional development agencies—Conservative Members probably have a list of them. The Conservatives were responsible for some such quangos and this Government have been responsible for others. We must consider not only the weight of democracy that the council tax can support, which is not that much, but the democracy that it should support. Given the two contradictory problems of the inefficiency of the council tax and the fact that little of it is determined locally, and what I would like to see coming back to local government, I am happy to support a deferral of the revaluation of council tax because it will be no friend to that property-based tax. I hope that Lyons will understand such things and look at the problem thoroughly, instead of just taking instructions to say that we should strip so much out of local government and destroy more local democracy because that is all that council tax will bear.
Mr. Pickles did some knockabout stuff at the beginning of the debate, which was understandable in a Second Reading debate—some of it was quite witty and funny. However, the Conservatives changed their policies on local democracy, which were disastrous in the late 1980s and 1990s, so all of us should try to reach a consensus on finance and function in local democracy. I say in all sincerity to Conservative Members that we should treat the deferral of the revaluation of council tax as a serious opportunity.
We have heard several thoughtful speeches—the last two were good examples. It must be accepted that there is no outcry, with the possible exception of two Labour Members, in support of a national revaluation. However, my right hon. Friend Mr. Curry pointed out that there are local cries for revaluation, which I accept, so I thought that I would try some lateral thinking about that. My right hon. Friend and I used to take that approach in a little office down the road when we discussed such matters previously. Today, however, I want to use the reasoned amendment as a way to look for a slightly different approach.
Although the council tax is a property-based tax, we must remember that it is not actually based on property values in the same way as business rates or the domestic rates. The slightly different approach behind the council tax has two effects. Valuation is used to put properties into bands through which the tax is distributed locally. Importantly, especially for people in the south-east, such information is used by the Government in their assessment of ability to pay when grant is distributed, which has led to a dramatic shift of grant from the south-east to northern urban areas since the new system was introduced.
We should be able to think about a slightly different approach. It would be sensible enough to accept the Government's proposal to delay—perhaps completely—a national revaluation. However, we should also set the situation legally so that the Secretary of State could allow regional authorities—if we end up with regional authorities, heaven forbid—or at least the taxing authorities to reflect any dramatic changes that might occur in their areas. We could thus go for localised revaluation. I cite that specifically in response to the point made by my right hon. Friend the Member for Skipton and Ripon that there are areas—the Thames Gateway will probably be a classic example—in which huge amounts of building will occur, so revaluation due to the sale of such properties would obviously be appropriate, and perhaps necessary. That might mean that the value of the bands in such areas would shift.
The major effect of the council tax that we must consider is the fact that the Government mistakenly base ability to pay on the value of properties. That is why a national revaluation could have a dramatic effect on the south-east and London, while being positive for council tax payers in the north-east and the north in general. Using slightly lateral thinking to find a different approach, albeit perhaps from a rusty base, I think that we should be considering a different way of judging ability to pay.
An obvious approach would be for the Treasury to produce each year a borough-by-borough estimate of individuals' income throughout the country. That assessment could be a substitute for the valuation bands with which we currently judge ability to pay and grant distribution. Such an assessment should be complemented by a system to assess people's cost of living. Part of the cost of living, especially in London and the south-east, is dependent on the value of properties because of the size of their mortgages. That factor should be reflected when the grant from central Government is calculated, but it is not.
I support the Government in one aspect because the delay will create the opportunity for more radical thinking than Sir Michael Lyons would have been likely to achieve without the Bill. I support the reasoned amendment because we must move away from a national revaluation of properties that are not business properties because of the reasons that I have outlined. I especially support my Front Bench colleagues because I have deep concern, contrary to the view of my right hon. Friend the Member for Skipton and Ripon, about the proposal to create extra bands instead of changing the valuation of the existing bands, because that would shift dramatically the proportion of grant allocated throughout the country, which could cause damage.
So, I half welcome what the Government are saying but more particularly I welcome the approach taken in the amendment, because it gives us a chance—I suspect that the Government will not accept it—to come back with the product of a slightly deeper re-think than what my right hon. Friend the Member for Skipton and Ripon has described as a grubby little Bill.
Members on both sides of the House are aware of the importance of a good relationship between people and their local authority. Like many Members here today, I seek improvements to the system that will not only enable a more efficient collection of funding and delivery of local services but strengthen the relationship between local councils and their stakeholders.
During this year's general election campaign, I read with interest and not a little disbelief the Opposition parties' proposals for collection and for reforming the council tax system. The Conservatives proposed the postponement of revaluation and promised simple council tax cuts which were unaffordable and would lead to an inevitable loss in service provision. The Liberal Democrats, who now say in the House that revaluation would be a waste of time, offered a local income tax system which would be expensive to run and would penalise hard-working people across the country. Two contrasting proposals—one irresponsible, the other unworkable.
The circumstances of the local income tax, as outlined in the Liberal Democrats' proposals, were unworkable.
The system is in need of reform. I am aware from correspondence and conversations with my constituents that a growing section of our population feels that a more equitable means of funding local government is needed—not just revaluation. That Opposition parties have been unable to capitalise on that sentiment for electoral gain demonstrates the sensitivity with which the electorate view this subject. People want real solutions based on considered inquiry.
Those points show that we can do better. Now is not the time for tinkering around the edges of council funding. We stand at the beginning of a new Parliament—time enough to investigate thoroughly the many ways forward, to listen to the needs and aspirations of all concerned parties, and to present to the people a bold, more equitable future for local government.
I have been contacted, as I know have a number of Members present, by the IsItFair campaign group. Its proposal to scrap local taxation and to replace it with higher centrally collected VAT and income tax would be a disastrous move in the wrong direction.
Order. May I remind the hon. Lady that we are asked to confine the debate today to the Bill before us, which is about the dates of revaluation of council tax rather than local government finance?
The hon. Lady has clearly thought through her speech; it is a measured speech. I am interested in her comment about equity. Does she think that it is equitable that as a result of revaluation in Wales 33 per cent. more homes are paying more? Is she in favour of revaluation?
Order. May I clarify matters? A passing reference to Wales is acceptable. What cannot take place is a whole speech referring to Wales, because this Bill and revaluation do not affect Wales.
Thank you, Madam Deputy Speaker.
If I may return to England, in the south-east and in my local authority of Brighton and Hove, revaluation would have done little to redress inequalities without an accompanying restructuring of bands. According to housing statistics published by the Council of Mortgage Lenders and the Office of the Deputy Prime Minister, between 1992 and 2004 house prices in the south-east rocketed by 210 per cent., while average earnings of mortgage borrowers increased by only 93 per cent. Meanwhile, in the north-east of England, for example, house prices went up by 167 per cent. and earnings by 83 per cent. Therefore, the gap between house prices and earnings is widening across the south-east.
While it is increasingly difficult for younger people in my constituency to get on to the property ladder, there is great concern among older people about council tax increases. The burden of council tax is higher for pensioners than for many other households. The council tax benefit system is a great help for them, but many who are entitled to the benefit still do not claim, and most of those are pensioners. Therefore, we need to look at the operation of the council tax benefit system as well.
We need not just to revalue but fundamentally to rethink the way in which local government is funded. That is the only way to revolutionise people's relationship with their local council and to increase the effectiveness of local service delivery. Some good and imaginative work has already been done, adding greatly to the debate. I read with interest the paper written by my hon. Friend Dr. Whitehead, which outlines proposals showing the potential for local revenue collection. Some contributions add to the ongoing deliberations on the Labour Benches on how to be equitable with tax collection yet fair to economically vulnerable members of our communities—pensioners in particular. Unlike the opportunistic approaches demonstrated by some Opposition Members, those meaningful contributions demonstrate the potential for improving the relationship between people and their local councils, as opposed to driving a wedge still deeper.
I support the call of my hon. Friend Mr. Borrow that if there is a revaluation it should not be too far in the future. However, I also voice my support for Sir Michael Lyons' review process, especially now that his remit has been extended to include the future of local government in a wider context. This is a one-off opportunity to look afresh at the situation and to offer the people of this country a bold new vision of local government and service delivery. That vision has the potential to be fair to the regions as well as to local communities, in addition to fostering a more equitable relationship between local councils and the communities that they serve.
I welcome this opportunity to speak about council tax, because the issue is causing immense concern in my constituency. I speak for many Basingstoke families and pensioners who face staggering increases in council tax as a result of the actions of this Government. Those families and pensioners would face almost untenable costs if the Government implemented their intention to revalue, so I support scrapping revaluation in its entirety.
We are told that the proposal is revenue-neutral, but the actions towards householders in many other aspects of our lives suggest that the cynicism expressed from Opposition Members may be justified. If I may, I shall look at this issue from a slightly different angle—from that of our constituents. A house is a home where we raise our families and live our lives. If we are fortunate enough to own our own home, our families are offered a certain level of security. This Government are using our homes as another way to punish hard-working families for doing the best for their children and to punish pensioners in their retirement.
House price inflation does not deliver an additional income to householders. It does not put an additional pressure on local services, and as we have heard today the relative level of house prices has not changed regionally for a decade. Under this Government, house price inflation has been seen as an opportunity for an additional back-door tax on pensioners and hard-working families. Council tax revaluation is just the latest in a long line of such measures.
The Government are happy to recognise an increase in property values when it comes to council tax, but not when it comes to inheritance tax. They have continually failed to raise inheritance tax thresholds to reflect house price increases, and in the process have added about a £1 billion tax take to the Chancellor's coffers. Under Labour, stamp duty has tripled in my constituency, with the stamp duty bill for an average detached house being almost £4,000. In Basingstoke, stamp duty is slapped on even the average flat that would be within reach of a first-time buyer. One in three children aged 10 today will be able to own their own home in the future. Contrast that with the last Conservative Government, who helped 2 million people get on the housing ladder under right to buy. The Government have declared war on our home owners of the present and the future.
Delaying revaluation will leave the sword of Damocles hanging over the heads of pensioners and families who have already been penalised enough for doing the right thing, working hard to provide a safe and secure environment for themselves and their families. The Government have tried to paint a different picture and claim that revaluation will be revenue neutral, but that assertion has been blown out of the water by what has happened in Wales, as we have heard today.
The trick with the Government's claim that revaluation will be revenue neutral is that nationally, it probably will be revenue neutral, but it will be to the disadvantage of my hon. Friend's constituents and to the advantage of those in the north because of the way in which the ability to pay assessment uses the shift within the banding. She is right. It is another case of the Government hiding the effects and leaving local government to take the blame.
My hon. Friend makes an excellent point. In areas such as my constituency in north Hampshire, where we have seen house prices increase by 13 per cent. more than the regional average, we will be waiting for tax hikes of around £300 per household, taking the average council bill to well over £1,500, which many of my constituents cannot afford.
On the total tax take, as opposed to the vehicle for collecting tax, does my hon. Friend agree that the Government have deliberately forced up the total council tax take? Had they not done so, we would not have had anything like the recent problems with the collection system.
My hon. Friend makes an excellent point. With council tax increases of over 70 per cent., it is not surprising that people are uncomfortable with the current situation.
If more evidence were needed—not that I think it is—that revenue neutral arguments can be less than honest, perhaps we should consider the business rate revaluation. The Government said that that was aimed not at changing the amount of money collected nationally, but at ensuring that individual rateable values reflected the changes that have taken place in property markets since the last revaluation in 2000—very much the arguments that have been rehearsed today.
However, the business revaluation hiked taxes on local firms by more than £1 billion a year across the country, pushing up average firms' bills by three times the rate of inflation. In Basingstoke, which is one of the most important hubs of business and enterprise in the south of England, the average bill paid by local firms has risen by 6 per cent. to over £16,000 a year, despite the Government's claims that the business rate revaluation would be revenue neutral. Almost 2 million businesses across England were sent revised business rates in April. That money will not be kept by local government, but will be snatched back by central Government. Higher taxes on local firms will damage the economy and increase the prices in our shops. Our experience to date is that re-banding is no revenue-neutral balancing exercise, as suggested by the Government today.
There are more deeply rooted reasons for the Government's climbdown on revaluation, which some of my hon. Friends have touched on. It is a symptom of a growing realisation of the crisis in local government finance. We have noted the fact that we are paying over 70 per cent. more in council tax under the Government, analogous to 3 per cent. on income tax. But those accountable to the voters at local government level have little control over council tax levels for which they are judged at the ballot box, despite what the Minister said in an Opposition day debate only a few weeks ago. The Government have in essence broken the link between taxation and representation, with 75 per cent. of local government spending coming from central Government and only 25 per cent. from local council tax payments.
For many councils, the cost of providing additional statutory services outstrips the funding that they receive from central Government. My constituency is in the county of Hampshire, designated excellent by the Government for its levels of efficiency. I agree with that. Hampshire has achieved great savings over a number of years in response to the pressure under which it finds itself, but this year the sums simply do not add up. In 2006–07 the projections are that, after the Government have ring-fenced the revenue support grant into the new dedicated schools grant and removed the one-off grant support designed to keep council tax figures low in a general election year, Hampshire will see a 1.7 per cent. increase in Government grant, yet it needs an increase of 5.4 per cent. to finance the Government's local spending plans and maintain current levels of service. This means that my constituents are facing a further 8.4 per cent increase in council tax, on top of the vast rises in recent years under the Labour Government.
If the council is not allowed to put such an increase in place, the result will be cuts in services to the tune of £8 million, according to current projections. That would mean 130 fewer residential care places for elderly residents; 200 fewer day centre places for adults with physical, learning or mental health disabilities; 150 fewer children in full-time foster placements; and further backlogs in road maintenance, despite continued pressure from the South East England regional assembly to increase house building.
We are at the tipping point. The people of Hampshire, along with many thousands of other residents throughout the country, are paying more and getting less. Revaluation, whenever it came, would make the situation even worse. We heard earlier that the situation is particularly perilous for pensioners. In my constituency a third of their basic state pension is taken up by higher council tax payments, which is unacceptable.
We do not need the revaluation at any time. We need tangible support for pensioners, as I have mentioned before. I will continue to campaign for the 50 per cent. discount that I highlighted in the general election campaign, and for the reinstatement of the link between local taxation and local accountability. We must call a halt to the Government's war on home owners by stopping once and for all the measure being debated today.
We have a rather bizarre debate. On the one hand, the Government are introducing a Bill to postpone revaluation, while stating that they want revaluation to take place. I hope that revaluation is postponed, rather than cancelled or kicked into the far-distant long grass, because it is an important part of continuing with a property-based tax. The Government are changing the 2003 Act in order to retain revaluation. The Opposition, on the other hand, have tabled a reasoned amendment opposing Second Reading, which would simply cause the revaluation to go ahead.
If Conservative Members vote for the Opposition amendment tonight, they will vote for revaluation. There is no point in their shaking their heads: if Labour Members decide to go home rather than vote in the Chamber tonight and the Conservatives by some mischance win the vote, the relevant section of the Local Government Finance Act 1992, as amended by the Local Government Act 2003, will stay in place and revaluation will go ahead. Furthermore, no one can stop revaluation going ahead in those circumstances because the provision is on the statute book.
Conservative Members must be careful. My party does not do this kind of thing, but if a "Focus" leaflet were produced stating, "Local Conservatives vote for revaluation", it would be perfectly fair. "Focus" leaflets are not always fair, but the example I have described would be. Conservative Members, who are looking rather glum, would be well advised to get their own statement out explaining the true reason why they voted for a revaluation that they do not want.
The Conservative party does not want revaluation—not now, not ever—and it has boxed itself in by stating that it will cancel it. Mr. Pickles made an extremely strange comment to the effect that he does not mean "not ever", but, because property prices have converged, there is not a circumstance under which revaluation is necessary. If property prices were to deconverge, the Conservative party would presumably review its policy, but let us take its position on cancelling council tax revaluation as being fairly firm.
In its local government manifesto in spring 2004, the Conservative party said that it will not introduce any new or higher bandings, so it is boxed in on revaluation and the present bandings. It has said that banding would be the only way in which local government could raise money under a Conservative Government, because it will block taxes other than council tax from entering the local government arena. It also made it clear in its local government manifesto 2004 that it is against local income tax and any other form of transfer tax, so it favours one unchanged, unre-banded tax based on 1992 property values, which is a strange policy.
One of the problems with the Conservative policy of not re-banding is that, as other hon. Members have said, a council tax base that is not revalued will drift further and further away from actual property values over a period of time. The Conservative Opposition want to enter government with a tax that progressively bears less and less relation to the actual value of property. If one were cynical—as I have said, that is not my position—one would say that that policy would serve some people rather well, because, assuming that house prices continue to inflate, as taxes drift further and further away from real property values, so a larger and larger number of people will be in a band in which no one pays any more council tax, regardless of increases in property values. Perhaps the thinking is driven by the political party that people in those bands tend to support.
As a method of securing a flat tax that is unrelated to real value—we have heard about flat taxes in recent European elections—the Conservative proposition may be interesting, but in reality the situation is more complicated than that. Over a period of time, high property prices will mean not only that the highest band fails to differentiate between properties in certain parts of the country, but that different sets of flat taxes apply in different parts of the country, because property values will continue to rise at different rates.
The logic of the hon. Gentleman's position seems to be that as people become more asset rich, the Government should say, "We want some of your assets." We have not heard Labour Front Benchers, Labour Back Benchers or Liberal Democrat Members discussing efficiency in public services and people having more through better spending. All we have heard is that the Government want to tax people more, if people's property increases in value. People pay enough tax as it is, including increasing sums of inheritance tax as property prices increase.
Order. Probably one of the reasons why we have not heard that argument is that it forms no part of the Bill. I hope that Dr. Whitehead will not go down that line.
I have no intention of going down that line, Mr. Deputy Speaker.
The Conservative party wants to keep the council tax in its original, unformed, half-baked, semi-organised form, which resulted from the panic in 1992 following the poll tax. Mark Pritchard appears to be adding another string to the bow of that crude and unformed tax by saying that he is pleased that it does not seek to reflect the value of property. When the Conservative party introduced the council tax, however, it introduced bands to reflect the difference in property values.
Incidentally, the 1992 council tax legislation did not include a revaluation provision because it was widely believed at the time in Government circles that placing the bands on the statute book and maintaining council tax within them would remove the need for valuation, because property price movements would be absorbed by movements within the bands. Over time, that thinking has proved to be hopelessly and ridiculously off target.
The hon. Member for The Wrekin appears to be saying that revaluations should not take place within the council tax system. As properties rise in value, however, so council tax should levy a tax on a fair and equitable basis across the bands, reflecting property price increases. It is not a question of taking more money from particular houses; it is a question of taking the right amount of money from particular houses.
I shall illustrate the problem of the way bands work in different parts of the country by briefly considering two boroughs, one of which is in the south of England and is not ridiculously rich, and the other of which is in the north of England and is not especially deprived. An examination of which houses are in which bands illustrates my point.
The London borough of Merton has 8,391 properties in bands A and B and nearly 10,000 properties in the top three bands. The borough of Wakefield, which is 80 per cent. larger in terms of total number of properties, has 1,882 properties in the top three bands—a fraction of the number in a much smaller borough in London—and 97,000 properties in bands A and B.
The geographical differences in banding around the country are already enormous. Given that property prices are drifting upwards, if there was no revaluation that differential would remain in place and continue to widen. In the case of boroughs with a larger number of properties in the top bands, the number of properties that would jump into the top bands would be considerable, thereby creating a flat tax effect. As my right hon. Friend Mr. Raynsford said, those in the lower bands would not gain any credit from that, because it is not possible to go below the lowest band. The flat tax effect works at the other end as well.
The consequences of the Conservatives' rather strange position can be clearly spelled out, but another party is involved in this debate—the Liberal Democrats.
I am becoming rather confused. Does the hon. Gentleman want the Government to proceed with revaluation earlier than they intend, or does he think that they should do it after the next election?
The hon. Gentleman will have to wait to hear my full exposition. To put him out of his misery temporarily, I am happy to say that there is a case for bringing a wider review of Government functions into a process of revaluation. We could therefore postpone revaluation for a limited period, but not do away with it completely. That is the contrast that I was seeking to make between the position of hon. Gentleman's party and that of my own, which I will of course support in the Lobby.
There is a slight flaw in the hon. Gentleman's argument. The fact that the council tax banding system relies on valuations has an effect within a local area, the other effect being on the distribution of grant. If one changed the ability-to-pay aspect of the grant assessment, the argument of my hon. Friends on the Front Bench would stand.
The hon. Gentleman made some interesting and thoughtful remarks about maintaining the position of council tax as a prime tax for local government—there are many reasons why that should be so—without some of the toxic side effects that continue to be associated with it. However, his views contrast significantly with the official position of his Front Benchers, which is to do nothing whatsoever and keep council tax exactly as it is.
Interestingly, the Liberal Democrats propose to vote with the Government. I am delighted about that, but they are doing so from an entirely different perspective. In a debate that took place a little while ago, I suggested that the policy set out by Sarah Teather could be compared to Chairman Mao's great leap forward. In 1918, Lenin said that he supported the then Labour leader, Arthur Henderson, like a rope supports a hanging man. It seems that the Liberal Democrats plan to support the Government tonight because they do not want a revaluation in 2007, or ever. They want something entirely different—a local income tax.
We do not want a long discussion about local income tax because that is not what we are here for. However, it is widely recognised that it would be impossible for 434 billing authorities to attempt to collect a local income tax that is levied at a different rate from the national rate of income tax. Some people would be resident within the geographical area from which the tax is being levied, some would not be resident, and some would be sometimes resident and sometimes not.
Order. The hon. Gentleman said that we do not want a long debate on local income tax. We do not want a short one either, as it is out of order.
Thank you, Mr. Deputy Speaker. I shall have to see my Liberal Democrat colleagues outside to finish that discussion. The hon. Member for Brent, East said that she wished for a restitution of local control to local government. A system for revaluing the council tax or any form of tax that would have to be collected nationally does not appear to be in line with restoring a great deal of local interest to local government.
Several hon. Members made thoughtful and interesting contributions on the central issue of what to do about local council tax in terms of revaluation and whether the tax works as a way of collecting moneys from local residents in order to pay for local services.
One of the conundrums that has bedevilled local government is that the tax demand thuds on the carpet in April in the form of a notification to pay. Many people perceive that it comes their way after they have paid all their other taxes. Mrs. Miller reflected some of that feeling when she said that people believe that they have paid all their taxes when another demand appears. If, instead of collecting VAT from the general population as they made their purchases—
Order. I sense that the hon. Gentleman is going astray again. The measure is about the postponement of revaluation in England and the hon. Gentleman must keep within the terms of what is—God knows—a short Bill.
I take your guidance, Mr. Deputy Speaker.
People's perception of council tax is important to deciding what we do about revaluation and banding. As Labour Front Benchers have said, deferring a decision about revaluation perhaps affords an opportunity to provide a wider context in a review of council tax revaluation and a wider debate about the purpose of local government.
Mr. Curry, who is unfortunately not in his place, made a thoughtful contribution. Although he would not put it in the same words, he suggested that there are methods of making council tax work relatively well. He also said, in contradistinction to Conservative Front-Bench Members, that that would entail revaluation. He said that several other things could be done to make council tax revaluation part of the process rather than, as several hon. Members have described it, an apparent obstacle to it.
Governments throughout history have been concerned with the effect on the winners and the losers of revaluation and have thought long and hard about the subject. The right hon. Member for Skipton and Ripon asked whether other things could be done to place the workings of council tax generally in the context of revaluation. Several ideas could be considered and I hope that, if the Bill is passed, my hon. Friends on the Front Bench will examine them in the context of the extended Lyons review, alongside revaluation.
If the hon. Gentleman were a lawyer and paid by the word, he would have made sufficient funds by now to retire. However, I am genuinely interested in his comments. What assessment has he made of schedule 7(52)(4) of the Local Government Act 2003? It is germane to our discussion because it relates directly to clause 1(7), on which, I know, he wants to focus.
The hon. Gentleman makes an important point, but if he examines those subsections carefully, he will find that, unlike his belief, they are not closely connected.
I was about to concur largely with the right hon. Member for Skipton and Ripon about making council tax work. That is an important element that we need to consider when we examine revaluation.
Much of the debate has been about bands, including whether we need new bands at the top or at the bottom, whether we should retain existing bands and whether revaluation, which would re-band properties, leads to higher council tax. Hon. Members have commented on the fact that, unlike in Wales, rebanding in England could be revenue neutral, if one provided for circumstances in which that could be achieved.
It might be useful to remind the hon. Gentleman about the business rate revaluation, which was also supposed to be revenue neutral but was not. Perhaps he could make a few comments on that.
As the hon. Lady knows, the business rate revaluation has been based on its being followed by dampening mechanisms to take account of the differences in the way in which the rate works in various parts of the country. When there is a transition in value between various parts of the country, the dampening mechanism works to a better or lesser extent in different places to equalise as far as possible the effect of the revaluation over a period of time. However, if a dampening mechanism is introduced, it cannot necessarily ensure that there is no difference in yield because it works differently in different parts of the country, depending on the change that has occurred in the revaluation. A revaluation with a dampening mechanism cannot give a revenue-neutral, guaranteed yield in the way that the Government suggested could be done for council tax revaluation. I am sure that the hon. Lady has been greatly enlightened by what I have just said.
When we consider bands and whether we need new ones, I want to ask whether we need them at all. The previous Conservative Government introduced bands in the Local Government Finance Act 1992. They were prepared in something of a hurry, on the erroneous understanding that they would ultimately get rid of revaluation. I believe that a system of points would be a fairer and better method of valuing properties than the current bands system. We would not then have the worry about moving between bands.
Points would be given on the basis of a specific valuation. As we have heard, the Institute of Revenues Rating and Valuation has said that, if revaluation were to proceed, it would provide an individual valuation for each property. It would thus be relatively straightforward to move from individual valuation to a series of points rather than placing properties in a band. The total number of points that a local authority had would form the basis on which council tax could be levied. That would provide considerable certainty about the amount of money available for the local authority to levy council tax as part of its budget-making activity.
Such a system would also mean, if combined with a change in the way in which councils set their council tax, that there would be no gearing effect. If, for example, one were to introduce a marginally variable core grant at the beginning of the process, set the council tax on the basis of points rather than bands, then compensate at the end of the process, one would simply not have the gearing effect. The way in which the settlement was brought about would effectively remove much of the concern about that effect.
The right hon. Member for Skipton and Ripon and the hon. Member for Brent, East both mentioned proposals to localise the business rate. It has been suggested that that should happen because it would introduce a greater degree of autonomy to councils in terms of the decisions that they make about their finances. If there were no gearing effect, however, that would be of less significance. However, the right hon. Member for Skipton and Ripon rightly pointed out that since the business rate was introduced, with the intention that it should not be levied at above the rate of retail price inflation, the percentage of funding into the local government stream that the business rate has provided has gone down from about 27 per cent. to 22 per cent. If we had historically pitched the level of the business rate against increases in earnings rather than in prices, it would have been possible more or less to have kept up that proportion over a period of time. If we prospectively pitched the business rate against earnings rather than prices, it would re-equalise that proportion over time, so that it would continue to operate on a level basis, rather than falling continuously against the total proportion of moneys raised for local government and against the amount raised by council tax. That would resolve another problem.
There are a number of measures in the Lyons review—or associated with it—that the Government could consider in the context of revaluation, over and above whether we revalue or not, which would bring back a council tax whose operation was significantly refreshed. That is the potential prize that lies ahead of us, assuming that we consider that council tax should continue to be the main device whereby local tax is raised. If, as a result of this process, we achieve a council tax that reflects more marginally on people's concerns about the tax bill landing on the carpet, that relates more fairly in terms of its effects on the rise of property prices and to the actual amount that people pay, and that is in line with the way in which the business rate works, we will have done a good job, so far as temporarily suspending the revaluation is concerned. If the tax comes back refreshed in that way, the question of revaluation will play a part in the process but it will not form most of the process. That would be a positive outcome from a decision that people in some quarters are calling a U-turn, and it could result in something good for future local government.
It is a great pleasure to follow Dr. Whitehead. I agreed with many of the points that he made at the beginning of his speech. Sadly, I did not agree with what he said about local income tax, but it seems that we shall have to take up that debate on another occasion.
Two aspects of this debate are quite bizarre, one of which the hon. Gentleman mentioned. That was the fact that it seems very difficult for hon. Members to stick to the point of the debate. One reason for that is easily explained: it is difficult to separate valuation from the rest of local government finance. Some reference to those other matters is necessary in order to understand the decision that we face tonight.
The other point is fascinating, and relates to the internal debate on the two sides of the House. It became increasingly difficult to tell whether a speaker was speaking from the Conservative side of the debate or from the Government side. A serious point lies behind that difficulty as well. There are inherent difficulties with the council tax, and both sides are finding it difficult to come to terms with that. It is the most regressive major tax in the Government's taxation armoury. Indeed, it causes the whole taxation system to be regressive: the top 20 per cent. pay less tax overall than the bottom 20 per cent. of the income distribution. We all have constituents who face extraordinary council tax bills. I have one who has to pay 10 per cent. of his income in council tax, which is an extraordinary figure. This leads to the conclusion that we have reached, which is that the whole council tax system ought to be abolished and replaced by a different system.
My own position on the Bill is simple, and the hon. Member for Southampton, Test got close to identifying it. For me, revaluation is a pointless and expensive exercise that should be scrapped. It is pointless because the council tax is inherently unfair and should be replaced by a better tax, namely local income tax. It is expensive because it has already cost about £60 million and is likely to cost another £100 million, if not more. Those resources would be much better spent on almost any other aspect of local government expenditure. The Bill means that the Government will be in a position to call off this wasteful and pointless exercise, and I therefore support it in principle. I would, however, like to see some changes made to it in Committee, and I shall mention at least one of them later.
First, however, I want to challenge the Conservatives' position on the Bill, which is puzzling. Their amendment says that the House should decline to give the Bill a Second Reading because it does not cancel the council tax revaluation. However, as the hon. Member for Southampton, Test said, we all know that the Government will use the power that the Bill will grant to call off the 2007 revaluation. The current law is clear: there is an obligation to hold a revaluation in 2007 under the terms of the Local Government Act 2003. If the Bill were to be defeated tonight, therefore, that would remain the law and the 2007 revaluation would continue.
The Conservatives' position is puzzling in another way. I differ from the hon. Member for Southampton, Test, at this point, because the Second Reading debate of the Bill that became the Local Government Finance Act 1992 shows that it was always thought that revaluation would be necessary at some point under the council tax system. That Second Reading debate makes fascinating reading, and I recommend it to all hon. Members, especially for the remarks by Labour Members who were in favour of something called "fair rates"—a concept that seems to have disappeared completely—and for the views of Mr. Blunkett and the then Member for Dagenham, who held fascinating views on the invasion of privacy that would result from the introduction of the council tax valuation system.
Nevertheless, little was said in the 1991 debate about the revaluation issue, except in so far as Conservative Members said that the need for revaluation was a serious problem in the old rating system and would also be a problem in the fair rates system. That problem would not be eliminated under the council tax, however, but simply reduced. The then Secretary of State for Scotland, Mr. Ian Lang, in the debate on
"The banding system irons out much of the effect of relative changes in property values within an area which, under the rating system, brought regular pressure for revaluation. The need for general revaluations is therefore much reduced. If, however, such a revaluation were required, say, 20 years hence, the same house in band D would probably remain a band D house, provided that its relative position within the range of property values had not changed so much as to take it outwith the new parameters for that band."—[Hansard, 12 November 1991; Vol. 198, c. 918.]
Council tax does not therefore eliminate the need for revaluation, but merely reduces it.
The then Conservative Government expected to have a revaluation in around 2011, only four years later than that provided for in the 2003 Bill. The puzzle in the Conservative position is that if clause 1 of the Bill that we are considering tonight had been included in the 1992 Act, no one would have turned a hair. It would have been perfectly compatible with the policy of the then Government. We have heard tonight that Conservative policy now is that there must be primary legislation every time a revaluation is suggested. No one said that in 1991. It strikes me as somewhat over the top to require primary legislation for what would in effect be a one-clause Bill, as opposed to a positive resolution of the House under the current arrangements.
Let me turn to the one aspect of the Bill that requires further attention. Hon. Members have referred to the difficulty that politicians have in bringing to fruition revaluations of property-based or near-property-based tax. The technical reasons for introducing such revaluations have been well explained, especially by Mr. Borrow. They are related to divergence in property values. The relevant divergence is at the individual property level, not at the district or regional level. Those technical advantages of revaluation, however, are always outweighed by the political cost. Ministers of whatever party find it impossible to revalue without paying a very high political price.
As an ex-leader of Cambridge city council, my hon. Friend will be aware that the political cost of the council tax has been substantial over time. Part of that has been caused by the continuation of the Conservative Government's policy of increasing council tax by more than inflation. At standard spending, in 1993–94 council tax was £492.66, and in 2002–03 it increased to £769.16. It then changed to the assumed national council tax, putatively £1,000.83, which has increased to £1,101.96. That is a 71.9 per cent. increase in council tax, while inflation has been 34 per cent.—
As I was saying, the problem with revaluation is that its technical merit is almost always outweighed by its political cost. As the hon. Member for Southampton, Test said, that does not bother those of us who are in favour of scrapping the entire system and replacing it with a completely different local government taxation system. In fact, it makes our case better. As the lack of revaluation makes council tax increasingly anomalous and unfair, more and more people will come to see the good sense of our alternative proposals. I suppose that one could say that we were following the rule of worse is better.
Does the hon. Gentleman recall that, in the last general election, the Liberals had a website into which people could tap numbers to find out whether they would be better or worse off under their local income tax? I have not met anyone who found that they would be worse off. The reason for that is not the goodness of the system but the crazy way in which the website worked. The website did not ask what band—
Thank you, Mr. Deputy Speaker.
As I was saying, the problem with revaluation should bother the two parties in the House that are in favour of a property tax. The need for revaluation cannot be denied by those who favour that sort of tax. It never has been denied from the Conservative Benches until recently. My problem with the Bill is that the proposed mechanism allows the Secretary of State a bare discretion to refuse to revalue in any particular year or for ever, so the political reasons for failing to revalue always outweigh the technical reasons. That lacks fundamental transparency.
I ask the Government to consider an amendment to the Bill that would do the following things. First, the Secretary of State should have a duty from time to time to consider whether he should use the power that the Bill grants him. Secondly, when considering whether to use the power, he should be under an obligation to give reasons as to why that power was not exercised in any particular year. Thirdly, those reasons should include an assessment of the variation in property values that has taken place since the previous revaluation. That would allow us all to see whether the Government's decision not to go for a revaluation on any particular occasion was justified technically or was merely following a political imperative. I would be interested to hear the Minister's response to that.
For the Liberal Democrats, the Bill is neither here nor there. We would never use the power that it grants—the power to revalue—because we would scrap the council tax system at the earliest possible opportunity. I support the Bill, but only because we would do away with the possibility of revaluation completely as part of a radical reform of local government taxation. The Bill forms one tiny part of what we will do if and when we come to power.
We have heard many opinions today, but there is one incontrovertible fact: people like living in my constituency. They live there until and after they retire; they live in the same houses from generation to generation. In the meantime, the value of their houses naturally increases, often at a rate that far exceeds any income that might enable them to buy their houses.
We often talk about value, and it is the subject of today's debate, but to many such people it is an abstract concept, becoming relevant only when they sell. We must be cautious about references to value and revaluation, which should be linked to ability to pay. Houses in my constituency are worth hundreds of thousands of pounds, but those values are not always linked to householders' ability to meet an increase in council tax. Many an ordinary family in my constituency with a high-value property is scrimping and saving to pay the mortgage, and may have a lower standard of living than those with less valuable houses. Similarly, hard-working constituents in council or social housing may live in high-value properties that are already affected by a high council tax valuation, and would be more affected by a revaluation. Those who will not profit from a sale will not benefit from an appreciating asset.
People on fixed incomes, such as those who lobbied me on behalf of the National Pensioners Convention, are particularly affected by council tax increases. As their life expectancy increases, there is the prospect of a fall in their standard of living over 30 years or more, primarily as a result of local taxation. That cannot be right, and the Bill cannot help them or alleviate their concern.
The main problem is that, under the Bill, revaluation would be at the behest, or the whim, of the Secretary of State. As David Howarth pointed out, there is a danger that it would be politically motivated rather than being related to equity. The primary concerns would be how taxes could be raised, and how votes could be gained. The Bill suggests a move into the political arena rather than an interest in what is best for my constituents—a proper, equitable tax.
The hon. Gentleman seems to be arguing against council tax in principle, rather than merely opposing the revaluation. With what would he replace it if there were to be no revaluation at any time? Does he favour a completely different system, such as that recommended by the Liberal Democrats? What would he tell those involved in the Lyons review about how he would reconcile his concern about ability to pay with the need for councils to pay for services?
I shall stick to the essence of the debate, which is not about my proposals but about the Government's proposal to put revaluation into the hands of the Secretary of State. However, at the end of my speech I shall mention some of the principles that I think should feature in the Lyons review.
The Government have form in relation to politically motivated acts relating to council tax. As a criminal solicitor, I am worried about the possibility that previous convictions will be admissible as evidence in trials, but that is not precluded in this case. The Government certainly have form in connection with the way in which they hand out grants under the distribution formula. In my constituency and elsewhere, we have seen the diversion of funds from London to the northern regions.
The hon. Gentleman may not know that I represent a Derbyshire seat. For 18 years, under a Conservative Government, we had the lowest grants in the country because the system was biased against us. I put it to the hon. Gentleman that the Government have merely corrected the balance and introduced a fair system. It has indeed caused funds to move from the south to the north, but that is because the grants were not going there under the Conservatives.
I am grateful to you, Mr. Deputy Speaker. I am also grateful for the concession that funds have moved. The hon. Gentleman made my point for me: the Government have diverted funds, and have had political motives for the way in which they have dealt with tax.
We fear that a revaluation process in the hands of the Secretary of State will prevent proper parliamentary scrutiny. We fear that the Bill would allow statutory revaluation. Council tax would become a property tax rather than, as was originally intended, a combined property tax and service charge. That leads me to my concern about the principles of any future system of local taxation. The 73-year-old who ended up in prison because she was not willing to pay £53 in council tax said, quite properly—perhaps this should be adopted by many of us as a slogan—"People pay taxes. Bricks and mortar don't pay taxes."
The proposed revaluation process will take us towards a property tax. Our legislation should be based on accountability to people rather than property. We should support the amendment, which would prevent revaluation according to political whim.
I shall try to be brief.
Dr. Whitehead made some excellent points, which were relevant to our own stance. Our stance is that we do not want to proceed with the revaluation, but my hon. Friend Mrs. Miller produced a twist on that. Our election manifesto focused largely on pensioners and old people. Conservative Members feel that re-banding, particularly for pensioners, is an extremely blunt instrument.
Many pensioners are asset-rich. They have sat in their houses for 20, 25 or 30 years and, often unbeknown to them, the asset value has increased. Unfortunately, however, those pensioners are also cash-poor. They are stuck in a difficult position. I fear that the re-banding will force many of them to move from the homes in which they have lived throughout their lives. We need to deal with that structural conundrum, which is why I oppose any re-banding at any time.
Let me deal with what was said by Kali Mountford by quoting from a press release sent on
"The additional work which Sir Michael will undertake will add value to the Government's own current work on a strategic view of the role and functions of local government, under its local vision programme."
I go back to my original point. I was lucky enough to be approached by the IsItFair campaign. Last Wednesday, I had an opportunity to present to the House the campaign's petition. The concern of that campaign and the Braintree pensioners action group is not simply that the current system is unfair because of the way it affects pensioners in particular, but that they face a double whammy: re-banding would hurt many pensioners tremendously and ultimately force many of them to move home.
I am interested by what the hon. Gentleman says. He will be aware that pensioners can count the cost of their care in care homes against the value of their house and pay the cost at a subsequent date. Would he favour a similar system for council tax, whereby pensioners could run up a bill, as it were, and pay when their estate is realised?
I am grateful to the hon. Gentleman. I allow one slip, as has already occurred with another hon. Member, before I pile in, but I understand from what he says that I am being very lax and I will remember that.
I accept your reprimand, Mr. Deputy Speaker.
The hon. Gentleman makes an excellent point on capital and how one may deal with the capital asset of one's house, but the primary desire of many of the pensioners to whom I have spoken is to avoid moving from their house and into a care home. I hope that the Government will reconsider the issue, because elderly people feel comfortable in familiar surroundings. Care homes are not necessarily, as we all understand, familiar surroundings. As I have said, re-banding pensioners' houses is a blunt instrument and will hurt many of the elderly in our country.
I am delighted to have the opportunity to support the Conservative amendment. I see nothing confusing about it at all. It draws attention to the inequalities that are being created across the United Kingdom and calls for revaluation to be completely abandoned. I have no problem with either of those two concepts.
I have seen at first hand how unequal things are becoming in my constituency of Monmouth. I heard the figure bandied around earlier of a 94 per cent. rise in one constituency. We would be very pleased if we had council tax rises of 94 per cent. over the past few years in my constituency. Someone else mentioned a rise of 74 per cent. There would be parties in the streets had our council tax rises been limited to 74 per cent. Prior to any re-banding in Monmouthshire, band D council taxes rose on average by well over 130 per cent. That is a truly shocking measure of the inequalities that are already being created before re-banding takes place. Obviously, therefore, I will speak against any form of re-banding.
The Minister earlier repeated the oft-made claim that council taxes have absolutely nothing to do with central Government. In a rather long speech, Dr. Whitehead made one point with which I fully agreed: few people seem to understand how local government funding works, and that seems to apply to Ministers, who state that central Government policies have nothing to do with it.
If a hypothetical local authority were run on a budget of £100 a year, around £80 would come from central Government in Westminster or, in Wales, from the Welsh Assembly; only £20 would be collected in council tax. Council tax simply tops up the money that local authorities receive from central Government.
If minor adjustments were made to the amount coming from central Government—let us say that, in our hypothetical council, the £80 became £78, a drop of less than 2 per cent.—council taxes would have to go up by 10 per cent., from £20 to £22, to make up the difference. That is the so-called gearing effect, which has caused disproportionate council tax rises in the past few years.
The hon. Gentleman will be aware that since 1997, central Government funding has increased in real terms by 33 per cent. Is not the level of council tax—I speak as a former local councillor who served two terms of office—to a great extent due to what local councils themselves want to set it at?
I am deeply grateful for your guidance, Mr. Deputy Speaker. I will try to answer the hon. Gentleman's point in a moment in a way that I feel is relevant to the Bill.
I warn hon. Members that when re-banding was introduced in Wales, we were told that it would be fiscally neutral, just as hon. Members in this Chamber are being told that the re-banding exercise in England will be fiscally neutral. When Governments find that their estimates are not quite what they expected them to be, it is easy for them to manipulate local government funding to raise revenue directly for themselves. If hon. Members' experience is anything like the experience of those of us who live in Wales, they may find that their surgeries are full of people complaining about council tax rises of 130 per cent.
If we abandon revaluation for good, how will we overcome the problems that will result? To take the point made by Mr. Hendrick, I think that there is a strong case for looking at the inflation that is occurring within local authorities. Local authority inflation is not at the same headline level as the inflation figures generally. He talks about 33 per cent. extra going into local authorities. I do not dispute that, but what has been the percentage increase in costs for local authorities? For example, a Government initiative such as the teachers work load agreement in Wales—there is an equivalent one in England—is not properly funded. The National Union of Teachers talked about a shortfall of £30 million or so in that alone. If the costs rise above the level that is given to local authorities, they will have to make up the shortfall by putting up council taxes.
Therefore, the first thing that we need to do is to set up an inquiry into how expensive it is to run a local authority, to take evidence from local government leaders and to ask them about the extra increases and burdens that they have and to what extent they are being funded by Government. There is a responsibility on Government not to announce any headline-grabbing initiatives unless they are prepared to fund them properly.
The second thing that all of us need to do, whether in Wales or England, is to look at the way in which the formula for local government funding operates. That again is easy to manipulate. In fact, it has been manipulated in a manner that I believe is completely unfair to the southern counties of England and to the rural areas of Wales.
When assessing deprivation, it is easy to look at the number of people on benefits, which is what the formula does. The formula should take into account average household incomes, because that is a much clearer way of defining deprivation than simply looking at the number of people of benefit. We all know of people working in agriculture, tourism or the service sector for the minimum wage. They are not taking home much money and their incomes are no better than they would be on benefit, but they are not counted as being deprived for the purposes of the formula.
The hon. Gentleman is making a cogent argument in favour of not going ahead with the revaluation now and to go ahead with the Lyons review. In looking at poverty indices, he should remember that there was a time when poverty was measured by the number of outside toilets in a constituency, which was not at all fair. Does he accept that looking at the number of people on benefit is at least a vast move forward from that point?
That is a perfectly fair comment. I agree that it is an improvement, but we have the ability to look at average household incomes rather than the number of people on benefits. Perhaps an hon. Member could correct me if I am wrong, but I believe that the number of white goods in a household is one of the measures being looked at. That, too, is a fairly random way of trying to define deprivation.
It is not just in terms of deprivation where the formula is deeply flawed. Rurality is another important part of any formula. The more rural areas have higher costs; it costs more to do anything in rural areas. It costs more to collect the bins, and to send a lorry up and down the lanes of a rural area is more expensive than sending it past a few terraced houses. It costs more to maintain roads in rural areas, yet the formula in use at the moment reduces the emphasis given to rurality, which has had a deeply detrimental effect on those areas.
My final point on the formula—there are many discrepancies about which we could talk—is that information relating to the age profile of the population has been removed. Clearly, an increasing part of any local authority budget is the part spent on providing nursing and residential care. It is vital that any formula that we have takes full account of the numbers of people aged between 65 and 70 and the incremental increases right the way up to people in their nineties. Otherwise, areas with large elderly populations are also going to lose out.
I make two simple suggestions. The first is that we abandon the revaluation and, instead, set up a committee or a tsar, as the Government are fond of doing, to look into the way in which the formula is applied to different areas. The second is to ensure that extra costs on local authorities are fully funded by central Government. If we did that, we would still have a tax that was not perfect. I am slightly off-message with my political party on this issue; it is unusual for me to say that. I am not in favour of scrapping council tax. I do not think there was an issue with council tax until three or four years ago. Certainly, in 1999, when I fought an election for the Welsh Assembly, council tax did not feature anywhere in anyone's election literature.
It is not that I think the principle of council tax is unfair. It is the level at which it has been set. But I agree that, several years on, council tax has been manipulated to such an extent in England and Wales that I am not sure if we can continue with it. We may need to look at an alternative.
We have an opportunity today to do something positive. We cannot come up with a new system overnight, but we can ensure that the system that we have is fairer. The alternative is to go ahead with re-banding at some point and to end up with more homelessness, more debt, more bankruptcies and more people going to prison.
I urge Ministers and the Government to take responsibility for their policy and for council tax rises that are a direct result of their own policies. If they are not prepared to take responsibility, they will bear the responsibility at the next general election.
This has been an interesting debate. Having heard Madam Deputy Speaker's clear and helpful guidance earlier, I intend to keep my remarks short and not stray too much into Welsh territory.
I wish to respond directly to some of the comments of Labour Members, but first I should point out that the Welsh experience is relevant. The decision to postpone council tax revaluation in England was described by a Minister as a huge, vaulting, 180° U-turn, and that full-on U-turn is embodied in the Bill. I accept that one of the motivations for that U-turn might be to have a much wider-ranging inquiry led by Sir Michael Lyons.
I believe also that the Government are conscious of the political difficulties that could be caused and, with one eye on the experience in Wales, they will know of the resentment and anger that was caused by a botched council tax revaluation. The Government clearly want to avoid such political difficulties.
Mr. Raynsford, unfortunately, is not in his place but I enjoyed his speech. I learned a lot, although I did not agree with everything he said. He referred to the Welsh experience of revaluation and explained why he will not be voting alongside his colleagues this evening. He made a strong defence of the principle of revaluation and gave assurances that the English and Welsh contexts were different.
The right hon. Gentleman tried to make the point that, in Wales, the purpose of revaluation was almost to raise money, but that flies very much in the face of explicit assurances given at the time by Labour Ministers in the Welsh Assembly—the right hon. Gentleman's colleagues—who promised that it would be revenue-neutral and was not aimed at increasing the overall yield.
Likewise, the right hon. Gentleman referred to the number of winners and losers in the revaluation process and his figures were correct. The proportion of losers in Wales was 33 per cent. of households, with 8 per cent. being winners. Again, contrary to what he seemed to be suggesting, that is at odds with the assurances given by Labour Assembly Ministers at the time, who promised that there would be as many winners as losers. They talked about roughly 50 per cent. of households staying within the same band, with 25 per cent. of bills going up and 25 per cent. going down. I caution hon. Members who hear assurances that revaluation can be revenue neutral; the experience in Wales suggests that perhaps it will not be.
Why does the hon. Gentleman think that the number of people whose property valuation went up or down equates to whether the proposal was revenue neutral? Surely if 10 per cent. were big winners and 30 per cent. small losers it could still be revenue neutral. He has not given us the figures.
Ministers in the Assembly have now conceded that the overall tax take has increased and rather than there being a 4 per cent increase in council tax take in 2005–06, the increase was actually nearer 10 per cent.
The hon. Gentleman is making an interesting point and he is correct in terms of the numbers of winners and losers in Wales. However, there has been confusion between revaluation and re-banding, which is what happened in Wales. Re-banding did not take into account the bigger increases resulting from the revaluation and, as a result, there were rather more losers than winners.
The hon. Gentleman makes a good point. The Royal Institution of Chartered Surveyors pointed out that had re-banding in Wales been undertaken in accordance with house price inflation, there would have been a much fairer outcome.
The right hon. Member for Greenwich and Woolwich spoke about public acceptance of council tax and reiterated his faith in the high level of public acceptance of it. The acceptance of council tax in Wales has taken a serious knock as a result of the revaluation and Members on both sides should be aware that if such a revaluation went ahead in England, along anything like the lines of Wales, public confidence in council tax will be damaged.
This has been an interesting and lengthy debate and I do not propose to detain Members longer than is necessary, but it is important to point out what has happened in Wales. Although I appreciate that, given the terms of this Bill, I am not entitled to stray too much into Welsh territory, I should nevertheless make it clear that the revaluation process in Wales indicates what might happen in England, should it take place there.
It has been suggested by Labour Members that the difference between the revaluation envisaged for England and that which took place in Wales is that the former would be revenue-neutral. As my hon. Friend Mr. Crabb pointed out, however, assurances were given by Welsh Assembly Ministers that the Welsh revaluation would also be revenue-neutral. In fact, the Assembly's Finance Minister said:
"I emphasise that revaluation is not a euphemism for increasing council tax."
Well, the experience in Wales is that there was an increase in council tax, and as my hon. Friend pointed out, the tax take increased by more than 9 per cent. post-valuation.
As Mr. Williams pointed out, the Welsh experience was exacerbated by re-banding, but the outcome of the re-banding-revaluation exercise in Wales is that for many people on fixed incomes, particularly retired people, the annual council tax demand has become an object of dread. In one ward in my constituency, for example, some 40 per cent. of homes have been re-banded upwards. The proposal that we are discussing today is based on the Welsh experience. The Welsh have undoubtedly been used as guinea pigs, and the hard fact is that the Government have seen what has happened in Wales and do not like the consequences. They fear the political consequences in England.
Graham Stringer pointed out that people have not been manning the barricades. They certainly have not been doing so in Colwyn bay—
Before this year's general election, did not the leader of the hon. Gentleman's party say that if the Conservatives won that election, they would not examine the issue of revaluing properties for council tax purposes in their first term in office? So the leader of the Conservatives accepted that point, as well as our leadership.
That is certainly the case so far as England is concerned, but of course, my party's amendment is founded inter alia on the reasoning that should this exercise proceed, inequality would be created between England and Wales. Real pain is being felt in Wales, and it is exacerbated by resentment at other parts of the country being let off the hook by the Government.
We have heard much today about the Lyons inquiry. It is certainly extremely important, but in his evidence to the Welsh Assembly's Local Government and Public Services Committee earlier this year, Sir Michael said:
"I will say a little about the Welsh experience. This will not give you any comfort, but it is of great benefit to me that you went further forward. We have learned important lessons from that", in the English context, of course. He said that
"we are able, and, indeed, need—based on your experience in Wales—to do much more exhaustive modelling of the impacts before the bands are set. All of those things are absolutely fixed and understood, and are a result of having learned from your experience."
Well, fine. I am sure that the people of Wales are delighted to have performed such sterling service to Sir Michael and his interminable inquiry.
Is the hon. Gentleman saying that what this Government have done with the council tax in Wales is similar to what the previous Conservative Government did with the poll tax in Scotland?
What I would say is that the fact that the people of Colwyn bay are not manning the barricades is a tribute to the self-restraint for which, of course, my nation is known. But as I said, real pain is being felt in my country.
Does my hon. Friend agree that neither revaluation nor the proposed Lyons inquiry does anything to address the question of the simplification of local government finance? That is an important issue when one considers that local government finance is often thought broadly analogous to the Schleswig-Holstein question, to which, it was said, only three people ever knew the answer. One of them went mad, the second died and the third forgot what the answer was.
Absolutely, and the longer that this debate continues, the more inclined I am to agree.
The fact is that this Bill potentially creates great inequalities between the constituent parts of the United Kingdom. The Government could, if they wished, intervene, with the assistance of their colleagues in the Assembly, to ensure that revaluation in Wales is reversed. But that will not happen. Wales will continue to pay more. If this Bill is enacted, let the Government remember that for their own political advantage, they have saved the skin of English council tax payers and let Welsh ones twist in the wind.
I had the privilege of leading Leicester city council for some 17 years. It has been said that that is longer than a life sentence, and at times it certainly felt like it. But in that capacity my city and I survived the rating system, the savage revenue and capital cuts of the early 1980s, and the rate capping and attendant confrontations that took place in what was a pretty painful period. We also survived the poll tax and the disastrous disruption and confrontation that it caused in our city, as it did elsewhere. We are now surviving the council tax and the attendant capping.
It is with mixed feelings that I speak on this Bill, because I do not know that many of my constituents are likely to benefit from a revaluation, were one to take place. I realise that there are many different predictions about the possible outcome of such a revaluation, but it seems that my constituents and others in Leicester have suffered from the fact that house prices have risen less significantly there than elsewhere. So there is perhaps some benefit in revaluation, but set against that is the obvious pain that would be caused to those whose revaluation moved in a less favourable direction.
Far outweighing any of those considerations is the enormous benefit that is to be gained from a thorough review of the functions and the funding method of local government. I am enormously heartened by what the Minister said in introducing this debate about the Government's commitment to devolution and decentralisation in respect of local government. The Lyons review provides a unique opportunity to look at local government root and branch, and to consider not just its funding but ways of ensuring that its future is healthier than the preceding decades have been.
On balance, I very much favour the deferment of any revaluation, and I look forward to a radical reform of the finance and functions of local government.
As I understand the proposals in the White Paper, the Government envisage a new role for local education authorities. I do have some concerns about what that role might be. However, I look forward to a vigorous debate over the White Paper to ensure that local education authorities continue to play a vital role on behalf of local people who elect them to serve their local communities. I look forward to vigorous debate, but I do not envisage that the White Paper will end local government's vital involvement in local education.
Order. I have heard quite enough to realise that we are now moving into a debate on the future of local education authorities. However, that is most certainly a debate for the future, not for now.
Thank you, Mr. Deputy Speaker. That was precisely the point that I was making.
I welcome the Minister's commitment, in introducing the debate, to a continued role for a property tax in the funding of local government. I welcome it because a property tax is predictable, collectable and just—albeit sometimes a rough justice. I urge Ministers to pass the message back to the Lyons review about the vital need for a much wider range of sources of funding for local government. A property tax undoubtedly has its place, but we need a wider range of sources so that the funding that local government receives from central Government becomes a diminishing proportion of its total expenditure. It is certainly not healthy for local government to depend, as it increasingly has in recent years, on central Government funding. That is not healthy for local democracy, so we need a much higher proportion of local government funds to be raised locally if we are to increase the accountability of local government to local people.
Order. I hope that the hon. Gentleman will not go too far down that road in his reply. We are debating a Bill about the postponement of the revaluation of properties in England, and we should stick as closely to that subject as we possibly can.
I shall certainly take your advice, Mr. Deputy Speaker, and stick to the matter in hand—except to acknowledge that I agree with my hon. Friend's point.
If, as I hope will be the case, the Bill is successfully enacted, I hope that the Government will recognise that the postponement reinforces the need for them to look into the inequities of the present system of support for local government and will acknowledge that certain issues must be dealt with in the interim period before the Lyons review. I hope that they will reflect on how the area cost adjustment works at present and how its funding should be restricted to authorities that experience higher-than-average wage pressures. I hope that they will look carefully into how resource equalisation works and the need for the current system to keep pace with reality. Full resource equalisation needs to take place every three years. I also hope that the Minister will look into the way in which daytime visitors are factored into the present arrangements, as the present estimates are long out of date, being based on a survey that took place some 15 years ago. We should bring the system truly up to date and make it truly more realistic.
I heard Liberal Democrat Members argue earlier in the debate—as we expect them to do—in favour of local income tax. I know that there is a general view within local government that such a local income tax would be uncollectable, expensive, confusing and, most particularly, a burden on employers. At least, however, Liberal Democrat Members are consistent in their views. I also heard Conservative Members argue powerfully for opposing revaluation. In doing so, however, they were asking the House to support an amendment that, if approved, would have the effect of providing just such a revaluation as they purported to oppose this evening.
It seems to me that in the Local Government Act 2003, the Government were clear about their commitment to the principle of revaluation in England. If that revaluation were to be revenue neutral, what possible reason can the hon. Gentleman provide for the Government's U-turn on the issue, as they now want to postpone an early revaluation?
I would give the same reason that Ministers have already given—that we have a unique opportunity to review the role and functions of local government, not just the method of financing it. I greatly welcome that opportunity. As I said earlier, I have spent a large proportion of my adult life engaged in local government and over that time I have seen how local government has become thoroughly demoralised by the apparent diminution of its ability to influence what happens on the ground in our local communities and by the increase in central Government control over the same period. That is why I welcome the opportunity provided by the Lyons inquiry of having a thorough, root-and-branch review of what local government does and how it is financed and funded. I thoroughly welcome the fact that the Government have taken a turn in policy on that matter and now support a thorough review.
I have suggested that I have some mixed feelings, but, on balance, I greatly favour the Bill that is before us today. I shall certainly vote in favour of postponing revaluation and I look forward to a renewal of local government and local democracy, which is promised as part of the review. I ask the Minister, however, to give an assurance that, in the intervening period, he and his colleagues will continue to try to find some solutions to the inequities in the current formula that underpins Government funding.
I, too, rise to support the Bill and I hope that it will not spend too long in Committee. As a two-clause Bill, I suspect that there is little chance of that; nevertheless, I believe that the Bill is sensible, timely and appropriate. I say that as one who, before coming to this place, has had experience as a parish councillor, a district councillor and a county councillor.
The reasons for the delay in the revaluation are, as I say, sensible. They are not about avoiding a meltdown in the council tax system, because I do not believe that that was imminent, but about providing an opportunity to review the entire local government structure. Speaking as one who trained in physiology for my degree many years ago, I fully understand the relationship between structure and function. In fact, as far as local government is concerned, we cannot separate the two any more than we could in biological mechanisms in my earlier physiological study.
It is also necessary to avoid too many changes. That might sound odd in view of the record over recent years, but if we were to have a revaluation followed by a change in the council tax system—either to another property-based system or to a local income tax system, perish the thought, or to some new as yet unthought-of imaginative system for relating the delivery of local services to the ability of local communities to afford them—that change would be big enough in itself for local authorities, the central Government and the House to cope with. To have a revaluation going on at the same time as we are preparing for that would not be the most sensible use of our time and would militate against the measures proposed in the Bill.
My hon. Friend Sir Peter Soulsby was in danger of underselling himself as a respected leader of his council. He certainly made some good appointments in his time, not least one of my relatives—although I hasten to add that that was long before I knew him. However, I agree with him that the decision to widen the remit of the Lyons review is at the heart of the reason for the delay in revaluation.
I was not able to be here for the earlier part of the debate, but I have been fascinated by what I have heard. For example, I would like to know why David Howarth, who is unfortunately not in his place, thinks that we should prejudge the outcome of a review of the whole function and structure of local government by saying that a local income tax is the only solution to all of local government's problems. I do not agree, and any solution has to be seen in the context of the new role for local government and the new functions that we anticipate it will take on.
Well, we must wait and see what the Lyons inquiry says. In the highly unlikely situation that it decides that a local income tax would be sensible, we would have to consider it properly. However, the problem with the local income tax is that the areas with the greatest need are also those where incomes are lowest. Therefore, a local income tax would raise the least money in those areas and be less able to meet the needs of that community.
Does my hon. Friend agree that when reputable bodies have recommended that a local income tax would be viable—the Layfield commission in the 1970s is a classic example—it has always been alongside a property-based tax, not as a substitute for it?
The issue has been looked at many times over the years. Ever since the rating system was introduced, we have had a property-based tax and no one yet has put forward a serious proposition—I am clearly ruling out the Liberal Democrats—for local income tax to replace completely the property-based tax.
Does my hon. Friend agree that keeping a link between local providers and local income is an essential part of maintaining the link between stakeholders and local government?
I am coming to that point. It is true that we need such a link and I would not favour a situation in which 100 per cent. of local government services were funded by central Government. At the moment, the link is a little tenuous, because only £1 in every £5 that local authorities spend is raised locally. Although I shall not develop the point, I refer to the discussion that almost took place in the contribution by my hon. Friend the Member for Leicester, South about the future of business rates and their redemocratisation, which we should certainly consider.
Several Conservative Members have said that they oppose all revaluation, but it was only in April—at the height of a general election campaign—that the temporary, soon to be ex-Leader of the Opposition said that the delay in revaluation would be for "the first Parliament". That is what he told Sky television, and that implies a delay, not a cancellation.
I do not like having to try to explain, let alone defend, Opposition policies, and I am sure that the cleverest minds in the ODPM have advised my hon. Friend that that is the case. I am happy to take his word for it.
It is not so long since Conservative party policy was to have a revaluation every five years, which would have meant constant change. People would not only have waited for their council tax bill to fall through their letter box every spring, but for their quinquennial revaluation, and that would have been very disturbing for those who have to pay their council tax out of a fixed income—who were mentioned, almost tearfully, by Conservative Back Benchers. Those people are largely pensioners, who were reduced to poverty in record numbers by the last Conservative Government and who would have borne the brunt of the £2.5 billion cut in local authority services that the Conservatives proposed at the last general election. So I do not need the crocodile tears of Conservative Back Benchers to plead the case for people on fixed incomes.
I hope that my hon. Friend will accept my assurance that if pensioners are unable to pay their tax, they do not face imprisonment as punishment. It is only those who are unwilling to pay who face such a punitive measure, and there have been only two examples in the past 12 months.
I am grateful to my hon. Friend for that intervention. When he winds up, I may raise with him the issue that I raised with Mr. Newmark about the holding of council tax debts against the asset value of a property.
We have to look at the structure and function of local government together, which is why the Lyons review is important and must be given proper consideration. We need a big melting pot, with all sorts of ideas thrown in. Whatever comes out, we need to take time to consider the recommendations.
Local authorities are changing their function, partly as a matter of evolution and partly because their relationship with central Government has changed. What I call silo services, such as housing, planning, social services and education—the vertical arrangement of services—belong to the local authorities of the past. I am looking much more to local authorities taking a horizontal or co-ordinating role in those services, not only alongside providers from the local authority family but, through local strategic partnerships and local area agreements, bringing in other service providers.
Order. Before Tom Levitt gives way, I want to steer him much closer to the confines of the Bill. He is starting to essay a much wider point and he must know that he is out of order.
I shall try to make sure that my question is in order, Mr. Deputy Speaker.
Would not it be useful to consider what my hon. Friend Mr. Levitt said about structure and function, to ensure that the partnerships he mentioned become a wider reality across all services so that the silos to which he referred do not exist?
Perhaps I can help my hon. Friend in bringing us back to discussion of revaluation. One of the Opposition parties wanted to cut the budget by £2.6 billion and would have increased council tax bills by 11 per cent., while the other would have increased payments through local income tax to about £260 per couple per year. Are not their crocodile tears simply to hide their proposals?
I could not have put it better myself. In my area, where the majority of properties are in band D or below, we would have been real losers under the Liberals' local income tax policies.
I want to offer my hon. Friend the Minister for Local Government a few more ideas, as he takes forward the Bill and associated processes, including the Lyons review. We should look at the idea of funding police authorities separately from the local authority process, especially if we move to regional police authorities. There is something to be said for giving 100 per cent. national funding to such local authorities. They must be flexible in their deployment, however. Although police forces may move towards regionalisation at the higher level, they are also moving towards neighbourhood policing at the local level. I expect to see such trends throughout local government services.
I am pleased that my hon. Friend made that important point. Does he acknowledge that the precept system for raising finance for police and fire authorities and other countywide structures is often confusing for many council tax payers? That needs to be addressed by the Lyons review as part of the overall picture—
Order. We are not debating the Lyons review. We are debating the Bill, so I hope that the hon. Member for High Peak will not go back to that territory.
I shall follow your advice, Mr. Deputy Speaker, and cross out much of what I have left to say.
I want to take up the point that my hon. Friend the Member for Leicester, South made about property-based taxation. It is predictable and collectable, and there is a rough justice about it. As my hon. Friend Mr. Borrow said, we shall probably continue to have a property-based taxation system, simply because it is easier to understand in relation to local services. As my hon. Friend Ms Barlow said, the system must be transparent. There must be some sort of local collection for local services. Accountability and effective delivery of services must be related to that local funding. Although council tax accounts only for one pound in every five of local government spending, it gives local authorities flexibility on the margins, to focus their services on local needs.
My hon. Friend the Member for Leicester, South also referred to day-time visitors. As the Member representing much of the Peak national park, where there are 22 million visitors a year, I saw cash registers ringing as he spoke.
From my history books, I remember that in America people talked about no taxation without representation. In the context of this debate, we are saying that we must have a local funding system, but that there must be confidence in it. That is why we cannot separate structure and function. That is why the delay is absolutely right, to give us time to consider the Lyons review; and that is why, after due consideration, we will come up with a funding system that is effective, accountable, local and just.
When I first heard the proposal to delay the revaluation of council tax, I admit I felt some dismay. If we are to carry on with council tax, revaluation is a necessary part of that system, given that house prices are rising erratically, with prices in areas differing from one another, not just regionally, but in my constituency, where a house that sold for £60,000 two years ago was sold for £148,000 last week. There has been a similar increase in the value of similar houses in that village, so what fear is there from revaluation overall? Very simply, the fear is that if we do not take time to take stock of how we raise local funds and make local democracy count, we will face some difficulties. I could not support the Bill if it did not run alongside proposals to consider the way that we fund councils overall.
I have a small degree of experience: when I was a chair of finance, I had to consider exactly those issues in the context of the moneys that we raised for the local area. At that time, about 50 per cent. of revenues were raised directly from the local population, and the other 50 per cent. came from the revenue that we got directly from the Government. Of course, such revenues are not the total amount that a council spends. We must also consider the grant, direct funding and capital systems, all of which must be applied for. Under the previous Government, such applications were made in terms of a huge, competitive arena, with one council set against another. I am not convinced therefore by Conservative Members' arguments that the council tax system, which they set up, has now become so inherently flawed that revaluation should never be necessary. That is a ludicrous, ridiculous argument. If we carry on with council tax, revaluation is an essential part of the system; otherwise the existing inequities will not only persist, but broaden.
My hon. Friend suggests an interesting and innovative idea that has not yet been tried by our country. Other countries have regional systems. I can imagine hearing Conservative Members immediately crying foul over Europe, where that system is popular. They would immediately start to say that such a system was a precursor to the federalisation of the European Union—
I am grateful to you for your guidance, Madam Deputy Speaker, but this just shows that no legislation stands in isolation from any other issue or from comparisons with what happens elsewhere. I suggest that there is a lot for us to learn from what happens in other places and that there are some innovative ideas to consider. If we are to go along with the Government on the proposal to delay the revaluation, dare I venture to suggest, Madam Deputy Speaker, that it only makes sense to consider the suggestions made by my hon. Friends and other hon. Members?
A consensus across the House suggests that some people have not been well served by the council tax. A lot has been made of people on pensions, but they are not the only people on fixed incomes or the only ones who have faced difficulties. Of course, if we consider the number of people who do not pay council tax because of their fixed incomes, that takes away a tranche of the argument about revaluation, because revaluation is nonsense if no council tax is paid, so why worry about it? I venture to suggest, however, that some people are about to fall off the edge of benefits.
It makes sense to ensure that we look at a system that has longevity. The council tax system, which was introduced by Conservative Members who suddenly seem to hate it, has had some longevity, but not enough. If we are to have stability in the system, we must take account of such things as how people deal with their benefits, how they build family income and how they deal with family expenditure.
The idea proposed by Liberal Democrat Members does not provide all the answers. We have not heard how they would deal with people on fixed incomes if we were to adopt a local income tax system. We do not know how they would deal with the complexities of raising money throughout the country, maintain a democratic element in the system, or ensure that that system would address all the inequities about which we have heard.
I would not throw out the idea entirely, however. The Lyons review should examine such a system. I do not want to go on and on about the Lyons review because we have already been told that the subject of the debate is quite narrow, but given that we are buying ourselves some time—that is the only way in which I can cope with the Bill—it would be sensible at least to consider the proposal. The system has inherent problems, and I think that Mr. Heath acknowledges that, because he seems to be nodding at me. It would not deal with such matters as local accountability and people on fixed or low incomes. How would we ensure that such people would not have to pay more than they already do?
Does my hon. Friend agree that one of the inequities of the current council tax system is the fact that two identical houses can be in different bands if one was valued in 1991 and the other was subsequently sold on and thus re-banded? Does that not make a mockery of the Opposition's stance of ruling out any kind of re-banding or revaluation for ever?
It certainly does, but my hon. Friend must be careful because he might steer me into something of a rebellious mood if he reminds me of the terrible inequities that exist because we have not had the courage to go ahead with a revaluation, which I seriously believe to be necessary. Such inequities exist in my constituency and I am worried about them. What does my hon. Friend the Minister for Local Government think might come out of this period of reflection when people such as me realise that there are inequities in our constituencies and want to ensure that we will either go ahead with a revaluation at some point, or replace the system with something that works better?
Does my hon. Friend share my worry that a long delay before a council tax revaluation will exaggerate the inequalities that already exist? Does she agree that given the link with Government grant, the longer we put off revaluation, the longer the amount of grant that goes to each local authority will not reflect the economic success or failure of each locality?
My hon. Friend makes his point well and I share his concern. That is why I have difficulties with the Bill. I can go along with the Bill at all only because we are considering it in the context of what we can do in the long term. I hope that my hon. Friend the Minister will indicate that if we do not move away from the current council tax system, there will be a revaluation at some point, because otherwise the relationship among local people, their local authorities and the Government will become fractured to such an extent that it will no longer make sense.
A huge amount of council tax capping has taken place under both Conservative and Labour Governments. There is a strong argument that that should not happen and that if a local authority chooses to tax people into oblivion, the local electorate should be able to deal with that at the ballot box. However, I see such authorities being protected. I had to cope with the then Thatcher Government, and one year I had to deal with £43 million of cuts out of the council tax—
My hon. Friend talked in the early part of her speech with typical compassion for those on fixed incomes and on benefits. Does she agree that, whether or not revaluation takes place, it is important under whatever system of local taxation that we push ever harder to increase the take-up of council tax benefit for those who are entitled to it? Perhaps there should be a regulation to stipulate that that should be given more prominence on council tax demands.
My hon. Friend is right. Take-up does not just need to be given prominence on council tax demands; there are many places where we could encourage take-up not just of council tax benefit but of other benefits. He makes a good point, because this Bill has no relevance to those who should not be paying council tax. I agree with him that that is right, but even if we take that out of the equation we still have a responsibility to all those on fixed low incomes who are none the less just outside the remit of benefits and have huge problems. I venture to suggest that people have huge problems under today's system.
Everyone would think from Conservative Members' speeches that revaluation means only an increase in council tax for everybody concerned. That is not at all the case. As one area goes up in value, another goes down. People on fixed incomes who are just outside council tax benefit rates are suffering disproportionately, and my concern is for those people. We are talking about those who are not wealthy, who live in a property that, as against other properties, has not risen in value at the same rate. Therefore, in terms of property as a proportion of income, those people are much worse off. That seems a good reason for carrying on with revaluation. If we continue with council tax as it is now, we must look carefully at such matters. We cannot escape our responsibility to those people.
I shall go along with the Minister for today's purposes.
May I just acknowledge the inventiveness and compassion of my hon. Friend's proposal? I hope that Ministers will listen to it. If they do so, I for one shall be listening very carefully alongside them.