Local Government Finance

Part of Oral Answers to Questions — Prime Minister – in the House of Commons at 5:27 pm on 3rd February 2010.

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Photo of Phyllis Starkey Phyllis Starkey Labour, Milton Keynes South West 5:27 pm, 3rd February 2010

Absolutely. My hon. Friend is a great expert on local government finance and I entirely agree with him. What he said suggests that any Opposition proposing such a policy do not really think that they are ever going to come to power, since they would still be in power when such an enormous hike occurred, thereby becoming incredibly unpopular.

There are other reasons why I believe the Opposition should reconsider their policy. I say this simply because I would not want my hon. Friend the Minister in any way to be tempted to take over such a policy from the Opposition. First, the whole basis of the hon. Lady's arguments rests on the supposition that the council tax is itself a problem. Julia Goldsworthy made the point that I was intending to make myself, namely that the council tax was introduced by the Conservative Government after their disastrous introduction of the poll tax. They could not go back to the rates, which in my view is what they should have done, so they opted for a poor relative of the rates.

At least the rates had the advantage of being relatively progressive. It is not a hard and fast rule, but on the whole the bigger the property in which people live, the better off they are, and the bigger the property in which they live, the more they will pay in rates. It is also true that the bigger the property in which they live, the more they will pay in council tax, but because council tax is banded rather than being a continuous system like the rating system, the difference between what is paid by someone living in a small house and what is paid by someone living in a big house is nowhere near as great under the rating system as under the council tax system. The council tax is a much less progressive tax; indeed, it verges on the regressive.

If the hon. Lady and her party are truly worried about the burden that the council tax places on low and middle-income households, there is a simple way of dealing with that. Increasing the number of bands would increase the burden on those in big houses and on big incomes, and-since the total amount to be raised would remain the same-it would reduce the burden on low and middle-income households. I suggest that she consider that simple method, which, once introduced, would perpetuate the improvement in progressivity from year to year without the need for further changes.

Secondly, I want to deal with the proposal that some authorities' council tax should be frozen. The Opposition appear to be suggesting that a council that proposed to increase its council tax next year by 2.5 per cent. or less would receive a lump sum of 2.5 per cent. from the Conservative Government, in the ghastly event of their being elected. That is essentially adding to the Government grant system, but in a way that is not transparent and is in no way related to need. Effectively, it means giving money to councils if they are able to keep their council tax at 2.5 per cent. or below.

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