Local Government Funding

– in the House of Lords at 2:50 pm on 22nd June 2005.

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Photo of Lord Steinberg Lord Steinberg Conservative 2:50 pm, 22nd June 2005

asked Her Majesty's Government:

What plans they have for the introduction of a local income tax.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, the Government are committed to retaining but reforming council tax. The independent inquiry into local government funding, led by Sir Michael Lyons, is considering the case for both reforms to council tax and options other than council tax for local authorities to raise supplementary revenue. The inquiry will report by the end of the year.

Photo of Lord Steinberg Lord Steinberg Conservative

My Lords, I am grateful for that reply. Will the Minister give me the same short reply and say that the Government will not increase national insurance contributions? Will the Government also give an assurance about road taxes, 4 x 4 four vehicles, second homes and a council tax on improvements to homes? Over 70 stealth taxes have appeared, and I think that the Government are now scraping the barrel.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, I thought that the Question was about a local income tax. I ask the noble Lord in that regard to await the outcome of the Lyons report and the Government's response to it. On the other issues about taxation that he raised, I am sure he will be aware that nobody would make any commitment in respect of what will happen to future taxation in advance of budgets. But I remind the noble Lord that the Government have introduced a lower rate of income tax—we inherited a basic rate and a starting rate from the Conservative Government—the lowest rate of corporation tax since that tax was introduced, a lower effective capital gains rate for businesses than at any time in the tax's history and some other substantial tax benefits as well.

Photo of Lord Campbell-Savours Lord Campbell-Savours Labour

My Lords, is it true that one of the main beneficiaries under the local income tax is the self-employed, and for all the wrong reasons?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, I thank my noble friend for the supplementary question. We are dealing with hypotheticals here. We do not know whether Sir Michael Lyons will recommend that a local income tax should be part of the system, and, if so, what the Government's response to that would be. I ask noble Lords to be a little patient because we will get those results in fairly short order.

Photo of Baroness Noakes Baroness Noakes Spokespersons In the Lords, Treasury, Spokespersons In the Lords, Work & Pensions & Welfare Reform

My Lords, the Minister said that the Government would retain council tax. My noble friend Lord Steinberg asked about the issue of home improvements and their impact on council tax. Will the Minister give an assurance that home improvements carried out will not result in people having to pay a higher rate of council tax?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, council tax does not always increase as a result of home improvements; it depends on the nature of those improvements. Clearly home improvements can give rise to an increase in the value of a property which would be taken into account in due course. Things like summer houses and sheds would not be included, but if the noble Lord is thinking of swimming pools and stables or workshops, that may be a different matter.

Photo of Lord Hogg of Cumbernauld Lord Hogg of Cumbernauld Labour

My Lords, does my noble friend agree with me that a good tax, if there is such a thing, is likely to be an old tax and that an old tax is likely to be a good tax? That is the case here. Property cannot run away. The ownership of property is a matter of record. Someone always owns up to owning property and therefore the tax is collectable. In any event, this idea was tested in the general election and the party which advocated it was soundly defeated.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, I certainly agree with my noble friend that the rationale for retaining the council tax on a reformed basis is that it is easy to collect and predict. I would not agree with him that all old taxes are good taxes. We endured the poll tax for a number of years and I do not recommend a return to it.

Photo of Lord Newby Lord Newby Spokesperson in the Lords, Treasury

My Lords, the Minister has already said that the Lyons review is looking at local income tax as a possible component of a revised local taxation base and that the Government will look at the conclusions of the report. Can he go one step further and say that the Government have not ruled out a local income tax and, if Lyons were to recommend it, they would look at it seriously?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, the noble Lord presses me on a matter that I thought I had dealt with. There are a number of "ifs" in his question and we have to wait to see what Sir Michael Lyons says in his report. When we know what the recommendations are, we can give the Government's response.

Photo of Baroness Hanham Baroness Hanham Spokespersons In the Lords, Local Government Affairs & Communities, Spokespersons In the Lords, (Also Shadow Minister for Women & Equality- Not In the Shadow Cabinet)

My Lords, in view of the review of council tax, the possible rebanding and the certain revaluations, will the Government say whether there is any upper limit on the proportion of a person's income on which he or she would have to pay council tax?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, the Government are committed to proceeding with revaluation, which was a commitment in the White Paper in 2001 and in the subsequent legislation. As to the impact of revaluation, the Government have made it clear that we will not raise more in council tax overall because of revaluation. The distribution within the revaluation remains to be seen.

Noble Lords:

Order!

Photo of Lord Stoddart of Swindon Lord Stoddart of Swindon Independent Labour

My Lords, does the Minister agree that a local income tax could be very expensive to collect? Does he agree that the noble Lord, Lord Hogg, is absolutely right that a property tax for local taxation is a perfectly respectable and decent way of raising local income? Does he also agree that one of the ways of ensuring that it remains a proper, dynamic base is to relate it to the housing cost of living on a regional or area basis?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, so far as a property-based tax is concerned, I agree, which is why the Government have concluded that they want to retain a council tax on a reformed basis. As the noble Lord said, a property-based tax is perfectly respectable. As regards the impact of banding, that is something that the Lyons report will look at. I ask the noble Lord to await the outcome of the report.

Photo of Lord Strathclyde Lord Strathclyde Leader of the Opposition In the House of Lords, House of Lords

My Lords, will the Minister have another go at answering my noble friend's question? Will the Government set an upper limit on the proportion of a householder's income that he would pay in local taxation?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, I do not think that the noble Lord can reasonably expect me to construct an income tax regime from the Dispatch Box. We have to see what is recommended for the structure of local income tax in due course and what the consequences of that are. The Government are committed in all things to a fair system of taxation.