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Clause 1 - Dates on which new valuation lists must be compiled for England

Council Tax (New Valuation Lists for England) Bill – in a Public Bill Committee at 10:30 am on 15th November 2005.

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Photo of David Howarth David Howarth Shadow Minister, Office of the Deputy Prime Minister 10:30 am, 15th November 2005

I beg to move amendment No. 1, page 1, line 8, at end insert—

‘but the power herein mentioned shall not be used after the next general election following the date on which this Act comes into force.’.

Photo of Janet Anderson Janet Anderson Labour, Rossendale and Darwen

With this it will be convenient to discuss amendment No. 2, in page 1, line 8, at end insert—

‘(1B)The Secretary of State shall decide at least once in each calendar year whether to exercise the power granted by section 1A, and shall give reasons for his decision.

(1C)The reasons referred to in section 1B shall include the Secretary of State’s assessment of the degree of divergence in relevant property values since the original valuations made under this Act or since any subsequent revaluation.”.’.

Photo of David Howarth David Howarth Shadow Minister, Office of the Deputy Prime Minister

The amendments have a common theme, which I shall explain later. Amendment No. 1 is more of a probing amendment than amendment No. 2, although it would have an important material effect if it were passed—sunsetting the power to order revaluation at the point of the next general election and requiring the Government to make new proposals at that time for what they wanted to do about local government finance. It would also, one would hope, encourage the Government—indeed, all parties—to state their intentions in the run-up to that election, rather than after it.

It is an important point that this Bill did not, as far as I know, form part of the Government’s general election manifesto. This policy has not yet been put to the electorate, and the amendment would encourage the Government to do so for the next election. At that point, if the amendment were agreed to, the Government could choose one of three options. First, they could repeat the current Bill and restore the power to call off revaluations. Secondly, they could accept what appeared to be the line of the official Opposition—the Conservative party—on Second Reading and say that there should be no power to revalue at all in the future. Thirdly, they could adopt our position

Photo of David Howarth David Howarth Shadow Minister, Office of the Deputy Prime Minister

The hon. Gentleman says that ours is the middle position, but it is not. It is rather more radical: it would completely remove the need for revaluation by changing utterly the system of local government taxation and introducing a local income tax.

Photo of Peter Kilfoyle Peter Kilfoyle Labour, Liverpool, Walton

Will the hon. Gentleman enlighten us on what research the Liberal Democrats have done on how much their proposals would cost the average council tax payer?

Photo of David Howarth David Howarth Shadow Minister, Office of the Deputy Prime Minister

Rather like the Government’s proposals on revaluation, our proposal on local income tax would, at least initially, be revenue-neutral. There would therefore be no overall increase in taxation. In addition, because local income tax does not require an elaborate benefit system, it would be much cheaper to run than the council tax system.

Photo of Charles Walker Charles Walker Conservative, Broxbourne

Does the hon. Gentleman not agree that the danger is that although his system might be revenue-neutral across the country, it certainly would not be so in Hertfordshire and my constituency of Broxbourne? No doubt people there would end up paying a vast increase in council tax to a Liberal Democrat Government—if we ever have one, which is unlikely.

Photo of David Howarth David Howarth Shadow Minister, Office of the Deputy Prime Minister

I assure the hon. Gentleman that there would be no increase in council tax under a Liberal Democrat Government, because there would be no council tax. Obviously, what lies behind his point is the fact that any serious reform of local government taxation will produce winners and losers. I shall come to that point later. What strikes me as not serious is the Conservative party’s approach, which is to put forward no serious policy at all on this matter.

I shall move on. One problem with the council tax system is that it is not really a property tax at all. It is a tax based on property values, but it does not, as some hon. Members believe, tax the wealth of individuals who are taxed. The country’s housing stock is 25 million houses, and of those, about 17 million or 18 million are owner-occupied. The rest are rented in some way or other—for example, they are private rented houses or flats, or social housing such as council housing, or registered social landlord housing.

The people who live in such rented housing pay council tax on the basis not of their own wealth, but that of their landlord. That is the fundamental point about the council tax and about any revaluation that could be made under it. The revaluation will not remove the fundamental injustice that what is taxed in the case of more than a quarter of the population is not their own wealth, but that of somebody else. Those people, who live in rented accommodation, are, on the whole, in the lowest quarter of the income scale. That is one fundamental reason why the tax is unjust.

Photo of Peter Kilfoyle Peter Kilfoyle Labour, Liverpool, Walton

Earlier, the hon. Gentleman mused on the value of the council tax. Does he accept that it is not a tax at all when local councils such as Liverpool’s   Lib Dem council fail to collect it? Even when they collect it, they make a hash of the benefits system—not because of its inherent problems, but because of their failure to manage their council departments effectively.

Photo of David Howarth David Howarth Shadow Minister, Office of the Deputy Prime Minister

I disagree with that. Under-claiming council tax benefit is inherent in the nature of the benefits system; the Government face that problem across their policies. Where the system depends on means tests and elaborate administrative arrangements to get entitlements to people, there will be under-claiming and injustice. The problem of council tax not being collected is faced by urban authorities throughout the country. Authorities in suburban and rural areas often have fewer problems with a transient population, which is one of the fundamental problems of collecting the council tax.

I want to get to the nub of amendment No. 1, through which we seek information about the Government’s intentions for local government taxation in the era beyond the next election. The Government will, of course, point to the Lyons review, which is taking on an ever-increasing burden in terms of the policy areas it covers, but there is no point handing over a political question to a technical group without giving it a clear political steer.

We hope that the Government, in explaining why they will or will not need the power to reintroduce revaluations after the next election, take the opportunity to share with the Committee and the House the political steer that they are giving to the Lyons review on local government finance and function. If they choose to take that opportunity, all well and good, but if they choose not to do so, they should not be surprised if they are criticised on the grounds that they have no policy, or that they are trying to hide that fact behind the Lyons review.

Amendment No.2 is not just a probing amendment; we earnestly wish it to be agreed to in some form. Hon. Members will be familiar with the central problem in proposals for revaluation, whether they involve rates or the council tax. The Library briefing on the Bill helpfully points out the fact that virtually every rating revaluation there has ever been was delayed or did not happen at all. That was the case with the revaluation behind the introduction of the poll tax. The political cost of revaluation inevitably outweighs the technical benefits for the politicians charged with introducing it.

The political cost is that those who gain from revaluations are not particularly grateful, as they tend to look to the fact that they have been overpaying in previous years, whereas those who lose are furious. The revaluations are almost guaranteed to be unpopular.

Photo of Charles Walker Charles Walker Conservative, Broxbourne

I assure the hon. Gentleman that if there is any revaluation and I go down a council tax band, I will be delighted. I promise him that I will be pleased as Punch.

Photo of David Howarth David Howarth Shadow Minister, Office of the Deputy Prime Minister

I am glad to hear it, but I would be surprised if the hon. Gentleman gave the Government credit for it.

I was saying that this probably explains why the Government have chosen not to go ahead with the 2007 revaluation, even though the New Policy Institute’s analysis for the balance of funding review suggested that for this revaluation the number of winners would outweigh the number of losers by some 5.5 million to 3 million. However, to be fair, there is probably also something of the Government’s position in the NPI’s analysis in that with a basic revaluation the Government would end up in a rather difficult position, having to justify the fact that quite well-off families living in the north of England would gain, but families in the south of England that are not very well off would lose.

Nevertheless, the technical case for revaluation for those who believe in property taxes for local government finance—unlike those in my party—always comes down to the same thing: property values have diverged, so the tax base no longer reflects the current reality.

In the longer term there is an even bigger problem: market conditions might change so much that, in terms of the types of property on offer, the exercise of asking what a property’s value was a long time ago would no longer make sense. We would not be able to make sense of the valuation process. In the short to medium-term time scale that we are discussing, the former problem is the most important: property values diverge geographically from the position at the original valuation.

There is a good deal of controversy about how far property values have diverged since 1991, which was the basis on which properties were valued under the Local Government Finance Act 1992. The average price change in London between 1991 and 2001 was an increase of 63 per cent. Over the same time period the increase in the north-west was only 2 per cent.; the national average was 29 per cent. There was a great spread. Since then—this point was made on Second Reading—there has apparently been some move in the opposite direction, towards convergence. It is important to make the point that the movement towards convergence has far from outweighed the original divergence in property values.

Let us take 1991 as a base. I calculate that, using the Halifax building society’s figures, if we take 1991 as equal to 100, the figure for the north-west in 2004 was 466.5, which represents a massive increase in price. The equivalent figure for Greater London was 574. In other words, although the degree of divergence in 2004 was less than it was in 2001, it is still a very great degree of divergence. In addition, there are local hot spots where property prices rose remarkably in short periods of time. Even if regional difference have tended to reduce, there remains a great deal of divergence at a more fine-grained level.

Photo of Mark Prisk Mark Prisk Shadow Minister (Business, Enterprise and Regulatory Reform) 10:45 am, 15th November 2005

I am listening with considerable interest to the hon. Gentleman’s dissertation on this. It is very helpful. Could he also assist the Committee in   considering what has happened to incomes during the time period he mentioned? Clearly, for most of our constituents there will be a principal question: how does the change in the tax bill in regard to property prices, to which he referred, relate to the change in their income?

Photo of David Howarth David Howarth Shadow Minister, Office of the Deputy Prime Minister

That is an important point for those of us who would bring in a local income tax instead of the council tax, but it does not alter the underlying problem of the tax base for the council tax. That is still a matter of divergence of property values, unless there has been an exactly counter divergence in incomes. I doubt whether that has happened.

The most important political point that amendment No. 2 seeks to make is that we have yet to hear an answer from the Government and, indeed, from the main Opposition, as to what level of divergence in property prices would make them accept the need for revaluation in their tax system. In other words, what level of divergence would make the situation so intolerable that a revaluation would be worth while for those politicians who favour a council tax system? The purpose of the amendment is to create a situation in which the Government are encouraged, if not to answer the divergence question, at least to give us a clue about their answer.

The amendment would require the Government to consider whether to order a revaluation each calendar year. Currently, the Bill just says that there is a power to order a revaluation; it does not say that the Government have to think about revaluing at regular intervals. We are not talking about a duty to revalue, but about a duty to consider revaluation. In the interests of transparency, the Government should be under such an obligation. Once a year would seem to be enough, but I am happy to listen to suggestions for shorter or longer periods.

Furthermore, in the interests of transparency, the Government should not just consider using the power from time to time; they should give their reasons why they are using the power or, rather more likely, refusing to use it. Obviously, a Government who chose to exercise the power would be keen to tell the world why; but a Government who chose not to use it—a rather more likely event—would be less keen to do so, as they might not want to be seen to be making such a decision from purely political motives.

That is where the final element of the amendment comes in. The Government should, as part of their reasoning, supply an assessment of the extent to which property values have diverged from what they were at the last revaluation. That way, Parliament and the public could see what divergence the Government consider insufficient to trigger a revaluation; and, in time, given a series of reasoned decisions, they might be able to discern what the Government would think sufficient divergence to justify a revaluation. I stress that this is an important matter for those who believe in council tax as a system of local government taxation; we Liberal Democrat Members, of course, do not.

The amendment would help to put the debate about revaluation on a more rational and open basis. Those who oppose revaluation at any particular time could still do so, but only if it were possible to give persuasive reasons for that opposition. The following of motives of pure political convenience would be more easily exposed.

To take the two amendments together, there are three reasons for being in favour of not revaluing. The first is our reason: we are opposed to council tax in the first place, and would replace it entirely with a different system—a system of local income tax. For that reason, revaluation is, for us, an irrelevance. The second reason is technical: there has not been sufficient divergence in property prices since the last revaluation to justify a revaluation. The third reason is political: it would be immensely unpopular to revalue. The point of the amendments is that they would require the Government to distinguish between those three reasons when giving their view of why revaluation should not happen. I commend the amendments to the Committee.

Photo of Robert Syms Robert Syms Shadow Minister (Communities and Local Government)

I congratulate the hon. Member for Cambridge (David Howarth), who, on his first Committee as a Front Bencher, managed to table amendments that allow him to talk, at length, on almost anything but the Bill. I am sure that he has many years of happy Committee work ahead of him.

This is a straightforward Bill. It takes out of legislation that we originally opposed a revaluation and the 10-yearly revaluation. It therefore leaves options open for the Government, and given the Lyons review and all the other things going on, that seems sensible. If there is to be a revaluation, for the reasons that came up on Second Reading—that is, because of the unified business rate revaluation and the problem with surveyors—the most likely window of opportunity would be 2011, which would straddle a general election. From that point of view, if a revaluation goes ahead, it is likely that the decision would be taken some time at the end of this Parliament that there should be a revaluation early in the subsequent Parliament.

I understand the reasons that the hon. Gentleman so eloquently gave for the amendment, but I am not sure that it would be terribly helpful. In trying to understand the Government’s thinking on such things as convergence and divergence, there is always a danger of insisting on members of the civil service doing a lot of work that does not necessarily need to be done. If one actually believes in lean and mean government, these sorts of powers—under which people would have to go to each region and analyse house prices—are probably unnecessary. If the hon. Gentleman pressed the amendment to a Division, he would not get our support.

Photo of Phil Woolas Phil Woolas Minister of State (Local Government), Office of the Deputy Prime Minister

I, too, congratulate the hon. Member for Cambridge; he said, when speaking on the amendments, that this is his first Standing Committee. He said that the first was a probing amendment, and the second the substantive one. They give me the opportunity to explain a little further the background   of the policy, and to explain the inconsistencies and paradoxes that are not only in the amendments, but in the Liberal Democrats’ policies.

On amendment No. 1, the Government have stated on the record many times in recent months our continued support for council tax being a source of a proportion of local government funds. My right hon. Friend the Minister for Communities and Local Government confirmed that commitment recently; he did so in his opening speech on Second Reading. We have also stated that we believe in the case for revaluation. It is right to maintain a fair alignment between house prices and council tax bands. That issue was of concern to many Members of all parties who spoke on Second Reading last week.

However, as I have said, revaluation is linked to wider questions about the structure of council tax, the operation of council tax benefit, and the need for a shared understanding of the role of local government and of councils’ accountabilities to the public that they serve. That is why we have extended the terms of reference of Sir Michael Lyons’ independent inquiry into local government funding. We have asked him to consider and review the change that there has been in the role of local government, and to consider how the Government’s agenda for devolution and decentralisation could improve services. It is in that context that we concluded that we should postpone revaluation, rather than in the context of estimates of winners and losers. We have recognised that it would not be right to proceed with revaluation at this time, and the Bill provides for that postponement.

Amendment No. 1 would preclude revaluation beyond the next general election. That would fundamentally undermine the viability of council tax—perhaps that is what it is intended to do—and it would do so without providing for any credible alternative. The amendment would effectively mean that domestic properties would never be revalued for council tax purposes. We have already stated that we do not believe that revaluation will happen within the lifetime of this Parliament. In any case, we will need time for Sir Michael Lyons to complete his inquiry, and for the Government and Parliament to consider his recommendations—to consult on them and to debate them fully—before we move forward with a reformed council tax system and the revaluation that follows from that. If the amendment were to be accepted, all of that would have to happen before the next general election, because after that the Secretary of State would not be able to set a date for revaluation without further primary legislation.

The Government cannot possibly accept an amendment that would dramatically limit the time available for proper review and reform of local government function and funding. It is important to emphasise that the problem of creating stability and buoyancy within local government funding is a problem that all of us face, and to which all of us must find a solution. We can also not accept an amendment that would leave us with a council tax system based on increasingly out-of-date valuations. That would make   the system increasingly difficult for the valuation office to administer, and increasingly discredited in the eyes of the taxpayer.

The Bill is intended to give us time to consider fully all the available options for local government funding. As I have said, the Government remain committed to council tax. The hon. Gentleman has repeated that his party has a different view, but now is the time to engage with the review process and to have a sensible debate about what is the best way forward. Now is not the time to undermine fundamentally the process and to destabilise local government, because we have reached the point when we are seeking to provide stability.

I will try to answer some of the hon. Gentleman’s points on this amendment before I move on to address amendment No. 2. He said that there were difficulties in collecting the council tax. In fact, it has the highest collection rates of any tax; the rate is more than 96 per cent. of council tax, except in some parts of the country. I will not be tempted down that line, because I have seen the most recent figures. However, I can confirm that all authorities are moving up in relation to collecting. In addition, the business rate is also successfully collected. I do not accept the premise mentioned.

Photo of Graham Stringer Graham Stringer Labour, Manchester, Blackley 11:00 am, 15th November 2005

My hon. Friend is making a perfectly sensible point about the efficiency of the council tax compared with that of other taxes. Does he accept that, while that efficiency relates to the number of people who are registered to pay council tax, there is evidence, particularly from the Electoral Commission, that there might be many millions of people who are not registered to pay it and who have therefore escaped the system, and that that needs examining?

Photo of Phil Woolas Phil Woolas Minister of State (Local Government), Office of the Deputy Prime Minister

My hon. Friend makes an important point, which I urge him to make, as will I, to the Lyons inquiry. The point behind his intervention is also pertinent to the fact that a single-person home receives a 25 per cent. discount on council tax. If a second resident of the home is not registered on the electoral register, that would in effect mean the avoidance of 25 per cent. of the tax and has the consequential effect of reducing the number of people on the electoral register and, therefore, its credibility. In addition, part of the funding blocks are indirectly affected by the total number of people on the electoral register, so there is an implication for local government funding from central Government as well as from the council tax payers. I thank my hon. Friend for his intervention.

When I have covered the points on amendment No. 2, I will answer the specific points that the hon. Gentleman made about the principles in the round. We readily accept the argument for revaluation of council tax to maintain a fair alignment between house prices and council tax bands. In my view, if someone accepts a property tax, they must accept, unlike the hon. Member for Poole (Mr. Syms), that valuation follows from it. Having said that, we can see no case   for the regular publication of assessments of house price movements, which the amendment would require.

I am sure that the hon. Member for Cambridge thinks that the Government are being cynical and are hiding behind this argument because he believes that we do not wish to publish such information. I will give him some powerful reasons why his amendment would not achieve what he wants it to do. The real problem with this proposal is that it is based on, or at least leads inevitably to, the highly questionable notion that there must be some sort of objective golden rule which would lead, or even require, the Secretary of State, or anyone else, to determine whether a particular level of divergence did or did not justify a revaluation.

The idea seems to be that if X number of houses in band Y had moved up in price by more than Z per cent., there would more or less automatically be a case for revaluation. Furthermore, by implication, if the Government then decided, for whatever reason, not to proceed with revaluation, notwithstanding that evidence, they would somehow be flunking the issue. Conversely, the implication is equally that if a particular level of divergence had not been established, an insufficient case would have been made to warrant a revaluation. I reject the implication both that a particular level of property price movement necessarily justifies revaluation and that divergence that falls short of that level of property price movement precludes any case for revaluation.

What, moreover, are we to do about the complications in house price divergence at sub-regional level? To refer to the argument of the hon. Member for Poole, what if there is no significant variation in house price movements between regions, but there is variation within billing authorities—or, perhaps, within some billing authorities but not within others?

If I correctly understand the arguments made on Second Reading, the position of the official Opposition is that the recent narrowing of divergence between regions—not sub-regionally—removes the case for revaluation. I do not share that view for the reasons that I have given. This Liberal Democrat amendment might not have been tabled on the basis that such a view is implied, but, whatever the intentions of those who tabled it, that is certainly what will be inferred by many commentators before long.

Let me be clear about this: revaluation is not simply about reflecting divergence in prices across the property market, and still less about any particular degree of divergence. That is not the case for revaluation.

Photo of Charles Walker Charles Walker Conservative, Broxbourne

One of the concerns that my constituents have when they hear the word “revaluation” is that it is just code for more tax being levied on them and others living in the east and south-east, and that the tax will be unfair because it will not equally apply to people in the north of England—indeed, that more financial resources might be transferred from Hertfordshire to the north of England. Is that a fair concern, or is it misplaced?

Photo of Phil Woolas Phil Woolas Minister of State (Local Government), Office of the Deputy Prime Minister

I thank the hon. Gentleman for that intervention, because I was going to address the matter he has raised later—with your permission, Mrs. Anderson—but let me park the car now, and answer the point.

If the hon. Gentleman’s constituents are under the impression that a revaluation will lead to them being taxed more and people in other parts of the country being taxed less, I suggest that that perception is in large part a consequence of the campaign of the hon. Gentleman and his party, which was based on the premise that an upward movement in house prices would automatically bring about a movement upwards in council tax bands. However, council tax banding is of course based on the relative values of properties—relative to those of neighbours and other properties in the billing authority, and relative to average prices in other billing authorities and in the entire country.

I have repeated this morning that the Government’s decision to postpone revaluation was not based on estimates of winners and losers. However, it is interesting to examine the estimates that have been made publicly available, and in particular those of the Halifax building society. It is of course not possible to give estimates without first deciding what the banding relation should be, but other things being equal there were winners and losers in all parts of the country. Hartlepool and Northumbria were identified as significant losers, and Cornwall was also identified as a significant loser.

What lies behind the hon. Gentleman’s intervention is a misunderstanding of how the council tax system works, which is surprising as it was, after all, a Conservative invention. Let me clear up that misunderstanding. If the average council tax band D in a billing authority moves up, the Government will provide that council with less money. To put that in lay person’s terms, if someone builds four-bedroomed executive houses, the Government give them less money. Therefore, it is not the case that an increase in the average council tax at band D—which is the measurement used in this calculation—has the effect that the hon. Gentleman claims.

The hon. Gentleman’s point is also based on the assumption that we up north all live in poor housing. I must tell him that the second richest county in the United Kingdom is Cheshire, which is nearer to Manchester than it is to his constituency. Although that is a popular perception—perhaps an urban myth, intentionally or otherwise perpetuated—it is not borne out.

Photo of Siôn Simon Siôn Simon PPS (Ian Pearson, Minister of State), Foreign & Commonwealth Office, PPS (Ian Pearson, Minister of State), Department of Trade and Industry

I take absolutely the Minister’s excellent and erudite point about the variable geometry involved in this issue. Nevertheless, I am prompted to wonder about the point made by the hon. Member for Broxbourne (Mr. Walker). If it is the case, and it might well be, that the hon. Gentleman’s constituents are much richer, earn vastly more money and live in much more expensive houses than my constituents, what would be unfair about their paying more council tax?

Photo of Phil Woolas Phil Woolas Minister of State (Local Government), Office of the Deputy Prime Minister

My hon. Friend makes a powerful and telling point, but it applies better to the policy of the hon. Member for Cambridge. How could one have resource equalisation from a local income tax without punishing my hon. Friend’s constituents? I imagine that they are not as wealthy in income or assets as those of the hon. Member for Broxbourne.

I assume that the hon. Member for Cambridge is committed to equality; his party says that it is. However, under his policy, we would end up with a redistribution formula that would turn the proposed local income tax into something that was not a local income tax at all, but a bureaucratic nightmare. The alternative would be that residents or employees working within the billing authority—that would be another consequence of the local income tax—would work alongside people who would pay different levels of tax if they lived in different authorities. It would be interesting to see that justified, but I suspect, Mrs. Anderson, that you are about to pull me up.

Photo of Charles Walker Charles Walker Conservative, Broxbourne

I am much encouraged by the Minister’s words. Can I take back to my constituents the message, “Don’t worry. When there is a revaluation, you won’t be paying more tax”?

I do not know the merits of the housing stock in the constituency of the hon. Member for Birmingham, Erdington (Mr. Simon). However, if he shows me his, I shall show him mine and we can make a comparison.

Photo of Phil Woolas Phil Woolas Minister of State (Local Government), Office of the Deputy Prime Minister

I shall comment on the hon. Gentleman’s first point, not on his second—I do not think that even Hansard could get me off the hook for that. The hon. Gentleman’s first point comes back to whether a revaluation is revenue-neutral. The Government have made it clear that the proposed 2007 revaluation will be revenue-neutral. In lay person’s terms, that means that the total amount collected from domestic council tax would remain the same.

In practice, differences from the real world would inevitably come out. For example, if the number of houses increased or the collection rates increased beyond the already very high levels of over 96 per cent., the council tax base would increase with them. Notwithstanding that, the business rate revaluation that took place proved to be revenue-neutral, despite the increase in rateable values; that increase reflected the performance of the economy, because non-domestic rates are based on rental values. The differences in yield were explained entirely by the increased number of properties, increased collection rates or other technical matters. However, I doubt very much whether any change in council tax yield as a result of a change from a current valuation to a new one would be welcomed with open arms by the hon. Gentleman and his party, whether or not it was 100 per cent. revenue-neutral.

I can confirm that the Government’s policy is that a revaluation should be revenue-neutral; that is the basis of our policy. However, there is an important point for those in this room, all of whom have followed the debate: it is also the case that changes in systems of funding local government have in the past increased income from local taxpayers. In other words, the   change is often used by local authorities—willingly or unwillingly—to increase the total tax yield. That happened twice under the Conservative Government: once when they introduced poll tax, and once when they introduced council tax.

In fact, hon. Members may remember the revaluation exercise that led to the introduction of the council tax. It involved the Government, through the valuation office, hiring estate agents—one remembers the headlines—to go round with clipboards, lean out of car windows and tick boxes. That led to chaos; there are lessons there. However, I can confirm the important policy point on revenue neutrality.

The case for revaluation is simply that it ensures that property values are fairly reflected in council tax bandings, and that values are up to date and can be sensibly handled by the Valuation Office Agency and other interested parties. After all, we are interested in fairness, but fairness does not depend on passing some arbitrary test relating to the divergence between past and current property prices, as is implied under amendment No. 2.

Indeed, according to that amendment, if the focus were too heavily weighted towards divergence as the overriding factor predicting a revaluation, there would have to be what amounted to an annual revaluation of all properties so that the assessment of divergence could be made. The assessment would have to take into account not just the national picture, but the regional and local levels, to reflect the fact that divergence can and does happen, and has impact, at micro level, just as much as at macro level, if not more so.

Moreover, I have no doubt that such a process would tempt many householders to enter an annual debate on whether the Government should revalue in that particular year—according, presumably, to whether they stood to win or lose under a particular set of figures. In all seriousness, I do not think that that offers any prospect of a sound basis on which to take forward the important decision of when to revalue.

The right way forward is for the Government to propose and justify a date for revaluation to Parliament in light of the Lyons review and the response to it, and for Parliament to consider the merits of that date, and of the Government’s justification for it, in debate under the affirmative procedure, which is provided for in the Bill.

The amendment tabled by the hon. Member for Cambridge is based on the assumption that revaluation takes place only for the purposes of council tax banding, but of course it does not. The work of the Valuation Office Agency in valuing properties is important for the purposes of estate and inheritance, and from the point of view of new properties and properties that have been altered and sold. The revaluation service across government, and acquisitions and disposals, are also based on the work of the valuation office. The hon. Gentleman says that there is no point in revaluation because he does not   want a property tax, but one would still need revaluation if—God forbid and save us from the chaos that would ensue—his policy were implemented.

I hope the hon. Gentleman will admit that I have adequately covered his second point, on divergence, and his third, on the potential unpopularity of a revaluation. I hope he accepts the genuine intention behind the Government’s proposals and the genuine opposition to his amendments. We want to ensure a robust system of local government finance.

Photo of David Howarth David Howarth Shadow Minister, Office of the Deputy Prime Minister 11:15 am, 15th November 2005

I thank the Minister for his response.

The intention behind amendment No. 1 is to allow the Government space to describe their policy for after the next election, and to do as much of that as they could before that election. The Minister has gone some way towards doing so, but not as far as I had hoped. He says that the Government remain committed to council tax forming part of the local government taxation system, and so, given the time scale of the Lyons review, it is necessary to maintain the position set out in the Bill. He was insightful when he said that the amendment would make council tax not viable after the next general election. However, there would be a new Parliament, which could pass new legislation. The point of the amendment is to seek the Government’s view on that new legislation, given the condition in relation to which the power would be sunsetted.

To some extent, the Minister is still hiding behind the Lyons review by not stating fully and openly Government policy on different methods of banding and regional banding. That is important not only for transparency and political debate in the run-up to the next election so that the matters are properly debated then, but for getting a result from the Lyons review that makes sense and can be discussed.

If we give a technical committee a political job, my experience is that what is achieved at the end will be a series of options. The political question that must be resolved—which option to take?—will remain and the political work on which it would be based, and which the subject requires, will not have happened. As a result, after the Lyons review reports, the Government will still not have resolved their policy. They will not have done so in time for the next election, which will have to be fought on the basis of their not being clear about their intentions.

The hon. Member for Manchester, Blackley (Graham Stringer) referred to the viability of the council tax in its percentage return. What percentage of the population pays? One point arises from something that the Minister said in response to the hon. Member for Birmingham, Erdington when talking about a local income tax. The number of taxpayers in the council tax system is about 20.5 million, although that figure may have increased recently. The number of income tax payers is about 31 million. There is a much greater spread of income tax payers than council tax payers. That is one element that makes it easier to redistribute among districts   under a local income tax scheme than under the council tax. We would be distributing over a wider tax base.

Even in terms of the difference between the lowest and highest values, the local income tax is slightly better. The highest income is about 36 times the lowest, whereas for council tax the figure is 54 times, so there is less redistribution to do under a local income tax system than under a council tax system. All local tax systems require a redistribution system of some sort, and I do not understand why it would be more difficult for that to be done under one tax base than another.

Photo of Charles Walker Charles Walker Conservative, Broxbourne

Can the hon. Gentleman refresh my memory? Is he suggesting that a policeman and a nurse who lived together and each earned £25,000 would be assessed independently on their income for the local tax he is proposing? In essence, each would be assessed. Is that the plan?

Photo of David Howarth David Howarth Shadow Minister, Office of the Deputy Prime Minister

Yes, because that system is about income tax, and income tax taxes people on their income. I do not want to get on to the general subject of income tax.

Photo of Janet Anderson Janet Anderson Labour, Rossendale and Darwen

Order. I remind hon. Members that we are discussing revaluation.

Photo of David Howarth David Howarth Shadow Minister, Office of the Deputy Prime Minister

Thank you. I do not want to go further into the matter, other than to remind the hon. Member for Broxbourne that the average household income in this country is £26,000, not £50,000.

I was disappointed by the response of the hon. Member for Poole to amendment No. 2. When I was leader of a council and could not think of anything else to say to oppose an opposition amendment, I could always trot out the reason that it would cost too much officer time to implement. That, I fear, was the sum total of the hon. Gentleman’s opposition to amendment No. 2.

The hon. Gentleman should be asked what it is worth to have an open, public debate on such topics. Is it worth spending a little civil service time to ensure that there is a regular, informed debateon important questions? I understand why the Government and the Conservative party are anxious not to have repeated debates on this topic, because every time we debate it the fundamental, underlying injustice of the council tax becomes clearer.

Amendment No. 2 does not require the decision on whether to revalue to be based solely on the degree of divergence—the word used is “include”. It simply requires that element to be discussed by the Government and assessed. The amendment is saying not that that can be the only reason, but that the Government must make some assessment involving that reason.

The other point made by the Minister, which sums up a number of different points he made, was that there is no objective number regarding divergence that would trigger a revaluation in the minds of all those who support a property-based local government tax. The amendment does not assume that there is any such figure. We are not trying to get an objective view of the conditions for revaluation; we are trying to get to the   Government’s view, and we want them to state it openly, so that an informed public debate can take place.

In response to the Minister, nothing in amendment No. 2 would require a revaluation; it would only require the Government to consider revaluation, which is different. As time goes on, and the Government regularly make their view on these questions known, there will be a series of decisions in which they give their reasons for not revaluing, which will enable people to see trends of thought and suggest new lines of argument.

To revert to my previous job for a moment, the amendment would create case law; it would not lay down hard and fast rules. We are trying to get examples from the Government, through which people can investigate and debate their policy—just as the common law develops the law.

We are looking for examples of Government decision making that can lead to rationality through debate. The fundamental purpose and the political theory behind the amendment are that rational political decisions are gained from debate, not from silence.

Photo of David Burrowes David Burrowes Conservative, Enfield, Southgate

Is not the problem the fact that although one talks about rationality, the fundamental basis of the Bill is irrational? We have heard some reasoned arguments by the Minister—about the Halifax report in April, for example, and before that the figures and statistics in relation to price divergence—but this is a cynical, irrational move by the Government to postpone revaluation when they have been faced with soaring costs of revaluation and wasted £15 million of taxpayers’ money, and there is more to behold.

Photo of David Howarth David Howarth Shadow Minister, Office of the Deputy Prime Minister 11:30 am, 15th November 2005

I accept the Minister at his word: the reasons for the decisions were based on considerations other than those that the hon. Member for Enfield, Southgate (Mr. Burrowes) advances. However, one should remember that Lyons said that the change in his remit would justify a year’s delay in revaluation, but not the Government’s policy, which is to delay for as long as it takes Lyons to report.

I leave it to the Committee to decide the basis of the Government’s decision. The amendment is not so much about the decision taken this time, but about the basis on which future decisions shall be taken, so that the points that the hon. Member for Enfield, Southgate raised and to which the Minister replied in advance can be brought to the debate with more information and openness about decision making. Whatever the position on the current decision, in the future we want that debate to be carried on in a more rational and informed way.

As I said at the start, amendment No. 1 is a probing amendment. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: No. 2, in page 1, line 8, at end insert—

‘(1B)The Secretary of State shall decide at least once in each calendar year whether to exercise the power granted by section 1A, and shall give reasons for his decision.

(1C)The reasons referred to in section 1B shall include the Secretary of State’s assessment of the degree of divergence in relevant property values since the original valuations made under this Act or since any subsequent revaluation.”.’.—[David Howarth.]

Question put, That the amendment be made:—

The Committee divided: Ayes, 2, Noes 14.

Division number 1 Nimrod Review — Statement — Clause 1 - Dates on which new valuation lists must be compiled for England

Aye: 1 MP

No: 13 MPs

Ayes: A-Z by last name

Nos: A-Z by last name


Question accordingly negatived.

Question proposed, That the clause stand part of the Bill.

Photo of Phil Woolas Phil Woolas Minister of State (Local Government), Office of the Deputy Prime Minister

With your permission, Mrs. Anderson, I should like to remind the Committee of the background to the council tax and the events that have led to the need for the Bill.

The Local Government Finance Act 1992 introduced the council tax from 1 April 1993 with valuations of domestic properties based on values at 1 April 1991. The Act did not require council tax valuations to be updated by the creation of new council tax valuation lists. The 2001 White Paper, “Strong Local Leadership, Quality Public Services”, subsequently recognised the importance of keeping property values up to date. It committed the Government to a first revaluation in England to be completed in time for council tax bills issued in 2007, with subsequent revaluations to take place at intervals of no more than every 10 years after that.

The Local Government Act 2003 accordingly amended the 1992 Act to give statutory force to that commitment. Section 77 of the 2003 Act inserted new section 22B into the 1992 Act, requiring the listing officer of each billing authority to compile new valuations lists for domestic properties in England on 1 April 2007 and subsequently on the 10th anniversary of the previous valuation, or at an earlier date specified by order by the Secretary of State.

Section 22B required a draft list to be compiled by 1 September before the date on which the list is to be compiled. For the April 2007 revaluation, that would have been 1 September 2006. As I have explained, Sir Michael Lyons was appointed by the Government in July 2004 to carry out an independent inquiry into local government funding. The expectation was that his recommendations for the reform of council tax would be fed into the 2007 revaluation. However, in light of discussions in government and between ourselves and Sir Michael that took place this summer, my right hon. Friends the Deputy Prime Minister and the Chancellor of the Exchequer, to whom the Lyons review will report, decided to extend the terms of reference of the inquiry.

Subsequently, on 20 September this year, the Government announced through a statement made by the Minister of Communities and Local Government that Sir Michael’s remit was to be extended and, as a result, that we intended to legislate to postpone council tax revaluation. As our announcement on 20 September 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 the tax and the operation of council tax benefit.

It is also relevant that there are important imminent changes in local government finance, including the move to three-year budgets, the review of the local government finance formula and the creation of the dedicated schools budget. We reached the view that it would not be sensible to proceed with the current timetable for revaluation, and have concluded that we needed the flexibility to revalue as part of a fully developed package of funding reforms rather than as a precursor to them. On the Opposition day debate last month and the debate on Second Reading, we had exhaustive opportunities to debate the Government’s position on the matter.

Turning to the detail, clause 1(1) simply introduces the amendments to be made to section 22B of the 1992 Act. Clause 1(2) amends section 22B by inserting a new paragraph 1A, which provides the Secretary of State with the power to set the dates of revaluations in England by order. The new list will always be required to be compiled on 1 April in any specified year. Subsection (3) amends section 22B of the 1992 Act by removing the duty on listing officers—in practice, the Valuation Office Agency—to compile a new valuation list in relation to billing authorities in England on 1 April 2007, and a draft of that list by 1 September 2006. We have already informed the House that the VOA has stopped work on revaluing domestic properties in England on that timetable to prevent nugatory expenditure, and the provision formalises that position. Without it, the VOA and the building authorities would remain obliged to go ahead with revaluation.

Clause 1(4) amends section 22B so that the requirement for a cycle of revaluation in England at least every 10 years is removed, together with the Secretary of State’s power to specify by order a date of revaluation earlier than the 10th anniversary. That   does not necessarily mean that revaluation will not occur regularly; it is simply that until the Government have received, considered and acted upon Sir Michael’s final report, we cannot take a view on how frequently revaluation should occur, and we think it right that we should not be statutorily committed to revaluing on a rigid predetermined cycle.

Clause 1(5) amends subsection (11) of section 22B to ensure than any orders that are made under the new power to set the date of revaluation in England by order will be subject to the affirmative resolution procedure in the House of Commons only. That is the same as the procedure that was prescribed by section 22B for orders to be made by the Secretary of State to specify a date earlier than 10 years for revaluation, which subsection (4) would remove. We believe that it is appropriate that the affirmative resolution procedure should be used for this order-making power to give the House a proper opportunity to debate the date of any revaluation. The affirmative procedure is also prescribed in the 1992 Act for related matters such as the introduction of new bands and the varying of proportions between bands.

Subsection (6) is a technical amendment to section 113 of the 1992 Act which ensures that any order to set a date for revaluation will be subject to the affirmative resolution procedure. Subsection (7) is a minor technical tidying amendment. On that basis, the purpose and justification for the clause can no longer be in any doubt.

Question put and agreed to.

Clause 1 ordered to stand part of the Bill.