Local Government Finance Bill
Order for Second Reading read.
I hope that the House will not lose sight of the fact that a debate on what Labour has claimed to be a deeply controversial and retrograde step has managed to attract only 20 Labour Members. If anything can be said to justify our belief that the Bill to abolish the poll tax is deeply unpopular with Labour, it is the fact that Labour Members are not even prepared to come here and discuss it today, and to listen to what we have to say.
The Bill will abolish the poll tax and replace it with
Mr. Tony Banks (Newham, North-West) rose--
Mr. Heseltine : No, I will not give way. The hon. Gentleman would do better to go off, as he did last week, and whip in a few more hon. Members from the Corridors of the House so that they can hear what I have to say.
The Bill will abolish the poll tax and replace it with the council tax. The council tax is a fair and straightforward method of raising local government revenue. It is based on the market value of property ; it takes account of the number of people in households ; it provides generous rebates for those on low incomes ; it offers special protection for students, student nurses, those on youth training schemes and apprentices. The tax requires no register, and the discount and rebate provisions are simple and straightforward.
Mr. David Winnick (Walsall, North) : Is the right hon. Gentleman aware that he constantly refers to the poll tax, while all his predecessors --and every other Minister--have used a different phrase? While he is at it, will he apologise, on behalf of the Government, for the poll tax and the devastation that it has caused throughout the country? As a Back Bencher, the right hon. Gentleman spoke against the poll tax, but what about the Government whom he represents? They voted for it, including the Prime Minister.
Mr. Heseltine : The only apology that is required is one from the Labour party, which is frustrating our attempts to get rid of the poll tax. [Interruption.] The longer that Labour Members keep up this unnecessary barracking, the longer it will take to get rid of the poll tax. We will not tolerate that. The poll tax is going, and nothing that Opposition Members can do will deter us from doing what we intend to do.
Part 1 of the Bill provides for authorities to levy and collect council tax to replace community charges. Let me describe the main provisions. Clause 3 defines the dwellings on which the tax will be levied. They include most domestic properties, including caravans and houseboats. Clause 4 allows certain dwellings to be exempt. We have already announced that student hostels and halls of residence will be exempt, as will households
Column 784containing only students. Other dwellings, including those classes of empty dwellings whose owners currently pay no standard community charge, will also be exempt.
Clause 5 sets out the value bands for England and Wales, and the tax rates associated with them.
Sir Rhodes Boyson (Brent, North) : I am sure that my right hon. Friend is aware of the overwhelming support on this side of the House that has been expressed for the council tax--as opposed to Labour's so-called "fair rates". Some hon. Members who represent constituencies containing high-value properties, however, feel that a fourth set of bands should be provided for properties in London and the south-east, and in other areas containing properties of a similar value. It is felt that that would be equitable. The
Conservative-controlled London Boroughs Association has prepared a new set of bands. Would my right hon. Friend be prepared to consider inserting that proposal in the Bill?
Mr. Heseltine : I welcome my right hon. Friend's support. I appreciate that few right hon. and hon. Members know more than he does about the ramifications of these complex matters. I do not think, however, that my right hon. Friend is giving himself full credit. In response to the pressures brought to bear on the Government by him, and by many of my right hon. and hon. Friends--especially those representing constituencies in the south-east--we have already introduced a new band, band H. My right hon. Friend will also be aware that we propose a limit representing a factor of one to three between the top and the lower bands to protect those in the circumstances to which he has drawn our attention.
Mr. John Marshall (Hendon, South) : Will my right hon. Friend look again at the question of regional banding? Is he aware that, in East Anglia, 44 per cent. of homes are in bands A and B ; in the north-west 56 per cent. ; in the north, 65 per cent. ; in the west midlands, 51 per cent. ; and in the London borough of Barnet, 1 per cent?
Mr. Heseltine : My hon. Friend draws attention to one of the local authorities that contains a significantly higher concentration of high- value properties. There is a relationship in our proposals between the level of tax paid to the council and the circumstances of the household, including the value of their property. It so happens that my hon. Friend represents a part of the country in which that applies particularly. I am sure that my hon. Friend recognises that the politics of envy, which so characterise the Labour party, have been specifically excluded from our fair proposals. We have limited the range of difference between what people pay by a factor of one to three. That was done deliberately in order to respond to such feelings as my hon. Friend holds.
Dame Elaine Kellett-Bowman (Lancaster) : My right hon. Friend referred to the circumstances of the household. May I draw once more to his attention the fact that in my part of the world, and in other rural areas, many people live in houses that are far bigger than they normally would live in because they are in tied occupations. They may be estate workers, forestry workers or clergymen. The value of their houses bears no relationship to their incomes. Could not there be a special category for people who live in tied houses?
Column 785Mr. Heseltine : My hon. Friend makes a most important point. When she studies the admittedly complex arrangements in the Bill, she will find that many of her concerns have already been addressed. My hon. Friend was right to raise that point. I am glad to be able to confirm that we have taken that point into account.
Dr. Michael Clark (Rochford) : I know that my right hon. Friend takes great pride in presenting to the House the council tax, which he considers to be fair. However, does he accept that by category school teachers, civil servants, policemen, nurses and others receive the same salary, by and large, regardless of where they live and that those who live in the south-east have less disposable income due to large mortgages brought about by the high price of housing? Why, therefore, should those people be penalised a second time by having to pay a council tax that is based on house prices?
Mr. Heseltine : When my hon. Friend studies the legislation and examines the reports of the deliberations in Committee, he will recognise, when all these things are added to the considerable additional resources provided by the Chancellor of the Exchequer for lowering the overall contribution by local citizens and when he considers the figures for the various bands and the various evaluations of property, that we have taken the necessary steps in our system to protect people who fall into one category or another. Of course there are differences in income and variations between one part of the country and another. If, however, my hon. Friend looks at the exemplifications we have produced, he will recognise that we have met his concern. It is also the case, as I said to my hon. Friend the Member for Lancaster (Dame E. Kellett-Bowman) a few moments ago, that in many of the valuations we take account of the fact that they are tied in one way or another to a specific occupation.
Mr. Simon Hughes (Southwark and Bermondsey) : I accept that the Secretary of State has rejected, as have the Government, our proposals for a local income tax, but will he explain how it is more fair for people to pay for local government services on the basis of the value of their property, which may bear no relationship to their incomes, than on the basis of the income that they receive in the year in question? To take a constituency such as mine that contains very few people on high incomes but where property values are very high, how can there be any argument but that a local income tax is fairer for places such as inner London, including Bermondsey, than the council tax?
Mr. Heseltine : The hon. Gentleman is right. His party came to us and fairly put to my hon. Friend the Minister for Local Government and Inner Cities the argument for a local income tax. We had to ask whether we thought that it would be in the widest interests of the country that the income tax rates of those who will pay towards local government services should be in the hands of the Labour party. The hon. Gentleman must address that question. Does he believe that allowing Labour local authorities to push up income tax even faster than the Labour party would if it ever took office would serve the interests of this country?
We were not trying to create a local income tax. We were considering a tax that was based on two factors--the number of people living in the property, and its value.
Column 786Those were the ingredients that we had in mind when designing the council tax. When one considers the revenue that will be raised by the council tax and the differences between the bandings, it is apparent that we have found a system of damping the process that is broadly fair across the country.
Mr. Ralph Howell (Norfolk, North) : I am delighted to hear the enthusiasm with which my right hon. Friend is announcing the end of the poll tax. Bearing in mind that it was half ended by adding 2.5 per cent. to VAT, why on earth are we going through all the pain and problems that this wretched tax will engender? Why not solve the whole problem by adding a further 2.5 per cent. to VAT?
Mr. Heseltine : There were many ways in which we could have made progress, but we determined that that was not one that we wished to adopt, because the inevitable conclusion on my hon. Friend's proposals--I know how strongly he feels about this point--is that every authority's spending is fixed precisely. Authorities have no capacity to raise additional revenue, and, to the most minute detail, central Government fix their expenditure. That would not be the right way to progress.
The second argument that I must put to my hon. Friend the Member for Norfolk, North (Mr. Howell) is that societies that are broadly equivalent to ours have some form of property-based tax. We have introduced a property --based tax that, by and large, reflects the number of people living in a property. That is a sensible and practical way forward that maintains the width of the tax base, which has desirable qualities.
Mr. Frank Haynes (Ashfield) : I am going to test the right hon. Gentleman's memory. In that period when he was swinging the Mace around his head--when he was in opposition--does he remember saying that there should be less central control? He is now proposing more central control. Why?
Mr. Heseltine : I remember the occasion vividly. Labour Members were standing singing "The Red Flag". If the hon. Gentleman wants to know why they were singing it, let me point out that it was because they had cheated to get a piece of nationalisation legislation through the House. At least I apologised to the House, which they never did. They went on to lose general election after general election as a consequence, and that was a very good thing. [Interruption.]
Mr. Heseltine : I have explained to you, Mr. Speaker, and it is manifestly true, that the Labour party will do all in its power to keep the poll tax on the statute book. Even now, it is seeking to delay the proceedings of the House with irrelevant interruptions. Interruptions from this side of the House are constructive ; interruptions from the other side are destructive.
I wish to proceed with my analysis of clause 5, which sets out the value bands for England, as I said to my right hon. Friend the Member for Brent, North (Sir R. Boyson)--at least he understood what I was talking about. As the House knows, there are eight bands. The tax rates are arranged so that a property in the highest band pays three times as much as a property in the lowest. This limited range of tax bills ensures that the high-value properties do
Column 787not face excessive tax bills and it damps the effect of regional variations in house prices. They ensure that regional bands--which would bring many anomalies--are not therefore necessary.
Clause 6 sets out those who will be liable to pay the tax. The principles are based on common sense. In owner-occupied property, it will be the owner. In rented property, it will be the tenant. In other occupied property, it will be the resident. In unoccupied property, it will be the owner. Where two or more people fall into the liable category, they will be jointly liable. Spouses or partners will also be jointly liable for the household bill.
Clause 11 provides for discounts of 25 per cent. where there is one adult resident and 50 per cent. where there is none. It also provides that certain groups of people, who are described in schedule 1, are not counted when assessing the number of residents. Therefore, a single parent whose student daughter lives with her will still receive a 25 per cent. discount. The discount is set at 25 per cent. because the basic bill is half the property and half the personal element. It assumes two people, so that where there is only one adult resident he or she gets a discount equivalent to half the personal element, or 25 per cent.
Clause 13 provides for reductions in council tax and will enable a scheme of transitional relief during the change to the new tax to ensure that no household faces an excessive year-on-year increase in its bill.
Dr. Keith Hampson (Leeds, North-West) : This point is crucial. As my right hon. Friend knows, most of the students of Leeds live in my constituency. There is some confusion as to whether they will get only a percentage discount or whether they will be exempt across the board. Will my right hon. Friend say whether, unlike under the old rating system, students will not pay a rateable tax and that universities will not pay for the buildings even if the students are exempt?
Mr. Heseltine : My hon. Friend raises an important point. We have exempted students from payment of this tax. Their presence in a house does not give rise to a liability. If my hon. Friend studies the Bill with care- -I know that he will--he will discover the way in which we have ensured that that happens.
Mr. Chris Butler (Warrington, South) : My right hon. Friend issued illustrative figures showing what the charges are likely to be on the basis of this year's community charge. As he presumably knows how capping will work, will he publish illustrative figures showing what the maximum charges are likely to be when the council tax is implemented?
Mr. Heseltine : As my hon. Friend knows, we have taken the existing budgets of local authorities and, on the assumption that we have moved through the transitional period, we have extrapolated what the equivalent figures would be under the council tax based on the best information available to us. We cannot look forward to budgets in two years' time which local authorities have not yet prepared and extrapolate on the basis of such hypotheses. That is not possible. The fact that one cannot do that shows why the Labour party attempted to follow the same methodology as we followed, although it left out a significant number of the costs involved.
"Students, student nurses, apprentices and those on YT schemes will also be eligible for discounts. Student halls of residence and other dwellings where all the adult residents are students will be exempt from council tax."
Will some students be exempt and will others be eligible only for discounts and therefore have to pay a proportion of the bill? How does the right hon. Gentleman justify that disparity?
Mr. Heseltine : The hon. Gentleman is broadly right. On the last part of his question, he must take into account that, in the normal course of events, student nurses would be eligible for rebates whereas students would not. When the hon. Gentleman looks at the detailed drafting of the Bill, he will find that the Government's broad intentions have been carried out.
Clause 13 provides for reductions in council tax and will enable a scheme of transitional help during the change to the new tax. Clause 15 provides for valuation tribunals to hear appeals in connection with the council tax. These tribunals will adjudicate on issues of property banding and liability for the tax.
Chapter II of part I concerns valuation lists. Such lists, which will show property details only, will be compiled for each authority. The allocation of properties to bands is now being carried out under the auspices of the Inland Revenue Valuation Office.
Clause 24 provides for the alteration of lists. We intend to provide that a dwelling may be rebanded upwards only when it changes hands and then only if a material increase in its value results from work done to the house. However, we shall provide that a property may be rebanded at any time if there has been a material reduction in its value, whether caused by partial demolition, a change in the nature of the locality or adaptation of the dwelling to make it suitable for a disabled person. There is provision for appeals on these matters. Chapter III of part I is technical and deals with the setting of the council tax each year from April 1993. Chapter IV of part I deals with the issue of precepts by major precepting authorities such as county councils and local precepting authorities such as parishes.
Mr. Jacques Arnold : How will my right hon. Friend ensure that the revenue support grant received by councils in the south-east will not be reduced as our constituents already pay more for the housing in which they live?
Part II of the Bill contains similar provisions for Scotland. Part III abolishes the community charge from 1 April 1993. Part IV contains a number of miscellaneous but important provisions. Clause 101 amends social security legislation to provide for council tax benefit. The relevant legislation is being consolidated this Session and the references are to the consolidation Acts. They were
Column 789introduced in another place a week ago. The rebate system will provide rebates of up to 100 per cent. There is no minimum contribution to the council tax.
Those are the main provisions of the Bill. The schedules provide more detail on the groups who will qualify for discounts, on the billing--
Mr. Donald Dewar (Glasgow, Garscadden) : I am grateful to the Secretary of State for giving way as I have tried hard without success to get an answer from his colleague in Scotland. As I understand it, there is now no dispute about the fact that the 20 per cent. rule is indefensible and must go in April 1993. Why can it not go in April 1992?
Mr. Heseltine : The hon. Gentleman knows the answer. As we have said many times, the 20 per cent. that is collected from people on low incomes is covered in the additional payments that they receive. Therefore, it is appropriate to consider the matter, not in two bites--one this year and one next year--but in the introduction of the new system.
Mrs. Margaret Ewing (Moray) rose --
I have covered the main provisions of the Bill. The schedules provide more detail on those groups who will qualify for discounts, on the billing and recovery procedures, on rebates, non-domestic rating, grants and funds. The council tax is, therefore, based on straightforward common-sense principles. It will provide a fair and stable basis for local government finance. It avoids the obvious faults of the old rating system.
Under the rating system, the valuation based on notional rateable values was difficult to understand. The council tax uses market values which everyone understands and for which there is plenty of evidence. Under the rating system, small improvements to properties led to higher bills. Under the council tax, small improvements will have no effect on the bands and larger ones will be taken into account only when a property changes hands.
Under the rates, each property had an exact valuation, and there was a large range of bills, from the lowest to the highest. The council tax limits the range, protecting households from disproportionately high bills. The rates took no account of the number of people in a household. The council tax will ensure that single adult households pay less. It will also maintain accountability. Thirty-eight million of the 42 million adults in Great Britain--that is, more than 90 per cent.--will be directly taken into account by the council tax. Many of the remainder will be eligible for discount even if they were counted provisionally. Property is a sensible basis for a local tax--I think that even the Labour party would agree with that--but property does not pay tax. It is people who have to pay tax, and the council tax recognises the fact that, although there is not a perfect correlation between people's circumstances and the value of the property in which they live, there is a relationship.
In place of our straightforward banding system, the Labur party would introduce individual valuations of properties, and it is interesting to consider how it would do that. We know about generalisations of rental values, but
Column 790will they be arrived at on the basis of the old rating system, or will the Opposition use capital values, which they would argue are easier to understand, or rebuilding costs, or repair costs? Which of those factors will account for what proportion of the valuation process? We have seen no evidence to suggest that the Labour party has done any work whatever on the subject, and the reason for that is perfectly clear : the Opposition do not want to have to answer any of the specific questions that anybody responsible for preparing the legislation would have to answer.
We are left with the concept of fair rates, from a party whose leader, as we have said many times, said as recently as September 1980-- [Laughter] :
"Rates are the most unjust of all taxes, which take most from those who can least afford it."
Those were the words used by the leader of the Labour party to describe the basis of the system to which his party now wishes to return.
It is worth asking how quickly the Opposition think they can go back. Opposition Members have made it absolutely clear that they would like to return to the system as quickly as they possibly can. In an interview on "Frost on Sunday" on 27 October, the hon. Member for Dagenham (Mr. Gould) said--
"We would repeal it in almost all circumstances because we still believe, even if there were an election in June"
June 1992, that is--
"we would still believe that the quickest and most sure way of getting rid of the poll tax by the following 1 April would be to pick up our fair rates proposals."
When asked on "Any Questions" on 5 October how the Labour party would move forward, the shadow Chief Secretary had this to say : "There is absolutely no question that if the Government have got the council tax in place we would replace it with our system of fair rates, which is infinitely superior."
But the hon. Member for Sheffield, Brightside (Mr. Blunkett) said just 12 days later that Labour would
"amend the council tax to bring it in line with what we want to do."
Not wanting to be left behind, the hon. Member for Dagenham said, on 27 October, "We would repeal it." So Labour Members do not actually know what they are going to do, and they do not have the valuations on the basis of which to do it. That did not stop the hon. Member for Brightside saying, on 17 October :
"The full scale revaluation for the eventual introduction of fair rates might take two or three years."
Now let us put the pieces of the jigsaw into place. Let us start with the unhappy assumption that the Labour party does, indeed, win an election in June 1992. The Labour Government start the process on day one and work all through the long recess. According to the hon. Member for Brightside, three years later, in June 1995, they will have come up with the revaluation. They introduce the legislation in November 1995.
Column 791Mr. Evans : On a point of order, Mr. Speaker. Can you ascertain from the Secretary of State whether he has finished talking about the Bill which is supposed to be having its Second Reading? If he has, we may as well go and get a cup of tea and stop listening to the appalling waffle and rhetoric--
Sir Peter Emery (Honiton) : My right hon. Friend has been most generous in giving way and I am grateful to him for giving way once more. As there is support for the replacement of the community charge with the new council tax, will he explain to many people who would like to see it operating from this coming May why there are difficulties in achieving that? It is necessary to have the answer to that on the record.
Mr. Heseltine : Because--in spite of the obstruction of the Labour party--one must legislate to take the proposals through the House and conduct a revaluation process, and the local authorities must introduce the software to send out the bills. There is no quicker way of achieving what we intend to achieve than the way we are proposing now.
Mr. David Blunkett (Sheffield, Brightside) : If that is so, why did not the Secretary of State take up our offer on 11 and 12 June when he introduced the paving Bill and offered to abolish the poll tax by 1 April 1992?
Mr. Heseltine : The hon. Gentleman refused to come and talk to me when I asked him to in January of this year. Labour's proposals are founded on nothing but their desire to obscure the issue and not to reveal their proposals.
According to the hon. Member for Dagenham, there will be a valuation in three years. There will be legislation in November 1995 and Royal Assent in 1996. If we are lucky, and with a fair wind, Labour's new proposals would be introduced in 1997, but the hon. Member for Brightside still thinks that he could have achieved it in 1992. Labour has no conceivable or practical alternative other than to allow us to put our proposals on the statute book. The Opposition know that they would seek to make only some minor changes to what we have designed and carried out.
There are a number of aspects to the Bill which the House will want to consider. The first is that part of the legislation that introduces the consequential and procedural implementations for capping. The House and a wider electorate will want to understand Labour's views on capping. I cannot fully comprehend exactly where the Labour party is on capping. There have been many Opposition views about what they would do.
At first there was an outcry and the Labour party was against capping. That was until the hon. Member for Dagenham appeared on the "Today" programme--I think that was the programme--and said that he was against capping except in extremis. We have tried on many occasions in this House to explore what in extremis means and where it would apply. Would it apply in high-spending
Column 792Labour local authorities? If so, how high spending? Would there be capping in Kirklees, Barnsley, Greenwich, Lambeth and Haringey, or would it only apply in extremis? Is the real distinction that one would not actually have it anywhere except in some academic concept designed by the hon. Gentleman?
The fact of the matter is that, as we all know, unless one has capping, the one thing that one can be sure about today is that the £140 that was put in by my right hon. Friend the Chancellor of the Exchequer will, in practice, be consumed by Labour authorities pushing up their expenditure. We having made adjustments to bring down the level of contribution of local people to 15 per cent., and having committed ourselves to doing so, I see no argument for local authorities under Labour control then pushing up expenditure on the assumption that the local people will not have to pay it.
Mr. Tony Banks : I realise that it is difficult for the right hon. Gentleman, as a millionaire, to understand the problems of Labour local authorities in, for example, my part of east London. However, is he aware that the so-called high-spending authorities are those that provide nursery education and home helps? The top 20 are all Labour authorities. Why does not he rely on the judgment of the electorate in those local authority areas to decide whether a local authority is efficient, high spending or low spending? Trust the people.