House of Commons Hansard Debates for 16 Dec 1991

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Vaughan, Sir Gerard

Viggers, Peter

Waldegrave, Rt Hon William

Walden, George

Walker, Bill (T'side North)

Waller, Gary

Walters, Sir Dennis

Ward, John

Wardle, Charles (Bexhill)

Watts, John

Wells, Bowen

Wheeler, Sir John

Whitney, Ray

Widdecombe, Ann

Wiggin, Jerry

Wilkinson, John

Wilshire, David

Winterton, Mrs Ann

Winterton, Nicholas

Wolfson, Mark

Wood, Timothy

Woodcock, Dr. Mike

Yeo, Tim

Young, Sir George (Acton)

Tellers for the Noes :

Mr. David Lightbown and

Mr. John M. Taylor.

Question accordingly negatived.

New Clause 2

Ability to pay

-- .--(1) It shall be the duty of the Secretary of State to ensure that the council tax relates to the ability to pay of those liable to the tax.

(2) As a result of the duty established under subsection 1, the Secretary of State shall undertake a study of the circumstances in which people occupy and acquire their dwellings and how this relates to the level of the liability under the council tax.

(3) Pursuant to the study undertaken as a result of subsection 2, the Secretary of State shall take whatever measures are necessary including introducing new or regional valuation bands or ensuring that the tax is directly related to persons' income.'.-- [Mr. Wallace.]

Brought up, and read the First time.

Mr. James Wallace (Orkney and Shetland) : I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Mr. Harold Walker) : With this it will be convenient to discuss new clause 4-- Ability to pay (Scotland) -- -- . (1) It shall be the duty of the Secretary of State to ensure that the council tax relates to the ability to pay of those liable to the tax.

Mr. Wallace : New clause 2 goes to the crux of the council tax. The test that one should apply to that tax will be crucial and-- [Interruption.]

Mr. Deputy Speaker : Order. There is too much sedentary noise.

Mr. Wallace : I am glad to note that this new clause is attracting so much attention from those on the Government Front Bench. The test of whether the amount charged to an individual is related to that person's ability to pay should be applied to any tax. I cannot honestly say that paying taxes is something that one would put down as a recreation in "Who's Who" or something that one did with a spring in one's step. However, in a civilised, democratic society it is recognised that paying taxes is one of the responsibilities

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that one must bear as a citizen. That obligation is bearable and tolerable only if the tax which one is asked to pay at central or local government level is seen to be fair.

There was never any question of fairness in the community charge--the poll tax. It was never suggested that that tax should relate to one's ability to pay. At the outset, when the poll tax started on its parliamentary procedure in 1986--when we legislated for Scotland--a virtue was made of the fact that almost everyone would pay the same, bar those who would qualify for a rebate, and even they had to pay 20 per cent. of the poll tax.

The fact that everyone had to pay was justified on the ground of promoting accountability. However, by the time the poll tax reached its dying embers, even the pretence that it made local authorities more accountable was dispensed with, especially as just a small proportion of the revenue was raised by the local authorities themselves. In the Shetland part of my constituency, the poll tax for this year is 93p. It is difficult to be accountable to the electorate for 93p.

The poll tax was unfair in principle, and it was perceived as such. Those who benefited from that tax were also unhappy, because they thought they should make a fair contribution. Ultimately, those factors have led to the demise of the poll tax. However, we do not believe that the council tax offers much more fairness, if fairness is measured by how that tax relates to a person's ability to pay. We believe that property taxes, by their very nature, tend to be unfair.

Although, at first sight, there may be a rough and ready correlation between the size of a property and a person's ability to pay, there can be no direct correlation between the size and cost of a property and the income of those who occupy it.

Mr. Robin Squire (Hornchurch) : The academic understanding--it is not a party political figure--is that there is an 80 per cent. correlation between the size of a property and a person's ability to pay. That correlation was also accepted under the old rating system. The hon. Gentleman is right to suggest that, in some cases, there may not be such a correlation, but he is overstating his case.

Mr. Wallace : I note what the hon. Gentleman says, but I did say that it was a rough and ready correlation. I shall cite examples of people in different circumstances who would find that the value of the property they own, or perhaps rent, does not necessarily relate to their income.

Some people may inherit a property. Given the expansion in home ownership in the 1980s, and even allowing for the tragic repossessions of the early 1990s, I suspect that that will be an increasing phenomenon. Some of those properties may not be particularly large, but they may be of great value in certain areas. Such a property may be a family's only means of acquiring affordable property in their home area.

People may buy or rent a property and live in it for most of their lives. If that property is situated in an area where the value of property rises sharply, as happened in the south-east and in the north-east of Scotland, a family may find themselves in a high capital value property that does not match their income.

It must also be remembered that some people rent their homes, often in high capital value, inner-city areas of London or Edinburgh. The very fact that they have rented

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may show that they cannot afford to buy, but their council tax will be dictated by the capital value of the landlord's property. When the poll tax was introduced, many people whose rents had incorporated an element of their rates suddenly found that they then had to pay the poll tax in addition. Much injustice arose because of that, and I wonder what will happen as a result of this further change in local taxation.

My hon. Friend the Member for Argyll and Bute (Mrs. Michie) has often mentioned, both in Committee and in the Chamber, people in tied housing. Those in agricultural areas in particular may occupy valuable properties despite the fact that their incomes are relatively low. Manses and vicarages in many areas can be of considerable value, yet the clergy are not, by any stretch of the imagination, among the better-paid members of our community. 7 pm

When Mr. Speaker retires at the next general election, I wonder how many of those who may wish to take his job will be reluctant to take the Chair--I do not mean the traditional symbolic reluctance--knowing that they will occupy the most expensive tied house in the country. Mr. Speaker's income is not too bad, however, and that may be an extreme example.

Last week, I received a telephone call from a constituent whose husband is in employment but not earning a significant wage. The lady concerned is confined to her house, is in receipt of a disability allowance and is currently applying for a mobility allowance. Under the present system, because of her husband's income, she does not qualify for a rebate. Even with a poll tax of £2, she pointed out that the system was basically unfair.

I accept that, to the Government's credit, an amendment has been made so that houses that have been converted for disabled people will be put in a lower band, but if they are already in the lowest band, those concerned will receive precious little, if any, relief. Because of their disabilities, those people will be unable to earn a worthwhile income, yet they will not qualify for the same discount as people living alone.

Property prices fluctuate, and people living side by side in properties that are almost identical from the outside may have very different incomes. The hon. Member for Sheffield, Brightside (Mr. Blunkett) hit the nail on the head in 1990, when he said : "What isn't right is the disparity between someone living alone living next to three or four earners".

That applies particularly to people who live in London and the south-east. A widow in a family home acquired 40 years ago may live next door to a two- income couple. The houses will be valued at the same amount by the local estate agent but the widow could almost certainly not afford that house on the open market and, when she and her husband were just starting out in the housing market, they could not have afforded to buy it as their first option.

In many areas, property is priced out of reach of traditional occupiers. They may have to work or stay in the area for family reasons, but the council tax may price them out of their family homes. What may be true in London and the south-east is equally true in areas such as Edinburgh, Aberdeen and Cambridge.

Mr. Malcolm Bruce (Gordon) : Does not my hon. Friend's comment reinforce the fact that, in the current

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crisis, people may be forced out of their homes in a market that will not bear extra property ? They will not be able to sell the property at any price, so they risk losing their home and being unable to pay the tax.

Mr. Wallace : My hon. Friend strikes a note that is all too true in so many cases. People are caught no matter which way they try to go. We shall have an opportunity to explore the matter further in the next debate on valuation bands, and tomorrow we shall have an opportunity to discuss changes in discounts. However, any changes can improve fairness only at the margins. It is also likely that any such changes, while improving fairness, will nevertheless increase the administrative costs of the tax. Our new clause will oblige the Secretary of State regularly to face up to the issue of ability to pay and, ultimately, to work toward a system in which the tax is directly related to a person's income.

Mr. Max Madden (Bradford, West) : I am having some difficulty in following the argument. If the hon. Gentleman is arguing for a local income tax, which is perfectly fair, he should have tabled a new clause on that. [Interruption.] The hon. Gentleman and his hon. Friends may have tried to do that in Committee, but they could have tabled a new clause for discussion now. This new clause says that there will be a property tax called the council tax and that the income of the person or persons living within a property will somehow be taken into account. The Government and the Labour party considered that option, but it becomes so complicated that it is impossible to operate. Is the hon. Gentleman arguing for a local income tax or a property tax based on income?

Mr. Wallace : If the hon. Member for Glasgow, Cathcart (Mr. Maxton) had read the list of new clauses and amendments--

Mr. Maxton : I have.

Mr. Wallace : The hon. Gentleman says that he has, but he obviously has not. Had he done so, he would have seen that amendments Nos. 1 and 2 tabled by me and my hon. Friends argue for a local income tax. The amendments were not selected--I do not wish to criticise Mr. Speaker--but it is important to put the record straight. The new clause seeks to push the council tax in the direction of a local income tax. The hon. Member for Cathcart suggests that a property-based tax, specifically the council tax-- there is not much difference between Government and Labour proposals--is incapable of being transformed into a fair tax that relates to people's ability to pay. People will judge the Labour party's proposals and the council tax on the basis of that admission.

Mr. Robert G. Hughes (Harrow, West) : The hon. Gentleman seeks to argue that, whatever is done to help people's ability to pay under a council tax, it would not be as fair as a local income tax. Indeed, he sought to table an amendment on that basis. Was the amendment on local income tax based on--

Mr. Deputy Speaker : Order. The hon. Gentleman cannot discuss an amendment which is not before the House and which Mr. Speaker deliberately did not select. Let us return to the new clause before us.

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Mr. Wallace : I am sure that the hon.. Member for Harrow, West (Mr. Hughes) is sufficiently ingenious to put his question under another guise, and I await his doing so with interest.

We want the Government to write into the Bill measures that will oblige them to move towards a tax that

"is directly related to persons' income."

That would be tantamount to a system of local income tax. I make no apology for that. It was the policy of the Liberal party and the SDP before the Liberal Democrats were established. The Liberal party has espoused such a policy since its submission to the Layfield inquiry in 1976. As a first step, we would require the Inland Revenue to produce a computer tape of one fifth of all taxpayers in each Inland Revenue area. The Secretary of State may be able to do that in a worthwhile fashion if he were trying to follow the duties imposed on him by the new clause.

Information relating to postal codes and the taxable income of a sample of taxpayers could be recorded and sent to local authorities. That would get rid of one red herring--the idea that town hall snoopers would be able to find out everyone's income. The system would be anonymous. Each February and March, shortly before the local elections, authorities would be required to set local income tax rates to meet their commitments.

Mr. Robert G. Hughes : Will the hon. Gentleman give way?

Mr. Wallace : I think that the hon. Gentleman should be allowed to have another go.

Mr. Hughes : My question relates specifically to what the hon. Gentleman has just said. Is it based on the work done for his party by Philip Truscott, or on the significantly understated figures that his party has been trying to use in an attempt to portray its policies in a rosier light?

Mr. Wallace : I expected a Conservative Member to ask that question. As hon. Members will have read in The Times, Mr. Truscott has initiated actions against my party, which are now the subject of legal proceedings in the High Court and which will be vigorously defended. It would not be proper for me to say more about the matter, which relates to copyright.

What I can tell the hon. Gentleman is that the press release that accompanied the publication of our figures set out fully and unequivocally the premises on which they were calculated. The figures for Wales, which were issued separately, were somewhat different from those calculated by Mr. Truscott--for the very good reason that we would wish to use the same proportion of revenue generated by local taxation as the Government. Mr. Truscott did not do that, as was spelled out in the press release.

We believe that the additional amount of some £300 million could be more than covered by the savings that would result from the change from poll tax to local income tax. The Labour party's estimate is £1.8 million. The Conservatives were wildly wrong when they said, before the introduction of the poll tax, that it would amount to £200 per person : people have found that out to their cost. I will not accept any criticism of our estimates from Conservative Members ; that is sheer humbug.

Each payer of local income tax would be sent details of what he would be required to pay over the coming year. Once authorities had set their rates, the average would be calculated, the standard rate would be deducted and, at the

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end of the year, an adjustment would be made. If a local authority had spent responsibly and was able to provide a rebate, that would be brought home to taxpayers. If it had overspent and would require more money, that too would be brought home to them. As we all know, the end of the tax year falls in April, a few weeks before the local elections. Surely the system that we suggest would drive home to voters the accountability of their elected councillors.

Mr. Bowis : Does the hon. Gentleman accept that 85 per cent. of the cost of local government comes from central taxation, which is based on ability to pay? There is a 25 per cent. discount for single-person households to allow for the lower incomes received by such households, and a sliding scale of rebate--from zero to 100 per cent.--for those on low incomes. Surely the only people who could benefit from the hon. Gentleman's proposals are those who could afford an accountant to help them to dodge the system.

Mr. Wallace : I do not accept that. We shall debate the discount system tomorrow ; the amendment that we have tabled would increase the amount from 25 per cent. We shall also debate the banding system. Although that will help to make the council tax fairer, we do not believe that it will entirely relate what is paid to the ability to pay.

Let us make no bones about it : the poll tax had its winners and losers, but on a very unfair basis. The local income tax is bound to have its losers--not least as a result of the poll tax that preceded it--but it is underpinned by fairness. It relates what is paid to the ability to pay. As I have said, no one likes paying tax, but a semblance of fairness makes it much more acceptable.

An equalisation system would have to be built in, so that low-income areas would not be faced with vast bills while wealthy areas received small ones. In previous debates, I have sometimes thought that Conservative Members were trying to apply equalisation grants arranged under the poll tax system to a local income tax system, without making any of the necessary adjustments. Every system of local government finance--be it council tax, the tax proposed by Labour, the poll tax, the old rating system or our proposed local income tax--has the appropriate equalisation arrangements built into it.

7.15 pm

Mr. Martin M. Brando-Bravo (Nottingham, South) : Let us assume that the Liberal Democrats can come up with a good equalisation scheme. Where will that leave the accountability that we all seek to preserve, to ensure that local democracy can function properly? If 85 per cent. comes from central funds, local government will be blown out of the water.

Mr. Wallace : Every system involves an equalisation scheme. I do not recall its being suggested, when the poll tax was introduced, that such a scheme would undermine a system that the Government hoped would lead to greater accountability.

Mr. Maxton : I think that we should clear up the question of the 85 per cent. from central funds. It is true that 85 per cent. is controlled by central Government, but that is a very different matter. Non-domestic rates are paid locally, although control and distribution takes place at the centre.

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Mr. Wallace : That is an important point. We also want to allow local authorities more control over local business rates. We have made no secret of that. As my hon. Friend the Member for Eastbourne (Mr. Bellotti) said in Committee, we want the balance to shift : we want national taxation levels to fall as local authorities become more responsible for raising revenue in their areas. The equalisation grant would then become proportionately smaller, which would lead to far more local accountability.

Conservative Members may ask what we would do about capping. We believe that the most effective local income tax cap would be a fair voting system. It is the electorate who cap authorities in a democratic society. Even according to the figures that the Government recently published for Scotland, local income tax rates would be relatively low. Because the Government have been afraid to grasp that, the poll tax lingers on. When the new system is introduced, local authorities will be rigorously capped simply because the Government will not introduce a fair voting system.

We believe that the only criterion for a tax should be whether it is related to ability to pay. The rates failed on that ground, and were therefore abolished ; the poll tax never even pretended to be fair, and it had to go as well. Unless the new clause is accepted, the council tax will fail for the same reason.

Mr. Douglas : Generally, I support new clause 2, but I want particularly to refer to new clause 4, which deals with Scotland. I do not want to offend the hon. Member for Orkney and Shetland (Mr. Wallace), but the Scottish National party has no problems about copyright in its proposals for a local income tax--they are all our own work-- [Interruption.] The hon. Member for Sheffield, Brightside (Mr. Blunkett) seems to find this funny.

Mr. David Blunkett (Sheffield, Brightside) : You have to laugh.

Mr. Douglas : Life must be hard on the Labour Front Bench these days --

Mr. Maxton : My hon. Friend might be a Minister soon.

Mr. Douglas : The hon. Gentleman should not count his chickens. My fellow party members and I met Scottish Office Ministers and the Secretary of State for the Environment to talk about local taxation, which must not only approximate to the sum to be collected : it must be exactly equivalent to what should be raised either from the poll tax or from the council tax. I hope that I have the agreement of the House at least to that.

In Scottish terms, we are talking of about £800 million. Adam Smith, whose views should hold some sway over the Conservative party, held that taxes should be related to ability to pay. Hon. Members think not in terms of random samples of the public but about themselves--how do they pay their taxes? I know no one who pays taxes out of capital, with the possible exception of the hon. and learned Member for Perth and Kinross (Sir N. Fairbairn). He might have to sell some of his capital assets to pay his taxes, but most people would not. The touchstone of ability to pay is that people pay tax out of income. We understand that in Scotland it would cost about 4p in the pound to collect £800 million-- [Interruption.] If the hon. Member for Glasgow, Cathcart (Mr. Maxton) keeps

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shaking his head so hard in disagreement, he will fall off the Bench, but if he wants to intervene I should be happy to allow him to do so.

Mr. Maxton : To judge from questions that I have asked the Government, even with the £140 reduction, the highest figure for Scotland would be about 7.5p.

Mr. Douglas : Perhaps there is something to be said for standard tests in arithmetic. I have done my best to calculate, based on the £800 million figure. We calculate what can be raised for 1p and multiply that by three or four to arrive at the relevant total. The hon. Member for Cathcart accepts the Government's figures, apparently having none of his own. I do not claim absolute accuracy for mine, but I am willing to allow an independent authority to examine them. No matter how we raise the money, we are aiming at the same global sum. The arguments are about how to raise it while relating the tax to ability to pay and keeping it cheap to collect.

I have already said that the tax will raise £800 million, and it will cost £80 million to collect. Of course it will not be possible to collect 100 per cent. of that money, but the collection costs will stay the same. If that is not crazy, I do not know what is. I do not seek to disparage the Liberal Democrats' proposals, but we suggest that once a year, on 1 January, people should declare their residence so that local authorities could relate that to their tax-collecting base. National insurance numbers could also be given at the same time. Local authorities could then plug the information directly into Centre One, Scotland's computer system. That would involve no additional overheads, and no need to go into benefits or to examine discounts. This may be an underestimate, but I believe that it could be done in about three months--

Mr. Maxton indicated dissent.

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