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Mr. Burns: I do not want to spoil the hon. Gentleman's train of thought, but I should like to correct him on his
facts--in case it might make a difference to the conclusions that he is about to reach. The uniform business rate was introduced with the community charge, not the council tax.
Mr. Sanders: I thank the hon. Gentleman for correcting me, but the uniform business rate was operated with the council tax. It was a part of the shift, which was not reversed, of the taxation burden from central Government to local taxpayers. The consequence has been that local authorities are now more dependent for financing on central Government than they were, and the tax burden has been shifted from central Government to local taxpayers.
My hon. Friend the Member for Sutton and Cheam (Mr. Burstow) said that the most recent local government settlement was a "smoke and mirrors" settlement. I should describe the most recent Budget as a "smoke and MIRAS" Budget. The Red Book for this year--and the one for last year, if one was sensible enough to keep it, as I did--shows the problem with the Budget, by showing the amounts that the Government expected to receive in council tax receipts from 1996 to 1999.
In 1996-97, council tax receipts were expected to be £10.2 billion. In 1997-98, they were expected to be £11.3 billion. The next year, they were expected to be £11.8 billion. This year's Red Book--under the chart explaining "where taxes come from"--shows that council tax is expected to be £13 billion. In the past two years, therefore, there has been a shift in the taxation burden of approximately 20 per cent. from central Government to council tax payers.
The 20 per cent. increase is equivalent to 1p on income tax--which would have been a progressive tax, related to ability to pay. Council tax is not a progressive tax; it is a regressive tax. However, the Chancellor will be able to blame local councillors for any increase, rather than accounting for it in the Budget.
Although all councils are affected by those Budget changes and by the shift in taxation from the centre to council tax payers, some councils are more affected than others by the changes to the grant formulae.
The standard spending assessment is a guideline and is not necessarily the sum that will be paid to councils. A table listing the assessment of needs for 82 similar councils--both metropolitan and unitary councils--across Britain places my own local authority's SSA assessment of need at 34. Therefore, the Government's own SSA totals show that we are the 34th most needy local authority. However, in grants, my local authority is 50th out of 82 councils. Had we been treated as 34th in both tables, my local authority would have received £44 more per person, or a total of £5.4 million. It is no wonder that our council tax will have to rise this year.
A number of factors in the grant formulae adversely affect--or benefit--local authorities. The factors are essentially political decisions about which formula changes to allow.
There is within the formula a calculation of the assets sold by councils. However, the calculation is based on the interest that councils derive from investments--which presupposes that councils have investments. Moreover, it is based on an average, not on a council's actual investments. Therefore, a local authority that has sold off its assets will be quids in, whereas a local council in
which people have said, "No, we don't want to sell off our assets," will be penalised. My local authority is in the latter position.
The grant formula for tourist areas is vital. In previous grant formulae, it was recognised that local authorities with many visitors have to provide facilities 52 weeks of the year, although the facilities may be used for only a short summer season. Such authorities may have to spend money on cleaning the beaches and streets, for example, or on providing more public conveniences for a population that rockets at some times of the year. Those are all big expenses for such local authorities. However, last year, the Government reduced the weighting for tourist nights. The reduction not only affected us last year but will affect us again this year.
The minimum wage will affect my local authority. The effects of the minimum wage will be greater in low-income areas than in other areas. This year, because of the minimum wage, contracts previously agreed with private sector contractors will have to ratchet up much more quickly in low-income areas than they will in other areas with higher incomes.
Mr. Burns:
Did the Liberal Democrats not support it?
Mr. Sanders:
We did not vote for a national minimum wage; we are in favour of a regional minimum wage.
Torbay, Plymouth and Devon, which are low-wage areas, have been hit particularly hard by the minimum wage, particularly in social services.
Mr. Andrew George (St. Ives):
Cornwall has been hit, too.
Mr. Sanders:
Yes, Cornwall also.
Weighting for elderly people has been reduced. Areas with a high percentage of elderly people will lose out from that part of the formulae, too. Moreover, as I said in an earlier intervention, rising pupil numbers are another important factor, as the head count in the education SSA is 18 months behind current pupil numbers. Although councils have to provide money to schools for current pupils, the money councils receive lags 18 months behind. If pupil numbers are declining, one will be quids in in current cash flow, although one will lose out in future years. However, the effect of the changes on councils with rising pupil numbers will be a greatly increased education bill and, with £2,300 for primary school pupils and £3,000 for secondary school pupils, it does not take many new pupils to cause a significant percentage increase.
Until 1 April, my local authority had the lowest council tax in the south-west. After the rise, only two of the 10 local authorities in Devon will have a lower council tax than Torbay. Torbay's council tax will still be £100 below the national band D average. However--in an area with some of the lowest incomes in the United Kingdom, and with GDP per capita equal to that in Cornwall--we face a massive 16.4 per cent. increase.
I know that councillors of all parties were concerned when setting the council's budget. The Labour group thought that a 20 per cent. increase was required to protect services and to fill the gaps created by changes to the formulae and the overall grant settlement for local
government. I saw a councillor in tears at having to make a choice between cutting social services, care for elderly people and care for people with disabilities, or increasing council tax by 16.4 per cent. That percentage on the lowest council tax is not as great as a smaller percentage rise on a larger initial council tax, but in an area that has such low wages and is so economically disadvantaged as a result of 18 years of Conservative government, it is more than many will be able to bear. Coming on top of a 10 per cent. rise in water charges--the highest water charges in the country--it is causing great difficulty.
One could say that things were worse when we had the poll tax. We had the highest poll tax in the south-west when the Conservatives ran the council. The poll tax was significantly higher, even without adjusting for inflation, than the council tax is today for a two-adult household in a band A or band B property.
There are three factors involved. First, we have an unfair tax. The Government should be looking for a fairer system of taxation for local services. It should be truly related to ability to pay and should bring in accountability and transparency. It should be clear to people who is to blame for tax rises or poor services. Secondly, there is Treasury chicanery. The burden of tax has been shifted on to council tax payers. Thirdly, the shift in formulae has made a difference, hitting councils in the south-east and the south-west and those with particular circumstances hard, while those in other parts of the country have gained. The hon. Member for Liverpool, Riverside (Mrs. Ellman) said that it was wrong of the previous Government to fiddle the figures to benefit councils in London and the south--the flagship authorities to which the Conservatives used to refer--but that it was all right for this Government to tweak the formulae in a similar fashion and for the Chancellor to play around with the budget and the overall settlement.
Mr. Brian White (Milton Keynes, North-East):
When I read the first sentence of the Liberal Democrat motion about
"the prime determinant of council tax levels",
I thought, "Yes, I am happy to agree with that." When I read the words about the inadequate financial settlements of recent years and the substantial rise in council tax, I thought, "Yes, I am quite happy to agree with that." The motion then
"calls on the Government to improve the funding of local services and abolish budget capping".
If this were 1997, I would say that that was entirely fair, but the motion fails to recognise what the Government have done in the past two years.
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