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7 Jan 2003 : Column 73—continued

Mr. Raynsford: The hon. Gentleman will be aware that the existing CIPFA guidelines on finance officers' powers have been in place since 1995. Despite that, we have seen clear evidence recently that a number of authorities have got into serious financial difficulties—Hackney, Walsall and North Tyneside, for example. All those cases seem to be associated with a failure to maintain adequate reserves. The Government had to provide some #25 million of additional finance to cover the position that Hackney had got itself into. Is the hon. Gentleman seriously suggesting that we should simply turn a blind eye and do nothing at all? The reserve powers are designed to cope with circumstances such as those—which, as I stressed in my speech, are exceptional, but they happen—and it is necessary that there should be a safeguard against those eventualities.

Mr. Davey: I am afraid that the Minister does not make his case. There are other ways of dealing with this—for example, by improving the powers that currently exist. I mentioned section 114 of the Local Government Finance Act. That power could be developed to ensure that the Minister would not be able to put his mark on every budget and budget-making process up and down the land.

The hon. Member for Denton and Reddish spoke of the centralisation in respect of the comprehensive performance assessment under clause 100. The fact that the CPA has been linked to some of these new freedoms gives the lie to the idea that this is really a devolution measure. The CPA is a centralising measure, whereby the Government set the regime and can subsequently change it. This is a flawed concept. The idea of earned autonomy—which can, in fact, be taken away—is not really what is meant by real freedoms and real flexibility. It creates instability and it is extremely bureaucratic.

I said that the Bill would give the Government 38 new regulatory-making powers. I wonder how many regulations will be made under the 38 new powers. The Government claimed that the draft Bill was a deregulatory measure, which was bizarre. The Local Government Association and individual councillors cannot understand how the Government can use such rhetoric and then introduce the Bill that is before us. The situation is particularly disappointing given that we would expect a draft Bill to reduce the need for regulatory powers in the first place and to ensure that we get the legislation right and therefore do not need to

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return to it and do not give extra powers to the Secretary of State to have another think. Unfortunately, that has not proved to be the case.

Mr. Mark Field (Cities of London and Westminster): Given the hon. Gentleman's catalogue of concerns, why will he and his party support the Bill this evening?

Mr. Davey: I said at the outset that we are in favour of the prudential capital regime, of business improvement districts and of some of the council tax reforms. Those are the main reasons why we shall support the Bill. However, the hon. Gentleman will be surprised to hear me make a criticism.

Mr. Field: The hon. Gentleman has said that he would abolish council tax. Surely the small reforms that are being proposed would not go far enough. I am intrigued to know on what basis he feels that his party can support the Bill.

Mr. Davey: The hon. Gentleman should learn to be grateful for small mercies. We waited many years for the Conservatives to produce a fair system of local government finance: they failed, even at the second attempt. We shall not take too many lessons from the Conservatives.

The proposal to pool the proceeds of asset sales is nothing less than a stealth tax. It legalises the theft of council tax payers' money by taking it from areas that it was not raised for or not meant for. It is one of the worst examples of a stealth tax. Furthermore, there will be huge distortions and disincentives. Only Labour could produce a system that will discourage debt reduction. Surely we want to encourage debt reduction, but the Government are building into the system a disincentive for doing so. Debt-free administrations will be penalised. Many of us in this place are concerned that the proposal will discourage debt-free authorities from sensibly managing their capital portfolio. They will be discouraged from cashing in some assets to use the money elsewhere. It cannot be right that the Government should create such a barrier. I believe that the measure will prove to have a counter effect to that which the Government intend. It is a recipe for lose, lose.

Authorities with assets will not sell them. There will not be any money for authorities that might otherwise have benefited from the pool. The pool will not be very large and there will be inertia in the management of local government capital stock. It is an ill thought through measure and it should be dropped.

Expert comment on the proposal is increasingly insulting and the Select Committee was vehement in its opposition to it. The evidence that it heard from bodies such as CIPFA entirely undermined the Government's case for pooling. The London Government Association has consulted councils throughout the country. Even some of the councils that will benefit from the measure oppose the proposal. They recognise that it would undermine many other local authorities. The majority of local authorities are against the measure. The Government's analysis of the consultation shows that 134 respondents were against the pooling proposals. I challenge the Minister, when he replies to the debate, to

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give the House a list of the respondents who are in favour of the arrangements. I think that there will be very few, if any.

Mr. McWalter : Does the hon. Gentleman agree that the matter is of grave concern and that it stands as a threat to authorities that have resources, which they would like to spend for the benefit of the communities they are elected to serve? Authorities are being stopped from spending such resources because they know that if they do so they will face considerable debt. The proposal is freezing programmes that might otherwise be implemented to improve the condition of life in many areas.

Mr. Davey: The hon. Gentleman is absolutely right. What will a finance director and a council do? They will say, XMaybe in a few years the Government will come to their senses and get rid of the scheme. Perhaps they will get rid of pooling. We would be mad to sell assets now and to lose all the proceeds elsewhere." The asset portfolios of many local authorities will be put in aspic.

Mr. McWalter: The hon. Gentleman has not quite got the point. In addition, authorities will be held to have the capital asset in stock, as it were, even if they have acquired something with it. They then face a double whammy: they will not be able to hold on to the asset because they will be forced to account for the resource even if they have acquired something with it.

Mr. Davey: The hon. Gentleman will note that the Minister is shaking his head. Perhaps he will explain why that is not the case in due course.

Another aspect of the Government's proposals is that when a council makes a sale and the proceeds go into the pool it will not even earn interest. As I have said, it is an ill thought through proposal. If the Government persist with it, I suggest that in a few years' time we shall see the repeal of a rather silly measure.

I move on to a slightly less esoteric issue—council tax. I have made it clear that Liberal Democrats want to abolish it because it is such an unfair tax. It is the tax that I receive most letters about, and I am sure that right hon. and hon. Members have had the same experience. I receive letters especially from low-income pensioners, who cannot understand why their council tax is increasing year on year above inflation, irrespective of the party in control of the local authority. The entire local government finance system is involved because it is such a non-buoyant tax. It hits those on fixed incomes especially badly. It is time that we got rid of the tax, and there are many other reasons for doing so.

Council tax is quite costly: there must be a system to administer and collect it in every town hall throughout the country. When the Bill is implemented, it will be necessary to meet the costs of revaluation. It is not a particularly efficient tax. The failures—the unfairnesses and the inefficiencies—are becoming worse as we see a shift from central taxation to local taxation. The Government are asking the council tax payer to shoulder even more of the burden. It is time that the Government crossed the rubicon and said, XThis was an

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unfair tax that was introduced by the Conservatives." The Government do not have to live with that inheritance. They can take a bold decision and abolish council tax.

Mr. Andrew Turner: The hon. Gentleman has referred to the shift of the tax burden from central Government to local government. Is the Liberal Democrat party in favour of raising more money locally, or against it?

Mr. Davey: We are in favour of raising money more locally if the tax base is a fair one and if—this is another important criterion, which I mention before the hon. Gentleman puts out a leaflet—national income tax is cut as we raise local income tax. The net tax burden may not increase under our proposals for local income tax.

I should be fair to the Government. The proposals for reform of council tax would improve the tax, albeit at the margins. The proposal for more bands must be right. We have heard some sensible and articulate reasons for introducing more bands at both ends of the scale. Revaluation is inevitable, and I think that the way the Government have gone about that is extremely sensible. Abolition of council tax benefits subsidy limitation schemes is welcome in the area that I represent. The reduction of discounts on second homes is also welcome. We shall disagree about whether the extra 10 per cent. or the minimum 10 per cent. is needed. I am still not clear from the Minister's arguments whether it is necessary to keep that percentage. I think that it should be got rid of entirely and that the local authority should be allowed to keep the proceeds.

Similarly, the Government say that they intend to abolish the council tax discount for empty homes, so why will not local authorities be allowed to keep 100 per cent. of the proceeds? That seems rather odd, and it goes against the Minister's argument for simply reducing the discount on second homes. There are a number of specific wrinkles in the council tax proposals that we want to iron out in Committee, but their general thrust is welcome.

Business improvement districts are a very welcome innovation, and they have enthusiastic support among at least some Members of the House, although the hon. Member for Brentwood and Ongar did not seem too enthusiastic. In a speech a few years ago, my noble Friend Lord Ashdown was one of the first British politicians to look to the United States' experience of BIDs and to suggest that we should introduce them here. When one listens to businesses' views about the proposal, whether the CBI or the chambers of commerce express them, one is impressed by the level of support. The benefits are wide, and we welcome the fact that there will be earmarked funds that businesses, working with the local authority and the community, can use to improve the area for the collective good. That will help to regenerate rundown areas, and to spruce up and revitalise even successful ones.

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