Local Government Bill

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Mr. Paul Goodman (Wycombe): Surely the hon. Gentleman would best achieve the aim towards which he seems to want to move—his amendment does not cover the point—by trying to introduce a local income tax, which the Liberal Democrats want. That would achieve his objective far more efficiently.

Mr. Hall: The hon. Gentleman is entitled to his opinion, but that does not directly address the points that I am making. Indeed, I have not been able to develop the points that I want to make, so perhaps I may now do so. Obviously, I am ready to give way later.

The council tax was never intended to be fair. When the Conservatives hurriedly introduced it, they got away with its inherent unfairness because it was replacing the even more unfair flat rate poll tax. Due to that very move, they avoided the criticism that might have been levied had the council tax been introduced as a substitute for the old rating system.

Mr. Mark Todd (South Derbyshire): My hon. Friend has left out part of that argument, which is that the other step that softened the blow was the Government holding down the council tax bill by switching tax to VAT. It is perhaps worth reminding Conservative Members, who live in another world, of exactly what happened in those days.

Mr. Hall: It is interesting to re-run history, and my hon. Friend makes a helpful comment. I was not seeking to go into enormous detail, but I well remember the Conservatives' attempt, which was successful for a while, to buy themselves out of a deep hole.

Under the clause, the Government will be able to reduce some of that unfairness by introducing

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additional bands. Even if they do so, however, council tax will remain a uniform system across England. As a result, the unfair effects of the huge regional variations in house price inflation over the past 10 years or so will not be sufficiently addressed. That is an important point.

Over the past decade, the price of the same types of property has gone up, on average, by 20 per cent. in parts of the north and by more than 100 per cent. in London and the south-east. I have seen figures of plus 15 per cent. in Hull, 100 per cent. for Bedford and Kempston and more than 200 per cent. for Barking and Dagenham. Of course, there are many other examples. The regional variations can mask what is going on in single council areas. For example, as was mentioned this morning, there are parts of northern towns in which houses cannot be sold and prices have fallen over the years.

2.45 pm

My amendment would enable the Government to deal with regional variations sensibly and equitably after revaluation. I shall explain that point further. If we simply rely on the uniform national system with payment differentials and then, post-revaluation, uplift the eight council tax bands in line with average house price increases, we will likely see in well over 50 per cent. of houses in areas with below-average house price increases placed in band A. That has been mentioned by the hon. Member for Southport (Dr. Pugh).

In Bradford, for example, 44 per cent. of properties are already in band A. The New Policy Institute predicts that that will rise to 64 per cent. at revaluation. In Liverpool, 66 per cent. are in band A, but that will rise to 76 per cent. In Hull, 72 per cent. will rise to 94 per cent. That will mean no changes in council tax for thousands of households that are already paying too much because band A is too broad. Of course, that means that the trend of the council tax becoming, effectively, a flat-rate tax—a poll tax in parts of the country—will be reinforced unless changes are made.

Let me deal with areas where house price inflation is above average. In those areas, it is likely that large numbers of lower and middle-income households will jump up and band or two and face even higher council tax bills while high-value properties that are already in band H will not move, and so will pay no more. Again, that would create a divisive and unfair situation, so it is essential that revaluation, vital though that is, does not trigger distortions and unfair tax hikes differentially across the country. Unless the ability to introduce sub-national variations to council tax after the 2005 revaluation is available, that is precisely what will happen. I ask Ministers to take that on board.

The intention of the reforms that I propose is to get households with comparable incomes to pay roughly the same council tax if they live in broadly similar house types anywhere in England. A better council tax distribution is clearly needed for each council area. Band A, for example, should be applied to houses that are cheap by local, not national, standards. That is an important way to help low-paid workers and

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encourage key public sector workers. The significance of that lies in the fact that the relationship between property value and household income is closest at local level.

Mr. Clifton-Brown: May I challenge the hon. Gentleman's last statement? How does he equate a property's value with someone's ability to pay? He says that the local variation in property values equates to ability to pay. How does that affect low-paid public sector workers on a national pay bargaining system? They get paid the same wherever they are in the country.

Mr. Hall: I am saying that, as far as council tax is concerned—

Mr. Clifton-Brown: And incomes.

Mr. Hall: We cannot reform the private housing market.

Mr. Clifton-Brown: That is what the hon. Gentleman said.

Mr. Hall: No, I said that the ability to focus on areas, and to vary council tax accordingly, would be helpful to such groups of workers, and I explained why.

The ability to introduce regional variations will be needed also if greater equity is to be introduced into the basic council tax system, which is important. That could be done by increasing the number of bands and the payment differentials between them.

Mr. Clifton-Brown: What the hon. Gentleman proposes would make it more difficult, in some parts of the south of England, for key public sector workers to afford to live in the areas that need to recruit them. Expensive areas would have more difficulty recruiting low-paid public sector workers if their council tax were increased in the way that the hon. Gentleman suggests.

Mr. Hall: In my view, it would have the opposite effect because there should be a good spread of all the bands in all areas; whereas if we leave things as they are and simply up-rate after revaluation, there will be no band A or B in many parts of the country, and there should be. Banding should be related to the fair spread of property values in any area, so the lowest priced property in the south-east should be in band A, just as the lowest priced property in parts of the north should be in band A, although the market value of those properties would be markedly different.

If we do not address these matters, the gap between north and south, which is unhelpful, will become greater rather than smaller, so it is important that the Government have the option of introducing regional variations. We are looking a few years ahead and predicting a situation that may or may not arise. On the evidence of the past few years, it is very likely to arise, so I should like the Government to have the ability to act. I acknowledge that these are difficult matters, but the no-change option is no option. I hope that my hon. Friends will accept that there is a need to reform council tax and that my amendment contributes to the debate about that.

Mr. David Curry (Skipton and Ripon): In politics, the no-change option is always something that ought

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to be considered very seriously. When politicians say that doing nothing is not an option, they are digging a pit for themselves to fall into. One should always look first at the case for doing nothing; that is usually better for the Government and for everyone else.

Adam Smith laid down a long time ago the qualities of good taxation, which include making tax simple and collectable.

Mr. Davey: I do not know whether the right hon. Gentleman has read ''The Wealth of Nations'' recently, but will he admit that another of the principles laid down by Adam Smith was that taxation should be related to the ability to pay?

Mr. Curry: I was going to come to that; I take my Adam Smith one chapter at a time.

The great merit of the council tax is that it is eminently collectable. The rates of collection are very high, and some authorities are getting close to the maximum, so it is a successful tax in that regard. In principle, council tax was always designed to be a mixture of a tax on property and an individual charge for the cost of delivering services, so it is a mixture of the old rates and the old poll tax. It was designed to have that balance, so to assume that it should be related purely to house values is to distort its origins, and that would be dangerous.

Council tax bands have always been based on relativities, not absolutes, so the key point is the relationship between the bands. One of the merits, if it is a merit, of the present system is the narrowness of the bands, which equalises the income that local authorities receive because it does not reflect the pure price differentials of houses. If we introduced more banding or moved to a regional system of banding, a number of questions would arise. The main purpose would, as I understand it, be to relieve people in band A.

The change that most local authorities would seek to make would be to subdivide band A, and the hon. Member for Northampton, or somewhere in the south—[Hon. Members: ''Bedford.''] Yes, the hon. Member for Bedford has listed those local authorities with a high number of band A properties. Burnley is the one that we always talk about; Blackburn is another; and the hon. Gentleman has talked about Bradford and large parts of Manchester where band A properties are predominant. The only purpose of subdividing band A would be to allow certain people to pay less; otherwise there would be no point. The Minister nods.

If we subdivided band A, and there may be a good case for doing so, the first impact would be significantly to reduce the income flowing to the local authority. That could be sorted out in various ways. The local authority might hope that changing the banding higher up the scale would compensate, but in the local authorities that we have been talking about there is precious little property at the top of the scale, so there is no way that higher taxes there would compensate for a cut at the bottom of the scale. The local authority might go to the Minister for Local

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Government and the Regions and say, ''Resource equalisation was a good idea. Can we have a lot more of it because our resources have gone down, thanks to voluntary action, so we need compensation?'' That would have repercussions.

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