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Mr. Eric Pickles (Brentwood and Ongar) (Con): Will the hon. Gentleman explain what is the Liberal Democrat position with regard to those people who receive remuneration through shares? How will he tackle that with a local income tax? How will he square it with increased share ownership, which is one of the Liberals' aims?

Mr. Davey: I do not know whether the hon. Gentleman fills in a tax return at the end of the year. These people will, however, and they will therefore pay local income tax on it, as is the case in many other countries.

Mr. Pickles: My question is simple, and an answer to it will help the House enormously. Will people pay local income tax on what was referred to as unearned income—yes or no?

Mr. Davey: I am afraid that if the Inland Revenue, under current rules, classes that as income, local income tax will apply to it. If national income tax applies to income, local income tax will apply to income. That is the simple policy that we propose.

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It is interesting how concerned Conservative and Labour Members are. They are rattled, we know that they are rattled, and that is why "Focus" editors up and down the country are putting out leaflets on the subject.

Mr. Hoyle: Will the hon. Gentleman give way?

Mr. Davey: I will do so in a second. I want to make a little progress.

There is a revolt against local council tax across the country. What is interesting, however, is that the complaints are not just against one council, and they are not just against councils controlled by the Labour party, the Lib Dems, or the Conservatives. There have been complaints against council tax across the country. The anger is nationwide, and it is against the council tax system.

That is probably why opinion polls on council tax have shifted so sharply in recent times. Only a year ago, 57 per cent. of the public blamed local councils for the council tax rises, while a mere 29 per cent. blamed the Government. Now the position is reversed: 39 per cent. blame the Government, while only 24 per cent. blame councils. People have sussed it out. The national Government are responsible for the council tax system—councils do not choose the local tax system that they use or the local government finance system. That is the job of Ministers, and this lot have opted for the Tory council tax, which is why people are so worried about it.

What is bizarre about the Government's choice is that it is despite the recommendations and advice of the independent Audit Commission, which echoes the views of the public. It said last December that the council tax system is fundamentally flawed. That is why the House must debate the motion, put matters right and get rid of the council tax.

Huw Irranca-Davies (Ogmore) (Lab): Does the hon. Gentleman recognise that one of the greatest and most antagonistic issues with the current council tax is the failure to re-band for too many years? Will he therefore applaud the Labour-led Welsh Assembly Government for introducing a change by spring 2005, which will mean that greater variety exists, instead of lumping everybody together in bands that are 13 years out of date?

Mr. Davey: If the hon. Gentleman thinks that re-banding is going to solve the problem, I am afraid that he does not understand the post-war history of local government finance. I recommend to him a text that I read in Greece during the recess, when I was boning up on local income tax, which shows that in every decade since the second world war, a local taxpayers' revolt has taken place, whether on rates, poll tax or, now, council tax. The truth is that successive Governments since the second world war have asked local taxation, whether it is on property, individuals or per capita, to do far too much. That is a problem that we must solve, whether through the balance of funding review or our approach.

Huw Irranca-Davies: If there is a history of revolts year after year—I will read the pamphlet to which the hon. Gentleman referred—what increased burden on

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the taxpayer does he anticipate, if any, under the Liberal Democrat proposals? Back in September, we were talking about possible increases of 3 per cent., 4 per cent and so on. Will it be a zero point gain, or will people who pay the local income tax have an increase within the first couple of years?

Mr. Davey: No, they will not. The policy is designed to be revenue-neutral overall. It is not a tax-raising but a tax-neutral policy. The aim is to shift tax-raising power from central Government to local government, which is done in many other countries.

Mr. Hoyle rose—

Andrew Bennett (Denton and Reddish) (Lab) rose—

Mr. Davey: I am going to make some progress, but I promise to give way in due course.

Our motion is pretty clear. The first part says, very simply, that

I look forward to hearing from many Members, particularly Conservative and Labour Members, whether they disagree with that part of the motion. If they are going to stand up and put on record that they think the council tax is fair, I am sure that their electors will want to know that.

Mr. Hoyle rose—

Mr. Davey: I will give way, because I am worried about the hon. Gentleman's health.

Mr. Hoyle: While the hon. Gentleman worries about my health, I will ask him a question that will give him something else to think about. Does he know how many airline pilots and people who work abroad have their salaries paid into overseas accounts? The one thing that the previous Government established was that people move but properties do not. That is why they had to return to the old system. How would the Liberal Democrats begin to collect tax from those who are paid abroad in offshore accounts—and there are a lot of them—and how would they assess what those people should pay? Or—this is the key question—would they put the burden back on to the people who are employed in the United Kingdom?

Mr. Davey: I will not be worrying about the hon. Gentleman's health again.

What we are arguing is that the national income tax base should remain, and that local income tax should go on to it. If there is a problem with people not paying income tax now, it should be sorted out by the Chancellor of the Exchequer. He should make sure that they pay their dues.

As I learnt during my sojourn in Greece, many other countries operate a local income tax. It is a tried and tested policy. It works in very left-wing countries like the United States of America and Switzerland; it works in

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very right-wing countries like Sweden, Denmark, Finland and Norway. The hon. Gentleman may suggest that there are difficulties, but I am afraid that he is wrong.

Andrew Bennett rose—

Mr. Davey: I give way to the Chairman of the Select Committee.

Andrew Bennett: The hon. Gentleman says that his proposal is revenue-neutral. All the upsets over the council tax and the poll tax have related to the problem of those taxes going up. Will the hon. Gentleman now admit that a local income tax will have to keep going up if councils are to provide extra services?

Mr. Davey: It is revenue-neutral compared with what otherwise obtains. [Laughter.] I am surprised that Members laugh. Obviously if more is to be spent, tax revenue will go up. That is what has happened under the poll tax and the council tax. Members may wish to deny the facts, but I am afraid that they will have to face them.

One of the real benefits of a local income tax for local government is its buoyancy. Unlike council tax, which must rise every year just to keep pace with inflation, local income tax rates could stay the same because more money would come in as employment and earnings increased. [Interruption.] Of course, the rates could go down if locally elected councillors and local communities wished. That is what has happened in other countries.

Mr. Graham Stringer (Manchester, Blackley) (Lab): Will the hon. Gentleman give way?

Mr. Davey: No, I will not.

When I made my point about the council tax being unfair, I expected Conservative Members to leap to their feet. I am sure that they will in a second. I expected them to do so because their Front-Bench spokesman, the right hon. and learned Member for Devizes (Mr. Ancram), has said that the council tax is

A tax that makes the poorest pay more is a fair tax, according to the Tory Front Bench.

Mr. George Osborne (Tatton) (Con): rose—

Mr. Davey: Does the hon. Gentleman want to intervene now?

Mr. Osborne : I am grateful to the hon. Gentleman for giving way, but I suggest that he answer my questions, rather than trying to turn the tables. Students are currently exempt from council tax. Can he confirm that under the Liberal Democrat proposal, any holiday earnings that they accrue would be taxed?

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