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Mr. Edward Davey: Will the right hon. Gentleman give way?
Sir George Young: I shall, but the time will come out of the hon. Gentleman's colleague's winding-up speech.
Mr. Davey: As in other countries, the Inland Revenue would tell local authorities their income tax bases at the beginning of the year and guarantee that from the Exchequer.
Sir George Young: But how would the Inland Revenue know whether I would stay in that area for the whole year? How would it know what my income would be? The Inland Revenue might have an idea about how much I will earn in the current year, but I have to tell the hon. Gentleman that it is quite often wrong. Under his proposal, the tax would not have the same fixed base on which it could be levied as the council tax. I listened attentively to his opening speech, but he did not begin to address that point. Under the system, there would be questions of where I lived and whether I would have to pay twice. At the moment, the Inland Revenue is relatively relaxed about the address from which I send off my tax return, as long as it gets one. Under the new system, it would be vital that the address was right.
The hon. Gentleman said that an advantage of his proposal was that it would provide a buoyant source of revenue. I am not sure that I want local government to have a buoyant source of revenue. [Hon. Members: "Ah!"] No, I want authorities to have a threshold through which they must go each year before they put up the council tax. I want them to justify their increases year in, year out. The hon. Gentleman wants local government to have a buoyant source of tax revenue so that it does not have to answer the difficult questions that are asked at the moment. I consider what the Liberal Democrats see as an advantage to be a disadvantage.
The real problem at the moment is that too much weight is put on the council tax. It was invented some 14 years ago when the average amount paid was around £500. It could bear that amount of traffic without too
much damage to its structure—it is like a bridge with a weight restriction. However, many of my constituents are now paying four-figure, not three-figure, amounts.The hon. Member for Kingston and Surbiton (Mr. Davey) asked at the start of his speech what could be done. I would keep the council tax and complement it with another tax, perhaps a variable vehicle excise duty, for the sake of argument. That would be a much better response to the challenges facing local government than those that he proposed. The debate has shown that the House does not want to axe the tax; it wants to axe the Liberal Democrats.
6.39 pm
Matthew Green (Ludlow) (LD): This debate has shown that if the arguments used by Conservative and Government Members are the best that they can throw at us, we are on fairly firm ground. As to the comments by the Under-Secretary about the date of this debate, that was not in the gift of Liberal Democrats. I am sorry that the Minister for Local Government, Regional Governance and Fire could not be present for the start of the debate because he was in Committee. Originally, our Opposition day was Wednesday, but, quite rightly, it was moved because of the Hutton report. The Minister can make cheap jibes, but this debate was originally intended for the day on which the Hutton report was published.
The hon. Member for Brentwood and Ongar (Mr. Pickles) and others used as a theme how much a working couple would pay under our proposals and those of the Conservatives. Two weeks ago, one of my excellent local newspapers, the Ludlow Journal, published an article about a young couple named Charlotte and Scott Downes from Burford. Charlotte is 24 and Scott is 30. They both work and have a four-year-old daughter. They went to the press from choice—that was not down to me. The paper reported:
- "Mrs. Downes said she and her husband were a couple who worked to pay their own way and didn't expect others to do it for them. 'We support ourselves but I can work only 20 hours a week and get £4.50 an hour. Scott works full time and gets just £5 an hour'."
- "We have to pay around £3,500 a year in rent and we have to clothe and feed themselves. We don't get 10 and 20 per cent. increases in what we earn but that is the sort of increases we have been getting in Council Tax over recent years. We are already paying over £1,200 a year in Council Tax"—
- "and now it's set to go up yet again."
If we scrapped council tax and implemented our proposed local income tax bands with a national average of 3.75 per cent., that couple's local income tax bill as a household would be £260. They would be £900 a year better off than under the current proposals that are being defended. According to the information
revealed by the right hon. Member for West Dorset (Mr. Letwin), under the Conservatives, the Downeses would pay £2,400 council tax. On the assumption that that was done by cutting national income tax—I will not claim that the Tories would increase the burden of taxation nationally—by 3.75 per cent across the bands, that would save the Downeses £260. Overall, they would be £900 a year worse off under the Conservative proposals—unless the Tories have another policy that they have not yet revealed. We would love to know.At the other end of the scale, the local Member of Parliament—myself—earns £55,000 a year.
Matthew Green: I will work on £55,000 as a round figure.
My current council tax for my band E property is £1,400 a year. Under my party's proposals, I would pay local income tax on just over £50,000 of my income, taking the personal allowance into account, but council tax would be scrapped. My local income tax bill would be £1,900 but I would save £1,400 in council tax, so I would pay £500 more. I think that I should. Under the Conservative plans outlined by the right hon. Member for West Dorset, I would pay council tax of £2,800 but save £1,900 on my income tax bill, so I would be £500 better off under the Tories' current plans. I say that I should pay more and that the young working couple from Burford should pay less. Conservative proposals would reverse that. The Government may be trying to come up with new proposals, but they are going nowhere fast.
In the short time available, I shall tackle a few points that were made in our debate. The Minister cited some countries that used local income tax. He needs to go back to his officials because he did not mention Switzerland or Norway, both of which use local income tax, as do many other countries. He should ask his officials to take another look at countries that use such a system—Switzerland certainly does so. The hon. Member for Ogmore (Huw Irranca-Davies) made some well-argued points. He clearly favours a hybrid system, but the danger of that is that the cost of collection is likely to be greater. Council tax raises £19 billion a year, 4 per cent. of which—about £670 million—is the cost of collecting and administering benefits. If we added another tax system on top, it would be hard to escape the conclusion that administration costs would be higher. One or two other Labour Members found a hybrid system attractive, but they must consider how those administration costs would be met. More would be spent on bureaucracy, so the return would be smaller.
The hon. Member for Mole Valley (Sir Paul Beresford) said that local income tax would not be levied at 3.75 per cent. of earnings, but at 6 to 7 per cent. The figure of 3.75 per cent. is based on the local income tax rate for earnings between £5,000—the personal allowance—and £100,000, where we would set a cap. The figure of 3.75 per cent. is not just based on the standard rate. If the tax were based on that rate, 6 or 7 per cent would be a possible figure. However, because the tax is levied across the board, the figure is 3.75 per cent. We must therefore be careful to specify what portion of income the tax is based on.
The hon. Member for South Ribble (Mr. Borrow) mentioned the Layfield commission, and we got excited because we thought that he was going to tell us what its conclusion was. However, he swallowed his words and could not bring himself to say what it was. The Layfield commission pointed out that local income tax is not perfect—every tax has pros and cons—but it recommended it after assessing a range of local taxes. The hon. Gentleman could not bring himself to say that the Layfield commission recommended local income tax. He talked about buoyancy, and gave Corby as an example of a local community where our proposals would have a disastrous impact. At the moment, people without income receive council tax benefit and extra money from the Government kicks in. However, revenues can be affected if something happens that has a major impact on an area. I hope that that does not happen to communities, but if it does the authorities step in. I think that something similar would happen if a local tax system were introduced.
The right hon. Member for North-West Hampshire (Sir George Young) asked what we would do with a property owned by a business rather than an individual. That is a fair point—we would tax the owners as businesses, which would either pay uniform business rate or our replacement for UBR, details of which I shall not go into.
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