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Sir George Young: How does the hon. Gentleman know which properties are involved?

Matthew Green: We would know at which property someone was registered for income tax purposes—[Interruption.] I am being reminded that capital gains tax exemption is another way of finding out.

Our debate has shown that the Tories are in denial. Council tax is an unfair tax—we cannot escape that conclusion. Labour Members have admitted that council tax is inherently unfair. The Conservatives introduced one unfair tax—the poll tax—only to replace it with an equally unfair tax. It is time for the unfair council tax to be scrapped and replaced with a tax that is based on ability to pay and is fair to the people who are paying it.

6.49 pm

The Minister for Local Government, Regional Governance and Fire (Mr. Nick Raynsford): I apologise for having been unable to attend the start of this important debate. As my hon. Friend the Under-Secretary explained, it has been difficult for us to cover this debate as well as the Committee on the Fire and Rescue Services Bill. However, I listened to all the points that hon. Members have made since my arrival. I shall respond to those, but I must first repeat some of the points made by my hon. Friend the Under-Secretary, because they are crucial, and the message seems not to be getting through in some quarters.

This Government have given continuing year-on-year increases in grant to local government, now totalling £46.1 billion—30 per cent. more in real terms than the figure that we inherited in 1997. This year, we increased formula grant by 5.5 per cent. and total grant by 7.3 per cent.—that includes specific and special grants. That represents a sustained growth of investment in our

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public services, in stark contrast to the 7 per cent. real-terms cuts that applied between 1993 and 1997. I must also emphasise that those increases in grant have benefited all authorities, irrespective of political control—contrary to the impression that the right hon. Member for Skipton and Ripon (Mr. Curry) tried to convey last week, when, presumably prompted by Conservative central office, he uncharacteristically lapsed into the use of wholly spurious and bogus statistics. Conservative-controlled councils received on average slightly larger grant increases this year than Labour authorities—6.2 per cent. as against 5.9 per cent.—[Interruption.] My hon. Friends may not be happy about that, but it is important to put the record straight. Yet despite that, Conservative councils are threatening large council tax increases that will punish their unfortunate council tax payers. If the example of Conservative-controlled councils is bad enough, wait until we get to those that are under the control or influence of the Liberal Democrats, who seem to think that the sky is the limit for council tax rises.

There is absolutely no justification for unreasonably large council tax increases, given the generous Government grant increases that all authorities received this year. We have not only increased grant, but extended freedoms for local authorities, reversing the trend on ring-fencing—a point raised by my hon. Friend the Member for Ogmore (Huw Irranca-Davies). In the recent grant settlement, we unfenced £750 million-worth of grant—hardly a centralist measure—and the Local Government Act 2003, to which he also referred, contained several important freedoms for authorities, especially the new borrowing system and the rights to trade, to charge and to vary discounts.

Mr. Pickles: Will the Minister give way?

Mr. Raynsford: Very briefly, but the hon. Gentleman will know that my time is limited.

Mr. Pickles: The hon. Member for Ogmore (Huw Irranca-Davies) was kind enough to acknowledge that the level of ring-fencing is now roughly three times the rate that the Government inherited. Will the Minister confirm that?

Mr. Raynsford: I will confirm that the trend in ring-fencing is going down—it has gone down to 11 per cent. from 13 per cent. last year, and we are on target to reduce it, as we pledged, to below 10 per cent. next year.

Given the good grant increases and the additional freedoms, there is no excuse for unreasonable council tax increases. That is why we have made it clear that if necessary we will use our capping powers. The public are unhappy about the unreasonably large council tax increases of recent years, and we share their concern. We will not stand aside or duck the issue when councils levy, year on year, continued unsustainable increases in council tax. Given the generous grant settlement for 2004–05 and the scope for efficiency improvements, our view is that local authorities can and should deliver council tax increases in low single figures.

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I have already written to 65 authorities to express concern at reported increases in excess of 5 per cent., and I am pleased to say that many have written back to me to make clear their intention to restrict increases to low single figures. Some indicated that the press reports about larger increases were incorrect; others have clearly acted to bring down their originally higher estimates. That is very welcome. Some, however, have not, and I therefore plan to call in some authorities that did not provide satisfactory replies. We would much prefer not to use our capping powers, but it appears inevitable that we will have to do so this year.

Let me consider the points that were made in the debate. The hon. Member for Brentwood and Ongar (Mr. Pickles) gave us an amusing tour of Liberal Democrat operations, but he was painfully silent about the Conservative alternative. That is a comment on the party of the poll tax. Perhaps on this occasion he is showing some discretion.

My hon. Friend the Member for Ogmore highlighted the complexity of local government finance and issued a warning about the unpredictable consequences of major changes such as the Liberal Democrats' local income tax. I entirely agree with him.

The hon. Member for Mole Valley (Sir Paul Beresford) claimed that the new grant system redistributes grant from the south to the north. I have some figures for him and I hope that he will listen because allegations of skewed allocation of grant are unfounded. The figures are averages for whole regions, not selective figures for individual councils, and they show the change in grant in 2004–05, compared with 2003–04. In the south-west, the average increase is 5.5 per cent.; in the south-east it is 5.6 per cent., and in London it is 5.4 per cent. That compares with a national average of 5.5 per cent.

Let us consider the increases in the three northern regions. In Yorkshire and the Humber it is 5.0 per cent.; in the north-east it is 4.8 per cent., and in the north-west it is 5.2 per cent. [Interruption.] I understand that some of my hon. Friends from northern regions are not happy with that, but I hope that the figures make it clear that there is no question of a shift in grant from the south to the north, as our political opponents allege.

My hon. Friend the Member for South Ribble (Mr. Borrow), who is an expert on the matter, highlighted the complexity of local taxation and the unfairness of simply taxing income. He emphasised that fairness requires a balance between different tax sources, including a property tax.

The right hon. Member for North-West Hampshire (Sir George Young) made a telling point about the impact of tax changes. He highlighted the Liberal Democrats' claim that 70 per cent. would be better off under local income tax and reminded hon. Members that the Conservative Government in which he served had promised the same of the poll tax. Not surprisingly, we all laughed.

The hon. Member for Ludlow (Matthew Green), who replied for the Liberal Democrats, alleged that the Government were going nowhere fast. He is wrong on both counts. We are not going fast because rushing into change is a recipe for disaster. Indeed, it led to the poll tax. The Liberal Democrats are in danger of rushing into change. We are going somewhere and considering the

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issues carefully. We do not adopt the Liberal Democrats' approach. The only adage that I shall cite, with all modesty, is "Fools rush in". We do not intend to do that.

The focus of the debate has been the Liberal Democrats' proposal for a local income tax. They propose nothing less than the wholesale abolition of a property tax and its replacement with a local income tax, which local councils set at whatever level they believe that they need. As the Liberal Democrats put it, "Axe the tax" and "Scrap the cap". However, two slogans do not add up to a working local government finance system. If we did as the Liberal Democrats suggested, it would make us one of only a tiny number of countries in the world that have no property tax at all.

Local income tax would be a major departure and we need to examine its practicalities and implications carefully. The balance of funding review will do just that in early March when the Chartered Institute of Public Finance and Accountancy gives a presentation on the issue. However, the Liberal Democrats have been much more cavalier in their approach, brushing aside any voices that urge caution in their rush to produce a new slogan.

As anyone who has studied the complex subject of local government finance will testify, there are no quick and easy fixes. Those who pretend that there are simple and painless solutions—"Axe the tax"—are no more than peddlers of fantasies, snake oil salesmen who claim to offer a cheap and cheerful remedy.

We have given councils sustained, above-inflation increases in grant and more freedom from ring-fencing. We expect councils to budget prudently for low council tax increases. The public deserve nothing less. If they do not do so, we will have no option but to cap those councils that have imposed unreasonable council tax increases on their tax payers. In the longer term, we need to create a workable, widely accepted system. We are doing that by working through the balance of—


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