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17 May 2004 : Column 738

Local Government Finance

Mr. Deputy Speaker (Sir Michael Lord): Mr. Speaker has selected the amendment in the name of the Prime Minister.

7.16 pm

Mr. Edward Davey (Kingston and Surbiton): I beg to move,

The high rises in council tax and the unfairness of council tax are issues that have rightly been raised in the House many times in recent years, not least by the Liberal Democrats. Yet the size of the rises in council tax and the extent of the unfairness in the council tax system suggest that we are right to raise these issues again, and to continue raising them until something is done to deal with the problem.

The House will be aware that the Liberal Democrats have published detailed proposals for our alternative, and those are outlined once again in our motion today. Later in my speech I will set out our alternative to the unfairness of council tax.

Mrs. Annette L. Brooke (Mid-Dorset and North Poole) (LD): What would my hon. Friend say to accusations in Conservative leaflets that a local income tax will cost the average household considerably more?

Mr. Davey: The problem with the Conservative leaflets, of which I have seen a few, is that they assume that the average household is earning an income of nearly £50,000, when the actual Government figures show that the average household income is nearer £22,000. That shows that the Conservatives live in a rather different world from the rest of us—and, indeed, from their own constituents.

I want today to focus on the wider context of the problem of council tax—the local government finance system in its entirety—and that is why we have worded the motion in the way that we have. It is timely to do that because just over a year ago the Government set up the balance of funding review, which was tasked with considering many crucial aspects of the whole system of funding councils. I think that it is scheduled to complete
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its task and report to Ministers in July and, I hope, report back to the House before the recess. I should be grateful if the Minister would confirm later that that is what is planned. This debate gives Parliament a real chance to make a serious contribution to that balance of funding review before it concludes and reports back.

Mr. John Redwood (Wokingham) (Con): Will the hon. Gentleman confirm that it is the intention to charge the south-east more? Will he further confirm that my constituents on the average earnings that they earn will be a lot worse off, and is not this really a rip-off tax from a spendthrift party?

Mr. Davey: That was very predictable, except that I was talking not about local income tax, but about the balance of funding review. Obviously, the right hon. Gentleman was not listening for a change. I gave the answer to my hon. Friend the Member for Mid-Dorset and North Poole (Mrs. Brooke) a minute ago, and he clearly was not listening even then.

We need to start by acknowledging that the balance of funding review is dealing with some of the most complex and difficult problems in public expenditure, although its core question can be expressed quite simply, and I want to do that now. In essence, the balance of funding review is asking how much of the budget that a council spends should be raised locally and how much should be met from Government grant, and, at the extremes, whether councils should raise all their money locally or whether it should all come from Government grant. Put like that, I think that most hon. Members could readily see the arguments against 100 per cent. locally raised budgets or 100 per cent. centrally financed budgets.

If it were all done locally, the equity problems would be huge, with poor areas being badly affected because they would be unable to raise the funds they need for vital services. Most people acknowledge the need for some central Government grant to equalise and redistribute resources to poor areas, and therefore reject 100 per cent. locally raised budgets, and my party takes that view.

Mr. Patrick McLoughlin (West Derbyshire) (Con): One tier of the council structure, parish councils and town councils, raises 100 per cent. of its spending. How would that tax be levied under a local income tax so that the people living in those parishes or towns pay for the services that they receive?

Mr. Davey: I am grateful for the hon. Gentleman's intervention on that point. We have examined low levels of government in other countries equivalent to town and parish councils, and they use a local income tax system. The issue is whether the Treasury can estimate the income tax base. I accept that it is impossible to estimate that figure from information currently held by the Inland Revenue, such as the personal survey of incomes, but that is because no Government have ever tried to introduce local income tax. That information is, however, available in countries where local income tax has been introduced.

Mr. Peter Pike (Burnley) (Lab): The previous Government had to get rid of the poll tax following the Ribble Valley by-election, and Michael Heseltine had
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quickly to introduce a replacement scheme, which he rightly described as "seriously flawed". It is important that we allow the balance of funding review to complete its examination of the position, because unless we correctly balance national and local funding, any replacement system will have serious flaws and problems. We must not rush into a new system, only to find in five to 10 years' time that it is equally appalling, and the scheme proposed by the hon. Member for Kingston and Surbiton (Mr. Davey) would prove to be exactly that.

Mr. Davey: I am grateful for the hon. Gentleman's intervention. When Lord Heseltine introduced council tax, a BBC journalist asked him why he did not support local income tax. He looked at the camera and said, "That is the Liberal Democrats' policy." In other words, he had no strong argument against it. [Interruption.] I watched that interview with relish.

The point of this debate is to give us a chance to contribute to the balance of funding review. We have made submissions to the Government, who, we believe, are right to carry out the review. We also welcome the way in which they have gone about the review. They have taken a year to gather evidence, receive submissions and commission papers. For example, the Chartered Institute of Public Finance and Accountancy examined local income tax, which it thought was a good idea. I welcome the balance of funding review, but I do not see why the hon. Member for Burnley (Mr. Pike) is concerned by the debate, which is about getting the matter right.

Mr. Hugo Swire (East Devon) (Con): Will the hon. Gentleman give way?

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