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Matthew Green (Ludlow) (LD): The Minister clearly has quotes from the CIPFA report in front of him. Early on, on page 3 I think, CIPFA lists some advantages and disadvantages of the local income tax. Perhaps the Minister would like to read out the four main advantages cited.
Mr. Raynsford: No, because I should then have to read out the six disadvantages that follow. The hon. Gentleman can no doubt consult the report for himself.
The hon. Member for Kingston and Surbiton has clearly not taken to heart the lesson of complexity. Let us compare his blithe assurances with CIPFA's more measured views.
I take as my evidence the hon. Gentleman's website, which I assume is an authoritative source for his views. Under the question "How quickly could a local income tax be introduced?" he states confidently:
"Within two years maximum. As it is using an existing system, the only major delays would be consultation on details and getting legislation through parliament".
Well, that is pretty clear. So let us see what the experts—CIPFA—say.
"The legislative requirements might be completed within two or three years . . . Then appropriate guidance and support would need to be given to taxpayers and employers. A roll of local taxpayers would need to be collated. Most previous observers concluded that the implementation of a LIT would take five years to effect. Despite the advance made in the technology . . . the preparations required would be no less elaborate and consequently the proper implementation might well take five years to complete. There would be considerable risk in forcing the pace."
So there we have it. "Seven to eight years and do not rush it", says CIPFA; "Two years and it would be easy", say the Liberal Democrats. I know whose judgment I trust.
After that not very encouraging start, let us look at the Liberal Democrats' specific proposals. They leave a great deal to be desired and would, I fear, lead to disruptive and complicated changes to the tax system without providing the much trumpeted benefits. First, the proposals would do little to improve the flexibility available to local authorities. As authorities in poor and deprived areas would be able to collect less income tax than the richest areas, the proposals would mean that the poorer authorities would become more heavily dependent on grant. There would be less flexibility, and a worse gearing effect, for those authorities, than at present.
Secondly, the proposals would involve substantial costs that are not mentioned by the Liberal Democrats. They plan to combine their local income tax proposal with an increase in the personal allowance to £5,000, but taking into account this year's increase, that would cost an extra £1.5 billion. Of course, we know that the Lib Dems are not very good with figures. Their back-of-the-envelope approach to local government finance usually collapses the moment that it is subject to any serious scrutiny. Even the simplest of their pledges prove problematic.
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We all recall the Lib Dems' promises last year of £100 off the council tax, and the hon. Member for Totnes (Mr. Steen) reminded us of it earlier. We were assured that they had done their figures and could deliver that benefit. The voters of Brent, East were lured into voting Lib Dem with the overt promise of that bonus. But six months later it has vanished. The right hon. Member for Ross, Skye and Inverness, West (Mr. Kennedy) has huffed and puffed about reviews and reconsideration, and when asked recently on "Today" whether people would not be receiving the £100 they had been promised, he replied as follows. I quote from the verbatim transcript:
"well, what we are (nervous chuckle) what we are pledging to people is a local income tax".
So there we have it: the promised £100 has been withdrawn. Even though the leader of their party made that admission a week ago, his message does not appear to have got through to individual Lib Dem MPs, at least one of whose websites today continues to hold out the promise of a £100 refund under an "Axe the Tax" headline. It is no wonder that the leader of their party gave a nervous chuckle. Not only is his party in a shambles, but his proposals would have severe and, in many cases, inequitable consequences. They would impose substantial additional tax burdens on hard-working families, especially those with two or more earners, including those doing vital public service jobs.
At the same time, as the embarrassment of the hon. Member for Kingston and Surbiton demonstrated when he was questioned on "The Westminster Hour" a week ago about investment income, the back-of-the-envelope Lib Dem proposals would open up huge loopholes, allowing wealthy company directors and others living on unearned income to avoid making any contribution to local services—so much for the supposed fairness of their proposals. The whole issue of investment income would not be covered by their PAYE system, and that would be an obvious incentive for evasion.
Finally, the proposals they have made have weaknesses that they do not consider.
Richard Younger-Ross (Teignbridge) (LD): The Minister belongs to the supposed party of fairness and justice. Is it right that under the present council tax proposals an elderly couple should spend 11 per cent. of their income on council tax when under the LIT proposals put forward by my hon. Friend the Member for Kingston and Surbiton (Mr. Davey), they would pay 4 per cent.? Is that just or fair?
Mr. Raynsford:
If the hon. Gentleman had been listening to what I said earlier, he would know that I highlighted the contribution to that situation of councils—including many Lib Dem councils—that have pushed up their council tax to an unreasonably high level. I also highlighted the scope for trying to ensure that those who should receive council tax benefits do so. Some of the examples that the hon. Gentleman mentioned are in that category. Some 1 million people are probably paying more than they should because they are not getting their benefit entitlement. We want to tackle that problem, and we are doing so, but it does not mask the fact that his party proposes a wholly inequitable tax system that would create a massive
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loophole, enabling some of the richest people in the country to evade any contribution to local services. It is nonsense, and the Lib Dems know it.
Mr. Raynsford: I must make some progress.
The proposals have weaknesses that the Lib Dems have not considered. They have two ideas for how the tax would be collected. One is to collect it during the year through tax codes, and the other is to collect it at a standard rate across the country, and then to settle up with the individual taxpayer to cover what they should have paid through an end-year adjustment.
The first proposal would impose substantial additional burdens on employers, who would need to deal with local income tax rates for every local authority in which their employees lived. The website of the hon. Member for Kingston and Surbiton even suggests that employers would also have to take account of the precepts from the 9,000 parish councils. Can hon. Members imagine the administrative chaos and confusion of taking into account precepts from 404 local authorities and 9,000 parish councils? I assume that the hon. Gentleman has made a mistake and that he did not mean that. I cannot believe that he would be so unwise as to make such a suggestion. The process of having to account separately for the different amounts of local income tax that employers were subtracting from their employees' wages would impose serious administrative burdens. The more councils with separate precepts, the more complicated and intractable that burden would be.
Mr. Parmjit Dhanda (Gloucester) (Lab): The Lib Dem proposals would not only involve collecting money through the PAYE system. Part of the saving is meant to come from doing away with the existing property-based tax, but they would still need to take tax on second properties. Therefore, they would not make the savings they predict by reducing that layer of bureaucracy.
Mr. Raynsford: My hon. Friend makes an appropriate point. The need for a system to value every property in the country for the application of the site value tax that is proposed in cases in which owners were not liable for local income tax would make it impossible to make any administrative savings, as the Lib Dems implied would be possible by reducing the work of the Valuation Office Agency.
I do not believe that the Lib Dems have even considered the burden on business in their costings for the local income tax. I have seen no evidence of them having made any allowance for the additional cost—it would probably be some £100 million—to business that it would entail.
The second option of an end-year adjustment would be an odd compromise, satisfying no one. It would be a local income tax in which, most of the time, the bill paid had nothing to do with the rate set by one's local authority. How would such a system promote local accountability and flexibility, and how would it aid the taxpayer in understanding how much money their council was asking for or spending on services? In addition, given that the mechanics of the tax system mean that under or over-payments would not be fully
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settled for months or years, that approach would be doubly complex and unpredictable both for individual taxpayers, who could be presented with unwelcome retrospective demands, and for local authorities and the Inland Revenue.
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