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Mr. Edward Davey: I thank the hon. Gentleman for allowing me to intervene to nail that canard. Will he confirm that most Liberal Democrat authorities are district councils, most of which have not yet been assessed by the comprehensive performance assessment process? Will he comment on the performance of Liverpool city council? When the Liberal Democrats took it over in 1998, it had the highest council tax in the country; now, after six years of Liberal Democrat rule, it is 70th. Will he make fairer, more balanced comments, rather than just taking his lead from the Labour Whips Office?

Mr. Turner: I have looked at the record put forward by the independent auditors. The CPA process says that there are no excellent Liberal Democrat councils. I am very sorry about that. The hon. Gentleman may have a problem with that, but it is his problem and he ought to sort it out.

When we look at council tax, what do we see? For Labour councils, the average council tax paid this year is £870; for Liberal Democrat councils the figure is £971; and for Conservative councils it is £1,072. The increase this year is 4.1 per cent. for Labour, 5.4 per cent. for the Conservatives and 6 per cent. for the Liberal Democrats. It is no wonder that the Liberal Democrats' record with the electorate is so lamentable. In council after council, they get elected and get control—then the franchise falls apart, they mess it up and they get voted out. As Julius Caesar might have put it, "We came, we were elected, we got found out, we were rejected."

The problem is that the Liberal Democrats have no history of running major councils for any length of time.

Matthew Green: Liverpool.

Mr. Turner: For how long did the Liberal Democrats run Liverpool council—four, five or six years? Wigan has had more than 60 years of Labour control. That is the sort of period that I am talking about. I am sure that there are many councils that have been run by the Conservatives for a similar length of time. The Liberal Democrats have never run a major local authority for any length of time, and that is the problem.

That problem has been made clear by the £100 rebate fiasco. In February 2003 the Liberal Democrats were offering a
 
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"£100 cut for every Council Tax bill".

In May 2004, their leader was asked:

"So they won't be getting the hundred pounds you promised them?"

He answered, "Correct." We see it and then, pouf, it vanishes. It is the Keyser Soze policy of local government finance.

Everyone recognises that gearing is a huge problem under the present council tax system. That can be addressed only by reducing the amount that central Government pay and increasing the amount that local people pay, yet the Liberal Democrats do not propose any change in that ratio—they do not propose that extra money be paid from local income tax to replace council tax. The gearing issue would therefore not be altered, even though that was one of the main points advanced by the hon. Member for Kingston and Surbiton (Mr. Davey). The Liberal Democrats' costings are calculated on a cost-neutral basis. The difficulty they face is that changing from council tax to local income tax would not alleviate the gearing effect. In fact, it would get worse because central Government funding would increase—by £1.7 billion, as my hon. Friend the Member for Southampton, Test (Dr. Whitehead) said. That increase in Government grant would be funded from the Liberal Democrats higher rate of income tax. By changing the ratio between local and central funding—putting in more money from central Government—they would worsen the gearing effect.

The story gets even worse because of the greater variations in the income tax base than in the council tax base—the property base. Let us examine the effects of council tax and local income tax in four authorities. Wigan's share of the England tax base is 0.534 per cent. under council tax, and 0.402 per cent. under local income tax; its tax base would decrease by 25 per cent. under the Liberal Democrats' proposals. Stockport has 0.575 per cent. of the tax base under council tax and 0.666 under local income tax, so its tax base increases by 16 per cent. Torridge in Devon faces the problem of the number of pensioners living there: its share of the tax base under council tax is 0.122 per cent., but 0.066 per cent. under local income tax; it would face a 46 per cent. reduction in its tax base. Kensington and Chelsea's share of the tax base would increase 125 per cent., from 0.528 per cent. under council tax to 1.19 per cent. under local income tax.

Those four examples illustrate that much greater central Government support would be required to iron out the greater variations resulting from the change from council tax to local income tax. If central Government did not get the equalising formula right, they would face huge problems. We all know what difficulties were caused by the relatively minor changes made to the formula a couple of years ago. The Liberal Democrats would have huge difficulty explaining away the 25 per cent. reduction for my local authority and the 125 per cent. increase for Kensington and Chelsea in ensuring that the formula to redress the balance was fair.

Mr. Betts: My hon. Friend makes an interesting point. Although he dedicated the first part of his speech to the gearing problem in local government, the hon. Member for Kingston and Surbiton (Mr. Davey) did
 
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not say that extra money would be put into the system to deal with the problem. In addition, the greater disparities in the resource base under local income tax than under council tax would make the problem of gearing worse, especially in councils with a low resource base, which would need more money from the centre.

Mr. Turner: My hon. Friend makes my point better than I did. I am grateful to him.

Matthew Green: The hon. Gentleman read out an interesting set of figures about Wigan, which confirms that tax payers in Wigan would pay less under our policy than they do under council tax. He is arguing in favour of his electorate paying more.

Mr. Turner: I do not accept that. We are saying that the income tax base in Wigan is less than the council tax base; therefore, unless a system of equalisation is devised, ensuring that Wigan's tax payers pay less will be extremely difficult. Our base from which to supply our needs will be 25 per cent. smaller, but our needs will not change. I am not clear about how the hon. Gentleman can argue that reducing the resource base by 25 per cent. but retaining spending at the same level will reduce the amount paid in tax. I hope that he will explain in greater detail when he winds up.

The Liberal Democrats claim that their proposal would be fairer, as everybody would pay on the basis of need, but that is not true, as the hon. Member for Witney and the Minister for Local and Regional Government pointed out. Many people whose income is not pay-as-you-earn will not make a contribution, including individuals who receive the majority of their income from dividends. It will be difficult to ensure that contributions are made by the 3 million self-employed, and certainly not in the year when payment is requested.

We have just heard that a cap will be set at £100,000. People on such an income will pay 5 per cent.—that is a reasonable average accepted by the Chartered Institute of Public Finance and Accountancy—or £5,000. Millionaires, however, will pay the same amount, or 0.5 per cent. of their income. That is not fair, and it will be difficult for the Liberal Democrats to explain to Wiganers, who are good at doing their sums, why it is fair that millionaires should pay only 10 per cent. of the proportion paid by others.

The Liberal Democrats have not taken into account the cost of raising the personal allowance to £5,000, which the Inland Revenue estimates will cost £2.4 billion. The hon. Member for Twickenham (Dr. Cable), who speaks on Treasury matters for the Liberal Democrats, did not explain in the Budget debate where the money to meet those costs would come from. My hon. Friend the Member for Telford (David Wright) made an interesting point about recession. In the late 1980s and early 1990s, virtually every mine in the country, and certainly every mine in the Wigan area, was closed almost overnight. Manufacturing industry, which depended on those mines, closed down alongside them, so there was a catastrophic drop in the amount of money for our local economy. How on earth would local councils cope in such circumstances? When there is a dramatic drop in income there is an equally dramatic rise in needs, as local councils must pay for school meals and other benefits. How could Liberal Democrats
 
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overcome a recession on such a scale? Indeed, if they were elected with their policies such recessions would be likely.

The Liberal Democrats want to reform business rates in line with land values. However—and this is a problem with which we will have to wrestle under the balance of funding review—property rates vary dramatically. A property in Wigan will not have the same value as a similar property in Warrington, which will differ in value from a property in Manchester, which will differ in value from a property in the south-east. Yet again, the Liberal Democrat policy will be subject to equalisation. More money from central Government will have to be put into local government and the gearing rate will have to be changed.

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