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Hugh Bayley : Surely the question is why Fenland council was having to raise its council tax so high in the first place, given that Government grant to Fenland was 4.8 per cent., which is twice the rate of inflation.

Mr. Moss: I will explain the situation later.

On accountability, we realise and accept that the difficulties with the low tax base are to some extent addressed by the local government grant formula with which the Government have now come forward and the number of properties at the lower end are taken into consideration. We also welcome the fact that under the new formula, the districts will receive extra money in lieu of what used to be called the area cost adjustment. This is the first time that the districts and the county of Cambridgeshire will enjoy this extra money from the
 
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new calculation and formula. But in the first year of the new grant, which was last year, the Government, under their floors and ceilings policy, held back some £566,000, and that is 8 per cent. of Fenland's budget. In fact, at that time last year the Government said that they capped the grant at a ceiling. Of course, they have dropped the word "capped" this year and replaced it with the phrase "scaled back". Obviously, they could not cap their own grant distribution and at the same time wield the big stick and cap local councils. But in the current year, under scaling back as opposed to capping, the Government have withheld £422,000, which is 6 per cent. of Fenland's budget.

Where is the logic behind a Government policy that on the one hand calculates the budget for the district council under the new formula while withholding some of the grant required to deliver that budget, but on the other threatens to cap the council when it proposes to raise sufficient funds from council tax to replace that withheld funding?

The effect of scaling back grant is clear: if the Government had paid the grant that they calculated the council was entitled to and made no other changes, the council tax rise in Fenland would have been 8.17 per cent., which is less than the 8.25 per cent. threshold that the Government chose as the trigger point for capping.

Who is accountable now? Is the council accountable for wanting to deliver the required services, or are the Government, who held back rightful grant, accountable? Why have the Government changed their mind on capping? In March last year, they indicated that they would not cap those councils categorised as excellent or good under the Audit Commission's comprehensive performance assessment system, but they are reneging on that pledge. Telford and Wrekin council is one of the councils in the list for capping, and it has an excellent grading under the CPA.

As I said earlier, the Government are not only withholding grant but piling extra financial burdens and responsibilities on to councils. My hon. Friend the Member for Witney gave us a long but not exhaustive list of extra burdens that the Government have piled on to councils since they entered office. I accept that many of those extra pressures are supported by capital grants, but we all know that capital expenditure has a knock-on effect on the ongoing revenue expenditure required to keep services going, and that that money is provided from local resources and is not met by Government grant.

Let us consider recycling targets, which have been mentioned more than once in this debate. Recycling is not currently mandatory, but the Government strongly recommend and encourage it. If one talks to district councils, none of them thinks that recycling will not be a Government statutory requirement in the near future. This year, Fenland district council put £204,000 into its budget to meet recycling targets, following Government guidelines and encouragement. A similar story can be told about the e-government targets, which are, again, non-funded targets—Fenland district council put £125,000 into its budget to meet e-government targets. Added together, those two amounts meet the Government's required budget savings of £300,000 following capping. Are those examples of excessive budget requirements?
 
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Fenland district council has submitted a medium-term financial strategy that identified higher increases this year, reducing significantly in future years. Those increases are part of a short-term strategy, and do not indicate a continuing trend. Next year and in future years, the strategy, which was submitted to the Government, outlines efficiency savings of £350,000, and a reduction in the general fund reserves totalling £800,000 spread over the three years from 2004–05 to 2006–07, which will mitigate the increases on council tax payers.

Finally, I come to the issue of re-billing. As a small district council, Fenland has particular problems this year. The current billing system will not allow for automatic re-billing, and the bill for software reprogramming for a new system will come to some £85,000. It is also important that a decision is taken quickly, if the Minister and his Department can do that, because if some council tax payers take the view that substantial savings are to come their way as a result of capping, they may not pay their council tax bills as early as they might have done.

That withholding of payment can create havoc for a council's budgeting and financial position and the final cost according to the Local Government Association could be more than £200,000.

If we take into account the lower estimate for the re-billing exercise, the saving for a band D taxpayer is calculated at only £7 for the year. After all that, we shall save a band D taxpayer 13p a week. For 85 per cent. of taxpayers in bands A, B and C, the amount will be less than 13p. We must ask the obvious question: is the whole exercise not rather pointless?

If Fenland council can demonstrate planned lower increases in its medium-term strategy for the next few years and if it receives a good, if not excellent, category from the recent comprehensive performance assessment review—the outcome is due at the end of the month—surely common sense will prevail and the threat of capping be lifted this year. After all, Fenland district council is not profligate. Its council tax is not an unreasonable burden compared with its immediate neighbours'. Its budget is not excessive; it is a well-run council, which actively and positively seeks to implement Government policies, namely recycling and e-government, and has a clear idea of where it is going, as the CPA review will doubtless bear out.

I invite the Minister to bring the full weight of his acclaimed knowledge, common sense and understanding to bear to foster the correct and logical outcome.

9.21 pm

Hugh Bayley (City of York) (Lab): When the hon. Member for Kingston and Surbiton (Mr. Davey) rose to move the motion, the Liberal Democrat Benches were packed with Members desperately willing him to deliver the knockout blow in the local government election campaign. As his speech continued, they crept out of the Chamber one by one and now only two remain. Neither looks especially happy.

Most hon. Members agree that the council tax needs reform, especially in Liberal Democrat areas where the biggest increases in council tax this year took place.
 
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Those increases are 6 per cent. on average, compared with 5.4 per cent. in Conservative-controlled councils and 4.7 per cent. in Labour areas. Although the increases are considerably lower than last year's, they have led to discontent among many people, especially the elderly. The pensioner council tax revolt started in the south-west of England, where there are many Liberal Democrat councils. However, it is not confined to Liberal Democrat areas; there is genuine anxiety among elderly people throughout the country.

I applaud the Government for establishing the balance of funding review. It is an all-party review, which includes local politicians who are nominated by the Local Government Association and it will report this summer. If the Liberal Democrats genuinely wanted a considered improvement on the status quo, they would not try to pre-empt the review but await the proposals from that all-party review team. We therefore need to ask why the Liberal Democrats have jumped the gun with a muddled and costly local income tax proposal.

The answer is simple: it diverts attention from the Liberal Democrats' record in local government throughout the country of poorly controlled spending and poor-quality services. Hon. Members have already mentioned the interesting fact that, of the councils that the Audit Commission independently judged to be excellent, some 12 are Labour controlled and none is Liberal Democrat controlled.

Mr. Edward Davey: Will the hon. Gentleman give way?

Hugh Bayley: The hon. Gentleman has a bit of a cheek. When he was speaking, with all the benefits of a Front Bencher who can speak for more than 30 minutes, I asked four times whether I could intervene on him. He declined and now he wants to intervene when hardly any time remains for Back Benchers to speak and when a Liberal Democrat Back Bencher, miserable though he looks, hopes to be called next. So I shall decline to give the hon. Gentleman the opportunity to intervene.

Until this time last year, City of York had the lowest band D council tax in Yorkshire. Indeed, it had the lowest council tax in Yorkshire in each and every band. Then, a year ago, the Liberal Democrats won control of the council, and I applaud their electoral success. Now, one year later, we no longer have the lowest council tax in Yorkshire; we have the fourth lowest. The band D rate in York is £1,078 this year. In Bradford, it is £1,061; in Wakefield, it is £1,048; and in Leeds, it is £1,040. York has gone from lowest to fourth lowest in just a year.

Last year, when the Liberal Democrats took control, they promised in York, as elsewhere, that they could deliver a £100 a year reduction in council tax. What actually happened this year was an average increase of about £80 a year. The plan for a £100 cut in council tax has been quietly shelved and replaced by another completely uncosted—and, frankly, equally undeliverable—promise on local income tax.

The Liberal Democrats cannot blame the Government for this increase. The Government increased the grant for City of York council by 5.5 per cent. this year, which is twice the rate of inflation. The provisional settlement gave us a 4.3 per cent. increase—a Government grant of more than £100 million for the
 
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first time. I went into battle for the City of York, and I will support the council tax payers in my constituency irrespective of which party controls the council. My right hon. Friend the Minister for Local and Regional Government listened to what was being said, saw what was happening on the ground and increased the Government's support for the City of York by a further £1.2 million, taking the overall increase in Government grant to 5.5 per cent. So the 8.5 per cent. increase in council tax imposed by the Liberal Democrat council in York has not come about because of a poor funding settlement from central Government. It has come about because of a failure of the Liberal Democrat administration in York to control its own soar-away spending.

So, although York still has one of the lowest council taxes in the country, thanks to a legacy of prudent financial management by a Labour council for a good many years, it came within a hair's breadth of being capped this year. The limit set by my right hon. Friend the Minister was an 8.5 per cent. increase in council tax or a 6.5 per cent. increase in the overall council budget. By luck rather than judgment, City of York came in with a council tax increase of exactly 8.5 per cent., and a budget increase of exactly 6.5 per cent. So, had it come in with a council tax increase that was any higher, and had there been just one more council in England to be capped, it would have been the City of York. That is a remarkable turnaround in its financial fortunes in just one year, and it ought to be a stark warning to the Liberal Democrats in control of the council that they have to get their soar-away spending under control before next year.

The Liberal Democrat income tax proposal is a magician's sleight of hand, because it seeks to move attention from the real world of high-cost Liberal Democrat councils to a fantasy world in which everybody is led to believe that somebody else will pay their council tax bill. Who will pay? Hon. Members should not look at the Liberal Democrats' costings, because, like the £100 cash-back offer last year, they will vanish overnight. Instead, they should look at CIPFA's analysis, which was prepared for the cross-party balance of funding review.

CIPFA estimates that the Liberal Democrat income tax proposal, which will vary from council to council because it is local, would raise the basic rate from between 3.2p to 6.5p in the pound. That proposal will hit many people on low incomes in places such as York who do not pay council tax at the moment, while excluding some people on high incomes who pay council tax.

Yorkshire has on average the lowest council tax in England, but it does not have the lowest average incomes, so the Liberal Democrat plans for a local income tax would mean higher bills for working families in Yorkshire. What about people with second homes in York, Harrogate, the Yorkshire dales, or the North York moors? They will not have to pay a penny under the Liberal Democrat local income tax proposals. What about millionaires, who, as my hon. Friend the Member for Wigan (Mr. Turner) said, are not on PAYE and live off investment income? They will not be touched by the Liberal Democrats' proposals.

I do not want to prejudice the outcome of the balance of funding review, but tonight I seek an assurance from my right hon. Friend the Minister that, at this stage at
 
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least, the Government do not intend to increase income tax for hard-working families while at the same time letting off some better-off households from paying local taxes altogether. That is precisely what the Liberal Democrat motion proposes.

9.32 pm

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