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Mr. Adrian Sanders (Torbay) (LD): Over the years, each Minister who has spoken on local government has presented to the House the claim that their local government settlement is the best ever. Of course, it always is, because with inflation that will always be so, but Government inflation is based on retail price inflation, not the inflation rate that councils across the country have to meet.
According to a survey by Barclays bank, the public sector inflation rate in the past 12 months was some 7 per cent. If the average council received an increase of 5.5 per cent., every council received a real-terms decrease in central Government funding. The claim that such and such a council got well above the retail price inflation rate is true—it is not a lie—but it is never the whole story. It misleads and confuses the public over whether the Chancellor should get a pat on the back for his Budget, or whether councillors should get it in the neck for the high council tax.
The council tax has three failings. I shall speak from the point of view of my constituency in particular. Labour Members—the hon. Member for Wigan (Mr. Turner), for example, cannot see that under local income tax the people of Wigan would pay less in tax than they pay under council tax—are misunderstanding local income tax, or are happy for their constituents to pay more.
Mr. Neil Turner: I realise that the hon. Gentleman is short of time, but I have to point out that well over 90 per cent. of households in Wigan are in bands A and B, and that is why they would pay more in income tax than in council tax.
Mr. Sanders: The hon. Gentleman has read the tax base figures, but he is incorrect. People in Wigan would pay far less under local income tax, given local incomes.
There are three fundamental flaws in the council tax. First, the grant system is based on historic spend. An authority such as mine, once part of a large shire county with historically low spending patterns, never catches up.
Mr. Cameron: The hon. Gentleman says that the council tax is fundamentally flawed. Why, then, are the Liberal Democrats not getting rid of it in Scotland?
Mr. Sanders: We would like to, if we were in government in Scotland, but we are not. We believe in devolution and different solutions fought for by different people.
Historic spending patterns mean that our grant is kept low and that we never catch up. Secondly, the grant formula is linked to the tax base. If an area has a high base, it gets less money in central Government grant.
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The third flaw lies in demand for services. In an area such as mine, where there is historic low spending, high house prices and low incomes, and simultaneously there is ever-rising demand for services, as is often the case in seaside resorts because of demographic changes as economically inactive people migrate there and elderly people remain alive longer, demand for services rises faster than the grant formula can keep up with.
There is a further problem, too. Out of the chunk of central Government money that goes to local government, increasing amounts have been top-sliced for a few local authorities that have been able successfully to bid for them. In a sense, the year-on-year increase of that which is available to all councils goes up, but for those that cannot access that top-sliced funding, the amount does not go up by anything like as much as the Government would claim.
I received figures from the local government Minister following a written question last week that show the impact of that. In my constituency, residents are worth £26 per head less than those in the average unitary authority; I compare like with like because it is unfair to compare unitary authority figures with those for other tiers of local government. For a council that is successful in getting access to top-sliced funding, the ratio is even bigger. Our nearest successful neighbour is Plymouth, where residents get £101 per head more than the residents in my council area. If my local authority got the same per head Government grant funding as Plymouth, we could have cut council tax by a quarter this year without cutting services.
Let me put straight something referred to earlier that needs to be corrected. There are toilet closures in my constituency, but we are gearing up for a bumper summer season and our lifeblood is tourism. I am not aware of any beach or tourist area that will be without a public convenience. The closures have been carefully chosen, and some of those closed will reopen as a result of a local initiative. The hon. Member for Totnes (Mr. Steen), whose constituency covers part of Torbay, which is a tourist resort, must be corrected. No tourist should be put off as a consequence of his misinformation.
Bob Russell (Colchester) (LD): He was talking down Torbay.
There is a perverse capping logic. Our council tax in the past two or three years has been lower than those of our neighbours in Devon and Plymouth, and our council tax is the second lowest in Devon. Why, then, are the neighbouring authorities not capped? Simply, the answer is that the increase has come this year, and this year brings important elections for the Labour party in metropolitan areas. Capping will therefore fall on my constituents because of Labour's electoral chances.
I must finish now to allow my hon. Friend the Member for Ludlow (Matthew Green) to wind up, but I have one final question for the Minister. He attacked a local income tax on the grounds that many people could evade it. If it is such a big problem, what are the Government doing about all those income tax evaders who fail to make a contribution?
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9.40 pm
Matthew Green (Ludlow) (LD): This debate has shown the House at its worst. The public always say that there is too much yah-boo in the conduct of our business. When my hon. Friend the Member for Kingston and Surbiton (Mr. Davey) stood up today, he had a well written speech—
David Taylor: Why didn't he use it?
Matthew Green: The hon. Gentleman is still at it. My hon. Friend had a well written contribution to make to the debate on local government finance, but the representatives of the Labour and Conservative parties clearly had no intention of debating local government finance. They just wanted to play yah-boo politics. However, I will try to answer some of the questions that have emerged from the debate.
The Minister claimed that the Government were reducing ring-fencing. We could achieve a cross-party consensus on that, but the Minister must accept that passporting is ring-fencing in all but name. As long as the Government passport education, which is more than 50 per cent. of local government finance, the funds are dictated by central Government. It does not matter whether it is called passporting or ring-fencing: it is the same thing. The change of word does not let the Minister off the hook. If the Minister promised to tackle passporting, we would be happy, but I suspect that he would then invent another word for it and claim that he had dealt with the first two problems.
The Minister said that the Liberal Democrats should tell our councils to get a grip and lower their council taxes. That comes from a Labour party that has a policy of new localism. I understood that new localism meant giving extra powers to councils and letting them decide issues for themselves. The Liberal Democrats believe that councils should be left to take their own decisions and to face the electorate on that basis, but this Labour Government think that such matters should be decided by central diktat. The Minister cannot have it both ways: he must choose between new localism and capping.
The Minister mentioned capping and I shall give a local example. West Mercia police have been nominated for capping for next year. That authority has had some large council tax rises recently, including 33 per cent. a few years ago. However, I have not had a single letter of complaint about that rise, and I am sure that my hon. Friend the Member for Shrewsbury and Atcham (Mr. Marsden) and the hon. Member for Telford (David Wright), who is no longer in his place, would say the same. That is because the authority was waiting for extra money from central Government, which never came, so in order to deploy 200 extra officers the police authority—
Mr. Paul Marsden (Shrewsbury and Atcham) (LD):
My hon. Friend is right, but I had thousands of letters about soaring council tax increases—even though the Government said in 1997 that they would make the council tax fairer. People are happy with the increase in the council tax precept by West Mercia police authority
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that will supply 15 extra bobbies on the beat, because the authority is accountable and people feel that they have more control over that decision.
Matthew Green: My hon. Friend is right. The Government have capped an authority that the public support because it has increased the number of officers. The Government are getting it wrong and they should withdraw the proposals to cap that authority.
The Minister would not read out the four advantages of local income tax that were identified by the Chartered Institute of Public Finance and Accountancy. He clearly has not read the document in detail, as he did not know that it mentioned five, not six, disadvantages. I want to pick up on the first of those advantages, because a lot has been said about the balance of funding. CIPFA says that one of the main advantages of LIT would be that it is
"capable of effecting a real shift in the balance of funding".
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