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Mr. Neil Turner: How?

Matthew Green: Because once it is in place, one can, over successive years, reduce national income tax and shift it on to local income tax. That shift in the balance of funding could be effected in other ways. For example, the shadow Chancellor proposed in a speech in February that the proportion that is raised locally should rise and that the amount coming through central Government grant should be cut. However, he also said that council tax is the vehicle to do it. That would effectively mean that were one to, say, double the amount raised locally, council tax would double. One might cut national income tax, but one would double council tax. However one looks at it, shifting the balance of funding means reducing national tax and increasing local tax. The easiest way of doing that is through local income tax, as CIPFA says.

I am short of time, but I do not want to miss the opportunity to welcome the hon. Member for Witney (Mr. Cameron) to his post. Speaking for the Conservatives on local government finance is a bit like being handed a hospital pass. If the hon. Gentleman has ever played rugby, he will know what I am talking about. We would love to be able to debate the issue across all three parties, but the difficulty is that the Conservatives have no policy at the moment.

We know that the Government are thinking about, and consulting on, a new policy. However, I have here the Labour party's local government supplementary manifesto to its 1997 general election manifesto. [Hon. Members: "Yah-boo!"] It is not yah-boo—it is a serious point. The manifesto said:

We share the aim of restoring business rates to local control, but I hope that the first question that the Under-Secretary addresses is this: what was the response to that consultation, and why are the Government still consulting seven years later?

The hon. Member for Wigan (Mr. Turner) asked about millionaires and why we would cap the tax at £100,000. I am not sure how many millionaires' houses
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he has seen, but at the moment even if they live in the biggest of houses they pay only three times what is paid by the occupants of the smallest of houses—that is, about twice the amount of band D. The highest amount that a millionaire anywhere in the country pays is about £2,500. Under our proposals, they would pay quite a bit more.

Mr. David Watts (St. Helens, North) (Lab): Not enough.

Matthew Green: The hon. Gentleman says that it is not enough, but what do his Government propose to do to make millionaires pay more? If they had any such proposals, we would welcome them.

The hon. Member for City of York (Hugh Bayley) mentioned excellent authorities, but I am afraid that his Whips' briefing missed one out—Cambridge is an excellent authority with majority Liberal Democrat control.

Hugh Bayley rose—

Matthew Green: I cannot give way, because I have only a minute left.

The hon. Gentleman—this is the most telling point—described the idea of local income tax as being for people living in a fantasy world. Clearly, then, people in the United States, Japan and most of Europe live in a fantasy world, because that is where local income tax is used and works. The fact is that local income tax is a fair solution, whereas council tax is an iniquitous tax that hits the poorest and pensioners hardest. The Government should agree with us about scrapping that unfair Tory tax instead of trying to defend the status quo.

9.49 pm

The Parliamentary Under-Secretary of State, Office of the Deputy Prime Minister (Phil Hope): We have had a short debate led by the Liberal Democrats. If they were intending to use it to try to boost their chances in the forthcoming local elections, it was an utter failure. We have yet to see a more lamentable performance in the House.

I welcome the hon. Member for Witney (Mr. Cameron) on his first appearance at the Dispatch Box. Although we are never quite sure who is who on the Tory Front Bench, it is good to see him there. His performance was good on style but somewhat lacking in substance—I shall come to that in a moment.

As we are debating local government finance, I remind the House about Labour's record over the last seven years: a real-terms grant increase of 30 per cent. and the longest period of sustained investment in local government in recent decades. This year the grant increase for local councils was 5.5 per cent. Furthermore, we have removed some of the ring-fencing, and that process will continue.

As my right hon. Friend the Minister reminded the House, Labour councils have the lowest council tax increases this year: the figure is 4.7 per cent. for Labour councils and 5.4 per cent for Tory councils, but Liberal Democrat councils are top of the shop with council tax
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increases of 6 per cent. I am also pleased to say that Labour councils are doing well in their comprehensive performance assessments.

The missing Liberal Democrat £100 has been mentioned but Members have neglected to mention the extra Labour £100. This year, there is a one-off payment of £100 for pensioners aged over 70 to help them with their council tax costs.

I turn to the substance of the debate—the Liberal Democrat motion. There has been a noticeable absence of Liberal Democrat Members in the debate, although one or two are coming into the Chamber at this late stage. My hon. Friend the Member for City of York (Hugh Bayley) gave an eloquent and devastating exposure of what it is like when Liberal Democrats are in control of local authorities. They lose control of their budgets and find that they are at risk—a clear message to every elector that if they want sensible budgeting and good-quality services they should support Labour councils.

We have heard that the Liberal Democrats propose to sweep away all council tax—to abolish property taxes entirely and replace them with a local income tax under their popular slogan, "Axe the Tax". Of course, when they say "Axe the Tax", they forget to say, "Oh, by the way we'll have to put up another tax to pay for it": only a minor point of detail. We would not want to remind them too much about that but for the fact that it will mean between 3 and 6 per cent. on income tax. So, "Axe the tax (oh, and we'll put up your income tax)" might be a rather more accurate description of Liberal Democrat policy.

Moreover, the Liberal Democrats are not actually going to axe the tax. What do they plan to do about second homes? Second homes will still be subject to a form of property tax. There will continue to be a business levy, or rate, on every second home in the country, which means we shall have to count all those second homes, value them and then tax them. That sounds to me like a property tax, which they have just pledged, under "Axe the Tax", to sweep away. Not only will the Liberal Democrats maintain a property tax, they will also increase income tax. We shall get a double whammy from the Liberal Democrats.

By introducing a local income tax, the Liberal Democrats will attack people such as students. As most Members know, students or nurses in training do not pay council tax. However, a nurse in training who earned some money at weekends or during the holidays and started to pay income tax would be caught by the local income tax, so a new set of people would have to pay local income tax.

The Liberal Democrat sums do not add up—we had that debate in February. They said that they would pay for all their proposals through an increase on the higher rate of council tax that will generate £4.7 billion. They would spend about £6.2 billion in local tax and £1.7 billion on raising the income tax threshold to £5,000 and
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they would spend on higher education and on care for the elderly. We have costed a list of Liberal Democrat promises and it comes to £6.2 billion, yet they will raise only £4.7 billion.

That seems to be a bit of a gap. It is only £1.5 billion, but that is the Liberal Democrats' finances. Perhaps they might like to spend time at a numeracy summer school to try to get it right in future.

The Liberal Democrats' other great slogan is, "Scrap the cap". That sounds a great idea; we will not put a cap on. What happened to the Liberals' concern for pensioners on low incomes? "Scrap the cap", but what do we see? They would allow local councils to put council taxes through the roof. That is why we have introduced capping to bring down council taxes this year. It is important to protect pensioners on low incomes.

We then come to the great cheque that bounced—the £100 that came and went. Now you see it; now you don't. It is another bit of Liberal Democrat magic for the House. They are not so much pulling a rabbit out of a hat as trying to stuff it rapidly back in as they realise that they cannot afford to pay for it. The Lib Dem agenda is higher income tax, more bureaucracy, sums that do not add up and a U-turn. That is just about right for the Liberal Democrats.

I would not want this Liberal Democrat-led debate to divert attention entirely from the Conservatives and their proposals for local government. It is interesting that their amendment to the Liberal Democrat motion says absolutely nothing about their proposals for the future of local government funding. So I thought that I would remind the House of one or two proposals that we know are now in the public domain.

The first thing is that the Conservatives will not repeat their poll tax disaster; for that, we can be thankful. However, they made a record 7 per cent. cut in local government funding in the last four years of the Tory Government. Have they learned that that was probably not a good idea? No, because they have a shadow Cabinet that represents a recession in waiting. For the first two years, if they got back into office, they would cut spending on local councils by no less than £2 billion. That is not just cuts, but hacking off whole services at a local level.

We have heard some excellent contributions in the debate. My hon. Friend the Member for Wigan (Mr. Turner) spoke, and the budget of his council in Wigan would be cut by no less than £13 million in the first two years of a Tory Government. The budget of the council in the constituency of my hon. Friend the Member for City of York would be cut by £5 million if the Tories got back in. The hon. Member for North-East Cambridgeshire (Mr. Moss) talked about the capping of Fenland. If his party got back in power, the first thing he would be doing is explaining to his councillors why it was going to cut £350,000 from Fenland's budget. That is the impact of Conservative policies.

There would not just be cuts for everyone and cuts across the board. The Conservatives would remove resource equalisation, which involves spending more for those who need it most. The sum total of Tory policy is not only cuts for everybody, but cuts for those councils in the areas with the most vulnerable people who need the resources and services the most.
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I might add that the Tories have promised that they would scrap the comprehensive performance assessment and the best value measures. I was trying to work out why that should be. Is it because they want to deny a good management tool for local government? No. Is it because they want to stop local citizens having information to make judgments? No. I shall tell the House what it is about. When they put their cuts in place, they do not want us to know about it. They do not want the citizens to know about it. It is a cover-up for the cuts that the Tories would introduce. We can sum up the Tories' agenda—cuts and cover-up. That is the Conservative way.

Let me draw to a conclusion on where we are going next. We have seen that the Liberal Democrats' proposals involve higher taxes, more muddle, more bureaucracy and reneging on their promises. From the Conservatives, we have seen that, if they got back into power, there would be cut upon cut, with services and councils finding themselves unable to deal with that.

The hon. Member for North-East Cambridgeshire complained about capping, but his views were in direct contradiction to those expressed by those on the Opposition Front Bench, who have said that they would support capping and keep capping reserve powers if they needed them. He should ensure that his local councillors understand the difference between his position and that of those on the Opposition Front Bench.

Where are we now? We have a Labour Government who are investing in local services and investing 30 per cent. more in local government than the other parties. We are in a position of lower council tax increases—

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