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Local Government Finance

Mr. Speaker: I inform the House that I have selected the amendment in the name of the Prime Minister.

12.31 pm

Mr. Philip Hammond (Runnymede and Weybridge): I beg to move,

That this House notes that each year the Government has pledged a 'generous' increase in local government funding, yet council tax in England has on average risen by three times the rate of inflation every year since 1997; observes that the cumulative additional council tax burden since 1997/98 is £1,716 for a typical Band D household; deplores the failure of the Government to recognise its role in generating the underlying pressures leading to council tax increases, including new responsibilities, compliance requirements, red tape, targets and assessments imposed by central Government on local authorities; further notes that unfunded cost pressures force councils either to introduce disproportionate increases in council taxes or cut local front line services; and believes that this is a further indicator of growing centralisation and Whitehall interference in local communities, eroding local democracy and weakening democratic accountability.

In just over two weeks' time, local elections will be taking place across much of the United Kingdom. The Conservative party believes in the importance of local democracy and local democratic accountability. That is why we alone of the major parties are fighting the local elections on local issues and, in particular, on the record of the Conservative party in local government—a proud record of delivering better services at a lower cost than councils of any other political persuasion. That is the key measure of local government performance, and if we are to have a reinvigorated local democracy, which the Opposition support, and a restored sense of local accountability, there must be transparency about the relationship between council taxes and local decisions, and clarity about where responsibility lies for the pressures that lead to increases in council tax.

Mr. Ivan Henderson (Harwich) (Lab): One of the proposals at the moment is the introduction of a local sales tax, which the Institute for Fiscal Studies said would be a local tax on the poor. Under the proposal, some 12,000 households in my constituency that now receive council tax rebates would lose that support. Will the hon. Gentleman stand at the Dispatch Box and reject such proposals, which are being put forward by the Tory candidate in my constituency?

Mr. Hammond: I am somewhat surprised that the first intervention in this debate was about local sales tax. I was anticipating that it might have been otherwise. I will not rule out suggestions of a local sales tax any more than I suspect that the Minister will rule them out. Like us, he is awaiting the outcome of the balance of funding review, which I believe is having its last meeting today. We will see what the balance of funding review has to say about the various options that it has considered. When we have that information, we can have an informed debate in the House about the future of local
 
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government finance. I accept the point that the hon. Gentleman makes and his reservations about local sales tax. I could list a number of other reservations about the practicality of such a tax, but I think that it is important that we are prepared to look at the output of this very important review, in which Conservative local government players have been participating along with members of other parties.

The Minister for Local and Regional Government (Mr. Nick Raynsford): The balance of funding review will have further meetings, as well as the one that is taking place today. I also remind the hon. Gentleman that in last week's Opposition Day debate initiated by the Liberal Democrats, I made it clear that the proposal for a local sales tax met none of the objectives for fairness and effectiveness and was therefore, in our view, entirely inappropriate. I am surprised that he has not taken a similar view.

Mr. Hammond: The Minister seems to be prejudging the outcome of his own review, which is surprising. He says that further meetings will occur, but last week he indicated that he hopes to publish the results of the review before the House rises for the summer recess, and I hope that those meetings will not prevent him from doing so.

Over the past few weeks, the House has had several opportunities to debate local government finance. We have debated the capping regime, the budgets set by local authorities, the balance of funding review itself and alternative proposals for funding local government, including local income tax, which the Liberal Democrats favour and which would impose an extra £693 a year tax burden on the average, hard-working family.

In the frenzy to cap, review and replace council tax, it might be too easy to lose sight of the central point: council tax has gone through the roof under this Labour Government, and its level is leading to widespread discontent with the system. Under this Government, the average band D council tax has increased by 70 per cent. to a record £1,167 a year, which is nearly £100 a month out of taxed, take-home income.

Mr. Henry Bellingham (North-West Norfolk) (Con): Does my hon. Friend agree that the Government have adopted a relentless, systematic and cynical policy of moving money from the shire counties to the inner cities, which has left counties such as Norfolk and Suffolk in an impossible position? There is nothing inherently wrong with council tax; what is wrong is how the Government have behaved.

Mr. Hammond: My hon. Friend is right. Labour's operation of council tax has raised two problems: first, fiddled funding and, secondly, the imposition of unfunded cost burdens on local government. The Audit Commission acknowledges that the Government have been shifting funding away from the south-east to the north and the midlands.

Mr. Michael Jabez Foster (Hastings and Rye) (Lab) rose—

Mr. Andrew Miller (Ellesmere Port and Neston) (Lab) rose—

Mr. Hammond: I shall make some progress, and then I shall give way.
 
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Before we go any further on capping regimes or reviewing alternatives to council tax, we should examine more carefully the drivers behind soaring council tax. In most cases, those drivers are outside the control of local government, and many of them have got central Government's fingerprints all over them. The purpose of today's debate, which has been called in Opposition time, is to focus attention on the underlying cause of high council tax increases: the burdens imposed by central Government.

Mr. Miller: Just for clarity, is the hon. Gentleman actually saying to the people of Cheshire that my right hon. Friend the Minister for Local and Regional Government was wrong to shift the balance to correct the huge disadvantage introduced by the original formula?

Mr. Hammond: My hon. Friend the Member for North-West Norfolk (Mr. Bellingham) is absolutely right when he says that the changes in the funding formula have shifted funding from some authorities to others, which has driven council tax increases in those authorities that were losers in that process, and I shall return to that point.

Mr. Michael Jabez Foster: Will the hon. Gentleman give way?

Mr. Hammond: I shall give way in just a moment.

Honesty and transparency on the causes of soaring council tax and on the responsibility for the additional burdens now being borne by local council tax payers are essential if the elections on 10 June are to be an opportunity for the electorate to pass well informed judgment on local government up and down the country. Those elections are also an opportunity to send a message to this meddlesome, interfering, bureaucratic Government about the cost burdens that they are imposing on local councils, which local councils are forced to pass on to council tax payers.

When the Minister made his capping statement four weeks ago, he performed a ritual—although it was the first time that he has capped, I have seen the routine before. He built up a head of righteous indignation about proposed council tax increases, claiming that they are unjustified because

"the Government have provided all local authorities with above-inflation increases in general grant."—[Official Report, 29 April 2004; Vol. 420, c. 1019.]

Every year we hear that the settlement is generous and that above-inflation council tax rises will not be necessary, and every year average rises are three times the rate of inflation. The implication of the Minister's view, which is deeply resented by well-run local authorities of all persuasions, is that council tax increases are the result of incompetence, inefficiency or sheer bloody-mindedness.

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