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Mr. Philip Hammond (Runnymede and Weybridge) (Con): I thank the Minister for his statement and for letting me have a copy of it in advance, together with a copy of the report of the steering group.
I associate the Opposition with the Minister's thanks to the organisations outside Government that served on the steering group. It has been a valuable exercise in raising awareness of the issues involved in local government finance. I congratulate the ODPM Committee on the publication of its report, which usefully complements the work of the balance of funding steering group, although we do not necessarily support all its recommendations.
The only people who will not welcome analysis of the future options for local government financing and the assessment of the advantages and disadvantages of each are those who have already made up their mind in advance of hearing the arguments. Will the Minister confirm that the Liberal Democrat policy of replacing council tax with a local income tax is wholly discredited by the balance of funding review and by the Select Committee report? Does he agree that a local income tax would do nothing to address the balance of funding, would increase dependency on Whitehall handouts, and would hammer hard-working families with soaring tax bills?
The Minister made great play of his claim that the review is a report to Government, not a report by Government. In fact, the review steering group was chaired by the Minister, and two other Ministers and senior civil servants served on it. When he announced it in January last year, he billed it as his major review of local government funding. In his statement, however, he made it clear that the Government are not going to tell
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the public, this side of a general election, precisely what their plans are. They are not going to allow individual council tax payers to see precisely how much they will pay in increased local taxes as part of the raft of third-term tax rises that this Labour Government are planning. Instead, they are going to bury their plans in yet another inquiry that will report after the general election, leaving a double whammy in store for local tax-payers in 2007, with the already planned revaluation on top of these proposals. Many ordinary families whose only crime is to live in areas where house prices have risen rapidly over the past few years will be alarmed at the proposals for an increase to a 10-band council tax system.
Today, the Minister tried to distance himself from that aspect of the steering group's report, especially the input from the New Policy Institute. However, just a few weeks ago he told the ODPM Committee:
"You will be aware that we took a lot of detailed evidence, particularly from the New Policy Institute . . . I do not think it would break too many confidences and anticipate the conclusions of the review to say that we obviously looked with some interest at those."
In 2003, in the Standing Committee that considered the Local Government Bill, the Minister said that the Government would look favourably on increasing the number of bands in the council tax system.
It is clear to anyone who makes an objective reading of the review and of what the Minister has said on the record that the Government's preferred option is a retention of the existing council tax system, but with massive increases in the council tax payable for those living in higher-value properties, meaning that those who live in areas where house prices have risen most could find themselves paying three times as much as at present. That would punish ordinary families and pensioners on modest incomes who happen to have lived for a long time in a home that is now worth far more than one that they could afford to buy. The true reason for the Government's interest in an increased number of bands and a higher multiple of band D being payable in the higher bands is simply the Treasury's desire to tax the unrealised, illiquid, notional wealth represented by rising housing values—a sort of crude wealth tax by stealth.
As if that is not bad enough, the review calls for further work on a supplementary income tax that would be levied in addition to, not instead of, the council tax. Is not that supplementary income tax a back-door way around the Prime Minister's pledge not to increase income tax at all?
Will the Minister answer a couple of specific questions? If the balance of funding needs to be adjusted in the interests of local accountability, does the Minister accept that there is also a case for allowing greater local discretion over the balance of spending, with more priorities being set locally and fewer set nationally? If so, can he, in the light of last week's statement by the Secretary of State for Education and Skills, clarify the Government's intentions on funding education and confirm their commitment to reducing the levels of ring-fencing from the record highs that they have reached under this Government?
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We welcome the Government's recognition of the burden that their council tax increases place on those on lower incomes. Does the Minister recall, however, that before the 1997 general election the Chancellor announced the end of means-testing for elderly people? Will not his proposals for mitigating the impact of his council tax increases on pensioners result in an increase in the means-testing of those pensioners?
Turning to business rates, will the Minister confirm that for as long as equalisation remains in its present form, neither repatriating local business rates to local councils nor retaining a national system with a higher cap on the annual increases will redress the balance of funding issue? All it will do is deliver more revenue to the Treasury. Will he give the House an undertaking that if the Government opt for the route of repatriating business rates, they will recognise the fact that businesses have no democratic input into the local authorities that tax them and must therefore be protected from discriminatory and unfair differential taxation, in the interests of equity and of maintaining the competitiveness of British business?
The original motivation for embarking on this balance of funding review was stated to be a desire to improve local government accountability through achieving a better balance between locally raised and centrally raised taxes. Since then, however, the Government have panicked in the face of growing public outrage at the level of council tax—up 70 per cent. since 1997, with the comprehensive spending review projecting a further 20 per cent. increase over the next three years.
It is not the system of council tax that is the problem; it is Labour's fiddled funding and the bureaucratic burdens imposed on local government, forcing it to unacceptable levels. With the average band D council tax now costing almost £100 a month, and many people on low incomes finding that council tax is the single largest outgoing in their monthly budget, it is no wonder that the pressure is on. The real solution, however, is to reduce the burdens on local government and to adopt fairer funding formulas that will reduce the very high gearing levels experienced by many local authorities.
Because of the huge increases in council tax, running at three times the rate of inflation year after year under Labour's fat Government, no change is not an option. But neither is ignoring the underlying problem. Before operating on the patient, we need to diagnose the real underlying sickness: excessive burdens imposed on local government by Whitehall, with a constant torrent of red tape and regulations spewing out of the over-mighty, interfering ODPM, and a fiddled grant settlement. Only when the underlying disease is tackled will the various options for the reform of local government finance be able to deliver the desired result. In the meantime, hard-working families and pensioners across England face the prospect of yet higher bills from 2007, as a result of revaluation and rebanding. That will be the Minister's Department's contribution to Labour's third-term tax rises.
Mr. Raynsford:
The hon. Gentleman made a good start, but the longer he went on, the more he lost the argument and the House. I appreciate his comments about the review being a valuable exercise in raising awareness, however, and I join him in welcoming the Select Committee's report.
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The hon. Gentleman asked about the Liberal Democrat policy of replacing council tax with a local income tax, and I can confirm that the review reached the clear conclusion that that would not be the right way forward. We foresaw that huge administrative, technical and distributional difficulties would be associated with the introduction of a local income tax; they are spelled out in considerable detail in the report. Only the hopelessly naive or over-optimistic could believe that this is a simple exercise. It is not.
The hon. Gentleman queried the fact that this was a report to Government rather than by Government, making the point that I had chaired the review and that two Ministers had served on it. However, he failed to recognise the fact that three councillors from other parties, including one Conservative councillor, served on the review, plus a large number of people with no political affiliation and entirely independent credentials. It was a large, inclusive body, and most people—including representatives of the hon. Gentleman's party—congratulated us on the inclusive way in which we had conducted the review. It was all-encompassing and, therefore, a review to Government.
The bulk of the hon. Gentleman's speech was based on Conservative scaremongering, about which we have heard a certain amount over the last couple of days. I detected a degree of frustration on his part that both the statement and the balance of funding review have clearly shot the Conservatives' fox. Far from being a report that spells out an arrangement that will lead, in their words, to massive increases in council tax, it makes it quite clear that
"the aim should be to avoid significant changes to the overall liabilities of taxpayers."
Retention, with reform, of council tax is our policy. A massive increase in council tax is pure Opposition scaremongering, and is wholly unfounded.
The hon. Gentleman asked about the case for greater flexibility for local authorities, and I wholly endorse that. That is why we have introduced the prudential borrowing regime this year, which gives local authorities the freedom to borrow on their own discretion, dismantling the highly centralist and restrictive borrowing controls that his party introduced when it was in government. He also asked about business rates. The report sets out the arguments about relocalisation—and the business community's concerns about that—fairly and objectively, and presents a series of options that will have at their heart the need to reassure businesses that they can contribute to local services, which they recognise the need to do, without being vulnerable to unreasonable and excessive demands.
The hon. Gentleman spoke at considerable length about the claimed additional tax burden. I would simply refer him to table B.12 of the balance of funding review, which shows that, in real terms, the average local tax per dwelling in 2004–05 remains below the level that applied in 1990–91, when his party was in government and had just visited the disaster of the poll tax on the country. We are not going to make the same mistake.
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