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Westminster Hall

Tuesday 26 October 2004

[Mr. Jonathan Sayeed in the Chair]

Council Tax Revaluation

Motion made, and Question proposed, That the sitting be now adjourned.—[Phil Hope.]

9.30 am

Mr. Steve Webb (Northavon) (LD): Normally, when I stand up in the House I talk about pensions and pensioners. Although the subject today is council tax revaluation, it will be of particular interest to pensioners across the land who are suffering from a tax that has little or no relation to their ability to pay and has become increasingly onerous in recent years. While the subject of my debate is not the reform and replacement of the council tax, it is important to set the context. Although I will focus on the impact of council tax revaluation, my preferred solution is that we do not go through the whole palaver of spending £200 million revaluing houses, but move directly to a fair tax. That is obviously what I hope will happen.

In the unlikely event that that does not happen, it is worth reflecting on the possible alternative, which is the revaluation of council taxes. In many ways, the planned revaluation shows why the council tax is unfair. Under government policies, that will happen every 10 years, indefinitely. We will have a taste of it in a few years time. Then it will keep happening. Many of the problems that I describe in this short debate will be recurrent features of the system. My central point is that the impact of council tax revaluation will be capricious and arbitrary. It will create gainers and losers. Many of the losers will not be well placed to pay what in some cases will be substantially increased bills. I am not trying to run a scare story or saying that everyone will pay more. Revaluation will create gainers and losers.

Mr. Philip Hammond (Runnymede and Weybridge) (Con): Will the hon. Gentleman give way?

Mr. Webb : On the subject of scare stories, I willingly give way.

Mr. Hammond : On the subject of gainers and losers, will he confirm that a local income tax would also produce gainers and losers?

Mr. Webb : It certainly would. I understand that 70 per cent of people would either be unaffected or would gain from a local income tax. The vast majority of pensioners, to return to my initial comments, would gain substantially from the change.

David Taylor (North-West Leicestershire) (Lab/Co-op): There will be gainers and losers on revaluation, but does the hon. Gentleman accept that some of the gainers will be those who lost last time and some of the losers
 
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will be those who gained last time and so it is at least conceivable that the revised valuation framework will be fairer than the current system?

Mr. Webb : In a sense, my central point is that the pattern of gains and losses will be quite arbitrary. I started my research for this debate with certain assumptions about clear-cut patterns of gains and losses. The more I have looked at it, the more I have realised that in one street there will be a gain and in another there will be a loss. There will be well-off people gaining and there will be poor people losing; it will be all over the place. In my judgment, only moving to a system based on ability to pay will ensure that the gainers are those who can least afford to pay council tax and the losers are those who can most afford to do so.

Mr. Edward Davey (Kingston and Surbiton) (LD): Does my hon. Friend accept that because the Government have been so dilatory in giving even a sense of direction on where they are going on council tax reform, we cannot begin to guess who the losers and gainers will be? All that we know is that there will be a lot of losers.

Mr. Webb : I certainly will not let that stop me trying. My hon. Friend is absolutely right. People do not know what sort of local tax system they will get. At the general election, both the Labour party and the Conservative party will stand on a policy of, "We do not know yet what sort of local tax system we want". Only one party will say what it does want to see happen. But, Mr. Sayeed, you would not want me to be diverted down that track. Let us focus on the revaluation.

The council tax was introduced in 1993 by the Conservatives after a previous failed local tax system. They were trying to get out of a local taxation mess. The system was based on 1991 property values. There was no initial provision for a revaluation when the council tax was introduced, but the Local Government Act 2003 provided for a rolling 10-year cycle of revaluation. The revaluation is now being prepared and is expected to be implemented in 2007. That is my understanding. What will the effect be? As they say, we do not need a crystal ball when we can read the book, and we can see what has happened in Wales—just a few miles away over the Severn bridge—where revaluation has already taken place.

The Welsh experience raises several interesting points, which might be informative for our discussion. First, when Welsh properties were revalued, the value of bands was increased too—not only did people move up bands because of general inflation but the value of bands increased. However, that increase was not uniform, and I shall return to that, because I had assumed—as I said, I came to the issue relatively fresh—that every band threshold would go up by the average increase in Welsh house prices. That is not what happened, however, and it is interesting to reflect on why it did not happen.

The Welsh have introduced a band I—or a band Dai, as I think they call it in Wales—at the top. Although it affects only a very small number of properties, it obviously makes the tax system slightly more progressive. The Welsh Assembly also considered changing the relative fraction of the band D council tax
 
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charge in each of the bands, but on reflection decided not to do so. So, the band structure remains essentially the same, although there is one extra band at the top, which affects a very small number of properties, and there are the same relativities between the bands. However, there is a differential increment in the band thresholds, which is quite a good thing, for reasons that I shall explain.

As is well known, the overall effect of the revaluation is that approximately a third of Welsh households will be placed in a higher council tax band—just 8 per cent. will be in a lower band. Of the 33 per cent. of Welsh households that will be placed in a higher band, 28 per cent.—or 28 33rds, as it were—will go up one band, 4 per cent. will go up two bands and approaching 1 per cent. will go up three or more bands, which is an incredible change in underlying liability. I shall come to some of the transitional measures in a moment, but those are the underlying changes.

Obviously, a lot depends on what happens to the band D rate. It is not obvious in itself that someone would pay more just because they moved up a band, although the chances are that they would pay substantially more. Someone who moved from band D to band E would pay an extra 22 per cent. of any given level of band D tax. Someone who moved from band D to band F, or an equivalent number of bands, as 4 per cent. of people would do, would pay 44 per cent. more council tax. That might be slightly offset by a reduced band D level, although we do not know that for sure yet. However, anyone who moved up two bands would be substantially hit, and that, of course, is before any increase in the council tax that a local authority might want to levy.

Valerie Davey (Bristol, West) (Lab): The hon. Gentleman said that he would not put out a scare story and that he would soon come to the transitional arrangements. Surely, those arrangements are crucial to the Welsh system and the system proposed by the Government, because nobody will be jumping three bands in the way that he suggests.

Mr. Webb : What is rather interesting about the transitional arrangements proposed by the Welsh Assembly is that someone could go up a whole band in a single year, which, if they moved from band D to band E, would mean a council tax increase of 22 per cent. Even if the band D rate fell by a few per cent. to offset the general drift upwards in bands, people could still face massive council tax rises in a single year. The 28 33rds, or slightly more than four fifths, of people who went into a higher band would therefore receive no benefit from transitional protection because they could go up a whole band in a single year. In other words, the vast majority of people who went up bands would have no benefit from transitional protection. Those who went up two bands would have only one year of transitional protection, because they could go up two bands in two years under the Welsh Assembly's transitional arrangements. That leaves only 0.7 per cent. of Welsh households benefiting for more than two years under the transitional arrangements. Someone whose council tax rose by 44 per cent. in two years would not take much comfort from the hon. Lady's intervention.
 
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The impact on different sorts of household would be capricious and rather arbitrary. Those who were just inside a band after revaluation would probably gain. If an across-the-board valuation of bands was slightly more than the general increase in prices, the band D rate might go down. So, those who stayed in a band might pay less, while those who went £1 over a band might pay 20 per cent. more. A house price increase of £1 or £2 either way could result in a difference in council tax of as much as 20 per cent. Where is the logic in that? Where is the fairness? Cliff edges of that sort will become more acute as a result of revaluation. That would not happen with local income tax, which is a continuous method of taxation; marginal changes would have a marginal impact. There would be no cliff edges as there are with council tax.

The second capricious and arbitrary feature of the revaluation would be that people in the bottom band could not move down. Unless the Government subdivide the bottom band, and even if there was an across-the-board indexation, only by reducing the band D rate would those in the bottom band see any benefit from the process. People already in the top band could not go any higher—unless the Government introduced yet more bands at the top. Rather perversely, the reform would result in gains in some rather odd places—for instance, among those whose houses had stayed within a band even if the band thresholds had moved significantly—whereas some of the poorest households would gain very little. Looking at the Welsh example, the distribution impact of the changes is far from obvious.

I return to the point on damping raised by the hon. Member for Bristol, West (Valerie Davey). As I said, even under the transitional arrangements, some people will see their council tax increase by two bands in two years. That is a huge hike in liability, but with no change in people's ability to pay. In fact it could be worse than that. Someone who bought a house in 1991 while in employment, who was still living there after retirement in 2005, and therefore after the revaluation, could find that his ability to pay was substantially less, but that his council tax liability had increased dramatically. Again, the impact of the revaluation will have precious little to do with people's ability to pay.

If one looks beyond the aggregates, one can see huge variations in the impact of the tax among local authorities in Wales. In Cardiff, 64 per cent. of residents have seen their properties rise by one or more band; and 14 per cent. of that 64 per cent. have gone up two bands or more. One Cardiff householder in seven will have gone up by two bands or more over the next two years. They will see a rise of perhaps 30 per cent. or 40 per cent. in council tax for no improvement in services—and, critically, no change in their ability to pay. In Blaenau Gwent, however, only 7 per cent. of households have gone up, and 18 per cent. have gone down. The changes have different implications in different parts of Wales, with some people seeing a huge change in liability over a short period. What sort of tax is it that can swing massively from one year to another, but has no relation to the ability to pay?

David Taylor : Does the hon. Gentleman accept the basic assumption that the aggregate income from council tax will not necessarily rise, and therefore that
 
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those who move up one band—as he said, as many as a quarter of people will do so—will not necessarily be paying more council tax as a result of the revaluation? The charge per band could decline; it could go in the reverse direction.

Mr. Webb : I have already said that if the general tendency is to move into higher bands, there would be an offset if the band D rate were to come down. However, the beneficiaries will primarily be those who stay in the same band. If people who stay in the same band—the majority—are better off, somebody else will be worse off. The only people left are those whose council tax has gone up. It must be so.

I did not claim that those who moved from band D to band E would go up the full 22 per cent. I was explicit; I said that there might be some offset from the lower band D rate, but that it would not be a total offset. It cannot be a total offset, or those who stay within bands could not benefit; but they will benefit if the band D rate goes down. We do not know. For example, those who move up two bands—as have one in seven Cardiff households—could suffer an underlying 44 per cent. increase. I cannot believe that the band D reduction is going to be a fraction of that, and such people could still be 30 per cent. or 40 per cent. worse off over two years. That is capricious and unfair.

Mr. Hammond : Will the hon. Gentleman give way?

Mr. Webb : Perhaps I could make some progress. I will give way later if the hon. Gentleman still wants to intervene.

We have huge variations between areas; some people are facing very large losses. What does the Welsh experience tell us about what might happen in England? The Government obviously have not told us. They have not yet decided whether to have more bands, or whether the relativities—the ninths—or the thresholds are likely to change. One of the purposes of today's debate is to highlight what might happen, and to ask the Minister to give us some assurances about the Government's thinking on the issue. How does he plan to counteract some of the capricious and arbitrary effects of revaluation? I hope that he will respond in the right spirit.

In England, in principle, the same sort of phenomenon could take place. However, if there were to be a national revaluation of English house prices, there would be huge regional variations. For example, going by the Nationwide building society's house price index, house prices in greater London have trebled since 1991—there has been an increase of 205 per cent. The next fastest rising prices have been in the south-west, where they have risen by 193 per cent. Those regions are at the top of the table. As a south-west MP, I would point out that, of all regions outside greater London, the south-west is likely to be the one most affected by the changes. By contrast, in that period, prices rose by 141 per cent. in the north and 150 per cent. in the north-west.

If we were to continue with the present England-wide standard set of council tax bands, there would be a huge redistribution from the south to the north. If the Government were to say—perhaps the Minister will tell
 
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us that they will not—to southern authorities, "You have lots more people in bands E and F, so you can raise a lot more money. Therefore we, the Government, do not need to give you so much grant and, because the northern authorities have many more houses in bands A and B, the Government need to give them more money," there could be redistribution. The New Policy Institute is quoted on the Department's website as having estimated that there could be a £400 million deviation of resources from the south to the north of England if there were to be a straight revaluation. I am interested to note that it says,

"In our view, these simple points about the detailed pattern of winner and losers mean that basic revaluation—"

which is what I have just described—

"is impossible to defend."

I hope that the Minister will reassure us that if he must go ahead and waste £200 million on the exercise, it will not be just a straightforward national revaluation.

Valerie Davey : Will the hon. Gentleman give way?

Mr. Webb : Again, I should like to make some progress. I have already given way to the hon. Lady.

It is worth reflecting a little on the New Policy Institute's detailed analysis— published on the Department's website—of how revaluation might be approached. It asks three questions: first, whether it would be right to have across-the-board revaluation; secondly, whether there should be new bands or different ratios between the bands; and thirdly, whether there should be regional variation. One of its reasons for thinking that across-the-board, England-wide standard revaluation would not be appropriate is that, on that basis, 75 per cent. of houses in the north-west but only 6 per cent. of houses in London would be in band A or B post-revaluation. That would create an extraordinarily skewed system. The paradox, it observes, is that under such a regime, band A houses in the north would not share in the gain and band G and H houses in the south would not share in the pain. It is not simply the case that, under revaluation, rich people in big houses pay lots more; there are all sorts of perverse, unexpected and undesirable outcomes. That is another reason why the revaluation is likely to be fraught with problems.

As my hon. Friend the Member for Kingston and Surbiton (Mr. Davey) has pointed out, the New Policy Institute says that under national uprating the council tax on a typical band C property in London would rise by 15 per cent. Why should one category be singled out for double-digit increases? The implications are perverse.

I said at the start that I intended to reflect on the issue of band A properties. If there are to be gains from the change, one would want them to be for people who live in small houses on relatively modest incomes. However, there is a danger that that will not happen. If the Government simply uprate all thresholds in line with the average increase in house prices, the average band D rate, broadly speaking, will not need to change. However, if the band D rate does not change, people at the bottom of the pile in band A will not benefit. Even if the value of their houses has risen much more slowly than anybody else's and they have fallen further behind other people, the tax that is supposedly to do with house
 
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values will not benefit them. They will benefit only if the bottom band is indexed by less than the increase in house prices. That is what has happened in Wales, and it would be a desirable change. Many of the properties in band A will be quite modest, so one would think that this group had quite a strong case for gaining.

The New Policy Institute also observes that the revaluation, which includes reconsidering bands, relativities and thresholds, provides an opportunity for radical council tax reform. Without it, any prospect of the so-called new localism or of local authorities seriously being able to raise more of their own money is simply unlikely, because the council tax would be such an unfair tax that the additional burden would not be acceptable to local people.

I have talked generally about the impact of the changes on England as a whole, but there will also be big differences between regions, as I mentioned. The New Policy Institute points out that the south-west is already particularly hard hit by the council tax. On page 11 of its document, it says:

"At present, the ratio of council tax to income in the South West is about 10 per cent. higher than the national average across almost all bands."

The south-west is therefore suffering from high house prices relative to a fairly low-wage economy, so there is a disproportionate ratio between the two. It is already being hard hit by the council tax, and revaluation would hit it still further, because outside Greater London it has seen the fastest rise in house prices.

Something that struck me while I was doing research for this debate is that generalities are quite difficult to make, because the impact of the revaluation will be very localised. I shall give a couple of examples. The west of England—Avon no longer exists as a unitary authority, but we still need a name for the group of four local authorities—has produced a document on its housing situation, the "West of England Sub-regional Housing Study", which says:

"The most evident feature of the housing market in the West of England has been the phenomenal rise in house prices over the last 8 years".

Again, the people whom I represent could suffer particularly badly because of that rapid rise in house prices. Focusing even more narrowly on my local authority, South Gloucestershire council's own strategy document says that the market really took off between 1999 and 2003, with prices rising 87 per cent. in only four years.

Certain parts of the country, particularly sub-regions and local authority areas, have real housing hotspots that could lose out very badly from this revaluation if it is not done properly. There is no silver bullet or complete fix for these problems; they are inherent in the unfair tax.

I fear that the impact will be even more localised than I have already described. It is very hard to work out from land registry data and websites for house prices what has been happening to house prices in a very localised postcode sector, because only a handful of properties of a particular type might be bought or sold there, and it is very hard to get reliable estimates. I rang my local estate agent and asked him what had happened
 
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to particular properties in Thornbury, a market town in my constituency. He considered what had happened to the price of three sorts of properties—former council properties, three-bedroom semi-detached properties, and larger four-bedroom properties—which has been the relevant consideration for council tax purposes in the past decade. His business did not exist in 1991, but he considered prices from 1993.

The estate agent found a huge variation. The price of ex-council properties had risen by 221 per cent., the price of three-bedroom semi-detached properties had risen by 186 per cent., and the price of four-bedroom properties had risen by 155 per cent. Even in sub-regional bands, the impact of the revaluation on different houses in the same street will be very different. Indeed, it will be arbitrary and capricious.

The estate agent pointed out an even more peculiar feature. Four-bedroom properties are now priced at about £250,000. Members will know that £250,000 marks one of those ludicrous stamp duty jumps. No one buys a house for £251,000, £252,000 or £253,000, because the stamp duty is suddenly hiked up, but the council tax revaluation for that property will be less severe because of the arbitrary impact of another dodgy, structured Government tax, which means that the impact of council tax reform on the owner of that property is different from the impact on the owner of another property. Once again, we have an extraordinary situation in which different people, who might be next-door neighbours living in different sorts of houses but who use the same local services and have the same ability to pay, will face substantially different increases in council tax.

The Government might say that they will ease the pain by putting in place transitional arrangements, to which the hon. Member for Bristol, West, who is no longer in her seat, referred. However, any further transitional arrangements, such as damping, will make what is already a complicated system even more complex.

What about council tax benefit? For those entitled to it, it could dampen down the impact of any increase in council tax, but a great deal would depend on take-up, and we know that barely 50 per cent. of owner-occupiers take up their council tax benefit entitlement. The Government have floated stories in the press about making council tax benefit entitlement automatic. Well, whoopee! If that were possible, wonderful, but why has it not been automatic for the past seven years or, indeed, for the past 15 years since it was introduced with council tax? We would all welcome greater take-up of the benefit, but we have yet to see any concrete proposals for how it might be done.

One way for it to be done is to say that the amount of council tax benefit to which someone is entitled is broadly independent of where they live and their council tax. Council tax benefit is the difference between someone's income and their needs as assessed by family composition. Council tax does not enter the calculation. Somebody on a particular income with a particular household composition might be required to pay only £5 towards their council tax, whether it is £10 or £20. There is the potential for a national assessment of council tax benefit entitlement—if we are to continue with the system—which would not need to be local authority or property specific, but would work out how much people
 
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were expected to pay towards their council tax. That would not solve the take-up problem, but it might enable the benefit to be dealt with more effectively.

The New Policy Institute suggests relaxing the capital limits. That would not deal with the take-up problem, but it would mean that more people with modest savings could be cushioned from the impact. That would be a relatively cheap way of trying to deal with the problem.

In 1991 we had what was euphemistically known as second-gear valuation, in which the valuers never got out of their cars, but just drove down a road slowly and decided the valuations. This time, however, details of people's home extensions will be used— for example whether they have added an extra bedroom. Therefore, the revaluation will be a home improvement tax. [Interruption.] The Minister says, if I can lip-read correctly, that that is absolute rubbish. If he wants to intervene and correct what I have said, I am happy to give way. If people have extended their home and thereby increased its value, they will potentially be pushed up into a new council tax band. We want people to make better use of the land that they have—as long as it is acceptable to the local planning authority—rather than use up more land in greenfield sites, so taxing people for improving their homes seems odd. I have given the Minister the opportunity to correct that if it is factually wrong, but he has declined to do so.

We have a fundamentally flawed system, the failures, inequities and arbitrary nature of which will be highlighted over the next few years by the revaluation process. There will be gainers and losers. Some of them will be unexpected people in unexpected places—it will not be correlated with ability to pay. Some people in small houses will not benefit at all, whereas some people in large houses will do well out of the change, provided that they stay within the same band. There will be all sorts of odd effects. Until we have a local tax system that reflects people's ability to pay, any revaluation will be unfair, arbitrary and capricious. This revaluation will cost £200 million to be arbitrary, unfair and capricious. I can think of better ways of spending that money.

9.58 am

Jane Griffiths (Reading, East) (Lab): I am pleased to have a chance to take part in this important debate, and I congratulate the hon. Member for Northavon (Mr. Webb) on securing it. In 2007, there will be a revaluation for council tax purposes based on the values of properties in 2005. Having spoken to the local valuation office in my constituency, I know that it is already preparing for that. However, I shall not speak about whether there should be more bands for council tax, or about how bands should be changed to reflect the change in property prices. I want to mention experiences from my constituency of the last valuation, and the problems that I hope can be prevented in the up-coming revaluation.

The poll tax was one of the most important pieces of legislation of the last 20 years in terms of its impact on the political scene. It arguably brought about the demise of the then Prime Minister and even led to rioting in Maidenhead. It still haunts us in the form of its hastily introduced successor—the council tax. I was a councillor when council tax was introduced and I remember the stories of estate agents sitting in their cars
 
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dictating the value of houses from the outside. Those stories became the stuff of legend, although naturally my local valuation office says that valuations were not done in that way. A number of my council colleagues at the time ran campaigns to inform people that they had an opportunity to appeal against the valuations of their houses. As a result, many successful appeals took place and people had the valuation of their homes reduced. That pleased them, as their bills were also reduced. The council did not lose out, because the council tax base was reduced, which meant that the council received a higher revenue support grant. Once the valuation of a large majority of houses in an area with similar properties had been reduced, the same councillors campaigned to have the whole area revalued, pleasing even more people. They were happy constituents—something that we politicians like.

It can be difficult to identify what value a property should have, especially when there are a number of similar properties in an area and they are close to the boundary between tax valuation bands. That is what allowed my former colleagues to have such success in their campaigns for rebanding. The problem is still with us. The valuation office tells me that there is an area in my constituency where the houses are on the border between bands C and D. They are on an estate built in the 1960s and 1970s from only eight designs. When those homes were valued, most were put in band D, but over time people have appealed and have mainly been successful. Of course, there are rumours around the estate about who has had a revaluation. There are also tales of people who have contacted the council but have not got anywhere. One story was of someone who lived in a house in band D and found out that their sister-in-law, who lived in a house of the same design elsewhere on the estate, was in band C.

After his election in June, Councillor Mark Ralph, who lived locally and had heard about this matter, started asking questions. As a result, the valuation office has started looking again at the valuations across the estate. It is estimated that between 300 and 450 houses on the estate will be reviewed and are likely to be revalued from band D to band C. For the householders, that is a good outcome: they will each receive approximately £1,100. There will be more happy constituents, but the situation is not so good for the council, as it will receive a bill for between £330,000 and £495,000—a bill that it had not expected or budgeted for. If the council has to pay the bill out of council tax, it will cost each band D council tax payer between £6 and £9. At the same time, the council tax base is not as high as had been thought, and the council has not been receiving the revenue support grant that it should have had. That is a double whammy for Reading borough council: it has to make a payment that it has not budgeted for, and it has not received the support that it should have done.

I ask my hon. Friend the Minister to look into the matter and see whether there is some way in which Reading borough council can be reimbursed, just as the householders have been and are being. Despite having received up to £1,100, however, the householders have not had the use of that money for up to 11 years, and they have asked for interest. With non-domestic rates, interest is payable either way. If people withhold payment, they have to pay interest. If the council has
 
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money that it should not have—if, for example, someone has paid more than they should—the council has to pay the person interest. However, the situation is not the same for council tax; the council has no duty to pay interest. The householders applied to the council for interest payments, but it did not pay them, as it had no duty to do so.

The valuation office has now agreed that as it made the mistake, it will pay interest, but it will do so only on application. When the office makes a revaluation, it automatically informs the council and people automatically receive a rebate, but there is no system the other way. When the council has made a payment to someone, it should inform the householder that they have the right to request the payment of interest from the valuation office, or the council could inform the valuation office that it has made a payment, so that the valuation office can pay the interest.

In concluding, I ask my hon. Friend the Minister for three things. First, in the information given to valuation offices, can more thought be given to properties on the boundaries of valuation bands, to try to prevent the situation that I have described from happening again. Secondly, will he look favourably on Reading borough council when determining its grant levels in the coming months, so that the people of Reading, East do not have to pay for the mistakes of the valuation office? Will there be some recognition in allowances of the large numbers of payments that the council has had to make for the changes in valuations, and will there be recognition of the revenue support grant forgone in past years? Thirdly, will my hon. Friend consider requesting that councils and valuation offices set up some form of system automatically to pay interest outstanding, so that people do not miss out on it?

I am pleased to take part in this fascinating debate and to raise the experience of the previous revaluation. I hope that we are able to learn from it, and that no other councils experience what Reading experienced last time.

Several hon. Members rose—

Mr. Jonathan Sayeed (in the Chair): Order. Before I call the next speaker, I should say that I expect to start the winding-up speeches before or by 10.30.

10.5 am

Mr. Roger Williams (Brecon and Radnorshire) (LD): I congratulate my hon. Friend the Member for Northavon (Mr. Webb) on securing this debate and on his critique of the revaluation that has occurred in Wales, because it has saved me a lot of time and research.

I want to raise one issue related to the devolution settlement, which may provide a lesson to be learned when the exercise is undertaken in England. The devolution settlement has become a complex animal. We were always told that it would be a process rather than an event, but we did not understand that the process would have so many incremental stages. It is difficult to follow all the bits of legislation through the maze.
 
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I am concerned about the council tax band valuation on park homes. People who live in park homes tend to be on low and fixed incomes, and any increases in their costs, whether they are in energy bills or council tax payments, are hard on them. The Caerwnon park residents association, which I met over the weekend, told me that a survey of its residents showed that 90 per cent. of them were either old-age pensioners or disabled people living on fixed and often low incomes.

The association, due to good leadership, has been successful in appealing against the valuations under the old system, and it has been able to push all the properties into band A. That was done using the valuation of both the pitch and the park home. Since then, the association has noticed a written answer to a question from the hon. Member for South Dorset (Jim Knight), which asked

"the Deputy Prime Minister if he will review the way in which the Valuation Office Agency assesses mobile homes for council tax purposes."

The answer from the Minister for Local and Regional Government was:

"Mobile homes are not in themselves subject to council tax, but liability may arise in respect of the land on which the mobile home stands. Most mobile homes pitches which are subject to council tax are rated at band A."—[Official Report, 20 May 2004; Vol. 421, c. 114W.]

I am not sure whether that is fully understood in England, but it is certainly not in Wales. I am still in the process of finding out whether, when the relevant powers were transferred to Wales, the Assembly took the opportunity of changing the regulations. If it did, it did no favours for people living in park home estates, who as I have said are often on limited incomes.

I am in the process of establishing whether the regulations in Wales are the same as those in England. Although I am a passionate believer in devolution, I do not believe that having different regulations for such a situation is of any benefit. It is essential that, in the English revaluations, the valuation officers have some clarity of purpose. In Wales, for instance, a number of the park homes have moved up from band A to band C, and I doubt whether that is on the basis of an increase in the valuation of the pitch. It is important that, when the English revaluation takes place, there is clarity and the valuation officers use the valuation of just the pitch rather than both the pitch and park home that sits on it. Apparently, the same regulation applies to boats and moorings. Clarity about the matter would go a long way towards helping the process in England, and I would like to hear the Minister's response.

10.10 am

Mr. Edward Davey (Kingston and Surbiton) (LD): It is a real delight to take part in this debate. I congratulate my hon. Friend the Member for Northavon (Mr. Webb) not only on securing the debate but on a fabulous speech. He showed the danger that lies behind this exercise, which has not been well thought through. If it has been well thought through, the Government have not shared their ideas with the House. My hon. Friend did a great service to the Chamber, going through the issue in a reasonable and objective way and showing what the problems were. I hope that the Minister will make his answer in a reasonable way, too. I also hope that I and the hon. Member for Runnymede and Weybridge (Mr. Hammond) will give the Minister
 
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plenty of time to answer, because the big problem is that so far the Government have not come clean on anything to do with the issue.

Ministers will say that they set up the balance of funding review. They did indeed. It sat for nearly 18 months and was published last summer. The Government's decision was to put it at arm's length, and to say that it was an interesting review and they were going to ask someone to review the review and report in December 2005.

It is interesting to read the chapter on council tax reform in the balance of funding review. It is a detailed chapter, drawing on some interesting research, which I will refer to later. The last section of the chapter says:

"In short, much further detailed work is required on how council tax might be reformed, based on a clear vision of the direction of travel. It must now be for the Government to decide that direction of travel."

We have been waiting for that direction of travel, and have received no indications.

It is clear what the options are if the Government are going to be unwise enough to stick with council tax. As my hon. Friend the Member for Northavon said, they could add one or more extra bands at the bottom and top—or more than one band at the top, as some have speculated.

They could change the banding system to some regional approach, to try to deal with the different rises in property prices in different parts of the country, although that could be potentially arbitrary and capricious as it would involve picking one particular date, and we all know that house prices and differentials are changing all the time. The Government could go down that road, but they know the disadvantages.

They could deal with the different multipliers and the ratios between the different bands, setting the band limits in different ways. At the moment, council tax bands have a one to three relationship, while an estimate of the difference between property prices across the country gives a one to 20 relationship, on average. That shows that the bands and the multipliers that relate them to each other are a potential source for change.

There are three areas of change within the council tax system, and the Government have not told us which they favour. They have not told us which they are working on, although it is an open secret in Whitehall that the Treasury and the Office of the Deputy Prime Minister have been doing huge amounts of work on the matter. However, we have received no answer and no definitive statement.

My hon. Friend the Member for Northavon said that we could consider what was happening in Wales, and he was right to do so. He showed how more than a third of households in Wales would be going up one or more bands, with 5 per cent. of households going up two or more bands, which could be problematic for a number of people. Unfortunately, the Government say that we cannot look at Wales. The Minister for Local and Regional Government told us:

"What happened in Wales is not a precedent or an indication of what will happen in England".

There we have it: we cannot consider Wales, as it is completely different. How it is different, he did not say. Neither did he say what the Government were going to
 
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do differently. No comment on what the Welsh have done and how badly they have handled it has been forthcoming from the Government.

Once again, we do not know the direction in which the Government will take us. That shows dishonesty on the part of the Govt. We almost certainly face a general election in the next six or seven months, and the Government still have not told us what they are going to do, despite having done all this research, had a review for 18 months, seen what is happening in Wales, had the ODPM and the Treasury considering the matter in great detail and being faced with only three basic options. What are voters expected to make of that indecision and dissembling?

The Government are behaving outrageously. They cannot simply say, "Well, the Tories haven't told us their proposals." We know that the Tories are pretty bad—they messed up the system twice in one political generation, which takes some doing for any political party—but the Government cannot get away with blaming them. The Government are in power, and they should give some indication of their plans. At the moment, we have the bizarre spectacle of their preparing for the general election with no policy proposals, and saying to the electorate, "Well, we don't know. It's going to change, because we've legislated for it to change. Under the Local Government Act 2003, it must change on 1 April 2007, but we don't know how. We can't give you any indication." So, we have two "don't know" parties; two dithering parties that will not come clean with the electorate. That is outrageous, particularly when, if the Welsh experience is anything to go by, a third of taxpayers will lose out. That is one of the approaches that undermine people's faith in politics. It is very serious.

What evidence or studies have been forthcoming to show the potential effects? My hon. Friend the Member for Northavon talked about the work of the New Policy Institute, which is on the ODPM website. It is interesting that some of the comments put forward by the institute show that it was not sure what the Government were on about either. The second paper that the NPI put forward to the balance of funding review starts off by saying:

"In formulating our response, we have become aware that we are not clear how far the BoF"—

balance of funding—

"review is trying to go."

I do not think that the Government know either; we are none the wiser.

The institute made a fair attempt at analysing the different options. It considered reforms such as adding bands at the bottom and top, changing the multipliers, and regionalisation. What is particularly interesting to me, as the Member of Parliament for a London constituency, is the likely impact of some of those potential changes—not changes that have been made but those identified in the scenarios in the appendix of the NPI study, which was commissioned by the Government.

In scenario 1A—the basic revaluation, from which my hon. Friend the Member for Northavon quoted—the average bill for those in inner London now on band C would go up by 15 per cent. In scenario 1B—the basic revaluation with lower band limits—the average bill for
 
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those in inner London on band C would go up by 19 per cent., whereas for those in band H it would go down by 4 per cent. There is a progressive change, with low and middle-income Londoners bearing the brunt.

In scenario 2A, in which there are 10-plus bands and different income proportional multipliers, lower and middle-income Londoners face a big rise, as do people in band H, but one wonders whether the Prime Minister would veto that, as he has just bought a property for £3.5 million, which is in band H. He would have to pay a massive £1,210, but he may not like to see his tax bill go up. He does not seem to be into progressivity when it comes to local government taxation. However, that is a slight diversion. My point is that in scenario 2A, low and middle-income Londoners face a massive tax rise.

In scenario 2B, there are 10-plus bands, but the multiplier is based on property prices. That scenario is still bad news for Londoners in band C, as their tax bills would go up by 18 per cent. Once again, low and middle-income Londoners would face a huge tax rise. So in all scenarios other than that with regional banding, which would be the most radical reform, low and middle-income Londoners experience double-digit rises. Even with regional banding there will be an increase. That is the evidence before us. No other studies have been done to my knowledge. Perhaps the Minister will be able to quote some, but I somehow doubt it.

Given that, what does the Minister expect us to say to people in the general election? We know the figures and he will probably say, "Well, the Liberal Democrats are scaremongering," but let us not scaremonger—let us have the facts. The Government must tell us what their policy is. They should say what they are going to do and give some figures and examples of what the changes will be. If they do not, it will not be surprising if people get scared, particularly in constituencies such as mine and that of my hon. Friend the Member for Northavon.

The issue is serious. The Minister will no doubt want to use this debate to attack the Liberal Democrats. I am sure that he will stand up, not answer any of the questions that we have put, and instead have a go at local income tax. Of course he is entitled to do that, although when he does, I hope that he will point out that the same local government tax system is used in America, Japan, Sweden, Norway, Finland, Denmark and many other countries. I am sure that he will give the idea a fair hearing. I hope that he will admit that the system is related to ability to pay and that it is predictable and clear.

I hope, too, that the Minister will admit that we have been honest in recognising that there will be losers as well as gainers, and clear about how the system would work, rather than hiding; that we have put forward our proposals for democratic debate, and that we are prepared to defend them on the doorstep. That is the difference in this debate. We have been honest in putting forward our proposals, but the Minister is hiding; and if he is hiding, we suspect that he has something to hide.

10.22 am

Mr. Philip Hammond (Runnymede and Weybridge) (Con): I congratulate the hon. Member for Northavon (Mr. Webb) on securing this debate, because it is useful
 
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to focus on revaluation. As the hon. Member for Kingston and Surbiton (Mr. Davey) said, the Government's response to the balance of funding review was to set up yet another review, which will not report until after the next general election, so the only certainty on council tax is that there will be a revaluation in 2005, which will kick in by 2007. Whatever else comes out of the balance of funding review, that is a fixed certainty with which we will have to deal.

I, too, am disappointed by the Government's response to the balance of funding review. One tries not to become too cynical in this place, but it seems extraordinarily convenient that such a difficult issue should need a further review that will just happen to take us to the other side of the general election. That will mean that the council tax, which, polling tells us, has the greatest salience of any tax with electors, will not be substantively addressed in what the Labour party presents to the electorate in its manifesto for the next general election.

We should identify the problems that will arise from the revaluation. I hope that we are doing that this morning. The hon. Member for Northavon clearly set out some of those problems and I am sure that we all accept that. Indeed, even the Government have to accept that the revaluation, in its crudest presentation, would give rise to those problems. However, I do not believe that the solution is the wholesale scrapping of council tax, which is the only property-based tax in the country, and its replacement by a local income tax.

Mr. Edward Davey : What about stamp duty?

Mr. Hammond : Well, stamp duty is a property transaction tax, whereas council tax is the only property value tax. The hon. Gentleman and his party are keen on looking at what happens in Europe and elsewhere, so they will know that almost all advanced countries have a property-based element in their overall mix of taxation.

The problem with council tax is that it is being used for a purpose for which it was not designed. It is meant to contribute to the cost of local services, but since 1997, the average band D council tax has increased by 70 per cent. and now stands at more than £1,100. Council tax has become part of Labour's overall stealth tax initiative, with part of the burden of taxation being transferred from identifiable, nationally collected taxes to local taxes, behind which the Chancellor of the Exchequer can shelter, at one remove from accountability. That, and the stealth redistribution of the burden of taxation, is what causes the public anxiety about the council tax. Changes to the local government grant formula have redistributed grant generally from the south to the north—it is not a clear and simple pattern—with a corresponding increase in the amount of council tax that people pay from the north to the south.

The Government were explicit when they introduced the change to the formula; the Minister of State said clearly that he wanted council tax payers to contribute a greater share of the burden of funding local services in areas where, in his definition, they could afford to do so. In other words, he was explicit that he wanted to shift the burden of taxation towards local taxpayers in certain areas.
 
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So changes to the grant distribution system have shifted the burden geographically, creating winners and losers, as the hon. Member for Northavon said. The revaluation will further reinforce that if the problem is not tackled with an additional mechanism because of the way in which the resources equalisation mechanism works. As an area acquires a higher tax base through shifting properties into higher bands, so the amount of grant that it receives from central Government will reduce and the council tax payable by local people will correspondingly increase.

That will lead to the unacceptable spectre of relatively less well-off people in areas where property values are high—people whose only crime is to have lived for a long time, perhaps 10, 20 or 30 years, in a house that they could not even dream of buying today—cross-subsidising people who are much better off in areas that happen to have experienced much lower house price inflation, or suffered or benefited from it, depending on one's point of view.

We agree with the Government that a reformed council tax is likely to be the best way forward, but the emphasis is on the word "reformed". The Liberal Democrats have latched on to what I have conceded elsewhere is a very good slogan—"Axe the tax"—but that is far as their policy goes. A party that wants to campaign under such a slogan is effectively excluded from the grown-up debate on reforming the tax. However, for all the advantages of a property-based tax, the drawback is that property value may be poorly correlated with income and therefore with ability to pay. That is the issue that faces us at the margin and the challenge is to devise a reformed council tax system that recognises the worst problems that it throws up, while retaining its benefits.

When the hon. Member for Northavon was talking about the lack of correlation between the value of property occupied and income in some cases, it struck me that we have lots of taxes that are not well correlated with the ability to pay. For example, the Liberal Democrats are not proposing that duties on cigarettes should be varied according to people's ability to pay. We have a range of taxes, some of which relate to income, and some of which do not. Most advanced countries have a mixed taxation system, and the issue is about striking the right balance. I recognise that if council tax, which takes up a large proportion of the disposable incomes of people on very low and fixed incomes, is to be acceptable, we must address how we deal with that issue in reforming the council tax.

Mr. Davey : The hon. Gentleman wants a mature debate on local government tax reform. Can he now tell us, in one sentence, what are the Conservative party's proposals for council tax reform?

Mr. Hammond : In one sentence, no I cannot. However, if the hon. Gentleman bears with me for a moment, he will hear what I have to say about how our evolving policy will address a couple of specific areas that are directly related to the question of revaluation. I can assure him that when he goes into the next general election, he will not have to debate with Conservative candidates who do not have a policy on reform of the council tax. We will announce our policies on reform of
 
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the council tax, unlike the Labour party, which has made it clear that it will go into the next general election without a fully fledged policy for such reform.

If the present system, which is based on 1991 values, produces poor income to value correlations, it is obvious that the 2005 revaluations, after a decade of radically differentiated house price rises, will create a more difficult situation. Even average house price to income ratios differ widely. The hon. Member for Northavon spoke about the situation in the south-west—the well-known phenomenon by which high demand for houses caused by incoming residents, most of whom are retired, distorts the ratio between house price values and incomes in a fairly low income economy. Throughout the country, discrepancies can be even wider on an individual taxpayer basis.

It is clear that reform is needed ahead of the 2007 start date for the use of the revaluation values that will be gathered in 2005. I hope that even the Government will recognise that imposing revaluation on a single, nationwide basis without any other adjustments would cause such a dramatic shift in the tax base between areas that it would lead to an unacceptable outcome. In fairness, I think that the Government have recognised that.

There are two obvious things that the Government—any Government—could do to moderate the unfairness of revaluation, and two things that would make it worse. A fair system of local or sub-regional banding, which has as its objective equitable distribution of the burden of council tax within a billing authority, while leaving undisturbed the distribution between billing authorities, would draw much of the sting.

The hon. Member for Northavon speaks as a Liberal Democrat, and referred to regional banding. We know that the Liberal Democrats have a pathological attachment to regionalisation, but I am not sure that the Government will have the same attachment to it after next Thursday—we will have to see. However, there would be problems even with regional banding, and I am sure that the hon. Gentleman, if he considers his own region, will recognise that the differentials within regions are, in many cases, greater than the differentials between them.

We therefore need to consider a banding level that is lower than the region. That would still create winners and losers, but not whole towns and cities that were winners and losers. It would also ensure that whole communities were not penalised en masse because they happened to live in areas of high property value growth. Equally, it would ensure that windfall gains did not go to people who used the same levels of services, and who had the same or higher level of income growth, but who lived in an area that happened to have slower property value growth. The council tax is not intended to be a wealth tax by stealth; it is intended to fund local authority services that are used by all.

Such a system of local banding would be sensible, but a fudged local banding system, paying lip service to addressing the problem, using subjective criteria and shifting the burden of the tax in an opaque fashion between districts, would be a disaster for the credibility of a reformed council tax. I ask the Minister to take that point on board.
 
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The other thing that a Government can do is to re-establish fairness and transparency in the discredited grant distribution system, using clear criteria that recognise both local needs and local cost factors. That could be achieved by changes to the resource equalisation arrangements, which would deliver many of the same benefits as local or sub-regional banding, by ensuring that the penal effect of the redistribution of grant through resource equalisation did not occur in an area that suffered an upward shift of bands across the board.

A Conservative Government will commit to introducing a fair and transparent system. In relation to the revaluation, that would require a combination of fair and objective grant distribution mechanisms and/or an objective local banding system, so that when the 2007 revaluation system is introduced, the changes in banding would be used to redistribute the burden of taxation within a billing district. As the hon. Member for Brecon and Radnorshire (Mr. Williams) suggested, it would ensure that people living in the lowest value properties were recognised as such and that the distribution of tax within a community was fair. We start to run into problems when the revaluation and shifting of bands through the resource equalisation mechanism is also used as a covert mechanism to shift the burden between billing authorities as well as between citizens within billing authorities.

Mr. Davey : Is the hon. Gentleman therefore confirming that the Conservatives are in favour of a revaluation exercise of some sort?

Mr. Hammond : We accept that the revaluation will go ahead in 2005. Frankly, with or without a revaluation in 2007, we need a fairer and more transparent mechanism for distributing grant. If the revaluation goes ahead, there is a need to examine the distribution mechanism alongside the banding mechanism, because the two are flip sides of the same coin.

My concern is that a third-term Labour Government would fudge the local or regional banding question, allowing it to become a smokescreen for a redistribution of tax burden to those whose houses had risen in value even though their incomes might not have risen any faster than people in areas with a less dynamic property market. Worse still, a third-term Labour Government would add bands to the top of the current eight-band system and would probably fiddle with the ratios between bands, making the council tax more explicitly a wealth tax by stealth. Extra bands would further redistribute the burden to areas that have enjoyed—or suffered, depending on how one looks at it—exceptional house price rises, while in some areas, very few houses would fall into the new top bands.

There is a case for relief for those who live in the lowest-value properties and may be on low incomes. However, that should not be at the expense of people living in higher-value properties who may not be high-income earners. We do not have to speculate about what a Labour Government would do in office; we can look at Wales, as the hon. Member for Northavon has done,
 
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to see what a Labour-controlled Government have done. In Wales, 34 per cent. of homes have moved up a band and only 8 per cent. have moved down a band.

Mr. Stephen McCabe (Birmingham, Hall Green) (Lab): Will the hon. Gentleman give way?

Mr. Hammond : The hon. Gentleman walked into the Room only five minutes ago so I will not. I would like to conclude and let the Minister respond.

The Government are being deliberately opaque by kicking the balance of funding review report to the Lyons review and leaving it until after the general election to tell the public what they intend to do. The Minister will no doubt accuse me and the hon. Member for Kingston and Surbiton of scaremongering and setting hares running, so let us give him the opportunity to set the record straight.

Will the Minister commit the Government to introducing a transparent and independently verified system of grant distribution alongside the 2007 revaluation? Will he commit to an objectively fair local or sub-regional banding system, to be brought in at the same time as the revaluation? Will he pledge that the Government will not introduce new bands at the top of the system or alter the ratio of the top rate to band D?

The Government have accused us of scaremongering; there is a chance here for the Minister to put to bed the fears that council tax bills could double or triple for people who happened to occupy property in the highest new band in a 10-band system. I hope that he will take the opportunity of doing so. The public are looking to him to rule out the use of additional top bands or changed ratios to increase massively the burden of council tax on those who live in higher value properties in areas where property values have increased. If he will not give those assurances, and if he continues to hide behind the Lyons report, the electorate will have to draw their own conclusions.

10.40 am

The Parliamentary Under-Secretary of State, Office of the Deputy Prime Minister (Phil Hope) : I congratulate the hon. Member for Northavon (Mr. Webb) on securing this morning's debate. It is always good to debate local government finance, as we have done on many occasions both here and in the main Chamber.

I have listened with great interest to the hon. Gentleman's views and those of other hon. Members. The debate is on the impact of council tax revaluation, but although we have covered council tax revaluation briefly, we have also covered council tax itself, local income tax, the grant distribution system, the system in Wales, the balance of funding review and the Lyons review. We have travelled far and wide this morning, and in the brief time available to me I will endeavour to address most if not all the issues that hon. Members have raised. I will disappoint the hon. Member for Runnymede and Weybridge (Mr. Hammond) by saying that I shall not pre-empt the outcome of the Lyons review; otherwise, there would be no point in having it in the first place.

It is a pity that hon. Members have thrown around words such as "perverse", "undesirable", "capricious" and "arbitrary"—mainly the hon. Members for
 
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Northavon and for Kingston and Surbiton (Mr. Davey), I suspect because they want to deflect attention from what is a wholly indefensible system of replacing council tax with local income tax. If I have time, I may come back to that point, but I should try to address the subject of the debate, which is the council tax revaluation.

Let me put on record some important points about revaluation to clear up some misunderstandings. In our 2001 local government White Paper, we recognised the importance of keeping property values up to date, and that it was no longer reasonable or fair that council tax was based on 1991 property values. The legislation for the revaluation is now in place, and both the ODPM and the Valuation Office Agency are working towards delivering that revaluation for 2007.

For the record, I am pleased that the decision to revalue was supported by both the Conservatives and Liberal Democrats during the passage of the Local Government Bill. The hon. Member for Brentwood and Ongar (Mr. Pickles) said:

"We recognise the need periodically to revalue properties for the purpose of council tax."—[Official Report, 7 January 2003; Vol. 397, c. 64.]

There is no need to be coy about the Conservatives' supporting revaluation: they supported it wholeheartedly in Committee. The hon. Member for Southport (Dr. Pugh) supported a Conservative amendment that called for more frequent revaluation, so I assume that the Liberals also support the revaluation process. Despite all the accusations that the hon. Member for Northavon made about whether it is right or wrong and how it is going to work, the fact is that it is right to have a council tax revaluation, as voted for by the Conservatives and Liberal Democrats in the Bill's passage through Parliament.

So how do we go about the revaluation? In September this year, the Valuation Office Agency announced its intention to use an automated valuation model to assist it in the revaluation. It is currently testing the AVM using a system that has been supplied by a company called Cole Layer Trumble, a company with more than 60 years' experience in mass appraisal valuation. When I visited the VOA's Wimbledon office in September to see a demonstration of the system, I was impressed by not only the technical capability of the AVM system but the commitment, focus and enthusiasm of the VOA staff in making the revaluation happen. Current testing of the model is exceeding expectations, and it is clear that it will be a valuable tool. When the groundwork for the VOA's valuation work is completed, it will be ready to start the detailed work and place properties into bands.

Let me turn to a common misunderstanding about revaluation, which has also affected this morning's debate. Revaluation is not about raising more money overall. Indeed, in our 2001 White Paper we made a commitment not to change the overall council tax yield as a result of revaluation. I hope that that puts to bed the scaremongering that we have heard before and that we heard again during the debate today about revaluation being some form of stealth tax. There is no intention to raise the council tax yield as a result of revaluation.

Mr. Hammond : Will the Minister give way?
 
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Phil Hope : I will just say a few more words about what we intend, because I want to clarify how it will come about.

For the vast majority of people, whose properties will increase in value broadly in line with the average, there is unlikely to be any change in banding. Only where the change in a property's value is significantly above or below the average is the property likely to change bands. So, as we have made clear, revaluation is not about raising more money overall, and anyone whose home has risen in value in line with averages is unlikely to pay more tax. Revaluation is simply about updating the system, which is based on 1991 values—hon. Members should remember that we are now in 2004—and is increasingly out of date. Members of all parties voted for the system, and I hope that they will see that it is now out of date and can no longer be fair or rational. That is why we are undertaking the revaluation.

Mr. Hammond : What the Minister says is obviously right, and the rebanding exercise will deal only with anomalies within individual billing authorities—properties that have risen or fallen out of line with the average. Does he accept, however, that the resource equalisation regime raises the important issue of the distribution between billing authorities, which is somewhat opaque, but which will none the less be the most important consequence of the revaluation?

Phil Hope : There is an issue about resource equalisation, the balance of funding between central and local government and the extent to which localisation and equalisation can go together. Indeed, that occupied much of the debate during the balance of funding review, on which leading Conservative and Liberal Democrat local government representatives served. The review reached several important conclusions—they were not recommendations, and the review was not designed to make any. One conclusion, about which I shall say a bit more in a moment, was that we should retain and reform the council tax. So, the review looked into issues of resource equalisation and localisation.

Mr. Webb : The Minister explained the process of revaluation. Will he now clarify his response to my comments about home improvements? Is it not the case that if I improve my home and add to its value by building, say, an extension, I may push myself into a higher council tax band on revaluation and face a higher council tax?

Phil Hope : There have been press articles saying that we will tax home improvements, and the hon. Gentleman has repeated the point this morning. However, such remarks are wholly misleading. They refer to the consultation that we recently launched on a proposal to include information about additional property attributes in revised council tax lists. The additional information that we might publish could include the number of rooms, including bathrooms, and the age of the property. Making such information public for the first time would make it easier for all council tax payers to understand the basis on which their valuation was made. So, the consultation is not about the basis of revaluation but about improving clarity by making more information available.
 
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Mr. Hammond : Let us just be clear on that point. Although the consultation is not about the basis of the revaluation, the Minister is confirming the hon. Gentleman's fear that the basis of the revaluation is the value of the property as improved.

Phil Hope : I cannot repeat the point without being repetitive. The questionnaire is about publishing better information. Instead of simply saying, "Here is the number and address of the house," we can publish its attributes so that people can see whether the valuation of their property is right. The council tax payer will have greater clarity and information about the basis on which their property and their neighbours' properties have been valued. That will reduce inaccuracies and, I hope, appeals.

Mr. Edward Davey : I am tempted to ask whether we shall count the number of windows and return to the old window tax, which did not work, but I want to ask the Minister about an important point that he made. He correctly said that council tax revaluation would not necessarily increase the yield from council tax. There is no dispute about that. Our proposal for a local income tax would not increase the overall tax burden. However, will he accept that council tax revaluation will cause some people to lose?

Phil Hope : The purpose of the revaluation is to provide updated property values, because currently the council tax is based on 1991 property values. The revaluation will provide an updated and therefore fairer and clearer basis on which to levy council tax. That seems an entirely sensible idea. The hon. Gentleman supported it in Committee when the Bill was going through Parliament; indeed, the Conservatives supported that position. Whether there are winners or losers will depend on the outcome of the revaluation and the council tax banding. That is the subject of the Lyons review, which I shall come to in a moment. To say that there will be winners and losers is to say that the sun may or may not rise in the morning. Of course there will be changes, but we do not know what they will be until the revaluation takes place, the council tax banding decisions are taken, and we put the two together. Unfortunately, the scaremongering by the hon. Members for Northavon and for Kingston and Surbiton and, to an extent, by the hon. Member for Runnymede and Weybridge—although his comments were rather more judicious than those of the Liberal Democrat Members—is unhelpful, because it raises fears that are wholly unnecessary and unjustified.

I shall now deal with some of the other questions that hon. Members have raised. I want to explain the revaluation in Wales, because that was the subject of the remarks of the hon. Members for Northavon and for Brecon and Radnorshire (Mr. Williams). The revaluation in Wales will take effect from 1 April 2005, based on values as at 1 April 2003. I emphasise that council tax bands in Wales are the responsibility of the Welsh Assembly Government. Revaluation in Wales should not be seen as a precedent for revaluation in England.
 
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I thought that Liberal Democrat Members supported devolution. Indeed, the hon. Member for Brecon and Radnorshire said that he did—except on this occasion. He cannot have it both ways. This is an opportunity for the Welsh Assembly Government to make their choices, but I emphasise that their choices are not a precedent for revaluation here. The Welsh Assembly Government have decided to add a new band at the top but not at the bottom. That is purely a decision for the devolved Administration in Wales. We might learn from the Welsh experience, but it is not a precedent or an indication of what is likely to take place in England. No decisions have been taken on how council tax might be reformed in England. I shall say more about the independent inquiry by Sir Michael Lyons in that regard.

The hon. Member for Brecon and Radnorshire made a point about park homes. The reply that he received from my right hon. Friend the Minister for Local and Regional Government was correct. I cannot say anything more about what the Welsh Assembly Government have decided to do in Wales—this is a devolved matter—but I have noted the hon. Gentleman's concerns and will take them into account. Indeed, this entire debate will feed into the Lyons review process when we consider the issues relating to park homes and other properties of that type.

My hon. Friend the Member for Reading, East (Jane Griffiths) gave the example of difficulties in Reading. She was right to focus on issues relating to properties on the boundaries; that is where all the arguments take place. They are taking place now and they will take place in the future, once the revaluation takes place and the new banding system, whatever it turns out to be, is proposed. The Valuation Office Agency will put great efforts into valuing properties on band margins, because that is where the problems lie. We want to ensure that we get the revaluation right. People in the middle of a band will not be so bothered by this. It is people on the margins who will be most concerned, and the agency has made getting the revaluation right first time a major priority.

I regret that I cannot promise to give Reading borough council special treatment in respect of the rate support grant, but I will certainly write to my hon. Friend about interest payments. She made a good point on that issue. In relation to the residents in her constituency to whom she referred, I understand that the proposal is that the VOA accepts responsibility for reimbursing, with an appropriate amount of interest, those council tax payers who have overpaid. Perhaps I can write to my hon. Friend with further detail on that, but I am grateful that she raised it in this debate, as it is important that we represent our constituencies in that way.

With little time available, I want to emphasise the importance of what we are doing on reform of local government finance. There have been two major reports on the local government finance system. The housing, planning and local government committee in the Office of the Deputy Prime Minister published its report on 16 July and on 20 July my right hon. Friend the Minister for Local and Regional Government announced the publication of the balance of funding review report.
 
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It is highly significant that both reports concluded that council tax should be retained but reformed. The Liberal Democrats have decided to take the path of replacing council tax with local income tax, but that has been shown by both the Select Committee and the balancing of funding review to be a mistaken path. For example, Professor Glen Bramley told the Select Committee that

"it would be a great mistake to abandon council tax".

As the hon. Member for Runnymede and Weybridge said, it is appropriate to assign taxation on fixed properties to local government. The Select Committee and the balance of funding review, on which Liberal Democrats served, both came forward with the view that we should retain but reform council tax, but still the Liberal Democrats will go into the next general election with the foolhardy policy of replacing council tax with local income tax. The party will suffer the consequences of that policy when the electorate tell it what they think of it.

Let me pick up a couple of points that were made about the nature of the council tax reform. The Government's position going into the next election is clear. We wish to retain but reform council tax. The Lyons review will look at other issues associated with the balance of funding between central and local government. To remind hon. Members, the balance of funding review concluded:

"There is a clear case for reviewing council tax bands and the ratios between them at the time of revaluation."

However, the review warned that

"particular care is needed to ensure that council taxpayers on low incomes living in high value properties are not unfairly affected."

That is something that all hon. Members have mentioned this morning. To take another example, the review concluded that the detailed case for and against a sub-national approach to revaluation should be considered, in order to take account of differential
 
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movements in house prices in different parts of the country. However, the report also advised that further work was needed to determine the best solution.

Liberal Democrat Members have quoted the NPI report—a good report—that was submitted to the balance of funding review. It is because of the complexities that that report highlighted the importance of the Lyons review. In regard to that, it was noted that the case for the sub-national approach might be weaker if the current national divergence in property prices continued to close. People on fixed low incomes, particularly pensioners, can also be vulnerable to small changes. The review noted that a fair and effective council tax benefit would be a vital component of a reformed council tax package.

Unfortunately, I do not have time to give our analysis of the Liberal Democrats' local income tax proposals, although we have done that on the Floor of the House on many occasions. However, whatever the Liberal Democrats decide to go into, we would welcome their submission to the Lyons review. I understand that Sir Michael Lyons has invited the leader of the Liberal Democrats to submit evidence, and I suggest that he take advantage of that opportunity.

One thing that has been demonstrated this morning is that local government funding is a complex issue. My hon. Friend the Member for Reading, East referred to the poll tax, and the lessons of history suggest that before we make decisions on reform we must look at the implications for all the different groups affected and get those decisions right. Such reform is far too important to be rushed for political reasons, despite the Liberal Democrats' wishing us to do so. I hope that we have a spirit of constructive dialogue, that the scaremongering stops, that the analysis begins and that, as we face the many challenges and changes in central and local government over the next few years, the funding regime that we introduce supports change for the long-term and the sustainable future of local government in this country.
 
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