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Mr. Pickles: Can the hon. Gentleman explain, then, why he is in favour of additional bands?

Mr. Davey: The hon. Gentleman really ought to know that my party is in favour of scrapping council tax. I do not think that we have made any secret of that.

Let me return to this year's settlement. It means that council tax will still rise faster than inflation, which means that, yet again, many pensioners will see their council tax bills rise faster than their pensions. I do not think Ministers should be as happy about that as they seem to be.
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Let us examine the record. The Institute for Fiscal Studies Green Budget, which analysed the subject in some detail, showed that council tax receipts, net of council tax benefit, have risen by some £5.8 billion since 1997. That is a rise of £521, or 81 per cent., in the average band D council tax. Because council tax is so unfair, that rise dwarfs the minor giveaways in other parts of the system, such as tax credits. According to the IFS, as a result of those tax and benefit changes the average household has gained 84p a week under Labour. That is before account is taken of council tax rises. For the average household—these are not my figures, but those of the IFS—there has been a council tax loss of £4.46 a week. When we add up all the figures and study dispute analysis of tax and benefit changes since Labour came to power, we see that the average household is £3.62 a week worse off. That means that the council tax, by itself, has been Labour's biggest stealth tax on ordinary families.

The Minister tried to say that real-terms grant increases had been very significant. The hon. Member for Brentwood and Ongar (Mr. Pickles) rightly pointed out that, to offset that, there had been huge real-terms rises in the costs incurred by councils. To be fair, the Minister agreed. But the problem for our constituents—the problem for council tax payers—is that there have been massive real-terms rises in council tax. Between April 1997 and April 2001, council tax rose by 17 per cent. in real terms. Between April 2001 and April 2004, it rose by 18 per cent. in real terms. Those real-terms rises mean that council tax has increased faster than any major tax under Labour, although it is the most unfair tax in Britain today.

In some respects, Labour has made progress with making Britain a fairer society, but how can it expect to make Britain as a whole a fairer society when its favourite tax is the most unfair tax? It just does not add up. Even this year, when Ministers are so pleased with themselves, council tax is rising faster than any other tax—although, to meet Government guidelines, many councils have introduced an awful lot of cuts.

I am sure that many councils will be mentioned today. The Minister tried to suggest that Liberal Democrat councils would be profligate. I refer him to Newcastle, Liverpool and Watford, where Liberal Democrat councils are already suggesting below-inflation tax rises which are likely to be among the lowest in the country.

There are Liberal Democrat councils—and Labour and Tory councils—that are under severe pressure because of this grant settlement, despite the Government's assurances. Councils represented by all parties are trying to juggle with the various pressures, and having to make very difficult decisions about services and tax. That, I think, is why at the end of his speech the Minister raised the spectre of capping. Councils are having to make tough decisions, and it is likely that despite the best endeavours of many councils of all parties, some with particular local problems may have to consider above-average tax rises. It looks as though the Minister will come down hard on those councils.

Mr. Kevan Jones: In 2003, Liberal Democrats fighting the election in City of Durham promised everyone a £100 council tax rebate. Can the hon. Gentleman tell me
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when the Liberal Democrat council will honour that commitment? If the answer is that people will have to wait for a local income tax, I refer him to the Liberal Democrat website, which shows that two average earners in a house in City of Durham would pay more rather than less council tax under the local income tax proposals. Will he come clean and tell the electors of Durham when they will get their £100 back?

Mr. Davey: The majority of the people of Durham would certainly gain under a switch to local income tax. I hope that the hon. Gentleman will tell his constituents that. As regards the £100—

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

Mr. Davey: I would just like to answer the hon. Gentleman's first intervention. In the run-up to the 2003 elections, we set out the policy that we wanted a 50p top rate of tax on incomes above £100,000 to generate the cash to enable councils to do that. That is the policy that councillors fought on throughout the country. We stick by the idea that we can reduce local taxes by using the money that we get from that higher rate of income tax on people earning over £100,000. I wonder whether he wants to tell the House whether he is in favour of, or against, that 50p rate on incomes above £100,000.

Mr. Jones: I would like the Liberal Democrat council in Durham to be honest with the electorate and fulfill its commitment to give a £100 rebate. Can the hon. Gentleman confirm that under the proposals on the Liberal Democrat website, which I checked this afternoon, two average earners in a household in Durham, or any other place, would pay more council tax than they pay now? The website has a rider at the end that points out that they will pay more, but that that will help poorer people.

Mr. Davey: There are Conservative scare stories—perhaps the hon. Gentleman is quoting those—that if a household's income totalled above £50,000 those people would pay a little more, but most households in his constituency would pay far less. Nearly 90 per cent. of pensioners in pensioner couple households across the country would benefit from our proposals. I hope that he will tell that to his constituents.

Mr. Betts rose—

Mr. Jones rose—

Mr. Davey: I have given way twice to the hon. Member for North Durham (Mr. Jones). I give way to the hon. Member for Sheffield, Attercliffe.

Mr. Betts: To pursue the point that I made earlier, will the hon. Gentleman explain how, under his plans, a millionaire foreign national in this country who pays no UK income tax would make any contribution to local taxation?

Mr. Davey: Such a foreign national would make a lot of contributions to the national Exchequer, which funds
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the grants—[Interruption.] I presume that they would pay stamp duty if they bought a property, and other taxes, so that argument does not work.

I was speaking about the capping threat that the Minister repeated tonight. I wonder whether he will tell the House to which councils he has written. There have been rumours and speculation in the press that a number of councils have been threatened already. I wonder whether he, or at least his colleague who is answering the debate, is prepared to say which councils are his targets, and whether he will publish the letters that he has written.

There is concern about the timing of these capping threats and capping decisions. Will the Government make decisions on capping before the general election is called? Can they give that undertaking? One presumes that as soon as the election is called, it will be too late to make the decisions and councils will be in limbo. They will have to set their budgets, but they will find out whether they will be capped only if Labour is returned after the election. Should Labour be returned, they could face the problem of re-billing if they are capped later, in May or June.

We could reach the absurd situation that we saw last year, when councils with budgets only slightly in excess of the Government's guidelines had to re-bill and the cost of re-billing was more than the so-called budget excess. I hope that the Minister will set out the planned timetable with regard to capping, particularly as we all suspect that there will be an election in due course.

The hon. Member for Sheffield, Attercliffe put his finger on it when he talked about the fact that the £1 billion in the pre-Budget report was for one year only. There is concern that it has not gone into the base budget. There is a fear across local government that problems are being stored up for the future, which could result in a hike in council tax directly after the election if the Government do not put money in.

Let us consider the £1 billion figure. More than £400 million of it was one-off cash paid for from one-year raids on other departmental budgets. Will the one-off £350 million increase in revenue support grant be repeated? Will the pre-election £50 million increase in police grant be repeated in 2006–07? Is the one-year only extension of grants such as that for "Safeguarding Children" going to be repeated? Councils need to know the answers to these questions. The Government are talking about moving to three-year budgeting, but they will not tell councils whether these grants are just pre-election or longer term.

There is a real problem here. The Local Government Association has estimated that not making permanent these so-called one-year gifts—the one-year increases in revenue support grant, police grant and "Safeguarding Children", for example—will lead to the equivalent of an average council tax rise of 7.5 per cent. The Minister can be pretty pleased with himself for achieving—so he thinks—a lowish rise, but he has achieved it only because of this one-off money. There is a 7.5 per cent. rise coming down the track, which Labour Members should be rather worried about.

Those future difficulties are exacerbated by pressures that have simply been postponed. The amended guidance on pensions has led to a £100 million saving this year, but the money will have to be found in future.
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The re-profiling of waste targets means that £50 million does not have to be spent this year, but it will have to be spent next year and the following year. The recent announcement on fees is certainly a step in the right direction, particularly for the licensing regime, but the Minister will hopefully acknowledge the Local Government Association's worry that its costs will still not be covered.

Because of future pressures arising from those one-off grants, there are problems heading councils' way after the election, and in years to come. That should worry this House. Those pressures and the lack of baseline budget increases could have been more manageable had the Government not pressed ahead with various other disastrous reforms of local government finance, particularly the ring-fencing of education and the proposed introduction of a dedicated schools grant. If a council that suffered all these pressures could bring all the money together and control it—if it were not shackled by ring-fencing—it might be able to manage by taking a flexible approach. If it had autonomy, it could move money around to deal with the pressures that it faced in a given year. But under the regime of a dedicated schools grant, such autonomy and flexibility will be gone. The problem is that the Office of the Deputy Prime Minister has been defeated yet again by the Department for Education and Skills.

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