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Mr. Davey: It is worrying, and that is why we want to scrap the tax. That is the best answer to that question.
Hon. Members need to focus on what rebanding means. A move from band D to band E means an increase of 22 per cent. in council tax. A move from band G to band H means an increase of 20 per cent. No move from any band is less than 13 per cent. The rebanding exercise will therefore lead to significant increases, with no relation to income. All the changes under rebanding are effectively random and arbitrary. Changes in people's bills are unrelated to changes in their circumstances. We believe that if local taxes are to be changed, it should be done on a principle—that of fairness. That is why we want to scrap the council tax.
Mr. Clifton-Brown: One of the key difficulties with the hon. Gentleman's local income tax proposals is that they will have to be redistributive. How will he tackle the fact that the tax base in the south of England would have to pay for the north of England?
Mr. Davey: No grant or local government finance system that any party has ever espoused is without some form of redistribution. That applies to the council tax system, a local income tax system and the poll tax system.
Mr. Borrow: Will the hon. Gentleman give way?
Mr. Davey: No, because I want to make some progress.
We have had silence from the Labour party about revaluation in England, and Conservative denial, except on one point. The Conservatives said that if they undertook revaluation there would be no new bands. That will be especially interesting for the 4.5 million households in band A. The figure may be higher because one of the helpful questions that the hon. Member for Meriden tabled this year elicited the response that there are 5.5 million households in band A. They will get no relief from the Conservative approach to revaluation. It appears that the 121,000 households in band H would get relief under Conservative proposals. The Conservatives are committed to not only an unfair council tax and an unfair revaluation but to the most unfair revaluation imaginable.
Our proposal for local income tax is based on a clear principle. It is based on experience throughout the developed world, in America, Switzerland, Japan, Norway, Denmark, Sweden and other countries.
We are grateful for the analysis of our policy that the Institute for Fiscal Studies and the Chartered Institute of Public Finance and Accountancy have undertaken. The IFS analysis shows that all the figures that we have published to date are spot on. Its estimate of an average local income tax was between 3.5 per cent. and 3.75 per cent. I said that our figure was 3.75 per cent. I was therefore being rather conservative with a small "c". The IFS states that 73 per cent. of families would be better off or unaffected by our policy. We said that the figure was approximately 70 per cent. Again, I underestimated the number of people who would benefit from our policy.
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The second thing that the IFS said in its analysis was that the number of gainers would far outweigh the number of losers. Its press release says:
The analysis goes through the different family groups, showing that families would gain. On average, the IFS says, families in the bottom eight decile groups of income distribution would gain, which Labour Members should support. Single-earner couples would gain on average £4.56 a week, while those with children would gain £2.69, and half of two-earner couples would gain as well. This is a family-friendly policy. Around 8 million pensioners would also gain, with 6.7 million gaining at least £1 a week. Only 4 per cent. of pensioners would lose, and they are the wealthiest, the ones being given £500 by the Tories. The average pensioner couple would gain £8.46 a week, which is an annual tax cut of £440.
I was delighted by those figures. They show that what we have said all along is correct. The figures coming out elsewhere, particularly from the Conservatives, are a total fabrication and completely unrepresentative of real, ordinary families in our country. They are talking about the top 3 to 5 per cent., not ordinary families.
The third thing shown by the IFS analysis is that scrapping council tax for a local income tax is extremely progressive. Our policy is by far the fairest. The people who would gain are the large majority on ordinary incomes. They are the people on low and modest incomes who have been struggling to get by. I am proud to have fought our campaign, and I am proud that we have the fairest policy. I find it odd that some Labour Members have criticised that, and it is worth noting that the Labour Front Bench has not totally rejected our policy but has put it into Sir Michael Lyons's remit so that he can have a look at it. That has not been done in a way that we would have supported, but the Government clearly do not think our policy is as bad as their rhetoric sometimes suggests.
Dr. Alan Whitehead (Southampton, Test) (Lab): The hon. Gentleman states that in the first year of his new local income tax, income tax rises would not be above 3.75 per cent. On his website calculations, that will be achieved by allocating £1.7 billion from the proceeds of a new top rate of income tax. Is he prepared to commit himself today to continuing to put that money in and to inflating it each year in order to stop the gearing effect applying after year one? If local authorities wish to raise the tax in a second and third year to keep their services going, without that guaranteed support they will have to raise local income tax by a factor of two or three times the 3.7 per cent. that he has calculated for the first year.
Mr. Davey: I can reassure the hon. Gentleman. When we publish our costed proposals, he will see the money going through all the five years of the next Parliament. In year one, the figure is not £1.7 billion, but £2.3 billion, and if the website needs updating, I will happily do that.
I am also happy with the CIPFA analysis of our policy. CIPFA recently published a report, "Local Income Tax Exemplified", which, interestingly, had a new idea on how to administer local income tax. This is an idea that I had not come across before, and that—this will be interesting for the Minister—CIPFA did not
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include in its report on the balance of funding. In that report, CIPFA explained how the Inland Revenue could administer local income tax and said that the policy of scrapping council tax and replacing it with local income tax would yield nearly £300 million a year in savings on administration, as we had said previously.
However, in its latest report, CIPFA comes up with an idea that would bring even more savings and make local income tax even easier and quicker to implement than our first analysis implied. By suggesting that the Inland Revenue build any individual local income tax rate into the personal income tax allowance, CIPFA has come up with a method of administering local income tax through the existing pay-as-you-earn codes, which, to use its words,
"would dispense with the need for any additional work by employers in administering the PAYE system."
Having read that report, I have had further discussions with CIPFA, which suggest that its new method would make it even easier than we had first thought to levy local income tax, not just at the principal authority level but at district and indeed parish and town level. I hope that the Minister will consider that idea, which would significantly change the conclusions of the balance of funding review to be even more favourable to local income tax.
Mr. Raynsford: How would the hon. Gentleman's party intend to deal, if that proposal were adopted, with those who are not within the PAYE system, including a large number of very wealthy people who receive income from investments and dividends?
Mr. Davey: Those 9 million people have always been the easiest to deal with, as the CIPFA report shows for the balance of funding review, so I am surprised that the Minister makes that point. An end-of-year return makes it much easier to operate a local income tax.
This has been an interesting debate, giving us the chance to expose the Conservative policy and to explain how the Government have misused the council tax system. It has also given us a chance to demonstrate that the IFS and CIPFA analyses, by independent groups, show that local income tax is by far the best and most effective policy on offer. We go into the next election with two parties wanting to keep council tax and one wanting to scrap it. We go into the election with two parties wanting to revalue everyone's homes for council tax and one party wanting to stop that revaluation. There is a clear choice, a choice of fairness, and I know which way the people are going to vote.
3.25 pm
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