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Council Tax Capping

12.31 pm

The Minister for Local and Regional Government (Mr. Nick Raynsford): With permission, Mr. Speaker, I would like to make a statement on council tax in 2005–06 and the action that the Government propose to take in response to those local authorities that have set excessive budgets.

Figures released today confirm that the average council tax increase in England in 2005–06 will be 4.1 per cent. That is the lowest council tax increase in more than a decade, and the second lowest ever. The reason why council tax increases have come down markedly compared with previous years is twofold. First, the Government have provided another good settlement for local authorities, which was approved by the House on 2 February. For the third year in succession, all authorities will receive a grant increase in line with or above inflation in 2005–06, and many will receive substantially more. The average formula grant increase from Government is 5.6 per cent. Adding in specific grants to authorities takes the increase up to 6.3 per cent. We have increased funding for local government by 33 per cent. in real terms since 1997, which is in stark contrast to a 7 per cent. reduction in the four years up to 1997.

Secondly, the Government's judicious use of their capping powers has shown how seriously we view the need to protect council tax payers against excessive increases. In 2004–05, when we made it clear that we were prepared to use our reserve capping powers for the first time, the average increase in council tax dropped from 12.9 per cent. to 5.9 per cent. The 2005–06 increase has come down even further, to 4.1 per cent.

Given our substantial investment in local government and the scope for efficiency gains, we gave a clear message to all authorities about council tax in 2005–06. We said that we expected to see an average increase of less than 5 per cent. I set that out in a letter to all local authority leaders on 9 December. At the same time, I informed them that we were once again prepared to use our capping powers to deal with excessive increases. I later wrote to the individual authorities which, despite our warnings, were reported as proposing high increases. We informed them that the 2004–05 capping principles should not be considered a benchmark for 2005–06, thus making it quite clear that we were prepared to take even tougher capping action than we did in 2004–05.

I am pleased to say that the vast majority of authorities have responded positively to the Government's strong message on council tax. That is borne out by the fact that we now have the lowest increase in more than a decade. I congratulate all those authorities. I know that most authorities are taking seriously the need to minimise demands on their council tax payers. However, there remain a small number of authorities that have set excessive budget and council tax increases, which is why I am again this year making a statement to the House about the action that we propose to take against authorities whose budget requirements are excessive.

I should like to remind hon. Members of the provisions of the capping legislation. In order to determine whether budgets are excessive, we must
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consider a comparison of the authority's budget requirement for 2005–06 with that of the previous year. The legislation also allows us to determine other principles such as increases in council tax. In 2004–05, we determined a range of budget and council tax principles for different categories of authority. This was in recognition of specific factors affecting those types of authority that year. I detailed the principles when I reported to the House on 29 April last year.

For 2005–06, we made it clear that we were prepared to take tougher capping action than last time, and that the principles used in 2004–05 should not be taken as a benchmark. Our view is that authorities' 2005–06 budget requirements are excessive if they show an increase of more than 6 per cent. over their 2004–05 budget, and if their council tax has increased by more than 5.5 per cent. over the same period. These principles have been applied to all authorities.

According to the principles that I have described, nine authorities have set excessive budgets for 2005–06. They      are Aylesbury Vale, Daventry, Hambleton, Huntingdonshire, Mid Bedfordshire, North Dorset, Runnymede, Sedgemoor and South Cambridgeshire. We are writing to these authorities today informing them of our decision to designate them with a view to capping them in year and notifying them of the maximum budget that we propose to set for each of them.

The authorities now have 21 days in which to respond. We will carefully consider the information that we have required them to send us, along with any other representations they make, before we take final decisions. We can then either make an order to be approved by Parliament designating them at the level of the proposed maximum budget or another level, or we can withdraw the designation and nominate them instead.

Hon. Members will recall that in 2004–05, we took capping action against 14 authorities. Six were designating for capping in year, and a further eight were nominated and set notional budgets for the purpose of future capping comparisons. I am pleased to say that none of the authorities against which we took capping action in 2004–05 has set an excessive budget in 2005–06. This, and the fact that the average council tax increase in 2005–06 is the lowest in a decade, shows that although we have used it only reluctantly, capping has been effective in restraining council tax increases.

We would, of course, have preferred not to use our capping powers. We would not have had to take action if all local authorities had heeded our clear message about increases in 2005–06. However, we also have a duty to protect council tax payers from excessive increases, and we will continue to do so. The actions that we are taking represent a measured response.

If anyone thought that the Government's capping action in 2004–05 was a one-off, they will surely now think again. The message that we are giving is loud and clear. High council tax increases are a thing of the past. The public will not tolerate excessive council tax increases either now or in years to come—and neither will the Government.

Mr. Eric Pickles (Brentwood and Ongar) (Con): I am most grateful to the right hon. Gentleman for giving me
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early sight of the statement. He has always been prompt in providing these things, and he has been customarily courteous.

The statement comes exactly one month earlier than normal—a period that occupiers of the right hon. Gentleman's office usually have for quiet reflection on which authorities to use their powers on. This is perhaps the clearest indication that the House might be too preoccupied in late April to attend to a capping statement.

I am sure that the statement would have benefited from more reflection by the right hon. Gentleman, but it speaks volumes about the Government's treatment of council tax. For eight years, they have wrung their hands and done nothing. They have watched council tax go through the roof and increase by more than 70 per cent., and they have seen a typical household bill exceed £100 a month. But now, 43 days before a general election, he has decided to do something and line up a few councils to face the guillotine, to demonstrate the firm hand of Government.

This is not the firm hand of Government—it is the slaughter of the innocents. This is a gesture to the country that the Government have noticed its pain—pain caused by this Government. We do not need to take Opposition Members' word for it: let us listen to the Audit Commission, which says that the increase in council tax is due to national pay awards, unfunded obligations and changes in grant funding. Above all, it is because the Government's favourite stealth tax is the council tax. Those authorities have one thing in common: all charge a council tax that is well below that paid by the Prime Minister's, the Deputy Prime Minister's or the Minister's own constituents.

Let us look briefly at one or two of those councils. Daventry had a council tax increase of £13.12. That figure remains £40 less than the neighbouring borough of Corby, which is run by Labour, and 10 per cent. of the increase came as a result of the withdrawal of the Government's housing subsidy. Let us look at Runnymede, which has the lowest council tax in Surrey; it is well below the Government's assumed, notional council tax figure, so the council is charging less than the Government think it should charge. The same applies to Aylesbury.

Let us look at Huntingdonshire; its large council tax increase still results in a small council tax by comparison with neighbouring authorities. Huntingdonshire has the cheapest council tax of all district boroughs in Cambridgeshire. Let us look at South Cambridgeshire, which has a council tax of £140. Last year, it set a zero increase and its council tax lagged significantly behind others. The new level of £140 makes South Cambridgeshire one of the cheapest districts in the county. The same applies to Hambleton, which has the lowest council tax in North Yorkshire. North Dorset's council tax is the cheapest in Dorset. What about the curious case of Sedgemoor? According to figures produced by that council, it is charging £107, not £119. If that is the case, those figures are well outside the capping criteria. I hope the Minister will look again at Sedgemoor, given his Department's tendency to get things wrong.

Will the cost of billing be greater than the saving in each of those authorities? Why is it acceptable for high-costing Labour authorities to continue to squeeze
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pensioners and hard-working families when these councils are being capped? How many of these councils are spending below the Government's notional council tax? How many are spending below the average notional council tax? Is the right hon. Gentleman going to advise local government to follow the herd instinct and avoid low increases because otherwise it will be penalised in future years? He is penalising an authority that had a zero increase last year. If capping is to be based on only 6 per cent. of budget and 5.5 per cent. of tax, will he tell me how this is different from crude and universal capping, because it looks like crude and universal capping to me? How many of these authorities received grants above the average grant that he cited?

Frankly, this show trial of a statement fools nobody. It is petty, vindictive and pointless. It does not penalise those who have caused these massive increases in council tax—the Government—but in 43 days' time, the electorate will get an opportunity to judge and to penalise. In 43 days' time, bring it on.

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