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Council tax is fundamentally unfair because the poorest 20 per cent. pay far more of their income to it than the richest 20 per cent. That is much more the case for pensioners, who pay six times as much of their income as the richest 20 per cent. That explains the revolt against council tax.
As other hon. Members said, benefit take-up is poor. It is an intimidating process. Two thirds of pensioners fail to claim the benefit that they are owed. We need to end the nonsense which suggests that council tax is easy to collect because property does not move. Some £600 million-worth of council tax went unpaid last year. We now have the spectre of an 85-year-old lady being imprisoned for not paying her council tax, which she says she is unable to pay.
Will the hon. Lady tell the House whether her party's policy for a local income tax remains based on the premise that it would be collected only through the pay-as-you-earn system? If that is the case, how is it fair that those people who are outside the PAYE system, including those people living on investment income and dividends, who are among the wealthiest in the country, would be exempt from making any specific contribution towards local taxes?
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I shall deal with some of the misinformation circulated by the Conservatives, who do not understand the impact of council tax on ordinary families, because they do not understand how much an ordinary family earns. The leaflets circulated in Cheadle claim that in some areas of Bramhall people would pay much more in local income tax, but, in fact, that would only be possible if they earned well over £80,000 a year. I would be interested to know the workings behind that calculation. I am sure that people on the North Park Road estate would be interested to know that the hon. Member for Meriden believes that the average household income in that area is over £80,000.
Mrs. Spelman: The Liberal Democrats' own "Axe the Tax" website gave a figure between £30,000 and £40,000. The hon. Member for Twickenham (Dr. Cable) said that the proposal would bite on a dual income in the middle of that range, so would the hon. Lady explain why the situation has changed?
Sarah Teather: The figures in the Conservative leaflets in Cheadle claim that people would supposedly pay much more in local income tax, but I must point out that that is only possible on an income of more than £80,000. So that is a ridiculous claim.
The average household income is only about £23,000 a year, so figures given by the Conservative spokesmen completely misunderstand the earnings of ordinary families. Under a local income tax, about half the population would be better off, a quarter would be about the same, and a quarter would pay more. We have been upfront about that, and the hon. Member for Meriden, the Minister and I would all pay more. That is perfectly fair. Pensioners in Cheadle, however, would do extremely well. Only 4 per cent. of pensioners nationally would pay more. Many pensioners would do considerably better than they do at the moment, and about 6 million of them would not pay anything at all.
Chris Bryant (Rhondda) (Lab): It is fascinating to watch the spat between the Liberal Democrat and Conservative Front Benchers. The hon. Lady made a strong point about wanting to return to localism in local government finance. However, is there not a difficulty, given that for many decades a fundamental principle of local government finance has been redistribution from the richer parts of the country to poorer areas? Is that not equally important, and is there not a danger that in her ideological obsession with localism she may lose support for poorer areas of the country?
We need to raise a much greater proportion locally. About 30 per cent. of local authority
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income is raised locally, and about 70 per cent. comes from a Government grant. We should reverse that 70:30 split. There would still be an equalisation grant, but far money would be raised locally through a local income tax.
A local income tax would be much cheaper to collectaround £340 million a year. It would end the bureaucracy of 352 separate billing authorities, and everything would be done through the Inland Revenue. I shall deal with some of the other nonsense in the Tory motion. The Chartered Institute of Public Finance and Accountancy looked at compliance costs on businesses after it gave evidence to the Government's balance of funding review, and said that it was quite possible to use the coding system, so no extra administrative burden would be imposed on employers. As for local income tax undermining the incentive to work, I suggest that the Conservatives tell that to people who are paying a 20 per cent. marginal tax rate as they struggle to return to work, who find that their council tax benefit is removed.
The Conservatives do not have an answer to the council tax or to the balance of funding crisis. They have opposed every reform that has been proposed, and do not have a clue about returning tax-raising powers to local authorities. That is hardly a surprise, because under Thatcher we experienced capping, the abolition of the Greater London Council and centralised business rates. The Government are in no better position. They have already briefed their favourite journalists at The Times to the effect that they may not do anything at all about local government finance. They have an historic opportunity to do away with an unfair and unpopular tax that has been hanging around their neck since they replaced the Conservative Government. They have an opportunity to shake up local government finance radically, to localise business rates and give them back to local authorities, to get rid of ring fencing and passporting, and to introduce a tax system that would allow us to raise far more of the money locally. Will they do it? I doubt it, because new localism is meaningless. I await a further review.
Dr. Alan Whitehead (Southampton, Test) (Lab):
Words to describe the contribution from the Conservative Front-Bench almost fail me. I had hoped that after the exigencies of the election, we might have a rather more reasoned and thoughtful debate, as my right hon. Friend the Minister said, about the future of local government taxation and where it goes. The hon. Member for Meriden (Mrs. Spelman) claimed that we did not need the revaluation, which the Conservatives themselves built into the council tax when they introduced it. Revaluation was seen as a logical part of the process because in one year, apparently, house prices were converging, whereas the idea of building a revaluation into the council tax takes account of the
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difference in prices over the period between one revaluation and another, so the revaluation relates council tax to the real price of houses, rather than to the fictitious base that successive failures to revalue would eventually create.
The hon. Lady contributed a series of non-suggestions for changefor example, by talking about how pensioners would get a rebate on council tax, without stating how that rebate would be funded. As she said, it would have to come from central Government funds, so the proportion of money coming from the centre would be greater, while the proportion from local funds would be smaller.
Dr. Whitehead: No, certainly not. If the hon. Lady would care to listen, my point is that you cannot claim that you are trying to cut expenditure centrally and at the same time fund the rebates that you propose as part of your policy by putting in more money from central Government. The two do not
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