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On the extent to which the council tax is supposedly a stealth tax, the hon. Member for Meriden should refer to the proportion of funding raised by local government as a proportion of total revenue spending in local government year on year over the past seven or eight years, and see what percentage comes from central Government, what percentage comes local government and what percentage comes from business rates. Had her claim been correct, one would expect the proportion raised from local taxesthe money that the Chancellor is allegedly trying to get local people to raise as a form of stealth taxto rise and the amount coming from central Government to fall. The hon. Lady would find that the opposite is the truth. What is trueperhaps this is a reflection on the future of council taxis that the proportion of the tax provided by the business rate has fallen substantially in terms of total local government revenue.
: I hope that my hon. Friend will be wary of falling into the trap of not recognising that local tax-raising and national tax-raising is taxation raised locally. The moneys come from individuals, local people. The question is how much is retained by the centre and what is done with the revenue. Does my hon. Friend accept that we can never separate local government finance from local government powers? Perhaps Liberal Members have lost that part of the theory. They have come up with a view about local income tax, which has some intellectual coherence, but
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that seems not to walk alongside the differentiation of local power and national power. There must be a constitutional and democratic settlement to make things work.
Dr. Whitehead: My hon. Friend makes a valid point. If it is accepted that more power should be returned to local level, that goes along with the idea that funding for local decisions should be made locally to a greater extent. Decisions on that funding, and the extent of that funding, must be made locally. There are no proposals from Conservatives to raise the amount of money that is raised locally through council tax. Indeed, the opposite is the case, given what they say about how their various giveaways should be funded. They wish to see the proportion of money that comes from the centre increased. At the same time, they say, having examined the charts erroneously, that the sums that the Government are making local people pay through local tax are increasing.
The amount raised by the business rate has fallen. If there is a review and an outcome, the buoyancy of the tax take across the board must be considered as a whole. The hon. Member for Meriden failed to set out the proposal at the centre of her party's proposals when going into the general election. It was proposed to freeze the amount of money going into local government. The hon. Lady shook her head in response to the quote from the shadow Chancellor on 16 February 2004, but that was
Mrs. Spelman: If the hon. Gentleman reads Hansard tomorrow he will see that I stated clearly for the record that our former shadow Chancellor had clarified before the election that local government funding would be increased. The proportionate share between central Government and local government varies by local authority. The global picture disguises the way in which Conservative authorities have been discriminated against.
Dr. Whitehead: The hon. Lady is right that the shadow Chancellor clarified the position shortly before the election. Indeed, he did so in February 2005. In a statement posted on the Conservative website entitled "Better Public Services, Better Value", he said:
"Last February, we set out our medium term expenditure strategy. The heart of that strategy is a path for public spending that is affordable . . . in this document we set out how we will achieve that affordable spending."
On page 2, there is a table setting out spending in 200508, which was allocated to priority and non-priority areas. Right hon. and hon. Members will be shocked to know that local government expenditure was considered as a non-priority area. They will also be shocked to know that other grants to local government in a devolved Administration in that non-priority group were listed to increase over a three-year period by only 1 per cent. That is equivalent to a freeze in the first two years and an increase of 2 per cent. in the third year. The
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policy that the hon. Lady has said is not policy, and which was amended between 200405, was endorsed by the shadow Chancellor in the document of 2005. That illustrates the bankruptcy of the Conservative proposals on local government.
We need to consider some aspects of council tax, including, as the Liberal Democrat amendment suggests, the way in which local government taxation is geared. The gearing effect shows that decisions on local government taxation automatically inflate in terms of the council tax-raising decision and the budget-making decision that precedes it. However, the Liberal Democrats have failed to see the central point. Indeed, the hon. Lady's predecessor, who was in the Siberian power station position of defending Liberal Democrat local income tax proposals, said that under his policy he would have to put £1.7 billion into the pot to keep local income tax rises at 3.5 per cent. for the first year. He was, I accept, very honest when he said that that amount had gone up from £1.7 billion to £2.4 billionagain, money from central Government resources. Local income tax completely fails to deal with the gearing problem in local government taxation.
Sarah Teather: It is a two-stage solution, as it is not possible to do everything in one go. We need to get the system in place and let it bed down, and then shift from national to local taxation. Without a coherent system, it is not possible to do that.
Dr. Whitehead: I think the hon. Lady is saying that over a period of time the local government settlement becomes even more highly gearedthat is, more money comes from the centre and less from local government, and eventually the position switches to a greater amount of money coming from local government than from the centre, in which case local income tax rises very substantially. The whole basis of the local income tax proposalsas currently presented, for all I know, in the Cheadle by-electionis that rises are kept down to about 3.5 per cent. a year, which can only be done by smoke and mirrors.
In other words, a lot more money will have to be put in from the centre to keep the whole rickety show on the road. The truth is that, as the balance of funding review said, a local tax derived from property that is difficult to evade, relatively straightforward and cheap and simple to collect is probably the best way forward for local taxation. However, it requires several changes that reflect how taxation can be affordable, how the gearing process works, how the business community relates to local government in terms of paying for it, and how the palette of taxes might be broadened in order to make that whole burden bearable. The balance of funding
Sir John Butterfill (Bournemouth, West) (Con):
Since I have been in this House, we have moved from the rating system, through the poll tax, and on to the council
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tax. People are now saying that none of those worked and we need another kind of tax. The real problem with the council tax, which was welcomed when it was first introduced, is the increased burdens that the Government have placed on local authorities without providing the funding to ensure that there is not a hugely increased charge to council tax payers.
The council tax has become unpopular simply because of the large increase in costs. It is therefore not unreasonable for thoughtful people such as the Liberal Democrats to say, "Ah, but wouldn't it be more reasonable if we had a local income tax, because that would be fairer and more attuned to people's ability to pay?" I believe that they are well intentioned, but misguided.
First, who would pay it? According to the Library, where I got some statistics today, there are approximately 38.3 million people of working age in this country, of whom 12.2 million do not pay income tax. On the other hand, 5 million pensioners pay income tax. Students, who do not currently pay council tax, would pay local income tax if they earned money to sustain themselves in their time at university. However, if we had local income tax in my constituency, the hundreds of foreigners who own holiday homes there would not contribute because they do not pay tax in this country. Probably 1 million foreigners, who would not pay local income tax, own property in London. Yet they use services, often placing a huge burden on the services that local authorities provide.
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