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Mr. Woolas: I think the hon. Gentleman will find that my right hon. Friend was quoting the Liberal Democrat spokesperson on PAYE as the basis of the local income tax. If the policy has changed, I should be grateful if the hon. Gentleman would let the House know. On his main point about collection, could he clarify the answer to the
 
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other question raised: where would the local income tax be assessed—on the place of work or the place of residence?

David Howarth: Clearly, local income tax would be assessed on the place of residence. I am not aware of any policy change. The policy has been unchanged for many years. I do not understand where the right hon. Member for Greenwich and Woolwich got his idea from.

Mr. Woolas: I am grateful for that clarification, for which I have waited about 18 years in various debates with the Liberal Democrats. Can the hon. Gentleman confirm, therefore, that in a central Manchester location—say, British Aerospace—workers working alongside each other would pay different rates of local income tax?

David Howarth: Indeed. That is correct in all places that have local income tax. As I tried to make clear in an intervention, the Revenue already knows where people live. That is how people receive their coding notices.

Mr. Woolas rose—

David Howarth: I give way for the last time, as this is technically a Back-Bench speech.

Mr. Woolas: I am asking these questions in a spirit of genuine inquiry. On the point made by the hon. Member for Bournemouth, West (Sir John Butterfill), does the hon. Gentleman accept that because labour is more mobile than property, such differentials in local income tax are likely to produce a rapid movement in labour—that is, people moving into lower income tax councils—than is currently the case with council tax?

David Howarth: That has not been the experience in the rest of the world.

One hon. Member raised a point about student nurses, which my hon. Friend the Member for Brent, East (Sarah Teather) answered, although I am not sure other hon. Members heard her answer. The bursaries that student nurses receive are not taxable. According to the basic rule, the tax system locally and nationally would be based on the same tax code, so student nurse bursaries would not be taxable under local income tax either.

Mr. Ben Wallace (Lancaster and Wyre) (Con): Will the hon. Gentleman give way?

David Howarth: No, I am sorry. I do not have much time left. I might give way at the end, if I have some time.

Mention was made of shared houses, which are often very large. The comparison must be made not with the average band of council tax, but with the actual band within which those houses fall. That is likely to be at the higher end, possibly even in band H. Even a single-earner household in band H can find itself not losing from local income tax on an income of almost £75,000 a year.

Another point that was raised quite frequently related to tax avoidance. As we tried to make clear in the debate, our view is that second homes should be treated
 
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as businesses. They would therefore fall to be taxed under our land value taxation proposal. Our view is that that also meets the worries about foreign-owned properties.

Mr. Pickles: If a property is occupied all year round, every day of the year, would it fall into that category if it was owned by a foreign national?

David Howarth: As I said, second homes would fall under the business rate regime and taxpayers would have to opt for which of their various homes was their main residence.

The hon. Member for Southampton, Test (Dr. Whitehead) raised a good point about business rates. One important point that he did not seem to take on board was that if business rates are relocalised, the ratio between national and local tax-raising is automatically changed, and our proposal is to relocalise business rates.

The hon. Member for Nottingham, North (Mr. Allen), who I am sorry to see is not in his place, and who did not have an opportunity to speak, raised an extremely important point about the connection between financial settlements and the constitutional settlement. I agree entirely that there needs to be a new constitutional settlement between national and local government, as well as a new financial settlement. The two must go together.

The hon. Member for Bournemouth, West asked a simple question—who would pay under local income tax? The answer is people who pay national income tax. It is not true to say, as various hon. Members have tried to argue, that there would be no redistribution under the local income tax proposal. There is redistribution under all local taxation systems. The various questions about tax bases are misplaced.

I was somewhat surprised at the contribution of the hon. Member for Ludlow (Mr. Dunne) who at one stage in his remarks said that under the local income tax proposal, there would be a massive increase in tax in his area, assuming that there would be no redistribution. He followed that with his second criticism, that the redistribution under local income tax would be too great. He cannot have it both ways. He must make one criticism or the other.

No taxation system is perfect, and none is likely to be popular, but our local income tax proposal is fair, efficient and cheap to administer. It uses an existing system, it reduces local bureaucracy—there is no need for a local valuation or benefits bureaucracy—it makes decentralisation more possible in the future, it increases accountability and it works elsewhere.

The only opponents of local income tax are those with a vested interest in protecting those on very high incomes. Traditionally in this House they have been members of the Conservative party. I hope that they are not joined in that position by new Labour.

6.20 pm

Mr. Ben Wallace (Lancaster and Wyre) (Con): Thank you, Madam Deputy Speaker, for giving me the chance to speak. I thought that it was important that I should do so when my hon. Friends the Members for Clwyd,
 
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West (Mr. Jones) and for Preseli Pembrokeshire (Mr. Crabb) decided to allude to the record and the progress of the Liberal Democrats in coalition in that part of the United Kingdom. I thought that I could bring my experience to the House from the Scottish Parliament, where the Liberal Democrats have been in power for nearly seven years now, with the Labour party. I thought also that it might be interesting and important to translate rhetoric into reality under the Lib Dems.

Anyone with experience of the Lib Dems in power, either in a local authority or an Administration, as in Wales or Scotland, will find that that reality is different from the stated policy aims of their party. As I said to the hon. Member for East Dunbartonshire (Jo Swinson), when the Lib Dems came into power with the Labour party in Scotland, one of the first things they did was to vote to increase the business rate. Under the current system they made Scotland less advantageous as a country in which to settle a business than the other countries of the United Kingdom. That shows clearly that there is a difference between what the Lib Dems say and what they do.

In neither of the coalition documents—the documents set down, first, with Donald Dewar, a former Member of this place, and with Jack McConnell, the First Minister of Scotland—did the Lib Dems ever raise the unjust system of council tax and the demands to reform it. That campaign was not part of those documents. Interestingly enough, the Lib Dems wanted to reform the voting system for local authorities. Clearly it was more important to get themselves into power first before they tackled incomes and the difficulties for people in terms of council taxes.

I represented the north-east of Scotland—Aberdeenshire—where I was under a Liberal Democrat council. Many Members may remember that during the recent general election the Liberal Democrats campaigned on local issues, including saving bus services. The Lib Dem candidate whom I faced campaigned to prevent Lancashire county council from cutting bus services, even though the council was under Labour control and it was not going to cut bus services. Under the Lib Dem administration in Aberdeenshire, school bus services were cut. There we go again. We also saw our council tax raised to a higher and higher level every year. It is important to contrast rhetoric with reality.

There is talk of free personal care. The hon. Member for East Dunbartonshire laid claim once again to that, but it is important to note that the Liberal Democrats voted on two separate occasions in the Scottish Parliament against free personal care.

Madam Deputy Speaker (Sylvia Heal): Order. We are not discussing free personal care, but local council tax.

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