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Mr. Wallace: I am grateful, Madam Deputy Speaker. I am trying to point out the difference between rhetoric and reality in the context of the Liberal Democrats. That leads into the detail of income tax.

I am a member of the party that introduced the poll tax. The hon. Member for Carmarthen, East and Dinefwr (Adam Price) pointed out that trying to link the
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use of services to the rate of pay was, in one sense, a noble aim in that a poll tax should be based on consumption. However, problems were faced when the poll tax was implemented. Local income tax seems an attractive policy on the Lib Dem website, but when we start asking questions about PAYE and how the tax will deal with large-scale redundancies in an area, issues arise about the income base. For example, my constituency is next to British Aerospace and Springfield nuclear fuels. There is also a manufacturing plant in Calder Vale, which recently announced a fairly large number of redundancies. How would local income tax respond to that, for example? There are more than 3,000 jobs—perhaps 10,000—that are reliant on British Aerospace.

David Howarth: I am grateful to the hon. Gentleman for allowing me to intervene given that I did not allow him to intervene on me.

The answer is that in the current year there would be no change and no problem. The grant would be as it was in the previous year. The redistributive system would be able to adjust in the following year.

Mr. Wallace: It is interesting to consider what we would be saying to the boundary committee. In future, it would have to redraft boundaries to take into account redundancies for the year before or the year before that. We would all find ourselves within peculiar district or county boundaries, which would be redrawn not on the basis of geography but on that of income. That has to be noted.

As for students, I take the hon. Gentleman's point that bursaries would not be taxed. However, there is a range of students who do not receive bursaries but who earn income. There are some who perhaps pay tuition fees. They go out and earn during all their holidays or during term time. If their earnings are above the threshold, do they suddenly become liable for local income tax? All students who currently have a de facto exemption would be brought into the tax bracket.

Another example is cadets. Armed forces personnel sponsored by the Ministry of Defence as cadets are paid a salary. Every cadetship officer or cadet in any of the armed forces will immediately—I think they get about £7,000 a year—come within the scope of taxation. That means that another group of people will be brought into the system.

I have mentioned the footprint but there is another word of which I am rather suspicious, and that is "affordable". We have heard quite a lot from the Liberal Democrats that the tax will be affordable and that people could pay it. I could live in a large house and have no income, or a low income, or I could choose to sell my house and live in a small house, putting my money into dividends so as to get an income in that way. Affordable is a subjective concept that creeps into the conversation or into policy. What exactly is affordable? That issue must not be overlooked in the long run.

The contrast between rhetoric and reality is interesting. We must consider the record of a party that has set the highest rates of council tax throughout the United Kingdom. Why could we trust it to run a local income tax system? It is interesting that, according to its current policy, it wants to repatriate business rates on a
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local level. The income generated by Aberdeenshire has funded a large part of Scotland. On the basis of localisation, however, the constituency of the hon. Member for East Dunbartonshire would lose out and Aberdeenshire would be very rich, thank you very much. That is a peculiar way in which to manage local government finance.

I think that everyone agrees that we are dealing with a difficult issue. However, I agree with those on the Opposition Front Bench that people did not complain about council tax until the level of that tax became higher and higher. There are people who say to me that they quite like the idea of a local income tax. I then go through it, explain it and ask them questions. For example, I ask them, "Would you be upset if your council tax was half the price?" They then say that that is not really the issue. There are many questions still to be answered on local income tax detail. There is PAYE, dividend payments and income from other areas. How will those factors be taken into account?

There are some similarities between local income tax and the poll tax in the sense that the number of people in a house will often determine the rates that people will be paying. There could be three earners in a house. There are many in that position because housing is not very affordable. Many young men and women are living with their parents, which means that sometimes there are three income earners rather than two or one. I have serious concerns about the application of local income tax in reality and I therefore urge the House to support the Opposition's amendment.

6.29 pm

Mr. Jeremy Hunt (South-West Surrey) (Con): I am most grateful to you, Madam Deputy Speaker, as I have spoken only three times in this House and each time you have been in the Chair. I am beginning to think that you must be my lucky charm, and I hope that you will call me many times in the future.

There is no doubt that council tax has several difficulties, including those to do with its structure. However, it is not, as Liberal Democrat Members claim, a wholly regressive tax. Some taxes are purely regressive—road tax, for example. The air passenger levy is a purely regressive tax because one pays exactly the same no matter what one's income or wealth. Council tax is mildly, although not perfectly, progressive, because, broadly speaking, the bigger and more expensive the house one has, the more one pays.

When I was campaigning to win my seat in the last general election, I met a pensioner whose council tax was higher than his pension. There is no doubt that that is a problem. However, it is a question not only of the structure of the tax but of its level. In many places, including my constituency, council tax has doubled since 1997. If one has a mildly regressive tax and then proceeds to double it, a small injustice becomes a big injustice, and that is what has happened. In my constituency, the local income tax cost the Liberal Democrats votes. That was not only because teachers, doctors and nurses saw that their tax would increase, but because in places where Liberal Democrats ran the council, they increased council tax. In my area of Waverley, they increased it by nearly double the rate of Guildford next door. People felt that it was hypocritical
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of the Liberal Democrats to say how awful council tax was for pensioners, and then, when they had a chance in power to do something about it, to increase it in ways that were painful to those same pensioners. The danger with local income tax is that one not very successful system will be replaced by one that is even less successful.

Mr. Richard Benyon (Newbury) (Con): Will my hon. Friend join me in congratulating the Liberal Democrats on their wonderful website, "Axe the Tax"? That is one of the reasons why I am here, because towards the end of the general election I ended up suggesting to householders that they look at the proposal to see how much more the local income tax would cost them.

Mr. Hunt: I am not accustomed to congratulating Liberal Democrats on their campaigning techniques, but in that respect I wholeheartedly agree with my hon. Friend.

This is, in all seriousness, something that the Liberal Democrats need to consider. My constituency is an expensive part of the world and, yes, there are people on high salaries, but there are also people on low salaries who have to deal with very high costs. I met a couple of teachers who lived together in Godalming. They had bought their first house with their first mortgage, and their combined salary was around £60,000. I accept that in some parts of the country that is a very generous amount of money to live on, but it is not much when one is having to buy a very expensive house and to deal with a mortgage on it. That couple's council tax would increase by about £600 under the local income tax, and they would really suffer. When I talked to pensioners who would benefit from the local income tax, would many of them stop thinking that it was a good idea if I explained to them that the reason why they would benefit is that hard-working young couples would have their taxes increased in return.

On top of that, there are all the problems about the cost of collecting local income tax and about equalisation. That is significant for my part of the world.

Anne Main: Unfortunately, we have exactly the same problem in St. Albans. Even a starter home costs about £200,000, which is more than three times the income of the couple my hon. Friend mentioned. The Liberal Democrats assume that a high house price equals wealth, but that is not so. The biggest flaw with the local income tax is that it takes no account of the fact that many people—often key workers such as police, nurses and teachers—will need to have a huge mortgage to live in areas such as St. Albans, Guildford, and my hon. Friend's constituency.

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