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Mr. Bone: Perhaps I have misunderstood what the hon. Gentleman said. You said that, because the value of houses was going up, it was okay to tax them. But some of the people living in those houses are pensioners on fixed incomes who will be penalised by your proposals.

Madam Deputy Speaker: Order. May I remind hon. Members that, in the Chamber, parliamentary language involves the use of the third person?

Mr. Betts: I still argue that those people have a store of wealth in their house. They have a property, and it is
 
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reasonable to tax it. I do not think that the hon. Gentleman was arguing for the complete abolition of property tax. I am arguing that the principle of a property tax is fair. The key question is how it is implemented.

I would argue strongly that we have to find a way for local government to become more accountable and responsible for raising its own revenue. The key to that will be to bring the business rate back into the orbit of local authority responsibility. It is wrong that increases in business rates have been restricted to the annual inflation rate. That has inevitably resulted in a greater percentage of the money for local services having to be raised from council tax payers than from business rate payers. Business rates should be brought back, and if there has to be a restriction—as there was on the domestic rates and business rates before the poll tax was introduced—the two should be linked. It is possible to link increases in council tax with increases in business rates so that local authorities do not put the entire burden on business rate payers. That would also mean that any increases in revenue that were needed locally would be spread across a wider base, which would reduce the problem of gearing. That would be one significant reform that could come out of this process.

I know that there are differences between the incomes of people in different groups, but broadly speaking, council tax is not regressive; it is usually neutral. However, it is regressive if we compare the amount that people pay with the value of their property. If we compare the £40,000 value of a property at the top of band A with the £320,000 value of a property at the bottom of band H, the difference is about eightfold. Yet the council tax payable on the band H property is only three times that paid on the band A property, so the burden is greater on people at the bottom end of the scale. When we come to examine council tax seriously, we need to look at how the burden is spread across the bands, and probably at the bands themselves. Perhaps we shall need another band A, and perhaps a splitting of the top band. Those are all possible ways in which we can more fairly relate what people pay to the actual value of their property.

We should also consider the proposal that pensioners who do not want to give up their house, but who are struggling because they are on a fixed income—I take the point made by the hon. Member for Wellingborough (Mr. Bone)—should be able to defer payment of their council tax until they sell their property. I have no problem with that at all. The proposal has been referred to as a death tax, but that is frankly silly. There would be no compulsion on people to defer payment, and it would have to be done in a way that did not impose a penalty on other council tax payers. But that is a possibility, and it could deal with the problem of pensioners being forced to sell their home.

I also accept some of the criticisms of council tax benefit. The reality is that council tax benefit is taken up fairly well by people in social rented housing. Only about 50 per cent. of owner-occupiers who are eligible take it up, however. That is a real challenge. Certainly, we must do more in terms of publicity, but perhaps we should consider the whole issue of council tax benefit and its structure to see whether we can find a better way
 
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to encourage people to take it up. Certainly, making the tax more progressive would be helpful and would deal with a particular group of people who are currently hard-hit by not taking up their benefits.

The Local Government Information Unit has produced an interesting pamphlet, which I hope that Ministers will read. It identifies another problem, which relates to the point made by Liberal Democrats that some people will be better off with local income tax. The reason that some working families on relatively low incomes are better off under a local income tax is that people start paying income tax at a higher earning level than that at which they start paying council tax, which means that they start losing council tax benefit. If we could bring into line the points at which people pay income tax and council tax, we could deal with another element of unfairness in the current council tax system in terms of how it impacts on low earners who are struggling to make their way and to get a better income than if they simply relied on benefits.

I hope that Sir Michael Lyons considers seriously a number of proposals, although I have some reservations about the deferral of the revaluation process. I support the widening of Sir Michael's remit, however, and I hope that we retain a property tax but with significant reforms to make it fairer still.

2.51 pm

Mr. Brian Binley (Northampton, South) (Con): In May 1997 I was elected to Northamptonshire county council, and exactly one year later was handed the shadow finance portfolio and tasked with preparing the Conservative group for county government. On that self-same day, our current Prime Minister was given the immediate task of running our country. There is a bit of a difference between those two tasks, but I was allowed to experience at first hand the impact that the newly elected Government would have on the quality of local government in my county and on the welfare of its citizens. I was especially well placed to judge that impact from a financial perspective.

I well remember some of the promises concerning local government that were made in the Labour party's manifesto prior to that election. I want to remind the House of a few of them, not least because the Minister referred to them.

First, the manifesto promised that local government would be less constrained by central Government. How I wish that that promise had been kept. Sadly, however, through ring-fencing, matched funding and the iniquitous pressures exerted by quangos and the comprehensive performance assessment, it was not.

Secondly, the manifesto promised that there were sound democratic reasons why, in principle, the business rate should be set locally. I am rather pleased that the Government have not carried out that pledge, although I note that they are still talking of doing so after eight long years. It is another example, however, of not following through on a promise.

Thirdly, the manifesto stated that Labour was committed to a fair distribution of Government grants. The Minister for Local Government should tell that to the people of Northampton borough—I notice that he has the information about Northamptonshire county council, and I look forward to hearing it from him—who,
 
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three years ago, received a 32.9 per cent. increase when the council was under Labour control, and a 5.8 per cent. increase in the following year when still under Labour control, while last year the grant dropped to just 0.9 per cent. after Labour had lost control. That is hardly an example of fair distribution, bearing in mind the impact of year-on-year revenue expenditure on services.

Finally, the manifesto stated that councils should not be forced to put their services out to tender but will be required to obtain best value. Almost everybody in local government, however, will have horror stories to tell of the best value regime—as I am sure you will have heard, Madam Deputy Speaker—of the money it wasted, and the time and effort that it cost to so little avail. In truth, we hardly hear of it now because of that waste, but it was a problem.

What one word might we choose to sum up Labour's performance with regard to local government, and especially local government finances? In my part of the world, that word would be "uncertainty", and I get the impression that that word is used quite a lot throughout the country. Undoubtedly, there is sizeable uncertainty in local government, and this Government need to recognise that and the impact that it creates. Any businessman will tell us that it is one of the most damaging of all conditions to deal with.

How has this uncertainty arisen? Many in the House will know of the Government's initially stated desire to review local government funding, which they pursued with the balance of funding review starting in January 2003. The need for a thoroughgoing review of local government finance and the necessity of creating more equitable local collection vehicles is well rehearsed. Recent events have especially drawn our attention to the seeming unfairness of the current system for certain sections of our community—we have already mentioned our state pensioners, many of whom have seen up to 40 per cent. of their basic pension increases clawed back by council tax increases over the past eight years. The decision to supersede that review with the Lyons review, which was programmed to report at the end of 2005 but was then extended further by widening the terms of reference to include the functions of local government and its future role, suggested a wish to delay and prevaricate rather than to act and progress.

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