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David Howarth (Cambridge) (LD): I shall address some of the points made in the debate and then make one point of my own. When the Minister winds up, I hope that he will take up a point that the Minister of State mentioned when he opened the debate, which was of great interest to those of us who spent a long time in local government. He implied that the financial settlement for local government this year is likely to be ungenerous, especially outside education. The figure of 1.5 per cent. has been bandied around, and that would cause extreme difficulties, especially for district councils, and lead to severe reductions in services.

The right hon. Member for Greenwich and Woolwich (Mr. Raynsford) mentioned pensioners and council tax benefits. Large numbers of pensioners do not receive council tax benefits, for two reasons. First, as the right hon. Gentleman said, many do not claim the benefit. Secondly, even quite modest savings take pensioners above the capital limit. Both factors put together mean that many pensioners do not receive council tax benefits, as my hon. Friend the Member for Brent, East (Sarah Teather) said.

The right hon. Member for Greenwich and Woolwich and the hon. Member for Sheffield, Attercliffe (Mr. Betts) made the point about local income tax and foreign nationals, but that point is easily answered. A foreign national is either resident for income tax purposes or not. If resident for income tax purposes, a foreign national will pay local income tax. For those not resident for income tax purposes, we will introduce a second home tax based on land value. That will not require all properties in the country to be valued—only those used as second homes.

Mr. Raynsford: When a local authority does not at the beginning of the year know who will occupy a particular property, how will it be able to make the appropriate valuation on which the supposed land value tax will apply?

David Howarth: It will work on the previous year's figures. The Treasury will guarantee the funding on the previous year's figures when working out the funding on the following year's grant. That is standard practice in local government.

Adam Afriyie: My concern is not the effect of the local income tax on the overseas visitor resident here, but its effect on two schoolteachers—or two nurses, two doctors or two firemen—on average salaries who share a flat. Under the Liberal Democrats' scheme, such people would have to pay far more than under the council tax. Is the hon. Gentleman not concerned about those groups?

David Howarth: As my hon. Friend the Member for Brent, East said, whether such people would pay more depends on their incomes and what band house they live in now. Under a local income tax, people living in a band H house can earn up to £60,000 between them before losing out. The hon. Gentleman should remember that average household income is £26,000.

The hon. Member for Sheffield, Attercliffe, who is unfortunately not in his place, claimed that the council tax is not regressive. In fact, it is the most regressive
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major tax and it makes the tax system as a whole regressive. That is why replacing it with a local income tax would make the whole system progressive.

Dr. Julian Lewis: May I remind the hon. Gentleman that during the election campaign the leader of his party was gravely embarrassed when he logged on to the Liberal Democrats' own website on air and made some comparisons using the website's calculator. In nearly every case with more than one wage earner in the household, the local income tax would have cost people a great deal more. The hon. Gentleman cannot escape that fact, however much he tries to spin it.

David Howarth: I repeat that the cost will depend on the band of house that people already occupy. People who live together in large houses are, by definition, in high band houses, so the comparison with the average house is not valid.

I come to my single main point. Contrary to what the right hon. Member for Greenwich and Woolwich said, this debate is not only about revaluation. It is also about the Lyons review. As several hon. Members have said, both the motion and the amendment mention the important point about asking the Lyons review to consider the strategic role and accountability of local government, so that local government finance can be reviewed in the context of the functions of local government. One might point out that the Government should have realised from the beginning that the options for local government finance cannot be understood without understanding and making choices about local government function. The obvious question is why the Government have taken two and a half years—since the beginning of the balance of funding review—to realise that obvious fact.

There is a more fundamental and important point. The functions, role and accountability of local government are not a matter for expert committees; they are political questions that the Government must make up their mind about rather than asking somebody else. The question for the Government and for the Labour party is: what should be the proper relationship between central and local government?

There are three important aspects of that—three central questions that the Government need to sort out. First, do the Government believe in pluralism? Do they believe that local government should be able to follow its own political objectives and not merely be an agent of national Government? More profoundly, do they believe that local government is valuable because it can act as a check and a balance on central power—that it is a way of dispersing power in society? There is an historical problem for both parties. For the Conservatives, there is the problem of the Greater London council, which they abolished precisely because it provided an alternative political base and political opposition to the Government. Many people disagreed with what Mr. Livingstone was doing with the GLC at the time—many still do—but supported his campaign to maintain the existence of the council because it provided an alternative centre of political power.
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For the Labour party, the equivalent problem was the Militant Tendency in Liverpool. There was a great speech by Mr. Kinnock at the Blackpool conference—

Mr. Woolas: Bournemouth.

David Howarth: Sorry, it was Bournemouth. It is good to see that there is an even greater political nerd than me in the Chamber.

There is a direct link between the political embarrassment of those times and the constitutional centralisation that the Labour party has followed in office since 1997. Both those troublesome local authorities could have been dealt with by a simple solution: the introduction of proportional representation in local government elections. However, that solution would bring political embarrassment to both sides of the House, because it would mean further questions about the legitimacy of elections to this place.

My first central question was whether the Government believe in pluralism. Do they believe in the dispersal of power through local government? We do. The second fundamental question for the Government to answer instead of putting things off to the Lyons review is whether they believe that local government can provide experiment and variety in policy making. There is a temptation for central Government to believe that they are omniscient, that they can solve all problems from Whitehall and impose uniform solutions on the country, but everyone in local government knows that that is not the case.

Mr. Hollobone: In the original remit for the Lyons review, Sir Michael was charged with considering the implications for the financing of possible elected regional assemblies. In the light of the vote in north-east England, does the hon. Gentleman still support that remit of the Lyons inquiry?

David Howarth: The question of regional assemblies still needs to be in the Lyons remit, but the Government should make some political judgments before the report to give Lyons more direction.

To return to my point about experiment and variety, schools offer an example. Policies such as school choice work in densely populated urban areas with good public transport systems—at least, they are good from the point of view of people in the rest of the country. Those policies would not necessarily work in an area such as rural Norfolk, where the population is widely dispersed and school choice is limited due to transport difficulties. The Government and the Labour party must wean themselves off easy headlines such as, "Minister steps in to solve problem" or "Minister takes charge". It is easy to obtain such headlines, but the long-term consequence of seeking them is to undermine the ability of local government to experiment and work out solutions for its area.

The third fundamental question for the Government is whether they believe that local government provides a place where there can be democratic accountability and democratic participation. Every power of national Government—to appoint people, to control total budgets and to direct their budgets—should also be reviewed, to consider whether those powers could
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be better used and allocated locally, especially to local government. So the Government need to work out their own political direction first and to understand local government in terms of pluralism, experimentation and democratic accountability. If they get that done, they can move on to the Lyons report. The Liberal Democrats know where we stand on all those questions; we do not need an expert to tell us. I just hope that the Government work out their own position sooner than the next election.

3.40 pm

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