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John Bercow: If the hon. Gentleman were a lawyer and paid by the word, he would have made sufficient funds by now to retire. However, I am genuinely interested in his comments. What assessment has he made of schedule 7(52)(4) of the Local Government Act 2003? It is germane to our discussion because it relates directly to clause 1(7), on which, I know, he wants to focus.

Dr. Whitehead: The hon. Gentleman makes an important point, but if he examines those subsections carefully, he will find that, unlike his belief, they are not closely connected.

I was about to concur largely with the right hon. Member for Skipton and Ripon about making council tax work. That is an important element that we need to consider when we examine revaluation.

Much of the debate has been about bands, including whether we need new bands at the top or at the bottom, whether we should retain existing bands and whether revaluation, which would re-band properties, leads to higher council tax. Hon. Members have commented on the fact that, unlike in Wales, rebanding in England could be revenue neutral, if one provided for circumstances in which that could be achieved.

Mr. David Jones : The hon. Gentleman mentions revenue neutrality. However, is not it the case that revaluation was presented as revenue neutral to the Welsh Assembly?

Dr. Whitehead: It has already been suggested that we should not stray into matters that concern the Welsh Assembly. However, the revaluation in Wales did not   proceed on the basis of a nil additional yield. Revaluation in the UK could be based on no additional yield.

Mrs. Maria Miller: It might be useful to remind the hon. Gentleman about the business rate revaluation, which was also supposed to be revenue neutral but was not. Perhaps he could make a few comments on that.

Dr. Whitehead: As the hon. Lady knows, the business rate revaluation has been based on its being followed by dampening mechanisms to take account of the differences in the way in which the rate works in various parts of the country. When there is a transition in value between various parts of the country, the dampening mechanism works to a better or lesser extent in different places to equalise as far as possible the effect of the   revaluation over a period of time. However, if a dampening mechanism is introduced, it cannot necessarily ensure that there is no difference in yield because it works differently in different parts of the country, depending on the change that has occurred in   the revaluation. A revaluation with a dampening mechanism cannot give a revenue-neutral, guaranteed yield in the way that the Government suggested could be done for council tax revaluation. I am sure that the hon. Lady has been greatly enlightened by what I have just said.
 
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When we consider bands and whether we need new ones, I want to ask whether we need them at all. The previous Conservative Government introduced bands in the Local Government Finance Act 1992. They were prepared in something of a hurry, on the erroneous understanding that they would ultimately get rid of revaluation. I believe that a system of points would be a fairer and better method of valuing properties than the current bands system. We would not then have the   worry about moving between bands.

Points would be given on the basis of a specific valuation. As we have heard, the Institute of Revenues Rating and Valuation has said that, if revaluation were to proceed, it would provide an individual valuation for   each property. It would thus be relatively straightforward to move from individual valuation to a series of points rather than placing properties in a band. The total number of points that a local authority had would form the basis on which council tax could be levied. That would provide considerable certainty about the amount of money available for the local authority to levy council tax as part of its budget-making activity.

Such a system would also mean, if combined with a change in the way in which councils set their council tax, that there would be no gearing effect. If, for example, one were to introduce a marginally variable core grant at the beginning of the process, set the council tax on the basis of points rather than bands, then compensate at the end of the process, one would simply not have the gearing effect. The way in which the settlement was brought about would effectively remove much of the concern about that effect.

The right hon. Member for Skipton and Ripon and the hon. Member for Brent, East both mentioned proposals to localise the business rate. It has been suggested that that should happen because it would introduce a greater degree of autonomy to councils in terms of the decisions that they make about their finances. If there were no gearing effect, however, that would be of less significance. However, the right hon. Member for Skipton and Ripon rightly pointed out that since the business rate was introduced, with the intention that it should not be levied at above the rate of retail price inflation, the percentage of funding into the local government stream that the business rate has provided has gone down from about 27 per cent. to 22 per cent. If we had historically pitched the level of the business rate against increases in earnings rather than in prices, it would have been possible more or less to have kept up that proportion over a period of time. If we prospectively pitched the business rate against earnings rather than prices, it would re-equalise that proportion over time, so that it would continue to operate on a level basis, rather than falling continuously against the total proportion of moneys raised for local government and against the amount raised by council tax. That would resolve another problem.

There are a number of measures in the Lyons review—or associated with it—that the Government could consider in the context of revaluation, over and above whether we revalue or not, which would bring back a council tax whose operation was significantly refreshed. That is the potential prize that lies ahead of us, assuming that we consider that council tax should
 
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continue to be the main device whereby local tax is raised. If, as a result of this process, we achieve a council tax that reflects more marginally on people's concerns about the tax bill landing on the carpet, that relates more fairly in terms of its effects on the rise of property prices and to the actual amount that people pay, and that is in line with the way in which the business rate works, we will have done a good job, so far as temporarily suspending the revaluation is concerned. If the tax comes back refreshed in that way, the question of revaluation will play a part in the process but it will not form most of the process. That would be a positive outcome from a decision that people in some quarters are calling a U-turn, and it could result in something good for future local government.

7.14 pm

David Howarth (Cambridge) (LD): It is a great pleasure to follow the hon. Member for Southampton, Test (Dr. Whitehead). I agreed with many of the points that he made at the beginning of his speech. Sadly, I did not agree with what he said about local income tax, but it seems that we shall have to take up that debate on another occasion.

Two aspects of this debate are quite bizarre, one of which the hon. Gentleman mentioned. That was the fact that it seems very difficult for hon. Members to stick to the point of the debate. One reason for that is easily explained: it is difficult to separate valuation from the rest of local government finance. Some reference to those other matters is necessary in order to understand the decision that we face tonight.

The other point is fascinating, and relates to the internal debate on the two sides of the House. It became increasingly difficult to tell whether a speaker was speaking from the Conservative side of the debate or from the Government side. A serious point lies behind that difficulty as well. There are inherent difficulties with the council tax, and both sides are finding it difficult to come to terms with that. It is the most regressive major tax in the Government's taxation armoury. Indeed, it causes the whole taxation system to be regressive: the top 20 per cent. pay less tax overall than the bottom 20 per cent. of the income distribution. We all have constituents who face extraordinary council tax bills. I   have one who has to pay 10 per cent. of his income in council tax, which is an extraordinary figure. This leads to the conclusion that we have reached, which is that the whole council tax system ought to be abolished and replaced by a different system.

My own position on the Bill is simple, and the hon. Member for Southampton, Test got close to identifying it. For me, revaluation is a pointless and expensive exercise that should be scrapped. It is pointless because the council tax is inherently unfair and should be replaced by a better tax, namely local income tax. It is expensive because it has already cost about £60 million and is likely to cost another £100 million, if not more. Those resources would be much better spent on almost any other aspect of local government expenditure. The Bill means that the Government will be in a position to   call off this wasteful and pointless exercise, and I   therefore support it in principle. I would, however, like to see some changes made to it in Committee, and I   shall mention at least one of them later.
 
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First, however, I want to challenge the Conservatives' position on the Bill, which is puzzling. Their amendment says that the House should decline to give the Bill a Second Reading because it does not cancel the council tax revaluation. However, as the hon. Member for Southampton, Test said, we all know that the Government will use the power that the Bill will grant to call off the 2007 revaluation. The current law is clear: there is an obligation to hold a revaluation in 2007 under the terms of the Local Government Act 2003. If the Bill were to be defeated tonight, therefore, that would remain the law and the 2007 revaluation would continue.

The Conservatives' position is puzzling in another way. I differ from the hon. Member for Southampton, Test, at this point, because the Second Reading debate of the Bill that became the Local Government Finance Act 1992 shows that it was always thought that revaluation would be necessary at some point under the council tax system. That Second Reading debate makes fascinating reading, and I recommend it to all hon. Members, especially for the remarks by Labour Members who were in favour of something called "fair rates"—a concept that seems to have disappeared completely—and for the views of the right hon. Member for Sheffield, Brightside (Mr. Blunkett) and the then Member for Dagenham, who held fascinating views on the invasion of privacy that would result from the introduction of the council tax valuation system.

Nevertheless, little was said in the 1991 debate about the revaluation issue, except in so far as Conservative Members said that the need for revaluation was a serious problem in the old rating system and would also be a problem in the fair rates system. That problem would not be eliminated under the council tax, however, but simply reduced. The then Secretary of State for Scotland, Mr. Ian Lang, in the debate on Tuesday 12 November 1991—a Second Reading debate that was held over two days, which I have yet to see in the House in my time, although perhaps it is not necessary for this Bill—stated:

"The banding system irons out much of the effect of relative changes in property values within an area which, under the rating system, brought regular pressure for revaluation. The need for general revaluations is therefore much reduced. If, however, such a revaluation were required, say, 20 years hence, the same house in band D would probably remain a band D house, provided that its relative position within the range of property values had not changed so much as to take it outwith the new parameters for that band."—[Official Report, 12 November 1991; Vol. 198, c. 918.]

Council tax does not therefore eliminate the need for revaluation, but merely reduces it.

The then Conservative Government expected to have a revaluation in around 2011, only four years later than that provided for in the 2003 Bill. The puzzle in the Conservative position is that if clause 1 of the Bill that we are considering tonight had been included in the 1992 Act, no one would have turned a hair. It would have been perfectly compatible with the policy of the   then Government. We have heard tonight that Conservative policy now is that there must be primary legislation every time a revaluation is suggested. No one said that in 1991. It strikes me as somewhat over the top to require primary legislation for what would in effect be a one-clause Bill, as opposed to a positive resolution of the House under the current arrangements.
 
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Let me turn to the one aspect of the Bill that requires further attention. Hon. Members have referred to the difficulty that politicians have in bringing to fruition revaluations of property-based or near-property-based tax. The technical reasons for introducing such revaluations have been well explained, especially by the hon. Member for South Ribble (Mr. Borrow). They are related to divergence in property values. The relevant divergence is at the individual property level, not at the district or regional level. Those technical advantages of revaluation, however, are always outweighed by the political cost. Ministers of whatever party find it impossible to revalue without paying a very high political price.

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