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Mr. Carswell: There would need to be a system of top-up. The Government would need to take revenue centrally from certain tax jurisdictions with tax bases that generated a lot and allocate that money to jurisdictions with smaller tax bases. However, the local authority would be able to do something if its jurisdiction was unattractive to businesses. In the age of the internet, online shopping and increasing mobility, it would be possible for a tax jurisdiction to make itself more attractive to businesses than is currently possible.

In conclusion, the current council tax-based system is losing its legitimacy. If 50 people refuse to pay their council tax, they have a problem; if 50,000 refuse to pay, the state has a problem. I sometimes wonder whether the people in Boston in the 1770s felt about tax as people increasingly feel about council tax today.

During 10 years, we have had a 90 per cent. hike in council tax, but we have not had a 90 per cent. increase in books in our public libraries, in police on our streets or in waste disposal and rubbish collection. The Westminster village and the political establishment need to seriously question the future of local government finance. I hope that I have provided some helpful suggestions as to how that can be done.

4.26 pm

Mr. Jeremy Browne (Taunton) (LD): I am grateful to have the opportunity to make a brief speech on the important subject of local government finance. I congratulate the hon. Member for Harwich (Mr. Carswell) not only on securing the debate and providing the opportunity to debate the subject, but for two other reasons. First, it is refreshing and interesting to have an opportunity to discuss a big-picture subject that is not necessarily within the confines of party political thinking. Secondly, the hon. Gentleman’s pursuit of the issue of localism is done with huge vigour and energy and it is refreshing and interesting to hear his latest thoughts on the subject.

I agree that there is a greater interest in localism and how services can be devolved to a level closer to the citizen. I would like to see more of that happening and for parties from across the political divide to grasp that agenda. The hon. Gentleman is right that the Liberal Democrats have a long track record in that respect. However, I say these words of caution to my party: localism is not just about devolving power from one tier of government to a more local tier; it is also about empowering individual citizens, giving them choice and putting power in their hands. I would like to see my party and the political classes within Westminster grasp that emerging agenda.

I accept the hon. Gentleman’s point that local government finance is far too centralised and that local councils’ discretion in how they raise and spend revenue is extremely limited. That diminishes the power of local government to make meaningful decisions on behalf of the people they represent, which diminishes the entire political process. If councils have little scope to raise revenue and nearly all their money is ring-fenced in relation to how they are allowed to spend it, the ability of any politician to outline a vision for change in their community is severely compromised. That acts to the detriment of everyone who wants local government to be successful.

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I turn to how we should finance local government. Council tax has been particularly problematic for people on fixed and low incomes. The group that most obviously comes into both of those categories is pensioners and, in his report, Sir Michael Lyons recognised that council tax is particularly unfair to pensioners. Local income tax, which has been proposed as an alternative by my party, has the advantage of having a direct correlation between income and the degree to which someone is taxed. In the context of this debate, it would also offer the scope for a corresponding reduction in national tax and a transfer of tax-collecting ability from the Treasury—the centre—to individual councils at a lower tier. That would, I hope, provide an opportunity for a rebirth for local government.

I end my remarks with this observation: we need greater accountability in local government, which is why I oppose the creation of a single unitary authority in Somerset, for example. We need greater flexibility and autonomy in local government. I hope that all those things will contribute towards a rebirth not only of local government, but of our entire civic life.

4.30 pm

The Minister for Local Government (Mr. Phil Woolas): It is good to see you in the Chair for this debate, Mr. Bercow. Congratulations are due to the hon. Member for Harwich (Mr. Carswell) on putting forward his ideas. The debate gives us an opportunity—in this instance, in a non-partisan way—to debate policy ideas, which is the rightful job of Parliament. We have three proposals before us: a local sales tax, a local income tax and a property-based tax with a personal element.

Hon. Members might recall that, in 1981, the then Government, with Michael Heseltine as the responsible Minister, published a Green Paper containing those three options, but of course it contained a fourth option, which has not reared its head this afternoon—the poll tax. By coincidence—this is not a partisan point—I was just rereading David Butler’s magnificent book on the history of local government finance and the poll tax in particular. The book, which was published in 1994, is called “Failure in British Government: the Politics of the Poll Tax”, and it is very interesting. Lady Thatcher, the then Prime Minister, sent a draft of the Green Paper back to the then Department of the Environment with a handwritten note in the margin that read, “I will not tolerate failure in this policy area.” The rest is history.

A serious proposal has been put forward. I do not want to use my time to criticise the hon. Gentleman’s proposals. The Lyons report was published recently and it, too, has gone round the circuit of local government finance. I have a few observations to make, however, because as Minister for Local Government, I debate such matters in detail, not least with the Local Government Association and its excellent leader, Lord Bruce-Lockhart, who has many interesting things to say about this policy area.

The hon. Gentleman began by saying, wisely, that we are all now in favour of localism. At last year’s LGA conference, Ministers and shadow Ministers were queuing up to compete over their localist credentials.
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The Leader of the Conservative party has promised an end to all ring-fenced grants—well, I shall believe that when I see it. My right hon. Friend the Secretary of State for Communities and Local Government outlined our proposals on how to move localism forward that were eventually in our White Paper.

The hon. Gentleman said that there was a danger of orthodoxy. I think that that is right in this regard. Yes, the drive for localism is intended to promote greater democracy and to re-engage the public along the lines that he suggested, and, as the Government and policy makers now see it, to improve local services—public services as well as local government services. However, the hon. Member for Taunton (Mr. Browne) made an important point—I was going to say that he spoke for the Liberal Democrats, but, in this debate, he speaks for Taunton and gives his own views rather than his party’s—when he talked about the paradox between devolution and equity. Those are not competing priorities; Governments and political parties of all persuasions must discuss where the balance should lie. Obviously, we believe that our policies in the White Paper square that circle satisfactorily and will allow the local establishment of targets and accountability under the proposed new performance regime. Nevertheless, in finance, that is a paradox that must be resolved.

The 1981 Green Paper, the Layfield committee report in the 1970s and, indeed, debates in the 1950s all came back to this issue: if one has a completely localised tax, one must have a mechanism to promote equity. I certainly I believe that it is desirable to have one and the hon. Member for Harwich said that he thought so, too. The danger of a completely localised sales tax is not the smuggling of butter across the Epsom downs—

Mr. Browne: The south downs!

Mr. Woolas: No it was the Epsom downs. I believe that it was the predecessor of the hon. Member for Mole Valley (Sir Paul Beresford), Lord Baker, whose quote it was. He represented an area near the Epsom downs, not the south downs.

John Bercow (in the Chair): Order. I do not think that the Minister should dilate on the question of the south downs or the Epsom downs, or on the subject of the smuggling of butter—deeply interesting though his observations thus far have been.

Mr. Woolas: I am very grateful to you, Mr. Bercow. I had forgotten that the Epsom downs were not in the south downs. The point is that if taxes were set locally, differential prices in different local authority areas would result in no sales tax in some areas or local councils setting one and then knocking on the Minister’s door asking for the redistribution of central Government grants to make good on their resulting poverty.

Sir Paul Beresford: Going back a bit, I would like to give the example of one London borough that for two years, because of the way in which the equalisation worked and because of its efficiency, managed to have zero poll tax.

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Mr. Woolas: That is true, and of course one of the consequences was a desire of people to move into that borough, with the consequential effect on house prices. Were such a principle to be applied to retail sales, I think that there would be a significant distortion. However, my point is that, rather like the debate on non-domestic rates—here again I criticise the Liberal Democrats’ policy—if we relocalised business rates, we would provide an incentive to areas with more significant business rates to cut them, because people will say, “Why should we pay rates in the better-off business areas?” I fear that the same would be true of sales tax.

I want to challenge another assumption in the remarks of the hon. Member for Harwich. He said that at the moment we have a perverse incentive. Under the council tax and revenue support grant regime, whatever its faults and the balance-of-funding arguments—we had the balance-of-funding review some three years ago—this Government and previous Governments have allocated funding not on the basis of the performance or needs of the local council, but on an assessment of the needs of the area. However efficient the council is—we can measure that by performance regimes, by satisfaction rates, to which he referred, or through the ballot box—central Government assess the needs of the area. Part of that assessment, as the hon. Member for Taunton indicated, is based on the property portfolio in the area. If there is a sales tax, it is difficult to see how one could have an equitable system that allows the 100 per cent. localisation that he is seeking. So there are two significant problems with that point.

The hon. Member for Harwich was good enough to mention the impact of the European Union. It is worth recalling that we have VAT because the then Prime Minister, Sir Edward Heath, took us into and kept us in the European Union. We moved from a purchase tax to what became known as VAT. It is worth recalling also that the VAT rate increased from 15 per cent. rate to 17.5 per cent. to pay for the poll tax. When I study these policy areas it amuses me greatly to see that described in the Budget at the time as a transitional increase in VAT. The previous Government and the present Government have not returned to 15 per cent., and I think that the public would be right to be wary of any transitional scheme that did not have a time limit.

I am surprised at the proposal that the hon. Gentleman makes, as he represents Harwich, which I would have thought has a lot of trade with the European Union. That policy would involve renegotiating the treaty of Rome.

Mr. Carswell: I do not want to diverge too far from the subject of the debate, but it will be perfectly possible to have market access once we are free from the treaty of Rome. Many other countries have increased the amount of trade that they do with European Union member states, despite not having signed away their sovereignty.

Mr. Woolas: I admire the—

John Bercow (in the Chair): Order. The Minister is far too dextrous to want to go down that route.

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Mr. Woolas: Thank you, Mr. Bercow. I shall deal instead with the point about a local income tax, which was the second of the four options in the 1981 Green Paper. It was recommended as a possibility for part-funding of local government finance by the Layfield inquiry and was not dismissed by the Lyons inquiry. Lyons said that he thought that it would take many years to introduce and there was mention of the danger of a cumbersome bureaucracy.

I do not know whether the hon. Member for Taunton has criticised the tax credits system, but his party certainly has. I would like to see a local income tax system being introduced smoothly and efficiently, but there are some points of principle that one would need to address first. I have asked the hon. Member for Truro and St. Austell (Matthew Taylor), who spoke for the Liberal Democrats on economic policy for many years—I met him when he was at Oxford university and he advocated this policy—whether the local income tax would be based on where a person works or where a person lives. However, I have never had a satisfactory answer. A local income tax based on where one lived rather than on where one worked would cause huge bureaucratic difficulties and, I suggest, would have an impact on the market in many unforeseen ways, and the same would be true if the opposite arrangement applied.

Sir Paul Beresford: The simplest way of putting it is that such a tax would have all the disadvantages of the poll tax and none of the advantages.

Mr. Woolas: The question of accountability is at the heart of the issue, as the hon. Member for Harwich said. All of us are seeking to improve accountability— that was the fundamental motive behind the community charge or poll tax. The country has not yet
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fully answered that question. However, we believe that our proposals in the local government White Paper and the Local Government and Public Involvement in Health Bill change the performance regime and the accountability regime and that we will see an improvement in that respect. We believe that localism that gives more power, particularly over financial decisions, which the hon. Gentleman likes to see, will increase turnout and show that there are real policy choices between the political parties. It will force the political parties to clarify their policies at local level as well, which is desirable.

I am extremely grateful to the hon. Gentleman for raising the issue. I am extremely apologetic to my ever- vigilant officials. They drafted me expert advice and speeches, but because of the wide-ranging nature of the debate, I have not been able to go through all that. I am amazed that my hon. Friend the Member for Wigan (Mr. Turner) has not chosen to intervene. I know that he is not here for this debate, but he has strong views on this issue as well.

The hon. Member for Harwich should be congratulated on raising fundamental points, putting forward his ideas and moving forward the debate after Sir Michael Lyons’ inquiry. I regret the notion that comes from some local authorities, which say that they have no power. Council tax is set by local councils. Opposition Members cannot have their cake and eat it. They cannot say when they are in the House that the Government set the council tax, and then put out leaflets in late April or early May every year saying how good Conservative councils are for having low council tax. They cannot have it both ways, but I do believe that we need to give more power over financial decisions to local authorities and I welcome the contribution that the hon. Gentleman has made to the debate.

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Market Forces (NHS)

4.44 pm

Mr. Neil Turner (Wigan) (Lab): I am extremely pleased to be under your guidance and tutelage for the next half-hour, Mr. Bercow. This will be a rather techie debate—I am not sure whether you are as pleased as I am about that. Indeed, it is a debate of choice for anoraks, but it is very important. Let me set the scene.

The market forces factor has been around for quite some time, but the patient choice agenda and payment by results have made it an essential ingredient of the national health service’s finance, so it is very important. Patients have their choice, and the hospital that they choose to go to gets the payment from the appropriate primary care trust, but that hospital may have a different cost base from another hospital, and the PCT would not be able to afford it if everyone in their area chose to go to a higher-rated hospital, so it is important that things are levelled out, which explains the need for the market forces factor.

The market forces factor is made up of four elements: base costs, for which the figure is 27.3 per cent., land, which is 0.6 per cent., buildings, which is 4.6 per cent. and staffing, which is 67.6 per cent. Of the three variable elements, the staffing element is far and away the largest at more than 90 per cent., so it is extremely important that we get that right. Hospitals bearing additional costs through no fault of their own should be recompensed. I fully agree with that principle. I see a look of puzzlement going across your face, Mr. Bercow: if I agree with the principle, why on earth am I bothering to have the debate? The problem is not with the principle, but with its application.

As I pointed out, more than 90 per cent. of the variable element of the market forces factor relates to staffing costs. Those staffing costs do not necessarily relate to the NHS staffing costs. The NHS is, for want of a better expression, a closed economy. Because of the “Agenda for Change” system and the consultants’ contract, a nurse or a specialist consultant gets paid the same for the work that he does, be he in Westminster or in Wigan. An apprentice cleaner will receive the same rate of pay no matter where they work in the NHS. Of course, there is the London weighting allowance, but the rate of pay is the same. From Cumbria to Kent and from Durham to Devon, because of “Agenda for Change” and the consultants’ contract, people will be paid the same amount of money.

I asked the Department of Health some time ago what percentage of the labour costs that hospital trusts incurred were outside “Agenda for Change” and the contracts, and it said that it did not keep those figures. I understand that; it is not necessarily a central issue. Nevertheless, I took the matter further by going to my own local trust and asking it what its percentage was. It said that more than 90 per cent. of its costs were within the “Agenda for Change” element; in other words, it was paying the nationally negotiated wage rates. It went further and asked other hospital trusts in the North West strategic health authority area, and they confirmed that that sort of percentage was reasonable, so in relation to the labour costs, about 10 per cent. or less is variable.

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