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Mr. David Heath (Somerton and Frome) (LD):
I share the hon. Lady's experience of being a council leader under the Conservatives, so I can certainly corroborate what she said about that. Is not one of the problems with revaluation that the longer it is left, the more out of kilter the system gets, so that when the resultant rises inevitably come, they are even bigger for the losers? We have waited 20 years, so values are
20 years out of date. Are we going to wait for them to become 100 years out of date before somebody dares to carry out a revaluation or are we going to do the sensible thing, which is completely to change the basis of local government taxation?
Dr. Starkey: As I am the Chair of a Select Committee and not a Minister, I can say what I feel on this matter. If we continue to have a property tax-I believe that we should-we need to revalue relatively frequently; otherwise, it becomes distorted. Then, as the hon. Gentleman says, if we make the changes, those who gain will gain a great deal and those who lose will lose a great deal. I am personally in favour of such revaluation.
Dr. Whitehead: Will my hon. Friend reflect on the consequences for balancing of having a freeze on council tax? What, for example, might be the consequence in year 3 of the freeze, if it were imposed without replacing the money cumulatively lost through council tax, for central Government funding, especially if the figures were not entirely right? Unless central funding took over, would not the likely outcome be a huge avalanche of council tax rises in year 3, thereby decreasing still further the ability of local authorities to raise their own finance?
Dr. Starkey: Absolutely. My hon. Friend is a great expert on local government finance and I entirely agree with him. What he said suggests that any Opposition proposing such a policy do not really think that they are ever going to come to power, since they would still be in power when such an enormous hike occurred, thereby becoming incredibly unpopular.
There are other reasons why I believe the Opposition should reconsider their policy. I say this simply because I would not want my hon. Friend the Minister in any way to be tempted to take over such a policy from the Opposition. First, the whole basis of the hon. Lady's arguments rests on the supposition that the council tax is itself a problem. The hon. Member for Falmouth and Camborne (Julia Goldsworthy) made the point that I was intending to make myself, namely that the council tax was introduced by the Conservative Government after their disastrous introduction of the poll tax. They could not go back to the rates, which in my view is what they should have done, so they opted for a poor relative of the rates.
At least the rates had the advantage of being relatively progressive. It is not a hard and fast rule, but on the whole the bigger the property in which people live, the better off they are, and the bigger the property in which they live, the more they will pay in rates. It is also true that the bigger the property in which they live, the more they will pay in council tax, but because council tax is banded rather than being a continuous system like the rating system, the difference between what is paid by someone living in a small house and what is paid by someone living in a big house is nowhere near as great under the rating system as under the council tax system. The council tax is a much less progressive tax; indeed, it verges on the regressive.
If the hon. Lady and her party are truly worried about the burden that the council tax places on low and middle-income households, there is a simple way of dealing with that. Increasing the number of bands
would increase the burden on those in big houses and on big incomes, and-since the total amount to be raised would remain the same-it would reduce the burden on low and middle-income households. I suggest that she consider that simple method, which, once introduced, would perpetuate the improvement in progressivity from year to year without the need for further changes.
Secondly, I want to deal with the proposal that some authorities' council tax should be frozen. The Opposition appear to be suggesting that a council that proposed to increase its council tax next year by 2.5 per cent. or less would receive a lump sum of 2.5 per cent. from the Conservative Government, in the ghastly event of their being elected. That is essentially adding to the Government grant system, but in a way that is not transparent and is in no way related to need. Effectively, it means giving money to councils if they are able to keep their council tax at 2.5 per cent. or below.
Mr. Speaker: Order. In the short time for which I have been in the Chair, the hon. Lady has expressed herself with great force and eloquence on the subject of the policy of the Opposition. I have just looked at the terms of the main business. We are supposed to be debating the question of whether to approve the Local Government Finance Report (England) 2010-11 and the draft Council Tax Limitation (Maximum Amounts) (England) Order 2010. I think that further ruminations on the policy of the Opposition would probably be outwith our scope, however enjoyable or stimulating they might be for the hon. Lady.
Dr. Starkey: Far be it from me to complain about your spoiling my fun, Mr. Speaker. I shall save the remainder of my interesting analysis for other occasions. I believe that the House has got the gist of my view. The suggestions that were advanced at some length by the hon. Member for Putney were indeed risible, and I am not surprised that most of her hon. Friends left the Chamber in order not to subject themselves to her speech.
5.39 pm
Julia Goldsworthy (Falmouth and Camborne) (LD): I welcome the opportunity to discuss the settlement. When I saw the Secretary of State in his place I thought that his presence might raise the tone of the debate, but so far it has not really done so, although I am sure that the hordes of Labour Members sitting opposite me have contributions to make.
The debate concerns the third year of a three-year settlement. Notwithstanding the banter that we have heard, it contains nothing particularly controversial. Many councils were very happy to have a three-year settlement. It has been delivered according to plan, and given what has been going on in the wider economy, I think that a number of them were grateful for the stability that it offered.
Mr. Heath: We would have been very pleased to have had that stability in Somerset, were it not for the incoming Conservative county council deciding that an increase in the money from the Government was a signal for it to cut massively the services it provided to Somerset residents. I cannot quite work out that paradox.
Julia Goldsworthy: My hon. Friend is right: that is an odd paradox. One would have thought that any incoming council would have been focused on meeting the needs of the people who had elected it, rather than on cutting services to them.
Let me speak a little more widely about some of the challenges councils have faced over the past three years, which is the period the settlement has covered. Councils have been feeling the pinch. The credit crunch has had an impact not only by putting pressure on the services that they have to deliver-if there are more vulnerable people, councils face increased pressures in trying to meet their needs-but in terms of the fees and charges they collect. They have already been feeling the squeeze, therefore, as the Minister for Housing acknowledged last year when he said this was a tight settlement. It would therefore be unfair to say that councils are in a luxurious position, given everything else that has been going on in the wider economy.
The Secretary of State rightly highlighted in his speech his concern about the impact rent increases might have on council tenants, and the impact of council tax rises on council tax payers, but we must also remember that there are huge pressures on councils, which in turn has an impact on the services they provide to vulnerable people. A number of terrible stories have been reported in the media recently, not least the case in Edlington. The knock-on effect of that case and the baby P case has created a massive pressure on authorities' services. I know from talking to people delivering children's services in my local authority in Cornwall that they have resulted in a massive increase in referrals, which they have to deal with, and they have also had a very negative impact on staff morale and turnover. Therefore, a lot of councils have fewer staff trying to deal with an increased burden.
It looks as though those pressures will increase in the future, because the Government's proposals to give councils the responsibility for delivering free personal care to people with high levels of need living at home is a cause for concern to a lot of councils. They believe that they are being asked to part-fund that by savings that have already been accounted for, or that they may not be able to deliver that care. This is part of a long history of the Government giving councils responsibilities for something that the Government then fail to deliver on properly, such as concessionary bus fares and free swimming. The delivery of personal care will be another example of councils finding that their resources will be stretched further to cover more responsibilities, while they are not necessarily given the resources to deal with that.
I want to emphasise, too, that we face uncertainty. The Secretary of State made great play of the certainty that his Government had given to local councils through the three-year funding settlement, but he said absolutely nothing about what will happen in the next financial year-not the one that has been dealt with by the settlement, but the subsequent one. Basically, councils are completely in the dark about what kind of situation they will be operating in. The spending review was due last summer, and we do not now know when it will appear, but it certainly does not look as though it will do so until after the election. The closest we got to having any information about that was in the pre-Budget report, when the Chancellor said that public spending as a whole would be frozen between 2011-12 and 2014-15.
The Institute for Fiscal Studies has today published its "Green Budget", in which it tries to tease out some of the implications of a real-terms freeze for Departments that have not been singled out by any party for protection. The following quote from the summary to chapter 8 of the "Green Budget" points out that
"spending on debt interest, social security and other 'annually managed expenditure' is likely to grow in real terms. Keeping to these overall spending plans would therefore require deep cuts in 'departmental expenditure limits' (DELs)-Whitehall spending on public services and administration".
It also said that the Government had
"promised to 'protect' spending on priority areas, including health, schools and overseas aid".
Once one takes out the protection of those areas and the increases in expenditure, the implication is real-terms cuts. The book says:
"These other areas-including defence, higher education, transport and housing"-
and, of course, local government-
"would likely see their budgets cut by 12.9 per cent."-
"on average over the two years or by £25.8 billion".
The book also extrapolated the Conservatives plans on ring-fencing over the four years, saying that
"if the Conservatives' plan to protect aid and the NHS were combined with the more ambitious tightening plan implied by their proposed fiscal targets"-
that sounds like that might be slipping a bit-
"then the cuts in their unprotected areas could be more like 22.8 per cent. or £57.1 billion by 2014-15."
So I do not understand why anyone is crowing about this amazingly "stable" settlement, given that it appears that next year we are about to disappear off the edge of a cliff and nobody is prepared to talk about what that actually means for services that have not explicitly been protected. We are talking about 3 per cent. real-terms cuts every year. By not coming clean and giving us an indication about this in a spending report, the Government are taking away from councils time to plan what they need to do and what services they need to prioritise. If councils had more time-if they had had from last summer or even from last October-they would be able to plan their services more effectively and smooth out some of the impact that such cuts will inevitably have on their services. If information is not provided urgently, councils will be preparing their budgets from October and probably having to carry out a slashing exercise on current services of which Freddy Krueger would be proud. All councils will be facing a nightmare on Elm street because they are not being told what to expect.
What does that mean for council tax payers? It raises a big question as to what will happen to council tax. In the past, there have been above-inflation increases every year since the council tax was introduced, but what impact would the introduction of capping have on services? It would certainly not help to sort out the public debt, because it would provide the Government with only a marginal gain from what happens to council tax benefits, so they would not obtain any advantage. What is most likely to happen is that there will be massive pressures on the council tax system, because if councils want to do anything to prioritise an important service, the only way that they will be able to find any discretion is through terrifying increases in council tax.
Mr. Pelling: The hon. Lady talks about uncertainty. If the Liberal Democrats had leverage over an incoming Government in a hung Parliament -[Interruption.] You have no reason to smile, because that is a possibility. In such a circumstance, what timetable would you have for introducing a local income tax?
Julia Goldsworthy: I will come to that, but the point I am trying to make is that this situation is urgent. Council tax payers will end up with council tax bill increases every year even though services are being reduced-that already occurs, but the extent of it will be more extreme. On the kind of extrapolations that the IFS has produced, there will be massive increases in council tax in return for massive cuts in local services. That will test the local government finance arrangements to breaking point.
We already have a system of gearing, which means that 75 per cent. of what councils spend is funded through central Government grants. That makes things difficult, but the situation will get harder.
Dr. Whitehead: I congratulate the hon. Lady on her relatively numerate presentation, in comparison with what was said by certain people sitting elsewhere in the Chamber. Would she care to speculate on the result for gearing of artificially holding down possible national increases in council tax so that a cumulative additional amount of central Government grant would have to go in to make up the gap and, thus, keep the total stable? As she has suggested, that would increase gearing still further over the years of that increase.
Julia Goldsworthy: I shall be coming to that point later, but basically the Conservative proposals would have the effect of disproportionately benefiting the people in the best position. They would make it more unfair. There are Conservative-run and Conservative-led councils, such as my own, that are unable to deliver the council tax freeze that their national party is asking them to. Those proposals would perpetuate those unfairnesses and could result in the system being even more centralised.
Mr. Heath: I am very worried about one of the two district councils in my constituency, Mendip district council. South Somerset is happily well run and has shown that it is very good at running its resources. Mendip district council has, over the years, massively cut its services and then massively increased both council tax and charges. It is now considered by the Audit Commission to be one of the worst run councils in the country. I am not sure that it could survive that sort of impact. The problem is, of course, that the one-time leader of Mendip district council, Councillor Ken Maddock, is now leader of Somerset county council, which has hitherto been a top-rated authority. I am worried not only that Mendip will go down the pan but that Somerset county council will deteriorate.
Julia Goldsworthy: That prompts a question about the motivation of such individuals in wanting to control a council. Is the aim to reduce council tax as much as possible, whatever the cost, or to provide value for money? They are very different things and it seems that the primary motivation is purely headlines rather than providing services in the best interest of local residents.
Mr. Pelling: The hon. Lady was quite right to underline how she is talking about the urgency of reform. She mentioned gearing, and a strong example of that is the London authority, where the gearing is one in 12-the system there is ridiculous. As there is urgency, do you feel that a Liberal Democrat-influenced Government would seek an urgent change to the local government financial system in the first year?
Mr. Speaker: Order. As this is the third time, may I remind the hon. Gentleman that the debate goes through the Chair? I do not feel or think anything on these matters, but I am sure that the hon. Lady does.
Julia Goldsworthy: As I was saying, one of the weaknesses in the current system is the fact that 75 per cent. of what local councils spend is not raised locally. A number of things can be done-some more quickly than others-to try to reverse that ratio. Another weakness in the system is the fact that taxpayers and business rate payers see no correlation between what they pay to their local council and what they end up getting from their local council. Again, when we end up with significant cuts and very difficult decisions, it makes matters even more painful. I know that in the period leading up to my election, I was told increasingly on the doorstep that the current system was unsustainable and that council tax was hated. I think that that problem will be magnified as we go through this process.
We must not forget, too, that the council tax system is incredibly inefficient. We need only look at the successful application rates for council tax benefit, for example, and at how many people are entitled to it who do not receive it. What will happen in a situation where there might be potentially significant increases in council tax? On top of all that, a range of public services are delivered locally outside local government that might well be subject to similar pressures for which there is no accountability. There is a fundamental question about the other services that are delivered locally outside the local authority. This will lead to the unsuitable state of affairs that we have seen for a long time becoming completely unsustainable. The kind of changes that we need do not simply involve providing longer funding horizons for local authorities, although of course that is helpful. It is not just about getting the funding formula or equalisation measures right or about fully funding any additional responsibilities that central Government pass on to local government. It is about a much bigger issue, for which this situation might provide a catalyst.
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