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Lord Hanningfield: I should like to deploy this argument now, as it is very relevant to the next set of amendments as well.

The Minister said several times that the council tax is a property tax. But it is not just a property tax. When we had a property tax; it was in the form of rates, which became very unpopular. As a young councillor, I remember the then Leader of the Opposition, Margaret Thatcher, pledging to thousands of people, at some meetings, to abolish this unpopular tax. Rates had risen to a very high level for some people, particularly elderly people who have been living in their own home for a long time. She pledged that, and that is why we ended up with the community charge, which was basically a tax on the individual. If it had been introduced gradually, over some years, it would probably still be in place. But it was introduced in a rather ham-fisted way and was therefore very unpopular in some parts of the country.

We then had a combined tax—the current council tax. I remember Kenneth Baker, then a junior Minister and now a Member of your Lordships' House, explaining the changes to us. It was part property tax, part individual tax. It was not just a property tax when Michael Heseltine—now also a Member of your Lordships' House—introduced it.

One must therefore be careful, because the way that revaluation is going, together with the next series of amendments dealing with bands, will make it much more of a property tax. The worst will come upon the government who do that. Property taxes are very unpopular. The Minister said two or three times that it was a property tax; I dispute that. It was never

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designed as entirely a property tax; it was designed as part individual tax for services and part property tax. I dispute what he said.

Lord Rooker: I have only one point to make. I suspect that in the good county of Essex, thousands of people will during the past few years have looked at the equity that they had in their property and thought, "I will have some of that for the holiday, the car, or the daughter's wedding". So they are quite happy in those circumstances to say, "Yes, we have a bigger increase in property values than anyone else; we will have some of that equity out, thank you very much".

But then the noble Lord says that they are not prepared to pay their fair share, based on that increase in property value, a little of which they have taken out, to put it into the community kitty for libraries, for old folks' meals on wheels, for local services or for having the gutters cleaned or the snow cleared away. That is what it is all about. When we make those sort of connections, I think that I can appeal more to people's natural community instincts than to the naked, selfish, party-political interest pushed by the noble Lord.

Lord Hanningfield: We shall return to the argument under the next clause, so I shall not oppose the Question.

Clause 78 agreed to.

Clause 79 [Power to change number of valuation bands]:

Lord Hanningfield moved Amendment No. 172:

    Page 41, line 32, at end insert "provided that such change does not alter the ratio between the top and bottom band.

( ) The power under subsection (4A) shall not be used to alter the ratio between the top and bottom bands set out in subsection (1)."

The noble Lord said: We return to the issue, because the clause gives the Secretary of State power to change bands. I shall be told straight away that the amendments do this or that and should be worded differently, but we can always reword them and return to them later. Giving the Secretary of State the power to change bands is a big issue in the Bill.

Returning to what I said earlier, and to respond to the Minister, more people in Essex are not taking equity out of their houses; they are having a job to pay their mortgages, because they are having to pay high prices for houses. Essex is now a place with many young people who work in London, all of whom have bigger mortgages than they can really afford. They may have a very nice, expensive house—that is what you have to pay in the South East—but they cannot afford their mortgages. Therefore, to say that there will be a higher band and that they will pay a higher council tax will be very unpopular.

We therefore totally dispute that there is a need to change many bands. I appreciate that my amendment would move beyond the original 1992 legislation by imposing a limit on the band differentiation. That is why I propose this safeguard. I repeat: council tax is part property tax and part tax on services. It would not be right, or in conformity with the principles under

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which council tax was established, simply to replicate in council tax ratios the difference in banded house prices. The fact that council tax pays in part for services must act as a drag on the growth of bands or the increase of ratios between them. As the Minister said, it pays for services—clearing snow, social services and everything else.

Local citizens are contributing the majority of their council tax to education and social services. They are by far the largest services provided by local authorities. For example, in Essex, expenditure on those services is probably responsible for 60 per cent of the average council tax bill. As I said, young people living in expensive properties, perhaps sending their children to private school and paying privately for the care of their parents, may not benefit from those services at all. That is fine; that is their choice. But we cannot have a tax that is part service-based and ask some members of the community to pay five or six times what other members of the community pay, regardless of their level of service use. That would do nothing to promote the cohesion of local communities.

We are also in an age in which mortgage companies seem to be prepared to lend more and more money against smaller incomes. I repeat: people living in large houses are carrying relatively high levels of debt. From several angles, the value of a property seems an unsafe proxy for the ability to pay. We should be cautious about changing the structure of the tax system.

I am not absolutely wedded to the existing ratio. However, it would be helpful if the Government were to introduce a ceiling on the ratio mechanism. When there is already so much unrest about levels of council tax, it would be helpful if the Minister could reassure people that there will be no move to increase the existing band ratios.

I repeat, we are in danger of the council tax becoming as unpopular as the rates. I know that we are looking at new ways of funding local government, but why do so by making the council tax as unpopular as the rates were in, say, 1979? I beg to move.

Baroness Maddock: I do not have a great deal of sympathy with the amendment being moved or the amendment that was spoken to. When it comes to paying council tax, I am more concerned about people at the bottom end of the scale than I am about people at the top end of the scale.

I am pleased that the Government will have the ability to change the bands, particularly for those who pay council tax on park homes and mobile homes, or whatever you want to call them. Often they are used by elderly people on very low incomes who have chosen to live in park homes on sites partly because they are very safe places for elderly people to live. These people often have to live on quite low incomes, and yet they have in the past ended up with their property being a good deal lower than band A. It is not quite the same now but it is important that the Government should have the ability to change the number of bands.

Those at the very top end of the scale—although not absolutely; I must be careful about this—are, on the whole, in a better position to pay the tax than others.

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As to the question of whether or not this is a property tax, it is quite clearly a property tax. It cannot be anything else. It is based on the band value of your property—and that is it.

Having listened to the exchanges between the Conservative Benches and the Government, I am even more convinced about the rightness of local income tax. It is based on people's ability to pay, which is the important criteria. All taxation should be fairly based on people's ability to pay. The council tax has become incredibly unpopular—I believe it has become as unpopular as the poll tax—particularly with people on low incomes and elderly people. This is because of the connection between the amount of money that the Government give to local government in various grants and so on and the gearing effect between that and the amount of money that councils can raise from local tax. That is one of the reasons why the council tax has become unpopular.

I do not agree with the noble Lord, Lord Hanningfield, that this is not really a property tax, nor that it is popular. It has become a very unpopular tax and I hope that it will be replaced. If it is not to be replaced, I would support measures to ensure that it operates in a fairer way than it has done, particularly in regard to helping people on low incomes who have to pay a very high council tax.

4 p.m.

The Earl of Caithness: Purely in property terms there is a case for the Government's argument because of the bunching at the top end and at the bottom end. Certainly there are areas where the current spread of bands works well, but it does not work well in every area. I agree with my noble friend Lord Hanningfield that, by opening this Pandora's box and giving local authorities the right to have varying and different bands—which inevitably will be used—the council tax will become the rates.

I should say to the noble Baroness, Lady Maddock, that the council tax was not intended to be purely a property tax when we introduced it. One should not fall into the same trap as was the case with rates of believing that people who live in large houses automatically have the ability to pay large sums of money.

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