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Baroness Pitkeathley: My Lords, looking ahead to the future, can my noble friend say what lessons the Government have learnt from this episode about the way in which our intelligence sources operate?

Baroness Symons of Vernham Dean: My Lords, first, as any reading of the report of 195 pages will show, there
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are a number of important issues. My understanding of the important issues that have to be addressed certainly includes validation, particularly of human intelligence.

Secondly, there are issues of how one caveats anything which is put into the public domain, and the importance of applying appropriate caveats to intelligence is stressed in the Butler report. There were points made about the way in which the chairman of the JIC had authorship of the report. As your Lordships will know, that was also an issue that was questioned.

Lastly, and very importantly, there is the question of the co-ordination of the intelligence services. Again, those are issues that have to be addressed.

Lord Howell of Guilford: My Lords, this question of the defective or withdrawn intelligence—

Noble Lords: Time!

Lord Davies of Oldham: My Lords, we really are at the fortieth minute.

Medway Council Bill

Read a second time, and committed to an Unopposed Bill Committee.

Balance of Funding Review and Report

The Minister of State, Office of the Deputy Prime Minister (Lord Rooker): My Lords, the Fire and Rescue Services Bill has not yet been called—

Lord Grocott: My Lords, we are on the Statement.

Lord Rooker: The Statement, my Lords? I was about to move that the fire Bill be read a third time. I apologise.

With the leave of the House, I shall repeat a Statement made in another place by my right honourable friend Nick Raynsford, the Minister for Local and Regional Government. The Statement is as follows:

"With permission, Mr Speaker, I shall make a Statement about the Balance of Funding Review report which is published today and about the Government's response.

"Before I begin, I should like to say a word or two about the speculation we have seen at the weekend and in yesterday's press that the Government have plans for huge increases in people's council tax bills. This is simply untrue. I will say more about this when I come to the report's conclusions on council tax.

"The review started in April 2003. I chaired the steering group which included my honourable friends the Members for Wentworth and Corby, as well as other senior figures from central and local government, academia, business, the union movement
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and professional bodies. The remit of the review was to establish the nature and priority of the balance of funding issue and to identify and analyse options for change, setting out the pros and cons of each. We commissioned research, held a public consultation and sought further evidence on the main options for reform raised in the public consultation. We had nine meetings in all. All the papers presented to us are available on the website of the Office of the Deputy Prime Minister.

"I must first record my thanks to the steering group members, to everybody who responded to the review's public consultation last year and to those who presented papers to the group.

"Secondly, I should like to welcome the report published on 16 July by the ODPM Select Committee following its inquiry on local government revenue. There is significant common ground between the committee's conclusions and those of the Balance of Funding Review. The Government will reply formally to the committee in due course.

"As those who read the report will find, some of the press speculation of recent days has been wholly misleading and inaccurate. As the report makes clear:

"It has always been the case—indeed, it was included in the terms of reference—that the review would simply set out the pros and cons of a range of short and long-term options.

"As the report states quite clearly, the aim of the review was,

So we are at the start of this process of further work and there is a great deal more detailed thinking to do.

"The main conclusions of the review are as follows. First, like the Select Committee, the review concludes that there are strong arguments for shifting the balance towards more local funding. However, this depends on the feasibility and desirability of any measures to achieve it. And it would have to be possible to achieve satisfactory equalisation for needs in the distribution of resources between local authorities alongside any greater local revenue raising.

"Secondly, again like the Select Committee, the review concludes that council tax should be retained but reformed. It has important advantages as a local tax. However, in the opinion of the group, it will need reform in order to help people on low incomes and to reduce the impact of revaluation. Further work will be needed on the options for such reform. A fair and effective system of council tax benefit will be a vital component of any reform package. It is
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clear, for example, that levels of take-up for council tax benefit amongst pensioners and others on low incomes remains low in comparison with other benefits.

"As for council tax bands, the report concludes:

And I should point out that the Government have always made clear that we would want to consider these issues with other stakeholders ahead of revaluation. But the report adds:

It goes on,

Far from proposing a trebling of people's council tax bills, the review actually states that,

"There has been much comment in the media about the ideas submitted by the New Policy Institute. It is certainly true that the NPI gave evidence to the review on changes to the banding structure and its ideas are well documented in the report. Indeed, its original paper for the review has been available on the website of the Office of the Deputy Prime Minister since January. However, these are the NPI's ideas and they are not government policy. Indeed, they are not actually recommended by the review.

"Thirdly, the review concludes that the only way to achieve a major shift in the balance of funding is to supplement a reformed council tax with either re-localised business rates or a local income tax or a combination of both. None of these options would be easy and further work would be required here too.

"Fourthly, re-localisation of business rates could give councils greater incentives to promote economic development and improve links with business as well as altering the balance of funding. However, business has serious concerns, including potential risks to their productivity and competitiveness.

"Fifthly, while a local income tax would be more progressive and more buoyant than council tax, it would also be less predictable as a result. Considerable further work would be required to address the substantial technical and administrative issues and costs, as well as the impact on individuals and employers before firm conclusions could be reached on the feasibility or desirability of a local income tax. In that respect, the report makes for difficult reading for those who regard local income tax as a simple solution. As we say in the report, the devil is very much in the detail. I note that the Select Committee takes a similar view.

"Sixthly, the review has concluded that smaller taxes or charges do not provide the potential for major change in the balance of funding. The case for and against each such option should be judged on its own merits.
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"I turn now to the Government's response. We are developing a new 10-year vision for local government. We want local government to be more effective and more accountable. A fair and sustainable finance system is crucial to this. We welcome the Balance of Funding Review report as a major contribution to the debate.

"The review could not look at everything. However, while it does not make recommendations, it has reached a number of important conclusions defining the issues, narrowing down the options and assessing the case for change as well as investigating much of the preliminary detail. It provides a sound platform from which to go forward.

"The Government can accept right away that council tax should be retained but reformed. It is clear that council tax is far from perfect and that changes are needed. We are, for example, working with colleagues in the Department for Work and Pensions to improve take-up of council tax benefit. That work should continue.

"However, the report flags up the need for more work before decisions can be taken either on how council tax should be reformed or on the possible means for shifting the balance of funding. These matters need to be considered carefully and in detail. We must keep up the momentum, but we must also ensure that any changes are soundly based. As I said earlier, the press speculation that the Government are planning a council tax shake-up that will lead to huge rises in council tax is simply untrue. Any suggestion that we have opted for any particular course of council tax reform is just plain wrong.

"The review concludes that,

It is right that we should do this, but not because we want to hit middle England; precisely the opposite. We need to look at options for regional banding in order to ensure that areas of high property price growth such as London and the south-east are not unduly affected by revaluation.

"One thing is clear: there are no easy answers. This subject needs extremely careful examination and detailed consideration. It is far too important to be a political football.

"We have therefore decided to set up an independent inquiry to be undertaken by Sir Michael Lyons to look into these matters and report back by the end of 2005 to my right honourable friends the Deputy Prime Minister and the Chancellor of the Exchequer. Sir Michael is very widely respected and brings to the task a wealth of local government and other relevant experience. I can think of no one better able to take forward the work which the Balance of Funding Review has begun. Honourable Members will recall that Sir Michael has a distinguished background in local government. He is currently director of the Institute of Local Government Studies at the University of Birmingham and between 1994 and 2001 he held the position of chief executive of Birmingham City Council. He was recently appointed as deputy
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chair of the Audit Commission. He is a member of the Treasury's Public Services Productivity Panel and was also a member of Sir George Bain's review of the fire service. In 2003 he reported to my right honourable friend the Chancellor of the Exchequer on the relocation of public sector jobs away from London and the south-east.

"The inquiry will consider, in the light of the report by the Balance of Funding Review, and other developments such as new funding arrangements for schools, the detailed case for changes to the present system of local government funding. It will make recommendations on any changes that are necessary and how to implement them; and take evidence from stakeholders.

"In particular, the inquiry will make recommendations on how best to reform council tax, taking into account the forthcoming revaluation. It will assess the case both for providing local authorities with increased flexibility to raise additional revenue and for making a significant shift in the current balance of funding. It will conduct a thorough analysis of options to complement council tax, including local income tax, reform of non-domestic rates and other possible local taxes and charges, as well as the possible combination of such options. It will consider the implications for the financing of possible elected regional assemblies, as well as any implications that its recommendations have for other parts of the United Kingdom.

"The Government now look forward to a period of focused study by the independent inquiry which will build on the Balance of Funding Review's work. We can then take firm decisions on the best way forward to put in place the fair and sustainable system of local government finance that is our objective".

My Lords, that concludes the Statement.

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