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Baroness Hanham: My Lords, I thank the Minister for not getting too muddled about which business we were approaching. I agree with him that we face a difficult afternoon in deciding what we are dealing with. I also thank him very much for repeating the Statement made by the right honourable Nick Raynsford in another place.
The Minister was at some pains to point out that the Balance of Funding Review was a report to the Government and not by the Government. But however presented, there are within it a number of areas of considerable concern.
It is of course a sine qua non that when the Government find themselves in a difficult position they call for an inquiry or, in this case, another inquiry; this one to be undertaken, as the Minister has said, by Sir Michael Lyons. That clearly falls into this category. We of course wish Sir Michael well and hope, without great confidence, that he may find the road to the holy grail.
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Will the Government say when in 2005 the review will report? Will the Minister also tell us whether the terms of reference of the committee, rather than the broad outline given in the Statement, will be available to the House before it is set up? Nick Raynsford was a brave man when he set forth on the path of reconsidering the options for the council tax and the relationship between the Government's contribution to local government expenditure and that raised by local government itself, which of course now includes the uniform business rate. He was brave because the options for reform have been considered on innumerable occasions and the same difficulties and objections to their alternatives outlined in the Balance of Funding Review report have always come into focus.
As is clear from this report, business does not want to return to a local business rate. Business revaluation will bring untold problems anyway, and any local form of income tax is bound to raise fundamental issues, whether it is assigned from central government revenues or raised locally. Immediately one sees the problems in relation to a tax raised locally, particularly in central London, in view of the number of people who do not actually pay income tax in this part of the world and who therefore might possibly avoid it if paid locally.
All the usual suspects are raised, including local sales tax, tourist tax and now congestion charging which is a tax which should be used, if at all, only for preventing congestion and not as a means of raising missing revenue. Sir Michael will have his work cut out to come to any conclusions which will meet any, never mind everyone's, aspirations and/or concerns. If the members of the balance of funding review have not been able to answer that problem, then Sir Michael's mind is going to have to be very superior indeed.
But whatever is brought forward or thought through again, it is clear that the council tax will remain at the heart of local government revenue. I believe that the Minister made that absolutely clear this afternoon. If I may remind the House, it was much derided when it was introduced by the previous government, but it has proved to be a tax which is simple to collect and to allocate to property, and is understood by those paying it. That has been one of its prime successes, in that it took into account the property base so that there was always somewhere to collect the revenue.
A great deal of the Minister's Statement was concerned with trying to downplay the reports in the press over the weekend that the already scheduled revaluation of domestic properties, along with the possibility of increasing the number of bands and the ratios between them, would have a massive impact on people in the new high bands. It is instructive to recall that throughout the discussions on the Local Government Bill the Government resisted all amendments which would have limited the number of bands and, if there were to be an increase in that number, maintain the current ratio of 1:3 between the top and the bottom. Those amendments, tabled by my noble friend Lord Hanningfield and myself, would at least have ensured that the elongation of bands
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would not result in vastly increased amounts being paid by those in the upper tiers. Those amendments were opposed by the Liberal Democrats.
It is clear from the balance of funding review that that is not an option and that, whether suggested by the NPI report or the review itself, there could be potentially substantial increases if this route of extending the ratio were adopted. The Minister has said, and I agree, that no one wants families in either low value or high value property penalised by having to pay much too high local taxes. The rise in property values has been a mixed blessing to those who have lived in their houses for a number of years since the Chancellor now seems to believe that they are a suitable milch cow. The Government need to think very carefully before they accede to any proposal which will force people into having to sell their property because they cannot afford to pay the council tax. We might perhaps seek an assurance from the Minister today that that would not be the intention because there are a great number of people who are already living in properties, particularly in the south-east, which have risen in value well beyond their income if the council tax were to increase substantially.
Will the Government indicate what they intend to do about improving the uptake of council tax benefit? The Statement said that this matter is being looked at, but it has been looked at ever since council tax benefit was introduced and still there has been no resolution. I believe that I am right in saying that there are over 1.5 million people who are entitled to council tax benefit but are not taking it.
The balance between funding that is raised locally and that raised nationally, as the report brings out, is a sensitive one. That is why whenever it has been looked at before nothing has resulted. Council tax has risen remorselessly under this Government. It is now 70 per cent higher than when they came to power. A further 20 per cent rise is predicated by the Chancellor's spending review over the next three years. In addition, much of that spending is regulated by the Government in the form of passporting or specific grants. Extra costs are being borne in London as a result of the regional assembly. There is no reason to assume that that would be any less the case for any new assembly. The Statement makes it clear that is an aspect which will be looked at by Sir Michael Lyons, namely, the possible cost of a possible assembly. One ought to note that in the Greater London Authority Bill, now an Act, the expectation was that the cost to the boroughs would be three pence in the pound. That has now risen by 210 per cent since the Mayor's office came into being.
This may not be the Government's review, but it was chaired by the Minister and staffed by people from various government departments. Therefore, it is owned by the Minister at least or it would not have seen the light of day. At least a further review of the review will put off the final day of decision, probably until after the next general election. I would have thought that a very wise decision for the Government to take, as the implications of both a revaluation and the extension of the council tax bands will serve to ensure that it is a hot issue with the electorate. They
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may not be minded to come out and vote in great numbers at local elections, but they will surely take note of a threat of massive increases in council tax rates, and/or in any other form of contribution that they are asked to make, through local tax, tourist tax, or any of the other options.
The Government are embarking on yet another 10-year plan; good heavens, we have had 10-year and five-year plans for all sorts of things recently. The council tax has stood the test of time so far—it has certainly stood 10 years. The Government will mess with it at their peril. I thank the Minister for the Statement and ask that he be kind enough to respond to the few questions that I have raised. Ultimately, I look forward to the final decisions and discussions on the subject when Sir Michael Lyons finally reports to the House and the country.
Baroness Hamwee: My Lords, I, too, thank the Minister for the Statement. I was also unclear which set of papers to have ready at the start of business.
The noble Baroness referred to a 10-year plan, but the Statement referred to a 10-year vision. I am not sure whether what is referred to is a plan or a vision, but I doubt that those struggling to pay the unfair and outdated council tax will feel hugely enthusiastic about the time frame envisaged by the Statement. They may feel—as I did when I read it, and as the noble Baroness clearly did, although our views are different—that to announce a review of a review to report at the end of next year is a clumsy way of saying, "We still don't know what to do, and will postpone it until after the general election and in the mean time repeat some cosy words about how we understand the problems inherent in the current continuing system". It must be undeniable that, now knowing something of the time frame, we will be well into the 10 years before there is any change in local taxation.
The terms of reference of the balance of funding review were to review all aspects of the balance of funding—fair enough; to review the evidence; and to look at the reform options. So perhaps I should not criticise the Government for sticking so closely to the letter of that. However, I criticise them for deferring the decisions, however elegantly. When talking about elegance, I must congratulate the noble Baroness on dancing around the issues so delicately in her support of council tax.
According to the Statement, the objective is to gain a consensus on broad issues. Do the Government not recognise that there is consensus about the unfairness of council tax, and that there will be consensus that the review appears barely to take us forward? The Statement also refers to particular care to ensure that those on low incomes in high-value properties are not unfairly affected. We are not starting from square one—they are unfairly affected today, and clearly will be next year and the year after that. The Statement refers to council tax benefit. We support encouraging the take-up of that, but the problems go far wider than those who are entitled to it.
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The Minister recognises that local income tax is more progressive and buoyant. I am sure—I invite the Minister to confirm it—that the Government themselves want to be recognised as progressive although, at this point in the parliamentary term, buoyancy may be another matter. It is sad that fear about the overall tax take being unpredictable, which is what I understand from the Statement, might override progressiveness and fairness. The Minister may not want to commit himself—I ask him anyway—on whether everything that we have heard is code for a disagreement between the Office of the Deputy Prime Minister and the Treasury. That is certainly how it reads.
The Minister refers to work to do, including reviewing council tax bands and the ratios between them. There is a lot of work in that, and once it has been done substantially it will be human nature not to want to ditch the tax. I fear that, by committing the Government to such a course of action, we shall have a self-fulfilling prophecy of, "We've done all this work, so we need to stick to the programme that it supports". In any event, I fear that reviewing banding will exacerbate the problem for those with low incomes in high-value properties.
We welcome visiting the issue of business rates, which the local government world has sought for a long time. The inquiry is to be independent. Can the Minister tell the House anything about its membership? The membership of the review group included local government representatives and others. Will he say anything about how the other members will be appointed, from where they will come, and how they will be supported? Presumably everything will come from the Office of the Deputy Prime Minister. Can he assure us about the independence of the other members? The appointment of Sir Michael Lyons has been announced; I assume that it took place on Nolan principles, but I would welcome some comments from the Minister.
The inquiry is to go further than local, personal and business taxes. There is a reference in the Statement to other developments such as—I emphasise those words—new funding arrangements for schools. What are the Government really saying about funding education and local government? Is there more here than meets the eye?
I hope that the Minister knows that we on these Benches look for the positive and try to be constructive in our criticism. I am sad that I find so little to be positive about in the Statement, but I fear that the Government have given little cause for optimism to those outside the House and another place who have protested so loudly and—I had thought—effectively about the unfair council tax. Those people will feel badly let down by what the Government have said today.
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