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Council Tax

Volume 476: debated on Tuesday 20 May 2008

The Government have no plans to abolish council tax. We agree with Sir Michael Lyons, who concluded in his independent report on the future of local government that council tax is basically sound and should be retained.

Sir Michael Lyons also said, at paragraph 7.239:

“I am satisfied that a local income tax could be feasible…and could viably replace all or part of council tax”.

Given that the council tax is being used in Gloucestershire even to top up flood-relief spending, and that the poorest households still pay 7 per cent. of their income in council tax, compared with just 2 per cent. for the richest, is not it time to perform another tax U-turn for the lowest paid?

Sir Michael Lyons also looked, very properly in my view, at the implications of moving either to full or local income tax. If we went to full income tax, there would be a rise of 7.7p in the pound, and if we went to a local income tax that covered only half of council tax, that would add 4p to the basic rate of income tax. I do not think that families want to pay such amounts.

Does my right hon. Friend agree that if a local income tax were levied instead of council tax, practically it could only be levied nationally and assigned locally? That would make the word “local” in local income tax rather redundant.

My hon. Friend expresses himself with great knowledge, as usual. He is a bit of an expert on these matters. I understand that if we were to have a local income tax, not only would it have to be administered nationally, but the cost for business would be absolutely enormous. The latest estimate is that the administrative costs would be £100 million, particularly affecting small businesses.

I do not know whether there is a discount for council tax payers in England for senior citizens aged over 70 who live alone, but if not, will the Minister consider introducing a scheme similar to the one introduced in Northern Ireland by my colleague the Finance Minister, my right hon. Friend the Member for Belfast, East (Mr. Robinson)? Such a scheme would be very productive in targeting senior citizens who live alone and who are at the lower end of the income scale.

The hon. Gentleman will be aware that there is a general discount of 25 per cent. for people who live alone. Clearly, local authorities have discretion regarding other adjustments that they would like to make. A number of local authorities have given discounts to particular sections of the community, so that option is open to local authorities.

I welcome the Government’s commitment to keeping a property-based council tax at the heart of local government finance, but does the Secretary of State agree that it is important that local councils should be able to raise finance from a range of sources other than a property-based council tax? Does she agree that it is particularly important that a higher proportion of their revenue is raised locally if they are to be accountable to the local electorate?

Yes, it was Sir Michael Lyons who said that the property-based tax was an important element in the accountability of local authorities to the people that they serve. It is clearly important that local authorities have some flexibility, and we have recently decided that we will give them the ability to raise supplementary business rates in their area, subject to a whole range of safeguards to ensure that they do not impose a burden on business. There are already business improvement districts, in which local people get a vote on raising more money so that they can do the things that really matter to their local communities. It is important that we do not enter into the debate on a local income tax lightly, because such a tax would involve a massive shift from older people to hard-working families. I know that the Liberal Democrats choose to talk about a local income tax as though there would be no losers; actually, there would be many thousands of losers, mainly from hard-working families.

Does the Secretary of State accept that, although I might agree with her that a local income tax is the wrong answer, a real problem has none the less been created by her Government as a result of the plethora of unfunded burdens, regulations, inspection regimes, red tape and ring-fenced funding that reduces the scope of local authorities to make local decisions for local people? Against that background, does she regard it as a considerable achievement that one third of the increase in the basic state pension is now eaten up by the increase in council tax?

Much as I like the hon. Gentleman—[Hon. Members: “Surely some mistake!”] It is only because I can look him in the eye. Much as I like him, I am afraid that he is significantly out of date, and I urge him to catch up. In the past 12 months, we have slashed the number of targets for local authorities from 1,200 to under 200. We have also un-ring-fenced £5 billion of resources for local authorities and their partners to spend on the things that really matter to local people. There is now a slimmed-down regime for local government, because I am determined that local authorities should be able to respond to the things that people think are important. I hope that the hon. Gentleman agrees with me on that.