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Local Government: Lyons Inquiry

Volume 691: debated on Thursday 26 April 2007

rose to call attention to the recommendations of the Lyons inquiry into local government, and the future of local government funding; and to move for Papers.

The noble Lord said: My Lords, your Lordships’ House has many times advocated a renaissance in local democracy and has called for a stronger and wider role for local government. Therefore, I am grateful to have the opportunity of this debate, and I declare my interest as chairman of the Local Government Association.

The Michael Lyons report, which involved valuable work on the role, function and funding of local government, has taken five years to complete. It started in March 2002, evolving into the Lyons inquiry and was finally published last month. Despite five years of professional and valuable work, on the day of publication the Government dismissed out of hand, in a press statement only, many of Sir Michael’s recommendations. That was most unfortunate, as there are very important issues here. I shall attempt to draw out eight questions on which I trust the Minister will clarify the Government’s position.

The report starts by dealing with the role of local government. It rightly emphasises a council’s unique role in the democratic representation and leadership of the area that it represents; in what Sir Michael calls “place-shaping”; in securing high-quality, value-for-money services; and in its wider responsibility for the social, economic and environmental well-being of the area that it represents.

However, Lyons goes on to conclude that the improvement in public services, the prosperity of our cities, towns and villages, and the public’s trust in governance are being held back by one single fact: over-centralisation by the state. Indeed, of all the major democracies and economies of the world, the United Kingdom Government exert a unique degree of central control over public services and local government. This stifling burden of control has simply wasted the public’s money; it has sapped the initiative, enterprise and commitment to public service of many front-line staff; and it has denied the ability of local people to make local decisions. In doing so, the Government have eroded local democracy itself.

There is now widespread recognition that radical devolution in England must take place. Last summer, the Secretary of State and the Chancellor made clear commitments to what they called “an era of devolution”. The Local Government and Public Involvement in Health Bill is an ideal opportunity to turn this rhetoric into reality. The Local Government Association has welcomed the democratic and deregulatory steps set out in the Bill. However, I must make it clear that we are deeply concerned about the Government’s commitment to devolution and the lack of steps set out in the Bill on the devolutionary front.

Devolution has taken place in Scotland and Wales, but to whom will the Government devolve in England and what will they devolve? Sir Michael Lyons’s report rightly focuses on economic prosperity, and the Treasury’s own report, the sub-national review, seeks to ask what the natural economic areas are. The Local Government Association produced a report on this. Our consultants analysed the market areas, the labour, retail and housing markets and the travel-to-work areas, and it looked at the clustering of businesses in high-tech sectors. It saw that the natural economies are not regional—not the nine regions as now—but sub-regions, very often matching the great cities and shire areas of England. Sir Michael Lyons supported this and said that devolution should be to sub-regions and to their cities and shires.

Nowhere is the evidence for that clearer than in the great cities of England. The Treasury's Devolved Decision-Making Review Report of March 2006 drew attention to this. It looked at the prosperity of our great cities of England—Manchester, Birmingham, Sheffield, Liverpool and Newcastle—and it saw that they have only half the GDP prosperity of the major cities of Europe. The report went on to say that part of the reason for the success of European cities is that they enjoy far stronger devolved political autonomy over the economic levers of transport, planning and economic development, while English cities remain largely dependent on central government decision-making. So the first question is: to whom will the Government devolve? Will they continue to shuffle and add to regional quangos or will they devolve, as the economic evidence and analysis indicate, to the sub-regions, the cities and the shires?

I wish to make a final point on powers, economic prosperity, our cities and social justice. We must strike the right balance between the role of the state and the issue of community and social responsibility. It is a tragedy that, after a decade with the luxury of a strong economy, the social divisions in our country are now wider. Certainly, the super-rich are richer, and the affluent are more affluent, but the 20 per cent or so who are least well off, are less well off today. Many people in our cities are living in very hard-pressed communities with areas of high crime, high welfare dependency, high drug use, low education aspirations and low expectations.

It is therefore immensely important that both central and local government recognise their limits and that we understand that, ultimately, it is community capacity and the human spirit that provide a self-generating force for social and physical renewal. Indeed, I believe that the Leader of Her Majesty’s Opposition is right to focus on social and community responsibility.

In addition, there is a question not only of powers and roles but also of funding. First, to help local economies, the return of the business rate with the same RPI cap as at present would incentivise local authorities to drive forward house building, commercial development and regeneration. It would create a buoyant tax revenue stream and, at the same time, build a stronger relationship and partnership between the public and private sectors. Business would pay no more than it does at present because of the RPI cap. Therefore, will the Minister say whether the Government support Sir Michael Lyons’s view and analysis about the advantages of the return of the business rate with an RPI cap? If not, can she say whether there is a problem of indecision or what the arguments against it are?

The proposals on the supplementary business rate are a small step in the right direction but they are not the core issue. We need to remember that, if business rate still paid the same proportion of local government funding today as it did in 1997, every household’s council tax would be £250 lower. We also need to remember that, with the business rate this year at RPI, set at a higher rate than the increase in grant to local authorities, the Treasury has kept a significant profit itself.

We also need to consider why council tax has increased in unpopularity. Part of the reason is that over the past decade the increase in government grant to local authorities has been lower than the demand and cost imposed on local government by the centre. Whereas NHS real-terms spending has increased by 90 per cent, the real-terms increase for local authorities has been just 14 per cent. In 2002, the Audit Commission found that council tax had been forced up as a direct result of a shortfall in government grant. Therefore, we need to consider other existing buoyant tax streams.

Michael Lyons has rightly—apart from the business rate—pointed us to a shift to an assigned income tax. That means the first one or so pence of existing income tax goes straight through to the local authority. According to the Treasury, over the past five years income tax has grown by 27.2 per cent, which is about 5.25 per cent a year, far ahead of the growth in grant to local authorities. Will the Government consider the option of an assigned income tax?

At the same time, Michael Lyons has talked about specific grants. To make the Government's commitment to devolution real, local authorities must have the ability to spend on what local people and local authorities regard as local priorities. At present, some 21 per cent of local government funding comes in specific grants, tied by the Government to national not local priorities. As the Lyons report says, the Government must make a commitment to reduce drastically the specific grant. Will they give that commitment?

I think we would all agree on council tax benefit. Michael Lyons reports that £1.8 billion of council tax benefit goes unclaimed each year. The take-up has fallen by 11 per cent since 1996-97. We believe that council tax benefit should be changed to an entitlement and become automatic. Indeed, if council tax benefit were a 100 per cent entitlement, people in the lowest decile of income would pay 2 per cent of their income on council tax rather than 8 per cent as they do now.

The Local Government Association believes that the savings limit on council tax eligibility should rise to £50,000. Michael Lyons supports that, so the question is: when will the Government move to an automatic entitlement to council tax benefit? I understand from the DWP that that is possible. Do the Government also support the rise in savings limits?

Other urgent funding issues remain unresolved because we have not moved to reform. Today, despite our pressing government for more than two years, there is still a considerable shortfall from the European legislation on waste and rising landfill taxes imposed on councils. At the same time, we have continually sought clarity and a resolution from the Chancellor about who is to pay for the ever-increasing cost of social care from the increasing demographic change in the number of elderly people. We simply must have a straightforward answer from the Chancellor. Is government grant to be matched to demographic change and population change, or is the Chancellor expecting council tax payers to pick up the bill, or expecting councils to impose stealth taxes on elderly people and acquire the money through increasing charging systems, as we have seen in other spheres?

One of the most important issues is to restore confidence in funding local government to ensure that its allocation and distribution and the balance of funding between the council tax payer and central government is seen to be fair and transparent, and that there is absolute clarity about responsibility and accountability for council tax increases. We have had too many arguments from local and central government about whose fault it is. The Local Government Association has, therefore, proposed to Michael Lyons, as he in turn proposed in his report, that the Government should consider an Independent Grants Commission like in Australia and Denmark.

Such a commission could start by allocating a base inflation increase to every council. On top of that, an independent commission would have responsibility for overseeing distribution and equalisation and bringing that up to date with the latest reliable population and demographic change statistics. In Australia, on top of that, the independent commission has what it calls a “new burdens regime”, which it oversees, and ensures that any new legislation and government policy that have a cost impact on local authorities are paid for by the sponsoring government department not by council tax payers. A good example of that is that advanced corporation tax, which came so suddenly on pension funds, has cost my own county council and council tax payers in Kent £80 million.

I believe that an independent commission would be seen to be impartial and fair. It would make the Government's role transparent and clarify who is responsible for council tax increases, which would thus strengthen accountability and local democracy. Will the Government consider an independent grants commission?

There is much of value in Sir Michael Lyons’s report. I am very grateful for his professional work and that of his officers and everyone across the country who made a contribution. I look forward to hearing the Minister’s response. I beg to move for Papers.

My Lords, I am sure we are all most grateful to the noble Lord for introducing today’s debate and for doing so in such a thoughtful and generous-spirited way.

Most people, most of the time, cannot choose to go elsewhere for local authority services—roads, refuse collection and the like—unless they are very rich, very rural or very misogynistic. Local authorities’ relations with their citizens, therefore, need to be based on trust: a belief that city halls fairly—a word I want to emphasise today—assess finances and deliver services and that their judgments are underpinned by democratic accountability.

On fairness, I led for the Opposition in this House in the 1990s, when we replaced the highly regressive poll tax with a council tax levied on property, with a 90 per cent fit of income to tax band, abated by personal discounts. Now, more than 90 per cent of all households are in tax bands D and below, but about 5 per cent of the 20 per cent or so of households in bands E, F and G—I estimate about 1 to 2 per cent overall—are low-income pensioners. So, in its turn, council tax is now regarded by many as unfair because it falls on poorer pensioners and because it funds services which seem to be a postcode lottery.

However, fairness is a slippery concept. When I served on the Plant commission on voting systems, we could not agree whether Parliament represented communities, parties, minorities or individuals. Therefore, we could not agree on a fair voting system. Similarly, I suggest that the same is true for local government. There is no objectively fair system of local government finance. There simply is not. It depends on what criteria one values. The pensioner in the large house who is asset-rich but cash-poor believes that it is unfair that the house next door, with several earners, pays the same levy. As only 16 per cent of local authority spend, including on schools, comes from council tax and as much of local government finance comes from general taxation, because earners pay taxes, and from business rates, because workers also contribute to business rates, it is more than likely that the earners are subsidising that pensioner through their general taxation and subsidising the services which that pensioner probably uses more than they do.

There is a real problem. Council tax benefit ensures that, on average, each income decile pays about 5 per cent of income in council tax—that is, if they claim—but about 200,000 households, who are naturally reluctant to leave the family home, pay 10 per cent or more and they struggle. That is why I welcome the Lyons proposal and the Government’s sympathy for reviewing the workings of council tax benefit and making it a rebate—which had a 90 per cent take-up among pensioners, unlike today’s 55 per cent take-up of CTB. Lyons estimates that removing capital limits would help 1 million pensioners reduce their average D-band of £25 by £10 at a cost of £260 million. His alternative suggestion interests me. It is that we would have a “circuit breaker”: a percentage of income at which council tax was capped for the individual. That would require means-testing for pensioners to be extended, unless we could introduce a degree of automaticity, but I do not see how we could that.

Would local income tax be fairer? Local income tax would help pensioners, who already have more generous tax treatment than workers, while leaving their assets and savings untouched. However, Lyons points out that LIT would hurt low-paid workers with families, mortgages and minimal savings who, although they are paying tax, are already more likely to be below the poverty line than pensioners. I suspect that we would have to extend tax credits to pay for it. I am pleased that my noble friend shows no inclination to go down that path.

Fairness also requires that we ask whether local authority finance should be based on where one lives or where one works. After all, 40 per cent of workers cross at least one local authority boundary when going to work and put pressure on services without contributing to their cost. Norwich provides 40 per cent of Norfolk’s jobs. In 2005-06, Norwich businesses paid £57 million into the national Exchequer, but through its district, county and police moneys Norwich received back only £37 million. In effect, £20 million went to support low-spending, low-service adjacent districts. That is their democratic choice, but their residents got free services from the city.

There is little financial incentive for local authorities to invest in the local economy when it adds nothing to their financial receipts. As the noble Lord, Lord Bruce-Lockhart, said, the right response is to relocalise as far as possible the business rate, which was nationalised in 1990, which would fund such services and encourage local authorities to invest in their local economies, as well as abate gearing, which makes it so difficult for local authorities to manage their spending pressures. That is why I strongly support the Government’s local authority business growth incentives—LABGI—and the Chancellor’s welcome for Lyons’s proposal for a new supplementary business rate for economic development.

Should local authority finance reflect usage of service and extend charging? For swimming pools, yes, it should, but is it fair to charge heavy users of unavoidable local authority services—the young and the old—who have the least capacity to pay? What about refuse collection? Should large or disabled families, who may generate more waste in the same way that they use more water, be charged more? In other words, is it the job of local authorities to be a local welfare state, redistributing from those of working age to those younger, older or poorer or is that the job of the new 4-block grant?

We agree that the so-called postcode lottery is unacceptable in health, but Lyons emphasises the place-shaping function of local government. To what extent should the council reflect community preferences and priorities? We should probably have national standards on education, classroom size and the national curriculum, but is it fair that local authorities should have different criteria of eligibility for social care, different charging patterns and different support packages? Is that postcode lottery unfair or does it reflect different but equally valid assessments of local need and local resources? What may appear fair in the eyes of the local community, as reflected in the ballot box—for Worthing is different from Wigan and may want to support its elderly in different ways—may still appear unfair to the individual user, the frail pensioner who compares her lot with that of her sister in a different borough. The combination of minimum standards and inspection, with additional headspace for local distinctiveness and decision-making—the route that the Government follow—is probably the balanced approach.

For that to work, not only must local authorities earn the trust of their voters, but central government must in its turn learn to trust local government. Nye Bevan once said that the purpose of power is to give it away. I hope that Lyons will move us step by step towards the path of double devolution from central government to local government and from local government to its citizens. However, unless we can get a concept of funding for local authority services with as broad a consent as possible, we will not have buy-in to a concept of fairness. That concept of fairness is essentially in the eye of each of us, and there is almost certainly no meeting of minds thereon.

My Lords, I, too, thank the noble Lord, Lord Bruce-Lockhart, for introducing this important topic. Sir Michael Lyons’s inquiry was into local government—eventually—with a focus on funding. It is right to look at funding in the broader context of the role of local government. What is that role, especially in relation to other spheres of government? The inquiry was a serious piece of work and was treated seriously by those who contributed to it. It raised expectations among stakeholders—although everyone is a stakeholder in this issue. It is no wonder that it is now regarded as an opportunity that the Government missed.

Echoing more bluntly something that the noble Lord, Lord Bruce-Lockhart, said, I cannot help but begin to get the impression that the Government too often commission reports and then seem to skim over them at breakfast and rush out a response. We saw that in a different context with Stephen Crow’s report on casinos, which the Government almost immediately accepted, thereby giving the impression that they had not thought about the content.

As has been said, rather a lot of the Lyons report has already been put to one side. I understand that the Government have already rejected or deferred a decision on all the key recommendations—I recognise that I am being a little illogical in criticising deferment. I shall run through the key recommendations. On the reform of council tax benefit, the Government are considering the proposals at a time when £1.8 billion goes unclaimed; on capping, they are keeping that power; on the reform of council tax to make it fairer, they have ruled out the revaluation that would be necessary to introduce the additional council tax bands proposed—I shall not comment on revaluation at this point; and on local supplementary business rates, the Government are considering the proposals. We have heard about an independent grants commission. The only proposal that I understand the Government have accepted is that they will take action on empty property rate relief, but I think that what was recommended was a consultation.

Sir Michael Lyons rather heroically welcomed both the White Paper and the Local Government and Public Involvement in Health Bill, but the work has been out of sync. I am sorry that we are going ahead with the Local Government and Public Involvement in Health Bill without the opportunity to take on board an 800-page report. I remarked to my noble friend Lady Scott of Needham Market—who is sorry not to be able to be here—that no one seemed to have asked about the cost of Sir Michael Lyons’s work. She said that she had and that it cost £1.76 million plus well over £400,000 for additional research. These are not negligible amounts, especially when one considers how little the Government seem prepared to make use of the report. I hope that the Minister will disabuse me of that idea at the end of this debate.

My starting point is that tax has the potential to be a good thing. It is the price of a civilised society, but it must be connected with the product. For example, one thinks of national insurance, which is now very divorced from what it was originally intended to pay for. It is not just a matter of hypothecation of the tax, or ring-fencing of the grants made out of taxation, but the connection, which in this case is particularly important, with local government, or, rather, with the particular local authority.

No one who has been a councillor can be unfamiliar with the difficulty of explaining to local residents what decisions are within the discretion of the local authority and where that discretion is fettered. Public focus is almost always on council tax, but it seems to me that that is almost the least of it. Such a large proportion of a local authority’s income is in grant from central government. That is unhealthy because of the lack of effective transparency and the difficulty that the voter/taxpayer/citizen has in understanding it; and it is unhealthy because of the control from central government that runs along with it, both in relation to the amount and because of the ring-fencing which so often applies.

My noble friend Lord Tope, in making use of modern technology, “BlackBerryed” me on his way back from Bilbao at the beginning of this week. He said that the Basque Government had just told his meeting that they collect 100 per cent of all taxes and pay a fixed percentage—just over 6 per cent was his understanding—to the Madrid Government for services which they, Madrid, provide for Bilbao, such as defence. He said:

“Just imagine the different dynamic if UK regional government collected all the taxes and gave grants to central government! The massive regeneration in Bilbao over the last 10 years is very impressive”.

All the representatives from a number of EU countries at the meeting he attended agreed,

“that one contributory factor was their financial ‘freedom’”,

which had allowed them to provide,

“visionary and dynamic leadership at local/regional level”.

That first-time visitor there was hugely impressed by the fact that,

“a city the size of Croydon”

had a metro designed by Norman Foster and a new tram system. This sounds more like devolution from the city to the centre rather than the other way around.

The report by Sir Michael rightly emphasises the trust in the relationship between the taxpayer and the local authority. I am not sure that I go along with him on his comments about charges for specific services because of the difficult issue of trust. Many people—not correctly in my view—say that they get nothing out of their payment of council tax, but certainly it is right that people should understand what they are entitled to get by way of services.

Over many years opinion polls have shown that people rank their local services much more highly than the local authority which provides them. There is a suspicion of charging. You see that in the context of parking fees. I find fascinating the work which the Local Government Association has just published on waste collection, but it is an area that needs huge care. Trust is also a substantial element in the issue of the business rate. I look forward to hearing what the noble Baroness, Lady Valentine, has to say about that. Business has much to gain from investment in its area, but I am not as optimistic as perhaps others are about the acceptability of some sort of super-bid.

I have deliberately not concentrated on local income tax, although naturally I am pleased to see what Sir Michael said about it. The fact that one has to keep on referring to fairness—and I do not believe it is such a difficult issue; perhaps it is objective as the noble Baroness said—does not diminish the importance of fairness and the fact that local income tax would be fairer and more progressive.

The Rowntree Foundation recently published a report on Struggling to pay council tax. It looked at who was struggling to pay it and gave its perspectives on it. One gentleman questioned explained why he had received a council tax summons. He said:

“My problem is my wages ... I just don’t earn enough”.

In 2005, the Labour Party manifesto committed what is now the Government in the longer term to reforming council tax. I end by asking the Minister: does that still apply? In this House we often ask what is meant by “shortly”; in this case I will ask what is the “long term” in which they will reform council tax?

My Lords, I, too, should like to thank my noble friend Lord Bruce-Lockhart for introducing this debate today. His contribution reflects his great knowledge and expertise gained over many years of service to local government. I would like at this stage to thank him and all those councillors who serve on a regular basis and have done so for many years. We should formally acknowledge their contribution to the betterment of their communities. While I have never been a councillor myself, both my brothers were county councillors and one of them is standing for council elections this time.

I should like to reinforce three things particularly which my noble friend stressed: first, the release of central control over local government affairs; secondly, the release of local government to decide on its own local priorities; and, thirdly, to bear in mind the demographic changes. These are three very big challenges that we face.

All of us are concerned about the ever-increasing council tax demands that fall through our letter boxes and which constitute an overwhelming burden for many recipients. Pensioners particularly on fixed, or even declining, incomes are particularly vulnerable as the rapid rise in house prices has made, as indeed the noble Baroness, Lady Hollis, mentioned, many “capital rich” but “income poor”.

The Lyons inquiry concluded that there is a need to reform council tax through the proposed revaluation of domestic property. That carries with it the possibility of intrusive and expensive inspections of family homes and a consequent major injustice. The Government have just begun to stress the need for householders to waste less energy and to maintain their properties in a fashion that will reduce the carbon footprint. They now propose to reward those who comply with an even higher council tax bill. That surely cannot be right.

My honourable friend Caroline Spelman has recently confirmed that the Conservatives will scrap these particular proposals and abolish the inspectors’ right of entry.

On the subject of council taxes, I wish to draw to your Lordships’ attention the anomaly that could become a disaster. Many councils are moving to a general waste collection on a fortnightly basis, interspersed with the collection of recyclable waste. The Local Government Association has, this week, produced an analysis that shows that many councils already using the new timetable are achieving higher recycling totals. I welcome that. We really do want to recycle and reuse what we can. My concern comes with the risk of the increasing numbers of fly-tipping incidents that we see both within our cities and counties where local authorities have to pay to clear it up.

I understand that last year there were some 2.5 million fly-tipping incidents. The Countryside Alliance, in its fly-tipping campaign this week, costed their clearance at roughly £100 million to local authorities and some £47 million to the farming community. The danger is that a reduction in refuse collection, coupled with a requirement for householders to split their waste into different categories, could result in even larger increases in these costs. That is clearly not desirable.

The Minister will not be surprised that I want to turn to the financing of rural local authorities. Research undertaken for the SPARSE groups—that is the groups of local authorities with the smallest populations—last year showed that the treatment of sparsity within the new relative needs formulae is similar to that for the previous resource allocation systems. Only about 3.9 per cent of the RNF for the three RNF blocs studied is allocated through sparsity indicators. But research undertaken two years ago for the Countryside Agency revealed substantial additional costs caused by sparsity, distance, additional time and the lower economies of scale. One local councillor in south Shropshire will tell you that to collect bins from a little hamlet where there are only a few people obviously costs much more than it does even in a large village, which in turn costs even more than it does in urban areas.

Research shows that the average value of the standard of costs for many services provided by local authorities and other public service providers was, for the main urban areas, only 0.73 of standard cost; for the intermediate mixed urban and rural areas, 1.28 of the standard cost; and, for the mainly rural areas up to 1.85 of the standard cost. That is more than twice the standard cost of the provision in urban areas. I hope that the Minister will reflect on that when she comes to reply.

My second major concern is that the various council tax reliefs are not equitable. For instance, many rural businesses are micro or small to medium-sized. Research demonstrates that their business rates remove a significantly higher proportion of profit than they do from large or very large companies. The CLA, which briefed us, stresses the necessity of relief for small businesses and social providers in rural areas, such as village and farm shops and rural post offices. I know that some currently get some form of relief.

The most recent Sunday Telegraph revealed the £300 million tax raid planned for rural communities in the shape of a reclassification of agricultural land and buildings that would remove the current exemption from business rates. It is true that Sir Michael emphasises that,

“marginal agricultural land should continue to receive full relief from business rates”,

but from that I gather that anything that smacks of commercial use will lose that indemnity.

Lyons suggests the review of all forms of relief and exemptions. In my time allocation, I cannot go into detail today because that is a full and complex issue, but I hope that we will be able to debate that fully in future.

I turn quickly to empty properties. The proposal to remove empty property relief has not been rural-proofed. I must here declare a farming interest. It is a problem for some farmers when they have redundant buildings, because sometimes they cannot convert them to be put back into use because local planning will not allow them to do so. How can you tax a technically redundant building, the use of which cannot be altered? Again, I should be grateful for some comments.

I shall talk briefly about the cost of regulation and legislation that central government introduces but that local government must pick up. I shall give two examples. The first is where the DfES has cited as good practice the granting of extra funds by local authorities to schools taking hard-to-place pupils. The figures recommended are £1,500 per pupil placed in the autumn term, £1,000 in the spring and £500 in the summer, but I understand that the Government will not pay for that. It is most likely that it will have to come from local government reserves.

My second example is the question of transport to and from school. The home-to-school and home-to-college transport scheme especially affects local authorities with considerable rural responsibilities. Many of them do not own their own buses and have to hire them. The services are provided under contract and many authorities will have built in an escalator to cover contract cost increases. Those have recently included fuel price rises and revised specifications for new coaches.

Those are but two brief examples; I suspect that many other noble Lords will give others. My plea is that whenever central government comes in with new ideas and passes them to local government, there must be adequate funding in the equation.

My Lords, I have two interests in this debate. The first is that I believe that London should have more devolved powers and funding and should be able to tackle its own challenges and make its own decisions about prioritising resources. The second is that I believe that business and local authorities should be encouraged to work better together. On the subject of devolution, this slot was originally allocated to consider the Greater London Authority Bill. It seems that we have been temporarily spared the GLA but instead fed to the Lyons.

As chief executive of the business organisation London First, I was fortunate to work with Sir Michael and his team in facilitating his discussion with the London business community. The business view was clear. Businesses value the stability and certainty following the introduction of the uniform business rate in 1990. There was no support for relocalisation of the business rate. But it was recognised that the UBR has weakened the relationship between business and local government to the point where businesses feel that local authorities are not responsive to their concerns. Local authorities and business should have a joint interest in promoting economic prosperity. There has been wide debate about the shortcomings of the planning system in the context of the Barker report.

In London, one cannot help but feel that there is not much incentive for boroughs to contribute to coping with the huge economic and population growth. New development, whether offices or housing, often just means more pressure on local infrastructure and local opposition with little financial benefit. So it is hardly surprising if councils fall prey to nimbyism and parochial interests with no balancing influence from business.

What is the solution? I shall make two recommendations, which are evolutionary rather than revolutionary. One is to do with the local authority business growth incentive, which was referred to earlier; the second is to do with the supplementary business rate. The local authority business growth incentive enables councils to keep some of the business rate from new business development but, as Lyons says, it is complex. There is a mysterious formula which seems to be somewhat random. Sir Michael has recommended simplifying it. I suggest that one goes further and allows local authorities to keep all the extra revenue from new development, which they could then securitise through prudential borrowing to invest in the vital infrastructure that they need to support growth.

Secondly, Lyons recommends the use of supplementary business rates. Local communities need more power to raise new local revenues to invest in themselves. Of all the local communities, the argument for London to raise more local revenue is the strongest, as it has a higher population than an increasingly fiscally autonomous Scotland and a GDP that is higher than that of all but 17 of the world’s biggest national economies. I agree with Lyons that local authorities should have the power to levy a supplementary rate that is, as the report says,

“designed in a way which can gain confidence with business and the wider community”.

However, I cannot stress too strongly the importance of gaining the confidence of the business community. There remains great mistrust between business and local authorities, and taxing businesses for something that local authorities think that they might want is not a recipe for improving trust. The issue of accountability is fundamental to business.

What should the right form of accountability to business taxpayers be? Lyons suggests consultation, but the best existing model is that of the business improvement district, in which businesses that would be required to pay are allowed a vote. This has meant that pet projects which authorities have long had in their bottom drawers will stay there, while well designed schemes that address the real concerns of businesses and their communities have earned support. I should mention that I have long been involved in the New West End Company business improvement district, which covers Oxford Street, Regent Street and Bond Street. I recommend this as a model. Just one statistic is that street crime has reduced by 15 per cent per annum in the past two years as a result of introducing red caps on to the streets. I hold firmly that this model is the right one for supplementary business rates, although I do not underestimate the challenge of securing a supportive vote over a wider area. Incidentally, when business improvement district legislation was originally being prepared, the British Property Federation made the unusual move of asking that property owners be required to contribute. The Government turned it down. For London and other two-tier areas, Lyons recommends a single rate, to be set through agreement between the relevant authorities. In the case of London, this looks like a recipe for a lengthy stand-off between the Mayor and the boroughs, and there is a strong likelihood that they will again come up with a proposal that business ought to want rather than one achieved in full discussion with business.

This brings me finally to Crossrail. Lyons cites the debate in London on Crossrail. Indeed, the Government insisted that we wait for the Lyons report in order to discuss the funding of this vital project, but Crossrail cannot continue to wait while details of business contributions, as recommended by Lyons, are agreed. The worst case scenario would be for the Crossrail debate to drag on while every one of the 33 local authorities in London discusses its wish list with the Mayor, resulting in several years’ time in a rate demand to business for a set of projects which it did not ask for in the first place. Crossrail is so important to the London and UK economies that it must be treated as a one-off. The funding for Crossrail needs to be resolved in the next Session so that work can start in 2009. It is entirely feasible to take this funding commitment through the Finance Bill in 2008. On behalf of London’s business community, we are ready to talk.

My Lords, I thank the noble Lord, Lord Bruce-Lockhart, for introducing this important and interesting debate. I declare an interest as a councillor for the Borough Council of King’s Lynn and West Norfolk, which, under the able leadership of John Dobson—who unfortunately has to retire because of ill health—backed up by good officers, was the only local authority to reduce tax last year. Moreover, taxes for the current year are not being increased; they will stay the same. This has been achieved by increasing efficiency, not by reducing services. Indeed, we maintain weekly rubbish collections, even though the Minister in another place claimed in a Written Answer that this was not so.

The major issue that the Lyons report does not mention is that there is too much government. There is an underlying assumption and confidence in government’s ability to cure ills, when one only has to look around to see that, except in limited circumstances, government creates as many problems as it solves. As there is more and more government—the explosion of the nanny state—so the ability to govern efficiently is reduced. The stage at which benefits outweigh costs has long been passed. In a bid for efficiency, targets are introduced, with the result that achieving targets has become more important than delivering the underlying services.

Over the past 10 years, central government have made ever increasing demands on local authorities, as was commented on by the noble Baroness, Lady Hollis. These demands have not been matched by funding. My council estimates that only half the increased costs it has to meet have been funded. Where local taxes have to be increased as a consequence, the blame for the tax increases shifts from central to local government. For example, the levy on landfill sites will increase each year for the next three years. This will have a huge impact on councils, but on historic criteria it is extremely doubtful that the tax taken will be returned to councils to assist them in waste recycling. The poor, old council tax payer will be forced to cough up while the revenue collected goes elsewhere.

The several recommendations in the Lyons report that there should be greater disclosure of information on central versus local funding is to be welcomed. It would help to expose the problem of costs being loaded on to councils. In addition to the problem of increasing expense not being matched by income, councils now have to cope with the late delivery of the Comprehensive Spending Review. That prevents councils doing proper forward planning as they have no idea what their resources will be.

I hope that the Minister will take note of the concerns expressed by your Lordships today and endeavour to take steps that will assist rather than impede local authorities in managing their affairs sensibly and efficiently.

My Lords, I, too, thank my noble friend Lord Bruce-Lockhart for introducing this valuable and timely debate, although it is disappointing that not many more people are participating. I am not speaking from the Front Bench, so I might be a little more determined in some of my comments. The Lyons inquiry is, above all, a missed opportunity for a long-anticipated radical reform of financing local government. It is too tame in its recommendation, too tame in its response to the excessively centralised structure of our country and, most of all, too tame in its approach to the principle of the shortfall in local government resouces and the way in which this sector is financed. I declare an interest as leader of Essex County Council.

Lyons has produced a report that is notably lacking in substantially radical ideas. However, some valuable reflections and sensible suggestions are proposed, which should be debated because much of the report’s content could underpin the devolution agenda. I can understand its timidity; to a certain extent Sir Michael Lyons faced an almighty task and anyone would have found it almost impossible to satisfy all the stakeholders. Some people may say that his recommendations reflect a balanced and considered standpoint, but it is a shame that a number of his grander proposals have been diluted by the response of a rather sceptical, centralist Government. As I have said, the Lyons inquiry is a missed opportunity, and what an opportunity it could have been.

The local government financial framework is excessively centralised. As my noble friend Lord Bruce-Lockhart has said, it is one of the most centralised anywhere. It is inflexible and its accountability is totally confused. It is an antiquated system—I shall go into that later—which is riddled with inequity and is now widely condemned by the public. The noble Baroness, Lady Hollis, might have defended council tax, but certainly the public do not like it any more. It has outlived its life and is harming the sector. Local government, of which I am a leader of a part of it, is unpopular because of council tax, not because of the services provided. It is time to develop a new system which must be more buoyant, transparent and accountable to local people. I propose a more fragmented system that makes use of a wider range of funding opportunities to generate income.

It seems logical and just to eradicate council tax as we know it and to replace this revenue mechanism with a property tax, which could be used to pay for services directly related to the policies of property, such as waste collection and holes in the road outside people’s houses. That would be understood. Such a tax would be clearly visible but its transparency and direct link with relevant services would hold resonance with what is becoming an increasingly alienated electorate.

To supplement this income, it would be essential to find a more equitable method of funding the remaining local government services, such as adult social care, children’s services and so forth. Lyons proposes a number of strategies, but I suggest that we have to be much more radical. We should look at a potential sales tax, and even possibly, speaking from these Benches, a local income tax. I would not rule out any of those options any more, and I shall return to them in due course.

Lyons spent two and a half years producing a weighty, 400-page dossier. It delves in great depth into the data to develop solid, well-evidenced proposals. Much of its import is familiar. The recent local government White Paper, Strong and Prosperous Communities, and the LGA’s Closer to People and Places set out many of the key arguments and advocate the same approach. Lyons’s major contribution to the White Paper is the idea of place-shaping. One could argue that it is the key component of the devolution agenda. The concept has been widely praised in the local government press and much time has been devoted to discussing the best way of capturing its potential. In essence, it represents a shift away from the fear of a postcode lottery towards the embrace of a postcode democracy. Lyons maintains that variability in services and delivery is not always a bad thing. Do services need to be exactly the same in Cornwall as they are in Essex? This embodies the central purpose of local government: to deliver to local people what they want at the local level. In fact, most local government politicians in all parties advocate a devolutionary agenda, minimising reliance on and control by central government. Lyons supports this and suggests that place-shaping powers can stimulate innovation, thus reducing pressures on the tax base.

The excessive centralisation of British politics, which has been carried out by all recent governments, is embodied in a bewildering array of targets, impeding local authorities in delivering local priorities. As the leader of a council that is involved in a highly successful local area agreement, I commend the whole principle of such agreements and, as Lyons said, think that they are part of the future direction.

As I said earlier, the council tax has outlived its usefulness. MORI has identified council tax as the most visible and widely known of all UK taxes, which surprises me. How many people are aware that local government bodies are among the strongest performers in the public sector? I suspect only a very few. Most associate these excellent organisations with large, unseemly and unjustified tax rises. Local government bodies are unpopular purely because of council tax, not because of the good services they provide. I have criticised the current local government financial structure for being excessively centralised, but Lyons has put forward a number of proposals to overcome the problem. One of his main recommendations is the abolition of council tax capping, and I am disappointed to see that the Government have dismissed the proposal, demonstrating their centralist attitude and contradicting their wish for improved accountability expressed in their own White Paper.

I mentioned earlier my contention that council tax should be eradicated and replaced with an alternative, a property tax that would account for perhaps half the current rates. Someone now paying £1,500 a year would pay £750 a year, which they would see was associated with the cost of the services being provided for their house. The rest of the money would have to come from another source of income. I repeat, it could be from VAT or a local income tax. Lyons cites flexibility of funding and expenditure as being of paramount importance to the devolutionary agenda. Ring fencing should be eradicated wherever possible in order to allow councils to have the ultimate say over how to spend local money. The combined effects of increased flexibility over local spending, the depleted financial burden of council tax and an increased ability to innovate could, over the medium to long term, facilitate greater local engagement with the place-shaping agenda. But these measures alone would be insufficient to raise the required revenue, and therefore we would have to look at other forms of tax.

I also commend Lyons on suggesting the possibility of the added business rate. In Essex, an addition of 4p to the business rate could raise enough money to fund £320 million-worth of infrastructure projects. When speaking with local businessmen recently, the first thing they said they wanted was increased infrastructure. I hope that the Government will give this proposal much more serious consideration. Even if it is not as much as I would like to see in the future, it would be a start, and therefore I will be interested in the comments of the noble Baroness on the proposal.

I finish by saying that it is time all of us looked across the whole agenda of local government finance. Enough is enough. If we are going to make local accountability work, we need to find new ways of financing local government.

My Lords, this report is the ultimate long-grass job from the Government. It was set up in July 2004, had its remit extended twice and then was barely mentioned in Gordon Brown’s Budget speech; indeed, it was buried on Budget day. When I was vice-chairman of the finance committee of Oxford City Council in the mid-1970s—I was a Labour councillor and we had got control—I remember that we were in favour of a local income tax. We were promoting it strongly in those days. I follow up, and back up, my noble friend Lady Hamwee’s remarks regarding the longer term: how much longer does the longer term have to be before we get some statement of government policy?

The key theme that has run through our debate today has been fairness. I was struck by the remarks of the noble Lord, Lord Bruce-Lockhart, about social divisions being wider in this country and the super-rich being more affluent; indeed, I propose to give one or two examples of that a little later on. The noble Baroness, Lady Hollis, with her great experience, both in this place and on Norwich Council, also talked about fairness, but I must say to her that the really fair way for pensioners or anyone else to pay for local services is with local income tax. That is based squarely on people’s ability to pay.

The two dramatic tables on pages 228-29 of the Lyons report clearly show the burden of council tax as a proportion of income, whereby it is falling all the way from a heavy proportion of poorer people’s income right down to a negligible proportion of that of the rich. Council tax is the classic unfair tax. I thought Lyons did a good and thorough job. I felt he became a little political in some cases, but none the less the basic analysis is all there to look at. We on these Benches welcome his confirmation that local income tax is feasible in this country. He explored the fairness issues very well too; his analysis of the council tax bands, and the support for higher bands if we keep council tax, was right.

I turn to two specific areas that are a particular source of concern. First, there are the empty property rates, an issue raised by Lyons and then—because it raises a lot of money, for one thing—taken up vigorously by the Chancellor. Here I declare an interest as a pension fund investment manager on commercial property. What research was done by Lyons as a basis for his calculations, and indeed by the Treasury, in arriving at the estimated figure of £950 million a year that will be raised from this tax? I am bound to say I think it will be considerably more. I was speaking at a property conference yesterday in Cardiff with pension fund members, advisers and experts from the property industry, who were raising serious concerns with me, particularly about south Wales where a large amount of property has been developed over the years, industrial property in particular, which they believe will suffer a serious hit in terms of these empty rates.

Specifically, in the estimates made by Lyons or by the Treasury, what proportion of the empty property that is going to be paying these rates is owned by owner-occupiers, and what proportion is owned by Britain’s pension funds and insurance companies? This will seriously affect the net yield that British pension funds get from their property. Typically, about 6 per cent or 7 per cent of their properties are empty; it is not difficult to calculate that that will cut pension funds’ income from property by about 2 per cent to 3 per cent, with a consequent effect on capital values. I do not expect the Minister to give the answer today, but I would like to see a considered reply from her, because I believe that that could hit British pension funds for anything up to £5 billion on the capital value of their holdings. Given the effect of the dividend tax credit withdrawals and many other problems, that is the last thing pension funds need. This has not been thought through properly.

Let me further explore the unfairness of the fact that council tax banding is effectively so narrow, in particular the very small proportion of capital value that the super-rich pay on their properties—their mansions, if you like. I have a couple of examples from Kensington and Chelsea where Mr Lakshmi Mittal owns property estimated publicly to be worth about £60 million. Sir Ronald Cohen is the Chancellor’s adviser on social inclusion and is actively involved in various government projects. The Evening Standard said last week that,

“he lives in one of the biggest residences in London—three houses knocked together in Kensington—with an enormous basement swimming pool”.

That is quite effective from a council tax point of view, because you pay for only one. The band H council tax in Kensington and Chelsea is £2,062.30 a year, just under £40 a week. That does not seem an awful lot to pay on a property of that size. It would also be interesting to make comparisons with other countries so that we can see how lightly taxed these very large properties are in Britain. We could make comparisons with his,

“large, sumptuously decorated villa in the South of France, near Cannes”—

which has—

“one of the best views of any home in Europe”.

He has another place in Manhattan and, I believe, Israel.

The fact that the mega-rich in our country are paying such a negligible proportion of their property value compared with somebody in a modest bungalow in a rich area or a semi-detached house identifies the gross unfairness of our existing property tax and council tax systems.

I support the noble Baroness, Lady Valentine, on her demand for an urgent decision on Crossrail. I do not agree with her on commercial rates, which should be set locally. You cannot, by setting up committees, reverse the inevitable drifting apart of the relationship between business and local councils. It would encourage business to be more involved if the commercial business rate was no longer nationalised; Lyons says that he sees an argument for that in principle. That is one form of localisation that makes sense.

I listened with interest and sympathy to the noble Lord, Lord Hanningfield. I look forward to the speech of the noble Baroness, Lady Hanham, but so far, I rather wish that the noble Lord was speaking from the Front Bench. He gave an imaginative speech and I welcomed his interest in local income tax. However, I did not get much sense of what alternatives the other speakers on the Conservative Benches were putting forward if, as they say, the council tax is so wrong. All I heard about was devolution.

I do not think it honest to oppose revaluations of the council tax as long as we have it. The valuations are based on April 1991 property values which are very out of date. We strongly oppose the council tax, but if we are to have it, we cannot let the valuations become further and further out of date, year after year. That is unfair to people in deprived areas whose properties have not gone up in value.

We look forward to hearing from the noble Baroness, Lady Hanham, and hope that the Conservatives do not regard this as a commitment-free zone.

My Lords, like everybody else, I thank the noble Lord, Lord Bruce-Lockhart, for introducing this debate so ably. As the former leader of Kent County Council and current chairman of the Local Government Association, he has a wealth of experience and is a welcome addition to our Benches.

I am an elected member of the Royal Borough of Kensington and Chelsea. I do not live in a house with three conversions across; I pay one council tax, which seems to be quite enough.

It is amazing that the report on the inquiry carried out by Sir Michael Lyons—which runs to 394 pages, contains well over 100 recommendations and took, depending on who we listen to today, anywhere between two and a half and four years to complete—was apparently about to be put on the top shelf at the Department for Communities and Local Government to gather dust. Apart from some comments on what they were not prepared to consider, there has been almost total silence from the Government on this report. If these debates had not been generated here and in the other place, the report would have passed without notice in Parliament. Some of the proposals would no doubt have been cherry-picked and credited to the Chancellor or the DCLG Ministers, remaining otherwise unattributed.

Anybody who has given the report even the most cursory glance would recognise that this work has been undertaken with the greatest care and authority. The report reads well—for once, it is not impenetrable—and it produces cogent recommendations. We do not agree with all of them by any means—in fact, we would quarrel with many—but that does not stop us recognising that a prodigious effort has been made to understand the nature of local government and its rather hit-and-miss relationship with the centre, or recognising that the issues raised in it need to be considered. I felt in reading it that Sir Michael understood the frustrations caused by micromanagement from the top and its stultifying impact on local government. A number of his proposals address that.

How refreshing it was to find Sir Michael suggesting that the Government should leave the model of leadership of a local authority to that authority and its community. That is not the way of the local government Bill. I hope that his words will help us when we discuss that legislation later this Session.

Sensibly, Sir Michael tells the Government that they should stop defining lead councillor and officer roles; in other words, to leave the governance of local government to local councils. It must be left to them to decide what they want to do and how they want to do it. That is the burden of his comments. He has trenchant things to say about local authorities having a greater say in housing policies, and draws attention to the current nonsensical situation of social care for older people, which we debated not so long ago. We recognise that this problem is gaining in significance rather than diminishing.

The report raises issues of common sense and devolution which we would want to consider in more depth, if given the opportunity, and which would unplug the local from the centre. However, it is on finance, which everybody has discussed today, that we are likely to stop feeling much warmth towards the report’s recommendations. While we agree that council tax is likely to remain the bedrock of the contribution by local residents to financing services, this report raises again—I shall again disappoint the noble Lord, Lord Oakeshott—the revaluation of property and increases in the number of bands. The Minister will know that we object to both of them. They have been canvassed by the Government previously; indeed, the revaluation proposed for 2005 was put on hold by the Government and is unlikely even to be considered again before the next election. Why? Because it was clear that it was likely to be so unpopular that they would not risk undertaking it.

Preparations for revaluation are well in hand, a significant database of house values is being built up, and there is a manual for valuation officers for assessing properties for each band. Home improvements, views from the bedroom window, gardens, patios and new bathrooms will all come into the assessment. Digital cameras have been provided to confirm that people have had the temerity to improve their homes. One has to ask whether the Government prefer that homes should be left in a deteriorating state just because of a tax valuation.

At least Sir Michael recognises that revaluation and rebanding are likely to have a considerable impact, particularly on those in the higher bands, and recommends a transitional system. However, I recall the controversy caused by such a system when the new business rate was introduced; it was far from welcome, even several years later.

Lyons has the answer to part of the problem of property value increases. Older people who have lived in their family homes for years while their property has increased in value should be able to defer payment by having the cost of the tax placed as a charge on their home, to be released on sale or death. The elderly are being charged for their social care, if they need it; they are already being encouraged to take the equity out of their property to boost the pensions that the Government have decimated. Now it is being suggested that they can offset their council tax on the property as well. As I creep nearer to old age, I fear that it is not going to be much fun.

The one aspect on which we might all be able to agree is that raised by my noble friend Lord Bruce-Lockhart: that the uptake of council tax benefit is clearly lamentable. Impossibly complicated forms and ridiculously low allowances for capital make this a benefit in breach. Sir Michael has sensible suggestions for making this easier to access and for increasing the capital allowance, from the current paltry £16,000 to at least £50,000—I should have thought that there was an argument for it to be more. We hope that the Government at least consider that aspect urgently.

My noble friend Lady Byford has drawn attention to the effects on the rural economy. We are jolly lucky to have her, because we do not have many voices speaking up for rural interests. It is always good to have her behind me on these Benches. She referred to the effects of a possible taxation on agricultural buildings. We should also note the idea of taxing derelict property and brownfield sites. These, together with the possibility of a planning gain supplement, would bring the development of property firmly into a tax regime but not one which would necessarily benefit the local economy. My noble friend Lord Bruce-Lockhart drew attention to and was very encouraging about the prospect of an independent commission. This is the sort of thing that would arrive on his desk and on which he or the commission would have to comment. I hope that it is a concept that the Minister will at least be able to say is being considered. It would be the buffer necessary—and I am afraid that it is necessary—between central and local government.

I am grateful to all those from my side of the House and indeed other noble Lords who have spoken. I have a sense that the Lyons report is seen as the proverbial curate’s egg—some good and some rotten—but at least we have had an opportunity to talk about it, and we will have to watch in the future, as legislation comes along, whether Sir Michael Lyons and the author of the other undiscussed report, from Kate Barker, are influencing our future.

My Lords, like all noble Lords who have spoken in this debate, I am extremely grateful to the noble Lord, Lord Bruce-Lockhart, for this opportunity to discuss this very important matter. It is an opportunity for the Government to make their own comments on the Lyons report in a thoughtful way. I congratulate everyone who spoke and raised such pertinent and difficult questions, which I shall try to answer, although I may also have to write to noble Lords.

I was pleased that the noble Lord expanded the canvas of our conversation this afternoon. That was reflected in the wide range of comments and issues that were raised in depth. My noble friend Lady Hollis discussed the nature of the values that we hold in relation to local taxation and spoke of fairness linked to trust. That underpins our perceptions and creates a framework in which to address many of the serious questions raised.

I predicted that we would certainly come across the terms “long grass”, “top shelf” and “missed opportunity”, and they are all in my notes, although I do not agree with them. It was interesting that we had two rather different responses from the noble Lord, Lord Hanningfield, on the Conservative Back Benches, and the noble Baroness, Lady Hanham, on the Conservative Front Bench.

I put on record our thanks to Sir Michael for the scrupulous way in which he carried out his remit and took forward his inquiry. It is a very serious report and we are grateful to him for it. I have absolutely no doubt that it will be referred to for many years to come, given the clarity of its vision, language and thinking on these very profound issues—the relationships between form, function and funding. Those are very sharp and difficult questions.

It is nonsense to read anything sinister into the fact that we have not produced an instant response, although we tried to clarify in our immediate response some of the things that we would not pursue, in the interests of certainty. The report’s recommendations must be reflected in policy. Far from shelving the Lyons report, we are implementing much of its recommendations as quickly as possible. As I believe the noble Baroness, Lady Hanham, suggested, its influence can be seen in the local government White Paper and the local government Bill. As the noble Lord, Lord Bruce-Lockhart, said in his very thoughtful and typically reasonable introduction to the topic, the concept of place-shaping—I think that the noble Lord, Lord Hanningfield, picked up on this—is crucial to the way we look at the contribution that local authorities make to making places better. Our approach to the local government White Paper was much influenced by that.

The Lyons report is substantial, and noble Lords are right to look for the implementation of its recommendations in the local government White Paper, the Bill and the spending review. It was intended to be the start of a major debate. We sometimes wonder what the Liberal Democrats’ view is on local income tax. It was clear that both the noble Lord, Lord Oakeshott, and the noble Baroness, Lady Hamwee, welcomed the Lyons report’s provisions on that point. However, they should read it very carefully, because Lyons did not recommend a local income tax. He concluded that, while it might be feasible, it was important to recognise its limitations, including the risk of substantial increases for the working population. That is a very serious caveat. We shall be very interested to hear how the Liberal Democrat Party would address that.

We must also look at the landscape against which Lyons reviewed his task, and address some of the issues raised. Not to put too fine a point on it, local government was in a pretty threadbare and demoralised state 10 years ago. If noble Lords read the debate that took place on Tuesday in another place, they will see that position described in rather more robust language than I shall use. Underperformance and underinvestment posed enormous challenges. There was an urgent need for greater transparency, a greater awareness of success and failure and clearer goals and incentives. We have kept faith with the need for more investment. In each year of that decade local government received an increase in funding above inflation—a real terms increase of 39 per cent. The noble Lord, Lord Bruce-Lockhart, quoted the figure of 14 per cent, on which we are in dialogue with the LGA, but that figure excludes the dedicated schools funding and includes the £15 billion available through specific grants for social services alone, for example. I take the argument raised by noble Lords, not least the noble Baroness, Lady Byford, about the pressures of social care in an ageing population, and they were right to raise it. It is clearly an area of serious consideration in making CSR07 and in our partnership dialogue with the Local Government Association.

In 2007-08, we provided £3 billion extra, which is a 5 per cent increase for local government. So whatever noble Lords say about the impact of centralism—I was glad that the noble Lord, Lord Hanningfield, recognised that it has deep roots in other Governments—it was necessary to have a performance regime that represented that, and it has worked. This week’s Local Government Chronicle, which is not an uncritical friend of this Government, acknowledges, when asked about the key achievements of this Government, that the performance improvement culture espoused by Ministers has resulted in a turnaround in councils’ fortunes. The performance regime is seen as playing a key role in that.

Councils are therefore reflecting that benefit. I was very impressed by what the noble Lord, Lord Howard of Rising, said about the efficiency savings that his council has achieved. Some 70 per cent of councils are improving strongly or improving well, and there are no councils in the bottom category. Local government has kept faith too with the challenges that we created, and they are now well placed to face those new challenges, whether it is climate change or the demographics of ageing. I will have to write to the noble Baroness, Lady Byford, about the rural contribution, because I do not have those figures with me.

What I take away from this is that there is only one route forward, which we all understand and share—more devolution, more local flexibility, responsiveness, creativity and innovation. That is the thrust of the local government White Paper. We agree entirely with the noble Lord, Lord Bruce-Lockhart, that there are parts of the country—sub-regions—where improvement has been slower. Our work on cities and city regions in the DCLG has exemplified some of that, and the Government’s sub-national review is very much in tune with what he is saying. It is exploring how we further release the economic potential of the regions, cities and localities. The Budget this year provided an update by expressing what is being considered in terms of potential reforms and how to strengthen incentives across what Michael Lyons described as the wider spatial set of relationships. I can tell the noble Lord that the review will report to Ministers in advance of the CSR.

All that provides the background. What are we responding to in Lyons? What do we intend to do? First, there are some key areas on which we are all at one on how to make local government function more effectively. We are reducing the number of targets, for the reasons that I have begun to explain, and moving away from pressures for centralism, to enable local authorities to take far more charge of their own destiny by determining their own local priorities and local targets. Sir Michael, and this afternoon the noble Lord, Lord Bruce-Lockhart, identified that large number of targets as introducing some sclerosis into the system. We are committed to reducing that and, through the task force that Michael Frater is running, to looking at how we reduce complex and burdensome data and reporting requirements.

A second theme is the need for clarity on what central government and local government are going to do together. I am grateful for the welcome given to local area agreements and the potential that they hold, because that outcome is a deal that hands over responsibility and frees up funding for local government and local partners to decide what is best for their area. It takes us into the sub-regional agenda through the potential that multi-area agreements offer. That has been picked up by Lyons in the examples of Manchester and Kent, and the work that the noble Lord’s authority is doing, working proactively together to help to improve service delivery. There are some very exciting possibilities there.

The heart of the report and of this challenging debate essentially concerned council tax. It is important to reiterate what Sir Michael Lyons said: there is no magic bullet, the Government need to take a developmental approach to reform, and the simple, important message is that council tax is not broken. The Lyons report emphasised that a strong case in relation to transparency and accountability could be made for a property tax, and it went on to identify the benefits. Those attributes are transparency, an easily collectable tax and a stable financial environment. We would throw those attributes away at our peril.

The evidence produced by the inquiry showed that revaluation would not in itself have a significant impact on the fairness of council tax relative to income. We have said many times that revaluation would cause significant disruption for families and individuals. It would not bring greater fairness. Given that, we have made it clear, as the noble Baroness, Lady Hanham, re-iterated, that we will not revalue during the lifetime of this Parliament, particularly because it could significantly disrupt local government itself. The forthcoming three-year settlement for local government will conclude in 2010-11 and we would not expect to consider revaluation before that date.

I shall now address what the noble Baronesses, Lady Hanham and Lady Byford, said on the implication of valuation by stealth. Nothing has changed in the way that the Valuation Office has conducted its work since it was established when council tax was introduced. It has no extra powers, there are no extra requirements and the implication that somehow new factors come into its calculations is seriously disturbing to people who might think that something has changed. It simply has not and we must be very careful indeed about the language we use in addressing these issues. Trained Valuation Office staff have possessed exactly the same powers of inspection since 1993 and any changes or improvements to a property that have increased its value cannot result in a higher council tax band until the property is sold.

We have said that we would not abolish the capping regime. We understand that council tax is very much a matter for local authorities, but council tax capping powers have served us well as a discipline in deterring irresponsible increases. We first used the power in 2003-04 when council tax increases reached nearly 13 per cent, but since then it has been below 5 per cent for three years in succession. We need that additional discipline. It is not a question of trust, because we have shown trust in local authorities throughout the tone and content of the White Paper.

I turn now to the critical question of how we make council tax fairer. The noble Baroness, Lady Hanham, was absolutely right—we share a commitment that people on low income must access the benefits to which they are entitled. My noble friend Lady Hollis, who has much experience in this matter, made a tremendous case for that. We are deeply concerned to ensure that take-up is increased. One way is to make the benefits simpler to access; we are reducing bureaucracy and DWP is taking steps to simplify benefit claims. Pensioners can now access council tax benefit and housing benefit at the same time that they apply for pension credit and state pensions—four benefits, one phone call. All that the claimant has to do is to sign the shortened council tax benefit claim form and forward that to the council.

We are simplifying the process in other ways. We are working with the Pension Service on passing the council tax information directly to the local authority—doing away with the need for a claim form at all. That will help older people, in particular. We can transfer the lessons from that into how we deal with non-pensioners—younger people who also have difficulty accessing the benefit. However, as Lyons recognised, the Department for Work and Pensions is already looking at the possibility of delivering CTB more proactively. The Government will certainly consider his recommendation on increasing and subsequently abolishing the savings capital limit for pensioners in the light of practicability and affordability across priorities for the tax and benefits system as a whole. They will continue to work hard with local authorities to reduce the numbers who miss out, which includes looking at the suggestion that council tax benefit could be renamed as a council tax rebate in the wider context of improving delivery.

The idea of an independent commission raises a third set of issues around trust and transparency. The noble Lord reflected the dialogue between the LGA and Lyons on the recommendation for an independent commission. I can see the superficial attraction, but essentially we do not agree that an independent commission would be either right or effective, as it would remove political accountability. Issues of funding must stay with politicians, who can answer the questions, “Where is the money going?”, “What am I getting for it?”, and, “How is this service improving?”. Making an independent commission responsible for that would be unfortunate.

But we are doing something. We are building on the existing work of the Audit Commission to examine the possibility of developing and using toolkits to provide greater clarity and transparency to local people about levels of public funding. That is work in progress, and I am sure that, like me, the noble Lord will be interested to see how it goes.

In my final minutes, I turn to the business community. It is important to be clear about what Sir Michael was saying about business rates. I know that the LGA was disappointed that he did not simply recommend the relocalisation of business rates. He said:

“I do not think that the time is right for such a substantial change to be introduced. Local authorities and the business community still have to work on developing trust and shared objectives”.

The noble Baroness, Lady Valentine, picked up on that when she spoke of the need to develop greater trust and confidence between those two partners. We agree that business rates are a successful and stable property tax, but we do not think that there is a case at this time for changing the current RPI cap on annual increases. Relocalisation raises another question. As much as for anything else, business rates are needed as part of formula grant for equalisation. That is a fair element in the system. I was pleased that so much welcome was given to the idea of the local supplementary business rate. Obviously, that has to be subject to credible accountability, but we will certainly look at the case with the closest attention to ensure that business has a strong and clear means of holding authorities to account. Again, that is a positive response to what the noble Baroness, Lady Valentine, said. We will hold extensive discussions with key stakeholders.

I welcome the discussion on LABGI. The noble Baronesses, Lady Hollis and Lady Valentine, both talked about the great benefits that that additional money brings. In 2006-07, 328 local authorities received £316 million. We expect the figure to go up to £1 billion by 2007-08. We have confirmed in the Budget that we will bring forward proposals to reform the scheme before the summer to continue to provide strong incentives. So there is movement on that.

The noble Lord, Lord Oakeshott, asked about empty property relief. There are aspects of business rates on which we agree, and he will understand that we have to tackle the problems that inhibit regeneration. One of those problems is high rents. I will write in more detail about the assumptions that we have made on the figures, but essentially this is a net scorecard yield, reflecting a combination of additional rates revenue and changes to other related taxes. I think that it would be more satisfactory if I were to write to the noble Lord about that, as he asked for a detailed response. However, I make it clear that we will certainly exempt from a business rates charge empty property held by charities—it is important that they know that—and community and amateur sports clubs.

The noble Baroness, Lady Byford, asked about the agricultural exemption. Sir Michael recognised that any change to exemption from business rates for agricultural land would have major implications, well beyond specific business rates policies. As we consider developing proposals for a review of business rates reliefs as a whole, that will be one of the things in the frame.

We recognise the potential contribution that might be made by assignment. It will be a long-term option as we look at long-term funding.

I shall conclude there. The context for this subject is the very challenging spending round. I understand the implications of delay. Although the timetable is tight, we are working hard to deliver our commitments to local authorities. For example, we are reviewing the implementation timetable for local area agreements, which now will not have to be signed off until June 2008.

This has been an excellent debate and it has been important in elucidating positions and policies. I very much look forward to a situation where we can all sit down together and debate how to create a system which is not just perceived to be fair but is fair in reality.

My Lords, I am very grateful, as I am sure are all noble Lords, to have had the opportunity to hold this debate. It has moved us on from the simple press release response on the day of the Budget. The contributions have been immensely valuable, ranging across Bilbao, Crossrail and the rural areas. Many contributions were based simply on the principles of fairness, transparency, accountability and, above all, of strengthening the locality and local government, and that has been very useful.

I want to make one small point of clarification to the noble Lord, Lord Oakeshott. I did not say that I supported a local income tax; I said that I supported an assigned income tax. There is a difference and I would not want to be misquoted by anyone.

I am grateful for the Minister’s response, and I think that the debate has moved us on. I know that the Minister has tried to be as helpful as possible and I am grateful for a number of the points of clarification that she made and for her understanding, but I also appreciate that she answered as fully as she could within the constraints of the long arm and long reach of the Treasury. I beg leave to withdraw the Motion for Papers.

Motion for Papers, by leave, withdrawn.