Local Government Bill

Public Bill Committee, 11 February 2003.

Standing Committee A

Local Government Bill

Clause 64 - Calculation of non-domestic rating multiplier

Chris Leslie (Labour, Shipley)

We were dealing, with great sobriety, with the calculation of the national non-domestic rate multiplier. I believe that the matter was made clear and that I dealt with all the points fully in the debate last Thursday. I hope that the Committee is now satisfied on clause 64.

Question put and agreed to.

Clause 64 ordered to stand part of the Bill.

Clause 65 - Rural settlement lists etc

Geoffrey Clifton-Brown (Conservative, Cotswold)

Will the Minister explain why the rural relief is being withdrawn for Wales but not for England?

Don Touhig (Labour/Co-operative, Islwyn)

The clause will allow the Assembly to prescribe a small business rate relief scheme. The detail of the scheme has not yet been decided. Consultations will take place with a number of stakeholders, including the CBI, the chamber of commerce, the Federation of Small Businesses and the Welsh Local Government Association. In due course, the Assembly will put forward proposals on how the scheme will operate. That is all I can say to the hon. Gentleman at this stage.

Question put and agreed to.

Clause 65 ordered to stand part of the Bill.

Clause 66 - Transitional relief

David Borrow (Labour, South Ribble)

I beg to move amendment No. 104, in

clause 66, page 32, line 21, leave out

'as regards a particular financial year'

and insert

'over the period of the rating list'.

This is a probing amendment. In the rating revaluations in 1990, 1995 and 2000 there was a problem with phasing in the new valuation lists. It was fairly easy to agree a phasing mechanism for those who would lose out as a result of the change, but was more difficult to do so for those who would benefit. In the previous rating lists, the phasing mechanism led to loss of income by the Treasury to ensure that it worked.

The Bill assumes that the gains will be the same as the benefits in each financial year of any phasing of the new rating list. Many people in the rating world suggest that the advantages to those who will benefit from any change will be balanced by those who will lose out during the five-year lifetime of the list.

Another suggestion is that the rate in the pound of the rating list should be increased slightly so that those who will benefit from the new rating list would receive the entire benefit in year one and throughout the life of the list. For those who will lose as a result of the changes, that would be phased in over the five years. The amendment does not specify that, but I ask Ministers to consider whether it is possible for the phasing to occur throughout the five-year lifetime of the rating list, rather than sticking to the rule that the pluses and minuses should balance out each year. Practice has shown that that is difficult to do, and that it has cost the Exchequer in each of the previous rating lists. I hope that the Government will consider the amendment in the spirit in which it was moved.

Geoffrey Clifton-Brown (Conservative, Cotswold)

With your agreement, Mr. Griffiths, I propose to stray slightly outside the terms of the amendment, and suggest that we do not have a clause stand part debate.

Win Griffiths (Labour, Bridgend)

We shall see. I may think that that is in order.

Geoffrey Clifton-Brown (Conservative, Cotswold)

Thank you for that clear ruling, Mr. Griffiths. Now you catch me, now you do not.

This is an important clause, which establishes transitional arrangements as a permanent feature of the ratings system. Several professional bodies, including the Royal Institution of Chartered Surveyors, do not welcome it. We understand that the Government want to protect businesses against significant and sudden increases in business rates liability. However, the RICS is especially concerned by the proposal to make transitional arrangements self-financing from year to year by balancing reductions in rates liability for businesses because their properties have lost overall value following a revaluation and to delay increases in rates liability for businesses whose property has increased following a revaluation, as the hon. Member for South Ribble (Mr. Borrow) said.

Why has the discretion been removed? I understand that the Government want to make the transitional relief for small and large businesses self-financing for prudent financial reasons. However, it would be sensible to keep the current discretion. After all, the

Chancellor decided to alter the business rate in the 1991 Budget, but had to propose separate primary legislation to allow himself to do that. I am not sure why the Government are removing that discretion from the Bill.

The RICS tells us that independent research has shown that downward phasing in the 1995–2000 revaluation cycle cost businesses some £3.5 billion. If a business has its rates reduced, it is phased so that it does not receive the full amount of reduction on revaluation to which it is entitled. That means that struggling small businesses are in effect being subsidised by large, successful ones. That cannot be fair.

British Energy made a separate point to us through the electricity associations. We heard that the valuation methodology was altered in 2002 so that large public buildings, and some large private ones such as power stations, were included for the first time in the rating system. The net result was that the rating assessments of the power stations were generally reduced, in some cases significantly. However, due to the provisions of downward phasing, which I have explained, there was only a partial benefit, and a significant premium was paid over and above the correct liability.

British Energy's rates liability with transition has resulted in a premium payment of over £146 million, or 123 per cent. of the liability without transition. That is a stark example of how downward phasing can affect those that have been revalued. The document goes on to say that the revaluation for 2005 starts on 1 April 2003. British Energy believes that, given current market conditions, the assessments of power stations are likely to be further reduced.

That brings us to another problem, which relates to different transitional cycles. This is where the calculation becomes extremely complex. Representations have been made to us that, when there is a new transition, the old transition should be phased out, because calculating a rates bill involves not only the transition of previous cycles, but all the other rates reliefs—for example, those for large and small businesses and for hardship and those where a property is unused or empty, or a charity and where businesses are in a designated rural area.

When one has one or more of those different transitional reliefs, trying to work out the actual rate payable can be extremely complex. It has been put to us that the Government should consider a form of phasing out to make it easier for the practitioners in the field to calculate the rates payable. With those preliminary remarks, it will be interesting to hear what the Minister has to say.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I wish to raise three issues, a couple of which the hon. Member for Cotswold (Mr. Clifton-Brown) has touched on. The first issue is whether the transitional relief scheme should be self-financing. The Minister will know because his officials have briefed him that, when the Conservatives introduced the uniform

business rate, they had a non-statutory scheme for transitional relief to be self-financing. Initially, the Conservatives intended to be robust and stick to that scheme, but when the reality of revaluation came upon them and they heard the cries of the business community, particularly during a period when the economy was not doing so well under the fabulous economic management of the previous Conservative Government—I am using irony there—they had to relax that stance.

This Government are putting in a statutory control to require any transitional scheme to be self-financing. It is unlikely that even they will manage the economy quite as badly as their predecessors, but it is possible to imagine that the revaluation may come in during a period when economic growth is low, possibly due to world economic conditions. The Government may therefore regret the clause. They may regret shackling the hands of future Secretaries of State and Chancellors of the Exchequer and their ability to provide assistance to businesses when that is most needed.

It will be ironic if the Committee imposes difficult tax measures for small and medium-sized businesses in future years that the Government will have to undo through primary legislation. I therefore urge the Under-Secretary to reconsider. Do the Government really want to put this type of restriction in statute? Could they achieve it through non-statutory means, which was the original approach? That would allow them the flexibility to decide whether to pursue the matter, depending on the economic circumstances.

The Government are imposing a straitjacket on themselves. From a strict Treasury point of view, it might be argued that that is admirable, but from another point of view, it is unwise, given that it is impossible to have perfect foresight in respect of the economy. I am concerned about the lack of discretion that will result if the clause is passed.

Two points flow from accepting the Government's assumption in the clause. If one accepts that any transitional scheme should be self-financing, the question arises about how that self-financing should be organised, which is where amendment No. 104 comes in. The Government want to ensure that the transitional scheme is self-financing in each financial year. The transitional arrangements could last for a five-year period, but the Government decided that in every financial year during that period, the scheme should be self-financing.

We are debating complicated matters, and the hon. Member for South Ribble is better versed in them than me. However, as I understand it, his amendment No. 104 would ensure that transitional relief operated over the five-year period, which would mean that although it might not be self-financing in one particular year, it would be over the five years. That would strike a balance between the rigidity that the Government are providing by taking away the discretion and the need for some flexibility, given that we cannot foresee future economic circumstances.

Moreover, in past attempts to have self-financing transitional schemes, small companies, which would

otherwise benefit from rate reductions, were in great hardship because the reductions were phased in. The hon. Member for Cotswold made that point. They desperately needed that rate reduction in order to stay in business, but it did not come to them because of the nature of the self-financing regime for the transitional scheme. The extra flexibility that is provided by the amendment would be extremely welcome.

My final point is a probing question to the Under-Secretary. The clause gives regulatory powers to the Secretary of State to prescribe the exact nature of the transitional and self-financing arrangements. How does he think that that will be done? Is it through the phasing-in of the various rate increases or reductions or through a supplementary rate, as the Government suggested in their answer to the Select Committee on Transport, Local Government and the Regions? Have the Government chosen one particular approach? I may have been sent the regulations in draft form, but I do not think so. Will the Under-Secretary comment?

Desmond Swayne (Conservative, New Forest West)

The explanatory notes, at paragraph 116, say:

''The details of future transition schemes in England—the maximum annual increases allowed in bills and whether they are to be funded by the phasing of decreases or through what in effect amounts to a supplement on the multiplier—will be decided in the light of the outcome of each revaluation''.

That means that the Government accept that the optimum scheme that would be applied as a consequence of the clause cannot be decided until we see how revaluation takes place. If they accept that they cannot know the best scheme in advance, why are they foreclosing on the Exchequer's opportunity to contribute?

As the hon. Member for Kingston and Surbiton (Mr. Davey) said, the Under-Secretary is tying the hands of future Secretaries of State, which they might regret in the light of the experience that the explanatory notes recognise is unpredictable. Will the Under-Secretary say why he rejected the conclusions of the Transport, Local Government and the Regions Committee, which suggested that the proposals on self-funding should be abandoned?

Chris Leslie (Labour, Shipley)

I welcome the necessity of debating the wider context of the amendment. The clause guarantees ratepayers that a transition scheme will accompany any future revaluation while the Local Government Finance Act 1988 simply confers a power to establish a scheme. It does not impose a duty to do so, and businesses and the Confederation of British Industry have stressed the necessity of transitional schemes accompanying future revaluations, which we accept. The details of a future scheme as well as the maximum annual increases and decreases in bills will be decided in the run-up to a revaluation when its impact on individual rateable values is known.

As stated in the White Paper, any future transitional scheme must be self-financing. Several hon. Members asked how we can be so certain about the issue. There is no reason why the taxpayer, as opposed to the ratepayer, should meet the cost of

transitional relief. The principle is the same as that discussed in relation to the small business rate relief scheme, and the self-financing principle is important to ensure that the taxpayer is not stumping up a cross-subsidy.

The clause requires the total rate yield in any year to be unaffected by a transitional scheme, which is important. It is designed to answer questions such as, ''How can we be so certain that we will be able to cope in difficult times?'' The clause will give transitional schemes greater flexibility in several respects: first, when changes are phased in, we could offset a subsidy to those stepping up to a higher level with a contribution from those due to pay a lower bill; secondly, we could dampen the impact of increases or allow a quicker realisation of decreases in bills by a subsidy paid for by an increase on the multiplier; or, thirdly, we could combine those approaches. We want sufficient flexibility to ensure that the scheme is fair and equitable and fits the circumstances.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Is the Minister saying that the Government would have the flexibility to change the design of the transitional scheme from one financial year to the next or would the design be decided at the beginning of the five-year period and be followed throughout?

Chris Leslie (Labour, Shipley)

We would set out the transitional scheme at the time of revaluation and follow it through. It would be sensible to ensure that the scheme is phased out before a subsequent revaluation. That is the best approach. I accept that it would be worrying to have one transitional scheme followed by another. I hope that that satisfies the hon. Gentleman.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I am grateful for the Minister's clarification, but it therefore follows that the transitional scheme would not give the Government flexibility. They would decide how it is to operate at the beginning of the five-year period and the scheme's design would remain, whatever the circumstances in year three, four or five.

Chris Leslie (Labour, Shipley)

We want to be clear about how the phasing arrangements work. If rents on which revaluation is judged fluctuate, that does not necessarily mean that the rates bill will follow the direction of the rent. If the market in general increases, it does not mean that everyone's rates bill will increase, as the yield commitment also exists and provides a measure of protection. It is not simply a case of reflecting the total rise in market values in rental terms.

It will be possible to adjust the transitional relief scheme should exceptional circumstances arise within the five-year time frame, but we intend to make the objective clear at the outset so that people know how we expect to phase in the transitional schemes. The ability to make a change to compensate for unforeseen circumstances remains.

My hon. Friend the Member for South Ribble suggests that we should have the capability to balance the transitional relief system over a five-year period rather than in each year. I understand his arguments—his concern is that businesses should not face bills that increase too steeply—but in any operation of the transitional relief scheme we will balance and phase

over a certain period. Our point of disagreement is that we believe that a scheme should be self-financing within each financial year. A five-year scheme would be more complex to operate than a one-year scheme because we would not have that symmetry.

David Borrow (Labour, South Ribble)

I recognise that it may be a problem for the Office of the Deputy Prime Minister to get Treasury approval for the fact that, in one or two of the five years, Treasury funding might be needed to meet the ups and downs of a transitional scheme. If we put it in statute that in each financial year a transitional scheme will be self-financing, how will we come up with a suitable scheme in the six months between October, when the rating list is published, and April, when it comes into effect? It is quite an ambitious task to devise a scheme that will end up with a nil gain in that financial year and where the pluses and minuses properly balance, particularly as a significant number of properties—we talked about 5 per cent.—may undergo a reduction in their rating assessment as a result of appeals. Those appeals might not be heard in the first year of the rating list, as they could be backdated. Even if the transitional relief system were in balance on 31 March 2006, the knock-on effect of the rating appeals might upset that.

Win Griffiths (Labour, Bridgend)

I remind hon. Members that they can make speeches at the appropriate time.

Chris Leslie (Labour, Shipley)

I understand my hon. Friend's need to give a full explanation of that particularly complex point. I appreciate the difficulty in doing that. He again makes a fair point. While debating the previous clause, we discussed our capability to make a small adjustment to the multiplier to correct for erosion and to make any adjustments needed to the calculation of the estimates of the yield that we expect, thus ensuring that we have symmetry to balance those issues. The extra flexibility that the clause gives us does not simply enable a transitional scheme to mirror those increases that offset decreases, as it can also have a dampening effect through the subsidies paid for by the general increase on the multiplier. That can help to ease the situation.

I do not believe that the general taxpayer should be brought into that system to subsidise the ratepayer in such a way, particularly on the five-year scheme. If we did not achieve balance and have a self-financing system, we would effectively be looking to the general taxpayer to stump up a loan to cover those rate bills that are perhaps due net for those first years of a transition scheme. It would not be fair for the general taxpayer to give that loan in that way. We also believe that a one-year system is more understandable and intelligible than a five-year system, which is another reason why we cannot accept the amendment. I ask my hon. Friend to withdraw it.

The hon. Member for Cotswold asked whether the principle of self-financing in each year is wise and whether it will remove discretion. Avoiding subsidy by the taxpayer is an important principle. Yield is a direct reflection not just of market values, but of rateable values and the multiplier, which can differ in direction

from the wider market. Those are not necessarily affected by wider issues in the overall economy.

The hon. Gentleman said that the downward phasing of British Energy was unfair, but without downward phasing it will be difficult, if not impossible, to pay for upward phasing to protect those who have seen their bills increase due to the change in rateable value. I am unclear as to how he would pay for upward phasing without a downward phasing arrangement. British Energy is gaining significantly from the changes to its rates bill. If we did not have downward phasing, other businesses would be paying more to support it. Therefore, I do not believe in the change that he suggests.

I hope that I have answered most of the questions and that my hon. Friend withdraws his amendment.

Geoffrey Clifton-Brown (Conservative, Cotswold)

The Under-Secretary skirted around the problem, but he did not give us the answer to which the hon. Member for South Ribble is entitled as a result of tabling the amendment. Can I try again, Mr. Griffiths, as the issue is complicated? I quote from Tony Travers of the London School of Economics who gave evidence to the Select Committee:

''Based on past experience there must be a risk that the businesses and other non-domestic ratepayers who should be achieving or having a lower bill and gaining out of the reform will find that they are not getting their full gain because they are paying towards the protection of losers. That could well lead to resentment which I think would put pressure on the Government to step in and then at some point simply pay them all the money that they are entitled to, and that is what they feel they will want''.

There is a dichotomy here: on the one hand small businesses and those having their rates reduced as a result of rating revaluation want payment immediately; on the other hand the Government are saying that the system should be made self-financing in any particular year. That is the point made by the hon. Member for South Ribble.

The clause is removing the Government's flexibility to phase in the increase over the five-year rating cycle. Although practitioners do not like it, businesses like to have certainty so that they can plan. Under this clause they will have what I call lumpy payments, because successful businesses having their rates increased will have a bigger hit in the first year to pay for transitional relief. Non-domestic rates should go up roughly in line with the retail prices index, but businesses will find under this system that in the first year of the revaluation cycle they are paying the RPI plus the amount to pay for the overall pot of the transitional phasing relief.

There will be a slightly lesser effect in the second year because transitional relief will have been paid, but there will still be erosion from businesses that appeal to have their rates reduced. That also has to pay for the overall pot in year two. In years three, four and five businesses will probably find that their increases go up in line with the RPI. I press the Under-Secretary on what he means by ''damping'' and on whether the clause will enable him to ensure that businesses have equal increases over the five-year ratings cycle, which they want so that they can plan their cash flow.

Chris Leslie (Labour, Shipley)

I accept that this is a difficult clause, but I am perplexed by the hon. Gentleman's argument. He seems to be suggesting that we should not have downward phasing of bills and that the bills of those who might be perceived as gaining in a revaluation should immediately fall to that floor, while those who face increases in their rates bills should have them phased in gradually over five years.

I am not sure how the hon. Gentleman wants to pay for the upward phasing to give support to those facing increased bills. If he is suggesting a cross-subsidy from the general taxpayer, that would obviously have a detrimental effect on the revenue and would have to be funded either by increased taxes on other people or lost services elsewhere. I caution him about wading into that particular approach unless it is his policy intention to fund a cross-subsidy.

Geoffrey Clifton-Brown (Conservative, Cotswold)

The Under-Secretary is being particularly opaque and obscure. An obvious solution would be to pay the rates drop for re-rated businesses immediately, and, separately, to phase in the increase over a five-year cycle. I accept that an increase is likely in the first year of the cycle to pay for the immediate drop, but we are talking about money owed to businesses, and struggling businesses are most likely to be in immediate need of help; help in a couple of years will be too late.

Chris Leslie (Labour, Shipley)

The required amount may be only a little to the hon. Gentleman, but to the rest of us, it is hundreds of millions of pounds of subsidy from the general taxpayer which could be spent on other important needs. The hon. Gentleman's proposal is not fair to ratepayers: a loan from the general taxpayer is neither necessary nor the right approach to adopt. Those facing lower bills can see them decrease more quickly because of the capability of implementing a subsidy from the increase on the multiplier, as well as from apportioning balances during the year. Support can be provided through those means, but we have not yet designed the system for transitional funding. We are simply setting out the framework to provide the capability of drawing it all together. It must be difficult for the hon. Gentleman to pick holes in a scheme that has not yet been designed or even announced.

Geoffrey Clifton-Brown (Conservative, Cotswold)

Is the Under-Secretary satisfied that, under the clause and preceding provisions, he has sufficient flexibility to phase in the increase equally over the five-year cycle? That is a simple question.

Chris Leslie (Labour, Shipley)

My understanding is that the clause provides the flexibility to make the steps of equal height. We have enough flexibility. If the hon. Gentleman's main point is that businesses need more certainty about the phasing of transitional relief, I accept it in a positive spirit. When we start to design the transitional system, I can try to build that into it. I hope that I have dealt with the remaining points and that the amendment will be withdrawn.

David Borrow (Labour, South Ribble)

I have listened to the debate with interest. This is a probing amendment and I intend to withdraw it. I hope, however, that the Under-Secretary will discuss the practicalities of various transitional schemes with his officials to ascertain whether an amendment is necessary before the Bill receives its

Royal Assent. I beg to ask leave to withdraw the amendment.

Clause 67 - Rating of meters

Geoffrey Clifton-Brown (Conservative, Cotswold)

This is a simple clause which extends the rating of meters to those belonging to the operator of a supply network in water, gas and electricity. I have a simple question for the Under-Secretary: how much is this likely to increase the average cost to the consumer of water, gas and electricity bills; and how much money will it raise in total?

Desmond Swayne (Conservative, New Forest West)

Why has the Under-Secretary avoided the simpler option of de-rating those meters currently owned by the network operators? What would have been the cost of such a measure?

Chris Leslie (Labour, Shipley)

The clause will make meters subject to rating whether they belong to the network operator or to a separate metering company, ensuring that as competition is introduced into metering services, meters will remain subject to rating even though they no longer belong to the network operator. Gas, electricity and water meters used to measure supply to consumers are subject to rating where the meters belong to the operator of the supply network.

The utility markets are being opened up to competition, which applies also to the provision of gas and electricity metering services. There has not been any decision on whether there should be

competition in water metering services since most water supply to domestic properties is unmetered. However, under present rating legislation the network operators could face unfair competition from new companies providing separate metering services. At present no rates are payable for a meter attached to a distribution network where the meter does not belong to the network operator. Thus while a network operator has to pay rates on its meters, its competitors in the provision of metering services would not pay rates on their meters attached to that operator's network. [Interruption.]

The hon. Member for Cotswold has cleverly found that the explanatory notes are so well worded that I felt that it was important to share them verbatim with the Committee. I am glad that he appreciates that approach.

Clause 67 is revenue neutral, which should answer the hon. Gentleman's point. To take meters out of rating would reduce rate revenue by about £20 million. I hope that that answers the point raised by the hon. Member for New Forest, West (Mr. Swayne). The cost of putting in meters is speculative given that we are looking at new metering services companies, and I do not have that figure to hand. This is about being fair.

Geoffrey Clifton-Brown (Conservative, Cotswold)

How does the proposal square with the aim of the Under-Secretary and of previous Governments to encourage water consumers, in particular, to move to meters to try to avoid the excessive use of water? Surely the proposal will run contrary to that.

Chris Leslie (Labour, Shipley)

Not at all. That aim is completely unaffected because the water companies already pay for the meters in question. The water consumer does not bear the burden directly. We are looking for parity between network suppliers and operators and new entrants into the water metering service industry. At present, we do not believe that there will be the effect on the water meter system that the hon. Gentleman suggested.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I find it extraordinary that the Government are introducing something but have no idea how much it is likely to raise. Before we decide whether the clause should stand part of the Bill, we must have an undertaking from the Under-Secretary that he will at least write to the Committee with the Government's estimates of how much they expect the measure to raise.

Chris Leslie (Labour, Shipley)

I explained that clause 67 is revenue neutral, so its operation will not produce any extra yield. I hope that that helps him to overcome the idea that it will somehow provide a burden that is not already covered.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I may be in a particularly thick mode this morning, which is highly possible considering the early hour at which the Committee started. Although the burden will fall on the company who is supplying the gas, electricity or water rather than the consumer, that is bound to feed through in

higher bills. The consumer must pay more and the Government must raise more money, because when more meters come into operation from the operators, each one is rated, producing a sum of rates.

Chris Leslie (Labour, Shipley)

Clause 67 is about parity and fairness between those who already pay rates on their meters and potential new metering service companies—if we can imagine such firms—that provide meters but are not subject to rates. In the rateable value of the meter, we are able to ensure revenue neutrality in the yield that comes as a result. As meters move from the operator to the new company, the rate bill moves from the former to the latter. I hope that that explains in more detail what I mean by revenue neutral.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I think that I now understand what the Under-Secretary is trying to get at, although I am not sure that he understood himself. It is similar to our previous argument that existing rated meters will come down in order to compensate for the new rated meters.

Nick Raynsford (Labour, Greenwich and Woolwich)

No.

Geoffrey Clifton-Brown (Conservative, Cotswold)

The Minister is shaking is head, so I am still unclear about what the clause means. We will undoubtedly probe the point again. We have other important matters to debate, and it is a relatively minor query. I hope that my hon. Friends will accept the clause.

Question put and agreed to.

Clause 67 ordered to stand part of the Bill.

Clause 68 - Exemptions for agricultural buildings

David Curry (Conservative, Skipton and Ripon)

I beg to move amendment No. 103, in

clause 68, page 33, line 35, at end insert—

'(4A) Paragraph 7(8) ceases to have effect.'.

Amendment No. 103 was due to be debated so many days ago that now we are to discuss it, I am not sure that I can handle the excitement. I had prepared a considerable speech, which I am tempted to give, if only out of revenge, but I shall spare the Committee a lengthy reading of the Curry report—no relation—in which the importance of agricultural co-operatives is reiterated.

Amendment No. 103 would remedy what I think is a genuine omission from the Government's proposals. They are sensibly extending rate relief to agricultural properties, but they appear to have carried over from the Local Government Finance Act 1988 a restriction that would mean that when a co-operative is dealing with livestock, relief is limited to co-operatives with no more than 25 members. I am sure that the Government do not intend for that restriction to continue to apply, because it would rule out, for example, the large number of dairy co-operatives with upwards of 100 members, all of whom are co-owners. The clause introduces safeguards to define a co-operative, so it is not as if people with a pseudo-co-operative could take advantage of it. There is a test to define a co-operative.

I would invite the Minister to accept the amendment, but I held his position for long enough to know that that rarely happens. I invite him at least to accept that the amendment makes sense in principle and that I correctly described the Government's intentions. If he cannot accept the amendment, I hope that the Government will introduce an amendment at a later stage in our consideration of the Bill that would achieve the same purpose, provided that there are no unforeseen consequences. I looked to find anything that would make such consequences likely, but could not detect anything. However, who knows what may be lurking in the recesses of the Department for Environment, Food and Rural Affairs or in the minds of civil servants who have emerged from their personality scans?

Nick Raynsford (Labour, Greenwich and Woolwich)

We have been delighted by the short speech made by the right hon. Member for Skipton and Ripon (Mr. Curry). I am sorry that the Committee was spared the full version with the various excerpts from the Curry report, the name of which bears no relation to the right hon. Gentleman or to the other former Member of this House of the same name but with a different spelling.

David Curry (Conservative, Skipton and Ripon)

The least interesting one.

Nick Raynsford (Labour, Greenwich and Woolwich)

I make no comment.

The amendment relates to the limits on the membership of livestock farming co-operatives in schedule 5 to the Local Government Act 1988. As the right hon. Gentleman said, that limit is currently set at 25. The amendment does not relate entirely to the intention behind the clause, which the right hon. Gentleman welcomed. However, his amendment may have some merit and we need to consider it in consultation with our colleagues in DEFRA and with representatives of the agricultural industry. We intend to pursue those consultations in the immediate future, following which we may table a Government amendment that provides genuine livestock farming co-operatives—irrespective of whether the membership is above or below 25—with the opportunity to gain the agricultural exemption from rates while avoiding the creation of a loophole of the sort that the clause is trying to close.

I shall write to the right hon. Gentleman as soon as we are in a position to announce how we intend to proceed. In the light of my remarks, I hope that he will withdraw the amendment.

David Curry (Conservative, Skipton and Ripon)

This is clearly one of those jewelled moments. Before it dissipates, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I congratulate my right hon. Friend the Member for Skipton and Ripon on his useful amendment. I am glad that the Government have decided at least to consider it carefully.

I have two questions to ask the Minister, as he is now on his feet.

Nick Raynsford (Labour, Greenwich and Woolwich)

He is not.

Geoffrey Clifton-Brown (Conservative, Cotswold)

He is about to be. He is answering questions on the clause, which is becoming something of a rarity, as he is leaving the whole Bill to his hon. Friend the Under-Secretary, whom we miss. Perhaps we can encourage him to return more often.

Will the Minister explain the meaning of the word ''occupiers'' in line 27, subsection (3)(c)? Would a farmer farming land on a tenanted farm while his landlord owned and occupied a building that he let to an agricultural co-operative have to pay rates? Will he also explain the meaning of the word ''control'' in the same paragraph? Is that managerial or financial? If each director owned a small piece of agricultural land somewhere, would it matter where that land was? My right hon. Friend the Member for Skipton and Ripon made the point that members of agricultural co-operatives can be spread far and wide. Do they qualify under the word ''control''?

Nick Raynsford (Labour, Greenwich and Woolwich)

I make no comment on our view of the respective merits of the hon. Members for Cotswold and for Runnymede and Weybridge, whose absence from the Committee has been noted on this side of the House.

The clause seeks to make two amendments to the exemptions from national non-domestic rates for agricultural land and buildings. One of those amendments is designed to remove an obstacle that currently prevents certain genuine agricultural enterprises from benefiting from the exemption. The other amendment is designed to close a loophole that allows commercial companies to exploit an association with an agricultural enterprise to obtain a benefit that the House did not intend them to receive. I shall explain those two elements, and thereby answer the two questions asked by the hon. Member for Cotswold.

Subsection (2) amends schedule 5 of the Local Government Finance Act 1988, so that where a building that is occupied with agricultural land is used in connection with agricultural operations on other agricultural land, the farmer will still retain the right to an exemption from national non-domestic rates. That situation could arise in the case of machinery rings, where a group of farmers collectively own machinery that they use not only on their own land but on others' land. The current phrasing of the Act would exclude such arrangements, because the machinery is not exclusively for the use by the farmer on his own land. We are proposing the amendment so that, in sensible arrangements where farmers work together more cost effectively by using machinery that otherwise would stand idle, they do not lose the agricultural exemption as a result.

The second change, in subsections (3), (4) and (5), amends schedule 5 of the 1988 Act in relation to an agricultural building that is occupied by a body corporate. The amendment is necessary because the exemption currently could apply to a commercial operation that has a farmer as an associate with only a small interest in the company, which, through that association, could qualify for the agricultural exemption. Such an organisation could be an entirely commercial operation using the premises for

packaging, which would not merit the agricultural exemption. The amendment has the effect of requiring that the body corporate be controlled by occupiers of agricultural land.

The definition of control—the question that the hon. Member for Cotswold asked—is as set out in the Income and Corporation Taxes Act 1988. The purpose of the amendment is to ensure that only businesses that are genuinely controlled by farming interests have the benefit of the exemption. I hope that that answers the hon. Gentleman's questions, and that he will agree that the clause should stand part of the Bill.

Geoffrey Clifton-Brown (Conservative, Cotswold)

The Minister did his best to read out his brief. I know that he may find it tiresome that we ask probing questions in Committee, but nevertheless I shall try again.

I asked the Minister what ''control'' meant, and whether it was managerial or financial. What would happen if each director had some agricultural land? Where would that land have to be located for it to qualify for the exemption? I also asked him about the occupation in line 21, but he gave no answer to that. What would happen if a tenant, who might be a farmer, farmed the land but his landlord owned the building and let the building to an agricultural co-operative that qualified? I would like answers to those questions.

Nick Raynsford (Labour, Greenwich and Woolwich)

I am sorry that the hon. Member for Cotswold is either so obtuse, or else has had such a bad night and failed to get his brain into action this morning, that he did not understand the clear answers that I gave to his earlier questions.

The question about control, as I said simply and straightforwardly, is as defined in the Income and Corporation Taxes Act 1988.

The question of occupation—as I explained carefully and not by simply reading out a brief, as the hon. Gentleman implied—was to cover the circumstances of a machinery ring set up by farmers to ensure that they could make more effective use of equipment rather than leaving it lying idle when they were not using it. Such arrangements would cut across the current definition of entitlement to the exemption, which requires the farmer to be using the premises for activities relating to farming on his own land. That cannot happen with a machinery ring, in which equipment is used on the land of different persons, whether tenants or owner-occupiers.

The purpose of an association or a machinery ring is to use machinery more efficiently, but that activity currently precludes those people from benefiting from the exemption, so we are extending the exemption to them. It does not matter whether they are tenants or owner-occupiers; what matters is that the equipment is used for agricultural purposes, whether on the land of the individual farmer or not.

Robert Syms (Conservative, Poole)

I presume that there may be some argument over what is and is not agriculture, because machinery that is used for agriculture

sometimes has other uses. If someone is designated for the full rate, is there a means of appeal under the legislation? If there is an argument with the rating authorities, could someone appeal on that narrow point?

Nick Raynsford (Labour, Greenwich and Woolwich)

The hon. Gentleman asks whether things could be used for purposes other than agriculture. The answer is no. The definition of an agricultural building in subsection (2) is that

''it is occupied together with agricultural land and is used solely in connection with agricultural operations''.

That avoids creating the type of loophole that we are closing in subsections (3), (4) and (5), whereby a commercial operation locates its premises on agricultural land and has an association in a minority interest of a farmer to benefit from the exemption.

There will be definitional issues, and where there is a question, the rating authority will need to give a view. I am sure that if individuals sought further guidance, that authority would be able to provide it. The provision is clearly intended to benefit only equipment designed for agricultural uses. I hope that the Committee will agree that the clause should stand part of the Bill.

Question put and agreed to.

Clause 68 ordered to stand part of the Bill.

Clause 69 - Exemption for places of religious worship

Geoffrey Clifton-Brown (Conservative, Cotswold)

Why does the clause apply only to the Churches of England and Wales? What about other faiths? In a multi-faith society, it seems curious that this short clause applies only to those two Churches.

Desmond Swayne (Conservative, New Forest West)

I wonder whether that has something to do with the words ''as certified according to law as places of worship''. Are there places of worship that we would commonly understand as places of worship, but which would not fall within that description? Is anything excluded?

Geoffrey Clifton-Brown (Conservative, Cotswold)

I am grateful to my hon. Friend. He has clarified my probe.

Andrew Turner (Conservative, Isle of Wight)

Sharpened it.

Geoffrey Clifton-Brown (Conservative, Cotswold)

My hon. Friend is sharpening me up. Perhaps the Under-Secretary could answer those questions.

Chris Leslie (Labour, Shipley)

The hon. Member for New Forest, West has shone a strong light on this issue—he has seen the light. [Hon. Members: ''Hallelujah!''] Indeed. The Places of Worship Registration Act 1855 is the relevant statute. Clause 69 will amend the exemption given to qualifying places of public religious worship under paragraph 11 of schedule 5 to the Local Government Finance Act 1988, so that a certificate is no longer required as proof of entitlement to that exemption. Under that schedule, a place of public religious worship is exempt from rates if it belongs to the Church of England or the Church in Wales, or is

certified as required by the 1855 Act as a place of religious worship. Certification is carried out under that Act.

Section 41 of the Marriage Act 1949 provides that certified places of religious worship may be registered by the Registrar General for the purposes of marriage. Under proposals in the White Paper entitled ''Civil Registration: Vital Change'', marriages will be able to take place anywhere and it will no longer be necessary for certified places of religious worship to be registered for the purpose of marriage.

There will be further consultation on the White Paper later this year. Under the clause, a certificate will no longer be required to qualify for the exemption. Normal case law in respect of what is defined as a place of worship will apply and a council will judge an application for exemption on that basis. It is a simple change that anticipates what may arise from the White Paper.

Question put and agreed to.

Clause 69 ordered to stand part of the Bill.

Clause 70 - Removal of power to prescribe rateable values

Kali Mountford (Labour, Colne Valley)

The clause is admirable in two respects: first, it is extraordinarily brief and, secondly, it will remove powers from the Secretary of State, which is laudable in a decentralising Bill. However, the explanatory notes suggest that the clause may disguise some broader issues.

As the privatised utility companies moving from prescribed rates to the new formula will have the right to appeal, it is extremely likely that they will do so. Indeed, it is inconceivable that they would not appeal. Has the Minister considered the effect on valuation offices? Will they be given more resources and staff to deal with the large increase in appeals?

It is in the nature of appeals that some will be successful; therefore there will be lost revenue. Has the Minister considered whether it would be reasonable to pass that on to ratepayers? At a meeting on Sunday, disenchanted ratepayers complained about having to cover for lost rate receipts because of the rating system. They will not be happy if privatised utilities are removed from prescribed rating and put on to the ordinary rating system, as other ratepayers will have to foot the bill. Has the Minister considered those concerns? If he cannot reply today, I hope that he will do so later in the proceedings.

David Borrow (Labour, South Ribble)

Utilities have traditionally been valued on a formula basis because of the difficulty of valuing them on a rental basis, but the clause will change the basis on which they are assessed. I seek an assurance that the Under-Secretary is confident that the valuation system can cope with the change. Will not the reserve power be needed in case it cannot cope with utilities being valued on a rental, rather than a formula, basis?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Given the comments made by the Under-Secretary's hon. Friends, what research has his Department undertaken to discover the effect of the clause on the total revenue take? Will the result of getting rid of the power to prescribe rateable values and of determining them in relation to rental values be a net increase in rate bills throughout the country? Does the research suggest a decrease or will the take remain the same? Will there be a variation between regions?

Chris Leslie (Labour, Shipley)

It is desirable that rateable values should reflect open market rental values. However, nationalising public utilities after the second world war meant that evidence on which to base the open market rental values of their properties dried up. Therefore, the rateable values for such properties were set in special statutory formulae. The Local Government Finance Act 1988 provided for the continuation of that practice. Under that Act, the Secretary of State may disapply the standard rules under which valuation officers determine rateable values in accordance with rental values. Instead, the Secretary of State may prescribe values by means of an order. That power was used in 2000 to prescribe rateable values for properties such as the railways and gas, electricity and water supply networks. The privatisation of the utilities and the introduction of competition mean that there is sufficient evidence of rental value for the rateable value of properties to be assessed in the normal fashion by valuation officers, rather than prescribed in secondary legislation.

Clause 70 would repeal the power of the Secretary of State and the National Assembly to prescribe rateable values through secondary legislation. As a consequence, all properties will be valued by valuation officers, with all ratepayers having a right of appeal to independent valuation tribunals if they think that their rateable value is incorrect. Where values are prescribed in secondary legislation, there is no such right of appeal.

The hon. Member for Kingston and Surbiton asked what research had been done on the possible effect on yield that would result from a change from prescription. I do not have the full details to hand at present. Given that we are talking about some significant utilities, there could well be regional variation, depending on where plant, machinery and so forth was located. I will have to go away to look at that question. I imagine that the Valuation Office Agency may anticipate what is likely to come. However, that can only be speculative, given that it is difficult to predict what the appeals process might be and what methodology it might use. My hon. Friend the Member for South Ribble asked about that. As I said, it would be more desirable to move to the rental values system, although I accept that traditionally in the case of some of the large utilities it has not been possible to make that initial market judgment.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

It may be right to move to this new system in principle. It may be more fair, open and transparent and even more practical. However, given that there could be either large losses or large gains in revenue, I hope that the Minister can write to us before

Report to give us some estimate of the changes in yield that may occur if the power goes through.

Chris Leslie (Labour, Shipley)

That is a fair point. My hon. Friend the Member for Colne Valley (Kali Mountford) also asked about the impact of giving up the power of prescription entirely. It would only be fair for me to go away to see whether there are conceivable circumstances in which we might want to continue some form of prescription. I will return to the matter, and I will write to hon. Members in the normal way. For the time being, I hope that the clause can stand part of the Bill.

Question put and agreed to.

Clause 70 ordered to stand part of the Bill.

Clause 71 - Adjustments for hardship relief

Geoffrey Clifton-Brown (Conservative, Cotswold)

Clause 71 allows for adjustments in hardship relief, which the Government can partially reclaim from local authorities. Why should local authorities have to pay any of that hardship relief themselves? This presumably will impact on certain local authorities more than others. If the local authority is acting within its powers to grant hardship relief, I believe that that should be fully funded by the Government in an adjustment to the rate support grant. Why cannot local authorities claw back all of that money?

Chris Leslie (Labour, Shipley)

If the Government want to grant hardship relief, they must at present do it at least three months before the start of the relevant financial year. We want to remove that deadline so that it can be more flexibly applied. I am sure that all hon. Members can envisage circumstances in which we might want to move more quickly to ensure that hardship relief can be granted. That is the purpose of the clause.

The hon. Gentleman raised a tangential point about why local authorities should contribute. It is only fair that local authorities put something into the pot towards hardship relief; it should not simply fall on the taxpayer. The requirement is only to pay 25 per cent. of the cost of the relief; the remainder will be met by central Government. That is a fair and reasonable split between local authorities and central Government. Our position is not changed by the clause; nor has any amendment been tabled to change it. I hope that the clause, with its wider benefits, can stand part of the Bill.

Geoffrey Clifton-Brown (Conservative, Cotswold)

The Under-Secretary has given a reasonable explanation, but this obligation will fall hard on some local authorities, particularly those that have a larger number of hardship cases such as those in poor areas or areas with a large number of disabled or elderly residents who are likely to fall into the hardship category. The relief should be neutralised across all taxpayers and local authorities should be able to claw back all the money. It is a small point; I

shall be happy for the Under-Secretary to come back to me, but I am not going to press the issue.

Question put and agreed to.

Clause 71 ordered to stand part of the Bill.

Clause 72 - Provision of Information

Geoffrey Clifton-Brown (Conservative, Cotswold)

I beg to move amendment No. 157, in

clause 72, page 35, line 7, leave out '21' and insert '28'.

Win Griffiths (Labour, Bridgend)

With this it will be convenient to discuss the following amendments:

No. 159, in

clause 72, page 35, line 36, leave out 'may' and insert 'shall'.

No. 160, in

clause 72, page 35, line 44, at end insert—

'(7) Where an appeal made under this paragraph is withdrawn a valuation officer may mitigate or repeal any penalty made under paragraph 5A above if satisfied on either or both of the grounds specified in subparagraph (6) above.'.

Geoffrey Clifton-Brown (Conservative, Cotswold)

These amendments were suggested to us by the Royal Institute of Chartered Surveyors. Amendment No. 157 increases the time for returning forms following a penalty to 28 days. That is in line with the time available to the ratepayer to appeal against a fine for non-completion of a request for information. It is absurd that the ratepayer may find himself subject to a further penalty on top of an existing penalty for non-completion when he still has seven days to consider whether to appeal against the original penalty. That seems to add penalties to penalties.

Amendment No. 159 changes the discretionary power for a valuation tribunal to consider reimbursing ratepayers who successfully appeal against a fine with a mandatory requirement. We feel strongly that where a ratepayer has a penalty overturned he should be reimbursed for the cost of the penalty levied. Not to do so would be manifestly unjust. Indeed, it would fly against many civil litigation procedures where costs can be applied against the original litigant. Just because a Government body gets it wrong, why should it be exempted from paying the cost?

Amendment No. 160 is a probing amendment to establish the intent behind proposed new paragraph 5B. The amendment would allow a valuation officer to mitigate or remit a penalty fine where an agreement is reached with the ratepayer to withdraw an appeal against the penalty. We suggest this amendment in order to avoid unnecessary appeals being sent to a valuation tribunal where a valuation officer has accepted that a ratepayer had due cause as defined in paragraph 5C(6) not to complete properly a return or not to return a request for information form. Without this power, the ratepayer will not continue an appeal unless they have confidence that they will be reimbursed the costs of a penalty or further penalty imposed under paragraph 5A.

Although the Government provide a general power under paragraph 5B for a valuation officer to mitigate or remit penalty fines, the Under-Secretary should make it clear that that will apply to cases in which an appeal is made and subsequently withdrawn.

Chris Leslie (Labour, Shipley)

The clause amends the 1988 Act by removing the criminal penalty for the non-return of information requested by the Valuation Office Agency. The agency sends out requests for information about properties and rents to occupiers and other persons who hold such information prior to a revaluation in order to build up a body of information on which to base its valuations. Occupiers are asked to return the information within 21 days or risk criminal prosecution. That was acknowledged as an inappropriate sanction that was universally ignored, and few forms are returned, which increases the cost to the agency. Clause 72 changes that sanction from a criminal to a civil penalty regime and extends the time allowed. The expectation is that that will improve the level of response and include a more appropriate penalty for non-compliance.

As the hon. Member for Cotswold said, amendment No. 157 would give ratepayers more time—28 days instead of 21—before the daily penalty starts to be incurred. Ratepayers will already have had 21 days to respond to the first request for information, 56 further days to respond to the penalty notice and 21 further days to respond before the daily penalties start. That is a minimum total notice of 98 days, which we feel is sufficient time. The change in amendment No. 157 is not justified.

Amendment No. 159 would oblige the valuation tribunal to remit any penalty if the appellant is successful in an appeal in explaining their reason for not supplying the information. The discretion about whether the tribunal waives or reduces any penalty should be a matter solely for the valuation tribunal, who will be in possession of all the facts pertaining to the case. If the circumstances of the case mean that the valuation tribunal decides that a penalty should be waived, it can then do that. It should have discretion about how it acts and not be under a duty always to waive or reduce the penalty in cases in which the grounds may be satisfied. Other circumstances in a case may mean that the tribunal decides that although the appellant had a reasonable excuse, the penalty should not be waived. It is usual to leave a court with discretion in such cases, and that principle should apply to the valuation tribunal.

Amendment No. 160 would give the power to the valuation officer to mitigate or repeal any penalty when an appeal is withdrawn. We envisage that that is intended to cover a situation in which the valuation officer and person concerned reach a settlement. As the hon. Gentleman anticipated, that is already covered by proposed paragraph 5B in subsection (4), and there is nothing to stop the valuation officer from waiving or remitting the penalty if a settlement has been reached, even if the person has already started appeal proceedings. The appeal would then be withdrawn, so the amendment is unnecessary, although it is reasonable for the hon. Gentleman to have brought up the issue.

I hope that with those explanations that the amendment will be withdrawn.

Geoffrey Clifton-Brown (Conservative, Cotswold)

This has been a useful and technical if short debate, and we have probed the Government's thinking. I do not agree with the Under-Secretary, as it is reasonable to have a longer period in which to provide the further information, particularly when the 28-day appeal includes the seven-day appeal period, as I have already pointed out. However, I do not feel particularly strongly about the issue. I agree that it is right to give the valuation tribunal the discretion as to whether to pay the costs, so my amendment No. 159 would impose too much of a straitjacket. As the Under-Secretary said, amendment No. 160 is already covered.

Having probed the matters, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 72 ordered to stand part of the Bill.

Clause 73 ordered to stand part of the Bill.

Clause 74 - Exception of students from joint and several liability

Geoffrey Clifton-Brown (Conservative, Cotswold)

We now move to part 6 of the Bill, which is contentious and deals with council tax matters. Clause 74 exempts students from joint and several liability. I want to probe why students are being exempted when they have a spouse or equal interest in the property. If they have an equal interest in the property, it presumably means that they have some worth. They have some interest in the property, so why should they be exempt?

Chris Leslie (Labour, Shipley)

It is a pleasure to move on to the part of the Bill that deals with changes to council tax. Clause 74 makes a positive change, as promised by previous Administrations. The Bill provides an opportunity to make appropriate reforms.

Clause 74 amends the Local Government Finance Act 1992 to prevent students from being held jointly and severally liable for council tax. Currently, section 6 of that Act provides that, where two or more people have an equal legal interest in a dwelling, they shall be jointly and severally liable to pay the council tax. Section 9 provides that where a man and woman are married or live together as husband and wife, they are jointly and severally liable to pay the council tax, even if they do not have an equal legal interest in the dwelling.

At present, students—as defined in the Act—are disregarded for the purpose of council tax discount. Where a student shares a dwelling with someone who is not a student, the council tax is calculated as if the dwelling had only one resident, and the 25 per cent. discount rate applies. Where a dwelling is occupied solely by students, it is exempt from council tax. However, where a student and non-student live together and either have a legal interest in the dwelling, or are married, or are a man and woman

living together as husband and wife, the student can still be held jointly and severally liable to the council tax.

A severely mentally impaired person is, like a student, similarly disregarded for the purposes of council tax. Sections 6 and 9 of the 1992 Act currently provide that such a person is not to be held jointly and severally liable for council tax if they have an equal legal interest in a dwelling or are the spouse of a liable person.

Clause 74(1) amends the 1992 Act so that a student with an equal legal interest in a dwelling will not be jointly and severally liable; and clause 74(2) amends it so that a student who is married to a non-student, or is living with a non-student as that person's husband or wife, will not be jointly and severally liable for council tax.

We believe that this is a sensible adjustment to deal with what many people view as an anomaly in the application of the council tax to students. Pursuing students for the liabilities of others is difficult as well as questionable. If students are not counted for discount purposes, they should not be counted for the purposes of liability. As I said, previous Administrations promised to make this change as it was necessary and desirable, and I hope that it will find consensus around the Committee.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I accept the Minister's explanation and I support the clause.

Question put and agreed to.

Clause 74 ordered to stand part of the Bill.

Clause 75 - Second and empty homes: England

Geoffrey Clifton-Brown (Conservative, Cotswold)

I beg to move amendment No. 165, in

clause 75, page 37, line 39, at end add—

'(8) If a Billing Authority makes a determination under this section it shall be disregarded for the purposes of distributing Revenue Support Grant to receiving authorities under section 78 of the Local Government Finance Act 1988.'.

The clause is important and contentious, so the amendment is important. The clause deals with two categories: second homes and empty homes. In the case of second homes, the authority may reduce the discount available to 10 per cent. to encourage owners of second homes to come forward so that they can be identified. As I understand it, the resulting sum could amount to some £60 million, which the local authority can keep. In the case of unoccupied dwellings, however, the local authority will not be able to keep that sum, which amounts to £160 million—a much greater figure.

Not allowing the local authority to keep any of the money that it raises from levying a discretionary council tax on empty buildings could be a disincentive ever to raise council tax on them.

There are 753,000 empty homes in this country. In addition, the Government's official figures put the number of homeless people at 115,000, although the unofficial figure is reckoned to be as many as 400,000; perhaps the largest number of homeless people this country as ever seen. It is therefore wrong not to give the local authorities some incentive by being able to keep at least part of the £160 million that they may raise from the discretionary power to raise council tax on second homes.

David Curry (Conservative, Skipton and Ripon)

The Government intend to give local authorities the powers to take over empty properties and lease them, so there will surely be an incentive to raise council tax to pay for the cost of refurbishment.

Geoffrey Clifton-Brown (Conservative, Cotswold)

My right hon. Friend is right. He touches on the contentious matter of people's homes being taken over without recognition of property rights. He may be interested to know that I recently came across a case in St. Helens where the local authority refused to pay certain sums due to the owner of several properties because they were due to him from housing benefit. That money was not remitted to him, the properties have fallen into disrepair and the local authority is threatening to take them over. That is a complete abuse of a local authority's power. However, that issue is separate from those that relate to the clause.

Will the Minister say whether giving the power to local authorities to collect information on empty properties would be compatible with the European convention on human rights? After all, surely someone is entitled to the privacy of owning a property, keeping it empty and not having to give the information to the local authority? Will the Minister comment on that?

John Pugh (Liberal Democrat, Southport)

I warmly support the general thrust of the clause. It gives MPs the opportunity to vote against their own interests, which many of us are doing as we have second dwellings. However, there is a discrepancy between how we treat second homes and empty homes. I must say to my colleagues who represent constituencies in Cornwall and other exotic parts of the country that many councils acknowledge that it is not good or beneficial to take too much property away from local people.

The empty homes inquiry, conducted by the then Transport, Local Government and the Regions Committee, revealed all sorts of problems that could be dealt with only locally. It is entirely right that the power is discretionary. Trying to encourage property in, for example, Burnley to be taken up and deciding to do away with discount may achieve nothing if the owners of the property cannot sell it. It would simply be an added cost to them. It is entirely right that the power is discretionary, but dispensing with the discount would help Burnley by giving it the opportunity to keep all the revenue, and would give them flexibility and additional control. The more the local council has control and the capacity to resolve the issue, the better things will be in the area.

My question is the same as that of the Conservatives; what happens to the money if the

discount is foregone as far as the residents are concerned and the council collects more money? Who keeps it?

Chris Leslie (Labour, Shipley)

The clause is a significant step forward. Although we are focusing on one particular element in the amendment—long-term empty homes—this is a good opportunity to note that we are allowing billing authorities to reduce or end the 50 per cent council tax discount for the classes of unoccupied dwelling prescribed in the regulations. It is right that a billing authority should be able to choose when it makes its determination to change the discounts.

We want to ensure that local authorities—this relates specifically to the amendment—decide to reduce or end the discount on long-term empty homes on the grounds of housing policy rather than for financial, revenue-raising reasons. The hon. Member for Southport (Dr. Pugh) addressed that issue well in the example that he gave of an area of low demand where there could be difficulties if the local authority decided for financial reasons to levy a higher council tax on long-term empty properties.

There will be places where charging full council tax might be justified from a housing policy viewpoint to bring empty properties back into productive use by removing that incentive to keep them empty. That might occur in areas where there is a pressing need for affordable housing. However, there may be other areas, as highlighted by the hon. Member for Southport, where the owners of empty houses cannot sell or rent properties because of low demand, and the reduction or ending of the discount could make the position worse for owners who already have the burden of a property that they cannot do anything with.

We therefore believe that there should be no direct financial benefit to the local authority from a decision on whether to charge full council tax on long-term empty homes. The decision must be made on housing policy grounds, and not because of the additional revenue that the council would be able to keep.

John Pugh (Liberal Democrat, Southport)

The conclusion is that the additional revenue would go back to the Treasury in that case.

Chris Leslie (Labour, Shipley)

The authorities keep the council tax, but the revenue support grant share, which is relatively less where the empty homes discount is reduced or ended, would return to the central pool.

The point about the motivation for making the change on housing policy grounds is that local authorities still have the opportunity to make the change if they wish to take away the incentive to keep a property empty. If there is less of an incentive to keep a property empty, it is more likely that those empty homes will be brought back into productive use. That is the purpose of the provision that the decision should be made on housing policy grounds. I hope that that gives an explanation to the hon. Member for Cotswold and other hon. Members.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I must say to the Minister, in the nicest possible way, that that is an extraordinary piece of logic. The local authority is doing all the work to levy the council tax on the empty homes, and yet it

will not be able to keep any of the money. There must be a strong case for the local authority to be able to keep a percentage, however small, of that money. It does not make sense for all the money to be clawed back by central Government. That gives local authorities no incentive to try to come to some sort of arrangement with the owners of empty homes to bring them back into use. That is what is desperately needed, as this country has a larger number of homeless people than it has ever had.

Chris Leslie (Labour, Shipley)

I understand the hon. Gentleman's point. The revenue support grant is reduced to take account of the extra revenue, but we believe that when considering this particular issue, the key point is the motivation behind the decision to end or continue the discount. We are concerned that, if authorities have a financial motivation to make that decision, they will take that opportunity, and that that could have a detrimental effect on housing policy. We want the authorities to have the capability to alter their discount, but not to be motivated by financial reasons for doing so, for the reason that I gave to the hon. Member for Southport.

That is the way in which we have drafted the Bill, and I believe that the provision is an improvement and a step forward in giving flexibility to local authorities. I hope that hon. Members will accept that and see why having a perverse incentive to keep empty properties vacant, even if there is high demand for those to be put into use, is a strange anomaly in the system. Local authorities should have the opportunity to make that change if that is the decision that they have taken individually. I hope that the hon. Gentleman will consider withdrawing his amendment on that basis.

Geoffrey Clifton-Brown (Conservative, Cotswold)

Perhaps I can probe the Minister on a different tack. Last December, in a written question, I asked the Under-Secretary of State, Office of the Deputy Prime Minister, the hon. Member for Harrow, East (Mr. McNulty) how empty homes would be defined. The answer was:

''The Office of the Deputy Prime Minister hopes to produce a draft of regulations defining such a class of long term empty homes in time for the Commons' Committee consideration of this clause. The precise wording has still to be decided. We intend, however, to define empty homes as vacant dwellings which are not exempt from council tax. A dwelling is vacant if no-one lives in it and it is substantially unfurnished.''—[Official Report, 3 December 2002; Vol. 395, c. 705W.]

First, do we have that definition and secondly, what sort of furniture has to be in the house? Would some cheap beds, a cheap table and a few chairs count?

Robert Syms (Conservative, Poole)

If the Office of the Deputy Prime Minister is to produce guidance on what is an empty property I presume that it will include council as well as private sector properties. We do not want to be prejudiced. There are many empty properties that are owned by local authorities.

Chris Leslie (Labour, Shipley)

Indeed, we would not want to discriminate just because of who the owner might be. I can help the hon. Member for Cotswold on the other point. The Council Tax (Prescribed Classes of Dwellings) England Regulations 2003 are now available. I shall certainly ensure that they are circulated to the Committee. They may already be

on the Table at the back of the Committee. I hope that my hon. Friend the Member for Harrow, East will be pleased about that.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I am grateful to the Minister. I had not seen them. [Interruption.] At least this time the cleaner has not got hold of them. Could the Minister tell us how this policy of determining whether a home is empty is compatible with an individual's right to privacy under article 8 of the European convention on human rights? How will the collection of information comply with that?

Chris Leslie (Labour, Shipley)

I believe that the explanatory note covers that point quite well. It says that the data will be used only by the billing authority that collected it and it will be used only for public functions and in the public interest. It does not permit disclosure to third parties such as commercial organisations. That covers the issues potentially raised under the ECHR. We do not believe that it interferes with an individual's right to privacy.

Geoffrey Clifton-Brown (Conservative, Cotswold)

The Minister is skating on thin ice here. The idea of local authorities not being able to keep any of the council tax that they raise on empty dwellings is untenable. I therefore ask my hon. Friends to vote for my amendment.

Question put, That the amendment be made:—

The Committee divided: Ayes 6, Noes 13

Clause 76 - Billing authority's power to reduce amount of tax payable

Desmond Swayne (Conservative, New Forest West)

Almost exactly five years ago, as the district council elections approached, I knocked on a door that was opened by a person who was fairly robust in telling me that I had no right to knock on his door because, ''You politicians don't pay council tax or rates.'' I replied, ''I beg your pardon, but we do.'' He then said, ''Well, if you can't do anything for yourself, you certainly can't do anything for me,'' and slammed the door. [Laughter.]

Perhaps the clause provides the remedy through which we can use such a power. Will the Minister

explain why such an enormous and sweeping discretionary power is being granted to reduce to nil the tax payable as authorities see fit? Does the Minister recognise that pleas and petitions will always be made to those who can use such a discretionary power? I hope that it is justifiable and will be tightly constrained.

Chris Leslie (Labour, Shipley)

As the Minister for Local Government and the Regions pointed out, the clause will for ever be known as ''the Swayne section'' of the Bill. The hon. Gentleman asks why so much discretion is being granted to local authorities. The answer is that we believe in giving freedoms and flexibilities to local government rather than imposing the restrictive, centralised and bureaucratic control of previous Conservative Administrations. We trust local authorities to do the right thing and to be accountable to their electorate.

This is indeed a new freedom for councils to respond generously to local cases of need by remitting or reducing their council tax. It is a new discretion for authorities to waver council tax for a class of dwellings, on hardship grounds and on an individual case basis. It is a significant new power for local government. The clause has many virtues and I believe that it should stand part of the Bill.

Question put and agreed to.

Clause 76 ordered to stand part of the Bill.

Clause 77 - Statutory revaluation cycle

Geoffrey Clifton-Brown (Conservative, Cotswold)

I beg to move amendment No. 161, in

clause 77, page 38, line 21, leave out 'tenth' and insert 'fifth'.

Win Griffiths (Labour, Bridgend)

With this it will be convenient to discuss the following:

Government amendment No. 123.

Amendment No. 162, in

clause 77, page 39, line 2, at end insert—

'(8A) Where a list is compiled under subsection (3) above, a Billing Authority shall provide an estimated council tax Bill no later than 31st October in the year preceding the coming into effect of the list.'.

Geoffrey Clifton-Brown (Conservative, Cotswold)

A mischievous thought occurs to me. If I had not moved my amendment, would the Government amendment have fallen?

Win Griffiths (Labour, Bridgend)

No.

Geoffrey Clifton-Brown (Conservative, Cotswold)

My Machiavellian mind was working overtime. I thought that I might have found a loophole to cause the Government further trouble.

The amendment is straightforward. It would shorten the revaluation cycle from 10 to five years, as is the case with the non-domestic rating cycle. The RICS, in welcoming the amendment, states

''a period of ten years simply allows too much time for severe changes in the housing market to change property values. This is easily evidenced by the performance of the housing market since 1993.''

In fact, there have been huge rises in the property market even since 2000. The RICS continues:

''We argue that a revaluation cycle of five years, as with business rates, is the appropriate time period for domestic revaluations. The two revaluations should be staggered to ensure the VOA—''

the Valuation Office Agency—

''does not become over-burdened.''

David Borrow (Labour, South Ribble)

I am very interested in the hon. Gentleman's point. Does he regret the decision of the Conservative Administration in 1979 to cancel the revaluation for rating that was on the stocks then? Has his party revised the policy that it had during the Thatcher era?

Geoffrey Clifton-Brown (Conservative, Cotswold)

I make no excuse or apology for previous Conservative Administrations. This Government have had six years to put matters right, so anything that is wrong in this country can be blamed totally on them. Six years is long enough to put anything right, especially when a Government have such a majority; they can do exactly what they please.

Andrew Turner (Conservative, Isle of Wight)

Although my hon. Friend is usually right, does he agree that there are few problems in the world that the Government cannot make worse by their intervention?

Geoffrey Clifton-Brown (Conservative, Cotswold)

My hon. Friend makes a powerful case for having no Labour Government at all.

Win Griffiths (Labour, Bridgend)

Order. The debate is becoming far too general.

Geoffrey Clifton-Brown (Conservative, Cotswold)

Far too general, Mr. Griffiths.

As I was about to say before I was led down the path of temptation—that is not somewhere I go regularly because I try to keep on the straight and narrow as far as I can—amendment No. 162 tests when a billing authority could provide estimates of council tax. If October is too soon after a revaluation in which the council tax goes up, would December or January be a reasonable month in which to give an estimate? After all, if council tax is to be increased not only by the whim of Government each year but because a revaluation finds that properties have increased in value, it seems reasonable that property owners should be given an estimate of their council tax under the revised revaluation, especially if revaluation takes place only every 10 years, as under the Bill. Presumably the new software that councils have makes it much easier to provide estimates.

John Pugh (Liberal Democrat, Southport)

I am delighted to support the amendment, because the Conservatives are calling for more frequent revaluations, which seems sane and sensible. The Conservatives in my neck of the woods said that frequent revaluations were entirely the idea of another party, so I will be able to tell them how wrong they were. In my constituency, as in many others, there are so many anomalies that it will be necessary to address the issue frequently. I often receive complaints from elderly people in quite modest accommodation who have been classified in the same banding as stockbrokers. Rapid revaluation, such as every five years, would resolve their difficulties in good time.

Chris Leslie (Labour, Shipley)

Clause 77 covers a very important issue, but before we proceed to discuss it, I want to inform

the Committee about a relevant announcement that I am making today. I am pleased to announce a substantial increase in the funding that the Office of the Deputy Prime Minister provides to the Valuation Office Agency.

This is a crucial period for local taxation in England; the VOA must successfully carry out the 2005 non-domestic rates revaluation and the 2007 council tax revaluation and continue to clear existing business rate appeals. That will be a substantial test of the VOA's ability to deliver, and it is essential that it has the necessary resources at its disposal. We are therefore providing a substantial increase in funding over the next three years. The funding provided by the ODPM for non-domestic rates and council tax work in England will rise by 29 per cent. to £169 million.

There is no doubt about the scale and importance of the work, and I am confident that with the funding and the VOA's expertise the valuations will be delivered on time and within budget. We are keen that the VOA should succeed in reducing the time that appellants have to wait before their business rate appeals are determined. The funding that we provide should allow the VOA to clear up more than 40,000 appeals a year against business rating valuations.

Amendment No. 161 would require the council tax revaluation to occur at least every five years, rather than every 10 years as stated in the clause. I accept the point made by the hon. Member for Stockport—

John Pugh (Liberal Democrat, Southport)

Southport.

Chris Leslie (Labour, Shipley)

I am sorry. The hon. Member for Southport (Dr. Pugh) queried the reason for the official Opposition asking for more frequent revaluations, because they have previously voiced scepticism about having any revaluation. Five years is too short for the maximum period between revaluations. Council tax is not like business rates; the banding system allows for changes in values to take place over time, and the 10-year maximum period is a balanced approach. Revaluation costs about £100 million every time it takes place, and it would obviously be extremely expensive if it were carried out more frequently. The clause does not prevent a revaluation in less than 10 years, if one is necessary; 10 years is simply the maximum interval.

Amendment No. 162 would require billing authorities to send taxpayers an estimated council tax bill as well as the actual council tax bill in the year of revaluation. The amendment is similar to those tabled by the hon. Member for Cotswold on business improvement and would mean a substantial rates revaluation. As was the case with the earlier amendments, it would be outside the normal cycle of grant making and local government finance processes to issue bills no later than 31 October in the year preceding that in which the revaluation list was to take effect. It would be extremely expensive to produce the second bill—the cost would be about £8 million—and it was not proposed by the Conservative Government who introduced the poll tax and the council tax.

The amendment would place an extra burden on authorities and create more bureaucracy. There will be adequate opportunities for council tax payers to be

made aware of changes in the valuation process. I hope that the hon. Gentleman will withdraw the amendment.

Government amendment No. 123 is a minor technical amendment to rectify an error in the terminology used in new section 22B. The term ''listing officer'' is used throughout new section 22B and elsewhere in council tax legislation, except in new subsection (6) in which ''valuation officer'' is used. Our amendment seeks to rectify that.

Geoffrey Clifton-Brown (Conservative, Cotswold)

When preparing for Committees, one sometimes comes across amendments that one wishes had not been tabled. I shall not say whether that applies to Government amendment No. 123. We have had a useful debate, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Chris Leslie (Labour, Shipley)

I beg to move amendment No. 122, in

clause 77, page 38, line 27, leave out 'by statutory instrument'.

Win Griffiths (Labour, Bridgend)

With this it will be convenient to take Government amendments Nos. 132 to 134 and No. 136.

Chris Leslie (Labour, Shipley)

I seek clarification on when we will vote on Government amendment No. 123 in the previous group.

Win Griffiths (Labour, Bridgend)

The Committee may do so once this group has been disposed of.

Chris Leslie (Labour, Shipley)

I appreciate your assurance, Mr. Griffiths.

The amendments are entirely technical. They seek to tidy up the arrangements in relation to the powers of the National Assembly for Wales to make secondary legislation under the Local Government Finance Act 1992, and clarify that orders or regulations made by the Assembly under that Act are to be made by statutory instrument.

Geoffrey Clifton-Brown (Conservative, Cotswold)

On a small technical point, I believe that the Minister said something that he did not intend to say. If I understand them correctly, the amendments seek to omit statutory instruments in relation to the National Assembly for Wales. He said that they would enable the Assembly to make statutory instruments. As I understand it, the Assembly cannot make statutory instruments as they are a parliamentary procedure and the Assembly is a subsidiary, devolved body.

Chris Leslie (Labour, Shipley)

Since the National Assembly for Wales (Transfer of Functions) Order 1999 was made, any new power conferred directly on the National Assembly for Wales to make orders or regulations could not be exercised by statutory instrument without express provision in legislation conferring it. Any powers to make orders or regulations in the 1992 Act that were transferred to the National Assembly for Wales by that order would be exercised by the Assembly by statutory instrument by virtue of section 113(3) of that Act.

Amendment No. 122 to clause 77 and amendments Nos. 132 and 134 to schedule 6 omit the words ''by statutory instrument'' as specific references are not needed to give amendment No. 133 to section 113 of the 1992 Act effect.

Amendment No. 136 to schedule 7 repeals section 57Z(3) of the Local Government Finance Act 1999. That section provides that orders made by the National Assembly for Wales under a chapter on reserved capping powers of that Act were to be made by statutory instrument. That provision is not needed, as the amendment to section 113 of that Act is to be made in new paragraph 51, schedule 6. That new paragraph will allow the National Assembly for Wales to make statutory instruments. I hope that that clarifies the point.

Question put and agreed to.

Amendment made: No. 123, in

clause 77, page 38, line 33, leave out 'valuation' and insert 'listing'.—[Mr. Leslie.]

Clause 77, as amended, ordered to stand part of the Bill.

Clause 78 - Power to change number of valuation bands

Geoffrey Clifton-Brown (Conservative, Cotswold)

I beg to move amendment No. 163, in

clause 78, page 39, line 18, at end insert—

'(4B) 'Any order made under this section may apply to a Billing Authority or any number of Billing Authorities.'.

Win Griffiths (Labour, Bridgend)

With this it will be convenient to discuss amendment No. 147, in

clause 78, page 39, line 18, at end add—

'(4B) The power under section (4)(a) above includes power to make provision for different proportions for different areas of England and Wales.

(4C) The power under section (4)(b) above includes power to make provision for different valuation bands for different areas of England and Wales.'.

Geoffrey Clifton-Brown (Conservative, Cotswold)

We now come to a controversial clause. There are currently eight bands known as bands A to H. They are as follows: band A goes up to £40,000; band B goes from £40,000 to £52,000; band C goes from £52,000 to £68,000; band D goes from £68,000 to £88,000; band E goes from £88,000 to £120,000; band F goes from £120,000 to £160,000; band G goes from £160,000 to £320,000 and band H is for values exceeding £320,000. Amendment No. 163 is a probing amendment. It would allow the Secretary of State to designate valuation bands by individual groups of billing authority. We believe that that would allow local authorities to apply for different valuation bands for their locality, while retaining the power with the Secretary of State.

Council tax was working quite well up to the inception of this Government. Unfortunately it has now become one of the largest stealth taxes of all. In the Government's White Paper of December 2001 ''Strong Local Leadership - Quality Public Services'', I found the following extraordinary statement:

''We think local people will refuse to accept that their authorities need to increase council tax by more than twice the rate of inflation.

It is therefore in local authorities' own interests to establish their taxpayers' views on council tax increases before they take budget decisions. Evidence of how an authority has engaged local taxpayers in these difficult trade-off decisions will be an important part of the authority's performance assessment.''

I am glad to hear that. The problem is that local authorities have little choice. Because of the gearing effect of council tax as opposed to the centrally funded part of the rate support grant and non-domestic rates—

Patrick Hall (Labour, Bedford)

Will the hon. Gentleman give way?

Geoffrey Clifton-Brown (Conservative, Cotswold)

I happily give way to the hon. Gentleman. Perhaps he will enlighten us.

Patrick Hall (Labour, Bedford)

Who introduced the gearing?

Geoffrey Clifton-Brown (Conservative, Cotswold)

A tax may be perfectly acceptable when the increases are small but when they are in double digits each year, as they have been for many authorities for the last three or four years, and when some council taxpayers have seen increases of over 40 per cent., the tax is brought into disrepute. Indeed, this Government are bringing it into disrepute through the local support grant that was recently announced.

David Borrow (Labour, South Ribble)

Does the hon. Gentleman accept that following the introduction of the council tax the Government's policy was to ensure that a larger proportion of the revenue spent by local authorities was raised locally? That was a deliberate policy of the then Government to ensure that council tax increased by more than the rate of inflation because they felt that council taxpayers should pay a greater proportion and thereby reduce the gearing effect.

Geoffrey Clifton-Brown (Conservative, Cotswold)

As my hon. Friend the Member for New Forest, West, said from a sedentary position, it is raised by the council tax on southern local authorities and spent by inefficient northern authorities. If hon. Members opposite dislike council tax so much, which seems to be the tenor of what they are saying, they have had six long years in which to abolish it and replace it with a different system.

Paul Goodman (Conservative, Wycombe)

A poll tax, perhaps.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I think that the council tax system works quite well but it has been brought into disrepute by the large increases imposed on local authorities by this Government. That is brought about by the system of funding of local authorities. For every three parts paid by central Government from non-domestic rates and the rate support grant, one part is raised locally. Therefore, for every pound that the Government do not give to local authorities they have to raise four pounds from council tax. That is the difficulty that many southern authorities face in setting their budgets. They have two choices: either to cut back services or to increase council tax in double digits to maintain those services.

It is all very well to say that it is for the local authority's discretion, but the councils forced to impose such great council tax increases are some of the best star-rated authorities under the Government's rating system. There is something wrong somewhere,

and the only explanation is the shortage of money from central Government.

Win Griffiths (Labour, Bridgend)

I would appreciate it if you could relate what you are saying to what is on the Amendment Paper, Mr. Clifton-Brown.

Phil Sawford (Labour, Kettering)

For those of us who have served as leaders in local government, as I did from 1991 to 1997, the recognition of the impact of the gearing phase on local taxpayers is something of a road to Damascus. We suffered year on year through the years when we received less and less money from the then Government. Will the hon. Member for Cotswold comment on the problems that we experienced during those years when his Government were hammering our local authorities?

Win Griffiths (Labour, Bridgend)

If you can relate that to your amendment, Mr. Clifton-Brown, I will be happy for you to do so.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I can sort of reconcile the logic into which the hon. Gentleman is trying to tempt me. Suffice it to say that the Government are bringing this Bill before the Committee and therefore they have it in their power to alter the system of council tax in this country. They have had six long years in which to do so. They obviously like the present system of council tax, otherwise they would be abolishing it under the Bill.

I make no apology for what went on in the past. This Government have had six years in which to put all the sins right.

Chris Leslie (Labour, Shipley)

The hon. Gentleman says that he makes no apology for what happened in the past. The hon. Member for Wycombe whispered earlier from a sedentary position the magic words ''poll tax''. Would the hon. Gentleman care to qualify that statement?

Geoffrey Clifton-Brown (Conservative, Cotswold)

That would certainly be tempting me down an unnecessary and undesirable path, even if it were in order, which I am sure it is not. You would save me from doing so, Mr. Griffiths. The point has been made.

The amendments deal with the power to vary council tax bands. I probe why the Government think they are necessary. Where will it stop? How many different bands will there be? Are we going to try to equate the larger number of bands to a form of property wealth tax, because that is where we seem to be heading? When the council tax was introduced, it was part property tax and part individual tax. When I asked whether it is now being steered towards a property wealth tax, one of the Labour Members said, ''Why not?'' That gives a clue to what Labour Members might want future changes to the council tax to do, perhaps in increasing the number of bands.

Andrew Turner (Conservative, Isle of Wight)

My hon. Friend referred to the remarks of the hon. Member for Kettering (Phil Sawford), who said that it would be right to move to a property wealth tax. Does he agree that it was the unfair nature of the property wealth tax called the rates that led previous Governments to move away from them and settle on a combination of a property and individual tax, which is the council tax?

Geoffrey Clifton-Brown (Conservative, Cotswold)

There seems to be some hilarity about my hon. Friend's remark. He is 100 per cent. right; we are playing with fire.

Win Griffiths (Labour, Bridgend)

Let us play with the amendments.

Geoffrey Clifton-Brown (Conservative, Cotswold)

The amendments are playing with fire, too, as is the substance of the clause, which would increase the number of bands. I want to probe the Under-Secretary on how far the Government intend to go down the road. We have eight bands; will we have 26 bands—one each for the letters of the alphabet? That would align the value of property more with the council tax, but we would have altered the entire nature of the tax. As my hon. Friend the Member for Isle of Wight (Mr. Turner) said, it would move away from being part property and part personal tax, to being an almost entirely property, and wealth, tax.

Once one has released the tiger from the cage, one never knows where it will run. We do not know what will happen as a result of the changes introduced by the Government. Are they aiming the changes at the top or bottom of the scale? At the bottom of the scale, there is the real problem of those in mobile homes, which every Member will see in their constituency. There are several in my constituency, and I enjoy visiting them. They are not worth a lot of money, but they can be nice places in which to live.

Andrew Turner (Conservative, Isle of Wight)

And full of Conservatives.

Geoffrey Clifton-Brown (Conservative, Cotswold)

Yes, that is why I regularly visit them, although I would visit them even if they were not full of Conservatives. I may be doing them an injustice, but I doubt whether any in my constituency would equal the value of houses in band A, and it would be useful to have a separate band for mobile homes. If the Government considered that, they would be doing a great favour to some of those on the lowest incomes and living in the more modest accommodation. However, with what they have, the mobile home owners in my constituency have done an incredibly good job at refurbishing them, with some immaculate little gardens. They are proud home owners, but they do not like being equated with someone who has a permanent home. The point is justified, and I hope that if the Under-Secretary will not accede to it now, he will do so in the future.

There are several areas in which homes are of low demand and value. I was in Newcastle recently, and—I do not know if this still applies—in the past, the local authority in Newcastle used to give away flats for £1 because they were so bad. We know that there is low demand in areas such as Bolton. The hon. Member for Bolton, South-East (Dr. Iddon) always makes the point that houses in his constituency are in low demand, and I thoroughly sympathise with him. We want to encourage such areas to be regenerated and for people to live and buy houses there. I have seen some excellent regeneration schemes, where no doubt the council tax bands will come up. One example would be the Hulme estate on Moss Side in Manchester, where the whole area has been transformed. That is the sort of thing that we want to see happening in our inner-city areas.

We want to see properties moving up the bands, particularly in some of the areas of low demand. Before the debate on the clause is finished, I hope that we will hear from the hon. Member for Bolton, South-East (Dr. Iddon) about how he envisages some of the houses in his constituency moving up the bands. I understand from what he has said in the past that some areas have been regenerated and have moved up in the bands quite nicely. It is other areas, with large terraces, where the demand is low, that need regeneration.

Andrew Turner (Conservative, Isle of Wight)

Does my hon. Friend agree that there is an incentive to buy very inexpensive property, but that that incentive is greatly dissipated if the tax payable on the property is at four or eight times the purchase price of that property?

Geoffrey Clifton-Brown (Conservative, Cotswold)

My hon. Friend makes a good point. Clearly there must be a disincentive effect if a property is worth so little that the tax as a proportion of the value of the property is higher. Will the Minister tell us how he envisages the provisions working for properties at the bottom of the scale?

I have no doubt that the real purpose of the clause is to increase the number of bands at the top. If that is what the Minister has in mind, perhaps he will tell us how he expects the re-banding to work at the top of the scale. At present, property values exceed £320,000 in many areas in the south, and so a large proportion will fall into the top band.

When we originally introduced the council tax system, there was a relationship between each of the bands. For example, band A would pay two thirds of the band D tax, and band H properties would pay double the band D tax. With a shift in property values, I wonder whether that relationship still holds, and whether the Minister, in designating new bands, still expects there to be any form of linear relationship between the bands. Will he comment on that?

Patrick Hall (Labour, Bedford)

With regard to how the system was originally designed, as the hon. Gentleman has just said, there is a requirement for someone in band H to pay three times more than someone in band A, but the difference in value between those two positions is eightfold. How can that have been seen to be fair from the start?

Geoffrey Clifton-Brown (Conservative, Cotswold)

Before you rule me out of order, Mr. Griffiths, I shall not follow the path of temptation to comment on what happened in the past. This Government are in power and are altering the system, so we want to hear their proposals from them. The Government are the ones who are letting the tax fall into disrepute. How will it be seen to be fair by ordinary people if it becomes a stealth and wealth tax on large property?

Having established the linear relationship between bands A and H, according to this analysis from a library note:

''The regressive nature of the tax is exacerbated by the distribution of property prices in some parts of Great Britain.''

That is exactly the point that I was making. We would like to know from the Government where they expect the re-banding to go. What new bands do they

envisage being implemented? Will they, for example, have new bands H, I and J for properties with values from £320,000 to £500,000, £500,000 to £750,000, and more than £1 million, respectively? Before disposing of the clause, we need to know precisely what the Minister has in mind.

John Pugh (Liberal Democrat, Southport)

Our amendment is a probing one. The initial Government proposal has nothing to do with the amount of council tax raised. It is a simple matter of reconsidering the distribution of the burden. If the

distribution is based on property, a case exists for doing it now. Since the original bands were defined, property values have increased enormously and the range of values in the country has changed with massive regional variations between—

It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Two o'clock.

Standing Committee A

Clause 78 - Power to change number of valuation bands

Derek Conway (Conservative, Old Bexley and Sidcup)

I remind the Committee that with this we are discussing amendment No. 147, in

clause 78, page 39, line 18, at end add—

'(4B) The power under section (4)(a) above includes power to make provision for different proportions for different areas of England and Wales.

(4C) The power under section (4)(b) above includes power to make provision for different valuation bands for different areas of England and Wales.'.]

John Pugh (Liberal Democrat, Southport)

Previously, I think that I stole the thunder of the hon. Member for Bedford (Mr. Hall), so I shall be relatively brief and cue him in. I do not want to make unnecessary enemies and I need every friend that I can get in this place.

I began by pointing out that the proposal is not about increasing the tax take, as it deals with a review of the distribution of the burden. There is a fair case for saying that that needs doing, and that house price inflation and the widening gap in house prices between regions have created problems for everybody in justifying the fairness of the council tax regime in the first place. I suppose that it represents a move to secure a fair distribution of the tax burden.

Given that our tax system is built around property values, I can understand the Under-Secretary finding that extraordinarily difficult, and I would not be surprised if, at times, he finds it tempting to consider the Liberal Democrat proposal for local income tax. That said, in the last sitting, I was surprised to hear the hon. Member for Cotswold (Mr. Clifton-Brown) say that the council tax is working well. That is not the perception where I come from, and we find increasingly that widows in modest houses pay more or less the same charges as stockbrokers. Given that stockbrokers are not doing so well, perhaps I should refer to footballers.

Does the Under-Secretary agree that some people, particularly those on fixed incomes who live in modest houses, have something to gain in the banding review? I am not sure whether he would go this far, but, equally, he may want to offer reassurance to people in areas where property values have stayed behind the national average that they have nothing to lose in these

circumstances, should there be an increase in respect of the property bands, and nothing to fear from a new band structure.

There are still concerns, however, and some can be teased out by discussing this probing amendment. May I sketch two extreme and very different cases? In Liverpool, the vast majority of property falls in band A. It could reasonably be argued that band A covers a range of individuals with different incomes and capacity to pay. Given that the council tax in Liverpool is not to be sneezed at—its authority was the first to break the £1,000 barrier—it could be argued that a little regional and local sensitivity is a necessity. [Interruption.] It was under Liberal Democrat administration, but that was coincidental. It did not happen because of the Liberal Democrats.

Equally, there is the issue of London properties. We are all aware of the fact that a large number of people in London have property with a high capital value, but a low income. One wonders how a national system could cope with that. Essentially, the amendment makes a case for regional flexibility. At any rate, attention should be paid to the problems that I have sketched. I am anxious for the Under-Secretary to confirm that he is at any rate aware of those problems and I hope that they can be taken on board during consideration of the legislation.

I want the Minister to confirm three things: first, that the proposal has nothing to do with increasing the take from council tax; secondly, that it will provide a mechanism to resolve clear anomalies between people with widely different incomes and properties who pay more or less the same council tax; and, thirdly, that areas with property value increases that are lower than average have the least to fear from the proposal.

Patrick Hall (Labour, Bedford)

I hope that amendment No. 147, which stands in my name, adds to the exciting debate that we were having before lunch on the council tax. It addresses important issues relating to council tax, which I believe impact strongly on all our constituents. They will do so particularly after revaluation. Regular revaluation is an essential reform of the council tax system and a welcome proposal. My amendment would strengthen the opportunity for reform.

I am aware that the Government can change the price range of bands and the payment differentials separating those under the Local Government Finance Act 1992. Clause 78, through the addition of proposed new subsection (4A), will sensibly also allow the Government to change the number of tax bands beyond the existing eight.

My amendment would provide the Government with additional powers: first, the ability to introduce different bands in different parts of the country and, secondly, as an alternative approach, the ability to introduce regional variations to payment proportions. The reasoning behind the proposal is the need to address problems that have always been inherent to the council tax, but which have become far worse since 1993. As was said before lunch, there is the key question of the regressive nature of the council tax. The gap between the bottom and the top—between

bands A and H—is too narrow and the payment proportions related to those bands are also too narrow.

Under the current system, people who live in a band H property pay only three times more than those who live in a band A property, even though the price difference between those bands is at least eightfold. That point was made this morning.

Desmond Swayne (Conservative, New Forest West)

I do not understand what the problem is. Why is that a problem, given that the consumption of services, for which that is the tax payable, will not differ by nearly that amount?

Patrick Hall (Labour, Bedford)

Those are precisely the arguments that the Conservatives advanced with regard to the poll tax. Now we hear them again with regard to the council tax. The idea is not a good one because it is not fair. Broadly speaking, taxation should have some relationship to a person's ability to pay.

I must refer to the regressive nature of the council tax and the threefold difference between top and bottom as well as the eightfold difference in price between top and bottom. In Bedford and Kempston in my constituency, house prices range between about £55,000 and £450,000, but that is not the case nationally. One can point to house prices ranging between £20,000 and £500,000, which is a twenty-fivefold difference.

Desmond Swayne (Conservative, New Forest West)

There is not the correlation that the hon. Gentleman refers to between living in an expensive house and an ability to pay. Indeed, will he acknowledge that the relationship can be inverse? Those living in expensive houses tend to have higher mortgages and, therefore, lower disposable incomes.

Patrick Hall (Labour, Bedford)

It might be in the interest of the Conservative party not to develop that theme too well, as it does not bear careful examination. Of course there are examples of people in an expensive house who can barely afford it, but, generally speaking, surely we all live in the real world. The hon. Gentleman's postulation is just not reality in most people's experience.

Geoffrey Clifton-Brown (Conservative, Cotswold)

The hon. Gentleman seems to be arguing for a property wealth tax. What, in an ideal world, would be the correlation between the lowest band and the highest? Would it be a direct correlation between the property with the lowest value in the country—probably £1—and that with the highest value that one could think of, which may be many hundreds of millions of pounds?

Patrick Hall (Labour, Bedford)

The amendment does not propose an entirely new tax system, and you might rule me out of order, Mr. Conway, if I attempted to do so on the back of speaking to it. In support of the amendment, I am saying that, broadly speaking, we should seek to obtain a fairer rather than a less fair tax system so that it has public support and is more likely to succeed. That is the important point. The council tax is moving further from the basis on which it started.

Geoffrey Clifton-Brown (Conservative, Cotswold)

The hon. Gentleman is courteous in giving way. He is now saying that his amendment would introduce a fairer system, but he has not said what, in his view, that fairer system is. The Committee might want to vote for his amendment and, although it is improbable, I might want to urge my hon. Friends to vote for it, so will he give us more detail as to his thinking?

Patrick Hall (Labour, Bedford)

The hon. Gentleman clearly was not listening when I began my remarks and explained the amendment's purpose, which is to give the Government the opportunity to introduce variations in how council tax is levied so that it is fairer and more efficient in its application. I have not completed my remarks by any means, so I want to make progress and speak to the amendment, which you might think important, Mr. Conway.

Nationally, the relationship between bands A and H is even more distant than was intended in 1993. In single council tax areas and single council areas, the range can indeed be large—not as large as the national range, but considerable. For example, the difference between bands A and H is thirteenfold in Milton Keynes and thirtyfold in Hull. Other examples illustrate the inherent unfairness in the system, which benefits the well off at the expense of middle and lower-income families. It was always intended to be so, was it not?

Paul Goodman (Conservative, Wycombe)

Surely the hon. Gentleman would best achieve the aim towards which he seems to want to move—his amendment does not cover the point—by trying to introduce a local income tax, which the Liberal Democrats want. That would achieve his objective far more efficiently.

Patrick Hall (Labour, Bedford)

The hon. Gentleman is entitled to his opinion, but that does not directly address the points that I am making. Indeed, I have not been able to develop the points that I want to make, so perhaps I may now do so. Obviously, I am ready to give way later.

The council tax was never intended to be fair. When the Conservatives hurriedly introduced it, they got away with its inherent unfairness because it was replacing the even more unfair flat rate poll tax. Due to that very move, they avoided the criticism that might have been levied had the council tax been introduced as a substitute for the old rating system.

Mark Todd (Labour, South Derbyshire)

My hon. Friend has left out part of that argument, which is that the other step that softened the blow was the Government holding down the council tax bill by switching tax to VAT. It is perhaps worth reminding Conservative Members, who live in another world, of exactly what happened in those days.

Patrick Hall (Labour, Bedford)

It is interesting to re-run history, and my hon. Friend makes a helpful comment. I was not seeking to go into enormous detail, but I well remember the Conservatives' attempt, which was successful for a while, to buy themselves out of a deep hole.

Under the clause, the Government will be able to reduce some of that unfairness by introducing

additional bands. Even if they do so, however, council tax will remain a uniform system across England. As a result, the unfair effects of the huge regional variations in house price inflation over the past 10 years or so will not be sufficiently addressed. That is an important point.

Over the past decade, the price of the same types of property has gone up, on average, by 20 per cent. in parts of the north and by more than 100 per cent. in London and the south-east. I have seen figures of plus 15 per cent. in Hull, 100 per cent. for Bedford and Kempston and more than 200 per cent. for Barking and Dagenham. Of course, there are many other examples. The regional variations can mask what is going on in single council areas. For example, as was mentioned this morning, there are parts of northern towns in which houses cannot be sold and prices have fallen over the years.

My amendment would enable the Government to deal with regional variations sensibly and equitably after revaluation. I shall explain that point further. If we simply rely on the uniform national system with payment differentials and then, post-revaluation, uplift the eight council tax bands in line with average house price increases, we will likely see in well over 50 per cent. of houses in areas with below-average house price increases placed in band A. That has been mentioned by the hon. Member for Southport (Dr. Pugh).

In Bradford, for example, 44 per cent. of properties are already in band A. The New Policy Institute predicts that that will rise to 64 per cent. at revaluation. In Liverpool, 66 per cent. are in band A, but that will rise to 76 per cent. In Hull, 72 per cent. will rise to 94 per cent. That will mean no changes in council tax for thousands of households that are already paying too much because band A is too broad. Of course, that means that the trend of the council tax becoming, effectively, a flat-rate tax—a poll tax in parts of the country—will be reinforced unless changes are made.

Let me deal with areas where house price inflation is above average. In those areas, it is likely that large numbers of lower and middle-income households will jump up and band or two and face even higher council tax bills while high-value properties that are already in band H will not move, and so will pay no more. Again, that would create a divisive and unfair situation, so it is essential that revaluation, vital though that is, does not trigger distortions and unfair tax hikes differentially across the country. Unless the ability to introduce sub-national variations to council tax after the 2005 revaluation is available, that is precisely what will happen. I ask Ministers to take that on board.

The intention of the reforms that I propose is to get households with comparable incomes to pay roughly the same council tax if they live in broadly similar house types anywhere in England. A better council tax distribution is clearly needed for each council area. Band A, for example, should be applied to houses that are cheap by local, not national, standards. That is an important way to help low-paid workers and

encourage key public sector workers. The significance of that lies in the fact that the relationship between property value and household income is closest at local level.

Geoffrey Clifton-Brown (Conservative, Cotswold)

May I challenge the hon. Gentleman's last statement? How does he equate a property's value with someone's ability to pay? He says that the local variation in property values equates to ability to pay. How does that affect low-paid public sector workers on a national pay bargaining system? They get paid the same wherever they are in the country.

Patrick Hall (Labour, Bedford)

I am saying that, as far as council tax is concerned—

Geoffrey Clifton-Brown (Conservative, Cotswold)

And incomes.

Patrick Hall (Labour, Bedford)

We cannot reform the private housing market.

Geoffrey Clifton-Brown (Conservative, Cotswold)

That is what the hon. Gentleman said.

Patrick Hall (Labour, Bedford)

No, I said that the ability to focus on areas, and to vary council tax accordingly, would be helpful to such groups of workers, and I explained why.

The ability to introduce regional variations will be needed also if greater equity is to be introduced into the basic council tax system, which is important. That could be done by increasing the number of bands and the payment differentials between them.

Geoffrey Clifton-Brown (Conservative, Cotswold)

What the hon. Gentleman proposes would make it more difficult, in some parts of the south of England, for key public sector workers to afford to live in the areas that need to recruit them. Expensive areas would have more difficulty recruiting low-paid public sector workers if their council tax were increased in the way that the hon. Gentleman suggests.

Patrick Hall (Labour, Bedford)

In my view, it would have the opposite effect because there should be a good spread of all the bands in all areas; whereas if we leave things as they are and simply up-rate after revaluation, there will be no band A or B in many parts of the country, and there should be. Banding should be related to the fair spread of property values in any area, so the lowest priced property in the south-east should be in band A, just as the lowest priced property in parts of the north should be in band A, although the market value of those properties would be markedly different.

If we do not address these matters, the gap between north and south, which is unhelpful, will become greater rather than smaller, so it is important that the Government have the option of introducing regional variations. We are looking a few years ahead and predicting a situation that may or may not arise. On the evidence of the past few years, it is very likely to arise, so I should like the Government to have the ability to act. I acknowledge that these are difficult matters, but the no-change option is no option. I hope that my hon. Friends will accept that there is a need to reform council tax and that my amendment contributes to the debate about that.

David Curry (Conservative, Skipton and Ripon)

In politics, the no-change option is always something that ought

to be considered very seriously. When politicians say that doing nothing is not an option, they are digging a pit for themselves to fall into. One should always look first at the case for doing nothing; that is usually better for the Government and for everyone else.

Adam Smith laid down a long time ago the qualities of good taxation, which include making tax simple and collectable.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I do not know whether the right hon. Gentleman has read ''The Wealth of Nations'' recently, but will he admit that another of the principles laid down by Adam Smith was that taxation should be related to the ability to pay?

David Curry (Conservative, Skipton and Ripon)

I was going to come to that; I take my Adam Smith one chapter at a time.

The great merit of the council tax is that it is eminently collectable. The rates of collection are very high, and some authorities are getting close to the maximum, so it is a successful tax in that regard. In principle, council tax was always designed to be a mixture of a tax on property and an individual charge for the cost of delivering services, so it is a mixture of the old rates and the old poll tax. It was designed to have that balance, so to assume that it should be related purely to house values is to distort its origins, and that would be dangerous.

Council tax bands have always been based on relativities, not absolutes, so the key point is the relationship between the bands. One of the merits, if it is a merit, of the present system is the narrowness of the bands, which equalises the income that local authorities receive because it does not reflect the pure price differentials of houses. If we introduced more banding or moved to a regional system of banding, a number of questions would arise. The main purpose would, as I understand it, be to relieve people in band A.

The change that most local authorities would seek to make would be to subdivide band A, and the hon. Member for Northampton, or somewhere in the south—[Hon. Members: ''Bedford.''] Yes, the hon. Member for Bedford has listed those local authorities with a high number of band A properties. Burnley is the one that we always talk about; Blackburn is another; and the hon. Gentleman has talked about Bradford and large parts of Manchester where band A properties are predominant. The only purpose of subdividing band A would be to allow certain people to pay less; otherwise there would be no point. The Minister nods.

If we subdivided band A, and there may be a good case for doing so, the first impact would be significantly to reduce the income flowing to the local authority. That could be sorted out in various ways. The local authority might hope that changing the banding higher up the scale would compensate, but in the local authorities that we have been talking about there is precious little property at the top of the scale, so there is no way that higher taxes there would compensate for a cut at the bottom of the scale. The local authority might go to the Minister for Local

Government and the Regions and say, ''Resource equalisation was a good idea. Can we have a lot more of it because our resources have gone down, thanks to voluntary action, so we need compensation?'' That would have repercussions.

Patrick Hall (Labour, Bedford)

The right hon. Gentleman said that my proposal is principally about dividing band A into two bands. That may apply in the north, but unless we deal carefully with this matter, areas with high house price inflation will have no band A, band B or even band C property. Everybody's house will be in band D or above, and that would not be fair, would it?

David Curry (Conservative, Skipton and Ripon)

My point is that when one talks to local authorities about what they would most like to see happen with council tax, one hears the notion of subdividing band A more than any other proposition, and that would necessarily have the impact that I described. By definition, that proposal is made in areas with precious little other than band A property, so it would have—

Mr. Hall rose—

David Curry (Conservative, Skipton and Ripon)

Let me finish my train of thought. By definition that proposal would have the consequences that I have outlined. It may well be that local authorities would like also to raise the ceilings of the higher bands to accommodate rising house values at the top of the scale, but they would have to face householders saying, ''I have been in my house for 20 years, and it is not due to me that it has redoubled in value.'' They might have been part of a regeneration scheme, or they might have been gentrified. They might live in one of those parts of Lambeth where, people having constantly been told that the area is about to gentrified, it has finally happened. Their house price might double but the service would be exactly the same and their income would have stayed pretty well the same. To what extent would it be fair for a higher charge to follow purely on the incidental increase in value, of which they are not in a position to take advantage?

The measure would have that second consequence, and another possible consequence can be seen if one compares an area with a large number of low value properties, where the local authority might decide to subdivide band A, with an area that had a large number of higher value properties, where the local authority might levy a higher charge. One can see that the gap in income from council tax between the most and least endowed local authorities would get much bigger, and the Government's task of calculating, equalising and redistributing resources would therefore be much more difficult.

The purpose of my remarks is to probe the Government on how they would respond to that situation. They may find the arguments for the amendment intellectually persuasive, but it would have difficult administrative implications. How would they respond in distributing the grant, making judgments about resources and equalising those resources? The implications go way beyond any superficial argument about the fairness of the system.

Desmond Swayne (Conservative, New Forest West)

It is wise to be aware that when properties were last revalued and placed in their current bands, the housing market was in the teeth of a recession, and prices were falling. Now houses stand to be revalued and rebanded, and those that would have been regarded as modest are very expensive and will be rebanded accordingly. How does the Minister see rebanding taking place? I invite him to speculate, and not to say that the matter is still entirely to be decided. Indeed, there has been much discussion, including in the Committee today, as to how that rebanding might take place.

I am aware of suggestions that the most likely new band threshold is to be £250,000, which is currently in the middle of band G. That would have a severe impact in the south-east, and certainly in my constituency, where £250,000 buys only a modest three-bedroomed house. The heaviest punishment, I suggest, is likely to be reserved for those houses in the current top band H, which are worth more than £320,000. A decade ago, such houses would have been at the top end of the market, but that is no longer the case in my constituency. Such people will find themselves rebanded in very expensive bands.

It is all very well Labour Members nodding and saying, ''The more expensive the houses, the more people ought to cough up,'' but no additional income and no additional ability to pay come from living in a more expensive property. The only person who benefits and generates more ability to spend as a consequence of rising house prices is the one at the end of the chain who is selling a house, but not buying another. Simply living in a property whose value is appreciating does not generate any additional ability to pay, which returns us to the point that the proposal was never intended to be a pure property tax.

As the debate has proceeded, I have found enlightening not so much what has been said, although that in itself has been quite enlightening, but sedentary comments from Labour Members, such as the whispering about the rich and protecting their interests. [Interruption.] Yes, we did hear it, I say to the hon. Member for Colne Valley (Kali Mountford). Is it not interesting how quickly the veneer of new Labour has disappeared? Real, old Labour is there again, complaining about the rich. Labour Members should be aware of the fire with which they are playing.

I recall the mid-1980s, when the constant complaint of middle England was the rates—the property tax. Precisely to try to deal with that huge discontent, we introduced the poll tax. It was an enormous mistake, although it was an attempt to address that problem. Of course, the Scots always complain that they were the human experiment as the poll tax was implemented in Scotland first. The reality is that the poll tax was introduced in Scotland first because the rating revaluation was due there. Avoiding an expected explosion of discontent consequent on a rating revaluation led to what I accept was a mistaken experiment.

The Parliamentary Under-Secretary of State, Office of the Deputy Prime Minister (Mr. Christopher Leslie):

The hon. Gentleman is helping us with the context as to why the poll tax was introduced. Is he suggesting that those who introduced it were well meaning and well intended in doing so?

Desmond Swayne (Conservative, New Forest West)

Absolutely. Of course, the issue was the level at which the poll tax was set, which was unsustainable in many areas and led to an enormous revolt—precisely the revolt that the reform was designed to put off. However, consider what Labour is doing. These changes will hit with their full magnitude in 2007, and people who have already had council charge increases of 40 per cent. under this Government—that is equivalent to 2p on the basic rate of income tax without increased ability to pay, which does go with an income tax increase—realise that they will face the whirlwind that Labour is sowing simply because they live in a more expensive house. That is precisely what the Government are doing with these changes: middle England will explode as a consequence of what they are planning to pile on.

Patrick Hall (Labour, Bedford)

Does the hon. Gentleman not realise that what he is saying in arguing against regional variations is that everyone in band A will suddenly find themselves in band E as a result of revaluation without any other reforms? He has already referred to his constituency in terms of the cost of a modest three-bedroomed house. How will that assist his lower-income and middle England constituents?

Desmond Swayne (Conservative, New Forest West)

To an extent, it is for the district council that levies the rate—or the country council in my area—to adjust the rate across the bands. The reality is that we shall have an enormous consequential change as a result first of the revaluation and, secondly, the proposed rebanding. We want to hear more about that. We will be back to the problems of the early 1980s. Since 1991, we have had a consensus. By and large, people have paid up and not grumbled about the unfairness of the situation. The system is not yet broken, but Ministers are proposing to fix it good and proper according to the arrangements under discussion. They may rue the consequences of such action.

Robert Syms (Conservative, Poole)

The present system is probably better than most of the alternatives. Local government and a way in which to raise money—which is never popular—is always a difficult system to devise. I was always a great fan of the rates system. Modest reform in that direction would have been better than the direction in which the Government whom I supported went, which was towards a system that was designed by people who had no understanding of local government.

As my right hon. Friend the Member for Skipton and Ripon (Mr. Curry) said, the ability to collect it is good because it relates to property and that does not move or hide, so there can be a high yield. The compromise of a 25 per cent. discount for single people pays regard to the ability to pay. The system is moderately progressive in that the top rate pays a ratio of 3:1 in relation to the bottom rate. Therefore, most people accept the differentials that people in larger houses should pay more than those in smaller houses.

We must bear in mind that the charge is for using local services, and sometimes the number of people in a household determines how many local services are used rather than the size of the house. If we consider the system in the round, it works fairly well. Although I receive many letters from people moaning about the level of band D, or whatever band they are in, few people campaign to change the system wholesale. It has certain weaknesses, such as the gearing effect, but the only way to change that is by giving business rates back to the local authorities. It was decided previously to give certain guarantees to the business community. At present, this Government are probably taking the same action. As long as business income is kept out of the equation and only about 20 to 25 per cent. comes from local payers, there will be a gearing effect that will exaggerate matters. That is regrettable, but I cannot see another alternative. I certainly do not favour local income tax.

The system works well. The only question is whether to vary the bands or introduce more bands to make the system slightly more progressive. Ministers would have to be brave and courageous to do that because most people who look forward to change think that they may benefit from it. Expectations could be built up if ideas for change were put forward that could not necessarily be delivered. One of the nails in the coffin of the Conservative Government was the poll tax regime. Further changes were made to the VAT regime to offset that, which, in turn, radicalised people on VAT. That was one of the major factors in our heavy defeat in 1997. The party had forgotten the lesson of 1929, when we reformed the rating system to derate a lot of industry. The bills went through letterboxes in 1929 during a general election campaign, which led to the second Ramsay MacDonald Government.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Before the hon. Gentleman moves too far about from his point about local income tax, what does he have against a tax that is related to the ability to pay?

Robert Syms (Conservative, Poole)

I have nothing against using an ability-to-pay system if it is done on a national basis. That is the fairest way to do it and it is perfectly legitimate for the national Government to make taxation progressive through national income tax. There would be many problems with implementing it on a local basis; the national approach is far better. I accept a degree of progressive taxation—but only a degree—in paying for local services, but it would be much better delivered by the Chancellor and by national policy.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I do not know whether the hon. Gentleman has studied local income tax in Canada, America, Australia, Sweden, Finland, Denmark, Belgium, Holland, Norway and several other countries. Does he see any problem with the way in which it works in those countries?

Robert Syms (Conservative, Poole)

I plan to visit all those countries in future to study them. I was in Finland a few months ago where I know that local government plays a much greater role. Countries have different constitutions and different systems; we have always had centralised

government. If taxation is to be progressive, and wealth is to be redistributed, it is legitimate to do so on a national scale, rather than try to micro-manage it at a local level. The system that we have works well. It is up to the Government to set out the case for major change. Eight bands are certainly sufficient.

Changes either at the top or the bottom would cause howls of outrage and could undermine the acceptance of the system in the process. There will be moans and groans this year, largely as a result of the settlement, particularly from my area of the country, but, broadly speaking, we have a system that works. When a system broadly works, even with a few difficulties, it is best to leave it alone and look for something that is not working. If the Government are really intending to stir the pot, I wish them well and, as a vice-chairman of the Conservative party, I shall look on, smiling quietly.

Patrick Hall (Labour, Bedford)

I have listened carefully to the hon. Gentleman's comments. He describes the present situation, but I invite him, if he is not intending to do so, to consider the situation after revaluation. That is when the big differences will become apparent.

Robert Syms (Conservative, Poole)

The bands are relative to each other and the point of a revaluation is to raise the same amount of money. There may be changes because of property prices and other changes. Whenever there is any revaluation, Governments try to have smoothing arrangements to offset some of the biggest difficulties. I am not yet convinced of the arguments for change. The hon. Gentleman has argued that there should be more substantial change, but I am concerned that this part of the Bill puts the Government in a position in which they may make a system that is not designed to be progressive. If it were more progressive, it may undermine the wide acceptance for the system. I wish them well, but I would not support it.

Chris Leslie (Labour, Shipley)

It is interesting that we have heard some reasonable speeches from Conservative Back Benchers, although I disagree with some of their content. We have had some forceful—not rabid, but slightly over-enthusiastic—comments from Conservative Front-Bench Members. I apologise to the hon. Member for Cotswold for including him in that category, but some of his comments were a little bit near the edge.

We must put the amendments in context. Section 5 of the Local Government Finance Act 1992 provides for eight valuation bands, lettered from A to H, with band values differing between England and Wales. Section 5(4B) gives the Secretary of State the power to substitute new bands for existing bands. Clause 78 will amend the section by inserting a new subsection that makes it clear that the Secretary of State can vary the number of bands at the time of revaluation. The Government recognise the concern that the current bands are not sufficiently fine-graded to reflect differences in value at the top and bottom ends of the property market. The clause makes it clear that further bands could be added without new primary legislation.

My hon. Friend the Member for Bedford suggests in his amendment that we should have the ability to make regional variations in the application of the banding structures and so forth. Indeed, it is similar to amendment No. 163. I say to my hon. Friend and to the Committee that the amendments in this group are unnecessary because we already have sufficient powers under the Local Government Finance Act 1992 to cope with some of those issues, should we choose to do so.

The powers to change council tax bands or the proportions between them are exercised by order under section 5 of the 1992 Act, whose section 113(1) makes it clear that powers to make orders may be so exercised as to make different provision for different cases or different descriptions of cases, including different provision for different areas or for different authorities. So, to a large extent, the sentiment of what my hon. Friend is trying to achieve is covered in existing legislation.

Paul Goodman (Conservative, Wycombe)

Given that the Under-Secretary has just said that he has the power to do what the hon. Member for Bedford wants him to do, does he intend to do it?

Chris Leslie (Labour, Shipley)

That is the second part of my brief contribution. No, I cannot say what the Government intend to do. We feel that it is rather too early, long before revaluation has come along, to say what banding arrangements could be, what the gaps between bands could be, how many bands we might choose to have and what the cash limit on bands could be. All those are issues that we could face. Indeed, as the right hon. Member for Skipton and Ripon pointed out, they are all issues on which we may choose not to proceed. He made a strong case for no change, and I shall bear his advice in mind, as will my right hon. Friend the Minister for Local Government and the Regions.

The hon. Member for Southport asked a number of questions. I can certainly say that revaluation and, indeed, changes in the banding structure will not be about increasing the tax take. Our concerns will be fairness, equity and ensuring that, to a large extent, we retain a local taxation system that is seen to be as fair as possible. I believe that it is possible to improve the council tax regime, and we intend to do that. I agree that those on the lowest incomes, and perhaps those in lower-value properties, have no great cause to fear change. If that is the main point that he wants to secure, I can certainly say that I share his thoughts on it.

The hon. Member for New Forest, West (Mr. Swayne) helpfully reminded the Committee of the recession, negative equity and falling house prices of the early 1990s under the Conservative Administration. I am grateful to him for that, but I am not sure about where he found his speculative figures about £250,000 and house price banding. We have not come to any conclusion or made any decision on those matters. He suggested that there should be no change to council tax, but he must acknowledge that circumstances could arise, whether through

revaluation or the process of time, in which we might need to consider adjustments to council tax to make it more fair and equitable.

Desmond Swayne (Conservative, New Forest West)

Is the Under-Secretary seriously suggesting that his Department is an ivory tower and that it said, ''Wouldn't it be nice to have the power to alter the bands,'' without considering any modelling as to how to go about that?

Chris Leslie (Labour, Shipley)

My Department is certainly not an ivory tower, but the hon. Gentleman is perhaps living in another realm of the imagination—cloud cuckoo land—if he is suggesting that he has no alternative concept of how we might make the local taxation system fairer and more equitable. We are considering all options, which is why we want flexibility in the legislation. However, until we have the revaluation so that we can see how situations are changing, it is surely best not to draw conclusions too soon.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I congratulate the Under-Secretary on leaving scope for the Government to be flexible in their attitude to local taxation, particularly as was shown in the terms of reference to the balance of funding review, in which it is clear that the Government could consider replacing council tax with local income tax.

Chris Leslie (Labour, Shipley)

I am delighted that the hon. Gentleman has got on to his favourite subject, local income tax. His enthusiasm shines through at all stages. He advocates local income tax while we like to keep our minds open on all suggestions as they come. I can see all sorts of disadvantages to a local income tax. His Liberal authority, which perhaps covers a high-income area, may be keen, but other Liberal authorities such as those in Liverpool or elsewhere, where incomes are not particularly high, may be worried about how much income they could generate from it. I am sure that we can speculate on those issues at length. It would be interesting to see whether the hon. Member for Southport has thought through some of those matters.

The hon. Member for Cotswold took a few pot shots at the Government, claiming that our proposals would somehow damage authorities' income. He fails to recognise the level of revenue support grant that goes to local authorities. Indeed, the fact that we have increased our funding towards local government by 25 per cent. in real terms since 1997, which compares with the cut that his Administration instituted, overcomes his criticisms. He made various points about mobile homes or homes in low-demand areas. We are aware of concerns of those living in the band A property designation. We are committed to listening to the views of taxpayers and others to help to inform our final decisions on changes, if indeed we make any.

That also applies to those questions affecting those at the top of the scale. Questions were raised about band H residents. Those account for less than 1 per cent. of the total number of dwellings so there is doubt as to whether there would be a significant increase in the number of properties affected if there were new bands above band H. I hear some of the points that have been made, particularly by the hon. Member for New Forest, West who was worried about those in expensive properties. I think that I have managed to cover most of the points that have been raised by the

Committee. I hope that my explanations about our capabilities and the scope of existing legislation will persuade my hon. Friend the Member for Bedford not to press his amendment.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I am concerned. I was not going to put this on the record, but I had written a longish speech on the amendment tabled by the hon. Member for Bedford. I did not give it because I felt that the amendment was unlikely to come to pass. Now the Minister says that he has powers under section 112 of the Local Government Finance Act 1992.

Chris Leslie (Labour, Shipley)

The hon. Gentleman means section 113(1) of the Local Government Finance Act 1992, which, of course, was passed by the previous Conservative Administration.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I am glad that the Minister has confirmed that he meant section 113, because section 112 was abolished by the Local Government etc. (Scotland) Act 1994. Section 113 states:

''Any power of the Secretary of State or the Treasury under this Act to make orders or regulations (other than the power to make orders under section 54(6) above) may be so exercised as to make different provision for different cases or descriptions of case, including different provision for different areas or for different authorities.''

Indeed, the Secretary of State has the power to raise different council tax bands for different regions. That is why I have begun to become really alarmed. Regional variation makes no sense whatsoever. Whatever one's view on regional bodies—we do not support them—all the hon. Members who support the amendment come from the southern, eastern and north-western regions which are diverse. The amendment would give rise to enormous numbers of anomalies and to unfairness.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Can the hon. Gentleman explain why his Government passed section 113(1) of the Local Government Finance Act 1992, if it was not to allow variation?

Geoffrey Clifton-Brown (Conservative, Cotswold)

Even if they passed it, they never used it.

Chris Leslie (Labour, Shipley)

Let me make it absolutely clear that I am giving no indication that we will use that provision either. All I am saying to my hon. Friend the Member for Bedford is that the capacity and the flexibility to do that exists.

Geoffrey Clifton-Brown (Conservative, Cotswold)

It does exist, and the Government have highlighted that fact. We are discussing an amendment tabled by a Government Back Bencher, which may indicate that the Minister is trying to widen the Government's agenda. It is an old and well-used tactic to have a Back Bencher raise an amendment when there is no intention of implementing it at a particular time, but which may be implemented in the future. I am becoming more suspicious the longer the debate goes on.

Paul Goodman (Conservative, Wycombe)

As my hon. Friend said, the key point is not what is written in 1992 Act, to which he referred, but the Minister's answer to the points raised by the hon. Member for Bedford? The Minister cannot rule out the possibility that he will use the powers

granted to him under the 1992 Act in exactly the way that my hon. Friend has described.

Geoffrey Clifton-Brown (Conservative, Cotswold)

The plot thickens—I will make that clear in a second. I am grateful to my hon. Friend for his helpful intervention. As my right hon. Friend the Member for Skipton and Ripon said—

Chris Leslie (Labour, Shipley)

Will the hon. Gentleman give way?

Geoffrey Clifton-Brown (Conservative, Cotswold)

May I develop the point a little further? The council tax is simple and easy to collect—that is one of the main dictums of tax law. Provision for different bands in different regions would remove that advantage. What would be the effect of different sets of bands on properties either side of a regional boundary? The effect may be the distortion of house prices in one region at the expense of another.

Chris Leslie (Labour, Shipley)

I am listening to the hon. Gentleman's argument. He suggests that it would be wrong to have the power to apply changes in the banding structure to a billing authority or any number of billing authorities. If that is the case, why did he move amendment No. 163, which would achieve precisely that?

Geoffrey Clifton-Brown (Conservative, Cotswold)

As the Minister knows perfectly well, that amendment was a probing amendment. As I have already indicated, the plot thickens and he will begin to see why we moved that amendment. One can envisage a time—[Interruption.] If hon. Members will listen, they may find out why I am so concerned and they may become concerned too.

One can envisage a time when the council tax will be used as a mechanism for raising a regional council tax. How else would the regional bodies be funded? The amendment raises the question whether the regional body, rather than the county council, would become the precepting authority that sets the rates and whether the local authority would become the billing authority.

The rest of the debate is in Hansard.