4 July 2005
Philip raises the burden of council tax in rural areas and the impracticalities of a local income tax.

Mr. Philip Dunne (Ludlow) (Con): Thank you, Mr. Deputy Speaker. I had not appreciated that the hon. Member for Plymouth, Devonport (Alison Seabeck) would conclude her remarks so rapidly.

I am interested in the debate because council tax was the issue above all others that was raised with me on the doorstep during the election. That may have been due to the accident of council tax bills arriving shortly before the election was called, but the issue is alive and well.

It is important for Labour Members to hear the experience of those of us who represent rural seats, because in the Ludlow constituency, which I am honoured to represent, there are no longer any Labour elected representatives, except for one on Bridgnorth district council who gamely bears the flag. However, there are no Labour candidates standing in South Shropshire district council. Consequently, it is very hard for those who are interested in supporting the Government to do so in my constituency, I am very pleased to say.

We in the Ludlow constituency have a regrettably low average income. I will return to that in a moment, but it colours my remarks. Council tax is a severe burden on many people in my constituency-obviously, especially for those on fixed incomes and pensioners, as other hon. Members have remarked-but we are fortunate in that we can compare and contrast the approach that at least two Opposition parties adopt to the levying of local authority bills. We have two district councils in the Ludlow constituency-South Shropshire, which is dominated by the Liberal Democrats, and Bridgnorth, which is led by a Conservative and independent administration-and I should like to share with hon. Members the contrasting approach to council tax of those two authorities.

Eighteen months ago, the Liberal Democrats proposed a medium-term financial strategy, with a staggering 9.5 per cent. a year increase in council tax proposed for each of the following three years. They were only prevented from introducing such a high increase thanks to the Deputy Prime Minister choosing to reintroduce the capping of local authorities and their fear that that might happen both last year and this year ahead of the general election.

By contrast, I, who happened to be leader of the Conservative group on South Shropshire district council, proposed a zero per cent. increase in council tax, without any cuts in services. Another contrast is provided in our neighbouring authority-Bridgnorth-where the district council rate for a band D property is almost exactly half of that levied by the Liberal Democrat administration in South Shrophshire.

I am pleased to see the hon. Member for Telford (David Wright), who is a neighbouring Shropshire MP, joining us in the Chamber because I have been exploring how difficult it is for members of the Labour party to get representation, but they obviously have a representative in the House.

It may be of interest to hon. Members-certainly to Ministers-to know that, since the Liberal Democrats took control of the local authority in Stockport in 1999, band D council tax has increased by £335, to £1,252, which is significantly above the national average and an increase of nearly 37 per cent. over five years. Stockport has some relevance to the electors of Cheadle at the moment. My prediction, therefore, is that if we were to go down a local income tax route, those of us who are unfortunate enough to be represented by Liberal Democrat authorities would face considerably higher increases each year than those of us who live in Conservative authorities.

One of the specific problems that I should like to highlight-my hon. Friend the Member for Isle of Wight (Mr. Turner) has referred to this-relates to the balance of funding and equalisation issue and the redistribution of funds raised locally from those areas, such as my constituency, with lower than average incomes. Where incomes are lower than the national average, there are clearly two ways that the amount of revenue could be found: either by substantially increasing the average local income tax levied by that authority, or by increasing further the amount of equalisation funding that would come from central Government.

It is hard to understand how either way would benefit the authority's residents, such as those in my constituency, who would either have to rely on central Government handouts even more than they do at present or suffer a substantial increase in local income tax. The Liberals have estimated a 3.75 per cent. average local income tax if their proposals were introduced throughout the country. We estimate that they would need to raise between 6 and 7 per cent. in our area-roughly double their estimate-to secure the same local authority revenue because incomes are substantially lower than the national average.

The next point that I wish to touch on briefly is the question of administrative complexity. The Liberals have placed great faith in the Inland Revenue's ability to see through the coding structure and the huge potential complexity of individuals being charged different precepts in different areas. Many of my constituents, particularly in the east of the constituency around Bridgnorth, work outside the local authority in which they live. The Inland Revenue would have to find out in which county, district, region-God forbid that the regional income tax that the Liberals want is introduced-town and parish those people live, because each authority would have the potential to levy a variable rate. Each individual may move in the course of a year. I accept that, at present, the Inland Revenue has an address, but it would have to be notified each time someone moved.

David Howarth: The Revenue would change the address at the end of the year.

Mr. Dunne: The hon. Gentleman says that the Inland Revenue could be notified once a year, but it would surely have to change the tax coding during the year if a person moved more than once. That point is not taken into account.

The Liberals claim that the Chartered Institute of Public Finance and Accountancy has come to their aid on the point about administration, but it said on 4 March 2004 in its review of the case for a local income tax that

   "assuming a variable LIT rate, we have estimated the additional compliance burden"-

on business-

   "to be £100 million, based on additional time devoted to administering a large number of annual coding variations".

CIPFA also noted that it would take as long as five years for employers to introduce the necessary changes to their own coding structures and to be ready for the introduction of such a tax. I do not think that CIPFA has helped the Liberal Democrats' case unless they want to impose further administrative costs on business. That may well be the case.

CIPFA has also considered the issue of equalisation and the same report says:

   "LIT would . . . place greater demands on the need for resources equalisation between areas . . . As a consequence, there is a possibility that although the perverse effect of high gearing on the overall average tax rises would be reduced, the ratios for a number of individual authorities could grow wider."

In effect, there would be increasing demands in different authorities for more central Government intervention. That is precisely what many of us are trying to avoid in the existing council tax scheme.

For those reasons, a local income tax would be exceptionally difficult and would not achieve the laudable aims that the Liberal Democrats might originally have set out for it.