Council Tax (New Valuation Lists for England) Bill

My Lords, this has been an interesting short debate and I thank the Minister for his congratulatory remarks to local government. I declare an interest as the leader of Essex County Council, which is one of the councils that rose from three-star to four-star status in a harder regime with a CPA assessment made just before Christmas. We are very pleased about it. As has already been acknowledged, Members on these Benches support the general thrust of the Bill, but a number of issues give us cause for concern. As my noble friend Lady Hanham has said, we support the decision to postpone revaluation and we shall support that part of the legislation. But we cannot support the proposal to give the Secretary of State an unfettered power to introduce revaluation, in theory whenever he wishes and particularly without it being given some consideration by this House. We are also concerned about the impact of revaluation on the already hard-pressed council tax payer. Along with one or two other speakers, I shall take a little licence when talking about council tax. Perhaps the Minister can give us a reassurance today that any potential revaluation would not have serious implications for ordinary people up and down the country. Council tax is an important issue, because many people feel that the basis of its funding and distribution between various regions of the UK is not fair. As the noble Baroness, Lady Scott, has said, some people now pay perhaps 10 per cent of their income in council tax. Those people believe that the working of the system itself has become fundamentally unfair. Indeed, when one considers that since 1997 council tax has increased by well over 76 per cent, people’s worries can be understood. Many individuals such as pensioners, who are asset-rich but income-poor, have been hit particularly hard. Furthermore, there is the gearing effect that the noble Baroness, Lady Hollis, mentioned; I may return to some of her issues shortly. That means it is difficult for local authorities to keep the rise in council tax down to the rate of inflation. It is hard indeed to do any of the things that the noble Baroness talked about in her valuable contribution. Indeed, figures from the LGA show that council tax, since its 1991 inception, has risen from covering 21 per cent of local government expenditure to 25 per cent. It is particularly relevant to what the noble Baroness, Lady Hollis, said in that business rates have fallen from 28 per cent to 21 per cent. So, the contribution from the ordinary council tax payer to local expenditure has increased considerably while the business contribution has fallen back. I support most of what the noble Baroness said today. It is perhaps worthwhile to indicate why we are considering the legislation today. As the Minister said, council tax revaluation is being postponed; but the Government have set up the Lyons inquiry, which I support. When announcing the council tax revaluation postponement, they asked Sir Michael Lyons to look into the structures—which, again, one can support. Sir Michael gave an interim report, to which the Minister referred, and I want to comment on some things said in it. He stated that a significant number of households would be paying significantly more in council tax, due to the decision by the Government to abandon revaluation. However, in all the models that he looked at, Sir Michael assumed that the revaluation would be revenue neutral, which—as the noble Baroness, Lady Scott, said—is the Government’s assertion. Of course, in the 2005 Welsh council tax revaluation and the 2005 English business tax revaluation, the Government’s claims that revaluation would be revenue neutral turned out to be false with, for example, average bills in Wales increasing by some 8 per cent. On that level, some of Sir Michael’s assertions and models would be inadequate. Revaluation could also be a bad thing because the Government would not do what they promise. If that happens, it would not be revenue neutral but would be increasing the tax burden by stealth. In the interim report, Sir Michael analysed a straightforward national revaluation using existing bands. In that model, 19 per cent moved up bands and 17 per cent down bands. In London, the worst hit, 11 per cent would move down while 35 per cent would move up. Either way, even if it is revenue neutral, Lyons concedes that some regions like London would be badly hit and that under the standard revaluation model there would be more losers than winners. Sir Michael then modelled his revaluation with extra bands. For example, one model had 12 bands including three new top bands, with the top band paying 400 per cent of the Band D rate, compared to 200 per cent at present. In that model, Sir Michael says that 4.6 million will move up and 6.5 million will move down; that is the source of some press reports. However, one should take in mind that a lot of those houses moving up would be those that I referred to before as being asset-rich and, perhaps, income-poor. Increasing taxes for these people would be extremely unfair. Families who had worked hard to improve their homes would face soaring bills, up to the equivalent of perhaps £5,000 a year. That would be getting towards the old rates system which became so unpopular, because people would be paying even larger amounts of their income in that sort of tax model. It all points to the fact that the whole thing needs totally rethinking and redoing. Sir Michael then says that higher bands do not improve equity, as I have just said, and that the best way to improve fairness is to sort out the failing council tax benefit system, which the Minister referred to, and which I again support. Perhaps there will be some measures to improve that, even before we get to the Lyons review. In short, revaluation will not itself produce more winners and losers—even Sir Michael admits that—and so far the Government’s revaluations have been tax-raising, not tax-cutting. I shall move on to one or two other issues. In 2004, the Government estimated that revaluation would cost £108 million. In 2005, the cost was up to £178 million—an increase of around 60 per cent. We are looking at something like the Scottish Parliament problem, with continued escalation of what it might cost. As the noble Baroness, Lady Scott, has referred to, the Minister, the noble Baroness, Lady Andrews, confirmed in November that the Valuation Office Agency had incurred around £60 million in costs and contractual liabilities on the revaluation up to that point. The noble Baroness’s answer mentioned that some £45 million of this figure would be of potential use in the future. However, given that this Bill cancels the requirement for any form of revaluation indefinitely, we have absolutely no idea when this outlay will be utilised, if ever. Surely the work done in the last year or so will be out of date by the time Sir Michael’s inquiry publishes the final report. Furthermore, I was informed in a reply to another Written Question that the immediate impact of this cancellation was that approximately 400 staff working on casual and fixed-term contracts at the Valuation Office Agency have been given notice to leave, and that an early departure scheme for permanent employees is taking place. What estimate has been made of the costs caused by these redundancies, particularly in terms of compensation and other payments, and are they included in the figure already stated of the cost of the aborted revaluation exercise? As I set out in my introduction, the Bill contains the power for the Secretary of State to authorise a revaluation whenever he or she wants. Perhaps the Minister could clarify the position: how soon after the conclusion and publication of Sir Michael’s final report do the Government envisage that a revaluation will occur? A lot of the problems and inequities we have discussed—including the lack of business contribution towards development in localities, which the noble Baroness, Lady Hollis, talked about, and escalating council tax bills, which I mentioned—will clearly be with us for several years. As the Minister said, there will be no revaluation in this Parliament. Therefore, these anomalies and problems look like being with us for at least two or three years. They are a problem. We did not need a Sir Michael Lyons review to say that the public do not understand the system. We could all have told him that years ago. It is unfortunate that it looks like being at least three or four years before there is any real change, and the public understand and local government gets better treatment on raising money locally. It is sad that at this stage all we have had is a postponement of revaluation, which we can support. I said when we debated the Local Government Bill that all governments that had carried out revaluation had lost the subsequent election. That is one of the reasons it was not done now. I still think the Government will lose the next election anyway, so it may be that another party will have to pick up this mess. I would like the Minister to say a bit more, rather than the platitudes he gave about local government to start with. We will have three or so years of uncertainty, which will not help local government or the public to understand what local services are being paid for and how they are provided. It is going to be an interesting debate. This is only a small Bill, as has been said. We will question in particular the part of the clause that gives those powers to the Secretary of State, and I am sure that will be an interesting time in Committee. I shall be supporting my noble friend Lady Hanham.