My Lords, it is one of the great privileges of being a Member of your Lordships’ House to be able to initiate legislation through Private Members’ Bills. It is even better to be able to get one’s Bill debated, but that is now a matter of luck. I introduced this Bill in the previous Parliament but it never got to the top of the queue for a Second Reading. This time I was lucky in the ballot, with my Bill coming seventh out of 42 Bills. So, of course, I am now a supporter of House of Lords reform—at least as far as procedure goes.
Let me say straight away what this Bill is not. It is not a new system of local government taxation. The Bill seeks, quite simply, to update the system of council tax in England. I emphasise England because, as drafted, it covers Scotland and Wales and, as they are covered by devolution, my first amendment would be to confine it to England.
Local government taxation has always been a tricky matter. The old rating system fell into disrepute, as had the schedule A income tax on imputed rental value of owner-occupied housing, which was the system from 1918 to 1952. The 1990 poll tax lasted rather less time; it was, of course, a political disaster for the Tory party. In 1993 it was replaced by council tax, introduced by my noble friend Lord Heseltine. It has served us well, but it needs refreshment. Five years of coalition government did nothing to help. I suspect that we will hear from the Minister that this Conservative Government will oppose my Bill, but that they have nothing new to offer either.
My Bill does not seek to change the two basic principles or the design of the council tax. Those principles are: first, to divide residential properties into eight bands of value labelled A to H; and, secondly, to apply a different level of taxation to each band with progressive levels of taxation for each band.
In 1991 the bottom band A was for properties worth up to £40,000 and the top band H for those worth more than £320,000. Those are the same today. The ratio of tax was set at the figure of six for band A and 18 for band H. For some arithmetical reason, six was chosen to start with. Thus the most expensive properties paid, and still pay, three times those of the lowest value. There are some differences between the rates at which different local authorities level council
tax, but they are not very great overall. Give or take a couple of hundred pounds, band A properties attract council tax of about £1,000 a year. Thus the most expensive of all properties attract only about £3,000 a year. This is, I believe, no longer either fair or publicly acceptable.
It was, indeed, endless bad publicity for the small amount paid by those buying properties for many tens of millions of pounds that tempted the Lib Dems into inventing their mansion tax, which was a wealth tax on only one form of asset. The Lib Dems wisely dropped it; Mr Miliband unwisely scooped it up. He made much of it during the election campaign. Practically every desirable policy from health to education was to be financed from this miraculous pool of wealth. My Labour friends tell me that it did them little good on the doorstep. Many marginal Labour voters, who individually would have been most unlikely to reach the £2 million mansion tax threshold, rejected what they saw as a vindictive “soak the rich” policy.
There has long been a need to update the council tax to reflect current market values. The inhibiting factor has always been the task of revaluation: colossal in both cost and human resources, and controversial in that all valuations tend to be—must be—subjective and therefore result in expensive argument and dispute. The most accurate value of a property at any point in time is obviously the price actually paid for it. Fortunately we now have the Land Registry, one of the most efficient and respected public bodies in the whole public sector. Since April 2000 it has recorded all prices for the transfer of ownership of dwellings. Well over half of all dwellings are now on the register. The register is completely transparent.
My Bill does two things: it updates the prices in the bands and it increases the rate of progression. In the Explanatory Notes, which I hope your Lordships have with you, illustrative tables show the bands that I propose and the rate of progression that I suggest. I say at once that both the bands and the rates of progression are amendable as far as I am concerned. They merely represent my own view of what seems sensible, after quite a lot of consultation.
I have used the existing denominator—the ratio figure of six—as the starting point for band A, which would now cover properties of up to £250,000 in value. I have made band B properties up to £500,000. That will be slightly more progressive than the old system, at eight instead of seven, thus a 33% increase rather than 17% above band A. Thus, existing band A properties would continue to pay exactly the same—about £1,000—and band B would pay about £1,300. My suggestion is that it would get more progressive towards the top, with the new band H properties worth more than £20 million paying £42,000 council tax rather than the present £3,000. Again, I emphasise that this is not introducing a new element into the existing system, which has always been progressive and never made any attempt to limit the charge on expensive properties to any relative use made by households of local government services.
I also emphasise that my proposals are no more a wealth tax than is the present system. The £42,000 charge for band H is a mere 0.21% of £20 million, while
£8,000 is a mere 0.16% of £5 million. We were never really told the details of the mansion tax, but at 1% on all properties worth more than £2 million, a £5 million property would have paid £50,000 a year and a band H property would have paid £200,000 a year. There may be some danger that stamp duty, to some extent increased to meet public concerns, may be becoming counterproductive to retaining London as a magnet for wealth, which we wish it to continue to be. Perhaps key to my Bill, enabling updating to be introduced in a timely manner, is Clause 1(2), which states that any property that has not been bought or sold since 1 April 2000 will continue to be subjected to council tax in exactly the same way as at present. All such properties would migrate to the new system of bands and charges when they change hands. Meanwhile, there will be two scales operating side by side.
To those who say that it is inequitable for similar properties to pay different rates of council tax I say only that there has always been a differential between the tax liabilities of similar properties that are in different locations, bought at different times and subject to different economic and social influences. The only way to counter that would be to revalue all properties, not only at frequent intervals but when any significant change affecting them took place. That could be anything from a development, a new road, mining, fracking, or even the waxing or waning of local schools—or perhaps a change of neighbours. But it would be quite impossible for officialdom to take account of all such factors. That is the job of the market, which is why tying council tax to the price actually paid for a property is sound economics.
A crucial point is that the purchaser of a property will know exactly what the financial implications are of a transaction. To some extent that would make market prices more realistic. There is good evidence that buyers already take account of stamp duty, as well as legal and financing costs, in what they are prepared to pay a seller. They would also want to take account of council tax bills. In this sense it is the seller who pays part of such costs.
I have had much encouragement after discussing the Bill with many colleagues. Sadly, not everyone has skipped back to enjoy the delights of a sunny Friday in September at Westminster. Three who are not able to be here but who have been particularly supportive of what I am trying to do are my noble friends Lord Lawson of Blaby and Lord Baker of Dorking and the noble Lord, Lord Butler of Brockwell.
In summary, I am proposing a practical, cost-effective and much overdue refurbishment of council tax. It will use up-to-date values of houses as determined by the market and recorded by the Land Registry. Those who live in modest dwellings will pay no more than they do now. It will increase considerably but not excessively the contribution to local government revenues from the most expensive houses, especially in the London area. There will be no need for widespread and costly bureaucratic revaluations. I beg to move.
10.19 am