Council Tax Valuation Bands Bill [HL]
Lord Marlesford (Con)
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.
Lord Flight (Con)
My Lords, the proposals of the noble Lord, Lord Marlesford, for reforming council tax valuation bands strike me as inherently sensible and fair. I am surprised that none of the political parties has taken up this model.
It seems to me ridiculous that for a long time the top valuation bands in London have started at a value of a mere £320,000, when, in Kensington, you can get little more than a garage for that money, and the difference between the amounts paid at the top and bottom bands is far too small in relation to the values of the properties and, indeed, the potential local authority services being used. The existing difference in council tax bills between modest and grand houses is, as I say, far too small, and so greater rate progression is justified. In addition, very large houses often have more people living in them, and to the extent that council tax is there to finance local authority services, they are burning up more of those services.
It was very clever of the noble Lord, Lord Marlesford, to take April 2000 as the cut-off date and, as he said, make it possible, on a going forward basis, to use the purchase prices recorded in the Land Register and save all the hassle of valuation and revaluation in the future. I do not see any great problem in leaving pre-April 2000 dates of purchase properties with the old rate. Over time, obviously, it will change to the new rate as ownership changes and people move on or die.
Council tax is also a cheap and easy way to collect tax. I would be interested to know whether the arithmetic of the proposals of the noble Lord, Lord Marlesford, means that local authorities would become virtually self-financing, which I think is also extremely desirable. Should the same formula be applied to Greater London as to the rest of the country, when house prices in the Greater London area are clearly wildly in excess of those outside London? At the end of the day, the size and luxury of the accommodation are what matter. It is debateable whether the noble Lord’s proposed progression arithmetic of increasing the ratio between the lowest and the highest band from three to 42 is right. Arguably, it might be a little too high. It might be an idea to, as it were, cap the maximum that is payable, but those are only minor points.
However, my major quid pro quo or proviso concerns stamp duty. Irrespective of whether these changes are made, there is, in any case, as a matter of principle, a need to reduce stamp duty rates. The reform of the slab effect is fine but stamp duty bills in London are now far too high and are already considerably damaging turnover in the market. In many parts of central London a fairly ordinary family home with a garden now costs in the order of £3 million, and the stamp duty bill is £117,750—a cash cost. It is no wonder that everyone is digging out their basements or adding another floor to their houses because that is a lot cheaper than moving house. This situation may also discourage older citizens from trading down as they incur a substantial stamp duty cash cost.
It may sound as if I am shedding crocodile tears for the more fortunate. However, it is bad enough that young professionals in London have to borrow huge sums and mortgage their future to buy somewhere decent to live, but the addition of stamp duty cash costs means that they cannot afford to move to a larger house as and when they have a family and need more space and, they hope, a garden. The top rates of 10% and 12% are self-evidently too high and are a rip-off. They make even lawyers’ charges look cheap. Unbelievably, you do not get much in central London for £1.3 million, but the stamp duty at that level is £36,000. That means that those whose career requires them to move around the country cannot move their families as they cannot afford the cash cost of such large stamp duty bills. Therefore, you get the unsatisfactory situation whereby someone rents a room near where they work and leaves their family a long way away, and often the marriage breaks up as a result. That is unfair. Teachers are particularly hit by this situation. How on earth they can afford to pay these stamp duty bills on their remuneration I cannot imagine.
From a practical point of view, I also suggest that the Government have their estimates and calculations wrong of the level at which to pitch stamp duty to optimise revenues. I think they did the same thing with the CGT changes. The present charges are already reducing significantly the volume of transactions. A recent analysis by Knight Frank showed that sales of £1 million-plus properties were down 21% in the year to this April. In addition, it is a discriminatory tax on those living in London. While Greater London transactions accounted for 13% of the total, Greater London stamp duty revenues in the first quarter of this year were nearly half of the national total, so this tax is silently affecting major redistribution from London and the south-east to other parts of the country. From a purely practical point of view, it would be sensible to pitch stamp duty charges at a level that at least optimises revenues rather than at a level which, Laffer curve-like, potentially reduces revenues as well as messing up the market.
The noble Lord, Lord Marlesford, is absolutely on the right track. It is necessary and fair to move in that direction, but it needs to be accompanied by some sensible reductions in the rates of stamp duty.
Lord Sherbourne of Didsbury (Con)
My Lords, I congratulate my noble friend Lord Marlesford on having secured time for this Bill and on his tenacity, as he managed to use the cities Bill in July to give us an amuse-bouche and almost a forerunner of his speech today. I also congratulate him on his bravery, as the story associated with anybody who has tampered with, or sought to amend, property taxes is not a very happy one. I suspect that my noble friend the Minister will, in her very charming way, want to give this Bill a very wide berth indeed.
I wish to highlight two of the points that my noble friend Lord Marlesford made which I think are important and will not go away. The first is the anomaly whereby, especially in London, the very expensive houses and properties of bankers, hedge fund managers and oligarchs, costing millions of pounds, are taxed at the same rate as the modest homes of people with much more modest jobs and earnings. My noble friend is right to examine how the bands can be extended to make those living in more expensive properties pay a fairer share of the cost of local government. If one of the canons of taxation is fairness, he is right to draw attention to that aspect.
The other point I want to highlight is how property should be valued; my noble friend raised this question. At the moment it is valued on valuations going back 25 years. It would be absolutely absurd if the rates of income tax were levied on the incomes earned 25 years ago. He has found a very ingenious way of dealing with this problem.
At some stage in the future, both those points will have to be dealt with. As I said, Governments are understandably badly scarred by property tax reform and they will no doubt delay dealing with this, but at some point it will have to be dealt with. The longer that takes, the greater the danger that the council tax system will fall into disrepute, as have other local government taxes in the past, and that when the adjustments have to be made, they will be even more painful than they need have been.
I congratulate my noble friend on having brought this Bill to the attention of the House and having highlighted what I think are really important points.
Lord Desai (Lab)
My Lords, I congratulate the noble Lord, Lord Marlesford, on not only having secured a date for his Bill but having done it on his birthday, which is a rare achievement. The best compliment I can pay him about his Bill is that I wish I had thought of it myself.
We have had Prime Ministers fall on the question of appropriate property taxation. Your Lordships will remember that when we were trying to remove the rates, there were stories of little old ladies in large houses living next door to another house where there were four adult men working full time, and what a great injustice the rates caused. There were not enough old ladies in large houses in the census but that was the propaganda and therefore we moved to the community charge, or poll tax. The poll tax became a complete disaster but it happened because of the reluctance of politicians of all parties to revalue property according to what the market was doing. People who swore by the market—who had always sworn by the market—and encouraged property-owning democracy, and congratulated themselves when house prices were rising, refused to pass it on into taxation. That anomaly caused the loss of Mrs Thatcher and then when the new Government tried to do the council tax, my party—which used to listen to me in those days, long gone—asked me if I could think of an alternative. I racked my brains but I did not come up with anything as good and radical as the noble Lord has done.
This is an excellent Bill because it restores progressivity to property taxation. We do not have much progression when it comes to wealth taxation but he has at least restored it here—if the Government accept it, which I very much doubt because we already heard the noble Lord, Lord Flight, crying copious tears about people living in merely £3 million houses who are struggling to make ends meet; no doubt these sorry tales of the poor rich will multiply. But I hope the Government have the courage—they have the majority, they have the numbers and I am sure my party would try only to make it more radical, not less radical—to seize this opportunity and go ahead and do it.
The most brilliant part of the noble Lord’s suggestion is that rather than having any official revaluation committee, he is relying on the market to do the revaluation. By protecting people who have not sold a house since 2000, he is protecting the people who are vulnerable and have not moved out; they might be elderly and they do not want to. This is a humane, progressive, radical and economically intelligent Bill—a rare thing. It is so rare that it may not get government support but I urge the Government to support the noble Lord.
Lord Brooke of Sutton Mandeville (Con)
My Lords, it is a pleasure and a privilege to follow the noble Lord, Lord Desai, who speaks in the midst of a sea of Conservative Back-Benchers. It is not the first time that the noble Lord’s enthusiasm for the solitary has embraced me. During the 2001 general election, he was the only Peer in a British IPU delegation to a great jamboree in Havana to dance the salsa. I fear neither my noble friend Lord Fowler nor myself followed him in that experience.
This is going to be a brief speech for reasons irrelevant to this Bill but since a Second Reading debate is on the principle of the Bill in question, I wanted to support my noble friend Lord Marlesford. I was one of the relatively few Members of your Lordships’ House present just over eight weeks ago when the noble Baroness, Lady Hollis, launched the dress rehearsal for this debate with her Amendment 75A to the Cities and Local Government Devolution Bill on 15 July, as my noble friend Lord Sherbourne has already mentioned. That Bill was in the charge of my noble friend Lady Williams of Trafford, who of course is here today to respond for the Government.
The subject of the amendment of the noble Baroness, Lady Hollis, was broadly the same as today’s—council tax bands—and would have committed the Secretary of State to consult with local authorities before laying,
“before each House of Parliament a report on the introduction of additional higher bands of council tax in England for the areas of combined or local authorities which may assume additional functions under the provisions of this Act”.
The noble Baroness, Lady Hollis, alluded in her remarks to my noble friend Lord Marlesford’s creative endeavours in this area, and he immediately followed her; he was immediately followed by my noble friend Lord True, who is speaking today as well. There is a marked overlap of dramatis personae in these matters.
I am not proposing to retrace our steps on that terrain today—they occurred in a somewhat different context and anyone who was not present can read the debate for themselves. My noble friend Lady Williams of Trafford made it clear in her response that she would reserve her comments on our noble friend Lord Marlesford’s speech until today. Her remarks were understandably less than the full exposition of Her Majesty’s Government’s case to which we look forward today.
I support my noble friend Lord Marlesford today because his Bill is characteristic of his admirable trait of getting inside a genuine issue that for a variety of reasons has not received the recent scrutiny it deserves. Other examples of his persistence are outside the scope of this debate but they all occur in a manner directly reflecting the essence of this Chamber’s function as a scrutinising and revising body, and he deserves the approbation of your Lordships’ House at large. He has defined the problem in an admirably comprehensive speech. He has also sought to present imaginative and ingenious legislative remedies which would ameliorate a state of affairs that will deteriorate further if a searchlight is not shone upon it.
I can guess the outline of the Government’s case, which I suspect will owe not a little to the legendary Fabius Maximus Cunctator. I am happy to serve as a member of the infantry in my noble friend’s troop of interested supporters, and this debate, whatever the outcome, will have been a very worthwhile illumination of an issue that will fester unhelpfully if it is not further attended to. In the mean time, we are all in my noble friend Lord Marlesford’s debt.
Lord Wasserman (Con)
My Lords, I support the Motion proposed by my noble friend Lord Marlesford that the Bill be read a second time. As it is a very short Bill, I propose to keep my comments very short, too. As my noble friend Lord Brooke has already pointed out, my noble friend Lord Marlesford has a well-deserved reputation for identifying bits of our administrative arrangements which are in need of updating, either to take account of changed economic and social circumstances or new technology, or simply because the world has moved on and we look at things in a different way. Our statute books contain several examples of what I call Marlesford modifications, aimed at making our bureaucracy more cost-effective and our society fairer. This Bill is his latest contribution to this campaign.
Although it carries the innocuous and, dare I say it, rather tedious title of Council Tax Valuation Bands Bill, which sounds very much like something out of a “Monty Python” sketch, it is in fact a very ingenious Bill with wide-ranging implications. As the noble Lord, Lord Desai, pointed out, it is also very radical because it proposes that those who own the most expensive properties should pay not three times more in council tax than those who live in the least expensive, as is now the case, but 42 times as much.
Is 42 the right number? This is clearly a matter of opinion. I am not going to try to defend it or any other set of ratios set out in Clause 1(3). Debates about numbers and ratios are best left for Committee, when the real experts in the intricacies of council tax collection—of whom I am definitely not one—will no doubt have plenty to say. However, I welcome the progressive nature of the Bill’s proposals, particularly at the higher ends of the scale, and believe that they are much more in keeping with the spirit of the times than our present arrangements, whereby those at the top pay only three times as much as those at the bottom. Those arrangements are simply no longer defensible in a world where fairness has become a basic principle across the whole political spectrum.
The Bill is concerned with more than simply increasing the progressivity of the council tax system so as to achieve greater fairness. It makes two other ingenious, important and very sensible proposals. The first is that council tax bands should reflect more accurately the actual values of the properties being taxed. As has already been pointed out several times this morning, the present bands were set as at 1 April 1991, which is almost 25 years ago, when a property worth more than £320,000—the beginning of the top band—was something to behold. I noticed the other day that there is a property for sale in Smith Square, which is very convenient for Members of your Lordships’ House. It is on the market now for £25 million, although I will admit that it contains a gym, a jacuzzi and a lift. Is it sensible that that property should be lumped in the present band H, with all other properties valued at more than £320,000? Is it fair that the purchaser of this property should pay no more than three times as much in council tax as someone who owns a property at the very bottom of the scale?
It seems obvious that the property values used to assess council tax should reflect the situation in the real world. Here is where the Bill’s third ingenious and sensible proposal comes in. The main argument against revaluing all properties in England for council tax purposes is one of cost. In our so-called age of austerity this is indeed a powerful argument but, as has been pointed out several times already, the Bill deals with this objection by proposing that the new property values used for assessing council tax should be taken from the land register—that is, from the list of actual property transactions recorded under the Land Registration Act 2002, rather than being produced as the result of a massive revaluation of the kind completed 25 years ago. I have no doubt that those who know much more about this subject than me will tell us in Committee why this proposal is fraught with administrative and technical difficulties—but that is what Committee is for. For these reasons, I urge your Lordships to give the Bill a Second Reading.
Lord True (Con)
My Lords, I guess that I speak for the away team and, in so doing, I declare an interest as leader of a local authority. I make no apology in following my noble friend by saying that the technicalities and administrative details of measures matter and that your Lordships’ House is very good at considering precisely those things. I congratulate my noble friend Lord Marlesford on bringing the Bill forward but if it proceeds to Committee, as I am sure your Lordships will intend and which I think would be an excellent idea, we shall want to look at those details.
I start on a more general note as this is Second Reading. My noble friend Lord Marlesford and I come from the same stable, as indeed does my noble friend Lord Sherbourne: the Conservative research department. My noble friend Lord Brooke did so as well, I believe.
Lord True
Sorry, my noble friend’s father—I apologise. Anyway, we are interested in policy and it is absolutely true that what my noble friend Lord Marlesford has come up with has some ingenious aspects.
When you think about policy, you need to think about what you are trying to achieve. One effect of reforming a tax might be to raise more revenue. I noticed from the noddings on the other side at the speech of the noble Lord, Lord Desai, that there is certainly some interest in the possibility of raising more tax from the better off by this mechanism. Personally, I would like to hear of a little more ingenuity in reducing spending. I do not think that my noble friend was after raising more revenue overall.
The second reason might be redistributive. Actually, if you want to redistribute money from the wealthy to poorer people, there are far more effective methods than working through bricks and mortar; you go directly to income and the pay packet. That is a well-tried mechanism. Another motivation might be—I have heard a lot about this in this debate—some sort of mild embarrassment about the fact that wealthy people live cheek-by-jowl with people not so well-off: a distaste for the privileges of substantial wealth, one of which might be property.
We are getting a rather confused approach in the way that policy is going at the moment. Do we want to have wealthy people or do we not? I follow very much my noble friend Lord Flight’s remarks about stamp duty. We have lately seen a reform of child benefit, which has effectively been withdrawn from those earning over £60,000 a year— not necessarily the way I would have reformed child benefit, but it is done and I am perfectly content with it. On the pension side, we want to reduce privileges for those earning more than £150,000. Meanwhile, before the Recess, we had a measure in your Lordships’ House proposing unlimited free childcare on the ratepayers for people earning up to £5 million, £10 million or £20 million a year. Indeed, we pay for free school meals for the five and six year-old children of people of unlimited wealth—a policy which overall costs the country more than £1,000 million a year. So we have a slightly confused view in different areas of policy on whether or not we want to get after wealthy people.
The trouble with going after property, as others have indicated, is that it is an imperfect measure of what is actual wealth now. Income and property value do not always coincide. This is a point which others have alluded to and which we can look at in Committee, but I say to my noble friend that this is written as a retrospective measure. Anyone now living in a property which had been bought or sold since 2000 would suddenly find, on the passing of this Bill, that their council tax went up overnight if they were at the upper end in parallel to the other measure. We would be introducing a new taxation system based on the values of up to 15 years ago in place of one based on the values of up to 23 years ago. I do not know whether that is what is intended but it looks to me to be retrospective.
I believe that property taxes in this country are relatively high in international terms. There are good economic arguments, as the noble Lord, Lord Desai, said, for raising them if we wish to. It is absolutely correct to say that stamp duty in the south-east, and in London in particular, is counterproductively high, and one would not wish to add another disincentive effect by setting council tax levels too high and discouraging people from moving. Inheritance tax, contrary to the sleight of hand of my right honourable friend the Chancellor, is scheduled to go on rising—the take from it will rise by 50% in the survey period, whatever you see in the headlines. So property is quite heavily taxed, particularly at the higher level, but that is not necessarily a reason to address reform in itself of a tax which, I remind noble Lords, is about paying for council services. It is not a surrogate wealth tax or a surrogate mansion tax; it is designed to pay for council services. That is another philosophical issue that we need to consider.
In the detail of the Bill is an extremely ingenious proposal to put the Valuation Office Agency out of business—and, as a good Tory, I can certainly follow that. Measuring values when properties change hands in any reform is a very ingenious proposal. Many properties of course change hands not on sale but on succession: they change title when somebody dies, and the value is registered through the IHT system. The Bill would seem to include that form of succession, so the higher council tax would immediately bite on the carer of an older person who had died. The definition in the Bill is “bought or sold”, and whether that includes inherited needs to be clarified in Committee. A lot of people who are living together and who already fear the impact of inheritance tax will be interested in that aspect, which is something to probe in Committee.
I do not want to tire the House too much, but we need to look at the impact of the measures in Committee. It is certainly fiercely redistributive, as my noble friend has said, within local authority areas. The dampening effects within the council tax system would lower band D in an area such as mine with a large number of higher-value properties.
What then is the impact on the authority as a whole? Normally, the grant system would adjust itself to account for the impact of changes in council tax and would claw back the kind of windfall gains that some authorities might get. If this came in, it would probably have the effect of my authority getting a negative grant and having to pay the Treasury money. Some might support that. Before Committee, for the convenience of the House and my noble friend, I will run a council tax model through our computer on this basis and see what impact it would actually have. I do not think that every Government would compensate local authorities for the possible effect on their area of this change in the system. There is therefore a risk that people across the financial board might lose money if Governments claw money back.
Although the suggestion is ingenious and the mechanism is particularly interesting, I am concerned about the retrospective effect. As other noble Lords have said, we have to look carefully at what the impact of the new bands might be and whether the levels are right. There are irrationalities in council tax, as there are in every form of local taxation. Unless central government deals with it, there are basically only three ways of doing it: a local income tax, direct charges for services or a levy on property. At the moment we have a sort of mix. I personally think the balance overall is not too bad at present. My noble friend’s Bill is certainly worth considering, but would I go forward with it without considering very carefully in Committee the specifics of some of the issues that I have raised more broadly? On balance, I would probably leave it, but I would want to investigate further whether we could make savings through the Valuation Office Agency issue.
Lord Kennedy of Southwark (Lab)
My Lords, I thank the noble Lord, Lord Marlesford, for bringing his Private Member’s Bill to your Lordships’ House today. I declare an interest as an elected member of Lewisham Borough Council in London. I am unable to give the noble Lord the full support of the Opposition today, but I wish him and his Bill well. I think we can all agree that there is an issue, and this is an important part of the discussion in seeking to resolve matters. I agree with the noble Lords, Lord Brooke of Sutton Mandeville and Lord Wasserman, about the noble Lord’s creative endeavours and his ability to get a grip on issues that may not have been looked at for some time.
As my noble friend Lord Desai said, the council tax was introduced to replace the poll tax, the very unpopular form of local taxation that the Conservative Government introduced in 1989, first in Scotland and then in England and Wales. As we all know, it led to Mrs Thatcher being deposed as Prime Minister and replaced by John Major. If I am correct, it was the first policy announcement he made: he immediately said in the other place that the poll tax was to be scrapped. The council tax is how local people pay for the services they receive from their local authority or authorities, which include housing, social services, transport, policing, and fire and rescue services. However, it covers only part of the cost, with the rest of the money coming from central government through grants and other forms of funding.
As the noble Lord, Lord Marlesford, outlined, properties are allocated one of eight bands, coded by the letters A to H, on the basis of an assumed capital value as of 1 April 1991. There are discounts for single people and other exemptions where properties are unoccupied. The noble Lord, Lord Flight, has a point about the narrowness of the bands, particularly in London, something which was also mentioned by the noble Lord, Lord Wasserman. However, my experience in Lewisham suggests that we would certainly not be self-financing on the basis of these changes.
The previous Labour Government did not proceed with a revaluation, and I am sure part of the reason for that was the effect on poorer families. The coalition Government also did not proceed with a revaluation, and I suspect this Conservative Government are going to do exactly the same thing. The point of the noble Lord’s scheme is that it does not require a revaluation but would instead deal with the issue as properties are sold. The problem that I have is that I do not want people, particularly people struggling to make ends meet, having to take on extra costs that they would not otherwise have to pay. That of course would be the effect if this Bill became law.
As a councillor in Lewisham, I was delighted that we froze our council tax this year. I believe I am correct in saying that we have frozen our council tax in all but one of the last four years, but that was before I became a member of the authority. I hope we are able to continue to freeze our council tax for many years to come.
If the Bill manages to get some time in Committee, it will be possible, through probing amendments, to see how it could be improved and the idea put forward by the noble Lord explored further in debate. The noble Lord, Lord True, made that very point about dealing with these matters in Committee. We can also look at this in terms of policy development for local government, and one thing that I will want to look at is the whole question of value for money. I am concerned about the value we get in local government when tendering out services. There is an issue there in terms of the cost that local government actually pays. I fully support wealth creation—we all need wealth creators, because they provide the tax that we need to pay for our public services.
The noble Lord, Lord Marlesford, mentioned the proposed mansion tax when introducing the Bill. One of the problems with the mansion tax is of course its application in London. With property prices ahead of many other parts of the country, family homes in London—often very nice ones—can be bought and sold for large sums of money, but they would not be, in anyone’s understanding, a mansion. That is a real problem.
One of the criticisms of the council tax is of course its perceived unfairness in not taking into account the ability to pay. Critics point out that although the capital value of a property in which a person lives might give some indication of the relative wealth of an individual, it does not necessarily relate to current income. On the other hand, benefits are available to reduce the amount of council tax paid—although we are all aware of the cuts there in recent years.
It is important to say in looking at any element of local government funding that the cuts that have been asked of local government have been difficult to absorb. Local government has risen to the challenge in recent years and delivered local services at a level that local people would expect, but that is becoming more and more difficult. I see that first hand in Lewisham, with the difficult decision that we had to take to balance our budget and deliver the best possible services with fewer resources.
I hope that the Bill gets some time in Committee for us to debate the matter further. The funding of local government is a complex area. I want fair funding for local authorities—fair for local people, fair for everyone involved, and getting the best possible value for money.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Williams of Trafford) (Con)
My Lords, first, I apologise to my noble friend Lord Marlesford and other Members of your Lordships’ House that I entered the Chamber after my noble friend had started speaking. I was in fact dealing with another matter of interest to him, but I apologise.
I thank my noble friend for setting out the purpose of his Bill, for his interest in the fairness of the council tax system, and for providing the Government with an opportunity to set out their position on the subject of council tax revaluation. I also congratulate him on giving a bit of a warm-up act during the passage of the Cities and Local Government Devolution Bill, as other noble Lords mentioned, and wish him a happy birthday.
I know that these are matters about which my noble friend has been concerned for some time and I congratulate him on his determination to bring a Bill before this House. He will not be surprised to hear that the Government have reservations about the Bill, and I would like to explain them for the benefit of the whole House.
First, the Bill’s proposals would require the formation of a second council tax list based on Land Registry values, to which properties would transfer from the valuation list as they were sold, the start date being 2000. My noble friend envisages that eventually this would be the only property list for council tax. However, I fear that he overlooks the protracted transition period in which two parallel council tax lists are likely to require maintenance and use.
Not only would this extended period place a heavy and potentially complex administrative burden on those administering the tax but it would lead to confusion and an understandable sense of unfairness among taxpayers. Residents in similar houses on the same street could face radically different council tax bills purely on the basis of when they had bought their property. Council tax is used to pay for local services, and to charge one household significantly more or less than another according to arbitrary parameters set out in the Bill may rightly be considered unfair.
The use of Land Registry values throws up another issue. The provisions in this Bill would mandate the use of property values across a range of years going back to 2000. Placing properties in bands on the basis of different valuation dates does not strike me as particularly progressive. Indeed it leaves banding at the mercy of fluctuations in the market across time.
The Government believe that it is fairer and more consistent to have properties banded in a single list, on the basis of their value at a common date. The current council tax system already offers a means of updating a property’s band if it appears incorrect. Council tax payers have the right formally to challenge whether their home is in the correct band within six months of becoming liable for the council tax on a property for the first time. This council tax band may increase on sale if this operation is clearly understood by those selling and buying properties, and avoids an arbitrary distinction between pre-2000 properties and post-2000 properties. The band may also be changed to reflect significant changes in the locality—for example, if a motorway has been built nearby.
The other aim of the Bill is to make a very large adjustment to the council tax banding charge ratios. The suggested ratios show a steeper progression than those currently in place. On Report of the Cities and Local Government Devolution Bill on 15 July, my noble friend accepted that the increase from band A to band B under his proposals would produce an increase of 33%, compared to only 17% under the existing arrangements. That does not strike me as an increase in fairness. At the top end of the scale, for the highest value properties, the tax paid would be 42 times the value of a band A property. I know that my noble friend may disagree, but that creates the very picture of a punitive mansion tax, penalising those households living in larger homes simply because they have been bought or sold since 2000. That is of course something which the Government have long opposed, and we see no reason to change our position.
Looking beyond the numbers, however, I remind my noble friend that council tax is intentionally not a wealth tax. It is not the domestic rates but rather a hybrid property and personal tax. It is a tax which aims to raise income for the council to help to fund services, taking account of the value of a person’s home and their personal circumstances. Local council tax support goes even further and takes account of their income. Council tax is deliberately not a version of the old domestic rates, and the use of bands, rather than point values, and the moderate ratios between bands reflect that as much as the inclusion of personal circumstances.
A number of noble Lords have talked about an additional band, band H, for expensive properties, and it seems an attractive proposition. It would cost less than a full revaluation and it would get at the highest-value homes. However, there are a number of logistical problems with such an approach, even beyond the principle that more bands are not needed.
The Valuation Office Agency does not hold specific information on the precise value of properties in any band, only that they fall within that band. It would therefore need to reach a view about the actual point value of properties before they could be ascribed a new band. It would need to undertake a substantial data enhancement exercise to ensure that its physical property data were sufficient for the task and undertake an analysis of sales evidence.
Newly valued properties could also be subject to appeals, causing lack of certainty for all involved. The revaluation in Wales in 2005 prompted overall appeal rates of about 5% of all properties. We would expect similar or increased levels of appeals following a revaluation and the implementation of a new band in England.
Although the above costs might not be huge, they are significant, and in a time when money is tight and households are hard pressed, such a voluntary cost is unacceptable for the marginal change that it would bring about.
However, the main issue for me with the idea of an additional band is that if we were to set in train a revaluation of one set of properties, it would be likely to raise questions about the integrity of other bands. Any change that creates a two-tier system will increase the sense of unfairness rather than diminish it, and, as I have explained, the Government have no intention of conducting a full revaluation during this Parliament.
Above all, we must bear in mind that, despite arguments set out today, there is no public clamour for change in the bands of council tax or for a new revaluation. Collection rates remain extremely high, at 97%, which does not create the picture of a population that considers it unfair and in need of fundamental reform.
Given the unfairness of the proposed changes to council tax and the logistical difficulties of implementation, I must express my reservations with regard to the Bill and reiterate the Government’s firm and abiding commitment to protecting hard-working taxpayers from the financial pressures of high council tax bills.
Lord Marlesford
My Lords, I thank everybody who was kind enough to take part in this debate. I very much appreciated the general feeling that it was worth proceeding along the sort of lines that I have been thinking on. I felt particularly encouraged by what the noble Lord, Lord Desai, and indeed the noble Lord, Lord Kennedy, said: that it is worth considering in this way.
I was much more disappointed than I expected to be by what the Minister said. It was really rather sad. A lot of quite irrelevant points were made. I do not blame her; she was saying what she had been told to say. I quite understand the way that the system works.
I will not go into all the inaccuracies, but there is no question of forming a new band. Other points were made which we will discuss in Committee, because they are mainly Committee points.
The point about stamp duty is a valid one. I made it myself to some extent—I think that there is a need, as with all taxes, to get that balance right, as my noble friend Lord Flight said. My noble friend Lord Sherbourne gave a general welcome to the Bill, but he is right that we need to go into considerably more detail. It was good to be signed off on the economics of it by as distinguished an economist as the noble Lord, Lord Desai. He and I came into the House on the same day, in the same list. In those days, the great and the good were put here for what they had done, and there were others who had no particular merit but were put here for what they might do, and he and I were in that list. In those days, there were 10 a year of those people. The system has grown in rather a different direction in rather a large way since then.
I was very grateful for what my noble friend Lord Brooke of Sutton Mandeville said. We must progress it along the sorts of lines that he is talking about. My noble friend Lord Wasserman has considerable experience of the sorts of things that I am trying to do, in devising methods to improve technical aspects of government. In fact, one of his great achievements is the invention of the police and crime commissioner system, which is not relevant to the Bill but, despite what people say, is working extremely well, particularly in Suffolk, where I come from.
My noble friend Lord True knows an enormous amount about local government, and I take very seriously the points that he made. I do not think that there is an element of retrospection, in the sense that at any moment, when a system is introduced, it will apply to people in the form that it is introduced. Rather luckily, the date on which the Land Registry started to have its full record was April 2000, which means basically that—
Lord Trefgarne (Con)
I am sorry to interrupt, but if my noble friend would point forward, rather than addressing my noble friend Lord True directly, we could hear what he was saying.
Lord Marlesford
I am so sorry. It is rather fortunate that the date of 2000 was the date when the full Land Registry started, because that is basically before the big explosion in prices. Therefore, there would, in practical terms, be a very limited element of retrospection.
Lord True
I should explain retrospection, since my noble friend Lord Marlesford is on the point—and my noble friend on the Front Bench made the same point. What is proposed, if it is going to look back to anybody who bought a house before 2000, is to tax people on their past choices and on potentially capricious values. I do not think that that is a very fair way in which to proceed. In that sense, it is retrospective but, obviously, it would come into force and go forward.
Lord Marlesford
The point that I was trying to make on that is that, for many people already on the register, there would probably be very little difference in bands, because they would have bought their property before the big explosion. To be honest, I think that the people who had just bought a property at a huge price would be among those who I would be content to pay a much higher tax. So, yes, of course it would apply. Indeed, from now on until this measure comes into force, which I hope that it will, people will be able to say to themselves, “Well, if this comes into force, it will do so on the price that I am paying now”. Therefore, people can take it into account. I do not feel that the oligarch who bought a £20 million house in Smith Square with his jacuzzi and swimming pool can really have an enormous amount to complain about if he pays £42,000 rather than £3,000 in council tax. I think that he will be very pleased to be living in this country, with all the benefits that go with it, compared to his own country, perhaps, and pleased to pay that small ticket.
Most of these points need to be dealt with in Committee, but I would just say to my noble friend Lord True that yes, indeed, prices of houses are registered when ownership is transferred—and, indeed, death is a transfer. The valuation made in that case is, of course, made by a valuer. But the number of dwellings transferred at death are very few compared to those transferred by market transactions, so a valuation is required then. That value is often argued about with the capital taxes office, and all the rest.
Lord Flight
On both death and gifting, valuations are required for IHT and capital gains tax reasons, so it is going to happen automatically, anyway.
Lord Marlesford
Exactly, there are valuations in those cases. But there is a very big difference between doing it just for those and doing it for everything. The argument has always been that we cannot have a complete revaluation. The Minister used again that very old argument, which I reject, and I have tried to meet it by saying that, fortunately, we have the Land Registry and, fortunately, for well over half of dwellings at the moment, we have the actual prices that have been paid. As for the poorer people at the bottom of the market, very few people at that end will find that they pay a higher council tax. The movement in my banding from £40,000 to £250,000 would include virtually all the people in band A anyway—it is very unlikely that people would find themselves in band B. Quite a lot of the people currently in band B will remain in band B, because that goes up to £500,000. So there is a certain automatic adjustment from the price mechanism and the market in that respect.
I shall not continue now, because a lot of these points need to be studied in detail. I hope that the Government will show themselves perhaps a trifle more open-minded, rather than merely trying to produce old and jaded arguments and persuade some unfortunate Minister to put them forward for them. I ask the House to be graciously prepared to give this Bill a Second Reading.