Council Tax Reform

Motion made, and Question proposed, That this House do now adjourn.—(Vicky Foxcroft.)

19:15:00

Council Tax is, without doubt, the most unfair, regressive and punitive taxation system in this country. It is hammering towns such as Hartlepool. Places with high deprivation and low wages—the very areas that a fair tax system would support—are instead being squeezed to breaking point by a broken system that must be fixed. A Government that stand up for working people, promise change and have a mandate for that change cannot sit back while such fundamental unfairness continues. The numbers speak for themselves. For a band A property in Westminster, it is £648 a year. In Hartlepool, it is £1,585. A Band H property in Hartlepool pays nearly £3,000 a year more than one in Westminster.

The hon. Member makes a good point in comparing his constituency with the situation here in London. To continue that point, on top of council tax, there is the settlement funding for councils, of which London boroughs have received roughly twice as much as shire counties. Does the hon. Member agree that that is also a problem with the current council tax regime?

Certainly, the last 14 years—I note that none of the Conservatives are here—shifted the settlement away from areas of deprivation to more affluent areas. That has had an incredibly punitive effect. Council tax in Hartlepool represents 9% of median gross pay. Here in Westminster, it is just 2%. Someone can live in a multimillion-pound property in London and still pay less council tax than someone in a terraced house in Hartlepool. It is not right. It is not fair. It must change. An outdated system based on 34-year-old property values can never deliver fairness and has widened regional inequalities.

Sixty-six per cent of Somerset council’s budget goes to fund social care. That budget is funded through the taxes raised on property based on prices from 1991, as the hon. Member has set out. Does he agree that that is archaic and unfair, and that we should enact real reform to the way we fund local authorities?

I absolutely agree and I will come to social care later in my speech, so I will pick up that point then.

May I commend the hon. Member for bringing forward the debate? He is getting himself a reputation in this House for being an assiduous constituency worker. I wish him well in continuing to do the good work that we all witness. Does the hon. Member not agree that with the cost of living crisis, working families—that is what we are talking about here—need to know that every penny of tax is wisely spent? Confidence is clearly at an all-time low. Does he further agree that greater openness and transparency as to the use of tax funds can only be a good thing throughout this great United Kingdom of Great Britain and Northern Ireland?

I absolutely agree. I should first say that it would not be an Adjournment debate without an intervention from the hon. Member. He is absolutely right: we need transparency in the system. One of the biggest problems with council tax is that it has broken the bond of trust between those who pay it and the services that they receive. I will come back to that point later in my speech.

My hon. Friend and neighbour makes some excellent points about the unfairness of the council tax system. My view is that it cannot be tinkered with and it is fundamentally flawed. For my constituents and my hon. Friend’s, it is nothing less than a regressive property tax. In Blackhall in my constituency, someone living in a modest band A home worth £35,000 pays almost the same in council tax as a band H property in Belgravia worth many millions of pounds. That is indefensible. Does my hon. Friend agree that if we are serious about tackling growth and improving living standards in constituencies such as mine and his, we need radical reform?

I absolutely agree with my hon. Friend. The tinkering around the edges that has happened in some parts of the United Kingdom will not get the job done. My hon. Friend mentioned property prices, and they are at the heart of the unfairness. In Hartlepool, 53% of the properties are in band A. Here in Westminster, that figure is 1.2%. In Hartlepool, only 3.7% of the properties are in bands F to H, yet in Westminster it is almost half of all properties. Such a skewed housing base makes it impossible to raise the money to deliver the services that people need. Furthermore, council tax is not a reliable source of income. Nationally, one in 10 people in the UK have been in council tax debt, and nearly 40% of those individuals have reported being threatened with legal action as a result. Outstanding council tax debt already stands at £6 billion. This week I spoke to Caroline, a development officer in Hartlepool who supports many of the most vulnerable in our community. She told me of one working family for whom council tax, even with the reduction, is now the equivalent of more than a third of their mortgage payment. Dad works and mum is a full-time carer for their disabled son. They live in fear of not being able to pay. They do not understand where their money goes and they do not feel any benefit, only financial pain. How can we sustain such a system? How can we stand by while it punishes the very people we are supposed to represent? At the heart of this broken system is social care, as has been mentioned already. Nearly 70% of Hartlepool’s budget is spent protecting the most vulnerable children and adults in our town, and that is mirrored in areas of need across the country. No one in their right mind would design a care system funded by a regressive tax levied on small, struggling communities, yet that is exactly what has happened and it has been getting worse. In Hartlepool, officers have made a rough estimate that if social care were removed, a typical band D property would see its bill drop from £2,400 to less than £1,000. Elsewhere, the scandal in children’s social care is slowly bankrupting local authorities. Private providers, often owned by faceless hedge funds, are profiting on the backs of vulnerable children. The costs are staggering. In Hartlepool, the top four private providers charge an average of £12,000 per child per week. That is £624,000 a year for just one child. For Hartlepool, that is the equivalent of more than a 1% rise in council tax for one child’s care. Local councillors face the impossible choice: protect the most vulnerable or impose even more council tax pain on their residents. The most pernicious thing about this regressive tax is the impact it has on trust. “No taxation without representation” is the saying, but as council tax bills go up, services are cut. Residents are no longer receiving the representation their money is supposed to deliver. Most people, thankfully, do not need social care, but they do need bin collections, clean streets, well-maintained parks, green spaces, museums, leisure centres and libraries —all things that make somewhere a place—yet these are repeatedly cut because of this failed system. This is breaking the bond between councils and the public, and when people feel they are paying more but getting less, they stop believing in the system. When voters feel ignored and abandoned, they do not stop voting; they will vote for anyone with easy answers. Populist politicians with no real answers will step into this gap and exploit this frustration. I warn Ministers: fix council tax or face the electoral consequences. There are alternatives. Andrew Dixon and the Fairer Share campaign have advocated for a proportional property tax that would ensure contributions were based on actual property values. Some 70% of households in the north-east would be better off. Nearly a third would save as much as £1,500 a year—money that could help struggling families put food on the table, heat their homes and buy their children the things that they need. Yes, some would lose out, but it would, and should, be the wealthy in our society shouldering that burden. If we are not prepared to make the wealthy pay so the poor can pay less, what exactly are we for?

I pay tribute to my hon. Friend the Member for Hartlepool (Mr Brash) for securing this incredibly important debate, and I agree with every word he says. Does he agree that a reformed system would reduce the cost of living for ordinary people and, depending on how the Government wanted to reform it, actually increase revenues for the Government to spend on better public services?

Absolutely. A properly balanced system could provide the services we need and put more money into the pot to ensure those services are delivered. That is partly the problem with this system: it is so broken that it punishes people in deprived areas, and it still does not deliver those services. I know Ministers have said they are not looking to reform the council tax system in this Parliament, but even if an overhaul of the entire system is not possible, there are still ways to improve things, and I hope the Minister will advocate for them. The Casey review of social care should recommend taking social care out of local authorities. The Children’s Wellbeing and Schools Bill, by promoting regional co-operation, can create economies of scale to take the burden off council taxpayers. Under the English devolution proposals, financial devolution must be part of the discussion. If we are to have larger authorities that are more remote from the taxpayer, the residents must see the benefit in their pockets. This Government promised change and to fix the foundations, but the public’s most direct contact with government is through local councils, whose foundations are crumbling. If Ministers ignore council tax reform, they do so at their peril. We can fix a broken system, ease the burden on working families, and restore trust in government at all levels. We have a moral duty to right a 34-year-old wrong, find a sustainable solution to this injustice, cut council tax bills and deliver real change for the people we represent.

19:26:00

I congratulate my hon. Friend the Member for Hartlepool (Mr Brash) on securing the debate. He is absolutely right that the system is outdated, regressive and in desperate need of change, and our region is disproportionately impacted. My constituency is split between two local authorities: Middlesbrough to the west, and Redcar and Cleveland to the east. They are two distinct areas with their own local challenges, but they face similar issues when it comes to council tax. Loftus in Redcar and Cleveland will have a band D council tax rate of more than £2,500 for the next financial year. That means a multimillion-pound property in East Sussex can attract a lower council tax bill than the average family home in our region. That cannot be fair. In fact, owner-occupiers in our region can expect to pay a percentage of their property value that is 2.5 times higher than the average London resident. That is another example of an unfair system based on three decade-old valuations, hammering local residents in areas of high deprivation. Over 50% of dwellings in Middlesbrough are designated as band A—a much higher percentage than other local authorities—forcing Middlesbrough council to have the 19th highest council tax rate in the country. One way in which that could be helped is if Valuation Office Agency powers were devolved further to local authorities to allow them to more rigorously assess whether a property is incorrectly banded. That measure would just be tinkering around the edges of a system that needs fundamental reform. As my hon. Friend said, one solution would be to replace the current system with a proportional property tax, removing the antiquated 1991 bandings and instead asking residents to pay a percentage of their up-to-date property value every year. That would create a more progressive system, preventing those in lower-value homes from paying disproportionately higher rates, while ensuring that wealthier property owners elsewhere in the country contribute a fairer share. As the Institute for Public Policy Research has set out, another method to address the issue would be further increasing council tax premiums on empty and second homes. As my hon. Friend has noted, reforming the children’s social care market, which has been described as “broken” by the Competition and Markets Authority, would go some way to repairing local government finances and delivering value for taxpayers. The choice is clear: either we keep patching up a system that punishes regions like ours, or we build one that is fair, proportional and fit for the 21st century. Teesside cannot afford to wait another 30 years.

19:29:00

I congratulate my hon. Friend the Member for Hartlepool (Mr Brash) on securing this Adjournment debate on the important issue of council tax. I am grateful for the work and research that he and the all-party group have put into their argument for council tax reform. The Government take seriously the issue of how councils are funded, and the impact on local taxpayers. Council tax is an important part of the funding that councils require to deliver a range of over 800 vital services. For 2024-25, council tax makes up over half of councils’ core spending power. Individual councils are responsible for setting their own level of council tax, taking into account their local circumstances. Indeed, council tax is the balancing item in the local council budget. As my hon. Friend will know, the ability to raise revenue from council tax is determined by the number of domestic properties within a local authority area, and by the value of those properties in 1991. That means that places with a high number of more valuable properties are often able to raise more than an area with lower-value properties, despite setting the same or commonly a lower level of council tax. However, as he said, the Government have ruled out a revaluation of council tax in this Parliament. That means that we must find other ways to address the discrepancies in tax-raising ability through other means. The last Conservative Government committed to improving and updating the way in which councils are funded, through the fair funding review, but that work was not delivered. We will make good on that commitment and implement long-awaited funding reforms through a multi-year settlement in 2026-27—the first in over a decade. We have recently consulted on the proposed objectives and principles for local government funding reform. In that consultation, we propose to update the way we account for council tax in determining local authority funding allocations, so that future allocations more effectively account for the differing ability to raise council tax income across the country. As my hon. Friend has pointed out, that means that somewhere like Hartlepool, where the tax base is weaker because of the high number of homes in bands A to C, will not be treated the same as an authority in the south-east that has a high number of homes in bands E to H and therefore has greater council tax revenue-raising power. That will be part of a wider set of changes to improve the approach to funding allocations within the local government finance settlement by ensuring that they reflect an up-to-date assessment of need and, importantly, local resources. Those funding reforms are part of a comprehensive set of reforms for public services to fix the foundations of local government. That will be done in partnership with the sector and on the principle of giving forward notice and certainty to allow time for councils to plan for the future. Although the Government recognise the arguments in favour of council tax revaluation and reform, there are currently no plans to reform council tax in this Parliament, as I have said. Significant changes to local government structures, governance, accountability, audit, standards and financing are taking place alongside an ambitious programme of devolution and, of course, local government reorganisation. I say that because we cannot overstate the amount of change taking place in a very short time within a system that has been left quite fragile, as my hon. Friend will know, after 14 years of mismanagement by the previous Government.

Somerset council is in the position of having to raise council tax this year, but a recent external assurance review reported that a significant proportion of the council’s budget shortfall was attributable to decisions taken by the previous Conservative Administration, who recklessly froze council tax for a record six-year period. In the light of the pressures on councils across the country, will the Minister commit to giving us a timetable for reform so that councils can plan well ahead and deliver essential services?

That is an important point. In a sense, we can draw up a fairer and more balanced system, and build more security into it. What a system can never do is accommodate every localised decision and how it presents. In the end, there has to be local checks and balances, and that must come through the ballot box. It sounds as if voters in the hon. Member’s area have cast that judgment. We are committed to reform and to moving at pace, but we recognise in doing that that the system is fragile. We are undertaking reform of the business rates system and revaluation, and a lot of devolution deals will come forward where intricated settlements are being worked towards, which will be important. All that, of course, rests on local government being strong and stable enough to support it. We completely recognise all the issues around adult social care, children’s services and temporary accommodation, which mean that councils are being overwhelmed. There is £69 billion available through the funding allocation this year, £5 billion of which is new money, and for the first time ever there is £600 million through the recovery grant, which is about bridging to the multi-year settlement. We have recognised the urgency and depth of the crisis that many councils find themselves in, but we are also honest in saying that it will take more than seven months to repair 14 years of harm. We are getting on with the job, and we are determined to get it right.

Shire counties have had their settlement funding cut from more than £300 per person in 2015 to less than £200 per person now. Does the Minister recognise that counties such as Devon have huge road networks to maintain, and that that difference in funding helps to explain why roads in Devon are falling apart?

I think that after the last 14 years, roads in quite a lot of England are falling apart. That is why we injected another £500 million into pothole repairs this year, because we know that local people feel that issue acutely. We also recognise, as I said before, that this will take longer than seven months. On financing, we are clear that the current formula needs to be reviewed. It is not good enough any more to keep on having a formula that is not fit for purpose, and which is supplemented by top-ups that change depending on the whim of the Government of the day. If this is a genuinely fair funding formula, it must be fair when tested. That means that wherever someone is in the country, and whatever their local circumstance, they know that those issues have been taken into account. Some of that will involve deprivation or the ability to raise tax at a local level, but some of it will involve demand on services, including rurality. We must ensure that in the review we rebuilt trust and confidence as well as sustainability, and the hon. Gentleman has my commitment that we are determined to ensure that that work is done with integrity. We recognise the urgency to fix the foundations, and to tackle the underlying issues that we have talked about. For all the criticisms of the current council tax system—many of which are completely legitimate—it has some advantages. First, it is a settled tax that taxpayers understand, and notwithstanding the uncollected element that was mentioned earlier, pound for pound it has a high collection rate. On that basis, revenues are relatively predictable, which means that local authorities have greater certainty for their financial planning. Council tax is genuinely local. The money is collected locally, retained locally, and authorities will make decisions on the band D level based on their local requirements and delivery priorities.

Reforming council tax is an enormous problem and I do not underestimate the scale of the task, but does the Minister recognise that council tax is even more regressive than the poll tax it replaced? The system particularly affects my constituency, Hartlepool and the north-east, and other regions as well, where people are paying a premium for living in the poorest communities with the fewest services and facilities. Does he accept that council tax is widening inequalities in our country?

I accept that there are inherent issues with council tax, not least the way that the banding system works. Because of the inherent land and property values in less affluent places, people in a lower-band property in a poorer part of the country will pay more for public services than those in more affluent properties elsewhere. Those more affluent places can collect sufficient amounts to fund local public services, where other areas clearly cannot do that. The situation has been made significantly worse by a Government who removed that central support over a decade, so council tax is taking on a significant burden of the weight of local public services. We are keen to address that imbalance through the funding review that we are undertaking. Members will know that local authorities have control over the discretionary working age council tax support scheme, and the council tax system also includes a range of discounts and exemptions to reflect the personal characteristics of occupiers and to support those less able to pay. These include the single-person discount, exemption for student and disregards for carers, the mentally impaired—a term I would not choose to use, but that is the term used in legislation—and apprentices. The Government will consult on the administration of council tax later this year and consider the case for modernising support in the system for those who need it. However, I recognise the challenges that council tax creates for some taxpayers and local authorities. I therefore want to reaffirm that this Government are keen to continue working with my hon. Friend the Member for Hartlepool and his APPG to understand the issues in the council tax system and what options for reform are available to us. Question put and agreed to.

19:40:00