Labour may be preparing its own poll tax disaster

Last December I warned here that "Buried in the small print is the intention to abolish the standard spending assessment (SSA). This is the formula that is used to decide the level of grant to councils from the Government. Most MPs think it is unfair. What they do not realise is that any change which will benefit some councils will inevitably disadvantage others. Those that benefit will not notice – the council tax will still go up – but those that are hurt will scream."

This week the screaming has begun. The loudest screams of pain, however, will come not just from councils but from Labour MPs in southern England. And their ire will be directed against Nick Raynsford. As a pleasant, mild-mannered, Labour MP, he has risen steadily through the junior ranks of ministerial office and now holds the nuts-and-bolts job of Minister for Local Government. He is destined soon to become a household name and the most unpopular minister among Labour MPs representing seats south of the line between the Bristol Channel and the Wash.

Mr Raynsford has just walked into the bog of local government finance, carrying with him the replacement of the SSA. At first sight, Mr Raynsford's proposals, published this week as a consultation document, seem fair, with the political bonus of rewarding Labour controlled authorities in the north at the expense of "rich" Tory controlled councils in the south.

The theory underpinning the review is to reward areas of poverty, according to a "deprivation index", in Labour heartlands such as Yorkshire, Tyneside and Greater Manchester with additional resources to cover education, police and social services. In return, authorities in the wealthy South will lose up to £800m in exchequer grants, which would have to be recovered unless services are cut – from above average increases in council tax.

What a wonderful wheeze. And mostly, only Tory controlled councils will get hurt. What no one seems to have told Mr Raynsford is how many Labour MPs who gained their seats in 1997 to provide Mr Blair with his majority just happen to represent these southern constituencies. Take six counties – Kent, East and West Sussex, Hampshire, Bedfordshire and Hertfordshire just for starters. Of 24 Labour MPs that were elected in 1997, only one had previously been elected – in 1992. In most of these counties, if Mr Raynsford's proposals come to fruition, council taxpayers can expect their bills to rise by more than 10 per cent in the year 2004-5.

But the past is the only guide to the future. Local government does not get the blame when central government ultimately controls the purse strings. I lost count of the number of times, during the years of Tory government, that the high-spending Labour authorities covering my northern constituency increased the rates, poll tax and council tax. Try as I might to lump the blame on them, the voters ultimately saw that the decisions were caused by the funding formulas set by Whitehall. Today, the position is now firmly entrenched so that local government expenditure, and the consequent level of council tax, is effectively set by the Government – regardless of party control in the town halls.

Approximately £48bn is spent by local government, which receives 75 per cent of this directly from Whitehall. The remainder is raised by the council tax. According to the local government expert at the LSE, Tony Travers, "this means that if there is a 1 per cent cut in exchequer grant to a southern county council it leads to a rise in council tax of between 3 and 4 per cent" in order to maintain the same level of services.

Mr Travers has followed the vicissitudes of local government for over two decades, and understands better than ministers the complicated funding formulas with which both main parties have wrestled. He points out that, since Labour came to power, local government inflation has been running, on average, at 6 per cent per annum. This means that cumulative inflation over the last five years has led council tax bills to rise by approximately 40 per cent.

Perversely, with general inflation now less than 2 per cent, local council taxpayers are beginning to notice that this is the biggest stealth tax of all. Whereas income tax is deducted at source, the council tax is now a significant bill that impacts on the average family.

In theory, the gainers in the North should be cheering Mr Raynsford from the rooftops – their voices drowning out the jeers in the South. Prepare, Mr Raynsford, for no thanks. There is an iron rule of local government finance whenever any formula is altered to the advantage of one group at the expense of another. "Losers react while winners keep quiet," says Mr Travers.

We have of course, been here before. The Conservatives decided to abolish the rates principally because they were faced with a rating revaluation that was likely to impact on their supporters. "Let's have a poll tax to punish Labour voters who don't pay rates," screamed the Tory blue-rinse widows living alone in large properties. They drove local association resolutions to the party conferences, leading to a standing ovation from the faithful for the late Nicholas Ridley when he responded by promising its immediate introduction. And although the Tories won the subsequent election, they paid dearly with the loss over 40 MPs, the poll tax and Margaret Thatcher.

Next time, Labour's sacrifice of its southern-based MPs may cost them equally dear.

mrbrown@pimlico.freeserve.co.uk