Downing Street Years - Margaret Thatcher [403]
In September 1985 I promoted Ken Baker from Minister for Local Government to Secretary of State for the Environment, with responsibility for refining and then presenting the proposals. During autumn and winter that year we slogged away in Cabinet committee. Figures from the DoE made it clear that moving in a single step to a community charge would create many losers from the change, particularly (but not only) in the profligate inner London boroughs. How sharp these changes would be would depend very much on the level of the charge itself: at this stage — 1985–6 — we were advised that the average level would be under £200. But I fully realized that even with these figures there would be real difficulties in transition for which solutions had to be found.
With the abolition of ‘resource equalization’ and the pooling of business rates there would be large shifts in the domestic local tax burden between areas. Areas with high rateable values and low spending levels would tend to gain. Those with low rateable values and high spending would tend to lose. London had its own special problems. Inner London had received specially generous subsidies; a number of London authorities were very high spenders; there was — until we eventually abolished it — the burden of high spending by the Inner London Education Authority; there was also the fact that business rates, which socialist authorities had in the past been able to increase more or less at will, would now be limited and pooled, with the result that extra burdens would fall on domestic ratepayers. In order to deal with these changes between areas a system called the ‘safety net’ was devised to smooth the transition. The safety net was designed to be self-financing: it slowed down one area’s losses by delaying another area’s gains. This was unpopular with the gainers, but unavoidable unless the Exchequer stepped in to meet the difference. Nor could the safety net deal directly with the most politically sensitive question which was the changes in the burden between individuals and between households.
The problem of limiting individual losses raised the question of whether the community charge itself should be phased in, and if so, how. Ken Baker — always canny and cautious — wanted a very long transition period during which the rates and community charge would run alongside each other (known in the jargon as ‘dual running’). Indeed in an early draft of the green paper we were to publish in January 1986 he wanted to leave open whether the rates would ever be abolished. I intervened: it had to be clear that the community charge would replace the rates entirely and not in the very distant future. The final position which Ken Baker announced to the House of Commons on Tuesday 28 January 1986 was that the community charge would start at a low level, with a corresponding cut in the rates. But the whole burden of any increased spending would fall on the community charge from the start so that there was a clear link between higher spending and higher community charges. In subsequent years there would be further shifts from the rates to the charge. In some areas the rates would disappear within three years: they would be eliminated in all areas within ten. The green paper made it clear that we were retaining capping. On the strong advice of Scottish ministers, who reminded us continually and forcefully how much the Scottish people loathed the rates, we also accepted that we should legislate to bring in the community charge in Scotland in advance of England and Wales.
THE ABANDONMENT OF DUAL RUNNING
In May 1986