15:18 - divided: - Ayes: 246 / Noes: 316 - Question accordingly negatived.
18:32 - The Committee divided: - Ayes: 232 / Noes: 318 - Question accordingly negatived.
18:49 - The Committee divided: - Ayes: 228 / Noes: 318 - Question accordingly negatived.
Helen Jones (Warrington North) (Lab)
I beg to move amendment 20, page 2, line 13, leave out ‘2013’ and insert ‘2014’.
The Chairman of Ways and Means (Mr Lindsay Hoyle)
With this it will be convenient to discuss the following: amendment 21, in clause 2, page 2, line 19, leave out ‘2013’ and insert ‘2014’.
Amendment 22, in clause 3, page 3, line 21, leave out ‘2013’ and insert ‘2014’.
Amendment 23, in clause 4, page 3, line 35, leave out ‘2013’ and insert ‘2014’.
Amendment 24, in clause 5, page 4, line 5, leave out ‘2013’ and insert ‘2014’.
Amendment 25, in clause 6, page 4, line 22, leave out ‘2013’ and insert ‘2014’.
Helen Jones
We have tabled these amendments because we are concerned about the way the Bill is being rushed through the House and, should it be enacted, the short time allowed for its implementation. Understandably, the Bill deals with difficult questions. It is not easy when dealing with local government finance to resolve exactly where the line should be drawn between central and local government, how far services should be uniform and how far we are prepared to tolerate variations in them. I accept that the Government carried out a consultation before bringing in the Bill, but the problem is that the Bill seems to reflect little of that consultation.
In addition, the Bill is being taken through the House at a break-neck pace. It was published on 19 December, just before the Christmas recess, and had its Second Reading on 10 January, which was the first day the House returned and only two sitting days later. Instead of sending the Bill upstairs to Committee, where we could have taken evidence, which we cannot do on the Floor of the House—that is the important thing about Public Bill Committees—the Government insisted that the Bill should be considered in Committee of the whole House in three days, and I think that it was originally meant to be two days.
Why are the Government so worried about taking evidence upstairs in Committee? They might be a little worried about what they could hear, because the truth is that local councils, having started to look at the Bill in detail, are particularly concerned about the speed of implementation for its provisions and are struck by the number of powers being given to the Secretary of State.
Mr Kevan Jones (North Durham) (Lab)
Does my hon. Friend agree that another possible motive for considering the Bill on the Floor of the House is the coalition Government’s botched programming of business for this Session and the fact that, were it not being considered here, there would be little to be heard in the Chamber?
Helen Jones
My hon. Friend makes an extremely good point, which I will come to in a moment.
If the Bill comes into force, one extremely complex system will be removed and replaced with another extremely complex system, without time for local authorities to prepare for it.
John Healey (Wentworth and Dearne) (Lab)
Before my hon. Friend moves on from the question of evidence, I do not want her to overlook the value of such evidence. Does she agree that democracy works better when a wide range of organisations has an opportunity to contribute effectively to our discussions? Evidence sessions in a Public Bill Committee give organisations that represent people with a wide range of interests the chance to assess, analyse and propose amendments to improve legislation. That stage will be sorely missed because of the way in which the Government are handling the Bill.
Helen Jones
I could not agree more with my right hon. Friend. Since I have entered this House, I have learned that the best way to improve legislation is to scrutinise it effectively and listen to those who will have to deal with it when it comes in. If the Government chose to take evidence, they would have ample opportunity to table amendments to the Bill in Committee or on Report.
Mr Robert Syms (Poole) (Con)
There are 650 Members of Parliament, many of whom are former councillors. There is a good body of experts in this Chamber. I welcome what the Government are doing. It allows people to have their say.
Helen Jones
I am grateful to the hon. Gentleman for that point. Although he is correct in saying that many of us have been local councillors, I point out to him, with all due deference because this applies to me as well, that many of us were local councillors some time ago and that the system of local government has altered in the time since. It would be beneficial for the House to hear from those who are running local councils now. I sincerely regret that we have not had time to do so.
Graham Stringer (Blackley and Broughton) (Lab)
My hon. Friend is making an important point. I have always found local government slightly more complicated than quantum mechanics.
Graham Stringer
Well, a lot more complicated. Does my hon. Friend the Member for Warrington North (Helen Jones) agree that the last time a Conservative Government had a major reorganisation of local government finance, they ended up putting VAT up for ever and costing the country £20 billion per year?
Helen Jones
My hon. Friend, who is a distinguished former leader of a local authority, makes a valid point. I agree with him on one thing: local government finance is exceedingly complicated. For that reason, it might well have been useful to hear in Committee from people such as finance officers in local authorities who will have to deal with this procedure from day to day. They might well have been able to suggest technical amendments that would have been beneficial to the Committee and which, if we are honest, are beyond the expertise of most hon. Members.
George Hollingbery (Meon Valley) (Con)
Will the hon. Lady remind the Committee how many months of extensive consultation the proposals for the Bill have gone through before this stage and how many changes to the scheme were proposed and then adopted?
Helen Jones
The hon. Gentleman should recognise that it is not much use having a consultation unless it informs the legislation. [Interruption.] Local authorities say that it has not. A second process, which many Members have found useful, is to allow people to give evidence on the exact wording and form of the Bill once it has been published. I believe that if we are serious about the legislation that we introduce in this House, it is right and proper to give people the opportunity to do that. People have not had time to do so with this Bill because we are not having evidence sessions in Committee. The House introduced such evidence sessions because it was believed that they would improve legislation. It is a pity that the Government have decided to miss them out.
Helen Jones
I am inundated. I will give way to my right hon. Friend the Member for Greenwich and Woolwich (Mr Raynsford).
Mr Nick Raynsford (Greenwich and Woolwich) (Lab)
Is it not very clear to my hon. Friend and to Government Members that there is something slightly odd about a Bill that is supposed to give benefits to local government arousing considerable anxiety and concern in local government, as we have seen in the briefings that we have received? Is that not clear evidence of the need for further thought and attention to the detail to ensure that we do not end up with a disaster that is problematic for local government, rather than a measure that gives greater discretion and benefits to local government?
Helen Jones
My right hon. Friend makes a very good point. In delivering local services, we are meant to be partners with local government. It is right and proper that the House has an opportunity to take on board the views of local government on the legislation.
As my right hon. Friend is a London Member, perhaps I may read out what London Councils says:
“The retention scheme as written is extremely complex and does not, in our view, incorporate adequate reward and incentive for local authorities. London Councils believes that the Government needs to urgently rethink the business rate retention scheme that it has set out in the Bill.”
If we had had a proper Committee stage upstairs, we could have taken evidence on that matter, considered technical amendments and debated them properly. It is a shame that we are not doing so.
Chris Bryant (Rhondda) (Lab)
I agree with my hon. Friend completely. We are only doing things in this way because the Government do not have enough to fill our days. Since we have the innovation of the whole Committee stage on the Floor of the House, could we not have another innovation of having witnesses before us? There is a special place for them at the Bar of the House. We could devote one day, or perhaps additional days, to hearing exactly what those in local government think about the legislation.
Helen Jones
My hon. Friend, as usual, makes an interesting point, but he is tempting me to go beyond my remit and discuss the procedures of the House. Perhaps the Procedure Committee could look at that point.
John Healey
Before my hon. Friend moves off the question of procedure, does she agree that it is important that we do not lose sight of the fact that the introduction of evidence sessions as part of the Public Bill Committee process, as opposed to the Standing Committee process, was one of the good reforms of the previous Parliament? The hon. Member for Poole (Mr Syms) is right that there is useful expertise across the House from Members with a background in local government. However, unlike the previous consultation and the public statements of Ministers, evidence sessions would give members of the Committee and Members who are following the legislation time and help in getting to grips with the content of the Bill. It serves our purpose, as well as the wider purpose of better legislation, to have those evidence sessions and not to put them to one side, as the Government are doing in this case.
Helen Jones
My right hon. Friend is right. We do have a lot of expertise across the House, but we need up-to-date and informed expertise, which is what evidence sessions give us.
Graham Stringer
On a point of order, Mr Hoyle. I was interested in what my hon. Friend the Member for Rhondda (Chris Bryant) said. Will you advise the Committee on how it could hear from witnesses in its sittings on the Floor of the House?
The Chairman of Ways and Means (Mr Lindsay Hoyle)
There is no procedure to do that in Committee of the whole House. Mr Bryant was taking the hon. Lady away from the subject that is before us.
Helen Jones
I will just make a little progress.
Councils are expected to prepare for the changes that the Bill will bring in without knowing exactly what they are preparing for. This is an enabling Bill and we have not seen any draft regulations to go with it. In the Government proposals, there is no guarantee that councils will not be worse off after the first year of the scheme. Councils do not yet know what percentage of business rates they will be allowed to keep. They do not know how the levy will be set, nor who will qualify for a safety net payment and in what circumstances. They do not know what their business rate baseline will be.
Bill Esterson (Sefton Central) (Lab)
My hon. Friend is making an incredibly important point, which cuts to the heart of the matter. The Government say that they are in favour of localism, yet they have created a Bill in which the Secretary of State retains many powers. As my hon. Friend says, those powers are not defined, so it is not clear whether local government will keep business rates and how much it will keep, or whether and when the Secretary of State will intervene.
Helen Jones
My hon. Friend makes a powerful point. As the Bill progresses, we will table amendments to attempt to clarify some of those matters. However, at the moment, local authorities are in the dark about what they will deal with next year, if the Bill is passed.
Alison Seabeck (Plymouth, Moor View) (Lab)
As with so much legislation under this Government, whether in Committee or on the Floor of the House, we are being asked to consider the Bill blind. We are not given the background information that we need—for example, the national planning policy framework in the case of the Localism Bill. Does my hon. Friend agree that the Bill, like so much current legislation, is therefore likely to form part of the logjam in the other place at some point further down the line? The amendment makes enormous sense, because the last thing we want is legislation stuck in the other place, and, in this instance, for the timetable to be missed.
Helen Jones
My hon. Friend makes an important point about our not seeing the draft regulations. It is difficult to debate the Bill properly without them and it also makes matters difficult for local authorities. Moreover, the measure is a carry-over Bill. The Government have got themselves into such a mess with their legislation backing up in the Lords that they cannot, even with the extended Session, guarantee that the Bill will get through before the Queen’s Speech.
Chris Bryant
May I pull up my hon. Friend on one point? She referred to councils, but she means councils in England. Is there not a particular irony here, in that the Conservative party has spent the past few years campaigning for English votes for English folks in the House, yet by holding the Committee stage on the Floor of the House, Welsh Members of Parliament are almost required to take part in the process when otherwise they would not be allowed to do so?
Helen Jones
My hon. Friend makes an interesting point, although I have never known him to need any pushing to take part in any process in the House—thankfully, because he contributes so much.
The Bill is hugely complicated, local authorities do not know what faces them, and the measure will not get through until the next Session. On the Government’s timetable, the Bill must get Royal Assent by July. That means that regulations may not be put before the House until after the Bill has finished its passage. The House will rise earlier than usual this year because of the Olympics, which means that they may not be put before the House until the autumn. That causes real difficulty for local authorities, because it leaves so much uncertainty about what they will have to deal with.
John McDonnell
I feel a bit like Banquo’s ghost in this debate because I was chair of finance on the Greater London council, whose expenditure tipped Mrs Thatcher over the edge and into nationalising the business rates. There are real problems with the complexities of the Bill, as set out in the briefing from London Councils. It is difficult for individual Members of Parliament and individual local authorities to work out the implications for one’s area. Although we cannot receive witnesses on the Floor of the House, as the Deputy Speaker said, the Government have introduced a procedure whereby we can pause a Bill to enable us to undertake further consideration and consultation with the relevant interested parties. Perhaps the Government could consider that at some point during the day. We might want to pause the Bill and come back to it later, after more detailed discussions with interested parties.
Helen Jones
I am grateful to my hon. Friend for reminding us of two things: that a Conservative Government nationalised business rates and the idea of a pause. The Government are in such a mess with most of their legislation that the whole lot could probably do with a pause while they rethink.
Let me revert to the uncertainty for local authorities. They have made it clear that they are concerned about the short time they will have, following the passage of the Bill and the regulations that go with it, to make changes to their systems. London Councils said:
“All of these changes will require substantial changes to systems and processes at the local level, and we are extremely concerned that not enough time is being allowed for all of these policies to be properly thought through and implemented.”
I could not put it better myself.
Local authorities are being asked to cope with not only changes to non-domestic rates, but the localisation of council tax benefit at the same time. That will require new IT systems, which are unlikely to be ready, and more changes to local council revenues.
Alison Seabeck
There are only three, possibly four companies in the UK that are capable of producing the sort of software that local authorities might require. Clearly, they will have a capacity problem if they are faced with hundreds of local authorities wanting individual systems. That is concerning.
Helen Jones
My hon. Friend is right—there will be a capacity problem. Again, it would have been useful to hear witnesses from the relevant companies and consider the time scale they need.
Councils will also have to cope with changes to their revenue. It is likely that some people who receive a cut in their council tax benefit will not be able to pay, and collection rates will fall. That will affect some local authorities far more than others. The change also brings with it the possibility of more claims, because we are moving from perceiving something as a benefit to its appearing as a reduction in the council tax bill. All those with expertise in benefits say that it is likely that more pensioners will claim. That is a good thing, but local authorities need time to adjust their budgets because they face a 10% reduction in the amount of money available, coupled with protection for pensioners, and the possibility of more claims.
Mr Raynsford
My hon. Friend is making a powerful case. She is considering the changes to the benefits scheme and she highlights the fact that an increase in pensioners’ claims as a result of the changes would be a further problem for local authorities. Indeed, it will be a major problem for them, because they will not receive the funding to pay for it that they get under the current benefits scheme. They are being asked to budget in advance, with all the uncertainties, knowing that the downside risk remains with them if the financial position is not as good as they thought when they budgeted. There is no safety net in the benefits part of the system for authorities that find themselves in difficulty. That is a fundamental problem, which is arousing real concern in local government circles. It is extraordinary that the Government are not giving an opportunity for those serious problems to be understood.
Helen Jones
My right hon. Friend is, of course, right. Throughout the Bill, financial risks are transferred to local authorities. The Government set the system but transfer the financial risk elsewhere.
Let me return to the problems with IT systems. Earlier, my hon. Friend the Member for Plymouth, Moor View (Alison Seabeck) mentioned that only a few firms provide those systems. Interestingly, Capita has sent an e-mail to benefit and council tax managers to set out its concerns about the timing of the system. The manager who sent the e-mail writes:
“I think the most important point to make is that I remain concerned and disappointed that the timetable remains unchanged meaning that primary and secondary legislation will not be passed until the summer / autumn / winter 2012. Without the framework and detailed regulations underpinning both the local schemes and means for ensuring that pensioners now and in the future remain protected or treated equally, it is impossible to commence planning for software changes.”
That is the system with which the Government are expecting local authorities to cope.
There are other changes in the Bill—provisions on tax increment financing, on the rating of empty properties, and on exemptions from the scheme for renewable energy projects—for which local councils need time to plan, adjust their budgets and rethink the way they do things. Those measures require changes to how councils organise themselves and changes to IT systems. Many local authorities are making it clear that they believe the Bill does not give them sufficient time to prepare for those changes.
May I make a suggestion to the Minister—it is meant to be a helpful one? I try to be helpful occasionally even if the Whip is giggling away. Why not run the proposed system as a shadow system for one year to see how it works and iron out the glitches? Why not continue with the old system for a year but give local authorities an indication of what they would have received under the new system? That would allow any problems to be ironed out and the system to work properly.
Above all, the Opposition are saying that Ministers ought to take note of the people who must implement the changes on the ground—the people who collect the rates, who design the systems, who administer council tax benefit and deliver the services. If the Government rush the implementation of the Bill and it all goes wrong, chaos could result. They need to take the opportunity to test the system properly and to think things through. If they insist on introducing this hugely complex system, they need at least to give themselves time to run it properly and ensure that local councils can adapt their systems properly. That is why I have moved amendment 20 today. It might be helpful if I tell the Committee at this point that the Opposition intend to press the amendment to a Division.
Mr Syms
I, too, have been an Opposition politician. Opposition politicians often argue that Bills taken on the Floor of the House really ought to be taken in a Public Bill Committee; and when there is a Public Bill Committee, they argue as eloquently as possible that the Bill ought to be taken on the Floor of the House. When Opposition politicians are not sure what to do about a Bill, one thing they say is that it has not been considered for long enough. They then try, as amendment 20 does, to delay the commencement date, because that is a good substitute for hearing their views on such reforms. If they can press an amendment, such as amendment 20, to a Division after a debate, that is very good, because in that way they cannot discuss some of the important issues in, say, schedules 1, 2 and 3. Perhaps we will end today not quite knowing where the Opposition are on some of those issues.
The reality is that we probably have the most centralised system of local government in the western world. The Bill is a step in the right direction for devolving power. Perhaps it does not go far enough, but we will doubtless see as the Committee progresses over its three days what assurances we get from the Minister on the pace at which the Government are going.
I am confident that the Government’s instincts are right. My experience of local government officials is that they must always second-guess central Government. Some are pretty good at it. Rather than prevaricating, if we are to change the system, the sooner we do so, the better. I therefore support my hon. Friend the Minister.
Mr Kevan Jones
The reason the Bill is being taken on the Floor of the House is that there is no business—the business is in a logjam up in the other place.
It is important that the Bill gets detailed scrutiny. As my hon. Friend the Member for Warrington North (Helen Jones) said, in a Public Bill Committee, we would have been allowed not only to scrutinise the Bill, but to take evidence from councils, professionals and others with such expertise. We will not have that opportunity. As one who sat on one of the very first pre-legislative scrutiny Committees back in 2001—it was on the Civil Contingencies Act 2004—I was converted and became a great fan of such pre-legislative scrutiny. That Committee was given the chance to look at the proposals in detail, and as my hon. Friend said earlier, the Bill will bring about a radical change in local government finance in this country.
We had just over three hours last week on Second Reading.
Mr Jones
As my right hon. Friend says, we had two hours on Second Reading for Back Benchers. What we will see with this Bill is what we have seen with a number of Bills. They fly through the House at the speed of light only to land in the other place to be picked apart slowly but surely because of their terrible drafting and the draconian implications they will have for many of our constituents. I can foresee exactly what will happen with this Bill. When we look at the next few weeks of business programmed for the House, we can see that we could have unlimited time to debate the Bill, but time will be limited, and the Government will push the Bill through with undue haste because they are determined to do so.
As has already been said, the time scale set out in the Bill leaves councils with a huge dilemma, which is why I support amendments 20 and 21 to 25. I said this on Second Reading, but I will say it again: the Bill is highly political in the sense that the Government are shifting blame from themselves to local councils under the guise of localism. A good example of that in the Bill is the administration of council tax benefit. The measure contains a poison pill. Local councils must defend their decisions on implementing a 10% cut locally. Clearly, the Minister and the Secretary of State will turn round and say, “It’s not us, Guv; it’s local councils.” That has been the Government’s approach to responsibility throughout. It is nothing to do with localism; it is a highly political and cynical attempt to deflect the blame from where it should lie—it should lie with the Government, not local councils.
John Healey
My hon. Friend makes an important point that counters the assertion of the hon. Member for Poole (Mr Syms). He said that Opposition Members argue that the Government are going too far too fast with the Bill because we do not know what to say about it. Does my hon. Friend agree, to the contrary, that the local authorities that must implement the Bill are worried about the rapid time scale? Authorities in Yorkshire and the Humber have told us that they are concerned about
“the rapid timetable for these reforms, given the huge levels of complexity involved and the radical implications they will have on councils’ ability to fund services to local communities”.
That is why my hon. Friend the Member for Warrington North (Helen Jones) was so right to table the amendments.
Mr Jones
I agree totally with my right hon. Friend. The Bill also has the backdrop of councils having to introduce draconian cuts—County Durham must take £125 million out of its budget over the next four years.
That is alongside the uncertainty in the Bill. Neither hon. Members nor councils know about the regulations, and they will not know exactly how the rebate system will work. When they are budgeting for future years, it is important that councils know what they can do. The time scale in the Bill means that they are walking into the new arrangements blind. They do not know what they must deduct, because we do not have the regulations before us.
George Hollingbery
Having spent 11 years as a local councillor, I can reflect on the fact that in almost no year that I can remember did we have any certainty about our finances. It was all entirely settled by national Government through an incredibly complex system that nobody understood. I am stretched to understand why the hon. Gentleman thinks the new system will be any more confusing.
Mr Jones
I do not know when the hon. Gentleman left local government, but we introduced three-year budgeting, which helped local councils. I agree that under the old system, when I was a councillor in the days when the Tories were last in government, the biggest problem for councils was having to guess what their annual budget would be. I am not sure whether three-year budgets were introduced by my right hon. Friend the Member for Greenwich and Woolwich (Mr Raynsford), who is in his place, but they gave councils some certainty. The Bill will add more uncertainty. Councils will be asked to second-guess what the system will be, and we will have no opportunity to scrutinise it before it becomes law.
Andrew Gwynne (Denton and Reddish) (Lab)
It is precisely that uncertainty that is unsettling a number of local authorities, including Tameside metropolitan borough council in my constituency. Had we had the opportunity to scrutinise properly the impact of the Government’s changes on various local authorities as part of the process of deliberating on the Bill, we would have been able to assess the winners and losers across the country. Despite the picture that Ministers paint that everybody is a winner and nobody is a loser, the reality is quite the contrary. Over the coming years, as the new mechanism operates, the gap between authorities that win and those that lose will widen. I believe that areas such as mine, and no doubt my hon. Friend’s, will be the losers.
Mr Jones
I agree, and that uncertainty will be a problem not just because councils will not know what the rebate is going to be. It is quite clear that Durham is not going to gain from the new system, and it was interesting to hear the Secretary of State and the Minister say last week that the area would be a net gainer. However, the Secretary of State failed to tell the House—he is very good at that—that he was referring to the last five years’ figures, for some of which time the economy of County Durham was growing. Now, under the coalition Government, it is—
Mr Jones
It is not at all. If the hon. Gentleman comes to my constituency and says that to the 21% of young people who are unemployed, I am sure they will find it very amusing. It is quite clear that given the economies of regions such as the north-east, if local authorities do not know what their compensation will be, they will not be able to make plans.
It is interesting that Government Members seem quite quiet this afternoon, including the Liberal Democrats, who claim to be the party of local government.
Mr Jones
No, and that is possibly because they will have to explain to northern councils why they are supporting measures that will have a terrible effect on their budgets. They sidestep that issue and say that it is all because the matter is covered by the coalition agreement, and then we have the usual deathly silence from them. We need to remind all our constituents on every possible occasion that such draconian cuts could not be got through the House without the support of the Liberal Democrats.
Annette Brooke (Mid Dorset and North Poole) (LD)
Would the hon. Gentleman like to tell the House whether he agrees with the principle of local authorities retaining more of their business rates? That is what we are meant to be discussing, and I would very much like to hear his view.
Mr Jones
I think the hon. Lady represents Dorset, and there is a big difference between Dorset and parts of County Durham. Even though there are some very beautiful parts of County Durham, I am sure that Dorset’s economic activity shows it to be far more affluent than parts of County Durham. I support local decisions being taken at a local level, but I do not support a system in which her constituents in wealthier areas will gain at the expense of constituencies such as mine that need support for economic development.
What we heard last week on Second Reading from Government Members was absolutely disgraceful. Conservative Member after Conservative Member referred to local councillors not being interested in economic development. I have to say that I have never yet met one who does not want to increase the economic vibrancy of their area. They put a lot of effort into doing that, and such comments show again the prejudice of Government Members.
The changes to council tax benefit will be a nightmare for councils not just because of the localisation of the system but because of its top-slicing—
Mr Jones
I am sorry, but I think you are chairing the Committee, Mr Amess, not a Liberal Democrat Member who usually has very little to say, and frankly when he does it is not very interesting.
I am talking about the time scale of what is being introduced. We will have to work out the methodology of how the funds are to be distributed. We hear, for example, that pensioners are not going to be included, which will have an effect on some poorer councils, such as the eastern part of County Durham, with large ageing populations. The time scale for the system’s introduction is very limited, and there is uncertainty about exactly how it will happen. Instead, the Bill should have included the schedules, procedures, mechanisms for redistribution and so on.
Christopher Pincher (Tamworth) (Con)
The hon. Gentleman seems to be arguing that because there is uncertainty, the Bill should be delayed. May I remind him of the words of the chairman of the Local Government Association, which I am sure he has read? He stated:
“The current system of funding local government is incredibly complex and does not meet the needs of all the people we serve.”
He also said:
“Now more than ever, we need to put in place a funding system that will support local public services and generate economic growth.”
Is that not an argument for progressing more quickly rather than for delaying?
Mr Jones
The Conservative party needs to learn lessons, because every time it has dabbled in local government finance it has got its fingers burned. The hon. Gentleman talks about the current system being complicated, but the proposals in the Bill cannot exactly be said to be very simple, and it is clear that it will centralise power into the hands of the Secretary of State and take it away from local councils.
Mr Raynsford
We have heard a rather partial and not very accurate account of the LGA’s view. Perhaps the hon. Member for Tamworth (Christopher Pincher) has not read its briefing. I will not go into the details, because interventions must be brief, but it states that
“the LGA supports amendment 60 which would postpone the introduction of the scheme by 12 months.”
Graham Stringer
None out of ten to the hon. Member for Tamworth (Christopher Pincher).
Christopher Pincher
One fact that is absolutely undeniable is that Durham’s business rate growth has been greater than the national average, so the Bill will help the hon. Gentleman’s constituents, not hinder them.
Mr Jones
I am sorry, but when the hon. Gentleman gets his briefing notes from Conservative central office or wherever, he should perhaps examine how the figures are presented. The Secretary of State is very good at presenting figures. They are actually the figures for the past five years, when we had a growing employment base in County Durham.
Mr Jones
Indeed. Now, we see that the latest unemployment figure is nearly 7.8% for my constituency and nearly 12% for the north-east in general, and businesses are closing. Is the hon. Member for Tamworth (Christopher Pincher) saying that those businesses are somehow going to grow over the next few years as a result of this measure? In fact, councils will lack certainty about how much they will get. The local authority is one of the biggest employers in County Durham, but there has been a reduction in the numbers of people. I think the policy is that by cutting back in local government and public services, all these new jobs will rush forward from the private sector, but today’s figures show that 67,000 people have left the public service in the last quarter, while only 5,000 jobs have been created in the private sector.
As I said on Second Reading about my constituents in the north-east, the Bill will actually help the affluent south. Clearly, it is a damn sight easier to attract business to the likes of Westminster and other economic hotspots in the south-east of England than to parts of County Durham. That is no criticism of the work that local councils do to attract jobs—for instance, with the council’s full support, the area has succeeded in attracting Hitachi trains to Newton Aycliffe in County Durham. I know of the tremendous work that my hon. Friend the Member for Sedgefield (Phil Wilson) did on that campaign.
The Bill is being rushed through with undue haste. We are expecting councils and local people to walk blindly into the future. The parties in government sometimes try to portray this as a simplified system, but it is not; it will be a centralised and bureaucratic system. We cannot allow a situation to develop in which local people or local government do not know how much money they will get or how the system will work in practice.
Andrew Gwynne
Is not one merit of pausing, delaying and taking stock of the changes that it would allow us to get the baseline starting point absolutely right for each local authority, which is crucial, and is it not the case that using the 2012-13 formula grant model, including the damping, to determine the baseline will, for local authorities such as mine in Tameside, lock in the funding losses arising from the damping exercise and the disproportionate reduction in funding from the 2011-12 and 2012-13 settlements?
Mr Jones
Yes. That would have come out had we had proper pre-legislative scrutiny in Committee. It is the same for County Durham. Under the funding settlement introduced last year by the Conservatives and Liberal Democrats, County Durham lost about £10 million. That will be in the system for ever more now because of the measures in the Bill. Surprisingly, Wokingham council, Surrey council and many others gained from the system. That injustice will be written into the Bill for ever.
Mr Mike Hancock (Portsmouth South) (LD)
I declare an interest as a member of Portsmouth city council and the executive member for economic development. The hon. Gentleman states that the Bill will greatly damage local authorities. Will he reflect on why, over 13 years, the previous Labour Government, who received similar complaints from local authorities, did little or nothing to assist them by putting local finance on a proper footing?
Mr Jones
That is not true. We did. We had a three-year settlement and an increase in the settlement. Through the regional development agency in the north-east, we were putting money into areas such as Country Durham so that they could work with local councils to attract new businesses. I know that the hon. Gentleman does not necessarily agree with everything that the coalition does, but unfortunately, in places such as the north-east, it is taking away the main driver, the RDAs, that local councils could work with to attract more businesses to the north-east.
Mr Hancock
My recollection of those years was that money was taken away from the city of Portsmouth, where there was high unemployment and great deprivation, and that the benefits went to places such as County Durham. We felt for a long time that the formula was very unfair and we campaigned to get it changed, but the Labour Government turned a deaf ear to the pleas from authorities such as Portsmouth which were trying to make a rational case for equalisation and a much fairer distribution.
Mr Jones
But Portsmouth council received a year-on-year increase in its grant. It is interesting to hear a Liberal Democrat argue that deprivation should not be important to how local government money is spent. I would not be surprised to hear that from the Secretary of State because, frankly, I do not think that he cares—for instance, his support for his own Conservative areas at the expense of areas such as the north-east is highly political.
Mr Jones
Exactly. Not for the first time, some of those chickens are coming home to roost. Hopefully, we will have fewer Liberal Democrat “Focus” leaflets claiming credit for everything that goes right and criticising everything else that the previous Government did. Some of those northern councils had Liberal Democrats, but thankfully, in places such as Newcastle and Sheffield, the electorate have seen through them.
In conclusion, the timetable for the Bill needs to be rethought. As suggested by my hon. Friend the Member for Rhondda (Chris Bryant), if we can take witnesses at this stage, we should consider doing so, because otherwise the same will happen as has happened with a lot of Bills this Session: the Bill will be rushed through here only to be held up in the other place, where the ladies and gentlemen will give it the proper scrutiny that it deserves.
Mr Ward
I want to make just a few comments. I also consider it regrettable that the Committee stage is being taken here and not in one of the Committee Rooms. The quality of debate might have been better in that environment.
I am sympathetic to the amendments on deferment. I want to discuss that point in particular. After many, many years of seeking the change for which most in the House have called, we have before us a radical and important shift in the relationship between local government and central Government, but we face a potentially enormous change of not just a financial nature but a constitutional nature. One of the concerns that I guess we all share is about the unknown consequences of the redistributional impact.
Yes, there are tariffs and top-ups, and we welcome the application of the retail prices index to the baselines for business rates and local authority funding—that is welcome—but actually local government finance is not too complex. Yes, the formula and weightings are complex. We all know about the complexities of what goes into the computer and the figures that come out, but its purpose at the moment is actually pretty simple: to redistribute funds to authorities on the basis of need. That is pretty simple. But we are moving from that system to a new system.
We all welcome, I think, the principle behind localisation. The trouble is that, with many of the things we are facing, the easier it is to accept something in principle, the more difficult it is to challenge the consequences. Because we are talking about such a strong principle, which many of us hold, we are willing to accept some of the consequences, or potential consequences, when we are not fully aware of what they will be. There may or may not be a change if we move from a system based on the allocation of funds by need to one based on allocation by growth in business rates. However one thing we do know is that if things go wrong, it must, by definition, be one that, with the total pot—
Mr Ward
Let me just finish; I shall not be much longer.
I understand all the measures that are built in, but if the total pot is the same and there is a redistribution, it must be to the disadvantage of the beneficiary authorities that receive most of the formula grant. That is a concern, and although it might not affect those authorities for the first few years, because of the baseline protection, the unknown consequences—
Mr Ward
Let me just get through this.
The Bill is not too complex. One of the arguments against having witnesses—it would have been useful to do that—is that we will get the opinions of only those witnesses. The truth is that nobody knows what the outcome of this will be, because it is dependent on the growth in business rates, while the strategy of rebalancing the economy will have implications for different parts of the national economy.
John Healey
On a point of order, Mr Amess. Any written evidence submitted to a Public Bill Committee, and not just the oral evidence taken in its opening sittings, will be circulated to all members of that Committee. May we have your guidance, and then the reassurance of the Minister or the House as appropriate, that any written evidence submitted to this Committee of the whole House will be circulated to all Members, who may all have an interest in participating?
The Temporary Chair (Mr David Amess)
The Standing Order on written evidence does not apply to Committees of the whole House, so I am afraid that I shall have to disappoint the right hon. Gentleman.
Mr Mike Hancock
Further to that point of order, Mr Amess. Is it not possible for the House itself to decide that it would be appropriate for evidence supplied to this Committee to be circulated to all Members?
The Temporary Chair
I hear what the hon. Gentleman has said, and I think that this is something that could be considered on another day. Perhaps it is something that we could put to the Procedure Committee.
John Healey
Further to that point of order, Mr Amess. As the Chairman of this Committee, you will have noticed that the programme order suggests that there will be at least two more part-days for our proceedings. Will you do your best to ensure that the suggestion made by the hon. Member for Portsmouth South (Mr Hancock) is put to the right authorities, so that, if agreed, a decision can be put in place for the final two of these three days in Committee of the whole House?
The Temporary Chair
I will reflect on the point that the right hon. Gentleman has made, and obviously those on the Treasury Bench have heard it. What is proposed might not be possible because of time constraints, but I will certainly reflect on it.
The Temporary Chair
Order. I would remind all hon. Members that this is the mother of all Parliaments, and we conduct ourselves in a civilised way. I am aware that something has been happening that is outside what is normal debate, but I would ask hon. Members please to calm down.
Mr Ward
The issue that I want the Minister to consider is not so much to do with the resets—whether they should be every 10 years or every three years—because the reset implies that something needs changing, and the truth is that we do not know whether anything will. What is much more important, as we venture into the unknown, is how quickly everything is reviewed. That might be after one year, or two years, and not necessarily the three years proposed by the amendment. We need to have clear evidence as soon as possible about the impact and the consequences of what is proposed in the Bill.
Heidi Alexander (Lewisham East) (Lab)
I am grateful for the opportunity to speak in this debate, Mr Amess. I just want to pick up on the point made by the hon. Member for Bradford East (Mr Ward) about the principle of this Bill. I think that he said that most people in the Committee agree with it. I agree with the principle that local authorities should do all they can to promote economic prosperity and growth in their areas. I am not sure that I necessarily agree with the principle of retention and localisation of business rates, although I will not repeat my concerns about that point, which I expressed on Second Reading last week.
I support the amendment tabled by my right hon. and hon. Friends on the Front Bench, because it is overly optimistic, shall we say, of the Government to think that they will be able to get this legislation through and that councils will be able to put the requisite systems in place to introduce the new system of finance in 2013. If we are to have this new system, the commencement date should be moved back, to 2014.
Last week on Second Reading we heard a lot about how the issue of local government finance had been much debated and how the previous Government commissioned the Lyons review. We had an historical “tour de force”, going through the history of local government finance, even referring to the work of Layfield in the 1970s. Government Members seemed to suggest that there was a case for just getting on and doing something to localise business rate retention, but doing something for the sake of it is not the same as doing something because it is the right thing to do and because it will work. The complexity of the new scheme that is being proposed will not make the system of local government finance any more transparent to local councils and councillors, or even the general public, because what we have before us is a system with a whole range of baselines, tariffs, top-ups, levies, set-asides and safety net payments.
Andrew Gwynne
My hon. Friend mentioned the issue of setting the baseline. It is absolutely crucial that we get that right, so that local authorities are not put at an immediate disadvantage. She talked about the tariffs and top-up system. However, the introduction of the new system is also predicated on every local authority in the country having the same council tax base and the same ability to raise income from council tax if it faces a reduction in its business rates. Local authorities such as Tameside—where more than 90% of the properties are in band A or B—do not have the same ability to raise extra income from council tax, should they lose out on the business rate formula.
Heidi Alexander
My hon. Friend makes a very fair point, and if I am correct, those on our Front Bench have tabled amendments for debate later that deal with exactly that point.
We need to take longer to scrutinise the Bill and for the proposals within it to come into force, because I would contest that this Government do not know whether they are coming or going in relation to local government finance and the retention of business rates, or how this proposal will stimulate growth in local economies.
Mr Kevan Jones
What is clear from the Bill is that the Secretary of State will not only retain but increase his powers to interfere in local government finance. The question of how a future Secretary of State should use those powers will be of great concern to many councils.
Heidi Alexander
I think it will be, and that very point was made last week. The Government claim to be localising but they are, in effect, centralising.
I thought one of the most telling points on Second Reading last week related to where the Government are coming from with this Bill and what they understand local authorities to be doing to promote economic development. The most telling point was when the shadow Secretary of State stood up to expose this Government’s inconsistencies on what local authorities are doing currently. He pointed out that one document published by the Government said:
“We know that local authorities are keen to grow their local economies”,
while another said:
“local authorities are generally reluctant to...promote economic growth”—[Official Report, 10 January 2012; Vol. 538, c. 91.]
The Government are speaking with a forked tongue on this issue, and if the rationale is not clear, why are we going through this process of rushing to get this measure on the statute book and forcing local authorities to implement a scheme that might not have the impact on local economic growth that the Government want?
I think the Government are unclear about what local authorities are doing now to promote economic development, and I think they are unclear about the impact of their own cuts on economic development services in councils, which, as we all know, are a non-statutory service. I know that difficult decisions are having to be taken. My local authority lost a town centre management team, which was a liaison point between the business community and the council. That happened precisely because the Government imposed unfair cuts on local authorities in Lewisham to the tune of £80 million over the next three years out of a £270 million revenue budget.
When the Secretary of State came before the Select Committee in September last year, I questioned him closely about what he anticipated local authorities would do differently from what they are doing now to encourage economic growth and development in their areas as a result of this proposal. I argued that these measures were being rushed through, that we need more time and that the Government need to be clearer about what they are doing. Let me share with the Committee what the Secretary of State said to me when I questioned him in the Select Committee. I had to question him three times. I was asking a specific question about what local authorities would do differently. The Secretary of State said:
“I think they would see the reward.”
I said:
“No. What would they do?”
He then said:
“Please do not badger me like this; I am a sensitive man.”
[Interruption.] Well, the Minister says that it was a joke, but I can tell him that the Secretary of State’s following paragraph most certainly was a joke. To be honest, it was a complete load of nonsense. The Secretary of State could not answer my question, and he started to talk about sea shanties. I think this cuts to the heart—[Interruption.] I know, it was mad; I could not fathom it at all, to be honest.
My point is that Ministers are not clear about what they expect local authorities to change as a result of the new system of local government financing. They may have started with the best will in the world, but we have a hugely convoluted and complex system that, as I said earlier, contains a whole series of assumptions about baselines, about which authorities are tariff authorities and which are top-ups, about how much the set aside is going to be and for how long it will apply, about how much the levies will be, about who decides on what counts as disproportionate gain, and so forth. The position we are left in is vague, opaque and no clearer than under our current system.
John Healey
My hon. Friend is making a powerful case about the volatility, the unpredictability and the rogue factors that can throw out revenue from a business rate base. Is not the real argument for delaying the commencement of these provisions connected to that, combined with the fact that 2013-14, when this system is supposed to come into place, is also year three of local councils having to deal with the spending review settlement introduced by this Government? The finances are very tight, so predictability and certainty will be key to councils planning their way through that. Those are the really powerful arguments that my hon. Friend is making to justify putting back the commencement, as recommended by our Front-Bench team.
Heidi Alexander
My right hon. Friend expresses the case incredibly well; I agree with everything he said.
Have we not seen examples in this Parliament of the Government taking a pause—taking a break—and saying, “This is quite a complex piece of legislation”? I am referring to the Health and Social Care Bill. While this Bill might not be as sexy—I do not really think that the proposed changes to the NHS are in any way sexy; indeed, I think they are destructive and very controversial—these proposals are very controversial as well. I suggest that the Government pause and listen to what local authorities are saying.
John Healey
My hon. Friend amplifies her case. On Second Reading, she told the House something from which this Committee would benefit. I believe she pointed out that the ninth largest business in her borough was the local police station, while the biggest business rate payer was a business with a small office above a bowling alley, which happened to be the national headquarters of a national firm. That illustrated perfectly how contingent a local council’s business rate take is on accidents and other contingencies of business location and so forth. It showed how unpredictable and volatile the business rate stream can be.
Heidi Alexander
I was not going to repeat my comments on Second Reading, but my right hon. Friend tempts me into reiterating some of my remarks about the differing ability of different councils to promote and develop their local economies. Sometimes the business rate take will be dependent on a whole range of different things, not just on what a local authority is or is not doing. I suggest that Ministers go back to their geography lessons and learn what we all learned at school about why businesses locate in different parts of the country and how success can breed success so that areas with a large business rate are likely to grow much faster than those with a smaller rate. I know that the Government propose to check disproportionate growth and the effect of having a larger business base to start with, but it is undoubtedly the case that different parts of the country have different abilities to attract and grow businesses.
The Government’s policies are making those differences even more explicit. Last year saw the National Insurance Contributions Bill, which gives a national insurance holiday to small businesses that are starting up outside London and the south-east, so it is not really a level playing field for local authorities. A small business setting up in, say, Middlesbrough or Birmingham might be able to get a tax break, while a similar business setting up in Lewisham might be operating in exactly the same type of area, employing exactly the same number of people with the same turnover and the same profit margins, yet not get such a break. Is that company as likely to locate in an area where there is a tax break as in one where there is not, like London?
Alison Seabeck
My hon. Friend makes her point well. The Government’s left hand does not know what their right hand is doing. Let us consider transport policy and the potential impact of transport infrastructure investment in benefiting one area over another. No high-speed rail link is proposed for Plymouth, for example. Even though Plymouth is struggling and needs good transport interconnections, the money is not going there. Such issues are hugely important in businesses’ decisions about where to locate or expand.
Heidi Alexander
I completely agree with my hon. Friend. I tried on Second Reading to make some of those points. Local economies grow because of a range of factors, including transport and the availability and type of land—it is not all about what a local authority is doing. One can argue that a local authority should foster economic growth through its planning policies and decisions, but the vast majority of councils across the country do that already. The partial retention of business rates will not stimulate local authorities to think, “Hang on, we need to look at our planning policies to decide what more we can do to foster economic growth.”
George Hollingbery
As I mentioned on Second Reading, I had exactly that reaction from Havant borough council, which is by no means a wealthy council. When I explained the changes, it was enthusiastic and said explicitly, “We will now have to re-examine how we plan. We will have to think about what we will do to stimulate business.” It was excited and believed that the proposal would make a difference to its policies towards businesses in the local area.
Heidi Alexander
I have not had the same reaction from my local authority, although the hon. Gentleman and I represent very different parts of the country. If the Government’s proposal prompts local authorities to think more positively about what they can do, that is all well and good, but it is not the whole answer. I would also urge caution, as developments need to be appropriate. The benefits of increased business rates as a result of new commercial development, arguably in unsuitable locations, might drive more local authorities to grant planning permission for unsuitable developments. We need the right development in the right place, with local government financed in a way that allows it to provide the services needed by the local population.
Andrew Gwynne
My hon. Friend is getting to the heart of why a pause is needed for deliberation on the possible impacts across the country of such far-reaching changes: some local authorities might have an over-reliance on one sector in developing economic regeneration plans. In my local authority, Tameside, the largest business rate take is from IKEA, the second largest is from Morrisons, and the third largest is from the Crown Point North retail development in Denton. The three main beneficiaries of the proposal would therefore be retail developments. There is no capacity for more retail on such a scale in Tameside without destroying the market across Greater Manchester, of which Tameside is an integral part.
Heidi Alexander
My hon. Friend is right to ask whether the proposal will result in the development and business growth that the country needs. There are only so many supermarkets and out-of-town retail centres that the country needs. It was suggested on Second Reading that the kind of economic growth that we would ideally like has a lower business rate take. In my constituency, I am struck by the small companies that start up in people’s homes—Lewisham does not have large tracts of land where businesses are located. The Government need to think hard about the development that the proposal would stimulate. I support the amendment.
Mr Mike Hancock
Like many Members, I was disappointed by how the proposal has been handled. One reason why I voted against the Bill on Second Reading was that I felt it unfair that something as important and precious as local government should be treated in such a cavalier way. Rather than being dealt with on the Floor of the House, a Bill of such size warrants close scrutiny in Committee, including oral evidence sessions. I am delighted, Mr Amess, that you are prepared to take to the usual channels the important proposal that the evidence that has been submitted should be offered to all Members of the House.
During my 40 years’ experience of local authorities, every Government have used local government as an excuse. Time after time, they have talked about devolving power, but they have devolved nothing more than blame, and responsibility without resources. That has plagued local government for four decades. I regret that once again a matter as important as the future of local government finance is being bulldozed through the House in this way. It is unfair, and it will lead to great problems.
Ministers cannot begin to understand how difficult times are for local administrations that have to put together a budget for not one but three years. As we have heard, implementation will come when the third year of the round of cuts will bite deepest in many local authorities. Do Ministers truly believe that a local authority such as mine, Portsmouth, which daily challenges the market to bring inward investment to the city, is not doing all it can to make it clear that we are open for business and actively to support economic development projects? We would welcome anyone to come and see what the city has to offer. It is an insult to local government to suggest that such activity is not happening, and I resent being party to a coalition that is giving that impression. I am surprised, to say the least, at the comments from the Local Government Association, and disappointed that it is not being more forceful in defending the rights of local authorities and challenging this type of legislation.
I hope that there is still time for Ministers to think again. I chaired Committee proceedings on the Health and Social Care Bill, and was delighted at the end of those Committee proceedings, which were the longest since 1997, that the Government gave a commitment to the House and the Committee that they would take time to think again. The implications of much of this Bill leave too many unanswered questions. There is no detail about how the safety net will be implemented and how such judgments will be made. We are told that local authorities will be able to apply to be beneficiaries of the safety net procedures, but not when they have to make that application, how long a decision will take, or exactly when or how the money will materialise. Such questions would have been dealt with in Committee in greater detail. Ministers would have been able to give members of the Committee detailed responses to questions. However, three days’ consideration on the Floor of the House does not give experts in the Department enough time to brief Ministers properly to answer legitimate points raised by hon. Members. That cannot be the right way to deal with as important a matter as local government finance.
On Second Reading, the right hon. Member for Leeds Central (Hilary Benn) spoke about the Layfield report. I remember hearing Frank Layfield express his views on local government finance. At the time of his report, we all thought that it would be the turning point, that there would be proper transparency about local government financing, and that all local authorities, irrespective of where they were in the country, would be able to say, “We get a fair deal from Government.” It was said that everyone would know the formula for the funding of local government, but here we are, nearly 40 years on, and it is still hidden in mystique. The Bill perpetuates that situation although the formula should not be anything other than transparent, and council and business rate payers demand that transparency. I am at a loss to understand why the Government, whom I support, are not prepared to give local government the trust that it deserves, and reveal how they are calculating the formula.
I do not want to see the disparity that was referred to by the hon. Member for North Durham (Mr Jones) between his city and the city of Portsmouth, because I believe that the problems of poor people in my city and those who are striving to keep their businesses alive are the same as those faced by his constituents. We need an equal share of the resources that are available to local government, but they must be decided on the basis of a formula that is readily available for examination. Such a formula does not exist at present, and unfortunately the Bill does not make me feel at all enthusiastic about the possibility that it will exist in the future. For that reason, I have grave reservations about my ability to support it at any stage.
Mr Raynsford
Let me first draw attention to my interests as declared in the Register of Members’ Financial Interests, and specifically to my role as a columnist for the Municipal Journal—the MJ.
I hope and believe that when the Minister sums up, he will have to reflect on the fact that every Member who has spoken—with the sole exception of the hon. Member for Poole (Mr Syms), to whose contribution I shall return in a moment—has expressed real reservations about the timetable that is being adopted, in the context of both parliamentary consideration of the Bill and implementation of the measures contained in it. That is fairly remarkable, given that it was supposed to be a flagship Bill granting local government more freedom, and a measure that local government should welcome. Indeed, the hon. Member for Poole, whom I have known for many years and for whom I have a great deal of respect, made that the key point of his argument. He seemed to be saying, “This is a step in the right direction: let us get on with it, because it gives more discretion to local government.” The hon. Gentleman must wonder—as, indeed, I hope Ministers will wonder—why, if the Bill is of such benefit to local government, local government is so apprehensive about it. He must wonder why Members on his own side of the House, albeit on the Liberal Democrat Benches, have been so critical of the timetable. Let us think about that.
It is not just the organisation representing London councils, which happens to be Labour controlled at present, that has been highly critical of the timetable and has urged delay. I must remind the hon. Member for Tamworth (Christopher Pincher), who suggested that the Local Government Association was wholly in favour of rapid action, that in its evidence it specifically supported an amendment that would delay implementation of the benefit changes until 2014. Even the LGA, a Conservative-controlled body, has expressed strong reservations about the timetable, while local government experts from whom we would normally expect to hear in evidence sessions are amazingly critical.
A week ago there was a very good article in Public Finance by Sarah Philips, who was an adviser to the Lyons inquiry and knows the issues thoroughly and deeply. She made some telling comments, such as these:
“The government’s repeated use of the term ‘local’ in relation to the planned changes hasn’t been enough to persuade councils that these will be an improvement. Current local government funding is incomprehensible, but these proposals taken together are even more complex and opaque. They have been criticised by councils, commentators and the communities and local government select committee—on most of the criteria the government set for itself and others… ‘Rich’ councils were looking forward to keeping most of their business rates and being free of central control. ‘Poorer’ councils were hoping for some continuation of equalisation, to recognise the huge range of needs and council tax revenues and their limited scope to increase business rates.”
Many of my hon. Friends have made the same points during the debate. Sarah Philips continues:
“The proposed tariff and top-ups and central levy limit incentives for growth, yet do not give much hope that services in ‘poorer’ areas can continue undiminished—or that it will be possible to prevent a two-tier system.
The proposals acknowledge only implicitly the risks of localised funding. In Europe and Australia, many smaller authorities and those in poorer areas have struggled to provide quality services and many have gone bankrupt or merged. The plans threaten the technical and financial viability of small district councils. Losing Housing Benefit will remove an economy of scale with processing the council tax support—limiting the ability to maintain a corporate centre.”
Those are just some of the comments that have been made by a real expert on local government finance—an officer who is clearly extremely anxious about the implications of the Bill. I hope that Government Members who have suggested that we should get on with it will pause to think about the serious risks attached to such action.
The hon. Member for Meon Valley (George Hollingbery) said in an intervention that local authorities had had to cope with annual changes in settlements in the past. As was pointed out by my hon. Friend the Member for North Durham (Mr Jones), our Government changed that and adopted a three-year cycle, but in any event there is a fundamental difference between an annual change in the settlement—which affects the actual amount of grant that an authority will receive for that year—and a complete change in the administrative system. The separation between council tax benefit and universal credit will require the establishment of a whole new administration and an entirely different system for the making and processing of applications, along with different computer programmes to determine eligibility and provide for the granting of discounts.
Mr Kevan Jones
Another element contributing to the uncertainty that will characterise the proposed new system is the possibility of fluctuations in business rates throughout the year. The Secretary of State implied that councils would somehow be compensated if a large employer disappeared—Alcan in Northumberland, for instance, is unfortunately being closed—but the Bill contains no details about that compensation.
Mr Raynsford
There are certainly no details about how the compensation arrangements and the safety net procedure will work. Nor is there any indication that central Government are prepared to accept that they are putting local authorities in an impossible position by proposing that they should take all the downside risk of a serious increase in demand for council tax benefit in any one year which they cannot themselves have anticipated.
What will happen to a local authority if a local business closes? What will happen if there is a serious rise in unemployment in the district, and as a consequence a large number of additional claims for council tax benefit are received? The authority will have no safety net. All that the Government propose is the possibility of some sharing or pooling arrangement with neighbourhood authorities to offset the risk. That is not compensating local government; it is local government having to help itself out in order to cope with the risk that is being transferred to it by central Government.
Alison Seabeck
I must first draw Members’ attention to my indirect interest in the interest declared by my right hon. Friend. I should have done that earlier, but I did not get around to it.
Might not a pooling arrangement lead to different problems popping up in different authorities at different times during the year? Exactly when and how will the safety net begin to operate in all those individual instances, and will authorities really want to share such a degree of risk?
Mr Raynsford
There are two different elements. One is the safety net system, which the Government have outlined without giving us the details, and which is designed to cope with circumstances in which there is a serious reduction in non-domestic rate revenue because of changes beyond a local authority’s control. That safety net exists, at least in principle. There might also be changes in benefit demand. Indeed, both of those elements might arise, as there might be a reduction in business rates because of the closure of a business and an increase in benefit claims because the people employed by that business are now out of work and therefore require help with their council tax. There could therefore be a double whammy. There is no safety net from Government to help local authorities with the second element. Instead, there is only the suggestion that there might be some pooling of risk, which is an unacceptable response to a very serious problem.
Mr Kevan Jones
I agree with my right hon. Friend. There is also no detail as to how the pooling of risk will work, such as whether it will be a voluntary system or enforced by the Government. In my region of the north-east, Newcastle and Sunderland would probably pool together only if they were forced to do so by Government diktat.
Mr Raynsford
I am not going to go into the relations between different local authorities. My hon. Friend the Member for Lewisham East (Heidi Alexander) and I are constituency neighbours and I am sure our local authorities would want to co-operate in the most friendly way, although I am not sure whether that attitude would be replicated by all authorities in other parts of the country.
I was responding to the comments of the hon. Member for Meon Valley by observing that this change is much more complex than just an annual change in the settlement. Substantial administrative change is involved, too. Capita is a company that provides a lot of revenue services and undertakes benefit work for local authorities so it might be expected to see business opportunities in this change, but it is sounding the alarm about the risks involved in trying to programme this major change on an impossibly tight timetable.
A lot of detail is involved in the specification of the scheme, and the Government will impose the requirements that there are to be no losses for certain categories of participant, no inconsistencies in respect of the universal credit, and no disincentives to work. It is difficult to see how that can be achieved if there is to be a 10% cut in the overall council tax benefit. Pensioners are to be entirely protected and they represent more than a third of recipients, so it is hard to see how the other recipients, those of working age who are in employment or looking for work, will not be subject to cuts. How can a commercial company, such as a software firm, that is helping local authorities to prepare to administer these schemes possibly get arrangements properly in place under such circumstances? That is the real challenge to the Government.
As I said on Second Reading, the Government are risking a repeat of the fiasco that occurred when the housing benefit scheme was first introduced by a Conservative Government in 1982-83. That was rushed. The detailed specification and implementation arrangements were not available in time and there was chaos across the country. There were appalling examples of people being left without money for weeks and months, and people facing eviction from private homes because they were not getting the benefit they ought to have had. There was huge hardship, and there were also serious problems in authorities throughout the country.
I say in all sincerity to the Government that they are taking a very serious risk in pressing ahead with these changes to a very tight timetable without giving Members the opportunity to scrutinise and question the detailed arrangements, such as the specification of the scheme and the safety net. We are not being given the opportunity to test the provisions so as to find any weaknesses, yet local government will be expected to implement them to an impossibly tight timetable.
I say to the hon. Member for Poole that the Opposition are not using the timetable issue as an excuse. There is a genuine anxiety that is shared across local government. We must remember that the change will affect not only local authorities but their residents. Some 6 million people receive council tax benefit, which is one of the largest numbers of recipients of any category of benefit in the country. All these people are being put at risk by the Government’s unwise timetable.
I urge the Minister to give further thought to that point, and to heed the Select Committee’s sound advice to defer implementation for a year. I also know that Liberal Democrat Members have reservations, and I therefore urge them to do the right thing by joining us in opposing this rushed and unwise timetable.
The Parliamentary Under-Secretary of State for Communities and Local Government (Robert Neill)
It is a pleasure to see you in the Chair, Mr Amess. You and I know something of local government from our experiences of it over the years. We therefore know that the issue of local government finance has been around the houses, as we say in our part of the world, for a very long time. At long last, something is being done about it.
I say to the hon. Member for Warrington North (Helen Jones) that I do not accept the premise that underpins her arguments. Throughout this debate the Opposition have raised specious arguments and engaged in manufactured indignation. The reality is that the Government are bringing forward a serious and important reform, which the Opposition are seeking to delay. That is not in the interests of local government, who suffer under the thoroughly unsatisfactory, opaque and unfair system Labour bequeathed, which denied local authorities the opportunity to have a portion of the business rates localised for their benefit. The Opposition want to delay the introduction of a valuable growth incentive for local government, which would also encourage national growth, so be in the interests of the national economy.
Robert Neill
Let me make a little more progress first.
It is a little cheeky of Opposition Members to say that this change is being rushed forward. Much of the first part of the hon. Lady’s opening speech was taken up with a complaint that somehow less scrutiny of a Bill is possible if it is considered on the Floor of the House, when every Member can participate, than if it is sent upstairs into Committee. Is there a precedent for that, however? Yes, as a matter of fact there is, and it was under the previous Government. Their Digital Economy Act 2010 had 50 clauses, three of which were taken on the Floor of the House. That did not happen in the early part of the Session either; instead, that contentious Bill was considered in the wash-up. I will not take any lessons from the hon. Lady’s specious arguments, therefore.
Helen Jones
As the Minister argues that it is important to get these provisions through quickly to provide incentives for economic development, what does he think local authorities would be doing after they are introduced that they are not doing now?
Robert Neill
The hon. Lady fails to grasp the basic principle underlying the Bill. The problem at present is that local authorities have no incentive to encourage growth. Instead, they potentially have a burden. They have no ability to grow the tax base.
Robert Neill
I will give way again shortly.
Unfortunately, throughout this debate Opposition Members have articulated their old mindset. It is a mindset that does down local government, and I find that surprising given the experience some Opposition Members have of that. They do not seem to recognise that most local authorities want to advance their local economies even though they currently get no revenue benefit from doing so. We will make a key difference by giving them a tool to get such benefits.
Mr Syms
Is not one of the major changes that there will be an incentive for ordinary rate payers and electors to support a particular scheme? There is currently no incentive for them to do so because there is no financial benefit for people who contribute to local government.
Robert Neill
My hon. Friend is entirely right. Unfortunately, under the previous Government there was a belief that we had to create an increasingly centralised and complex system to deliver results. The party that is criticising us now brought in capping and the comprehensive area assessment, which trammelled local authorities rather than freed them. I can understand, however, why this is a sensitive topic for Opposition Members. In their 1997 election manifesto they said they would localise the business rate, and they spent 13 years not doing so. Some of the principal architects of that commitment are sitting on the Opposition Benches in today’s debate, so I can understand that they might have a bit of a guilty conscience.
Robert Neill
I shall give way to the hon. Lady, as she may not have been here during that time—although I do not entirely exempt her from what I said.
Heidi Alexander
I certainly was not here when the previous Administration were in government, but I would like to give the Minister another opportunity to answer the question put to him by my hon. Friend the Member for Warrington North (Helen Jones) from the Front Bench about what exactly a local authority would be doing differently under these proposals from what they are doing now. If this is about planning policy, what evidence does he have to suggest that granting permissions for extra commercial floor space results in an increased business growth take?
Robert Neill
The hon. Lady must simply not have been listening to my hon. Friend the Member for Poole (Mr Syms), who made the point perfectly that our proposal is a desirable and a good thing. I know it is difficult for her to get this point, but two things are involved. First, we are giving an incentive back to local authorities. Secondly, we are giving local authorities an additional tool in the box of their financial levers. I would have thought that she would have recognised that from her long experience in local government.
Robert Neill
I will give way once to the hon. Gentleman and then I shall make some progress.
Graham Jones
The Minister talks about business growth, but given the changes in the national planning policy framework does he agree that this measure may be an incentive to develop commercial premises on greenfield sites, more so than in the past, and that it might override planning priorities?
Robert Neill
Absolutely not, and to see that the hon. Gentleman has only to think about two things, the first of which is planning policy. Any planning application has to be in accord with the planning policies that are set out—both in the local plan and in our new national planning policy framework—which give protection against ideas such as he mentions. Secondly, we cannot create a market and demand where there is none, although perhaps he does not get that fact, and so neither of the things he mentions would occur. Our approach enables and incentivises local authorities to work much more closely with their business communities on an ongoing basis.
It is very surprising to hear such a degree of criticism from Labour Members, because they need only look at what is done in most of the United Kingdom’s competitor countries to see that, in general, a closer alignment of local funding mechanisms with local business growth advantages the local economy. That is a basic proposition and they just do not seem to want to take it on board.
Bob Blackman (Harrow East) (Con)
Unfortunately, this debate seems to have got muddled and become a discussion of two lots of dates. One relates to the retention of business rates, a move which I wholeheartedly support; I believe that we should get on with it as fast as we can. However, we also need to address the issue raised by the right hon. Member for Greenwich and Woolwich (Mr Raynsford) about the implementation of systems to provide council tax benefit. Hon. Members from all parts of the House, and those in local government, have genuine concerns about that implementation and about the ability of local authorities to develop the systems to provide the localisation of council tax benefit. Will the Minister give an answer on that issue?
Robert Neill
I shall deal with both those points and give a little detail as to why the suggestion that we are rushing is not well-founded. It is worth remembering that the Government consulted widely on this proposal, and let me deal first with the point about business rate retention.
Last year, we set out a detailed consultation document outlining our proposals, and the local government information unit has recognised that we have amended a number of our proposals on tariffs, set-asides and top-ups to reflect those matters. We issued eight highly detailed technical papers, to which we received some 461 substantial responses. The idea that there has not been very full engagement with the local government sector simply does not hold water. Indeed, there have been collaborations and discussions between officials of my Department and the local authority organisations throughout the process. To deal with the design of the systems and the regulations that go with them we have set up an official-level working group, which includes representatives of the Department, the Local Government Association, the Society of District Council Treasurers, the Society of County Treasurers and the other financial bodies—so the point is specifically being worked on. The timetable is challenging, but the ability to return a proportion of the business rates to local government is a really important tool, not only to give local authorities greater resilience in their funding streams, but for ensuring national growth.
Robert Neill
I have given way to the hon. Gentleman once already.
It is also worth remembering, in the context of other points made, that we are sticking to the existing timetable that applies to the local government finance settlement process. I understand the frustrations of my hon. Friends the Members for Bradford East (Mr Ward) and for Portsmouth South (Mr Hancock) about the suffering that everyone in local government has undergone in the past few years, but I do not think that keeping the current flawed floor blocks and formula grant model for another year would benefit anyone. I can certainly assure them that we will work with the local government sector and the professional members and officers as we go forward.
Before the new scheme is introduced in April 2013, local authorities will be consulted on their baseline funding at the end of 2012, and after a debate in this House, where scrutiny will be provided, they will receive their final settlement early in 2013. So there is no change to the current timelines that local authorities have to work on. Of course there is plenty of precedent for developing regulations as the Bill is taken forward, and they, in turn, will be subject to scrutiny in this House. This is an enabling Bill, just as the Local Government Finance Bill was in 1988; we are following the precedent.
Helen Jones
This interesting debate has had some detailed contributions from my hon. and right hon. Friends, many of whom have extensive experience in local government. All we have really heard from Government Members is the hon. Member for Poole (Mr Syms) saying, “These are the normal Opposition tactics.” It is quite right for an Opposition to highlight flaws in a Bill, and this Bill is full of flaws. The Minister gets very excitable but he has not provided an answer on these flaws. He will not provide an answer as to why it is so important to get these provisions up and running in 2013 and what local authorities would do differently in terms of economic development then from what they do now.
Robert Neill
Why did the hon. Lady’s Government never follow through on their election pledge and localise the business rate, when they had 13 years to do so?
Helen Jones
Coming from a member of the party that nationalised the business rates in the first place, that question shows real cheek. It is no good the hon. Gentleman getting so aggravated now when his party nationalised the rates in the first place.
The Minister will not answer questions on other points, either. He will not answer the question about the lack of certainty for local authorities in the provisions. He knows that it might not be possible to bring them in on time, and so does the Secretary of State, as clause 1 retains the power to delay implementation. If the Government were confident about being able to bring the provisions in at the right time, they would not need that power.
My hon. Friends have made the case very clearly for how complex and opaque the proposed change is, for the risks it poses to the whole local government system and for the unforeseen consequences that might result. I have heard nothing from the Minister to change our minds, so we will therefore seek to press the amendment to a Division.
Question put, That the amendment be made.
The Temporary Chair (Mr David Amess)
Before the debate starts, I should tell the Committee that I was fairly lax about the range of the debate that we have just had, so if hon. Members wish to contribute to the clause stand part debate, I hope they will bear that in mind.
Robert Neill
I will endeavour to deal with the clause stand part debate as swiftly as I can. Clause 1 sets up the necessary part of the scheme. As is often the way with a finance Bill, it establishes the framework, which is then covered in the regulations. Schedule 1, which we shall come to shortly, sets out most of the detail. I suspect that the issues between us have largely been debated in relation to the amendment and the principle. I am happy to respond to any points that hon. Members may wish to raise.
Helen Jones
The Minister is right to say that the clause sets out the framework for the Bill, and that earlier we debated most of the issues between us. I welcome the fact that the regulations will be subject to the affirmative resolution procedure in the House. That is helpful, but we stick to our view that the Government are trying to introduce the provisions in the Bill too fast and that there is still a great deal of uncertainty for local councils. We will debate those issues on further amendments so I shall not detain the Committee now.
Annette Brooke
I want to place on record, in the debate on clause 1, how important it is to reform local government finance, to do it in a timely fashion and to do it in such a way that it both incentivises and equalises. Those principles are firmly embodied in the framework. We have heard it said that the retention of business rates will not incentivise. I wonder why the previous Government introduced LABGI—the local authority business growth incentives scheme—which rewarded local government for business expansion, but not very efficiently. It was not a built-in system, which has to be better. I therefore found some of the comments odd, in the light of that recent policy.
Mr Dave Watts (St Helens North) (Lab)
There is general consensus that the local government system of funding needs to be reviewed, but does the hon. Lady agree that people will be suspicious if that has not been done through independent analysis and by people who can be trusted to make the right decisions? That is what previous Governments have done and is exactly what this Government are not proposing to do. They intend to impose a system that has not been scrutinised.
Annette Brooke
I believe the Minister explained earlier how the detailed proposals would be scrutinised later in the process of setting the 2013 terms of the revision. What I want to see in the end is a more transparent scheme. That is extremely important, so that local councils are not continually trying to find little bits here, there and everywhere that they can come up and lobby about. We need clarity. I am pleased with the framework.
Robert Neill
I agree with my hon. Friend the Member for Mid Dorset and North Poole (Annette Brooke). It is important that we move forward. The hon. Member for Warrington North (Helen Jones) is right. The affirmative procedure will apply to the matters that come under the Bill. It is worth saying that the degree of transparency on the one hand and fairness on the other is governed by, for example, the changes to the central and local share split, which will come through shortly, and the operation of the tariffs and top-ups. Those will be included in the local government finance report, and that too will be subject to parliamentary scrutiny in the usual way each year, so it is a clear and transparent system.
Mr Raynsford
What circumstances led the Government to include subsection (7), which allows the Secretary of State to substitute a later financial year for the implementation date of the Bill, and in what circumstances might they make use of it?
Robert Neill
That sort of belt-and-braces procedure is not at all uncommon. It is our firm intention to press ahead with implementation from 2013 so that local authorities and the national economy can benefit from the Bill. As my hon. Friend the Member for Mid Dorset and North Poole said, the desirability to move to a more transparent system away from the existing model was recognised by the Lyons inquiry, which was set up by the previous Government. It recommended a move towards a localisation of the business rate, and we are taking an important step in that direction.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Schedule 1
Local retention of non-domestic rates
John Healey
I beg to move amendment 46, page 11, line 31, leave out ‘may not exceed’ and insert ‘should equal’.
The Temporary Chair (John Robertson)
With this it will be convenient to discuss the following: Government amendments 1 and 2.
Amendment 44, page 11, line 32, at end add—
‘(5) Such an amount should only be paid in place of other grants to local government if the Secretary of State is satisfied that the overall needs of local government will be met.’.
Amendment 45, page 11, line 32, at end add—
‘(5) The amount debited under subsection (3) must not be greater than any amount debited under subsection (3) for the previous financial year.’.
Amendment 19, page 12, line 20, at end insert—
(c) in determining the central share and the local share for any relevant authority, the Secretary of State must have regard to—
(i) the level of need in that authority,
(ii) the likely capacity of the authority to benefit from business rate growth, and
(iii) the council tax base of the authority.
Any assessment of the level of need in the authority shall include—
(iv) the ranking of the local authority in the Index of Multiple Deprivation,
(v) the level of unemployment within the authority’s area,
(vi) the proportion of adults with a limiting long-term illness within the authority’s area,
(vii) the number of adults in receipt of social care within the authority’s area,
(viii) the number of looked-after children within the authority, and
(ix) the level of child poverty within the authority’s area.’.
Amendment 37, page 12, line 20, at end insert—
(c) The Secretary of State must for each year, and for the subsequent two years in relation to each billing authority in England, determine an indicative share for the subsequent two years.’.
Amendment 38, page 12, line 20, at end insert—
(c) the percentages referred to in (a) and (b) above shall be determined following full consultation with local government.’.
Amendment 36, page 13, leave out lines 1 to 4.
Amendment 39, page 15, line 17, leave out from ‘must’ to end of line 19 and insert
‘prepare and publish an assessment of the level of need in each local authority, as defined in paragraph 4(c) above. The Secretary of State must—
(a) lay the report containing the assessment before the House at least 14 sitting days in advance of the publication of the Local Government Finance Report, and
(b) notify such representatives of local government as the Secretary of State thinks fit of the publication of the report on need and the detail of the basis of calculation in the Local Government Finance Report.’.
Amendment 26, page 17, line 37, at end insert—
‘(4A) The Secretary of State must also lay before the House of Commons his or her assessment of the impact which any such report will have on the level of service provision in any local authority to which it applies.
John Healey
It is a pleasure to serve on this Committee of the whole House under your chairmanship, Mr. Robertson, and that of your colleague, Mr. Amess.
Amendment 46 is a probing amendment in an important group of amendments that the Committee will discuss. I have a number of questions for the Minister, which I hope he will be able to answer when he replies, but if not, I hope that he will answer in writing, as would usually be the case. I notice that two of the amendments are among the 17 that the Government have already tabled at this very early stage to their own Bill. In this case they correct not just drafting errors, but quite serious errors in basic sums. The Minister can speak to those himself when he contributes to the debate.
Amendment 46 and the rest of the group reflect four consistent concerns about this part of the Bill on business rates. First, it will create a greater uncertainty for local government in its flow of funding and its ability to plan financially, and therefore its capacity to cope with the funding squeeze now and foreseeably in the next few years. It undermines an essential stability in funding for sensible longer-term planning and sensible long-term service reform and change.
Secondly, the amendments reflect the distrust of central Government with regard to the use of the business rates funding stream as a cash cow to help to cover the cost of failures in economic policy when revenue streams from other sources fall off, as we have seen during the last 12 months.
Mr Watts
If an area faces the wholesale closure of some of its industries, that obviously creates demand for the local authority’s services. Is it not a fact that such a local authority will lose money by the transfer to central Government and through the loss of business rates, and will therefore be less able to respond to the needs that are created by the wholesale closure of those industries, which we have seen in parts of the country?
John Healey
My hon. Friend, as a former leader of St Helens council, knows a great deal about the local government finance system and the pressures on local government. He may not have heard my right hon. Friend the Member for Greenwich and Woolwich (Mr Raynsford) in the last debate refer to what has just been described as a double whammy. In other words, there may be a loss of potential income at the same time as, and as a result of, the event that causes a greater need and demand for the services that have to be funded through that revenue stream. That is a concern.
I want to ensure that the Committee is clear that this is a fundamental shift in the basis of our funding calculations and in what local councils in England have to spend. The system will no longer work on the basis of need. It will not take account of the fact that there are three times as many looked-after children in South Tyneside as in Surrey or that there are five times as many children in poverty in Middlesbrough as in Wokingham. It will not take into account the capacity of a local area to raise resources, in particular through council tax. It will not take into account the fact that Bexley and Barnsley have a similar population, but that Bexley raises £37 million more in council tax each year. It will take no account of the fact that Brent has a similar population to Rotherham, but raises £22 million more each year in council tax.
Mr Kevan Jones
Is my right hon. Friend surprised that we are returning to having a Conservative Government who are quite clear that they will reward the areas that vote for them and write off whole swathes of the country, including the north-east?
John Healey
Like my hon. Friend, I am not surprised by that. I seriously question whether the scheme will work even on its own terms, but I support the principle of a system that provides some rewards and incentives to local authorities so that they better support growth in business, jobs and the economy. The cost of doing that in the Bill and under the new system is very great given that they take no account of need or resources, and do away with the decades-old principle of equalisation.
Mike Freer (Finchley and Golders Green) (Con)
The right hon. Gentleman knows the high regard in which I hold him from when he was in his former positions in the Treasury and the Department for Communities and Local Government. We had fruitful conversations when he was a Minister and I was leader of a large council. However, I must tell him that Bexley has to raise so much more money than Barnsley because when he was a Minister, he fiddled with the equalisation formula to force affluent southern councils to raise council tax to subsidise northern councils. That is why there is such inequality.
John Healey
The hon. Gentleman has a lot of experience of local government and was a distinguished leader of a council in north, not south London. However, no one could tell that from the comment that he has just made. As to my fiddling the figures in the local government formula, my goodness, many people say that Labour should have learned many more lessons more clearly from the extent to which the Tories did that before 1997.
Bob Blackman
Before the previous intervention, I think the right hon. Gentleman was comparing council tax raised in the London borough of Brent with that in the unitary authority of Barnsley. Has he got figures for looked-after children in those two boroughs? I assure him that the London borough of Brent includes some of the most deprived areas in the whole country and, sadly, huge numbers of looked-after children.
John Healey
The very point that I am making is that the current system, complex as it is, takes account of resources—an area’s capacity to raise revenue, especially through council tax—as well as the needs of the population in that area for the essential services that local authorities provide. The formula covers both and is based on the principle that I outlined.
Mr Watts
If the Government were truly serious about taking need and the ability to raise funds into account, they would have had an independent assessment, outside the political arena, to ensure that grants for local authorities in future reflected need. Comments from the Government Members are always about how much one local authority gets compared with another, and always ignore need. The reason for higher funding is that the need exists.
John Healey
Whatever side of the House we are on, we should endorse the principle that objective, sometimes independent, assessment is the basis for better decisions. I have never been one for saying that important decisions, which should be taken by politicians, who then are accountable for them, should necessarily be outsourced to independent experts who do not have the direct accountability that we and members of the Government have, but my hon. Friend makes an important point that is relevant to our discussions. It is impossible to make any sensible assessment, let alone a sound, independent assessment, of what the system will mean for the future. That makes our discussions and the decisions that we are required to make as members of the Committee difficult. We are making big decisions, largely in the dark, and we are being asked to give members of the Government significant regulation-making powers that will define the most important dimensions of the way in which the system works and what is available for people in different areas.
I want to underline the point that spending to meet increased need in future will have to be funded by the business rates increase. The council tax freeze and referendum start to remove that as a realistic alternative source of additional funds.
George Hollingbery
I am in the Committee as much to learn as to speak to the amendments and would welcome a refresher. The right hon. Gentleman makes the case that there is no accounting of need in the future funding system. My reading of the Bill is that there is. He can argue that the reset period is too long, but there is a reset period—of 10 years—and therefore, need will be reassessed. Likewise, there is a safety net, such that if the business rate increase in a certain area goes a certain amount below the retail prices index, the Government will intervene. Is that not the same as a needs assessment?
John Healey
The hon. Gentleman is right—there will be resets—but we do not know after what period or on what basis, so there is no guarantee that the accounting of need in the current system, which will be frozen at the point when the new system starts, will be reflected in a formula for, assessment of, or decisions on resetting. He might want to pursue that point with his hon. Friend the Minister.
Andrew Gwynne
My right hon. Friend makes an excellent point, but does he share my concern that, if, as is suggested, the reset period is set at 10 years, the gap between the poorest and the most affluent authorities will widen and the disparities will worsen in that period? Does that not reinforce his argument that need must be a fundamental part of the overall formula, as does the capacity to raise additional income using the council tax and the council tax base?
John Healey
My hon. Friend is right—I am about to make a similar point on relatively affluent areas becoming relatively more affluent under the proposed system.
The Government’s declared intention is for a 10-year gap between resets. I have my doubts about whether a reset after that period will be capable of restoring a proper reflection of need or a proper fairness in the system. We will speak later to amendments that would create much shorter reset periods, but they would not change fundamentally how the system will work to build in an advantage for already affluent areas with a higher business base. That advantage will just get bigger over the period between resets.
Mr Clive Betts (Sheffield South East) (Lab)
It is very easy to talk about resets here and now as an academic exercise, but when the time comes to do something that fundamentally alters the tax take of different authorities up and down the country, Governments of any persuasion might think twice. We should perhaps think of the history of council tax revaluations. They are not easy, but they have an impact on individual councils, and they are sometimes dismissed.
John Healey
My hon. Friend is really saying that we have not had a council tax revaluation. The problem he describes is a problem for any Government, but Governments will experience a similar problem with business rates as a result of the Bill.
Andrew Gwynne
My right hon. Friend rightly talks of the unfairness of the possible reset in 10 years’ time exacerbating the problems for local authorities, particularly those such as mine, which need the ability to raise income locally and for acute local needs, such as those in Tameside and the Reddish part of Stockport, to be reflected.
In fact, is it not worse than that for such areas? There is almost a double whammy. For those authorities, we must not only get the reset procedure right, but set the initial baseline correctly. All of that is based on the unfair funding settlements and cuts to local authorities such as Tameside and Stockport, but if we get the procedure and the baseline wrong, 10 years down the line, the real unfairness will set in.
John Healey
My hon. Friend makes a powerful point. It is certainly clear from how the cuts to local government have fallen in this Government’s first two years that certain areas, including his and mine, have borne a much greater burden than others.
The other part of the double whammy, to use my hon. Friend’s expression, is designed into the system, and it should give the Committee cause for concern. It is that the local distribution of the business rates is very uneven. For instance, Kensington and Chelsea has a much smaller population than Rotherham or Barnsley—I represent part of both those boroughs—but raises five times as much in business rates as Barnsley and three and a half times as much as Rotherham.
The opportunities to grow the business base are also uneven. I have looked back at the latest gross value added statistics published by the Office for National Statistics just before Christmas. Last year’s figures showed a difference of more than 3% between growth in London and that in Lincolnshire, Cornwall or Merseyside. In other words, it is clear that from year one the gap between affluent and less affluent areas will grow. The business rates base, and therefore income for councils, will grow faster in some areas than others, as it has in the past.
Even if there were the same rate of growth in all areas, the relative size of the business base income, which is higher for some councils than others, would mean a greater actual cash income for some councils. The top-up and tariff system that the Government are designing will reduce, but not remove, that disparity. If it did remove it, it would remove the incentive element that they want to build into the system.
Having been a local government Minister for two years, introduced the first ever three-year settlement for local government and altered the formula to better reflect needs and resources, I know that there are always winners and losers from any change. The whole House knows that. However, the councils that have a big business rates base, a strong council tax take and high levels of growth will be win-win-win councils, and those that do not will find that they are lose-lose-lose councils. That is the unfairness that is built into the design of the new system. It will increase divisions and tensions in our country.
Mark Field (Cities of London and Westminster) (Con)
Does the right hon. Gentleman not recognise that the current system also has a whole lot of disincentives for local authorities built into it? Over years gone by, it has disincentivised many local authorities. It is perhaps all too easy to make comparisons between relatively affluent central London authorities and those in relatively long-term impoverished areas of the north of England, but the scheme that is being put in place is intended to challenge those disincentives. Although I accept that elements of it will not provide as much transparency as many of us would like, it is at least a step in the right direction.
John Healey
The extent to which it is a step in the right direction remains to be seen. There is an element of its direction that is right, which is the desire to see greater incentives for local councils to support the growth of their business base, and greater rewards for doing so. How those incentives will work is weak and potentially perverse, but the principle is nevertheless in the right direction. The potential practical problems that we are beginning to tease out are part of the debate that we need to have.
Andrew Gwynne
My right hon. Friend is being incredibly generous in giving way. Is there not another problem that has not been properly addressed in the legislation? It takes no account of the complexities of sub-regional economies. For example, many of my constituents in Tameside and Stockport work in the city of Manchester or other local authorities. The scope for economic development in Greater Manchester is concentrated in the city centre, around Manchester airport, Trafford park, the Trafford centre, the media city and Salford quays, and not necessarily in Tameside or Stockport to the same extent. Although there are facilities for pooling business rates where local authorities agree, if they do not agree, will not authorities such as mine be disadvantaged?
John Healey
They will indeed. As my hon. Friend states, there is a double disadvantage to areas such as his. He paints that picture and concern very vividly.
Graham Jones
My right hon. Friend is being generous with his time. I want to add a third whammy and take up the point made by my hon. Friend the Member for Denton and Reddish (Andrew Gwynne). Large parts of the country will have no incentive at all because they are in shire and district areas, where the district authorities will probably be the planning authorities that will make the business decisions, yet the shire authorities deliver 85% of services, including fire and police services, and might have little say in how much they take from business rates in terms of business growth. It will be difficult for them to increase their base if district authorities act unproductively or do not co-operate.
John Healey
My hon. Friend is right, and I suspect that it will be one of the Minister’s biggest headaches in the system. I doubt whether he will come to the conclusion—although perhaps he should—that the real answer is unitary authorities across the country. [Interruption.] But I sense that I may be tempted into territory that falls well beyond my amendment and the whole group of amendments.
Heidi Alexander
My right hon. Friend was talking about the principles and practicalities at the heart of the Bill. Does he agree that the real problem is that because the proposed system is so complicated—with central and local shares, top-ups, tariffs, set-asides, safety nets and levies—the incentive for a local authority to do anything differently could be marginal? Even if we accept that the incentive is there, it is so complicated that councils will not be sure whether it will be worth doing something differently anyway. Is that not the real problem?
John Healey
My hon. Friend is right. She made that point powerfully last week in her Second Reading speech, which was one of the best that the House heard. Whether for children or councils, incentives need to be simple, and the rewards and rules need to be clear, but the system that the Bill will introduce falls far short of those basic objectives for any system of rewards and incentives.
Mr Watts
Is there not another issue here for the local authorities with the lowest business rates take? The Government have indicated that they believe that those local authorities have low business rates take because they are not interested in developing businesses and do not do all that they can to attract businesses to their areas. Does my right hon. Friend consider that perverse, given the problems in areas such as St Helens and many others, including his own? The major concern of local authorities in those areas is to bring in as many jobs as possible, but because of their location, the skills base and other things, it is extremely difficult. It is insulting for the Government to pretend that it is because of a lack of effort by local authorities.
John Healey
A number of colleagues have made that point, about local government in general and their local authorities in particular. It is hard to point the finger at any council and say that it has not bust a gut in recent years to see its economy grow and jobs created, because that is to the benefit of their local area and the local people they serve, and that would also be the view of most Members. I still think there is a case for trying to design a system that rewards local people, via their local councils, where they are successful in that. Under the last Government, we attempted to do that through the local authority business growth incentive scheme. The system that we are now discussing is clearly a new way of doing that, but its fundamental flaw is that it tries to fix the whole funding system for local government at the same time as using the same, single tax stream to create that incentive. The new system is trying to do too much with that one funding system, creating contradictions and tensions, which lead to the sort of complexities that the Minister is trying to counter in the design of the system.
Bill Esterson
My right hon. Friend makes the point about the new system trying to do too much, which goes back to what my hon. Friend the Member for St Helens North (Mr Watts) said. The evidence is that the potential economic impact of local councils in trying to develop business locally is perhaps only 20% of the total impact, with far more of the impact coming from the private sector. The new system is putting an awful lot of responsibility on to local government for generating new business, therefore putting a huge responsibility for the generation of business rates on to local authorities, when there is relatively little that they can do, particularly in areas such as St Helens or Sefton, or my right hon. Friend’s area.
John Healey
My hon. Friend is right. One of the strengths of this debate, as shown by contributions from all parts of the Committee, is exemplified by what he has just said. He has served as a councillor in north Kent and brings that experience and perspective to this debate. He now serves as the Member for Sefton Central, in the north-west of England, and also brings that perspective, reinforcing his point.
I want to draw the Minister’s attention to the future position of fire and rescue services. Can he provide me and other Members who are interested with details about his modelling and assessment of future revenue streams? Can he say how many and which fire authorities will be top-up authorities in future, and how many and which will be tariff authorities? There is concern among senior fire staff that if the incentive that this system is designed to deliver works as the Government say it will, the top priority for councils in the future will be those functions for which they are responsible that help to build business growth. However, those who serve in our fire and rescue services—services that do not directly contribute to economic and business growth—are concerned that a consequence of that will be that in future they will not get the priority for funding that the proper protection of their area may deserve because they do not contribute to business growth. Let me quote a chief fire officer who fears that that may—but not necessarily will—happen. He says:
“I am concerned that the proposed funding model could foster an antagonistic relationship between the fire authority and the local authorities if they begin to see us as a service which takes money from the business rates but does not actively participate in the business growth agenda.”
There is a strong case for fire and rescue services to be funded in future on the same basis as the police, with a very clear, consistent and comprehensive assessment of risk, need and resources built into the allocation of funding for fire services in England. What we start to see with the fire and rescue services, in common with the rest of local government, is concern about the uncertainty—what it means, what the funding is likely to be and how hard it makes it to plan sensibly for the future, particularly the ability to plan and manage within diminishing resources, which by and large is accepted. As another senior fire officer told me, stability is the most important factor. The Minister could do the Committee and many in local government a favour by giving a clear and strong reassurance this afternoon about the stability and predictability of the system in future.
I am conscious that there are a number of other amendments in the group and that other right hon. and hon. Members want to speak to them, so let me return to my starting-point of amendment 46. It is a probing amendment, but it contains a proposal that all revenue raised from what is a tax on businesses designed to pay for local services should provide funds for local government—not for national priorities or services around which the cloak of local government can be loosely thrown at their funding streams and categorised as local government. Post-2015, this will build in a real localising ratchet. Post-2015, when the business rates take is projected to be bigger than the sums distributed to local councils, it will mean that where central Government want to use funds to cover non-council services, they will have to transfer the responsibility and devolve the power and control for those services to local government in order to use the business rates revenue to help fund them. Thus my proposal will mean Ministers truly putting their money where their mouths are. It will mean putting into reverse the post-war centralisation of government that this country has seen, and it will mean making the localist rhetoric a reality.
Mark Field
I am not entirely convinced that we are debating quite as revolutionary a change in local government finance as the right hon. Member for Wentworth and Dearne (John Healey) would have us believe. As he rightly says, there has been periodic centralisation of local government finance in the post-war period; this Bill is a step, but only a relatively small step, in a different direction.
I am concerned that some provisions will not provide the overall transparency that all of us desire for local government finance. The worry, as we all know, is that council leaders across the country who get and understand the system will then work it to the benefit of their own local authorities, while neighbouring authorities with similar sets of needs will not reap the same benefits. I believe that has been the case since time immemorial, and I suspect it is a problem that exists in any political system. However much we try, it is difficult to discount the articulacy of those who understand and work a system. As I say, I am not as convinced or as concerned as the right hon. Member for Wentworth and Dearne. I hope he will forgive me if I focus my comments on issues that have come from the lobbying of one of the two local authorities in my constituency, and in so far as we work here, we all have a vested interest in this authority—Westminster city council.
Mr Watts
Is not the real worry that unless a duty and responsibility are placed on Ministers to ensure that needs are assessed and catered for within the grant system, which under these proposals they will not be, the worst aspects of the hon. Gentleman’s worst fears might come to fruition?
Mark Field
There is a duty, although it will apply to potentially different sets of needs. I think one of the most destructive elements of local government has been the almost constant lobbying—whether it be for three-year settlements or the annual settlements of the past. Although we might return, well before 2022, to specific concerns about elements of need that have rightly been referred to, the idea of having a 10-year period is a positive route forward in providing certainty for local authorities.
Westminster city council strongly supports the principle of allowing local authorities to retain a proportion of the business rates generated in their area—no one seriously suggests that either of my two local authorities should retain all their business rates, although there are common councilmen in the City of London, and members of Westminster city council, I am sure, who would rather like the idea, but even I would not suggest that that would necessarily be an entirely sensible way forward. As other Members have rightly pointed out, local authorities have played an increasingly important and integral role in supporting and growing businesses locally.
Bill Esterson
I am grateful to the hon. Gentleman for acknowledging that the most wealthy local authorities, in terms of business rates, could not possibly keep all those rates. What sensible balance can be struck to ensure that some local authorities do not struggle because of loss of income and that local authorities who are worried, for good reason, have their fears allayed?
Mark Field
I will be coming to that later, and will be asking the Minister to clarify the matter.
I would like the Minister to address a number of concerns. Why have the Government decided to cancel out any natural inflationary growth in the business rates programme? Why are increases in what might be described as revaluation growth not included in the Bill? A major revaluation has particularly affected London local authorities in recent years. Why does the Bill fail to provide for an adjustment in the growth calculation, in order to remove the negative effect of valuation appeals, which might become much more prevalent once the Bill is on the statute book? Under the proposed reforms, every local authority, as has been pointed out, will become a tariff—contributory—or top-up recipient authority, relative to its annual grant. In that regard, I take on board the comments of the right hon. Member for Wentworth and Dearne in relation to the responsibilities on fire authorities. One key question considered through the consultation was whether tariffs and top-ups should be uprated annually by the retail prices index. As the Minister knows, the Bill proposes that business rates will continue to be uprated annually, but taking the same approach to tariffs and top-ups would cancel out any natural inflationary growth that might otherwise have been expected by local authorities.
Why have the Government decided to cancel out natural inflationary growth in business rates? The clauses in the Bill that are subject to consideration today do not allow for revaluation growth, which is regrettable. Inevitably, all Members will use the examples closest to our hearts—our own local authority areas. Westminster city council’s total rateable value at the last five-year revaluation—18 months or so ago—rose by some 60%, but the proposed reforms would allow for none of that increase to count towards growth. In many ways, that is a disincentive to doing a lot of the hard work that went on in the second half of the last decade. As a result, local authorities would receive no benefit for enhancing their commercial environment or making their area a more attractive location for businesses. Having pacesetter authorities with business improvement districts in place at the outset was one of the most important elements of the previous Government’s work in that regard. Such authorities will be almost disincentivised and penalised under the proposals, which does not make much sense.
Given that rental and rateable value growth reflect the relative profitability from which central Government benefit through VAT, corporation tax and income tax, will the Minister clarify the reasons why increases in revaluation growth have not been included in the Bill? On physical growth, one key principle of the scheme, as I understand it, is to enable local authorities to benefit from new building and construction. However, as the Minister knows—although he represents a suburban London constituency—here in the capital, the high levels of rateable value reductions that are granted on appeal often wipe out the physical rateable value growth that has been achieved through new build. A great many appeals may be heard following revaluations, and as they are accepted the total rateable value in a billing may be reduced over time. Since those reductions result from errors made by central Government valuation officers, it seems unfair to penalise local authorities for such mis-valuations. We should also note the uncertainty that would be injected into the final settlement, given that one of the main aims of the scheme is to iron out such uncertainty.
Graham Jones
When authorities suffer a significant loss in business rate revenue, there will surely be a downward pressure on what the Prime Minister would describe as the big society, in which rate relief is given to charities, sports clubs and all sorts of other organisations that do social good. In the poorer, more deprived areas that will lose out under the new system, will not those organisations lose out as well?
Mark Field
The hon. Gentleman has almost taken the words out of my mouth. Given the Government’s commitment to the big society and to empowering the organisations about which he has expressed concern, removing discretionary awards would be controversial, and—given that they account for only a small proportion of the business rates that are collected—of little use. I hope that we can be given some clarification about why the Bill fails to provide for any adjustment in the growth calculation to remove the negative effect on valuation appeals.
I do not wish to sound too negative myself. Obviously we are trying to make the legislation better, and I think that the principle of allowing local authorities to retain a greater proportion of the business rates that they generate in their areas is a positive step. Nevertheless, the detailed proposals relating to RPI increases, revaluation and physical growth fail to offer the incentives for growth in high-yield areas for which we had all hoped, and I fear that they may result in excessive penalties for such areas. I realise that Opposition Members may view the issue from the point of view of relatively low-yield areas, but I think there is a risk that high-yield areas will not receive benefits for themselves and that, as a consequence, the Exchequer will not receive them either.
Encouraging economic growth at any level is critical to the national economy. Local authorities are uniquely placed to provide incentives for growth in their areas, recognising what will work even in specific parts of a single authority area—I observe a great variance within the 6.5 square miles of my own constituency—and that creates a bedrock for the national economy. I hope that serious scrutiny will be given to the reasons for the Government’s proposals, in the light of some of their potentially negative implications for areas that would be expected to generate the most significant growth.
Let me take up the point made by the hon. Member for Denton and Reddish (Andrew Gwynne) about pooling. We are living in a climate in which it will become the norm. I do not wish to pre-empt discussion of an issue that I am sure will be subject to much criticism and debate on the Floor of the House in the years to come, but I suspect that there will also be a reorganisation of local government. I foresee that in particular for London. It currently has 32 local authorities as well as the City of London, and that situation may well be subject to radical reform in the near future.
I hope the Minister gives serious thought to encouraging the pooling of resources. As he will know, in my area the tri-borough arrangements among the City of Westminster, Kensington and Chelsea, and Hammersmith and Fulham have worked well in a number of respect, and it is to be hoped that that continues.
It is in the interests of central Government for there to be pooling, but I fear that the proposals in paragraph 9 of schedule 1 will serve to remove any form of incentive for it. I accept that there will be some additional costs, but pooling is the way forward for many local authorities and the Government should encourage it in this Bill.
I am broadly in favour of the proposals, but I hope the Minister gives serious consideration to the points I have made.
Helen Jones
It is a pleasure to follow the hon. Member for Cities of London and Westminster (Mark Field), who always has something interesting to say even though I might disagree with him.
My right hon. Friend the Member for Wentworth and Dearne (John Healey) gave an excellent speech, in which he set out the reasoning behind the amendments. Our amendments attempt to deal with important omissions in the Bill. There is no mention of levels of need, of the different capacities of local authorities to benefit from business rate growth, or of the different council tax bases of local authorities.
The Government present their case in a way that suggests that there is no difference among authorities, in that they all have the same capacity to raise income and have the same demands on them, and that if a local authority is struggling, it is its own fault and a result of its being lax, rather than of the conditions it has inherited. Everyone knows that that is a myth, but some people are deeply attached to it.
We must acknowledge that the current, admittedly complex, system of local government finance does at least try to take into account the relative needs of different communities and their differing abilities to raise revenue. The Government have sought to erode that in their current local government finance settlement, and the consequent significant reduction in resource equalisation has led to local authorities no longer being able to provide the same level of service by charging the same band of council tax. As a result, the delivery of core services in poorer areas has been hit particularly hard. Despite the Prime Minister’s repeated reassurances, we are not all in this together.
The point I have made is very important, because it is about the base from which this scheme starts. Let me make it clear that we are not against incentives for local authorities to grow their economies.
Mr Watts
Does my hon. Friend agree that her point is one of the reasons that the Government do not want any independent assessment of the implications of what they have already done and of what they now propose to do? An assessment would demonstrate that poorer authorities have got poorer and that the richer have got richer.
Helen Jones
My hon. Friend makes a valid point. When discussing the first group of amendments we said that the fact that this Bill is not going into Committee upstairs means that we cannot take evidence on anything. The Government mindset seems to be, “Let’s get it in, push it through and not bother to have any proper assessment of it.”
Mark Field
The local government finance system may not be quite as complicated as the Schleswig-Holstein question, but is it not a concern that it is none the less very difficult to find anyone who could seriously be said to be independent in this regard? Although I can understand some of the concerns outlined by the hon. Member for St Helens North (Mr Watts), having an opportunity to discuss this on the Floor of the House means that more Members can have their say, and that must be a positive step forward.
Helen Jones
The hon. Gentleman makes a fair point, although I do not believe it is impossible to find independent people in the sector and of course the Government could have taken the Bill into Public Bill Committee and taken evidence, and then had a long Report stage on the Floor of the House to enable Members to participate.
To go back to my point, we are not against providing incentives for local authorities, but we do not believe that this Bill goes about it in the right way. We believe that any system has to be fair and equitable, and must recognise that weaker local economies find it harder to achieve growth and need help to do so. The Government have signally failed to recognise their responsibilities in that regard and we are faced with a “Leave it to Pickles” Bill. The Secretary of State is going to decide who gets what on the top-ups, the tariffs and so on. That is all being left to regulations, with no indication given as to the factors that he will take into account. As I keep saying, there are no draft regulations for us to look at.
Mr George Howarth (Knowsley) (Lab)
I apologise for not being able to be here for the earlier part of the debate. My hon. Friend knows my constituency well. Does she agree that unless we make a provision along the lines of amendment 19, which deals with need, the capacity to benefit from business rate growth and the council tax base of the authority, areas such as Knowsley are likely to be badly penalised?
Helen Jones
My right hon. Friend, who has been a doughty champion of his constituency for many years, hits on exactly the point that we are trying to make: unless the distribution of the central and local share is based on a number of factors, inequality will be built into the system—indeed, it is built in already because of the starting point. We do not believe that this approach is good enough. The future of communities and of the services available, particularly to the poorest people in this country, cannot simply be left to chance. If the Government believe in fairness and really believe that they would take into account the factors we mention in any case in determining central and local shares, I cannot see why they would have a problem in accepting our amendment. After all, the Prime Minister and the Deputy Prime Minister told us during their now forgotten love-in back in May 2010, before the romance had gone and they started squabbling, that they
“will ensure that fairness is at the heart of…decisions so that all those most in need are protected.”
That is all we are asking for in this amendment and the others that follow it.
Unfortunately, the Bill does not provide that fairness. If it goes through as drafted, service provision will, as my right hon. Friend the Member for Wentworth and Dearne said, increasingly be based on the ability to raise local business rates and council tax. As council tax increases will often be subject to a referendum, most of the demand will be put on local business rates.
Mr Kevan Jones
Does my hon. Friend also recognise that, for authorities such as South Tyneside council, which has nearly 50% of its properties in band A—that compares with a figure of 2% for Kensington and Chelsea—the existing system makes it more difficult to raise any additional money from the domestic side of the rates?
Helen Jones
Yes, my hon. Friend is absolutely right. That is one of the reasons for including the council tax base as one of the measures that ought to be taken into account. I shall say a little more about that later.
Graham Jones
My hon. Friend is very generous in giving way and I am grateful for that. Let me extend that point and return to those made about shires and districts. Where is the incentive in a scenario in which there are a large number of band A properties, for which council tax cannot be used, and in which the receipt will be only 15%, such as in my district authority? It seems to me that the system has not been thought out.
Helen Jones
My hon. Friend has hit on another flaw in the Bill and that is one reason for our complaining earlier about it being rushed through. Such matters need to be considered in detail.
If service provision is to be increasingly based on the ability to raise local business rates and council tax, this Bill has nothing to say about the levels of need. For example, parts of the area I represent used to be heavily industrialised. It is now a mixed area because a new town was built, but part of it was a mining community and we had heavy industry. Many other local authorities have much worse problems than my area, but all those areas are still dealing with the long-term health issues linked to heavy industry and poverty. That is why in an area such as Halton, a neighbouring authority to mine, one in five of the population has a limiting long-term illness. That is why the north-east has higher levels of deprivation, child poverty and poor health than the English average. Sunderland, for example, has 34 neighbourhoods that are in the top 10% most deprived areas of the country. The legacy of poor health, deprivation and poverty is what many local councils are constantly striving to deal with. There is no lack of effort on their part or lack of will. The failure is not theirs, but results from a long industrial heritage followed by the collapse of much heavy industry in the ’80s and ’90s.
Graham Jones
My hon. Friend is making a very good point; there is a risk in the system. She mentioned Sunderland—not my area—and Nissan is a very large employer in that region. Who is to say that in five years’ time the company will still be present there?
Helen Jones
Indeed—my hon. Friend makes a very good point. Later, we will debate the provisions for safety nets and how the Bill can cope with risks.
Andrew Gwynne
Will not some of the disparities about which my hon. Friend is talking be exacerbated by the new system? The analysis from the special interest group of municipal authorities—SIGOMA—shows that there will be an absolute decline over the next two years in funding across all local authority areas, that by 2015-16 some of those authorities will have recovered their position and that by 2020 there will be a huge disparity between the most rich and the most poor.
Helen Jones
My hon. Friend highlights a real risk of the Bill. All the modelling shows that the gap between rich and poor will become wider. That is a problem because, in my experience, local authorities have worked relentlessly to tackle these issues and to regenerate their communities. It is a long-term project, however, and it is much more difficult in some areas than in others for a whole host of reasons, including poverty, a local authority’s inheritance, its location and so on.
Pat Glass (North West Durham) (Lab)
Some years ago, I was an assistant director of education in the city of Sunderland and, despite its massive challenges, the attainment of the children was well above that of their statistical neighbours and was close to the national average. That demonstrates that such places can have massive challenges but still deliver well for their communities.
Helen Jones
My hon. Friend highlights the role of local authorities in achieving such gains. I believe that those authorities are constantly working to improve things for their communities and that the assumption underlying much of this Bill—that they do not want to do that—is simply untrue.
Returning to the issue of need, Durham council spends more on older people than a similar council such as Surrey because it has higher levels of deprivation and ill health. That means not only that it faces a greater requirement for social care but that it has fewer people who are able to finance their own care. Fifteen times as many people per 1,000 population receive a community service in Durham compared with Surrey, and 2.4 times as many receive a home care service. That kind of variation in need exists right across the country.
A similar pattern can be seen with children’s services and the level of child poverty, which all experts estimate will rise as a result of many of the Government’s actions. In Hartlepool, 29% of children are in poverty, whereas in Newcastle the figure is 27%, as it is in Liverpool—more than 91,000 children. In comparison, the figure in Wokingham is 7%. I defy anyone to argue that there should not be some resource equalisation to deal with that, but nothing in the Bill requires the Secretary of State to take account of the level of need when he determines the central and local share of non-domestic rates.
Heidi Alexander
My hon. Friend is talking about the growth in demand for council services that might occur in future and about the need to have some way of assessing that growing demand. It is relevant to services such as adult social care, particularly elderly care, that the geographical distribution of older people in our country is not the same across every local authority. In the shires, for example, there will be more of an ageing population than in my local authority. Does my hon. Friend think it is important to find a way of assessing those differing growth rates in need, which are often for services that are highly resource-intensive?
Helen Jones
My hon. Friend makes the valid point that the need for all these services varies across authorities; more to the point it is not within councils’ control. A council cannot control how many elderly people are going to need social care, or how many children are going to need intervention from their children’s department. That is the real problem. There are huge variations in demand for children’s services and educational services across the country, and that is often linked with poverty. Middlesbrough, which is the ninth most deprived local authority area in England, has almost seven times as many children receiving free school meals as Wokingham. Almost all councils showed a huge increase in referrals and in the taking into care of children following the tragic baby Peter case, which we all know about. That was not under their control, but the differences between the numbers of children in care across the country are still stark. Surrey has 32 looked-after children per 10,000 population, whereas Wokingham has 22. In Middlesbrough, the figure is 104 and in Newcastle it is 100. In Liverpool, there has been a 60% increase in child safeguarding referrals since 2009-10, whereas the average national increase is only 10%.
Bill Esterson
I keep being struck by the tension between, on one hand, the Government’s stated support for localism and the retention of business rates that they want to bring in and, on the other, the retention of powers by the Secretary of State. My hon. Friend is describing extremely well the growing gap among different local authorities and it seems to me that unless the Secretary of State addresses the issues in amendment 19, he will not be able to avoid that growing gap. I cannot understand why the Government would not want to support amendment 19.
Helen Jones
My hon. Friend is right. His intervention highlights the fact that no matter how much we want to make local government finance simple, it is never going to be simple because of the variation in need and the difference in resources. There is a balance to be struck between simplification and unfairness, and we do not think the Government have got that balance right in the Bill.
Some councils are coping with huge demands on their resources. Some form of equalisation will be necessary if, for example, children in poorer areas are not to be placed at risk. The idea that children’s services or the care of the elderly should depend on the number of businesses persuaded to relocate to a particular area is difficult to get to grips with.
George Hollingbery
In the debate on Second Reading the shadow Secretary of State said that there were far too many points in the Bill where the Secretary of State could interfere. As I said earlier this afternoon, there are mechanisms built into the Bill that ensure that revaluation and re-rating will take place. We can quibble about the date, but there are provisions to do that. There are safety nets built in. There is also at the first setting of this level of support a built-in bias towards communities that need more, as there should be. A calculation that I did showed that there was one public sector worker for every 88 people in Hampshire, because there is much less deprivation there, and I understand that, but one public sector worker for every 19 people in Manchester. Where we start clearly reflects the level of need.
Helen Jones
I know the hon. Gentleman made a thoughtful speech on Second Reading, but he is wrong on both counts. First, there is nothing on the face of the Bill about resets. Secondly, resetting the whole system is different from the way in which the system is run in the meantime. The baseline has nothing to do with the number of public sector workers anywhere. The baseline is the current local government financial settlement, which we argue is completely unfair to many local authorities anyway.
Andrew Gwynne
Because many of the children’s services that my hon. Friend mentioned are statutory, is it not the case that local authorities will have to find the money to provide them? The real pinch will come in the budgets for non-statutory services. There will be huge differentials from local authority to local authority, with some able to provide libraries, parks and other wonderful things, and other local authorities barely able to make their statutory arrangements.
Helen Jones
Indeed. My hon. Friend hits on a point that is important to local government as a whole. Local authorities cannot avoid their statutory responsibilities, so other services are squeezed. In future we may well see richer authorities developing a Pickles park here and there and naming public libraries after this beneficent Secretary of State, but it will be very hard for other authorities.
We have included unemployment in the factors that the Secretary of State must take into account. There are a number of reasons for that. Unemployment increases ill health, it forces more families into poverty, and it is an indicator of the state of business in an area. But high levels of unemployment also increase the demand for local authority services. As one of my hon. Friends said earlier, it will increase the demand for council tax benefit, for example. As more people become unemployed, many more rightly receive discounts on other services, such as leisure services. So unemployment increases demand at the same time as locking the authority into a cycle of falling revenue.
The theory behind the Bill is that local authorities can resolve that problem simply by expanding their business rate base and attracting more jobs. This was the theory that the Deputy Prime Minister set out when he explained the Government’s proposals to council leaders. He said:
“The new system will start on a level playing field—where you progress from there is up to you.”
It is a wonderful thing to be a Liberal Democrat. They can conduct politics exactly as if they are writing a “Focus” leaflet. But in the first place, there is no level playing field. We have debated endlessly what we see is the unfairness of the current local government financial settlement, which forms the basis for rate redistribution and penalises the poorest local authorities most. The simplest statistic is the most telling and it bears repeating. The 10% most deprived authorities lose four times as much as the 10% least deprived. The cumulative cuts in per capita spending hit the poorest hardest.
Bob Blackman
I am listening with interest to the hon. Lady’s explanation of the amendment. It suggests a whole series of different factors that the Government would have to take into account in deciding how much money a local authority would be given. Who would conduct that assessment? Would it be the Government, some independent body, the Opposition or the whole House? Otherwise, the amendment would simply put into the Secretary of State’s hands the power that she is accusing him of taking already in the Bill.
Helen Jones
The hon. Gentleman makes an interesting point, as an independent assessment would be a good idea. However, assessments of local authority need are already done by the Department for Communities and Local Government, so I see no reason why they should not be done in future. As he will hear when I move on in my speech, we have tabled further amendments requiring the report to be laid before the House so that it can be debated.
Amendments 37 and 38 would require the Secretary of State not only to announce central and local shares for each authority for a year, but to give indicative totals for the following year after consultation with local government. Despite the Government’s rhetoric, the Bill is a hugely centralising measure, as the Opposition have said several times. We are seeking to mitigate that by inserting a requirement that the Secretary of State consult local government before making his decision, which seems fair and proportionate and reflects the fact that what we are engaged in is a partnership between central and local government.
Amendment 37 would require the Secretary of State to give an indicative announcement for the subsequent two years to allow local councils to plan their services and make the right preparations, rather than working from year to year. Recently, all parties seemed to have accepted that it is much more sensible for local government finance announcements to cover a number of years. The previous Government introduced three-year settlements, and even this Government announced a two-year settlement, knowing that they expected to change the system.
Amendments 37 and 38 simply attempt to introduce a little more certainty into a very uncertain system. They would not change the power of the Secretary of State to decide the shares and they seek only indicative shares, not shares set in stone. In our view, that would produce better governance in local authorities and help them to plan. As it is, the Secretary of State can change the shares from year to year with little warning for local authorities. As we require local authorities to deliver statutory services, as has been said, we ought to allow them to plan the support that their community needs. Local authorities are constantly lectured by Ministers about the need to manage their resources, yet how can they manage their resources properly without any indication of how their finances will change from year to year?
Amendment 36 is merely a probing amendment. It is designed to tease out an explanation for the wording in the Bill. The Government intend to determine the baseline for non-domestic rate income in an authority by using the total that would be payable if it had “acted diligently”. We would like clarification from the Minister of what is meant by that. We all accept that an authority has to have an efficient collection system and that it should pursue debtors vigorously. However, what happens if an area finds itself in difficulty and its businesses are struggling because of the Government’s policies? Many businesses are in that position now and are finding it difficult to pay their rates. Is an authority expected to pursue such businesses to the limit? Will a council be penalised if it offers more discretionary reliefs? We would like clarity on that. We would also like clarity on the position of councils generally in offering discretionary rate relief. For example, will a council be penalised if it offers rate relief to too many non-profit organisations? Will “too many” be defined somewhere by the Secretary of State? What will be the position on hardship relief, which is also discretionary? Will a council in a difficult situation that tries to help local businesses be penalised because its baseline is set much higher than its actual income?
If I move on to amendment 39, I might be able to answer the point made by the hon. Member for Harrow East (Bob Blackman). We believe that it is vital that the Secretary of State not only makes an assessment of need before setting the central and local shares for each authority, but publishes that assessment and lays it before the House. That would bring transparency and openness to the system. We want the debate on the local governance finance report in the House to be informed by information on the level of funding for local authorities and the level of need within them.
There are, of course, variations in services because there are variations in circumstances. The main difficulty in dealing with local government finance is the belief held by many people that they should get roughly the same from certain services wherever they are because, as they see it, they are taxpayers and ratepayers. Elderly people who need care in their own homes have a reasonable expectation that they will get a certain standard of care wherever they live. If anybody was told that they could not have that standard of care because businesses had not grown enough in their area, we would soon hear from them. It cannot be right for looked-after children in Middlesbrough to receive a different standard of care from children in another authority.
By requiring the Secretary of State to prepare and publish a report, the House would be able to take account of the needs of groups that are not the most vocal, especially children and the elderly. Those groups do not always have access to journalists to argue their case. When they are written about, it is sometimes as if they are a different species. Many such people do not come to our surgeries or write to the local newspaper. After all, a society is judged not by how it treats its most affluent people but by the way in which it treats those most in need and those without a voice. We tabled amendment 39 to ensure that those matters are debated, and we hope that the Government will accept it.
Bob Blackman
It is a great pleasure to serve under your chairmanship again, Mr Robertson. It is also an honour to follow the hon. Member for Warrington North (Helen Jones).
The key issue is that local government finance has changed radically and dramatically in the past few years. I congratulate the previous Government on introducing three-year settlements. Having served in local government for some 24 years before becoming a Member of Parliament, I know that the certainty that gave local authorities was extremely welcome. However, the financial arrangements have changed dramatically and will do so again.
I can speak for London authorities. The average London authority has £1 billion in revenue going though its books. It has discretion over probably only a quarter of that because roughly a third goes on housing benefit and 40% goes on education spending—schools and colleges. Now, that 40% for education passes through with the local authority doing virtually nothing but act as an agent of the Government in putting the money into the hands of the schools. Equally with housing benefit, under the proposed change to universal credit, local authorities will no longer administer that money. However, there will still be the surfeit of discretionary or statutory services that local authorities provide and that need to be funded by them. There will be different streams of income—council tax, other charges that local authorities levy for their services and, importantly, the business rates.
The key issue, which the Opposition have not started to understand or appreciate, is that there is a deliberate and perverse incentive for local authorities to retain deprivation in their areas. If there is deprivation, money flows from Government for that particular purpose.
Bob Blackman
I will give way in a second. I will cite an example from the past few years, when the previous Government decided to change the rules on the amount of money that was given through the formula for local authorities with large concentrations of black and minority ethnic communities. All of a sudden, funding for local authorities throughout the country with large BME populations would have been decimated because it was one of their great income streams. Huge lobbies took place and the Government backed down.
Mr Kevan Jones
I am interested in what the hon. Gentleman is saying. Can he give a specific example of a council anywhere, irrespective of its political persuasion, that has wanted to turn prosperity away from its area?
Bob Blackman
The key is not that local authorities turn away business or prosperity; I am pointing out that there is an in-built presumption that areas of deprivation follow extra grant from Government. As a direct result, there has been hardly any change in areas of deprivation across the country. Despite the fact that local authorities—of all political persuasions—with areas of deprivation have had huge amounts of money put in over 30 or more years, those areas of deprivation remain the same.
Heidi Alexander
I am interested in what the hon. Gentleman is saying, because the implication is that local councillors and local authorities want to maintain deprivation in their areas because they get more money into their coffers. Is he really saying that? In my experience, local authorities and local councillors do the jobs they do because they want to make the lives of the people whom they serve better; they are not interested in getting money into their coffers to serve their own purposes.
Bob Blackman
I am not saying that councillors, council officers or local authorities of any persuasion deliberately decide that they want their areas to be deprived. I am saying that there is a perverse incentive for those areas to be deprived. The Bill changes that presumption. It will be for every local authority where there is deprivation to encourage and promote prosperity and businesses to set up in their areas, so that there is a deliberate move to create economic growth in areas that have been unfairly deprived for far too long.
Graham Jones
The hon. Gentleman is being very generous in giving way on that point. I realise that he is under a lot of pressure given the comments he has just made. Does he accept that what we actually see in deprived areas is better partnership working between local authorities and businesses? That is certainly the case in Lancashire. Relationships and partnership working between the business sector and councils are not as good in west Lancashire, which is an affluent area. Councils in the east of Lancashire have an exemplary record, because there are deprived areas that need business. The answer in those deprived areas is not grants from the Government, but businesses, which is why those local authorities pursue that avenue.
Bob Blackman
I recognise that partnership working has almost been forced on local authorities. Some embraced it; others were forced.
Bob Blackman
That did not happen only in deprived areas. I come from somewhere that had areas of great deprivation and which formed local strategic partnerships and other such organisations. However, those areas still have huge deprivation and are among the most deprived parts of London and the country, even though they have had huge amounts of money pumped into them by Governments of all persuasions. The key issue remains: there has been no incentive for economic growth in those areas.
Graham Jones
The hon. Gentleman makes a self-defeating point, because he reminds the Committee of local strategic partnerships, which were mandated only in areas of deprivation, and to which the previous Government handed out grants. His point is that the previous Government instructed local authorities in deprived areas to work, through LSPs, with the business community and the private sector, and the supply and education chains.
Bob Blackman
I take the hon. Gentleman’s point, but we have to consider cause and effect. I do not decry what the last Government instructed local authorities to do, but the key point is that it failed. The areas of deprivation then are still the areas of deprivation. This Government are trying to introduce a direct incentive to business growth and economic growth in those areas and right across the country. They are giving local authorities an opportunity to change their view and see the direct incentive to have economic growth. Local authorities will keep the money, which they can then invest in the local services that people need. That does not mean that there is not a need for national investment in local areas when infrastructure improvements and regeneration are needed, but that is very different from creating economic growth.
Mr Betts
There is a danger that we will get locked into a discussion in which we simply assume that the current system has always been in place. Prior to the poll tax local authorities kept all their business rates, yet since 1945 and probably before, the difference and disparities in deprivation have continued to grow. Local economies in different parts of the country have performed very differently, despite local authorities having had the incentive of business rate retention prior to the poll tax. The hon. Gentleman’s argument therefore lacks a little if it is taken beyond the particular complications of the current system.
Bob Blackman
One of the key historical points is that local authorities used to set their own business rates, but then pressure from the House changed that situation for the simple reason that large local authorities saw the opportunity to milk businesses and set exorbitant rates, because business did not have a vote. They could then keep local tax low because they had increased business rates to milk businesses. That was why the national business rates were introduced.
I do not believe that there is an argument for changing the position so that local authorities determine the level of business rates, but there is a very strong argument, which the Government are advancing, for their retaining the money that is collected locally. I believe that the Government are being a bit timid in their approach, because I would like more money to be retained locally, possibly with a slightly less complex formula to make it more transparent. However, I recognise that the Government are taking the first step along the way.
Mr Betts
I intervene briefly on a factual point about what happened prior to the poll tax. Probably one of the reasons why it was brought in was the very large rate increases made by some authorities, such as the one in Sheffield of which I was a member at the time. It is not true that authorities sought to pile all the pain on businesses and keep their other taxes low. Actually, the domestic and non-domestic rates were linked and could be increased only in line with each other. It was not possible to increase one without increasing the other. Domestic ratepayers had a vote, of course, and in many cases were prepared to vote for large increases to protect services.
Bob Blackman
That, of course, is local democracy—if people want to pay higher taxes, they are welcome to do so. I am personally a great advocate of annual elections to local authorities instead of referendums, so that if councillors want to raise local taxes exorbitantly they will be voted out at the ballot box. I therefore take the hon. Gentleman’s point.
Heidi Alexander
The hon. Gentleman has argued that incentives have not previously existed for local authorities to stimulate economic growth in their area. He is a distinguished former leader of a large London local authority, Harrow. Given that those incentives did not exist, did he not do anything in his time as leader to stimulate the local economy in Harrow?
Bob Blackman
I was actually the leader of Brent council, not Harrow, but I thank the hon. Lady for making that point. I was the chairman of a city challenge company that was part of the London borough of Brent, and for five years we had Government money flowing in. We retained every job that we had and expanded the number of jobs in the area, but by the end of the five years unemployment in the area had increased, not reduced. We had had huge amounts of money but, perversely, unemployment had risen, which meant that we could go back to the Government and say, “We need more money.”
Eric Ollerenshaw (Lancaster and Fleetwood) (Con)
My hon. Friend is making an important point. Was not one problem that there was almost an incentive for a whole band of an officer class to prove deprivation rather than an incentive to prove and create success? That is how we ended up in this appalling game in London of trying to prove who was the poorest borough.
Bob Blackman
I completely agree with my hon. Friend. I return to my central argument, which is that there was a perverse incentive for deprivation to continue. Here, in the Bill, we are taking the first step—it is not perfect by any means—towards saying, “Instead of failure, success will be rewarded.” That is the approach that we seek to take, and it is the right approach to take.
I ask the Minister to consider two final points. First, there is concern about how the scheme will be administered and about its fairness and transparency. It is right that we consider the elements of the scheme and undertake to conduct a review to ensure that it is working appropriately, fairly and transparently, so that not only the House but every local authority in the county can say, “Yes, this system works.”
Graham Jones
The hon. Gentleman is being exceptionally generous in giving way. I thank him for that. He referred to success. What does he mean by “success”? Does it mean a local authority that leans back in its chair as a large employer turns up, or a local authority—presumably like the one he ran in Brent—that fights to defend and save jobs? There might not be growth, but an awful lot of work goes in to maintain the position. Which model would he describe as successful?
Bob Blackman
That is exactly my second point. In large parts of the country, particularly in suburbia, there has been a gradual leakage of businesses, as business land—areas designated for business land and investment—have been turned over to housing. There is an incentive for local authorities to do that, because it increases the council tax base and makes it easier for local authorities to get new homes bonus money. It does, however, reduce the business rate income. At the moment, those local authorities suffer no penalty for doing that.
Under the new system, there can still be a leakage of land and employers. I am talking not about a catastrophic failure where one major employer closes down—that would obviously be a huge loss to the local authority—but a gradual process, over a number of years, under which industrial land has been turned over to housing, resulting in a leakage in business rate income. Has the Minister considered that point? How will it be looked at in the round? I raised the matter on Second Reading but so far we have not had an answer.
Finally, one thing that will be true in this brave new world is that there are risks associated with both the income and expenditure of local authorities. We know that there are huge numbers of demand-led services that every local authority must provide—they have been mentioned already: adult social care, children’s care, and so on—and I recognise that. It is also the case that income levels can sometimes be unpredictable. The more predictable they are, the better. However, there is the pooling approach. I wonder whether the Minister can say what directions will be given if certain local authorities just sit back and say, “We’re alright, Jack. We’re fine. We’ll just keep the money. We’re not going to pool our risk. We’re not going to pool our opportunity. We won’t co-operate with our neighbours.” That is an important point, which the hon. Member for Hyndburn (Graham Jones) raised. How will the Government direct local authorities to pool resources, in order to spread risk across a number of authorities?
Mr Betts
I want to speak about set-aside—the principle and the calculations—and, in particular, to draw attention to my amendments 44 and 45. This is the first opportunity that I have had during the Committee stage to talk about the new, simplified system of local government finance that the Government are proposing. [Interruption.] Is that a smile from the Minister? We have to have a laugh about the terminology, but it was the terminology that the Secretary of State used when introducing the consultation proposals. He called it a simplified system, but I do not think that anybody, even—
Robert Neill
Perhaps the hon. Gentleman will be glad to know that I was smiling just to say how pleased we are to see the Chairman of the Select Committee on Communities and Local Government among us.
Mr Betts
It is very nice of the Minister to say so, so I will smile in return. However, even he could not rise now and say that this is a simplified system. It is a new system—it is a radical departure—but it is certainly no less complicated than what went before it; rather, it is complicated in a different way.
Let us talk about transparency. By that I mean the possibility that when a development is put forward in part of a local authority area, it is possible to say to residents, “If that development is granted, these will be the financial consequences.” There is no chance of that happening with this piece of legislation. It will be very difficult for local authority treasurers to explain to their members collectively what the implications of the new legislation are, let alone for a local councillor to tell residents looking at a planning application, “These are the financial consequences of accepting this proposal.”
I have no problem with the principle behind the Bill; indeed, I think there is a shared principle across the Committee. We all realise that there must be more incentives in the system to reward local authorities for encouraging and promoting growth in their areas. There is no problem with that principle at all. The difficulty, which is reflected in the responses to the consultation on the legislation that we are considering today, is that the authorities with a relatively high business rate base, or the potential to develop one and grow their business rate relatively easily, are obviously all arguing for lower tariffs and top-ups, whereas those that have lower business rate bases and more difficulty in attracting growth to their areas, perhaps including those with the greatest need, are arguing for more top-ups and tariffs.
As I said on Second Reading, the Government have a fundamental problem. Because of the effective removal of Government grant to local authorities from 2013-14, they are now trying to use the business rate to do two potentially contradictory things. They are trying to use the business rate as a mechanism to encourage growth and development, rewarding authorities by allowing them to keep the business rates that are raised from development and growth, but they are also trying to use it as a method of redistribution to help authorities that cannot achieve development and growth easily, and that have problems of deprivation. The Government are trying to do two things with one tax, which is a problem. That is why we have such a complicated arrangement.
If there was a separate element of Government grant that could be used for redistribution and if authorities were then allowed to keep their business rates, separately—as was the case with the old system, which we have just discussed with the hon. Member for Harrow East (Bob Blackman)—that would be relatively easy. There would be a business rate that was an incentive and a Government grant for redistribution. The fact is that we do not have the second of those; complications thus arise.
Some of us can remember the GREAs—the grant related expenditure assessments—the SSAs or standard spending assessments and other complicated arrangements like regression analysis that used to be done on all these matters. On every consultation, local authorities in various parts of the country would have different views about the allocation of resources and the finance system—of course they did, and the same applies on this occasion. What the Secretary of State and this Government have managed to do this time, however, is to unite the whole of local government on one fundamental issue—a feat that I do not think has been achieved before by any Government or any Secretary of State in relation to local authority finance.
Every local authority association and every local authority in the country has united against the principle of set-aside. They all view this as central Government putting their hands into the local authority pot and taking money out of it for themselves. When we used to debate local government finance, as we still do, most people rightly assumed that it was a debate about finance for local government. Now the debate is going to be about finance from local government, as local government will be contributing to national Government and the national Treasury. We will no longer talk about a business rate that is collected locally and distributed nationally, but a business rate that is collected locally and spent nationally. That does not strike me as a terribly localist move.
The Government have created a fundamental problem for themselves with set-aside. One can see the Secretary of State sat in his office, snaffling local government resources and getting into the Chancellor’s good books by passing those resources over and saying, “Look, I’ve done it again, Chancellor. I’m the good guy in all this; I’m giving you lots more money to spend.” Perhaps it is more like good cop, bad cop. We generally see the Secretary of State coming along to join the Minister for these debates, with the Secretary of State doing the broad sweep and the Minister knowing the detail. Perhaps they will go along to the Local Government Association in future when the pantomime season is in bloom. The Minister will go along as the wicked uncle, describing how much the set-aside is going to be worth in that year and how much is going to be taken away, while the Secretary of State will come along as the fairy godmother to say, “Look at all the goodies I’m going to give you back when I spend the set-aside. The problem is that when I wave my magic wand, what you get might not be what you thought you were going to get, because the money is going to be spent on things for which you would previously have had a grant.” This is the delusion being created.
The reaction on the part of local government is obvious. It says, “You are asking us to accept 28% cuts to Government funding over a four-year period and to cut our fundamental services.” Despite what the Minister said to the Select Committee today, there is not a local authority in the country that is not having to cut social services and social care. That is what is happening. At the same time as local authorities are being asked to make profound cuts to front-line services—it is happening to authorities of all persuasions up and down the country—the Government are saying, “By the way, we are now going to take away from local government resources that could be spent on local services, by means of the set-aside.”
All this explains why I tabled the amendments. Amendment 44, for example, is an attempt to make the point that something must be wrong when a Government say that they are going to take the set-aside away—irrespective of the real needs of local authorities, which they are clearly unable to meet in the current financial situation.
Graham Jones
On the same argument, would my hon. Friend add to that the housing benefit and council tax cuts, which are on top of the 28% and have a disproportionate effect on deprived areas? Does this not mean that we are talking about cuts of 28% plus—and they are growing rapidly?
Mr Betts
My hon. Friend is absolutely right that we should look at the totality of the effects of the cuts on local authority budgets. Before the Secretary of State takes this set-aside from local authorities, he should look at what is happening to social care and with council tax increases, which authorities will have to impose after the freeze or deferment comes to an end. He should look at what is happening to concessionary travel for young people, which gives them their independence and mobility, and to care for the elderly and to road safety schemes, which cannot now go ahead. He should look at what is happening to proper protection for private sector tenants from rogue landlords, which authorities will probably not be able to fund, or at the diminishing possibility of providing weekly bin collections across the country—something close to the Secretary of State’s heart. Before looking at set-aside, surely the Secretary of State ought to consider how far local authorities have been able to meet such needs.
Annette Brooke
As a genuine point of discussion, let us imagine a situation in which set-aside is used for reasons that everyone could sign up to, and directed to local government services—an ideal world, I admit. Despite our desire to march towards localism, would not holding back on full localisation in the first few years be a prudent approach that would reduce uncertainty?
Mr Betts
I am not sure, because how the set-aside ends up being used is fundamental. Will it simply go to the Treasury, and we never see it again? Alternatively, will Department for Communities and Local Government or other Ministers say, “We used to fund certain council services, and now we will use set-aside for that.” It will save central Government money. A classic example is the requirement on local authorities to fund 10% of the cost of council tax benefits in the first year—that will almost certainly rise if unemployment rises. What will stop Ministers saying in future, “We have already established 10%, so next year it will be 20%, 30% or 40%”? That will bring no benefit in council services or to local taxpayers or councils; it is just a saving to the Treasury. From a Minister’s point of view, however, it is a neat way of linking two parts of the Bill together.
Graham Jones
Another Treasury or DCLG idea could be to use the set-aside to pay for wasteful weekly bin collections.
Mr Betts
It could be; we are not sure where that funding is coming from. In future, a whole variety of things, such as police grant, could be paid for out of set-aside. Things that Government would have paid for through another source could be paid for out of set-aside, saving the Treasury money. We do not know, because the Bill does not contain the detail. All that we can say is that there will be no power at local level, or among local government collectively, to decide such things. Will there be any power in the Chamber to decide such things, or will it all be up to Ministers?
Mr Ward
The hon. Gentleman makes a crucial point. We discussed earlier the uncertainty around incentivisation—we do not know what that will lead to—but we can completely remove the uncertainty around the levy account and the safety nets in the central share if the Minister makes a clear statement about what they will be used for.
Mr Betts
Absolutely. We just do not know. All the power and the decision making are going to Ministers in a completely opaque way. We have a right to ask certain questions.
The Government initially introduced the principle because the comprehensive spending review, in placing limits on local government spending as a whole, created a problem for them. It was and is quite possible, with the rise in business rate linked to inflation, for the business rate and council tax collection after 2013-14 to amount to more than the spending control totals. The Government had to find a way of dealing with that problem, but there is no reason why it need continue after the current comprehensive spending review round. In future, the Government could make an assessment of the likely increases in business rates on the basis of their new system and accommodate that within the spending control totals, thus removing the need for set-aside altogether.
I understand the difficulties that the Government have got themselves into in the current spending round, but why continue the principle after that? In amendment 45, I have tried at least to raise the possibility of not allowing the set-aside to become an ongoing, potentially increasing amount of money that is decided by Ministers for ever and a day.
Heidi Alexander
London Councils describes the existence of the central share beyond the current comprehensive spending review period as
“a cynical attempt by the Government to limit the extent to which local government can benefit financially from the growth it will drive through its economic development activity and engagement with the business community.”
Does my hon. Friend consider that to be a fair assessment of what the Government are doing?
Mr Betts
What the Government are doing is twofold, because two problems are being exacerbated by the set-aside. By limiting the amount of money in the local government system, they are reducing not only the incentives for councils but their own ability to do some redistribution. If they did not use the set-aside and allowed more money to remain in the local government system, they might be able to resolve the conflict caused by their attempt to do two things with one tax. The less tax that they have in the system and the more restrictions they impose, the more that conflict will come into play—the conflict between the retention of money to encourage investment and more growth, and the need for redistribution and the mechanism enabling it to take place.
George Hollingbery
I thank the hon. Gentleman for giving way. He is being extremely generous with his time.
A number of Members have pointed out, both today and on Second Reading, that there is a relatively limited amount that local government can do to encourage business growth. It occurs to me, from a more philosophical viewpoint, that economic growth can be a public good, and that Government investment elsewhere in the economy can allow that growth to go ahead. Is it therefore entirely unreasonable for central Government to keep some of that business rate growth?
Mr Betts
I think it would be considered so by a localist who wants it to be possible for money that is raised at local level to be spent at local level. The complicating factor is that there must still be some element of redistribution. In the past that would have been dealt with by means of a Government grant, but it is now being dealt with through business rates. If central Government take away any element of that business rate growth, by definition they are reducing the incentives to encourage development and reducing the amount of money available for redistribution, thus worsening the problems that they are creating for themselves.
Let me issue a challenge to the Minister. Will there be any limits to, or criteria for, the determination of set-aside in a future comprehensive spending review, or will the Chancellor simply come up with a figure? Will business rates grow according to the level of the RPI, and will the difference between them constitute the set-aside? Will no more thought be given to it than that? Will there be any criteria on the basis of which the Government may review the system annually, or will the Secretary of State simply say, “I am not giving enough to the Chancellor this year, so we will have to amend the set-aside arrangements”?
I return to the question asked the hon. Member for Mid Dorset and North Poole (Annette Brooke). Will there be any criteria governing what the money can be used for? Will it be possible for it simply to go to the Treasury, or will there be some understanding that it will be spent on local initiatives? Will there be some understanding that if it is transferred back to councils to do certain things, they will be given power to do them? It may well be that there are things to be done by local government in the future that are not being done now. We have seen no evidence that any of that will happen.
Will we be given an assurance that the set-aside will not mean a further dispensation of largesse from the Secretary of State and the Minister in the shape of more specific and ring-fenced grants? The Government have almost completely abandoned ring-fenced grants, and I support that as a principle. May we have an assurance that the set-aside will not be used as a mechanism enabling the Secretary of State to say, “Look what I am giving you: more ring-fenced grants and more specific grants”—thus providing a photo-opportunity for a Minister to draw attention to what good things are being done with them by every council in the country?
May we also have some assurances that the Local Government Association and local government in general will be properly consulted on this each year? They should be consulted about the criteria, the proposals and the arrangements by which set-aside will be used and the amounts will be determined. Will there be transparency about where set-aside funding comes from and how it is spent across the country and which local authorities will benefit?
Finally, will we have assurances that this will not be simply a Government matter? This is the House of Commons of a sovereign Parliament. The annual decisions about set-aside and how it will be spent must be subject to discussion, debate and a vote in this House. We must have assurances that the ultimate power will remain with Members of Parliament, not Ministers.
Mr Kevan Jones
It is a privilege to follow my hon. Friend the Member for Sheffield South East (Mr Betts), who is not only a distinguished Chair of the Select Committee, but had a long and distinguished career in local government.
Today’s debate reminds me of the Second Reading debate in that, as my hon. Friend said, Members on the Government Benches are trying to have their cake and eat it. They want the nirvana of councils keeping all the business rates while also recognising that there should be some redistribution. The hon. Member for Harrow East (Bob Blackman) made some strange comments about perverse incentives for councils to remain poor. I am yet to meet such a council, but he tried to get his colleagues to help him come up with an example. Councils in my area work very hard to attract business and prosperity, as they want to make their areas not only pleasant places to live in but economically active. The Government talk about localism a lot, but this Bill centralises more powers in the hands of the Secretary of State than any other local government reform of recent years.
On fairness, if we are to have a system whereby the contribution from national Government to local government is wiped out and we rely on business rates to provide the gap in funding, we must address the fact that different parts of Britain have different needs. Amendment 19 is important as it would ensure that that is reflected in the system.
From listening to some Members on the Government Benches, people would think some parts of the north are responsible for their own unemployment. Those Members fail to remember what happened in the late 1980s, when huge swathes of industry in the north-east were wiped out. Many areas are still recovering from that today.
There are also issues to do with population movement, which can lead to extra demands on local councils such as Durham county, where there is a large elderly population and many people who worked in heavy industry. Health needs in such areas are inevitably greater. Moreover, as County Durham is quite a rural community, even those in work often cannot move from place to place as easily as people in large cities.
I give credit to councils of all political persuasions throughout the country that have tried to encourage business into their areas. I am not convinced that keeping a small slice of the business rate is going to have a major impact, however. We should consider what the Conservatives and Liberal Democrats have done in the north-east in doing away with One North East. It was very effective at working with local councils and other partners to get inward investment and business growth. The hon. Member for Cities of London and Westminster (Mark Field) is not in his place at the moment, but he admitted that it is much easier to get business growth in his constituency than it is in mine or in those of many other hon. Members from the north of England.
Graham Jones
My hon. Friend raises a crucial point that has not been mentioned—the role of local enterprise partnerships. Lancashire has had a terrible problem with LEPs, which are skewing investment in certain areas and not interested in other areas—those who have been involved have said as much. The role that LEPs play across these district areas is not promoting business in certain parts, and that is having an adverse consequence. How can business be promoted and how can success be obtained in those conditions? Again, the Government are accountable for this.
Mr Kevan Jones
Again, that is part of the contradiction in the Government’s thinking and policy. As we have seen, LEPs are toothless tigers. They are not going to produce much growth or investment, as I know from the ones in the north-east. Certain people in the business community are becoming increasingly cynical and feel that LEPs are just going to be talking shops, rather than organisations that will do things to regenerate areas or attract growth.
Amendment 19 refers to “need” and, as my hon. Friend the Member for Warrington North (Helen Jones) said, it sets out the important issues that we need to take into consideration. I know from my north-east constituency that unemployment is a very important issue to take into account. The level of unemployment stands at 11.7% in the north-east of England, which is 3.5% above the national average. As my hon. Friend said, unemployment means that additional services are required and it puts further strains on local councils, which is why it is important to take it into account.
This debate is also about where we start from, which is why it is important to take the council tax base level into account. In the north-east, 50% of properties are in the lowest band, band A, whereas the corresponding figure for Surrey is just 2%, with 75% of properties there being in band D and above. It is very difficult for councils in the north-east to raise extra finance outside the business rate, so we are not starting on a level playing field. Mention has been made of South Tyneside, where 66% of properties are in band A, and that must be compared with the figure for Kensington and Chelsea of less than 2%.
Andrew Gwynne
My hon. Friend is making a superb point about the ability of local authorities to raise income from council tax. Is not a major issue for local authorities such as his and mine the fact that the formula grant for 2013-14 will lock in those very real cuts that such local authorities will have had to face from 2011-12 onwards?
Mr Jones
I am grateful to my hon. Friend for mentioning that, because I was about to discuss the baseline, as it has been set at 2011-12 levels. Durham county council had a grant reduction last year of some £10.9 million, which represents about a 4% loss, and that is now going to be set in stone for the next 10 years. Let us compare that with the situation in Wokingham, in Berkshire, whose authority actually had an increase in its grant of 0.2% and each person living there got an extra 30p in grant.
As I said on Second Reading, it is quite clear—I take my hat off to the Conservatives and do not know why the Liberal Democrats are turning a blind eye to this—that the Conservatives are looking after their own. They used to accuse the Labour party of doing so, but the Secretary of State makes no bones about the fact that he will help the people who voted for him. Does he give a stuff about the north-east and other places? No, I do not think he does.
It is important that we consider need because, as I said and as my hon. Friend the Member for Warrington North said earlier, with unemployment, a more elderly population and deprivation, people use council services more in such areas. Some 31% of the people living in County Durham, for example, live in the top 20% of the most deprived areas in Britain and 21.8% of children in the county live in homes that are classed as in poverty. In Wokingham, that figure is under 7%. The demand for local services in Durham is obviously a lot higher. Likewise, eight people go for every job in County Durham. A good example is looked-after children: in Wokingham, there are 22 per 10,000 children whereas in Middlesbrough, in the north-east, there are 104 per 10,000.
It is not just about the numbers but about the types of services. Elderly care and services for looked-after children are very expensive to provide. There is no cheap way of looking after elderly people or vulnerable children in care, so that puts added pressure on those councils. That must be taken into account in any assessment, as otherwise we will do exactly what my hon. Friend said that we would. We will start from the premise that this Government like to put out, which is that irrespective of where a local government organisation is in this country, there is a level playing field. There is not. Any system must take need into account and that is why amendment 19 is important and why I do not understand the Government's not being in favour of it.
Another issue that we heard about on Second Reading and that we have heard about again tonight is the idea that by retaining a certain percentage of the business rate councils will be able to incentivise and develop business. That might well be the case in some areas, but councils must cater for other factors, one of which is location. My hon. Friend mentioned Consett. Consett has actually done very well in attracting businesses, but it is a damn sight harder attracting jobs there than it is in parts of the south-east and London.
Graham Stringer
Does my hon. Friend agree that a local authority cannot possibly be incentivised to do more—most of them want to do quite a lot—by reducing the overall level of resources? The contention that a little incentive on one hand and a huge loss of grant on the other will mean that they work harder is extraordinary.
Mr Jones
I totally agree with my hon. Friend. It is a double whammy for local authorities, really, as even if they could keep some of the money and use it for incentivisation, the huge proposed cut through the 10% reduction in council tax benefit that they will have to administer will fall disproportionately on areas with large numbers of unemployed people and the elderly. Absorbing that will be very difficult for a lot of councils, certainly in the hard economic times we are in at the moment. As unemployment goes up, the pressures on the councils will increase, too.
Mr Watts
Is it not the case that if a deprived local authority gets less grant, one way or the other, it will still have to provide the key services that my hon. Friend refers to, which will mean that it will have less money for economic development initiatives in its areas? That will go counter to the Government’s stated intention for this proposal.
Mr Jones
Indeed. When local businesses in my constituency want to expand, the first thing they will ask is, “Where are the grants?”, but there are none any more because One North East has gone and the amount that the council or anyone else has to give to help is usually small. There is a perception that this change will make a real difference to most areas, but it will not; the effect will be marginal at most. My hon. Friend is also right that councils cannot just stop providing elderly care and other services. In the present round of cuts, the problem is trying to explain to people what is statutory and what is not. This Government know exactly what they are doing—[Interruption.] My hon. Friend the Member for Blackley and Broughton (Graham Stringer) chuckles, but what I mean is that they know exactly what they are doing politically on this issue.
Mr Jones
A bit far, perhaps. The Government know exactly what they are doing. As I said on Second Reading, their strategy is quite clear: they want to give freedoms to local councils, push decision making down as far as possible and then, when they have cut grants, as they will with council tax benefit and others, they will say to local people, “Well, it’s your local council that has to decide how and where the cuts come.” The Government will stand back and say, “We’re sorry, but it’s nothing to do with us.” That is the clever side of it. Part of their strategy is about making sure that they save money and cut it out of the system but that local councils, rather than themselves, get the blame for implementing the cuts.
Andrew Gwynne
Does my hon. Friend agree that an unforeseen consequence of the Bill could be that local authorities become overly dependent on one type of economic development—the type they can generate the most from in business rates? In an area such as mine, that would mean an overdependence on retail.
Mr Jones
My hon. Friend makes a very good point. In terms of economic development, local authorities might go for what will generate income rather than what will create the right mixture. Although retail shopping and warehousing produce business rates, they do not produce large numbers of local jobs, but there might be a growth in those types of business in some areas.
We should not be fooled into believing that the Government do not know what they are doing, because they do know. They are passing legislation down to local government and making sure that those in central Government do not get the blame. We need to be saying that these cuts have been implemented because of the Government—including the Liberal Democrats. It amazes me that Liberal Democrats in Durham can complain about the closure of leisure services or a leisure centre while stepping back and saying, “It’s nothing to do with us,” even though their representatives on the Front Bench in government and others are going through the Lobby to vote for such measures, as they will tonight. Without amendment 19, and without some assessment of need in the Bill, I have little faith that the Government will not do what they have a track record of doing: rewarding the areas that vote for them.
Robert Neill
The debate on these amendments has been lengthy and wide-ranging, and I shall do my best to do justice to the points raised. Some of them were specific, technical and helpful, whereas others seemed to seek to reopen elements of the Second Reading debate and, perhaps, the debate on the finance settlement. I am afraid that sometimes they were rather wide of the mark. In general, I regret to say that I shall ask the Committee to reject all these amendments if they are not withdrawn because they seem to miss some fundamental points. First, the system already recognises a balancing of need and resources: that happens now and will continue to happen. Secondly, if we are to move away from a system of excessive dependency by local government on central Government grant in order to reduce reliance on central Government grant and create incentives for growth at a local and national level, we have to move away from the current, highly centralised system. Nothing has been advanced to suggest that the current system produces the transparency—
Robert Neill
The hon. Gentleman has been very vocal, so I shall make a little progress and perhaps give way in due course. Serious points were raised in debate, and I will do my best to respond to them, if I may.
The Second Deputy Chairman of Ways and Means (Dawn Primarolo)
Order. Mr Jones, please stop shouting across the Chamber. Either try and intervene or please be quiet.
Robert Neill
Before I give way to the hon. Gentleman, he might like to reflect on this. He has been very vocal about the Second Reading debate. I remind him of this passage, when my right hon. Friend the Secretary of State, following this very point, said:
“Economic success is not a southern phenomenon”,
and the hon. Gentleman intervened and said:
“Yes, it is.”—[Official Report, 10 January 2012; Vol. 538, c. 81.]
Would he like to explain that?
Mr Jones
The Minister does not quite understand. It is for me to ask him questions in interventions, not the other way round. He said that there were perverse incentives in local government. Can he name one council where that is the case? The hon. Member for Harrow East (Bob Blackman) could not.
Robert Neill
My hon. Friend specifically gave the example of his own council. The point that the hon. Gentleman and many other Opposition Members do not get is that the Bill is not just about dealing with the short-term issues of one-year funding settlements. It is about creating a system that certainly has an element of equalisation in it, because as we all know, all local government finance systems going back many years have always had a degree of equalisation. The hon. Member for Sheffield South East, the Chairman of the Select Committee—
Robert Neill
I will make a little progress before I give way again.
The hon. Member for Sheffield South East took us a little way down memory lane with GREAs and SSAs. There has always been an element of equalisation and that will continue. The rather complicated and highly prescriptive process that is built into the amendments does not improve on what is set out in the Bill. Indeed, it would undermine some of the key objectives of the Bill.
The hon. Member for Warrington North (Helen Jones) and her hon. Friends are seeking to place what we regard as an unnecessary requirement on the Secretary of State to undertake multiple and frequent assessments of needs. That undermines the key objective of long-term certainty which provides the incentive and also stability in a local authority’s funding. As it is, the needs and resources elements are taken into account at the setting of the baseline. The baseline is set and then it runs forward. They are taken into account. Some people say, “Go back to a previous year on the baseline”, even though that would involve more out-of-date data and formulae. Many would say that that was not fair.
Robert Neill
Let me finish the point and hon. Members may find that their intervention falls into place better.
Local authorities’ baseline funding levels are set on the basis of the 2012-13 formula grant. The calculation of the tariffs and the top-ups will then ensure that the funding at the outset of the scheme is in line with that assessment of relative need and resource. That is in our system. After that, the baseline levels, tariffs and top-up funding remain fixed and the budgets grow in line with the incentive.
If the system is reset too frequently, that undermines the incentive that we wish to achieve, and in particular it severely diminishes the value of the important introduction in the Bill of tax increment financing. For tax increment financing, which the local government world has wanted for a long time and which the Lyons review advocated introducing, it is important to have a reasonable degree of certainty about the income stream against which we can securitise. That is undermined if interference and change in the system are too frequent.
I understand the point made by my hon. Friend the Member for Cities of London and Westminster (Mark Field) about uprating in line with the RPI, and I accept that there has to be a degree of trade-off in this. It means that top-up local authorities will have a degree of assurance throughout the period of the reset that their income levels will grow by inflation. That is particularly important in the case of two-tier areas, where the county councils responsible for a large number of personal services will be predominantly top-up authorities. Much the same will apply to other precepting authorities, such as the combined and stand-alone fire and rescue authorities. I accept that arguments were made on either side, but, as is always the case, a balance has to be achieved, as I know my hon. Friend will recognise.
Mr Watts
I accept that revaluation too often can cause a problem, but does the Minister agree that the valuation process has not been changed for many years and the longer the period without a revaluation, the more likely it is that no Government will do it because it will make such a difference and there will be winners and losers? There has to be some sort of judgment between how long is too short and how long is too long for a review, and is not 10 years too long?
Robert Neill
I do not think that 10 years is too long. We think that it gives a sensible balance. But it is a good reason not to put such matters in primary legislation and to say instead that they should be developed through regulations, which, as we know, will be subject to scrutiny by the House. I should have thought that that meets the hon. Gentleman’s point. An assessment is built into the system, which is then taken forward. That is why the updating report is there.
A second point concerns the question of the central share and the set-aside. I am sure that when hon. Members reflect upon this they will realise that we have always made it clear that over time, particularly when we have put the public finances back on track, we would hope to increase the proportion of business rates to the part of the rates retention scheme. But it would be imprudent to suppose—Opposition Members would not have done so when they were in government—that there might never be an occasion when the central share might need to be maintained, or on occasion, heaven forbid, increased. I believe that the economic policies of the Government will mean that it is not necessary, but legislation has to cater for various eventualities. As I say, it is our aspiration that that should increase, but equally, as hon. Members will know, the Government have, and will always have, an interest in the totality of public spending. To expect the Government to have no control over local government finance, when it is such a significant percentage of public expenditure, would be unrealistic. That is not the case under the current scheme, and it would not be realistic in future. In that regard, some of the amendments would constrain the Government unrealistically, and I hope hon. Members will understand why.
Mark Field
I accept that the straitened financial times make things very difficult, but do I take from what my hon. Friend has said that there is a longer-term aspiration, if not necessarily a fully fledged commitment at this stage, that we should look to allow local authorities to raise the council tax in future to ensure that there is a little more of a balance; that some more of the money that they are expending comes from local residents? I accept that this is not a short-term measure given the financial constraints that we are under, and I understand why the Government have tried to provide such incentives to freeze the council tax at the moment, but in the longer term, the rebalancing to which he refers should ensure that local government has other full sources of income possibly to rely upon.
Robert Neill
I understand my hon. Friend’s point. He refers to the council tax, which is a separate part of the income stream from the business rates. Of course, we have ourselves removed capping and substituted the ability, even under current circumstances, for a local authority to go to its voters by way of a referendum, which is a move in the direction of giving greater flexibility. It is the authority’s local call. In relation to the business rates element of its income, I restate that it is our desire to ensure that there is flexibility for the future. This is not intended to be a system that lasts for two or three years. I am in favour of multiple-year funding settlements, which I think we all agree on, but our system is intended to last for a much longer period. I hope that that reassures hon. Members.
Mr Betts
I thank the Minister for the slight reassurances about his thinking on the future of the set-aside, but will he reflect on the fact that many countries manage a different relationship between central and local government with more flexibility for local government? Can he think of any other advanced western democracy where local government taxes are used by central Government for their own purposes, rather than for those of local authorities?
Robert Neill
It is perfectly fair to observe that the local government finance system in this country is highly centralised, and many of us have often said that we want to make it less so. The Bill will do precisely that. I am reminded of the old phrase, “Half a loaf is better than none.” As the hon. Gentleman will know, the Lyons inquiry into local government, which the previous Government established, found that the system was too centralised, but Opposition Members conveniently ignored that when in government. We are doing something about it, so his ambition is being met at least in part.
I will say something about how this will operate. The central and local shares will have to be set out in the annual local government finance report. We will consult local government on the draft report, as we currently do, which will then be laid before the House and subject to the rigour of parliamentary scrutiny. A statutory consultation, as proposed in amendment 38, is unnecessary, as that will happen as a matter of course. We do not envisage that the shares, once they have been set at the outset, will be changed from year to year. That gives certainty that the uprating for the top-ups and tariffs will be protected until we come to a reset. We have already debated what will be the most appropriate period before a reset. That is why amendment 37 does not give any greater clarity.
The Government’s intention is that the money that comes into the central share will be returned in its entirety to local government, as currently required by the Finance Act 1988. We will do so by funding local government by grant that is outside what is currently formula grant and will now be in the rates retention scheme. There are plenty of examples of localised grants that are made in that way—for example those relating to neighbourhood policing and homelessness grants. The suggestion, from the authors of the current system, that that is centralising should win the award for chutzpah of the year so far, although it is only 18 January.
These changes are an important step towards localisation. There is a great deal of detail and we have undertaken to consult on the regulations, and I assure hon. Members that they will be subject to the scrutiny procedures of the House. As I said earlier, we have set up a working group at official level to talk through the details with the local government sector.
I have a great deal of respect for the right hon. Member for Wentworth and Dearne, who is no longer in his place but, for the reasons I have set out, I do not believe that amendment 46 is necessary to achieve a degree of fairness in the system. It would have a perverse effect, as it would prevent any of the central share money from being used to fund transitional protection arrangements under the transitional rate relief scheme. Schedule 1, as drafted, permits that, which means that transitional payments under the rate relief scheme would not fall on local government. Central Government would be in a position to pick up the cost if disparities arose. Under the amendments, the costs would have to fall on local government, which is not his intention. I hope that he will consider withdrawing the amendment before we come to vote.
I will turn briefly to the two Government amendments in the group. They relate to seriously technical parts of the schedule. I apologise for that, but they are important. First, they increase the amount that can be debited from the main rating account to include payments received in respect of central list contributions and payments that are made as contributions in aid. Those payments are made directly to the Secretary of State.