Monday 23rd January 2017
(7 years, 10 months ago)
Commons ChamberLocal Government Finance Bill 2016-17 View all Local Government Finance Bill 2016-17 Debates Read Hansard Text
The Parliamentary Under-Secretary of State for Communities and Local Government (Mr Marcus Jones)
I beg to move, That the Bill be now read a Second time.
This Government have made no secret of their ambition to build a growing, international economy that works for everyone. A global Britain, however, needs local foundations. It is not enough to have world-leading, FTSE 100 exporters; we need thriving high streets, strong independent retailers and local economies that match the exceptional growth that UK plc has experienced since 2010.
The people best placed to lead that drive for growth are, of course, our local councillors. They know their communities better than anyone; they know which strengths to build on and which challenges to address; and they hold many of the levers required to deliver change. Yet in my many meetings with councillors and council leaders, I am often told that local authorities lack meaningful incentives to grow their local economies. They tell me that the system is over-centralised, that residents see no connection between the level of local taxation and the level of services they receive and that the proceeds of local growth disappear into national coffers, forcing councils to go cap in hand to Whitehall asking for funding. That is not good enough. Local authorities, local businesses and local communities deserve a better deal, and this Bill will provide it.
The Bill delivers far-sighted, long overdue changes that radically reform the way we fund local government. It ends the main central Government grant altogether, and instead allows local authorities to retain locally raised taxes. It encourages local growth and it supports local businesses.
John Redwood (Wokingham) (Con)
Does the Minister agree that a council such as mine that actively promotes growth incurs huge bills for new roads, new schools, new surgeries and new other public facilities, which are not adequately reflected in the amount of money we are allowed to retain from the taxes we raise locally or in the support we get from the central Government?
Mr Jones
I absolutely understand that local government has been complaining for far too long that the incentive to create growth is not there, particularly because of things such as the levy, which was implemented in respect of the 50% business rate retention scheme. As my right hon. Friend will know, that levy is being scrapped by the Bill.
This is not a Bill that increases spending and puts a greater strain on local taxpayers. Rather, it offers a focused package of reform that will encourage and support local growth, while we continue to live within our means. I will start with the commitment made in October 2015 that by the end of the current Parliament local government would retain 100% of locally raised taxes. In implementing our reforms, we will move local authorities away from dependency on central Government grant and towards greater self-sufficiency. Let me take this opportunity to record my gratitude for the substantial contributions made by many in local government, and in businesses, to the development of the reforms. The Bill is a major milestone in the process, and establishes the legislative framework for the reformed system. It reflects the significant input that we have received to date, and our collaborative approach will continue as we determine the detail of the implementation of the new system.
A key part of the new system will be the introduction of stronger incentives for local authorities to increase their business rate income. That will build on the current system of 50% business rate retention. Under the reforms, which we aim to implement in 2019-20, local government will retain about an additional £12.5 billion in revenue. To ensure that the reforms are fiscally neutral, authorities’ grant will be replaced by locally raised taxes for existing responsibilities, or they will be given new responsibilities. Those matters will be subject to separate discussions, and will not be dealt with in the Bill. However, the Secretary of State announced last week that the devolution of attendance allowance funding was no longer being considered as part of the business rate reforms, and I am happy to confirm that today.
Mr Gareth Thomas (Harrow West) (Lab/Co-op)
In the consultation paper that they published last year, the Government, suggested that attendance allowance might be passed down to local government—I am glad that that is not happening—and that the £3 billion public health grant, and the better care fund that is so crucial to local authorities that face a social care funding crisis, would be axed as part of the fiscal quid pro quo applying to business rates devolution. Is that still the Minister’s intention?
Mr Jones
As the hon. Gentleman will know, the Bill does not deal with the principle of what additional matters will or will not be devolved to local government. Social care funding is an extremely important issue. It is this Government who have given local authorities the opportunity to spend up to an additional £900 million on social care in the next two years, on top of the additional package of £3.5 billion to which we have given councils access. In total, we have given them access to an additional £7.6 billion in the spending review period, which is dedicated solely to adult social care.
Steve McCabe (Birmingham, Selly Oak) (Lab)
Does the Minister accept that the Bill will significantly increase the rates demand on hospitals at a time when the health service is extremely hard pressed? For example, the rates demand on Queen Elizabeth hospital in Birmingham will rise to £7 million. If the Minister is willing to look at discretionary relief on public toilets, is he willing to look again at discretionary relief for hospitals?
Mr Jones
I am sure that, having perused the Bill, the hon. Gentleman will know that NHS hospitals do not feature in the increase to which he referred. I think he was referring to the 2017 business rate revaluation. That exercise has been undertaken by the Valuation Office Agency, which is independent of the Government. The Government have provided a package of transitional relief amounting to £3.6 billion, and NHS hospitals will be subject to the same transitional relief as other ratepayers whose business rate bill will increase as a result of the revaluation. As many Members will know, the revaluation was not designed to raise more or less business rate overall. It is a fiscally neutral exercise, which means that some business rate bills have increased and others have decreased as a result of the independent valuations made by the independent agency.
The Bill does not determine funding levels for individual councils. We continue to work with people throughout local government to deliver the fair funding review, which takes a wholesale look at councils’ relative needs and resources. We remain committed to implementing a new funding formula in time for the implementation of 100% business rates retention in 2019-20.
James Heappey (Wells) (Con)
Does the Minister agree that, although the devolution of business rates is extremely welcome, the funding gap between predominantly urban and predominantly rural authorities is already too wide? Does he agree that the review must ensure that that gap closes as soon as possible, and certainly does not widen?
Mr Jones
That, indeed, is why a rural services delivery grant was inserted into last year’s local government finance settlement, with its four-year deal. As my hon. Friend knows, this is not part of the Bill, but we are undertaking a fair funding review because local authorities in many parts of the country have apparently pointed out that the last proper needs assessment took place about 10 years ago, and that in many areas the demographic has changed completely in the intervening period. We are considering carefully how resources should be distributed across the system.
Bob Blackman (Harrow East) (Con)
My hon. Friend and I have recently shared many a happy hour debating homelessness reduction, but another issue now concerns me. Most local authorities have warmly welcomed the four-year funding settlement, but it is feared that the adjustments made to, for example, the new homes bonus have adjusted those figures. What consideration is my hon. Friend giving to adjustments to the overall four-year settlement to take account of the changes that the Department has made, which render some of these four-year settlements rather strange in comparison?
Mr Jones
As my hon. Friend says, we have spent many a happy hour debating the Homelessness Reduction Bill, which will return to the House for its Report stage on Friday. As one who is extremely savvy about these matters, as well as being a member of the Communities and Local Government Committee, he will know that the issue to which he has referred does not necessarily feature in this Bill, but does feature in the local government finance settlement, on which we have recently undertaken a consultation. We shall be responding to that consultation, and to points made by Members and local authorities throughout the country about the new homes bonus, one of which my hon. Friend has just managed to put on the record.
Richard Drax (South Dorset) (Con)
May I pick up on the point about the rural share? The 50% local share of additional business rates that are to be raised is fine in mainly urban areas, because there are more brownfield sites and areas to encourage businesses, but in seats like mine that are surrounded by every environmental designation from here to God knows where it is going to be far harder to raise this additional money, which of course local authorities desperately need.
Mr Jones
That is a valid point, and, like in the current system, going forward there will be redistribution; it will be one of the core principles within the system, because in setting up the system we must make sure there are not areas that fundamentally lose out just because they do not start from the same position as other areas in the amount of business rates collected. A number of hon. Friends have asked about rural areas and the fact that many of them are very dependent on very small businesses, many of which will be exempted from business rates completely by this Government’s £6.7 billion package on business rate relief. I can reassure my hon. Friend and other Members that the effect of the 2017 revaluation will be mitigated for local authorities, because the system will be reset to make sure areas do not lose out. Indeed, that will also be the case prior to the new 100% business rates retention system getting under way.
Mr Clive Betts (Sheffield South East) (Lab)
On the issue of redistribution, we currently have the needs assessment, and indeed the Government are going to conduct another review of needs before they start the new 100% business rates retention system. The House has information each year on the needs assessment within the local government financial settlement and, indeed, votes upon it. I understand, however, that in future we are not going to have that system; instead, we are going to have something called the principles of allocation statement, which is made and set for the rest of the period over which the system runs. The principles of allocation statement will not come to this House for approval, however. Why is the House being circumvented in this decision-making process?
Mr Jones
The hon. Gentleman is Chairman of the Select Committee and has a great deal of knowledge and commands a great deal of respect in the House on local government matters, but I say to him that we are now in a very different world from the one we were in only a few years ago, when local government collected the whole of the business rate incentive and gave it to the Government. In that sense, 80% of the spending of local government was distributed from central Government on the basis of the principles the hon. Gentleman mentions. Now we are moving to a system where by the end of this decade 100% of money within local government will be raised locally, and therefore Government will not year on year be redistributing the funding, which has been the case hitherto. The other point I would make, which has been well-recognised by local authorities in the last year on the basis that 97% of local authorities have signed up to a four-year deal, is that local authorities have asked for certainty of funding, which this system certainly will provide for them.
Dr Wollaston
I thank the Minister for giving way. He will know that the better care fund is an important redistribution mechanism, given the variable amounts that councils will be able to raise through the precept, which the Institute for Fiscal Studies estimates will raise £700 million over the next three years. Can the Minister give any encouragement on whether the better care fund will reflect the serious concerns around the problems with social care?
Mr Jones
I think my hon. Friend is referring to what we term the improved better care fund, which will go directly to local authorities. That funding has been brought forward as part of the spending review 2015. She will probably know that that funding effectively was obtained by changing the way in which the new homes bonus operates, and sharpening the incentive in relation to the way in which that system operates. As such, therefore, that additional money is not freed up quickly enough to do what she says. Although this year £105 million comes into the system, next year it will be £800 million and the year after that—the last year of the Parliament—it will be £1.5 billion. Alongside that, in this financial year we have also put an additional £240 million into the social care system as a dedicated social care grant, which again has been realised from additional savings made through the new homes bonus.
Mr Betts
I thank the hon. Gentleman for giving way a second time. I entirely accept his explanation in relation to the year-on-year arrangements, because there will not be a change every year in needs assessment as there currently is; that will be fixed for the period of a longer settlement. What is essential, however, is that right at the beginning of this new system, when the new needs assessment has been done and an allocation is agreed in the first principles of allocation statement, that comes back to this House so that we can take a view on it.
Mr Jones
As I said earlier, the hon. Gentleman commands a significant amount of respect in this House in regard to these matters, and, while he does not always realise it, there are Government Members who listen to the suggestions and concerns he raises, but I reiterate to him that we are moving into a different world, and that is why we have chosen to implement the system laid out in the Bill.
Mr Jim Cunningham (Coventry South) (Lab)
Given that the Minister is shifting the emphasis in terms of resources on to local government, how much does central Government expect to save as a result of this exercise?
Mr Jones
This situation is fiscally neutral. We expect the current expenditure of local government to be realised from the current local taxes that are raised locally, and there will be an additional £12.5 billion of spending that will also go to local authorities. As I said earlier, this Bill does not look at these items of expenditure—that is a separate principle—but we will certainly be looking to devolve additional responsibilities to local government, in discussion with local government and organisations such as the Local Government Association, which we expect to be fiscally neutral.
Mr Cunningham
The hon. Gentleman, whom I have a lot of respect for, must know that it is not really fiscally neutral, because central Government are saving money as a result of shifting the resources on to local government through the abolition of grants and so forth. Equally, he is asking local government to raise certain sums of money themselves, and we will surely reach a point where local government cannot sustain that. The important point is that central Government must be saving money—not necessarily his Department, but somewhere in the Treasury.
Mr Jones
As I said to the hon. Gentleman, an additional £12.5 billion will be going to local authorities. That will be on a fiscally neutral basis. I also point out that the whole principle on which this system is built is such that it will give local authorities the incentive to widen their business rates base and raise additional funding for providing local services as a result.
Several hon. Members rose—
Kevin Foster (Torbay) (Con)
The Minister will remember the time when we shared neighbouring councils. Does he agree that the biggest savings for the Treasury will be created by freeing and incentivising local authorities to create jobs and drive developments forward? This will allow local authorities to get people off benefits, into work and paying taxes. That will be the biggest financial benefit for the Government.
Mr Jones
As is often the case, my hon. Friend has hit the nail on the head. This is about raising local taxes that can be spent locally, but it is also about driving growth. The biggest win—and one of the most satisfying things for any of us in this House—is to see people moving into employment who were not previously working. What comes from this Bill will be a real driver for local growth.
Marcus Fysh (Yeovil) (Con)
Has the Minister looked at the Laffer curve? It is used in economics to indicate the position on the income tax collection spectrum of the optimum place to collect as much revenue as possible. We hear a lot about what this revenue can do for local government, but there is a limit on what businesses can bear, and some of the businesses in my towns are really struggling with business rates. What help can he give to local authorities to incentivise them to optimise business growth in order to optimise the collection of these taxes and the results for business at the same time?
Madam Deputy Speaker (Natascha Engel)
Order. Before I call the Minister again, I must point out that interventions are getting very long. Although we have plenty of time, it would be good if we could keep them a bit tighter. This would allow more people to take part in the debate. I call Marcus Fysh. [Laughter.]
Mr Marcus Jones
Thank you, Madam Deputy Speaker. Jones is a very popular name, although Marcus is perhaps less so. It is good to have a fellow Marcus in the House, and I am delighted by the point that he has raised. I do indeed recall the Laffer curve, albeit many years ago during my days of A-level economics. The Bill will set out a framework for local authorities to reduce the multiplier on the business rate and therefore reduce the tax rate. As he implied, that might well lead to businesses being attracted to a particular area, thereby creating additional revenue there.
Local authorities have made it clear that they want more stability and, as I mentioned to the Chairman of the Select Committee, they do not get that from the current system of annual discussions on local government funding. Councils have told us that they want longer-term arrangements, and 97% of English councils have signed up to our multi-year deal. The Bill will deliver that much-needed stability and certainty, amending the current local government finance settlement process and the related approach to the setting of council tax referendum principles. We will continue to protect local authorities from the impact of sudden reductions in income, and the Bill will provide a framework that will help councils to manage risk and ensure that they have better protection from the impact of successful appeals, so that they can focus on delivering the services that their residents and businesses need.
Kevin Hollinrake (Thirsk and Malton) (Con)
My hon. Friend talks about protecting local authorities from changes. I welcome his commitment to a fairer funding formula, but is he aware that nine of the 10 authorities with the highest spending power in the country are in London, yet nine of the 10 lowest council tax authorities are also in London? Does he agree that a fairer funding formula needs to take into account the cost drivers behind need in local areas and to be for local people, rather than simply taking into account what has gone before? Rather than being about regression, this needs to be about need and the cost of delivering the services.
Mr Jones
My hon. Friend is certainly correct in saying that we need to take a significant look at how funding is provided across the system of local government. As I have pointed out on a recurring basis, the principles for the fair funding formula do not feature in the Bill, but they are an important consideration and we are certainly taking the issues that he has raised into account in the work that we are doing alongside the Bill. We are taking soundings from local government.
The Bill also includes a range of measures to cut business rates for small businesses and local amenities so that local communities can thrive. We will take a power, following the commitment in the Budget last year, for the Treasury to set the indexation rate for the business rate multiplier. This will allow us to change the multiplier from the current rate of RPI to the significantly lower CPI measure. We will change the rural rate relief to ensure that small businesses in rural areas receive the same level of business rate reliefs as those in urban areas. This is not only fairer; it will also make a real difference to many employers across the country.
We will provide a new relief for five years for the installation of new optical fibre, fulfilling an announcement made in last year’s autumn statement. To make central Government more responsive to changing business circumstances, the Bill streamlines the administrative process of including premises on the central rating list. We will also be introducing charitable and unoccupied property relief for premises on the central list, bringing them into line with those on local lists. Much to the amusement of hon. Members when the subject came up in Communities and Local Government questions last week, we are also providing a new discretionary relief for public toilets. Councils will be able to maintain these important facilities without having to spend quite so many pennies. This Government are committed to providing the right conditions for growth. A key function of the Bill is to provide local government with strengthened incentives for growing their business rates income and encouraging local businesses to set up and grow.
Mr George Howarth (Knowsley) (Lab)
I wonder whether the Minister could clarify something for me. On the question of telecommunications infrastructure, the Bill states that the provisions will apply where
“the hereditament is wholly or mainly used for the purposes of facilitating the transmission of communications by any means involving the use of electrical or electromagnetic energy”.
My reading of that is that it confirms that the rate relief would be for the actual infrastructure used in telecommunications and that, for example, Virgin Media, which has a property in Kirkby in my constituency, would not be eligible for the rate relief under that provision. I hope I am wrong about that. Can the Minister advise me?
Mr Jones
I think that the right hon. Gentleman might be conflating the central list, and the hereditament or infrastructure, with the business rate relief, which is designed to incentivise providers to lay further networks of fibre-optic cables in the ground so that people can benefit from superfast fibre broadband across the country.
Under the current system, central Government put a levy on local growth. We have listened when councils have told us that this tax on success—this penalty for doing well—is a huge disincentive for local authorities. The Bill scraps the central Government levy for good. This means that local authorities will keep 100% of growth in business rate income between reset periods. That will be a real incentive to grow their local economies, and a great way to keep the proceeds of growth in their communities. We will also allow local authorities that set up pooling arrangements to designate specific areas where they want to boost growth. They will have the potential to keep all the growth and not lose it to the periodic reset and redistribution process.
Justin Tomlinson (North Swindon) (Con)
To unlock growth through the provision of considerable incentives, we need councillors with direct, relevant business experience. What more can be done to encourage busy businesspeople to put themselves forward for office?
Mr Jones
My hon. Friend, who is an entrepreneur, is absolutely right. This Bill and the measures being brought forward will attract entrepreneurial people to the role of councillor. Unlike in the past, when local business rates were collected locally and sent back to Government and then distributed across the country, the change will give local authorities a real incentive to be entrepreneurial and to attract the people that he and many of us want to see in local government.
Going even further, the Bill will provide real flexibility to local authorities. Councils can already provide business rates relief for parts of their area or particular sectors. As a result of the Bill, for the first time since the establishment of the business rate system, councils will be able to reduce the national business rate multiplier for their whole authority, helping them attract business and investment to their area. We are also supporting investment where it is needed to boost growth through infrastructure investment. The Bill will enable mayoral combined authorities and the Greater London Authority to raise a small supplement on business rates in full consultation with businesses to enable them to realise their areas’ growth ambitions. To recognise property owners’ wish to support the regeneration of their areas, the Bill will allow the establishment of new arrangements for property owner business improvement districts, That will enable property owner BIDs to be established across the country whether or not a business rates supplement is in force in that area, allowing a levy to be raised on those with a property interest.
Running a business is more than a full-time job. The working day does not end when the “Closed” sign goes up. There are huge and growing demands on anyone running a business of any size, and such entrepreneurs deserve to have the Government standing firmly behind them, not getting in their way. We will therefore take a power to make the business rate system more convenient, ensuring that every business can access e-billing, and we will provide guidance to ensure that bills look the same everywhere. If a business has premises in Rochdale and in Richmond, it should not have to wrestle with two completely different sets of paperwork. Finally, the Bill includes a paving measure that will help us to meet our commitment of offering joined-up access to tax bills, including business rates, by 2022. The measure will give Her Majesty’s Revenue and Customs the ability to carry out early design work and engagement to develop proposals for how that can be delivered.
For too long local government has been too dependent on the whims and largesse of Whitehall and Westminster. Now is the time to change that forever. Now is the time to help local leaders focus on growth. Now is the time to reduce the burden on local businesses. The Bill provides the framework to do all of that and more. It will realise once-in-a-generation reform that will revolutionise local government funding. I am delighted to commend the Bill to the House.
Mr Gareth Thomas (Harrow West) (Lab/Co-op)
The people of England should have more power to shape their own destiny without having to wait for the say-so of Ministers. However, the Bill is just one part of a mix of new law, funding reviews and detailed regulations, and only when all are publicly available will we know whether Ministers have merely devolved responsibility for more badly funded local services, or if serious opportunities for local initiatives are genuinely being created.
The Conservative party has too often had a hostile attitude in practice to the idea of local people being given the power to govern themselves properly. Opposition Members well remember the attacks of the late Margaret Thatcher on local councils, the introduction of the poll tax, the abolition of London local government and the nationalisation of business rates. Notwithstanding recent deals on extending local powers in some areas, local council services have been one of the hardest hit areas of Government funding in every Budget since 2010.
James Heappey
While we are reminiscing, does the shadow Minister remember that the Labour party made harsh cuts to rural councils during its time in office, which was the cause of many of the problems with the imbalance of funding that we now face?
Mr Thomas
I do not remember that. Under the previous Labour Government, I remember rural local councils being well funded and able to invest in local services, unlike the position that they face at the moment.
Devolving more financial power to local areas so that public services can be properly funded, with new business activity encouraged and vital infrastructure investment given the go-ahead, is an ambition that we would support, but the detailed implementation of the measures that the Bill paves the way for could make the difficult funding situation facing local government even worse, exacerbate the social care crisis and leave council tax payers having to foot even more of the bill for local services. If the measures are badly introduced, regional inequality could deepen and divisions between areas with a large business community and those with more entrenched barriers to growth might increase. We support the principle of 100% business rate retention, but such a policy needs to be accompanied by a redistribution formula that addresses the divide between those councils that have sizable business rates income and those that do not. It must ensure that no area of England is left behind or worse off than it is now.
John Redwood
Has the shadow Minister given any thought to what incentives might work in some Labour council areas where the business rate level is low and there does not seem to be any industrial or jobs growth?
Mr Thomas
I have given that some thought. If the right hon. Gentleman is successful in getting on to the Bill Committee, I hope that we can debate such questions a bit more.
The Bill does not answer the many questions that local councils have about how business rate retention will work in practice. In particular, there is no clarity about what additional responsibilities councils will be allocated in return for 100% business rates retention.
The Government’s record on local government will give few people confidence that they are capable of addressing such concerns. Over the past seven years, this Government and their predecessor have taken an axe to local government spending. The people of England have been left paying more council tax for worse local public services. Last month’s local government settlement only brought more of the same: Ministers forcing councils to put up council tax and make more cuts to local services.
Mr Marcus Jones
What the hon. Gentleman is saying is interesting because council tax is 9% lower in real terms than it was in 2010. Does he accept that council tax doubled when Labour was in government? That is not a record to be proud of.
Mr Thomas
I admire the Minister’s wishful thinking in coming up with that fact. I gently suggest that he looks at his Department’s spending record on local council services. This year, councils will spend some £10 billion less than they spent in 2010-11. By 2020, according to the Local Government Association, councils will face a £5.8 billion gap just to fund statutory services. Since 2010, powers have been passed to councils without the necessary funding to go with them, so it is hardly surprising that sceptics wonder whether the Government are really interested in meaningful devolution, or just in devolving responsibility for cuts.
Every local authority has a list of lost services. The doors have shut on libraries, day centres and museums. Leisure centres, swimming pools and playing grounds have closed. Rural bus services, fire safety checks and youth services have been reduced, abandoned or shut. Legal advice services have been axed and women’s refuges have been lost. Investment in parks and street cleaning has been limited. All those services are treasured by local communities and represent vital lifelines for vulnerable residents.
Kevin Foster
It is interesting to hear the shadow Minister’s list. Can he remind me exactly how much extra funding the then shadow Chancellor, Ed Balls, promised as part of Labour’s plans for government in 2015?
Mr Thomas
If the hon. Gentleman looks at our manifesto, he will see that we committed to devolving £30 billion of additional spending from Whitehall to local government.
The Government like to pretend that it is simply ineffective management that stops councils providing key basic services, and that those local councils that are not making cuts to such services are managing their resources effectively. The former Prime Minister David Cameron, perhaps inadvertently, exposed the delusion best when he wrote to the Conservative leader of Oxfordshire County Council in 2015:
“I was disappointed at the long list of suggestions…to make significant cuts to frontline services—from elderly day centres, to libraries, to museums. This is in addition to the unwelcome and counter-productive proposals to close children’s centres across the county. I would have hoped that Oxfordshire would instead be…making back-office savings and protecting the frontline.”
That lack of understanding of the consequences of his own Government’s actions received the response it rightly deserved from the council leader, who wrote back to explain that some 2,800 council employees had already lost their jobs, that the remainder had experienced pay freezes or below-inflation pay increases for a number of years, and that assets had been sold off to fund revenue costs.
Bob Blackman
Will the shadow Minister help the House by clarifying one Labour party policy? There is currently a cap on the amount by which local authorities can raise their council tax. If councils wish to raise it further, they have to call a local referendum. Does he support that cap, and does he agree that there should be a referendum if local authorities wish to raise their council tax further so that we can get the democratic view of local people?
Mr Thomas
I will address the hon. Gentleman’s interesting question in the context of Surrey County Council’s announcement last week that it will hold a referendum on a 15% increase in council tax. I wonder how he or Ministers in the Chamber will be advising people who live in Surrey, including the Chancellor of the Exchequer, to vote in that referendum.
Perhaps one can sympathise with Surrey county councillors after not a single penny of new money was put into local government to help to tackle the social care crisis. Few people in local government think that the Secretary of State’s statement last month on local government finance will stabilise the care market, enable the recruitment of extra frontline care workers, ease the pressure on NHS hospitals, or ensure that all families with loved ones who need help will see them getting the level of care they actually need.
One reason why Surrey’s decision is so striking is because it has been able to increase spending on adult social care by more than 34% since 2010-11. Some councils have had to decrease spending on adult social care by almost the same proportion over the same period. In fact, only two out of the 152 social care-providing local authorities have been able to increase their spending on social care by more than Surrey, so if Surrey says that it cannot cope with the demand for social care, where can?
Although even Oxfordshire and Surrey have been unable to protect frontline services, the impact of local government cuts has been disproportionately felt across the country. The Bill offers no guarantee that the situation will get any better. The poorer an area, the greater its needs and the more it relies on public services, which are often funded by the revenue support grant, yet this Government’s cuts have hit the poorest areas the hardest.
The Institute for Fiscal Studies has stated that those councils
“among the tenth which are most grant-reliant have had to cut their spending on services by 33% on average, compared to 9% for those…councils among the tenth which are least grant-reliant.”
We cannot even call that a postcode lottery. It is true that postcodes matter, but it is not luck or chance that determines the quality or quantity of local services; it is the actions of this Government and their decisions taken in Whitehall. That is the context in which we must consider this paving Bill today.
Before any Government Member again tries to advance the idea that local councils are set to get a significant stream of new funds from keeping 100% of business rates, Ministers have always made it clear that what they give, with great fanfare, with the one hand today, they will take away on another day—probably when fewer people are looking—with the other. The Bill will apparently be fiscally neutral.
Steve McCabe
Birmingham City Council is a perfect example of giving with the one hand and taking with the other. It has been pretty brutally treated by this Government. Birmingham gets £5.6 million from the new adult social care fund, but it is losing £5.6 million as a direct result of the changes to the new homes bonus.
Mr Thomas
My hon. Friend makes a good point. Many local authorities throughout the country have seen services such as housing similarly disadvantaged by the Secretary of State’s decision.
There is no detail of what extra responsibilities will be passed to councils, or which of the additional grants that councils currently receive for their responsibilities will be taken away. Even though councils’ statutory responsibilities are not being properly funded now, Ministers expect councils to take on even more while losing further funding.
As I have indicated, I welcome the Secretary of State’s confirmation that he will not go ahead with his predecessor’s plan to get councils to handle attendance allowance but, as I made clear in my intervention on the Minister, this merely raises the question of what will happen to other specialist funding. The House will have heard the Minister refusing to rule out the end of the better care fund, which I hope the hon. Member for Totnes (Dr Wollaston) clocked, or the end of the £3 billion public health grant. Members representing rural areas would be right to worry about the future of the rural services delivery grant, which is also flagged up for possible axing in the Government’s consultation document.
The Minister has again promised that no local authority will lose out. Does that mean that local authorities will not lose out in year one because there might be some transitional help, or does it mean that every council will be better off and able to meet its statutory responsibilities in full throughout the next Parliament? I welcome Ministers’ intention to pilot their policy approach in five areas, and it is crucial that there is a fair system of top-ups and tariffs for redistributing resources between authorities.
Ministers have indicated that the system will be similar to the one that they introduced under the 50% business rate retention scheme in 2013-14, but that is not wholly reassuring. The Institute for Fiscal Studies has considered what would have happened between 2013-14 and now if 100% of business rates had been retained instead. It found that 16 councils would have seen their funding increase by 20% or more, whereas just one council has seen such a significant increase under the 50% retention scheme. Conversely, 122 councils would have seen their funding fall, with 12 losing more than 2% of their funding. No council has lost that much under the 50% scheme. To have a fair funding system under a 100% business rate retention scheme, the system of top-ups and tariffs must be amended, so why have Ministers introduced the Bill without publishing the responses to their consultation on the detailed implementation of that measure, which closed last July, and without even a date for the publication of their fair funding review?
The Bill raises more questions than it answers. For example, how will Ministers handle the business rates income of a local authority that benefits from a major national Government decision, such as to expand Heathrow or to build a high-speed rail terminus in its authority area? The business rates of Hillingdon Council, which neighbours my council, have always benefited from Heathrow. Westminster City Council similarly benefits considerably from business rates income that arises because of its fortunate proximity to major national assets. In such cases, how will some of the inevitable growth in business rates income, which will have little, if anything, to do with council policy, be redistributed to help authorities that do not benefit from such big advantages? Ironically, although Hillingdon Council has opposed the expansion of Heathrow, it stands to benefit significantly from business rates growth while doing nothing at all to help to generate it.
We also want to explore what would happen if a major business closed or moved away through no fault of the local authority concerned. The sudden loss of a major source of business rates income would have huge implications for the future of local services, but the safety net that Ministers are proposing looks less than generous, especially when we do not know how frequently the needs of each local authority will be reassessed and the top-ups and tariffs system will be reset.
The decision to allow only mayoral combined authorities to introduce an infrastructure supplement appears petty and vindictive. If a community needs infrastructure urgently, local English leaders should not have to jump through extra hoops to put together funding just because they are not a mayor.
Too many big decisions relating to how the business rates regime will work in practice are not yet clear, and too many big decisions will remain with the Secretary of State once the new regime is in place—that much is clear. As my hon. Friend the Member for Sheffield South East (Mr Betts), the Chair of the Select Committee, made it clear, it therefore seems a little drastic to abolish the need for Ministers to be held accountable annually for their performance on local government finance. It appears that they will still be decisive players in deciding which parts of England benefit more from business rates and which less so. The House should be able to hold the Secretary of State to account specifically for his performance on this matter.
Local government in England and the local services that the people of England rely on have been poorly treated by the Conservative party in the years since 2010, and the Bill could make things even worse. We will give the Bill a fair wind tonight and seek to improve it, but if significant change is not forthcoming, we will have to consider afresh our approach to the Government’s handling of this issue.
Several hon. Members rose—
Madam Deputy Speaker (Natascha Engel)
Order. Before I call the first Back-Bench speaker, I should say that 16 Members wish to speak in the debate, so if we keep speeches to around 10 minutes or under, there will be no need for a formal time limit.
Mr Christopher Chope (Christchurch) (Con)
I am sorry that the shadow Minister’s glass is half empty. He said that the Bill had the potential to create a much better situation, as I think it has, but also seemed to be emphasising that he thinks things are going to be far worse. I am glad he is at least not going to be voting against the Bill’s Second Reading.
My hon. Friend the Minister referred to a once in a generation reform; I can recall my involvement as a Minister during the passage of the Local Government Finance Act 1988, when I took forward the uniform business rate, among other matters. I am delighted that my hon. Friend has retained the principles of the uniform business rate, which was introduced to prevent Labour councils at the time—for example, in Liverpool—from so attacking their own businesses that they drove them out of town and, in so doing, drove the jobs away as well. I am glad we are not going to be allowing councils the freedom to destroy jobs which they had prior to introduction of the 1988 legislation.
I welcome the emphasis on certainty and predictability, in which context I ask my hon. Friend the Minister to set out a bit more clearly how the reforms that he says are going to be brought into effect in 2019, including the new funding formula, are going to interact with the four-year settlement, which, as I understand it, will still be there in 2019-20. For example, we have heard from the Government that councils can increase their adult social care precept by an extra amount in the next financial year and the year after, but in the third of those years, 2019-20, they will not be able to. How are those arrangements going to interact with my hon. Friend’s laudable objective of introducing all these reforms in 2019-20?
Clause 4 is very relevant to matters of local government reorganisation. The nine councils in Dorset are meeting this week and next to decide whether they wish to go down the road of a local government reorganisation. Two of those councils, Poole and Bournemouth, seem to be supporting the idea of creating a new unitary authority with Christchurch, in the belief that were the Secretary of State unwise enough to approve such a proposal and the unitary authority was set up, on day one the residents of Christchurch would be paying £200 more in council tax at band D than the people resident in Poole or Bournemouth.
Last week, my hon. Friend the Minister responded to my written question to confirm that it is not possible for an individual principal authority to levy council tax in one part of its area at a level different from that in another. That is an important principle. I hope that my interpretation of clause 4 is correct when I emphasise that were there to be a unitary authority covering Poole, Bournemouth and Christchurch, from day one the people of Poole, Bournemouth and Christchurch would all pay exactly the same level of council tax.
The idea of excessive levels of council tax has often been interpreted as being about excessive levels of increase, but, as the explanatory notes on clause 4 make clear, the clause will allow
“the Secretary of State to make a statement of principles for determining whether council tax is excessive covering a number of years, rather than just one.”
Am I correct in my assumption that were there to be a new unitary authority for Poole, Bournemouth and Christchurch, the Secretary of State could use the powers in clause 4 to say that there should be one set level of council tax for the authority, starting from day one? I ask because later this week, in both Poole and Bournemouth, councillors are going to be invited to support the proposal for a unitary authority in the mistaken belief that they will continue to be subsidised by the residents of Christchurch for 20 years, under an equalisation/harmonisation regime. If they were disabused of that and told that from day one they would be liable for an increase of up to £200, I think minds would be concentrated and there would not be quite so much enthusiasm on the part of councillors in Poole and Bournemouth for what is being proposed, which is hotly contested by councillors not only in Christchurch but in other parts of rural Dorset.
I hope I can get some clear answers to those questions. The essence of the provision in the Bill is that if councils impose excessive levels of council tax on their citizens, there should be the safeguard of a referendum, but what is proposed in the name of local government reform in Christchurch, Poole and Bournemouth is that people in Christchurch should be expected to pay extra council tax but will not have the chance of a local referendum to decide whether or not they wish their council to be abolished and absorbed into a new one. If we can have referendums on the levels of council tax, why can we not have referendums on whether a council is to be abolished? It seems that something is rather out of sync.
In responding to this debate, will my hon. Friend the Minister be a little bit clearer about the pooling arrangements? Why are the Government taking the power to introduce mandatory pooling arrangements, and how will they work? Can all nine local authorities in Dorset be regarded as a pool for the purposes of business rate income and distribution? I do not see any problem with that. In fact, it might be quite desirable, but why must it be imposed by the Government, rather than agreed to locally?
My next point came out in the response of the shadow Minister. I am concerned that, as a result of the powers being given in this Bill, some businesses may find they are in a minority in an area and subject to significant extra supplements on their business rates. How will we ensure that a minority of businesses are not oppressed by the majority? In east Dorset, there is a business improvement district centred on a Ferndown industrial estate. When it was set up, there was concern among some businesses that they might end up paying extra for things that were of no use to them. Can my hon. Friend spell out the safeguards that will be in place to ensure that significant increases in supplements or additional business rates are not imposed on hard-pressed businesses?
I turn now to clause 9 on public conveniences. Christchurch Borough Council has been privileged to win the Loo of the Year award on many occasions, and it has a really good selection of public conveniences, as befits its age profile and its reputation as a very important tourist destination. Meanwhile, much to the consternation of the local people in Poole, Poole Borough Council has decided to close half its public conveniences. Some councils are now thinking outside the box and saying, “Why can’t we enter into joint arrangements so that public buildings can be made available for the provision of public conveniences?” [Interruption.] My hon. Friend the Minister is acknowledging that. On reading clause 9, it seems that there will be no relief from council tax or business rates for a building that partially consists of a public lavatory but that offers other facilities as well. It is difficult to speak to clause 9 without puns, but I hope that the gist of my point has come across. Why would we wish artificially to restrict a relief such as this and say that it will be available only on a free-standing, dedicated public lavatory?
Richard Drax
The matter of public conveniences of course raises some humour, but let me make this point. When I attended an Age UK event some years ago, I was told that there are 2 million people in this country who can be no more than 10 minutes away from a loo. If there is not one available, they cannot leave their house. This is a serious issue, and money is needed to provide this vital service.
Mr Chope
I agree with my hon. Friend. One reason why I am a great supporter of small local district councils is that they are accountable to the local town and the local people. It means that those local people can decide whether more money should be spent on public conveniences or on public parks. It is much better to leave those discretions to the local councils, which is why I am so strongly against the imposition of unitary authorities in Dorset.
Mr Clive Betts (Sheffield South East) (Lab)
I rise to support this Bill in principle, although much of the detail, which will determine whether it will be effective in practice, is not in the legislation itself, but will be worked out in due course.
Just in passing, I note that the hon. Member for Christchurch (Mr Chope) gave himself credit for the uniform business rate system. I noticed that he did not give himself credit for the other part of that Act when it came in at the same time.
Mr Betts
The hon. Gentleman is the last Member standing who supports that legislation.
Let me refer to the first report this Parliament of the Communities and Local Government Committee, which went into considerable detail about the Government’s proposals on business rates. As we were conducting our inquiry, the Government announced a further consultation, so this was a list of matters for the Government to consider, which I hope they are doing. We had a good deal of evidence about issues that do need consideration and resolution before the system finally comes in. I will not refer to the general issues of local government finance. My concern is that, since 2010, local government has received far more than its fair share of the austerity measures, and that local councils, such as my own northern council in Sheffield, have received more than their fair share of the cuts that local government as a whole has had to endure.
I welcome the devolutionary approach that the coalition Government took and that this Government are now taking, but only as far as it goes. I recognise that devolution cannot simply be about devolving powers and giving councils more control over money that Government give to them, but councils must have more ability to raise that money in the first place. Fiscal devolution is just as important, and the Committee has recognised that. This Bill, in a very small way, goes in that direction, but it still leaves us the most centralised country in western Europe.
I thought the Minister was getting a little bit carried away at the end of his speech when he called the measure “revolutionary”. I cannot really see this as a revolutionary change in local government finance. It leaves us with local authorities having to rely on council tax—I have no problem with that—which raises about 28% of local government finance. It is the only tax in central and local government that needs a referendum to increase it beyond a given amount, which is determined by the Secretary of State.
I have one little point about this proposed legislation: in future, this House will no longer be able to approve Ministers’ decisions on the threshold at which local authorities have to bring in a referendum to have a council tax increase. That is yet another power taken away from this House. I hope that, at some point, Members will have the chance to express a view on that.
On the business rate retention, it is a 100% retention of the growth in business rates—that is what the system means—with no power to determine multipliers, except to reduce them. On the supplement, in very limited cases—for mayoral combined authorities or the Greater London Authority—the business rate can be increased by a very small amount for specific projects. It would be right and more democratic if councils themselves had the ability to determine business rate multipliers at a local level, even if they did it on a joint basis with other councils. That would take us back to the system that operated before the hon. Member for Christchurch had his say and brought in the new legislation.
I do not know why Ministers are so resistant in this regard, because, in the end, if councils cannot determine multipliers, they have very limited ability to raise income from business rates. I accept that they can do it by approving development—the whole purpose of this is to give more incentives to do that—but that is limited control indeed. It still leaves us with a very centralised system.
There are some important details that we must get right. We had an enormous amount of evidence in our inquiry that showed that the appeals system is a major problem for councils. Rather than falling on the central pot, the cost of appeals potentially falls on individual councils. I understand that, collectively, local authorities are holding back about £1.5 billion in reserves to cushion against appeals. When my own local authority in Sheffield gave evidence, it said that 33% of its business rate base was subjected to appeal, which is a very high figure. We need to deal with that uncertainty for local councils.
By far the biggest challenge in this Bill is how we marry the need to give incentives for development, which I entirely accept, with the need to equalise within the system—to recognise those authorities that cannot grow their base as rapidly as others but still have needs that are high and that might grow in future. My concern is that trying to do that with one tax is a bit like trying to play a round of golf with one club. Can we really do competing things—equalise and incentivise—with the same tax, or are we going to keep some form of grant to do the equalisation, which might make the system an awful lot simpler? Equalisation is never simple, but it could become more complicated because it is now being addressed as part of the business rate system. I will leave that with Ministers to think about.
I welcome the fact that Ministers are going to be doing the new needs assessment with the Local Government Association, which I understand will have a working group. The Communities and Local Government Committee will do some research on that as well.
Let me move on to the complications with resetting in the system, which is really important. If we reset too often, we take the incentives away, but if we do not reset often enough struggling authorities will struggle for longer. Will Ministers look at some form of rolling reset— this is an interesting idea that the Committee heard in our inquiry—so that we do not have a cliff edge where we say, “Right, all the extra business development you have had in the past six years will now be stopped in the system and the whole thing will be reset.” What happens if there is a new development only six months before the reset? Why would any authority want to encourage that development when, if it waited another few months, it would fall into the new period and get the benefit of the business rate for longer? Those are some technical issues that we really need to address.
Will we have a new needs assessment every reset period, or will the needs assessment that is done at the beginning of the system last in perpetuity? If it is the latter, how is the needs assessment going to work with the reset periods? Again, I think that it would be much easier if the needs assessment were done in relation to a separate grant kept within the system. I accept that if we had a separate revenue support grant we would need to devolve even more powers to local government to absorb the money from that grant, but it might be easy to do, and it would be in the spirit of devolution then to devolve even more powers. I ask the Minister to look at our Committee’s report in that regard.
I am pleased that tenants allowance has been taken off the agenda. If we are going to devolve powers, can we make them powers that are relevant to business mainly in relation to transport and skills, which were asked for in relation to economic development? Businesses could then understand that, although they could not have an immediate say in linking the money raised from business rates to a particular project, their taxes are, in principle, related to business activities in their area. I also say to Ministers that if we are to have a new system, there are still powers under section 31 for them to give grants.
We cannot consider a whole new system without looking at social care. We have to look at a long-term, revised arrangement for funding social care. One of the real concerns—it came out during our inquiry—is that social care demands are likely to increase faster than income from business rates. If we are relying on income from business rates to fund social care in the long term, there is bound to be a growing disparity. If we build that into the system right at the beginning, the system will never succeed in doing its job. Let us have an independent look at social care, and at whether some other form of funding needs to come in to support it in the long term.
Dr Daniel Poulter (Central Suffolk and North Ipswich) (Con)
The hon. Gentleman makes a good point about social care, because far too often one solution is plucked out of the air as the golden bullet to tackle a real funding crisis, with demand for social care services increasing by at least 5% a year across most local authorities. He is absolutely right that we need a long-term solution. Will he say how that could be incorporated into the Bill?
Mr Betts
I am not sure that we could get that into the Bill, given its long title. The Government have to think about the longer term. If they are going to completely reform the business rate system at the beginning of 2020, and the funding for the responsibilities of local councils, without addressing the fundamental problem of social care and the demand to which the hon. Gentleman rightly draws attention, with 5% year-on-year growth, they are devising a system that will fail. I do not want it to fail; I want it to succeed. I want us to give more powers and responsibilities to local councils and increase their ability to raise funds, but we need to address this problem and see it in the wider context, even if it cannot be incorporated into the Bill.
I have one final point to make, and it is a very important one. The previous Chancellor announced plans to extend small business rate relief and change the way in which the multiplier for business rates was calculated, from the retail prices index to the consumer prices index. Both those measures reduce the amount of money that local councils get from the business rate. What the Government have said so far, as I understand it, is that they will compensate councils in the current system for those changes, and no doubt they will be reflected in the amount of money taken forward for the new system for which councils will then get new responsibilities. What would happen if a Chancellor were to make some similarly drastic changes to the business rate system? How would local councils be compensated if there were no revenue support grant to do so? I think that Ministers have to address that very important point. Either the Government want to give up their powers to change the business rates system once it is set, or they will bring in changes in future, in which case how will they compensate councils if they remove their grant-making powers altogether? That point is so fundamental that I think Ministers have to address it.
I will end where I began. I support the Bill in principle, because it is a very small step towards more devolution and giving councils more powers and a little more control over the money they raise to spend on the important services they deliver. I cannot agree with the Minister that it is revolutionary, but it is a small step in the right direction. I look forward to seeing more of the detail, but in principle I support the Bill.
Mark Field (Cities of London and Westminster) (Con)
It would be remiss of me not to congratulate the Minister for Housing and Planning, who will respond to the debate, because today is his birthday. What a way to spend a birthday: having to sit around and listen to this debate. Of course, The Guardian, in its typically cavalier approach to the facts, suggested that he is only 45 years old.
I commend the Government for their more flexible approach to local government financing, which I think is broadly supported by the two local authorities in my constituency.
It is a pleasure to follow the hon. Member for Sheffield South East (Mr Betts). I share some of his concerns about the way in which local authorities might, if there is a lag in the system, try to game the system by holding back on new developments either being given permission or being built until such a time as they would qualify. I hope that that concern, along with other possible unintended consequences of this measure, will be addressed by the Minister tonight and later in our consideration of the Bill.
The City of London corporation is grateful for the provisions that will compensate councils for losses arising from valuation appeals. That has been a very significant problem for the City, particularly in the aftermath of the commercial property downturn in the late part of the previous decade, for which the corporation had borne the substantial risk under the rates retention scheme, despite the matter being entirely out of its control. Clause 2 addresses that issue, and I believe that it is very welcome. However, I should note that it comes in the form of a discretionary power to be exercised by the Secretary of State. Further information would be appreciated on how precisely that power will be used, and particularly whether full compensation will be provided for appeal losses.
It is also correct at this stage to put on the record the support that the City of London feels for the wider devolution proposals put forward by London Councils and the Greater London Authority, but it seeks to maintain the special arrangements that recognise that the City ought to retain a greater proportion of the business rate since the amount it can raise from council tax is limited by its small residential population—it has only around 7,000 inhabitants.
I am very aware that many colleagues here who are not London Members will feel, as we all probably do, that if we were starting to look at Government finance, we would not start from the position we are in now, which is an accumulation of various bits of legislation that go back many decades. I am not sure that any of us really wants to go through the rigmarole of looking at this issue entirely from first principles or that we would be brave enough to do so—perhaps only my hon. Friend the Member for Christchurch (Mr Chope) would be happy to. However, the difficulty is that if we do not, there will be what many of my rural colleagues will feel are great advantages to London. The truth about London is that it is an extremely expensive place to live, and what seems like relatively generous treatment in council tax terms reflects that high cost of living in many ways.
If I may, I will turn to the western part of my constituency, which is where we are now. Westminster City Council is seeking Government support for its West End partnership investment programme, which might also incorporate parts of the London borough of Camden. The programme aims to maintain private sector investor confidence at a time when businesses are anxious about the imminent impact of a business rate revaluation. The council would be looking for the programme to work alongside the Bill. The programme would consist of transformative works to improve the public realm, infrastructure and environment in the west end of London, such as in the Oxford Street district. That will, in turn, secure direct private sector co-finance and trigger additional investment by landowners and business occupiers.
I accept that my local authority is very unusual. Westminster contributes 3% of UK tax revenues, making the highest single contribution of any borough. It also has the highest business rates collection in the country, at £1.8 billion a year, and that will rise, it is assumed, to about £2 billion in the next financial year. Ratepayers in Westminster also contribute more business rate supplement than those in all 20 outer London boroughs combined, including £1 billion towards Crossrail, with businesses in the Oxford Street area contributing half of that. I appreciate that the capacity of west end businesses to contribute business rates and other tax revenues for other projects, such as Crossrail 2, is now highly dependent on their confidence in the west end operating environment.
Major improvements to paving, roads, lighting, traffic lay-outs and infrastructure will be required to bring the west end up to the standard expected by the firms located there and the millions of people—both UK and non-UK residents—who visit. Existing local authority and GLA funding mechanisms are simply unable to address all those problems, and I appreciate, as someone who represents two parts of this central, global city, that a mechanism cannot necessarily apply in this case and that there has to be a sense that this state of affairs is exceptional.
The West End partnership programme is resolutely designed to improve the dwell-time of visitors and, of course, their average expenditure, reversing a recently declining trend, compared with other world cities. That will not only improve onward tourism from London to other parts of the UK—that is an important point to make—but increase the number of international business visitors who trade with several global-facing sectors located in central London. Those include, for example, the Soho media cluster just south of Oxford Street east; the Harley Street medical cluster north of Oxford Street west; the knowledge and creative quarter around the northbank, or the Strand and Aldwych area; and, of course, the very significant financial services sector, which is no longer just in the City, with hedge fund land now very much in the Mayfair and St James’s area.
As far as London is concerned, it is important to stress that the supply chains and jobs often reach out to the UK regions. It is often said—I am looking at the hon. Member for Erith and Thamesmead (Teresa Pearce), whose constituency is in one of the outer London boroughs —that London gets a very good deal and that we get all the infrastructure development, whether that is the Olympics or Crossrail, but it is important to make the vital point that if a lot of that money did not come to our capital city, it would not come to the UK at all, but go to another global city. It is also the case with so much of the money that is invested that jobs are created, with contractor and construction jobs going beyond the capital. Fellow Members who walk to Victoria station or in the west end can see what is happening with Crossrail, but phenomenal numbers of jobs are going to other parts of the UK. The truth of the matter is that this investment has great benefits beyond London, so we should not look too harshly on what seems like special pleading from the capital city for future development. [Interruption.] I can see there is already another division on the Front Bench of the Labour party, given the knowing look from the hon. Member for Erith and Thamesmead. However, that is an important point to make, because the iconic and UK-wide opportunities based on central London will hinge on the outcome of the funding decision for the West End partnership programme.
Many overseas retail brands and retail concepts new to the UK will obviously be trialled in central London and then rolled out nationally. These and similar economic flows between London and the UK regions are often two-way, with London dependent on supply chains in the regions, and the regions highly dependent on London’s performance. If the capital city succeeds, there are benefits for the rest of the UK—this is not a zero-sum game. We need to make that point, and I appreciate, as a London MP, that I need to make it very robustly. However, it would be foolish to cut away London’s success, because the rest of our country would also suffer.
Westminster’s local authority believes that the programme it has in mind could create £12.3 billion of additional economic output and generate a further £2.5 billion to £3 billion in tax returns to the Exchequer simply by producing additional floor space, increasing revenues over and above existing Government projections for the business rates to be collected in our area. The private sector is prepared to invest in a very joined-up, strategic approach to the development of the west end. That will consist of cash payments from property firms and business occupiers towards public realm and road works packages.
My local authority submitted its strategic case and programme to Her Majesty’s Treasury in March 2016, and discussions are ongoing. The core of the programme would currently cost £814 million. Of that, £409 million would be required that cannot otherwise be funded from existing sources available to Westminster City Council, such as cash contributions from the private sector, GLA funding and the community infrastructure levy. The preferred funding option would result in Westminster City Council increasing local retention from 4% to 6.5%, enabling it to borrow sufficient funds to finance the entire programme over a 15-year period.
Let me say one quick word—this will probably unite Members of the House, albeit in different ways—about business rates, which are a looming nightmare for many small businesses in my constituency, and I think that that applies to much of London, but also beyond the capital. I appreciate that the Government have put together a very welcome £3.4 billion relief scheme nationally, which is designed to benefit the capital city more than other regions. None the less, the most recent consultation did not provide some London authorities with sufficient time to work out the extent to which our local businesses will be affected. I make this appeal to Ministers: Westminster City Council would like to see something more akin to the 2010 relief scheme, and it very much supports the suggestion that we break rateable value into three categories to recognise the varying abilities of small, medium and large businesses to pay business rates.
I take this opportunity to wish the Government great success with the Bill. I hope it is the first of many moves towards devolution. It has been rightly pointed out that this country, for historical reasons, has the most centralised tax base of any western European country. That cannot be a healthy state of affairs if we are to have thriving local democracy. The Bill is an important first step forward—the first, as I say, of many.
Mr Jim Cunningham (Coventry South) (Lab)
It is a pleasure to follow the right hon. Member for Cities of London and Westminster (Mark Field). I have known him a long time, and I have listened to him in many debates in the House.
I will go along with the Bill tonight and support my Front Bench, but I have to say I am a bit suspicious. I am sure the Chairman of the Communities and Local Government Committee, my hon. Friend the Member for Sheffield South East (Mr Betts), knows what I mean by that, because, to be perfectly frank, we have been here before with Conservative Governments. I have been in local government, and we could go right back to Lady Thatcher’s years. When Governments want change, they always use a carrot. One particular carrot that was used in local government way back in the days of Lady Thatcher was local authorities being told that they would be able to keep their capital receipts. They were able to do so initially, but gradually, on a taper, that was faded out. Let us be careful about Conservative Front Benchers enticing us to go down a road that we may regret, because the strategy, as is quite clear now—the Minister as good as said it himself—is to shift the burden of certain services from central Government to local government. As anybody with any experience of local government knows, there will at some time come a point where central Government will want to cut local government spending. Once again, they will say to local government, “You’re spending too much money—you’re spendthrifts.” We have been down this road before. Nevertheless, I will cautiously go along with these proposals—subject, obviously, to our being able to amend them further down the road.
Having said that, it would be remiss of me not to talk about the situation in Coventry. Coventry suffers from the same prospect of potential job losses, library closures and reductions in youth services that we have heard about from those on my Front Bench. We could name a whole catalogue of problems. Since 2010, there has been a 40% cut in Government funding to local councils. Ministers speak of tough decisions but force impossible choices on to local authorities instead. The Government have passed the buck, quite frankly, forcing councils to scale back services as demand has increased. The funding gap currently facing local councils is massive. These pressures are especially acute in Coventry. The funding for Coventry City Council has been cut by a massive 45% since 2010—in other words, a £315 cut per person in Coventry. This reduction is expected to rise to 55% by 2020. There is no way to make up the shortfall without either cutting services or raising local taxation—council tax.
The pressures on social care create a massive gap that remains between the resources available and the funding required. Services are overstretched across the country. The precept offered by the Government cannot make up the shortfall: it is a panic measure that offers too little too late and will cement the idea of a postcode lottery where service quality depends on the affluence of residents. These pressures have been highlighted recently by Surrey County Council, which now plans to hold a referendum to increase council tax by 15%. In the early ’70s, Coventry council did the same thing, holding a referendum on increases in the local rates, as the system was then. Surrey County Council has cited the pressures on social care and children’s services. Both the Chancellor and the Health Secretary have homes in areas covered by this authority. This is a Tory-run council in one of the most affluent areas in the country, so it is an admission of failure in the policies of this Government. If funding is going to be so tight in Surrey, how bad must it be everywhere else? More must be done to integrate health and social care. In their last days, the previous Labour Government wanted to get on board with this Government, then in opposition, to create an amalgamated national care service. That was rejected, and there were various views about that. With health and social care, a failure to deliver on one means a breakdown in the delivery of both.
The 100% retention of business rates by local councils is of course welcome, because it is right that local authorities can shape their services, but this must not come at the expense of further regional inequality. Poorer regions must not suffer at the expense of richer parts of the country. Safeguards are required to prevent a race to the bottom among councils and to ensure that funding is still allocated according to need. Coventry must not lose out once these changes come into effect. I urge the Government to promise that no area will be worse off because of these changes. I also urge them to provide clarity on how this revenue would be distributed so that there is a level playing field for all authorities. I agree with the Chairman of the Select Committee that the Minister should be held accountable every year. As MPs, we are very often in the situation of knowing what our local authority needs, and we need to be able to put its case in this Chamber, not away from the Chamber, so that Ministers can be accountable.
David Mackintosh (Northampton South) (Con)
I support this Bill. I am pleased that the Government remain committed to devolution and continue to push for greater powers for local authorities so that decisions are made by local people who understand how best to help their local area. I agree that wherever possible more powers should be taken from Whitehall and given to the town hall.
As a former leader of a large district-level local authority, I understand how important it is for local councils and bodies to be provided with greater powers to manage their own finances more effectively. The ability to allow local authorities to retain 100% of business rates revenue is essential if councils are to fulfil the roles that we continue to devolve to them. It is a power that I wish I had been able to use while I was council leader. With councils expected to carry out greater duties on a day-to-day basis and also to address the key local issues, it is essential that they are able to retain this money and spend it where they think it may be necessary.
As I am sure all hon. Members agree, the business rates system is very complex. In its current form, there are very few, if any, incentives for local authorities to stimulate growth or their local economies. That is because they do not see the benefits of doing so, for only 50% of the money is ever retained locally. This new way of working will be a challenge, as we all need to acknowledge. Local authorities will have to adapt drastically to a new way of thinking and undergo a significant culture change for this implementation to be a success. I hope that this Bill will push local authorities towards greater self-sufficiency and further away from dependency on central Government.
Andrew Bingham (High Peak) (Con)
Does my hon. Friend agree that this means that a small business will work more in tune with its local authority because it can talk about the business rates, and both sides—the local authority and the business—can get a better understanding of how each other works? It also gives the local authority freedom to play around with business rates to encourage more business. We get a better dialogue, which in rural areas such as mine is really important for employment.
David Mackintosh
I am grateful to my hon. Friend for his intervention, and I agree.
With these changes in place, it will be a lot easier to show businesses and residents where and how local revenue is spent, and the direct impact of local decisions. As a council leader, it was always incredibly frustrating to try to explain the complex funding formula to businesses and to residents, and why our great efforts to regenerate Northampton and improve the local economy did not always result in the increased revenue being available to spend locally.
I am pleased that through the Bill the Government will ensure that local authorities that raise less than their competing areas do not necessarily lose out in their local areas, although this should never be an excuse not to fight for investment. As my fellow members of the Communities and Local Government Committee will remember, we recently held an inquiry into business rates where we noted that while we did not underestimate the significance of these reforms, they could lead to significant divergences in authorities’ spending power if not managed correctly. I understand that the Government are still working on the exact mechanism that will be put in place for this, but it is an essential safety net. On the other hand, I hope that councils that do receive a higher income through these proposals are encouraged to reinvest the money further to cultivate business rates revenue growth.
I agree with a point made by the Association of Convenience Stores, which noted that due to the small business rate relief, local authorities will gain little growth in business rates revenue from small businesses, meaning that local authorities are incentivised to focus on encouraging business rate growth from larger companies. Local authorities will naturally be looking to sign off on larger planning developments that will deliver higher business rate yields but which have the potential to undermine local high streets such as my very own award-winning St Giles Street in Northampton. I would be interested to hear how Ministers plan to ensure that 100% business rate retention will incentivise local authorities to encourage the growth of businesses of all sizes, not just larger developments.
This Bill continues the devolution that the Conservative party has been working towards in government. By giving local authorities this power, we are allowing them to focus on their own priorities, and to ensure that they have the facilities available to grow and cultivate their own business environment and that we continue to create a more efficient system of local government that works for everyone.
Jeff Smith (Manchester, Withington) (Lab)
It is a pleasure to follow the hon. Member for Northampton South (David Mackintosh) who, like me, brings experience of local government to the debate.
I do not intend to speak for long, but I want to echo concerns that have been raised about the Bill. Like others, I welcome it in principle. I welcome more flexibility for councils to make spending decisions closer to home. We have certainly argued for that in Manchester for a long time. My fear, however, is that the Bill will do nothing to solve the crisis in local government funding. As such, it is a missed opportunity to support local government properly.
No other part of the public sector has been hit harder by austerity than local government. I was executive member for finance on Manchester City Council during the middle years of the coalition Government, so I experienced at first hand the consequences of unfair cuts to local government spending. They are the result of the Government effectively outsourcing the most difficult decisions to local authorities, thereby putting the blame on local councils rather than taking it themselves. I therefore have a natural suspicion of this Government’s intentions when it comes to local government funding. I will not forget the role of the Liberal Democrats, either. They are not represented in the Chamber at the moment, but without their collaboration with the Tories, local government would not be in such a parlous state.
Every year Manchester faces impossible decisions about which services to close as a result of the huge funding cuts imposed on us. Since 2010, the council has had to take out more than £300 million from Manchester’s budget year on year. Between 2011-12 and 2019-20, there will have been a £600 per household cut in funding. The city council has had to reduce its staff numbers from 10,400 to 6,400. How are councils supposed to continue to deliver services properly with that level of reduction?
I warned when I was making some of these difficult decisions that their full effect would not be seen for some time. I said that it would take time for cuts to feed through the system, and I think that we are seeing that now. For example, in Manchester since 2010, there has been a reduction of £77 million in spending on adult social care, on top of an £11 million reduction in the public health grant. Is it any wonder that we now have a social care and NHS crisis when councils around the country are having to make cuts of that size? I echo the point made by my hon. Friend the Chair of the Communities and Local Government Committee that we need to look at a new way of funding social care with a root-and-branch consideration of how that might be done in future.
The most important thing to remember is that the Bill does not represent any additional funding for councils in the short term. As the Minister said, it is fiscally neutral. While I welcome some of its measures, and although I support in principle the ability of local authorities to retain business rates, there have to be safeguards for those authorities that are less able to raise such revenue. In that regard, the Bill gives rise to more questions than answers. In fact, it raises more questions than answers about local government funding in general.
There is no clarity at all about the most important issue raised by the Bill: how will the Government handle the need for a redistribution mechanism? How will a fairer funding formula operate? What is the basis for any replacement tariff and top-ups? How do we stop the poorest councils losing out? The Government say that councils will not lose out—they are conducting a fair funding review and a needs assessment—but I hope that the House will forgive my scepticism about the Tories’ commitment to fair funding in local government as the poorer cities have consistently lost out over the past six years, particularly compared with the southern shires.
Steve Double (St Austell and Newquay) (Con)
I am listening with great interest to the hon. Gentleman. Will he acknowledge that rural counties and councils have been underfunded by central Government for many years and that all we are doing is addressing the imbalance that has been in place for a very long time?
Jeff Smith
There is an issue with rural funding that needs to be looked at. We calculate that if Manchester had had a fair and equal share of funding cuts across England—not protection from cuts, but the average cut—we would be £1.5 million a week better off, which would go a long way in local government spending.
I agree with my hon. Friend the Member for Sheffield South East (Mr Betts) that the Government need to approach the abolition of the revenue support grant with caution. Councils have different dependencies on RSG. For example, Westminster would need to retain only 8% of its business rates to replace the grant that it currently receives, whereas Wirral would require 187% of its business rates to retain the same amount as its current grant, and the figure for south Tyneside is 259%. That illustrates the London problem: how do we address the much stronger ability of the capital, particularly the City of London, to raise business rates revenue? In all likelihood, that issue will be exacerbated by the proposed house price indexing, which as I understand it means that London will be able to raise £700 million more while everywhere else might raise less. Unless the Government make clear how they are going to redistribute funds, we will run the risk of poorer areas being left behind, especially those where business and industry have been in long-term decline and finding solutions is genuinely difficult. Manchester has a very well run Labour council and we are doing pretty well, but plenty of other areas around the country are struggling and will genuinely struggle to drive growth in the future.
Forgive me for wanting to see the detail before I am convinced by the Bill. We will need to see much more detail as it passes through the House as too much is unclear. For example, there is no clarity about the role of specialist grant funding. In my experience of the extremely complex world of local government finance, it is very easy for Government to make cuts under the radar via reductions in specialist grants. I have seen that happen in Manchester. It is not unusual for the Government to use such a mechanism to force difficult decisions on local councils.
I will end with some positive points. Giving local authorities the ability to reduce the national business rates multiplier has potential, but there are obvious concerns about a race to the bottom as a consequence. I am pleased that tax powers are being given to the mayoral combined authorities to fund new infrastructure projects and to stimulate growth—that has to be good news. I also welcome the multi-year settlements, which are a much more sensible way of allowing councils to plan for the future. While we welcome some of the Bill’s measures in principle, I cannot support it without being given a lot more detail and some sense that the Government know how they are going to address inequality between areas and how they are going to make sure that areas such as Manchester will not lose out in the long term.
Richard Drax (South Dorset) (Con)
It is a pleasure to take part in this debate and to follow the hon. Member for Manchester, Withington (Jeff Smith).
The Bill’s timing is unfortunate. Certainly in South Dorset, this shake-up of local government finance is regarded as part of a perfect storm. Everyone’s minds appear to be concentrated on the ongoing local authority reorganisation, but in addition we now have the question of funding, and how it will be done fairly and devolved properly. However, I entirely endorse the general thrust, as the Government are heading in the right way. Before I forget, on this great day, may I also wish a happy birthday to the Minister for Housing and Planning? I am sure that he would rather be somewhere else instead of listening to me this evening.
I endorse devolution. Local people should have more power to make local decisions—there is no division across the House on that point—but with devolution comes a responsibility, if I can put it like that, for the Government to ensure that there is fair play, whether it be in the difference between urban and rural, or in the difference between the poorer and wealthier parts of our country. As I said in an intervention, moving to the system that the Government propose for business rates raises the question of whether rural areas and the poorer parts of the country will get the funding that they deserve.
Before I move on to talk about five brief points, let me set out my other concern: as pressures on finance grow, the perception from many councillors in my constituency is that the Government are putting more of the tax-raising powers into councillors’ hands, but they are not so keen on that if they do not have the resources to ensure that everything is dished out properly and fairly. I just raise that as a concern, but overall I welcome the path that the Government are taking.
I asked around, as is my duty as an MP, to find out what officers and councillors thought of the Bill. As an MP, I must act without fear or favour, so it is my duty to mention five brief points that have been raised: the new homes bonus; adult social care; the business rates appeal; second homes; and underfunding in general. I will touch briefly on all five, starting with the new homes bonus. The significant funding change set out in February 2016 has seen the reduction of six years’ funding to five years in ’17-’18 and four years from ’18-’19 onwards. Worryingly, the inbuilt so-called deadweight of 0.25% set out in the consultation was suddenly changed to 0.4% in December 2016, nine months after the consultation closed. I ask colleagues’ forgiveness for the dryness of my words but, let us face it, this subject is fairly dry and can get rather detailed.
The scheme was designed to reward councils for building new homes, but with the deadweight, there is a risk that the incentive is removed. For example, in Weymouth and Portland, the deadweight is 108 homes, so Weymouth and Portland built 234 homes in 2016-17, but received the new homes bonus for only 126 homes. The incentive has been removed and there are no transitional measures to limit the impact. The calculations are based on band D, which disadvantages councils such Weymouth and Portland where the average property is band B. Even if the authority sees a substantial growth in the number of homes, it will not benefit from the new homes bonus to the extent that the Government might like. It is predicted that Weymouth and Portland will lose just shy of £1 million in new homes bonus between now and 2020.
The Society of District Council Treasurers has made several points about the Government’s plans, saying that they are “severe” and that they
“come so late in the budget planning process that many authorities will have little option at this stage apart from reducing reserves.”
The society adds that imposing a baseline of 0.4% is “far more drastic” than the 0.25% mentioned in the consultation. Emerging local plans that include a substantial number of new homes often face fierce opposition—nowhere is that more true than in my seat—but the plans are often made more tempting by the promise of funding from the new homes bonus. However, the reward has now been reduced in cash terms, so resistance to new homes is even greater.
I move on to adult social care, about which I have no doubt that all Members have very serious concerns. I do not like to use the word “crisis” because I think that it describes something considerably more serious than our current situation. In the view of those I have spoken to, business rates retention “does nothing” to address urgent needs. Across the country, the £240 million achieved in savings from the new homes bonus reform is going to social care as a one-off grant. This means that while social care gets one year’s resuscitation, councils of course lose out.
Taking funding from district councils in such a way forces them to review discretionary services, such as low-level support for older people and other vulnerable groups. We have talked about public conveniences and the interesting fact—I had no idea about this until I listened to a debate by Age UK—that there are 2 million people who cannot be more than 10 minutes from a public convenience. If they are further away, obviously there is a disaster, so many elderly people do not leave their homes. In effect, we are forcing them to stay in their homes and that cannot be right.
In addition, unitary authorities get all the money and two-tier councils, such as those in parts of South Dorset, have to split their revenue, so the district council loses and the county council gains. Social care is delivered through a grant that favours the northern metropolitan areas and takes away from councils such as ours. South Dorset has an increasing elderly population, which is only going to get bigger, so the pressure on adult social care is only going to increase.
Business rates appeals are increasing, and they are costly. Under the new 50% retention rate rules, local government must pay 40% of appeals and settlements against business rates. This year, a company called Perenco, which runs the Wytch Farm onshore oil platform, won a £5 million appeal, and the Ministry of Defence won two £2.5 million appeals for its two Army camps. Both organisations had appealed against Purbeck District Council. Forty per cent. of £7.5 million is £3 million, payable by Purbeck District Council directly. It tries to keep £1 million a year as a safety net, so that is three years of safety net wiped out.
On second homes, the view is that they put up house prices and reduce the number of local people living in the area. That is, again, of concern across the House. So long as a second home is available to rent for 140 days a year—if it is registered as a holiday let and liable for business rates—it avoids council tax. The system lowers the cost of home ownership for those who least need it—they live tax-free in a second home—instead of being a tax relief for a small business, as was the intention. Business rates relief on second homes makes very little difference to the district, but a huge difference to the county council and the Chancellor. At least 200 newly registered second homes in Purbeck over the last couple of years will mean a loss of £500,000 a year in revenue. At the moment, Purbeck District Council needs to assess how many homes to build, and it automatically adds 10% simply to counteract the effect of second homes.
Finally, in the view of those I have spoken to, the chronic underfunding of district councils is not addressed by the safety net. It is not addressed by the transition grant payments, which only increase uncertainty for budgets if they are recalculated every two years. It is not addressed by paying £65 million to the upper quartile of “super sparsity” local authorities. Their view is that rural services should be separately funded. Finally, it is not addressed by the top-slicing of the new homes bonus. The new homes bonus should be separately funded as well.
With those points I shall conclude. As I said to the Minister of State—again, a very happy birthday to him —I support the direction of travel, but I am a little bit concerned about much of the detail.
Mr George Howarth (Knowsley) (Lab)
It is a pleasure to follow the hon. Member for South Dorset (Richard Drax), and I am sure his comments will be listened to with great interest by Ministers.
The reform of business rates is, as many others have said, welcome in principle. The Minister made very big claims in his opening speech about the benefits that would follow from it. For example, in response to my hon. Friend the Member for Coventry South (Mr Cunningham) he used the argument that the measure would be fiscally neutral, but we have had no convincing explanation of what the mechanics of making it fiscally neutral will actually be. Indeed, my hon. Friend the Member for Harrow West (Mr Thomas) made similar points, yet so far we do not seem to have had any clear answer to those queries. For me, the two tests are: first, will the Bill enable the resources to get to the areas in greatest need, a point that others have already mentioned; and, secondly, will it be fair to council tax payers, businesses and local authorities?
Before I tackle directly some of the issues and how the Bill will work in relation to them, I need to say a few words about the wider context of local government funding and services. In Knowsley, between 2010 and 2020, the local authority’s budget was reduced by a staggering 46%—I repeat, 46%—which equates to £94.7 million in cash terms. In other words, Knowsley has already experienced the biggest cut in Government support, which is largely where those figures come from, of any local authority in the United Kingdom. It is therefore quite right for me to make known our concerns about the problem and try to relate those concerns to the Bill.
Such things do not of course happen without consequences. As the National Audit Office made clear in 2014, all local authorities in England had at that time already experienced a real-terms reduction in funding of 37% since 2010. In itself, that represented a 25% cut in councils’ incomes. We cannot sustain such cuts without their having consequences. In 2016, PricewaterhouseCoopers said in a report commissioned by Lancashire County Council that there was
“a significant risk that the cost of statutory services will exceed the financial resources of the Council.”
In other words, it predicted the real possibility that that particular local authority—I suspect this would apply to many others—might not be able to function in a legal and proper manner. Such cuts do have consequences. For example, in Knowsley, between 2015 and 2020, schools on average face a funding cut of £240 per pupil. Despite the Conservative party manifesto commitment to protect such funding, many schools in my constituency will be badly affected.
How does the Bill address those problems? Unfortunately, on the basis of what we have been told, the answer is that we do not know. The Minister talked about focus, but too many of the details are still too fuzzy for us to make a rational assessment of how it will work. We therefore need the measures to be stress-tested.
A briefing note I have received from the Liverpool city region says about the Liverpool city region pilot scheme:
“Despite submitting its formal proposals regarding the scope of Pilot Scheme to the Department for Communities and Local Government in October 2016, the City Region has still had no indication of what the Pilot Scheme will look like, or even when the details of the Pilot Scheme will be provided. This is now severely hampering our ability to plan effectively for the Pilot Scheme’s imminent commencement on 1 April 2017.”
The people who are expected to do the testing that will take place do not even know what the terms of the testing will be, and that, frankly, is a matter of great concern.
I want to move on to the question of additional funding for city regions such as the Liverpool city region. Today, I was at the launch of the campaign of my hon. Friend the Member for Liverpool, Walton (Steve Rotheram) to be the first ever elected city region Mayor, and he made a very good fist of explaining how he wanted to use the funding. However, there is so much uncertainty about how the powers and the resources can be used, particularly in relation to infrastructure resources, that when he comes in, it will be almost impossible to say what measures and resources will be available to carry out some pretty critical infrastructure changes.
I will not say any more, but it seems to me that the two tests I set at the beginning—whether the Bill will get resources to the communities most in need, and will be fair to local government, business and communities—still have not been met, because we do not have enough detail to know how it will work in practice. I appeal to the Minister for Housing and Planning to give a commitment, when he winds up, to start talking to Liverpool city region, the council leaders who at present run the combined authority, the mayor of Liverpool and the candidates for the city region Mayor about how all this will work. At the moment, the complete lack of clarity has left people utterly bewildered, and I am sure the Minister would agree that that is not the position we want local government to be in. I hope that we can have more dialogue. As I said at the beginning, I am not opposed to the principle of the Bill, but we do need more detail, more clarity and more dialogue, and I do hope we will get that.
Amanda Milling (Cannock Chase) (Con)
It is a great pleasure to follow the right hon. Member for Knowsley (Mr Howarth). I, too, wish the Minister for Housing and Planning a very happy birthday, and I hope he gets some time to enjoy it.
I am very grateful to have the opportunity to speak in this evening’s debate. I want to focus my contribution on part 1 of the Bill, which builds on the reforms of business rates undertaken in the last Parliament by extending business rate retention from 50% to 100%. I welcome these changes as a key part of the devolution of powers and budgets, and a move away from local authorities’ reliance on central Government grants. These reforms will give local authorities greater control, responsibility and accountability. I believe that this is a great way to provide councils with something they find very important—financial certainty.
I was a local councillor before entering this place, and I know how councils set their budgets and the challenges they face when doing so. Councils plan their budgets many years ahead, which requires a degree of certainty. Having a way of protecting a certain financial position for years ahead is very much in the interest of local government, allowing councils to plan projects and services for years to come. On the whole, local government is very efficient and has for many years shown all of Government how we can do more with less. Many local authorities that deserve to be congratulated on their budget in these difficult times have protected frontline services by sharing services with other councils, investing wisely, developing their local economy and taking many other actions to rise to their financial challenges.
Various aspects of the Bill will give local authorities more control, including the ability to set and reduce the business rate multiplier, creating incentives for them to grow their business rate income. Rightly, these reforms are fiscally neutral, so with the retention of business rates will come additional responsibilities. As a consequence of devolving these powers, there will inevitably be greater accountability. The powers that local authorities will have, and the decisions they will make, will directly influence outcomes for local residents and businesses. I also know that local government relishes new challenges. There are many services that it wants to get involved in for the betterment of local communities, and so that it can bring its passion, its drive for efficiency and—it offers this above all—its direct connection with voters.
However, business rates do not always offer councils certainty, and councils can face the problem of large ratepayers closing their operations. Therefore, although I wholly agree with the Government’s plans to extend business rates retention, I wish to address the issue of protection for local authorities that are faced with significant business rates losses.
Last June, Rugeley B power station ceased operations. It was incredibly disappointing news for the employees and contractors working at the site, and also for the local community, as the power station had become home to a large number of sports clubs and recreational groups. The closure has also hit the local council, Cannock Chase District Council, hard, as it saw it lose £1 million a year in business rates. Unfortunately, it is my constituents—my local residents, business and charities—that are paying the price for the failure of the Labour-run local authority to plan for that.
Anyone who has worked in business will be familiar with SWOT—strengths, weaknesses, opportunities and threats—analysis. Given the scale of the business rates losses and the impact on the local council’s financial stability, the threat of the power station closing should have been at the top of the council’s priority list of issues to prepare for. It will have been aware that there was always a risk that a 40-year-old coal-fired power station would close and that it was coming to the end of its life span. It should have had contingency plans in place. The consequence of its not doing that is that the Labour-run council is now having to make cuts to services which will adversely affect my constituents. It should have planned sooner for that eventuality and embarked sooner on further efficiency measures. It would have been in a far better position now, instead of having to default to an argument of blaming the Conservatives for its financial woes, especially given that it is better centrally funded than its three neighbouring Conservative district councils.
That said, the impact of the business rates losses should, hopefully, be a short-term issue. The gap will be filled to some extent with the Mill Green designer outlet village, which is going to be built in Cannock. In conjunction with the redevelopment of the power station site, that should lead to business rate growth for the council in the medium to long term. In fact, I believe that with ambitious, bold and visionary plans, we could create an incredibly bright future for Rugeley based on a new industrial landscape that would serve the local community for decades to come, with highly skilled jobs for future generations. But in the short term we have a shock to manage, and it is my constituents who are now having to deal with the Labour council’s failure to balance its books in the short term.
I urge the Minister to consider transitional funding to see the council through the next couple of years, as I, for one, do not want to see any obstacles put in place to the redevelopment of the power station site and the regeneration of Cannock Chase more broadly. Although I believe that the council should and could have done more to mitigate the business rates impact of the power station’s closure, the situation raises questions about how we support local authorities and protect them from significant shocks of such a nature, particularly as we move towards 100% business rate retention.
I would like to ask the Minister three questions. First, what measures are being taken to support local authorities and protect them from the impact of power station closures, or for that matter the closure of any business that is a significant business rates contributor? Secondly, what discussions has he had with his counterparts in the Department for Business, Energy and Industrial Strategy on managing such transitions and helping local authorities as we phase out coal-fired power stations? Finally, what support can the Government give local authorities to help the regeneration of large development sites, so that they can attract high-tech businesses, which will in turn create highly skilled jobs?
Several hon. Members rose—
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. Before I call the next hon. Member, may I say that the last two speakers have been very disciplined in taking only eight minutes each? If everybody now restricts themselves to eight minutes each, I will not have to put a time limit on speeches, which will make for a much more pleasant and better flowing debate.
Melanie Onn (Great Grimsby) (Lab)
It is a pleasure to follow the hon. Member for Cannock Chase (Amanda Milling). This is an especially timely debate, because it comes just after the Prime Minister spoke to my local paper, the Grimsby Telegraph, about planned funding for North East Lincolnshire Council. When she was asked how the Government’s cuts to some of the least well-off areas of the country squared with her promise to help people who are “just about managing”, she suggested that North East Lincolnshire was receiving more than enough funding, and that taxpayers in the Yorkshire and Humber region had no reason to complain about their council tax going up.
The fact is that North East Lincolnshire Council has seen its budget cut by some £79 million since 2010—as good as chopped in half. On the ground, that has meant that recycling has been cut to a fortnightly collection, charges for bin collections have had to be introduced and have recently been increased, children’s centres have been closed and merged into new hubs, and public toilets are being closed.
On that point, may I ask the Minister to expand on clause 9, which comes under the convenient heading of “Reliefs”? Will that relief come too late if the public toilets have already been shut? I raise that point because it is a significant concern to people not only in Great Grimsby but in my neighbouring constituency of Cleethorpes, which is a big tourist area. If the relief—I am sorry to keep using that appropriate term—comes too late, those facilities will not be there for people from outside the area to come and use. As has been mentioned, organisations such as Age UK and Crohn’s and Colitis UK are lobbying hard to ensure that public conveniences are not lost. That is particularly important for parents of disabled children and young children, and for older people.
On a visit to Ormiston South Parade Academy last Friday, I was asked by the schoolchildren whether I could make sure that there were more bins near shops, because they have noticed that litter is starting to pile up. Such things might not make the front pages, but they are noticed and they really matter. Another is the increase in fly-tipping, which is a blight on all our communities. As my hon. Friend the Member for Manchester, Withington (Jeff Smith) said, the cuts have taken their time to have an impact on local communities, but that impact is really starting to be felt across the piece. It is not about Labour councils versus Conservative councils—it is affecting communities across the country.
Perhaps the worst way in which the cuts to councils’ budgets have been felt has been in the care sector, and in the knock-on effect that is having on the NHS. Government cuts to my council’s budget have caused spending on adult social care in my constituency to fall by 20%. I have given examples in previous debates of how this is forcing people to live in unacceptable conditions. It has also become clear this winter that the Government’s downgrading of the social care system is having catastrophic effects on our NHS. So-called “bed blocking”—where patients are fit to return home or move to a care home but no places or in-home support are available—is sapping hospital resources and leading to waiting-times targets being missed by considerable distances. It also resulted in the outrageous circumstance at my local hospital of a 95-year-old woman being discharged from accident and emergency at 4 am because no beds were available.
People in north-east Lincolnshire are facing an almost 10% hike in their council tax bills over the next couple of years because of the Government’s policies, and there is no prospect that that will be enough money to fix these endemic problems. The autumn statement showed an increase in business rates income to the Treasury of £2.4 billion in 2017-18, but that remains unallocated. Why do the Secretary of State and the Minister not protect people from a massive rise in council tax bills by investing the money in social care and ending the precept? To Conservative Members who think that I am making a partisan attack on the Government, I would point out that my Conservative neighbour, the hon. Member for Cleethorpes (Martin Vickers), has also gone on the record to call for an end to local authority cuts, saying:
“Many of the things that make our lives that little bit better... are being cut to the bone”.
In the interview I mentioned earlier, the Prime Minister said that cuts to councils such as North East Lincolnshire were necessary to eliminate the deficit, but that goes no way to explaining why the lowest-income areas, which are generally unable to raise enough funds from local business rates, are facing the harshest cuts, while her local authority is one of the three least-suffering councils.
Kevin Hollinrake
The hon. Lady blames the Government for the funding plight in her local authority area, but the spending power of all of north Lincolnshire is £711 per head, whereas in the top-10 local authority areas in London it is £1,171 per head. Is it not the system that is at fault and the way money is distributed, rather than the Government? It is distributed according not to need but to what has happened previously.
Melanie Onn
I do not agree that it is just about the system following what has always been. I think there needs to be a reassessment of need. It is not just about following the previous system: the £79 million of cuts has nothing to do with what happened before; it is a result of decisions made over the past seven years. As my Labour colleagues have said, we are broadly supportive of the principles in the Bill, but none the less my constituents would want me to ask the Government to make sure that my local authority is no worse off in the future than it is now.
Steve Double (St Austell and Newquay) (Con)
It is a pleasure to follow the hon. Member for Great Grimsby (Melanie Onn) and to contribute to this debate. I also wish the Minister a happy birthday—I am sure there is nowhere else he would rather be.
I am delighted that the Government, through the Bill, are continuing their agenda for devolution. The measures in the Bill will revolutionise how finances are raised and bring greater flexibility and accountability to local government. The retention of business rates, for which local councils have been asking over many years, is welcome. The developments in the Bill are particularly welcome in Cornwall, not least because Cornwall is one of the pilot areas for the 100% retention of business rates, which will enable us to be an early adapter and to contribute to fine tuning its roll-out across the country.
That is another sign, following the devolution deal for Cornwall agreed in 2015, that the Government recognise the particular challenges and identity of Cornwall. I am sure that Members across the House will be aware of Cornwall’s dramatic geography: we jut out 90 miles into the Atlantic; our foundations are built on granite; and we are surrounded by fish-bearing seas on three sides, while the River Tamar almost gives us island status. Our geography has contributed to our unique identity and independent attitude, although it also presents many challenges. We have only one neighbouring county—Devon.
Our land is rich in natural resources. Only this week, that was taken further, with the announcement of large lithium deposits, and extraction of this precious metal is now eagerly expected. With the growing global demand for lithium for the production of batteries, this stands to write another chapter in Cornwall’s long history of mining, following on from tin, copper and China clay. We hope to breed a whole new generation of Ross Poldarks—hopefully, a bit more successfully. This change will mean that the local authority will be able to benefit directly from the future growth of this new industry. It will hopefully mean that the local authority will be very supportive of developing this new industry in the near future.
Cornwall’s claim to its own independent identity in culture has been long established, and its desire for greater self-rule has been rekindled in recent times. These days, we Cornish do not march in anger on Westminster as we did in 1497 to protest at the imposition of yet another tax. That attempt did not end too well for the Cornish. No, we have learned, and we now prefer to work more constructively with the Westminster Government, but the desire for greater devolution of powers remains as strong as ever.
I wholeheartedly welcome this Bill as a key move towards devolving more powers. It is an ideal balance between being given the autonomy required to act and being accountable locally without progressing into the unnecessary and expensive bureaucracy of yet another layer of government. I do not believe that we need yet another layer of government in Cornwall, as some would like to see, but I support and I am working towards giving greater powers to the existing bodies in Cornwall. The measures in this Bill will take another step towards making Cornwall Council more responsible and more accountable for Cornwall’s future.
The current review of business rates was long overdue. The delay had led to rates being out of sync with the business community and the constantly changing landscape that businesses face. It left areas that are struggling for whatever reason further disadvantaged, putting additional unwelcome pressures on them. When a high street is blighted with empty shop space, the last thing it needs is yet more businesses pulling out because of high rates, leaving more shops empty, which can reduce the footfall and further disadvantage those left behind.
With the new measures in the Bill, councils will be able to take a more flexible approach, which has to be welcomed, by being able to adapt the local business rates to suit the needs of their communities and businesses. They can work to attract new businesses where they are needed. This freedom for local authorities to set and vary business rates according to local needs and situations, which will come in 2020, will be a key advantage. It is the local equivalent of Brexit—taking back control for the good of the local community instead of having a one-size-fits-all scenario imposed by a remote authority that all too often does not actually fit in any case.
Alongside that, there are other specific key changes in the Bill, one of which I would like to address in closing. Over recent years, I have campaigned on the importance of public toilets, which are essential in a tourist area such as Cornwall. I have to choose my words carefully here, but a few years ago when I was the cabinet member on Cornwall Council responsible for public toilets, I spent many months touring the 285 public conveniences of Cornwall. I spent far more hours than I would like to admit in some of those toilets.
In recent years, Cornwall Council has been seeking to hand over all its public toilets to town and parish councils and other community organisations. One of the biggest barriers to that is the cost of running the toilets—and a large part of the cost is that they are liable for business rates. Its seems crazy to me that public toilets are liable for rates. They are an essential public service and do not make a profit; they are not a business. Thankfully, the Government have recognised this, and from April 2018, local authorities will be able to use their “discretionary relief powers”—“relief” seems to be the appropriate term here—to remove the business rate liabilities for toilets.
My Cornish colleagues and I raised that with the former Prime Minister, David Cameron, back in 2015 when he visited the county. We have been pressing for this change since, and I am delighted to see that the penny has dropped and that the Government are now addressing this issue. That will enable councils throughout the country to drop the lunacy of charging themselves rates to provide something as basic as a toilet, as well as reducing the costs of running toilets for parish councils and other community organisations that may wish to take on that task.
I am pleased to be able to welcome and support the Bill. The measures that it contains represent another significant step in the Government’s vision of, and commitment to, the devolution of appropriate powers and responsibilities to local government.
Helen Hayes (Dulwich and West Norwood) (Lab)
It is a pleasure to follow the hon. Member for St Austell and Newquay (Steve Double), but Members may be relieved to know that I shall not be speaking about public toilets.
I support the principle of business rate retention. However, the test of the Bill must lie in the extent to which it delivers fairness across the country, and on the basis of that test, I have some concerns. My first concern is about the context of more than six years of profound unfairness to local government in which the Bill is being introduced. Local government has faced swingeing cuts, imposed initially by the coalition Government and continued and intensified by the current Government. During the period between 2012 and 2020, the average cut in spending power per household for deprived council areas will be more than five times higher than that in more affluent local authority areas. By the end of this Parliament, the average cut in those more affluent areas will be £68 per household, while for deprived areas it will be more than £340 per household.
It is one of the profound injustices of the past six years that many council areas in the greatest need—those with the lowest average incomes and the highest levels of deprivation—have faced the harshest cuts. The Government have been weakening the link between need and funding. It is disappointing that we are debating the Bill in the absence of details of the fair funding review, which would enable us to apply a test of fairness to the Bill and debate it properly, in a fully informed manner. There is no necessary connection between rising levels of need for social care, for example, and the ability to raise additional revenue from business rates through economic growth. In fact, in many areas the reverse will be the case, and it will be precisely the areas with the highest levels of need that also face the greatest challenges in terms of economic growth.
My second concern relates to the challenges currently faced by local authorities as a consequence of the cuts that they have experienced. The most acute of those challenges is in social care. A million people across the country who need care are not currently receiving any. Contracts are being handed back to councils because providers cannot make them work, and our NHS is feeling the pressure of a system that all too often does not give people the support that they need, which results in an acute health crisis.
There are pressures on many other local authority services as well. Libraries and children’s centres are being closed, park services are being cut, and those working in children’s services are struggling to keep our most vulnerable children safe. A system that is already under such pressure requires reform that is guaranteed to deliver additional resources to the areas that need it most. I am concerned about the risk that the Bill poses in the absence of the details of a redistribution mechanism.
My final concern, which I raised when the Select Committee discussed the issue, is about the loss of a democratic link between the source of funding and the services that it predominantly funds. A very high proportion of councils’ funds—up to 75% in some areas—are spent on services that protect our most vulnerable residents, but that concern is not typically uppermost in the minds of most businesses. I fear that councils may find themselves in an uncomfortable tension between voting and taxpaying residents and the businesses that will provide most of their revenue. I would welcome an assurance from the Minister that the Government will monitor the issue, and will ensure that funds for key social and community services are not eroded under pressure from a different taxpayer-stakeholder group.
The Government’s track record on fairness for local government funding is appalling. I call on the Government to publish details of the process for redistributing business rates so that we can ensure that the new arrangements are fair; to look, in the short term, at the crippling crisis facing social care and other local authority services, and redress the balance; and to ensure, over time, that the services on which our most vulnerable residents rely are not placed at further risk. This reform should be being introduced as part of a package of fiscal devolution reform for local government funding, designed to embed fairness in the system and place control firmly in the hands of local authorities, which know their communities best.
Kevin Foster (Torbay) (Con)
It is a pleasure to follow the hon. Member for Dulwich and West Norwood (Helen Hayes). The only observation I would make is that, as in many other speeches from the Opposition Benches, we heard a list of local authority funding and what happened in the last Parliament between 2010 and 2015, but I am drawn back to my earlier intervention on the shadow Minister. After nearly five years of complaints from the official Opposition about local authority funding, the then shadow Chancellor, now a “Strictly Come Dancing” star, was challenged about how much extra he would be putting in, with the plans until 2017 having been published, and the answer was nothing. It has therefore been interesting to hear some of what we have heard again tonight.
I came to this debate with high hopes, because, having read clause 9, I knew this would certainly not be a bog standard Second Reading debate.
Kevin Foster
The shadow Minister talks about transferring funding, but his party would have transferred responsibilities. When in January and February 2015 there was a direct challenge to the former Member for Morley and Outwood—it is interesting that he is the former Member—on how much extra Labour was going to put in, the answer was nothing. While there would have been a transfer, there certainly was not going to be anything extra after five long years of complaints. Perhaps that was also one reason why people did not have much confidence in the Labour party having a real programme for government and duly dealt it the electoral blow that surely had to follow, and that I suspect will soon follow again.
I want to go into the details of the Bill and explain why overall it is welcome. When I became the cabinet member for city development in Coventry—I had some quite constructive dealings with the hon. Member for Coventry South (Mr Cunningham) at that time—as part of the training scheme we were briefed on what was called the Birmingham dilemma. Previously, councillors in Birmingham had chosen to spend money on regenerating the city, but of course to do that they had had to take money out of the services they were responsible for. While the regeneration had created new jobs and brought new business rates in, they took the blame for the cut in the services that they had had to make to fund it, and they did not get the reward when a significant amount of extra revenue was generated for the national Exchequer. We were briefed on that, and on how we could balance the fact that if we wanted to start regeneration or push forward a project as a local councillor, we did not get any of the reward for doing that financially; we only got the esoteric reward of being able to point to lower unemployment figures in our area or point out that the town centre was looking a bit better following the regeneration scheme. The incentives in terms of day-to-day profit and loss, or, rather, the revenue budget, were just not there. That is why the change to give local authorities more ability to retain the business rates growth they receive and remove that dilemma from local councils is welcome.
It is particularly good that we are now moving to 100% of that growth being retained. Of course in scrutinising this Bill in detail there will need to be some mechanism for when there is a sudden windfall; to be fair, that was touched on by the shadow Minister. Through a stroke of luck, a piece of national infrastructure might be dropped off in a district council area, but that might not necessarily be a sign of taking radical decisions for growth. Likewise, however, if a community is getting a piece of national infrastructure dropped off in its area, it is not unreasonable for it to want to get a direct reward from the business rates concerned.
James Heappey
It is not always the case, of course, when a significant piece of national infrastructure is dropped into a community’s lap that the local authority keeps the business rates. It would be great if a nuclear power station did mean that, but at the moment it does not.
Kevin Foster
I am sure that some of the residents living around Hinkley Point would be very pleased if their district council got those business rates. In some areas where very large developments go ahead, that would probably involve a dividend being declared rather than a council tax being set. However, it is right that our system has balance. Certain circumstances could not possibly be affected by a local authority’s decision—a steel plant closing down, for example—so we would have to look at a situation like that from the other way round. These are the details that we need to go into, but it is absolutely right that local councils should be able to take decisions to innovate and get an actual hard cash reward for doing so, which they can then use to benefit the residents who have been prepared to support them in taking those decisions.
In looking at how we fund local government, I am pleased that we are not considering measures such as a tourist tax, which have been suggested in the past. That would be completely counterproductive in an area such as Torbay. The last thing we need to do is create additional costs for people visiting and staying in the UK, and I am pleased that those kinds of ideas have not come anywhere near the Bill.
There is an issue with social care. We have heard a lot of talk today about this in relation to urban and rural areas, but there is also a real issue in coastal areas. A lot of coastal authorities in county areas, as well as stand-alone unitaries, can find themselves taking a hit at both ends of the spectrum. For example, my local authority has a ward in which 9% of the people are aged over 85, which presents its own challenges, and at the other end of the spectrum, I have a higher than average number of children in care and one of the highest rates of teenage pregnancy. That can present unique challenges for coastal communities, regardless of whether they are unitary authorities or part of a county or two-tier structure. Perhaps we need to have a debate about how we can reflect those different challenges in relation to funding opportunities.
I also welcome the fact that the infrastructure supplements are being brought forward, particularly for combined authorities. There has been some talk about why these powers have been given instantly to directly elected mayors. I expect it is because they are directly accountable and it is they who take the decision to implement these measures. Again, I think it is right that we should look at that question over a wider area. In many cases, a local urban area that might experience business rate growth could be dependent on infrastructure coming through nearby rural areas. For example, one of the biggest boosts for Torbay’s infrastructure—the south Devon link road—is 99% in Teignbridge District Council’s area, but the road clearly has a huge benefit for Torbay. In the future, could such development projects be dealt with through this kind of arrangement, rather than having to wait decades for a decision at national level?
Overall, the Bill is welcome. This is its Second Reading, so there is clearly time for far more detailed consideration in Committee and when it returns to the House on Report. From my perspective, and from my experience in local government and seeing what is happening in places such as Torbay, I believe that the Bill sets the framework for a debate about how we can deliver a real incentive to local authorities and a clear reward for those communities that innovate and grow, but without penalising any other community.
Kevin Hollinrake (Thirsk and Malton) (Con)
It is a pleasure to follow my hon. Friend the Member for Torbay (Kevin Foster), who speaks with much knowledge on this subject. The business rates retention provisions in the Bill clearly have huge potential for our local authorities, which will be able to focus on economic growth in their area, and to grow their rates base and therefore their income. However, this is an incentive around growth rather than the whole redistribution of the current local authority funding system. Most of the revenue going into local authorities will be baked in and redistributed according to a formula whose details we do not yet know, but I am heartened to hear from the Minister that the fair funding review is being taken forward. A technical working group from the Local Government Association has now been charged with that responsibility.
The principle has to be that there is a fair funding formula wherever we live. There cannot be a postcode lottery. The previous and current Secretaries of State have been clear that that is a key part of the proposals. The Communities and Local Government Committee looked into the business rates retention policy, and our report considers the concerns and the opportunities. Overall, we were supportive of the principle of the Bill, but we recommended that an independent body should look at the funding review. I am sure that the LGA has some good people, but it is important that we have a fresh look at this, so it would be good to have someone truly independent who can sit back from where local government is today.
In addition to the Committee’s initial witness sessions, we had about an hour and a half in the House of Commons Library with some experts from the Scrutiny Unit during which they tried to explain the current system to us, but we left none the wiser. I understand that 159 measures are currently in use, so the current system and the way in which the measures combine is very complex. With so many measures, one would think that the current system would be fair, but it is absolutely not.
I am grateful to Leicestershire County Council for its detailed work—it is available on its website—on authorities’ core spending power. As many will know, core spending power involves all an authority’s revenue, taking into account the revenue support grant, council tax, business rates, the new homes bonus—everything. Opposition Members might say that this is a political argument involving the shires against metropolitan areas, but the council’s evidence did not suggest that at all. Many mets are not getting a fair deal, but many shire counties, such as the one that I represent, are not getting a fair deal either. The fairest deals seem be those of many London authorities. Nine out of 10 authorities with the highest spending power are in London, yet nine out of 10 authorities with the lowest council tax are also in London. Over the past five years, a typical council tax bill outside London has increased by £100 whereas the average bill in London has decreased. Something about how overall funding is being allocated under the current system is not quite right.
To put those figures in context, the spending per head of the local authority with the highest spending power—obviously a London authority—is £1,170. That figure falls to £770 in North Yorkshire and to £615 in York. There are many other examples, such as Kirklees, Leeds, Wigan, Bury and Wakefield, of authorities getting a raw deal. One might put that down to certain other factors, such as a correlation with deprivation, income or another demographic, but that is not the case. Areas with high income deprivation, such as Leeds or Kirklees, or with a high proportion of elderly people, such as the East Riding of Yorkshire or Dorset, often have a low amount to spend per head. The system just is not working. The 1988 centralisation of the system, under which money was to be redistributed around local authorities, was supposed to make the system fair by ensuring the equal funding of services on the basis of need, but that clearly has not worked and we have been left with a postcode lottery.
I am not picking on London, because some London local authority areas, including that of the Minister for Housing and Planning, whose birthday it is today, are not particularly well funded, but the pattern persists. To put the situation into context again, Hammersmith and Fulham is not increasing its council tax this year. It is not applying the adult social care precept, but it is providing free home care to residents and has cut the price of meals on wheels. Hardly any of those facilities are now available in my area. It is simply not fair that people in different parts of the country with the same needs are getting different levels of service.
Of course there is an impact on the provision of other services in my local area of North Yorkshire. Libraries are closing or are being moved over to community libraries. Bus services will no longer be subsidised, so some services will no longer operate. Obviously there is an effect on children’s services and, crucially, on adult social care—we have a more elderly population in North Yorkshire.
This is not an easy situation to resolve. Moving from one system to another is a zero-sum game. If the system is to be made fair today, somebody will lose out. We have to move away from a system that is clearly unfair. I understand that the system is as it is because of something called regression. Past inaccuracies and unfairness have been built one on top of one another, and it is difficult to reverse those changes.
Of course more money is coming into the system—£12.5 billion, according to the Under-Secretary of State for Communities and Local Government, my hon. Friend the Member for Nuneaton (Mr Jones). Some extra services will clearly be required for that money, but there is an opportunity to make the system fair. Yes, there will be more services and greater responsibilities, but some areas are getting a better deal today.
Simon Hoare (North Dorset) (Con)
Does my hon. Friend agree that, in order to ensure that the problems that he highlights are not replicated in the new system, we need to find an agreed and sensible way of measuring rural deprivation? That is often incredibly hard to measure compared with deprivation in urban areas because of the scarcity and sparsity of the population.
Kevin Hollinrake
My hon. Friend makes a strong point about simplifying the system, which I was about to address. There cannot be 159 different indicators. We know that that does not work. Leicestershire has suggested nine simple indicators, including children’s services, adult social care, highways, fire, area costs, sparsity and density. That is a simple formula that people can understand and penetrate, and it would make sure that the allocations cater for the extra responsibilities we are getting through the system. We should use those nine simple cost drivers instead of this regression, which is a model based on something that clearly does not work. We need a progressive move away from that regression towards a simple, standard, penetrable formula based not on where we live, but on a fair system with fair resources and a fair assessment of the cost drivers wherever we live.
David Warburton (Somerton and Frome) (Con)
I join other hon. Members in wishing the Minister for Housing and Planning a happy birthday.
The House has been very patient. I will not hold up our proceedings for long as I am sure the Minister wants to enjoy his birthday for a couple of hours. The House has also been very accommodating, as we are yet to hear a lot of the detail regarding the Bill. As Members on both sides of the House have said, particularly the hon. Member for Sheffield South East (Mr Betts) and my hon. Friend the Member for Christchurch (Mr Chope), there is an awful lot that we still do not really know, but overall the Bill is immensely welcome.
There will be a collective sigh of relief across Somerset and other rural areas about clause 7’s extension of rate relief to rural areas, which will go some way towards putting rural areas on a more equal footing with urban areas, although there is still so much to do in many other regards for us to achieve anything like an equal footing. Small businesses in my constituency have raised that inequality with me, as I am sure others have in constituencies across the country, so it is good that we are addressing it.
Business rates appeals have cost some £2.5 billion over the past five years and, like the Local Government Association, I am pleased that the Bill sets out how the Government will pay local authorities for the cost of appeals, which will clearly make a difference. The proviso to that, however, is that that mechanism must be in place before the 100% retention of business rates, because if it is not, surely the local authority would be liable for 100% of the cost of appeals. I do not fully understand that, but no doubt we will hear more about it—I look forward to hearing what the Minister says. The retention of the redistribution mechanism for topping up a local authority’s funding if it does not raise enough means that the Bill is extremely good news on business rates as a whole, not only for local authorities but for small businesses.
On the wider funding issues, altering the local government finance settlement so that it becomes multi-year instead of yearly will of course provide local authorities with the opportunity to plan ahead. That will give them certainty and clarity so that they can look ahead like any other business or organisation as we transition to the system in which they retain 100% of local business rates. Again, perhaps we will learn more about the details of the proposal.
In rural Somerset, telecoms infrastructure is an enormous issue. Many small businesses in hamlets and isolated areas are left behind by superfast broadband. It feels like the 10% of businesses that are yet to be connected are all in my constituency, so while the tax break incentive for infrastructure development is enormously welcome, existing infrastructure also needs improvement. We have creaking half-copper wires all over the place, so I look forward to the other elements of the £1 billion connectivity investment that was announced by the Chancellor in the autumn statement.
I have general concerns about the financial priority that is being given to areas that are planning to have a mayor. The devolution plan for Somerset is widely controversial. Under the existing plan, in which Somerset and Devon would come together, having a mayor would not seem to be the right way to proceed. I am not sure what that would mean for financial incentives, so there is work to be done.
Overall, however, the Bill is extremely welcome. It delivers on our commitment to devolve budgets and powers to local government, and it moves local government away from dependency and towards self-sufficiency. As Voltaire and Spider-Man’s uncle both said, “With great power comes great responsibility.” It is clear that the responsibility that the Bill provides will strengthen both the position and the powers of local government.
James Heappey (Wells) (Con)
I welcome the proposed devolution of business rates, so in that sense I support the Bill enthusiastically. I have no doubt that the retention of business rates will encourage local councils to be more entrepreneurial and rejuvenate economic development departments in city and county halls. In the long term, I am sure that the new focus on local economic development, and the Government’s industrial strategy, with its focus on growth in all parts of the UK, will deliver self-sustaining local authorities that deliver high-quality public services in all parts of the UK. But we are not there yet. In fact, we are nowhere near.
Per capita funding for predominantly rural local authorities is significantly below that for predominantly urban authority areas. Why? Because that is just the way it has always been. There is no rhyme or reason to it; it is simply a legacy of old funding formulae, so rural areas have continued to be at a disadvantage. That is iniquitous, and it needs to be corrected. Instead, under the settlement announced, the gap will widen further. Last year, rural MPs on both sides of the House won a concession for extra money in the rural services delivery grant that effectively ensured that last year’s cuts were shared equally between urban and rural areas, but that was just a sticking plaster that did not change the settlement for this year, or the two that follow. However, I remain ever hopeful that, like last year, some additional money can be found to provide some extra rural services delivery grant to ensure that, again, the cuts fall fairly and that rural residents are not left at a disadvantage. I am clear, though, that that will be just another sticking plaster, and that what local authorities need more than anything is certainty—certainty to borrow, invest and budget in the long term so that local public services are on a more stable footing. That means that the current review of local government funding needs to be accelerated, and accelerated urgently.
Furthermore, we should be bold in our ambition for the scale of that review. A review of local government funding is needed that fully recognises the costs of rurality; the costs of an ageing population; the other costs faced by local authorities around the country in both rural areas and urban areas; the costs of communities in which English is predominantly spoken as a second language; and the costs of pockets of high deprivation both in urban and rural areas. All those costs must be understood. We need to put in place a new funding formula for local government that is entirely transparent and entirely fair for all our constituents, whether we represent rural or urban areas.
In Somerset, we are already paying extra on our council tax to protect ourselves from flooding. We will pay extra on our council tax for adult social care. Our cost of living is rising fast, because fuel costs are going up, which impacts on rural areas more than on urban areas. In return, Somerset residents are getting their bins collected less often, the libraries are open less, youth clubs have lost their funding and bus routes are being lost.
Somerset County Council has done a great job running into this headwind, not least because it does so while carrying the enormous debt left by the Liberal Democrats when they were last in charge at county hall. That £20 million a year interest and debt repayment is a very useful reminder of why Somerset is better off under Conservative control. We should be clear that the alchemy of the Conservative administration at county hall in Taunton—just as in other county halls across the country—cannot go on forever. There must be a review that not only delivers the devolution of business rates, but, in the short and medium terms, ensures that we continue to redistribute money from London and the south-east to the rest of the UK so that local authorities in rural areas, and in the regions of the United Kingdom, can be given a financial settlement that allows them to continue to deliver high-quality local public services with the certainty that is required so that they can borrow, plan and budget for the long term.
I agree with the principle of this Bill. I absolutely agree with the devolution of business rates to local authorities. It is a great idea to give local authorities the opportunity to be more entrepreneurial, to invest in their economic development departments and to reap that return by growing on their patch the number of businesses paying rates, which allows them to do even more by way of public services. Clearly, it is the long-term future, but we should make no mistake: that system will not work immediately on its introduction. What we need in the interim is a full review of local government funding so that our county councils, district councils and councils everywhere else in the UK can operate with some certainty. We do not have to have this year-by-year cut to local public services that annoys our constituents and that means we have such full mailbags.
Peter Aldous (Waveney) (Con)
I apologise for not being here at the start of this debate. I am grateful to you, Madam Deputy Speaker, for allowing me to say a few words. I will not detain those on the Front Benches for very long.
This Bill provides a framework for a major change in the funding of local government, and it provides for the greater retention of business rate revenue by local authorities, and that principle is the right one. Ideally, money raised in an area should remain there, rather than being circulated and perhaps lost as it goes around the country. People and businesses in an area are entitled to expect their money to be spent on local services, with spending decisions made by local councillors to whom they can talk on a day-to-day basis. It is right that we are moving away from a system whereby the man in Whitehall knows—or thinks he knows—best. That is an important move by the Government, but, as is often the case in such circumstances, there are potential pitfalls along the way. I wish briefly to outline three of those pitfalls this evening, and I do so in my capacity as an MP for a county and a coastal area, and as chairman of the all-party parliamentary group for counties.
My first concern is what I will call an unintended consequence. As part of the devolution process, in order to facilitate the new business rate retention process, at present various responsibilities are being transferred from central to local government to ensure fiscal neutrality. I have no problem with that in principle, but there is a danger that in some circumstances there might be unintended consequences. An example that I have come across is in the field of supported housing. Traditionally, developers of supported housing have been able to rely on the fact that their bankers are prepared to fund much needed new schemes in the relative comfort of knowing that they will be underwritten and underpinned by central Government. It is now proposed that in future that should be a function of local government. I regret to say that the feedback I have received from many specialist supported housing providers indicates that they are very uneasy about whether the supported housing that we need will actually come forward. Practical steps need to be taken to address this concern—there might be others—if this aspect of the devolution process is to succeed.
My second concern relates to what I will call growth constraints. An underlying premise behind the move to greater business rate retention is that those authorities that promote growth in their area should be rewarded for it. Again, this is right, but the other side of the coin is that authorities that would like to promote economic growth in their area should not be penalised if, for reasons outside their control, they are unable to do so. For example, if much of a local authority area is a national park, it would not be realistic to promote a science park. Moreover, one cannot buck the market, and the success of such business park developments rests on the old adage of location, location, location. If they are not in the right location, there is nothing they can do about it; they cannot move their district, their borough or their county.
My third and principal concern focuses on the requirement for the needs-based review of fair funding to take place at the same time as the move towards full business rate retention. I am aware that that is the Government’s intention and that a consultation is due to start next month. It is absolutely vital that we keep to this. If we do not, county areas, such as the constituency I represent, will be placed at an even greater disadvantage than they are at present. The current formula does not take proper account of the demand pressures that county areas and, as my hon. Friend the Member for Torbay (Kevin Foster) said, coastal areas face. There is the adult social care time bomb that we have heard so much about, the obligation to maintain hundreds, if not thousands, of miles of local roads, and the cost of delivering services in sparsely populated, rural areas. The current formula is opaque and, after years of tinkering, no longer fit for purpose, as it is no longer directly linked to need. The needs-based review must be synchronised with the move towards greater business rate retention—they must be joined at the hip. If it is not, a large section of the population will be very unfairly penalised.
In conclusion, I commend the Government for being bold, for their ambition and for their direction of travel. I thus support the Bill, but I urge the Government to remember that the devil is in the detail and to pursue the needs-based review in a timely and fair way. Time really is of the essence in this issue.
Jim McMahon (Oldham West and Royton) (Lab)
May I join many Members on the Government side in wishing my counterpart a very happy birthday? I am sure this does not quite constitute a birthday bash, and for many it is not quite the icing on the cake either, but we wait with bated breath for the Committee stage to really get under the skin of what the Bill means. I hope we will work together then, because I think there is a shared desire to promote devolution, to see more power shift from this place down to our communities, and to really empower local areas to determine what is right for them. But the devil, of course, will be in the detail.
We welcome the move towards devolution, and so will many of our councillors, but genuine devolution means actual power, not just limited decisions being made at a local level within a framework that is tightly defined by a very centralising Government; it means areas having genuine freedoms and genuine power, and working with communities to co-produce the future they want. That is devolution, and power and the ability to effect change are what we all came into politics for. None of us wants things in our areas to be predetermined by a Government—hundreds of miles away in many cases —who do not know the ins and outs of our communities, and who really do not know local circumstances in the way we do.
It is important that we develop a plan that works for the whole country. I think many people in England look at devolution being discussed in Scotland, Wales and Northern Ireland and say, “What about England?” Now, even within England, we are seeing towns, cities and counties being pitched against each other, with large parts of England still completely without any devolution deals. The challenge for the Government is that this is about letting go as much as it is about giving a little away to local areas. It is also about doing that in a meaningful way, and we should have the confidence to give the same powers we are proposing for our mayoral combined authorities to our counties and metropolitan areas. That is real confidence and real letting-go. If the Opposition can help in Committee to table some amendments on that, which will hopefully be received in a positive way, we will, I hope, have a fair settlement for England.
But let us be honest: some of this comes down to cash as well as power. We can have ambition and a desire to make our area the best it can be, but we need funding to make that happen. We need capital to invest in growth. I do not just mean areas doing deals with the Government—providing they have access to the Government, because those that do not will not get that capital funding. I am also talking about having revenue to make sure that the skills providers, the schools system, the health system and the Department for Work and Pensions all work together to make sure we see genuine reform and genuine growth.
A lot of people say, “If you want modernisation, to see where real innovation has taken place and proven itself to be efficient, look to local government.” A lot of people in the Department for Work and Pensions, Her Majesty’s Revenue and Customs and the Treasury should look at themselves in shame because of the way they have allowed frontline services to be cut to the bone while they themselves have failed to reform from the inside.
I worry that we still see a very narrow base being discussed when we talk about fiscal devolution and local autonomy. Let us be honest: we are still talking about council services being based not on need and on people’s genuine need for support and services but on house values in 1991. We have not had the courage to bite the bullet and take forward revaluations. We have not allowed local freedoms to look at exemptions and discounts in the way that areas have asked for through the devolution deals that have taken place.
On top of that, we are still talking about a very narrow business rate base. Many of the areas that have a low tax base for residential properties have the same issue with their business rate base: lower values and lower demand have an effect on the tax base and on the amount of tax that can be generated. It is a real shame that when we talk about fiscal devolution and autonomy, we are still taking the easy option. We are using property tax because it is easy: we know how to collect it and we know how to generate it. That then creates the pot of money that local government has to use to sink or swim. Well, that is okay for an area that has a strong tax base, but for an area that does not, the alternative to swimming is to sink, and that is not good enough if we believe in fairness and a decent society.
So we will see amendments being tabled in Committee that really reflect the idea of funding based on need. It is not good enough to set one area against another. If there are instances in rural areas that should be taken into account, a fair funding model should accommodate that. Equally, a fair funding formula should take into account areas with high levels of children who need safeguarding support or people who need social care. There should not be the constant imbalance whereby areas fight with each other to get scarce resources to deliver the public services that our communities need.
Kevin Hollinrake
The hon. Gentleman makes a good point about looking at this again as a blank canvas. Does he therefore accept that if that new funding formula meant that a local authority was worse off based on such objective need, he would support legislating on that basis?
Jim McMahon
We have heard from Members on both sides of the House the deep concern that any review will mean that some areas are worse off than others. As I said, that is inevitable with such narrow tax bases, when we are looking at council tax income and business rate income and saying, “That’s it.” Given that the additional grants to local authorities are now in question, we are always going to be fighting for a scarce resource.
Devolution deals have included requests for retention of air passenger duty and the tourism tax. Okay, not every area might want that, but if we believe in devolution, local areas should be able to have some of these options. The retention of fuel duty or VAT at a local level has not even been discussed. If we want genuine fiscal devolution, we need to be more open to more taxes being raised locally and spent locally, with local people holding to account the people who make those decisions.
It is not local government that needs to change, or even the DCLG team, but the Treasury—it needs to let go. The reason air passenger duty cannot be devolved at the moment is that the Treasury has no idea how much fuel duty is generated at any of our airports, because it is paid by the airline at its head office. The Treasury has no idea how much is generated from fuel duty, because it is not attributed to every petrol station but paid at the refinery, and that does not account for how much is spent at a local level.
Mr George Howarth
My hon. Friend is making a powerful point that many of us tried to make earlier. Does he agree that on top of the fact that no redistributive mechanism is involved in this measure, there has not been sufficient testing of what the outcomes will be for us to be satisfied that it will work to the benefit of all local authorities?
Jim McMahon
That is an absolutely fair point that has been raised by not just me but very credible think-tanks and by the LGA, whose financial review stated that we need a broad review of the tax base to make sure that local authorities have a broad range of taxes and that they are resilient to future change and future shocks.
It is not good enough just to say that councils need to reform.
Mr Jim Cunningham
For very many years now, on and off, we have debated local government. Does my hon. Friend agree that we should have some sort of independent inquiry to have a good look at the needs of local government and how it should properly be funded?
Jim McMahon
I strongly believe, as would many in local government, that local government finance and the powers that are contained within local government should have constitutional protection from the interference of central Government. It cannot be at the whim of the Minister of the day, or even the Prime Minister or the Chancellor, to change the viability and sustainability of public services to such a degree.
We have made some progress with the four-year, multi- year settlement. I am pleased that the majority of local authorities have put in for that, but it was of course based on the projections of doom—on local authorities being told before the efficiency plan was submitted that they had to live within their means, but taking no account of the demand. At one point, the efficiency plans had been submitted, but there was a gap that has not been addressed through the funding settlements that are now being brought in. With the best will in the world, unless central Government bite the bullet and deal with the chronic underfunding of social care, council tax payers will continue to bear the brunt. It is absolutely wrong in a civilised country that people’s ability to receive decent social care is based on the tax base of their local authority, based on house values in 1991, and not on their need for that service.
Mr Cunningham
On social care, I met the chief executive of University hospital Coventry a couple of weeks ago. One of the big dilemmas is that people with mental illnesses are turning up at the hospital and looking for treatment when they should be going elsewhere. There is a real difficulty, certainly in the midlands, in looking after the carers in that situation. Does my hon. Friend agree that something should be done about that?
Jim McMahon
I absolutely agree with my hon. Friend, but his point goes beyond adult social care and the acute sector. Over this parliamentary Session, we have been discussing the cuts to community pharmacies and the impact that they are going to have. A lot of Greater Manchester’s Healthier Together programme is based on the preventive work of our community pharmacies, but 16 community pharmacies in my own town face closure. That is not part of the health devolution programme to Greater Manchester, but it is being held up as a place that has health devolution. That is because it is very tightly defined and the Government, with the best will in the world, just will not let go, for different reasons.
Members should not just take my word for it. During my years in local government, I had the pleasure of working with some fantastic people. I should be careful not to overstate this, given that he is one of the mayoral candidates in the race for Greater Manchester, but the Conservative leader of Trafford Council, who is also a vice-chair of the LGA, is very clear that this is not fiscal devolution, but a retention of rates that will be set centrally. If we mean it, we should all learn to let go, trust our local councils and trust local people to hold them to account.
Melanie Onn
I appreciate what my hon. Friend is saying about learning to let go and give power back to local authorities, but what about those that, because of the cuts, are finding it so difficult to operate that they are considering merging? Does he think that that will impact on the future operations of local authorities?
Jim McMahon
My hon. Friend makes a very important point about the burning platform coming down the line towards many local authorities. Local authorities that we support have had to make very short-term decisions and they have a horrible task of trying to meet growing demand, particularly for safeguarding young and vulnerable adults and children and for social care. The principle of devolution has to mean having a national framework with an answer for devolution for every part of England. It should not be about picking areas off one by one and against each other.
Jim McMahon
I will give way in a moment. Devolution also has to have fair funding at its heart. There is a fundamental difference between the Opposition and the Government on fair funding. One view says that fair funding means that everybody gets the same amount, regardless of the local community’s need, but we believe that fair funding—[Interruption.] I do not judge Government Members on their heckling; I judge them on their actions, the coalition years and the financial settlements, which are still coming through, that show that councils are having their budgets stripped away while demand goes through the roof.
Jim McMahon
I am going to make some progress, because it is the Minister’s birthday and he has cake with candles waiting at home. There are also a great deal of unanswered questions that he needs to address at the Dispatch Box.
Jim McMahon
Given my hon. Friend’s position as Chair of the Select Committee, it would be rude not to give way to him.
Mr Betts
I thank my hon. Friend for giving way and I am sorry that there are so many disappointed faces on the Government Benches. Oppositions are always better than Governments at arguing in favour of giving more powers and control to local authorities. That has happened over the years. Looking to the future, does he accept that we need to develop a local government system whereby local authorities have greater ability to raise money themselves and make their own decisions in doing so? We also have to address the issue of equalisation and recognising needs. There has to be an element of central funding, but it would be helpful if local government as a whole had the right to be given control of a specified amount of income tax, rather than have to be reliant on Governments, who can change the system and take away powers and money on a whim.
Jim McMahon
My hon. Friend puts on show his experience with a detailed assessment of the types of variable taxes that local government really needs in order to be sustainable in the long term. We are in the process of looking at local government finance in the longer term, and I make this plea: that we look a bit more broadly than the traditional council tax and business rate base; that we are open-minded about having a more varied range of taxes for local authorities to take; and that, in doing so, we ensure that local authorities are held to account and that they can work together to secure the right distribution method so that funding is genuinely based on need.
Jim McMahon
I need to make progress, because the Minister has already given notice that he wants to address a number of very detailed points that have been made. I think it is fair that we allow him to do that. Members will be sad to hear that not all of us will have the pleasure of sitting on the Bill Committee and going through the Bill in great detail.
As important as incentives are, so, too, is certainty. Yes, we should share the benefits of growth where growth can happen and where local authorities can demonstrate that they have had some role in it, but it is important to make sure that local authorities are not allowed to sink if they cannot do so for whatever reason. We have had some examples of situations in which that could be completely outside the local authority’s control. If a very large employer decides to relocate somewhere else in the world, it would be wrong for the local taxpayer to feel the brunt of that in their public services. The safety net is absolutely critical, and so is the detail, which we look forward to seeing, on tariffs and top-ups. My hon. Friend the Member for Dulwich and West Norwood (Helen Hayes) raised the importance of not just having the tariffs and top-ups in place, but making sure that the redistribution method is transparent and has fairness at its heart.
When we talk about certainty and the future of local government, we need to bear in mind that we are not talking about institutions. Councils do not exist for councils’ sake; they exist because they provide public services for public need and public demand. We miss a trick if we do not put at the front of our mind the real impact of the cuts on local communities not just in terms of austerity, but in their effect on communities’ ability to benefit genuinely from growth and devolution.
My right hon. Friend the Member for Knowsley (Mr Howarth) was very clear about the true impact on his local community of nearly £100 million of cuts to the local council’s budget. Let us be honest: there is no way in which we can take that amount of money out of the system and expect there to be no impact on the local area. We heard the same thing from my hon. Friend the Member for Manchester, Withington (Jeff Smith). He made it clear that Manchester, which is held up as an example of an excellent authority and which is at the forefront of devolution in leading the Greater Manchester devolution deal, has had to make some terrible decisions just to balance its everyday revenue book. That cannot be right.
Looking down the line, we have a serious problem coming our way: a £2.6 billion black hole in adult social care. If we do not deal with that, it will not mean that we have £2.6 billion more to spend, to save or to give away in tax breaks; it will only push demand elsewhere in the system, as we have seen with delayed discharges and queues for A&E. That can be prevented, but only by providing the money up-front to keep people in their homes for longer, putting far more money into preventive services and making sure that we are not spending money unnecessarily—not because people do not need that service, but because they will get a better service by being well for longer at home. That is really important.
We talk about the people who are already in receipt of social care not getting the support they need, but according to Age Concern 1 million people who would have been entitled to social care in 2010 are no longer in receipt of it. We are talking about somebody’s mum, dad or grandparent. I hope that when I get to the stage of having to think about my father or mother needing that type of care, we will have got a grip on the system. As mindful as I am of that, I am also mindful of the fact that as a Parliament we have a responsibility for the 1 million people who need social care. They have worked and contributed all their lives, and when they really need that care, it is right that the Government stand up for them.
The situation is bad in Oldham and Greater Manchester, but let us just look at Surrey. I know the Conservative leader of Surrey Council, David Hodge; we worked together on the LGA. He is not a grandstander, and he is not trying to make petty points. He is raising a very real issue about the lack of funding in social care. If Surrey had to raise council tax by 15% just to keep its head above water, just look at the authorities that have had their budgets cut even more than Surrey has. Some are in a terrible situation.
I will leave it at that and allow the Minister to come in. I ask him to work with us. Labour Front Benchers absolutely believe in devolution and in sending power from this place down to our communities, and we will table positive amendments, as well as probing ones. It is not enough for the Government simply to let go a little; they need to learn to let go full stop.
The Minister for Housing and Planning (Gavin Barwell)
As several hon. Members have kindly mentioned during the debate, today is my 45th birthday. It is not a cause for celebration on my part, but what better way to numb the pain than to attend a debate on local government finance? For nearly 24 of my 45 years, I have been interested in housing and local government policy. In all that time, there has been a very strong call for local government to move away from its dependence on central Government grants.
The Chair of the Select Committee, the hon. Member for Sheffield South East (Mr Betts), for whom I have very great respect, asked whether the Under-Secretary of State for Communities and Local Government, my hon. Friend the Member for Nuneaton (Mr Jones), was justified in saying that this is a revolutionary measure. I think it is: it is a big step change in reducing the reliance of local government in this country on central Government. Will it solve all the problems? No, of course it will not. There will still be arguments about the overall level of resourcing and the distribution among local authorities. However, I remind all Members of the House to read the briefing we have received from the Local Government Association, which says that the central measure in the Bill has long been called for by local councils.
The hon. Member for Harrow West (Mr Thomas), who spoke on behalf of the Opposition, suffered a bit of amnesia on the Labour Government’s record in office on devolution. None the less, it was very good to hear that the Opposition Front Bench support the measures in the Bill in principle. He was right to say that the Bill is part of a wider package that is very important in terms of what will be devolved to achieve the fiscal neutrality of its measures, on which the Government are consulting at the moment, as well as the distribution of the funding that will ensure a fair settlement for all local authorities and the issue of providing a safety net in case any authority faces a sudden decline in its income.
I will just make a few points in that regard. The hon. Member for Manchester, Withington (Jeff Smith)—he is not in the same place as he was earlier—asked us to forgive him his scepticism. I certainly do forgive him. I think scepticism of all Governments over the years on these matters has probably been justified. However, we cannot legislate for fair funding. The relative needs of various parts of the country are going to change over time—the Chairman of the Select Committee made that point very powerfully—and we cannot legislate for that, but we are absolutely determined to get this right. At the moment, we have two approaches to taking forward the detail and making sure that we address the concerns that Members on both sides of the House have expressed. We will pilot the arrangements, and two hon. Members —my hon. Friend the Member for St Austell and Newquay (Steve Double) and the right hon. Member for Knowsley (Mr Howarth)—represent areas that are piloting reforms. We also have a very important steering group with the Local Government Association, and it is working with local government to try to get the details right.
Mr George Howarth
Although the pilots are welcome, I made the point earlier that the Liverpool city region—it is one of the pilot areas, as the Minister has said—has had no consultation whatsoever by the Government on how they want to proceed with the pilot. Does he not think that we could do with a bit more detail before we get to the Committee stage so that we can judge what the likely outcomes will be?
Gavin Barwell
The Secretary of State has just told me that he has discussed the pilot with leaders in the city region and my officials have told me that there have been some detailed discussions. It is certainly true that not all of the points have been dealt with yet, but I will happily write to the right hon. Gentleman to provide him with some reassurance.
I will deal with some of the points that colleagues have made. My hon. Friend the Member for Christchurch (Mr Chope) talked about local government reorganisation in Dorset and what the position might be there. I can tell him that it would be possible to set one level of council tax from day one, but in previous reorganisations a period has been allowed for council tax rates to equalise. He asked about the pooling arrangements set out in the Bill. We intend to consult local government about those arrangements, but the reason for the change is that the current arrangements have led to some local authorities being left out of what would have been logical arrangements, and we should not allow that to continue. He also made the point that we are looking to implement these reforms in the last year of the four-year settlement. That is true, and we made that clear at the outset when we set out the settlement.
Gavin Barwell
If my hon. Friend will allow me, I will make a bit of progress, because I have a lot of points to respond to.
The Chair of the Communities and Local Government Committee, the hon. Member for Sheffield South East, said that he would like authorities to be given the freedom not just to reduce the multiplier but to increase it. That would certainly be the easy way to raise more income, but Conservative Members believe that the way to raise more income is to grow the local economy, and we are trying to provide incentives for local authorities to do that.
The hon. Gentleman made the crucial point that if resetting were done too often, the incentive for growth would disappear, but if it were not done regularly enough, there would be a danger of authorities falling behind. I can confirm to him that we will look to adjust the needs baseline every time we reset—that is a crucial part of the reforms. We may also need to look at the mix of measures that have been devolved to make the package fiscally neutral, because as he said, demand for services may grow more quickly than the income from the tax base. Those issues will have to be looked at each time.
My right hon. Friend the Member for Cities of London and Westminster (Mark Field) spoke powerfully about the unique constituency that he represents, for which he is such a powerful advocate in the House. He talked about the huge potential for income there, but also the real challenges that his local authorities face.
My hon. Friend the Member for Northampton South (David Mackintosh) made a good point about ensuring that there is an incentive for local authorities to help small businesses, from which they might not get a business rates income. The Government’s hope, and I am sure that of his local authority, is that small businesses will grow to become medium-sized and larger businesses, so that the incentive will still be there in the longer term.
My hon. Friend the Member for South Dorset (Richard Drax) made an important point about the appeals system for business rates. At the moment, local government bears a significant part of the risk of appeals. One of the reforms in the Bill that the Local Government Association has welcomed deals with that issue, so that the risk does not sit with individual local authorities. Clearly, with 100% retention that risk would be significantly increased, so we have sought to address the issue that he is concerned about.
My hon. Friend the Member for Cannock Chase (Amanda Milling) raised the issue of the safety net and referred to an example in her constituency that I believe she has raised with Ministers a number of times. At the moment, in the 50% retention system, there is a safety net at 92.5% of assumed income. As part of developing these reforms, the Government will need to give thought to what the arrangement should be under 100% retention. She is absolutely right to flag up the importance of protecting authorities that face a sudden large loss in their income.
Amanda Milling
Given that the intention is to phase out coal-fired power stations between now and 2025, what will the Government do to work with local authorities that will face closures over the coming years?
Gavin Barwell
There are two issues here—making sure that the arrangements that we have in place cater for circumstances in which there is a significant loss in a local authority’s business rates income from one financial year to the next, and giving advance warning of the timing of closures so that local authorities have time to prepare appropriately. Perhaps my hon. Friend may wish to have discussions with the Under-Secretary of State, my hon. Friend the Member for Nuneaton, as the proposals go forward.
Mr Jim Cunningham
The Minister mentioned the fact that the Government want to grow local economies through the measures in the Bill. One problem as a local economy expands is the shortage of housing. If the private sector cannot cope, why do the Government not take the shackles off councils and allow them to borrow to build council houses, so that they can take the pressure off mortgages?
Gavin Barwell
The hon. Gentleman tempts me on to my pet subject. If his argument is that we need to build more homes in this country, I absolutely agree with him, and so does the Secretary of State. There will be a White Paper shortly with a package of measures to encourage all sectors to build more homes, but I point him to the announcement that the Chancellor made in the autumn statement of a further £1.4 billion for the building of affordable housing. The commitment of the Secretary of State and myself on that issue is clear.
The hon. Member for Great Grimsby (Melanie Onn) and my hon. Friend the Member for St Austell and Newquay referred to the measures on rate relief for public toilets. Indeed, there was quite a lot of toilet humour during the debate. Because I am not at home for my birthday, my children are watching, so I will keep it clean. I simply point out one thing to the hon. Lady. She asked whether, if public toilets were closed, the relief would still apply—whether they would still be liable for rates. The answer is quite complicated: they might still be rateable—so there is a potential for a charge—but unoccupied properties with a rateable value below £2,000 do not pay business rates, so they might fall below that threshold. If they are above it, the powers in the Bill would be applicable. I hope that that gives her the detail she was looking for.
My hon. Friend the Member for Torbay (Kevin Foster) spoke powerfully about the pressures on coastal communities and made a plea that, as we look at the fair funding review, we make sure that those particular pressures are taken into account. I know that other hon. Members will share his concern, and I thought he made his points very forcefully.
My hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) spoke incredibly powerfully and showed a real understanding of the detail of local government finance. I have heard it said that when Einstein published his general theory of relativity, for a number of years only two or three people around the world understood it. I think the local government finance system is similar in that regard, but it sounds like my hon. Friend is one of the two or three. He talked about regression—the fact that the formula is not based purely on an assessment of need but takes past spending patterns as a proxy for what is needed—which means that to some degree the political decisions of different authorities have an impact. I think he was arguing that we move away from that, which is absolutely something we can look at as part of the fair funding review.
My hon. Friend the Member for Somerton and Frome (David Warburton) spoke powerfully about the importance of the measures on a rural rate relief. He is a great champion for rural communities, and we are pleased to include this measure; it will ensure that rural small businesses get the same treatment as small businesses in other parts of the country.
My hon. Friend the Member for Wells (James Heappey) spoke powerfully not just for his own constituents but for rural communities across the country in trying to ensure they get a fair deal from the fair funding review. The House considered this issue last year, and I know that he and the Secretary of State feel strongly about it, but we need to get the detail right and ensure that the formula takes account of the needs of all communities, whether inner-city areas, suburban areas such as the one I represent or rural communities, and ensure that they all get a fair deal out of the system for determining finance.
The final Back-Bench speech was from my hon. Friend the Member for Waveney (Peter Aldous). He made several points but one in particular bears repeating: about the importance of implementing the fair funding review at the same time as we extend business rates retention to 100%. It is clearly essential in those circumstances to ensure an equitable distribution of the income that local government as a whole raises through that tax. That was an important point.
The hon. Member for Oldham West and Royton (Jim McMahon), who wound up for the Opposition, made two points that are worth my picking up on briefly. He spoke rightly about making sure that the system prevents those communities from sinking that, for whatever reason, cannot raise additional funding from growth and might therefore find themselves deprived of income, which could become a self-replicating cycle. The Government want to address that in several ways. For one, we want to make sure that we get the system for local government funding right, but it will not have escaped the House’s attention that earlier we heard about an industrial strategy from a Government determined that all parts of our country benefit from the economic growth we are delivering. It is again worth looking back at the record of the Labour Government and their failure to do that. We do not intend to repeat that mistake.
The hon. Gentleman made one final point about local government finance. I want to make it absolutely clear to him that nobody on the Government Benches thinks that every single community in the country should have the same level of funding per head. We absolutely recognise that funding should be based on need. Let me give him a statistic: his own local authority has a spending power, per dwelling, of just under £1,900. In the Prime Minister’s community, that figure is just over £1,300, so his constituents are getting a spending power that is nearly 50% more to reflect the fact—quite rightly—that there are extra needs in his community. I want to make it absolutely clear on behalf of the Government that we are committed to a fair system that reflects need.
It is probably worth putting on the record some of the other things that the Bill does that have not received the same attention in the debate. The pooling arrangements and the possibility for groups of local authorities essentially to replicate enterprise zone policy is a really important measure. Some mention has been made of the powers in the legislation for the Greater London Authority and for mayoral combined authorities to levy a 2% supplement on business rates, if local business has been consulted, to fund new infrastructure. Again, this tempts me into my role as the Minister for Housing and Planning, but the Secretary of State and I are both convinced that if we want to see not just economic growth, but the housing that we desperately need, putting in place the right infrastructure is absolutely critical.
As constituency MPs, I suspect we have all quite often experienced how the resistance to building new housing in our communities is driven by a perception that over the years new housing has not been accompanied by the necessary infrastructure, so people have found it harder to get an appointment with their GP or to get their children into the local school, and found that their local trains are overcrowded or their roads are more congested. It is vital for the Government to tackle this problem, and make sure that we get infrastructure in place that will not only fuel economic growth, but help to deliver the housing that we so desperately need.
Kevin Foster
I appreciate the explanation that the Minister is giving. When people first hear about the idea of infrastructure, they instantly think of roads and railways. Will my hon. Friend confirm that it will be slightly wider than that, including, for example, a good provision of superfast broadband services?
Gavin Barwell
Absolutely. We want the definition of infrastructure to include looking widely at all the different things that can help to drive economic growth. In the industrial strategy Green Paper published today, getting the right digital infrastructure in place is a key part of trying to ensure that we get the broad-based economic growth that the country needs. Again, we should aim for the best connections not just in core urban areas, but right across the country, so that all communities can benefit from that technology.
James Heappey
I am grateful. Clearly, the challenge in making sure that business rates are being retained and that they are sufficient to fund all local services is to grow the tax base locally. Does the Minister agree that focusing on growth deals that aggressively target those areas where the business rate base is smallest might be a good thing to do over the next two years?
Gavin Barwell
I know that the Secretary of State is really keen to work with communities right across the country to get these growth deals in place. We absolutely recognise that if we want to drive economic growth, the role of local communities—local councils, local businesses and local enterprise partnerships—is critical. The Government giving additional freedoms to help make that work possible can play a huge role.
One other measure that has not been touched on is the provision to change the inflation indicator for business rates from RPI to CPI. As the Association of Convenience Stores says in its submission, this will lower annual rate increases for businesses, providing a reduction in the burden of business rates that businesses are going to experience.
In conclusion, local government is a crucial part of our democracy. Many Members, including myself, but going right up to the Prime Minister, have served as councillors before coming to this House to serve as Members of Parliament. All of us know just how important the work of councillors is to the local communities that we have the privilege to represent. For too long, councils have been forced to rely on us here in Westminster and have lacked the levers and incentives required to drive growth and investment in communities, and those communities have suffered as a result. This Bill presents a historic opportunity to change that forever. A global Britain can only be built on a strong local foundation. This Bill will help to provide that, and I commend it to the House.
Question put and agreed to.
Bill accordingly read a Second time.
Local Government Finance Bill (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7),
That the following provisions shall apply to the Local Government Finance Bill:
Committal
1. The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
2. Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 21 February 2017.
3. The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Consideration and Third Reading
4. Proceedings on consideration and proceedings in Legislative Grand Committee shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
5. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
6. Standing Order No. 83B (Programming committees) shall not apply to proceedings on consideration and up to and including Third Reading.
Other proceedings
7. Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Chris Heaton-Harris.)
Question agreed to.
Local Government Finance Bill (Money)
Queen’s recommendation signified.
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Local Government Finance Bill, it is expedient to authorise—
(1) the payment out of money provided by Parliament of any expenditure incurred by the Secretary of State in consequence of the Act; and
(2) any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Chris Heaton-Harris.)
Question agreed to.
Local Government FInance Bill (Ways and Means)
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Local Government Finance Bill, it is expedient to authorise—
(1) the payment of sums to the Secretary of State in respect of non-domestic rating, and
(2) the payment of those sums into the Consolidated Fund.—(Chris Heaton-Harris.)
Question agreed to.
Deferred Divisions
Motion made, and Question put forthwith (Standing Order No. 41A(3)),
That, at this day’s sitting, Standing Order No. 41A (Deferred divisions) shall not apply to the Motion in the name of Secretary Sajid Javid relating to the Local Government Finance Bill Carry-over. (Chris Heaton-Harris.)
Question agreed to.