Parking Places (Variation of Charges) Bill (First sitting)
Tuesday 31st January 2017
(7 years, 11 months ago)
Public Bill CommitteesRead Full debate Parking Places (Variation of Charges) Act 2017 View all Parking Places (Variation of Charges) Act 2017 Debates Read Hansard Text
The Chair
Welcome to the Committee. Just before we begin, please ensure your electronic devices are switched to silent, and I remind Members that tea and coffee are not allowed during sittings.
No amendments have been tabled to the Bill, so we will begin with a debate on clause 1. I suggest to Committee members that any remarks they may wish to make that are appropriate for clauses 2 and 3 can be made during that debate. In other words, we will have a general debate about the Bill on the Question that clause 1 stand part. If the Committee is content with that suggestion, I will then put the Questions that clauses 2 and 3 stand part of the Bill formally, once we have completed consideration of clause 1, on the basis that those clauses will already have been debated. In essence, we will deal with all three clauses together.
Clause 1
Procedure for varying charges at off-street parking places
Question put, That the clause stand part of the Bill.
The Chair
With this it will be convenient to consider whether clauses 2 and 3 stand part.
David Tredinnick (Bosworth) (Con)
It is a pleasure to serve under your chairmanship, Mr Bailey, not least because you are a midlands Member of Parliament and have a long length of service. The Bill is particularly relevant to you given your experience as deputy leader of Sandwell Borough Council between 1997 and 2000 and then your later experience as Chair of the Select Committee on Business, Innovation and Skills between 2010 and 2015. Although you cannot comment on the Bill today in your capacity as the Chair, I like to think you will feel comfortable with what we are doing today and that it would, indeed, have helped—and will help—Sandwell Borough Council and that it would certainly be seen as beneficial by the Committee you used to chair.
As a preamble, when I summed up at the end of the debate on Second Reading, I said:
“I have always tried to keep in the back of my mind that our job as Members of Parliament is to improve the quality of life of the people we represent. Having listened to today’s debate, I can say in all honesty that this modest two-clause Bill”—
three, with a technical clause—
“will improve the quality of life in every city and town in this country. I am most grateful for the Government’s support.”—[Official Report, 25 November 2016; Vol. 617, c. 1195.]
To the Labour Front-Bench team, I am grateful for the Opposition’s support. I understand, Mr Bailey, that they will not be speaking today, but I have had discussions with them before this and I am grateful that they have been amenable to supporting the Bill.
I referred to every town and every city in this country. For greater accuracy, I asked the Library to look out the number of settlements we have that would be affected by this Bill. According to the 2011 census, we have in this country 56 cities, 696 towns with a population of 5,000 or larger and 1,590 settlements with a population of 1,000 to 5,000. This shows the scale of the places where the Bill can have an impact.
It is significant for me, as a Back Bencher, to bring a private Member’s Bill to a Public Bill Committee that can have an impact not just on one area of the country. My hon. Friend the Member for South East Cornwall has a very special place here because she has taken through two or three private Member’s Bills, and it is a great comfort to have her here as an expert. She has done so much for the fishing community with her private Member’s Bills, which were specific to that community in Cornwall, which she has defended so well in her time in this place. When this Bill becomes law, as I hope it will, it will affect every village in England that has parking restrictions. The scope of the Bill includes Wales, but it will not apply in Wales for technical reasons.
The value of UK retail sales in 2015 was £339 billion. That will provide jobs for 3.3 million employees by 2017 in approximately 287,000 outlets. The major challenge to high streets in this day and age is internet competition. One of the reasons why the Bill is important for local communities of all sizes is that it will enable councils to fight back against internet competition as part of their armoury. The Bill will give the Government power to streamline the procedures local authorities must follow to reduce parking charges. It will provide a power for local authorities to consult local businesses and residents when increasing parking charges.
On Second Reading in late November, on the spur of the moment, I described this as a “Santa Claus” Bill, because it had the capacity for councils to reduce parking charges at a stroke before Christmas when they want to increase the demand for services in a local area. I will explain in a moment the difference between where we would be after the Bill and where we are now. This clearly caught the imagination of the House authorities. For greater accuracy, I have brought something along. They decided to produce a Christmas decoration that had on it, “Santa Act 2016”. I gather they were hot bestsellers. I have to tell the Committee—
The Chair
Order. I hate to interrupt the hon. Gentleman’s superb presentation, but may I remind him that it is not appropriate to bring visual aids to debates in the Commons?
David Tredinnick
I am most grateful to you for reminding me of something that I knew very well. I crave your indulgence, Mr Bailey. Being a superstitious person, I most certainly did not put anything on my tree that had “Act” on it, because this is not an Act and we still have procedures to go through. However, it is indicative of how anything to do with good will fires the imagination of the public and people like it.
I have referred to the importance of high-street shopping and given some statistics. My own main town of Hinckley was recently a finalist in the Great British High Street competition. Part of the way that we do things in Hinckley and Bosworth Borough Council is to look very closely at cost-effective parking, which is seen as essential. It already has a process of consultation in place with the local business organisations. However, this is not the case all over the country.
To get to the meat of the Bill, clause 1 provides the Government with a power to make regulations that simplify the procedure to follow for lowering parking charges. At present, councils must give 21 days’ notification in the press and place signage in the car parks if they want to lower their charges. The private sector, however, can take a business decision to lower charges without going through this process. To give councils flexibility to reduce their charges, clause 1 allows the Government to simplify the requirement, putting local authorities on an even footing with the private sector.
Equally importantly, councils should consider the effect of increased parking charges on the high street. Clause 1 therefore makes provision for a consultation requirement, so that councils take on board the views of local businesses and residents when they are looking to increase parking charges on an existing traffic order. They must already consult when a traffic order is set up; however, it is proportionate to expect them to consult if they want to raise charges during the life of the traffic order.
I was asked on Second Reading what consultation looks like and to give a commitment to define it. I understand that my hon. Friend the Minister may have something to say about this and that some work is in hand to come up with illustrative regulations in due course. That is very helpful, and I thank him. These proposals also make provision for a circumstance where consultation is not required: where a local authority has lowered charges for a temporary period and is returning them to an existing level. The great thing about the Bill is that it will give councils the flexibility, instead of having to put a notice in the local papers 21 days before changing a charge, to decide that a car park is empty and that it needs to fill it to take the pressure off another end of the town, as in Hinckley, and they can do so immediately. Or, as the chief executive of Hinckley pointed out to me, it can reduce the charges after the Christmas sales, when people do not want to come into the town as much as before Christmas, and then bring them back up again. It gives a very simple power to local authorities to be flexible, which is important.
Taken together, both elements of the clause offer councils a real opportunity to take the views of their local communities into account, while giving councils flexibilities where decreases to parking charges are possible and can be made to better support the goal of thriving town centres. I was going to urge the Committee to agree that this clause stand part of the Bill, but since we are taking the other clauses at once, it may be appropriate if I urge the Committee to agree that all the clauses stand part of the Bill.
David Tredinnick
Clause 2 is about the procedure for varying charges at designated parking places. It will apply the clause 1 provisions to designated parking bays, better known as on-street parking.
Clause 3 deals with the extent, commencement and short title of the Bill. This is the final clause that we will consider and it covers the usual matters: the extent of the Bill, the provisions for commencing its clauses and for laying regulations as necessary, and the title of the Bill. The matter of its extent has been raised in drafting the Bill. The Act will extend to Wales, as I said earlier; but for the avoidance of doubt, officials at my hon. Friend the Minister’s Department have already clarified that, if the Bill is passed, it will form part of the law of England and Wales. It would not make sense for it to extend to England and not Wales, because England and Wales is one jurisdiction and legislation cannot form part of the law of England without forming part of the law of Wales. However, the application of the Bill’s substantive provisions—their practical effect—will be restricted to England. The Welsh Government have confirmed that they are happy with this interpretation and with the rationale for Wales being mentioned in the Bill.
I urge the Committee to agree that these clauses stand part of the Bill.
The Chair
Before I go any further, I understand that the hon. Member for Blaenau Gwent is standing in for the shadow Minister but not opposing the Bill. Does he wish to say anything?
Nick Smith (Blaenau Gwent) (Lab)
Thank you, Mr Bailey. I shall make a very short contribution because, as you say, I am standing in for my colleague this morning. My hon. Friend the Member for Erith and Thamesmead sends apologies; she is ill today. Labour will not oppose the Bill. We hope that it will support cost-effective parking across the country in the future.
Mrs Sheryll Murray (South East Cornwall) (Con)
It is a pleasure to serve under your chairmanship, Mr Bailey. I shall make a short contribution. I congratulate my hon. Friend the Member for Bosworth on bringing in the Bill. I want to ask the Minister to clarify a few things. I live in a council area in Cornwall run by a Liberal Democrat-independent administration that was recently going to put up parking charges and, in certain circumstances, introduce parking charges where there had been none. That was of great concern to my constituents. I understand that the council will consult local businesses, which I welcome, and such other organisations that represent people who are likely to be affected. How will such other organisations be selected, and how will individual users, who are most likely to affected, have their say?
I will give a little history to my concerns. When Cornwall Council was formed, over 80% of the electors in Caradon district, where I live, voted in a poll during the consultation period against the formation of the unitary council. That poll was ignored by the Liberal Democrats who run the County Council.
The Chair
Order. May I remind the hon. Lady that we are discussing parking charges? I understand that there might be some general political points to be made in the context of parking charges, but she seems to be straying rather a long way from it at the moment.
Mrs Murray
I apologise if you have that view, Mr Bailey. I was going to go on to say that that was much in the same way that the Bill has been ignored by the right hon. Member for Sheffield, Hallam, who was down to attend this Committee but is clearly not present.
Will the Minister explain how that situation will not arise when we consult on the increase in parking charges? What power if any is there to stop a rise in parking charges if councillors choose to ignore that consultation in the way I have outlined?
Thank you, Mr Bailey, for allowing me to make this short contribution; I fully support my hon. Friend’s Bill.
The Minister for Housing and Planning (Gavin Barwell)
It is a pleasure to serve under your chairmanship, Mr Bailey, for the first time today. I congratulate my hon. Friend the Member for Bosworth on bringing forward this very welcome Bill.
I know from my experience of taking the Mental Health (Discrimination) Act 2013 through the House that it is a very significant undertaking for a Member of Parliament to negotiate a private Member’s Bill through with the Government and Opposition and to secure the broad-based support that my hon. Friend has been able to achieve. I congratulate him not only on behalf of his constituents—as he said, the Bill will benefit people right across the country.
I welcome the opportunity to speak on behalf of the Government to support clause 1 and the Bill. It sets the framework for regulations that will simplify the procedures that local authorities must follow if they want to lower their parking charges and, in clause 1, their off-street parking charges. The Bill also introduces a consultation requirement, which my hon. Friend the Member for South East Cornwall referred to, if local authorities want to increase their charges.
I am sure all members of the Committee agree that high streets, and town and village centres, continue to play an essential role in the lives of our communities. Parking plays an important role in providing access to those centres. Again, I am sure the Committee will agree that, in this day and age, we want to do everything we can to encourage people to walk, cycle and use public transport, but we need to recognise that, if we want thriving centres, some people will want to travel there by car. It is important that provision is made to enable them to park close to those centres at a reasonable price. There is strong evidence that the cost of car parking informs decisions made by shoppers on whether they will travel to a particular town centre or choose an alternative location, in some cases out of town.
I have experience of that in my constituency. To avoid straying into party political matters, Mr Bailey, I will say a good thing and a bad one. Historically, a previous Labour administration in my town sold off our multi-storey car parks and the charges have gone right up. That has been a significant problem in Croydon town centre. I am pleased that last night the Labour council announced that it would introduce an hour’s free parking in districts across the borough. That illustrates both the good and the bad impact that council decisions can have on our communities.
The Government are committed to promoting town centres as a thriving place at the heart of our communities, whether for shopping, leisure, or perhaps a trip to a restaurant or pub. I believe the clause will help to ensure that all councils have the opportunity to respond effectively to calls by local people and businesses to reduce their car parking charges. As my hon. Friend the Member for Bosworth alluded to, that may include supporting events in a particular centre with temporary reductions to charges, which will attract more visitors and benefit that local economy. The clause allows for regulations to remove the requirements to give three weeks’ notice in the press of an intent to reduce charges. If local authorities are reducing charges, the Government view it sufficient for them to notify people via their websites with only one day’s notice.
The Government strongly believe that it is right and proper for local authorities to consult their local communities and town centre businesses when proposing to increase charges—that point was raised by my hon. Friend the Member for South East Cornwall. I am sorry to hear of Cornwall Council’s proposals. This is not about the Government dictating how local councils should set their parking policies, but about asking councils, in the spirit of localism, to listen to the views of local communities before they increase charges. To directly answer her question, there is no power in the Bill to prevent a council from increasing charges. We are asking councils to have a consultation before they take that decision. That seems to me to be the right balance in terms of where the House should set policy.
My Department has prepared draft illustrative regulations to try to assist the Committee in scrutinising the legislation. I believe that those regulations were shared with members of the Committee yesterday. I particularly draw the Committee’s attention to those illustrative regulations recognising a specific circumstance to try to ensure that this part of the clause is proportionate. They include provision that there would not have to be a consultation if a council had temporarily reduced charges to support a particular event and was then increasing them back to the previous level. That would clearly be a perfectly reasonable thing for a council to do. It would be disproportionate to make it consult in those circumstances.
To ensure the measures work in practice, prior to the introduction of any regulations, the Government will consult local authorities, the Local Government Association as the representative body of local government in England, the British Parking Association and others to ensure that their views are taken into account before the regulations are made. Furthermore, Parliament will have an opportunity to consider any regulations under normal secondary legislation procedures. I inform the Committee that my Department will undertake a new burdens assessment to establish the administrative cost, if any, to local authorities arising from their duty to consult.
You have asked us to debate clauses 2 and 3 as part of the clause 1 stand part debate, Mr Bailey. My hon. Friend the Member for Bosworth has noted that clause 2 essentially applies the same provisions as clause 1 but to designated parking bays—on-street parking, in other words. I have no additional comments to make about those provisions, other than to say that the Government support clause 2 as we do clause 1. Finally, on clause 3, my hon. Friend has again succinctly summarised the position, and I have no comment to make other than to say the Government support it.
Although the Bill is short, it makes an important contribution to an issue about which all of our constituents feel strongly. It is about their ability to access local businesses in their village, district or town centre, and if they need to do so by car, to do so easily and at a proportionate cost. From the late 1980s and ’90s, we have seen the rise of out-of-town shopping and, more recently, the rise of online shopping. It is important that Parliament and local councils take steps to do all we can to ensure that this country continues to have the thriving centres, which mean so much to us all and help to define the communities in which we live. It is a pleasure to support my hon. Friend’s Bill. I congratulate him on bringing it this far and wish it continued success.
David Tredinnick
I thank the Minister and my hon. Friend the Member for South East Cornwall for their remarks, and I thank the hon. Member for Blaenau Gwent for his support.
It is not necessarily easy to come up in the ballot for private Members’ Bills—it is an uncertain process. This year amazingly represents 30 years of service for me in the House. It is particularly special for me to bring a Bill this far through the process to Committee and hopefully through its remaining stages. It will have a wide-ranging impact on the quality of life in every town, city and village in the country.
Bosworth is of course named after the battle of Bosworth in 1485, when English history changed, but it is particularly special for me to make this present to the people of Hinckley, which is the main town in my constituency. It gives the council the power to vary parking charges in the different car parks all over the town, particularly at a time when there is competition not only from the internet and online shops, but from other towns in the area. I have always been delighted to represent my town of Hinckley, and I am absolutely delighted to introduce the Bill.
I thank colleagues of all parties for their support. Thank you, Mr Bailey, for chairing this Committee.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clauses 2 and 3 ordered to stand part of the Bill.
Bill to be reported, without amendment.
David Tredinnick
On a point of order, Mr Bailey. It is my hope and expectation that this Bill is reported on Friday this week and proceeds to Third Reading on that day.
Broadcasting (Radio Multiplex Services) Bill
Tuesday 31st January 2017
(7 years, 11 months ago)
Public Bill CommitteesRead Full debate Broadcasting (Radio Multiplex Services) Act 2017 View all Broadcasting (Radio Multiplex Services) Act 2017 Debates Read Hansard Text
The Chair
Welcome to this Public Bill Committee. Before we begin, there are some housekeeping points. Will colleagues ensure that their phones are turned to silent? As colleagues will be aware, tea or coffee are not allowed in these sittings.
The Chair
Indeed. Thank you for that. I do not see any, but help yourselves to the water.
No amendments have been tabled, so we will begin with a debate on clause 1. I suggest that Members make any remarks they have about clause 2 during that debate. In other words, we will have a general debate about the contents of the Bill on the question that clause 1 stand part. If the Committee is content with that suggestion, I will put the question on clause 2 once we have completed consideration of clause 1 on the basis that those provisions will have been debated.
Clause 1
Small-scale radio multiplex services
Question proposed, That the clause stand part of the Bill.
Kevin Foster (Torbay) (Con)
It is a pleasure to serve under your chairmanship, Mr Pritchard. I thank the members of the Committee for agreeing to serve on it and for their attendance on what is a significant day for Parliament. It is worth saying that the Bill is significant in the impact it will have, and it is worth reminding the Committee that this is the first stage of a three-part process.
First, hopefully the Bill will become an Act and set out a legislative framework to enable small-scale digital radio multiplex services. The second stage—I am delighted to have the Minister on my right—would be a consultation on the orders necessary to create the detail of that legislative framework. Finally, on the basis of that, there would be individual licence applications to Ofcom to put individual multiplexes into operation.
The Bill comes at a timely moment, when we are seeing more and more commercial radio stations and literally hundreds of community stations. At the moment, they are virtually exclusively on analogue frequencies due to the problems they encounter in going on to DAB from the current licensing structure and system. That also means that, sadly, some areas do not have a local digital broadcasting service; they have only the national multiplexes. That is why I think the Bill is so important, and hopefully the Committee will agree to its making progress today, to give those stations an opportunity to go on to DAB.
Members of the Committee will be pleased to hear that I will not rehearse all the arguments we heard on Second Reading. I will be clear that no part of the clause requires anyone to go on to DAB and there is no requirement to provide for anyone to go on to DAB.
Maggie Throup (Erewash) (Con)
I am concerned about my local community radio station, Erewash Sound. Will my hon. Friend clarify whether the Bill applies just to community stations, or does it also include small commercial radio stations?
Kevin Foster
The Bill states that it
“may…require small-scale radio multiplex services to be provided on a non-commercial basis”.
We need to be clear that multiplex is the infrastructure of broadcast rather than the stations. It would therefore be possible where appropriate for small-scale commercial stations to broadcast via such a system—that would not be prohibited by the Bill—but the detail of that would come in the consultation and the orders issued by the Minister, and I believe that would have to come back to Parliament through the affirmative procedure to be agreed. The Bill is not restricted to community stations—small-scale commercial operators would be able to go on to this system—but its purpose and intention is mostly to target the community sector. In the consultation, some details have been considered about exactly how the orders will be framed so that it does not become a way for larger national operators to avoid their regulatory system.
The clause is mostly about sending a message, in particular in subsection (4) which says:
“An order under this section may in particular”.
There was some debate on this in the Chamber, and I know some letters have been sent to hon. Members on this Committee raising particular points. I make it very clear that it is a “may” in there, not a “must”. The clause is there to give a clear understanding of Parliament’s intention in passing the Bill, and some examples of the things that could be put into such an order and into individual licences. However, the list is not exhaustive and the clause allows the flexibility that will be needed in what could be hundreds of individual circumstances and individual applications for licences under any future order.
If we gave no indication of our intentions and the idea behind the Bill, that would leave it too wide. However, if we turned that “may” into “must”, we could end up with some bizarre outcomes in which we would all have wished an operational licence to go ahead, but we had drawn the legislation too tightly, not giving the Department and the Minster enough flexibility in the orders they wished to bring forward to Parliament for approval.
For me, it is ultimately about helping a sector of our economy grow and flourish. As I said on Second Reading, we also always have to consider the alternative. What if we say no, and decide that the Bill should not proceed? The reality of that would be no change to the current framework for the licensing and regulation of digital radio networks, which is nearly 20 years old and was designed to facilitate the development of the national and large local digital radio networks. We would effectively be looking at the successful trials and saying no, we did not wish them to go ahead. The hon. Member for Bristol South is in her place; we have seen the success of the trials in 10 locations, including Bristol, bringing new and diverse choices. In particular, stations that were internet only have been able to become broadcast stations. We would be saying no, we did not wish that to happen.
The trial licences are not an appropriate basis for long-term licensing of this new technology. Again, a point was picked up on Second Reading about what would happen. It is almost certain that the new radio stations that have been created—new listener choice—would have to be brought to an end. In short, it would be a huge opportunity missed. It is also worth noting that the complexity of running one of these types of stations has reduced quite significantly as the technology has developed. Again, the clause and the Bill are extremely timely.
I recognise that the Bill has a targeted power to modify primary legislation by statutory instrument but, as I said on Second Reading and mentioned again to the Committee today, this approach is incredibly similar to the way in which Parliament created tailored regulatory regimes in similar instances, for example through the Community Radio Order 2004 and the secondary legislation that was used in 2012 for local television. So there are clear precedents for including the power and, as touched on already, it would be exercisable only by affirmative order, requiring the scrutiny and approval of both Houses.
I do not intend to detain the Committee for too much longer. I hope that Members will find this clause acceptable and wish to support the Bill, so that it can progress and we can give a vibrant area of culture and business a real opportunity to go on to a digital broadcasting network.
Kevin Brennan
It is a great pleasure to serve under your chairmanship, Mr Pritchard. I think it may be the first time I have done so, and that makes it even more pleasurable.
As the hon. Member for Torbay will know from the extremely able presentation made by my hon. Friend the Member for Tooting (Dr Allin-Khan) on Second Reading, we support the Bill. We will not vote against it today in Committee and we wish him well with it. It is a great opportunity—one that I have never had—to get a private Member’s Bill into law. I hope that the Bill, with the fair wind that the Government are giving it, will make its way into law in due course, once it has been through both Houses. However, it is our duty as Her Majesty’s official Opposition to scrutinise any Bill, and particularly a private Member’s Bill that has Government support—one that was, indeed, drafted by them; so I have some questions for the hon. Member for Torbay, and possibly for the Minister, if he is inclined to contribute. He may bring insights about some of the thinking behind the Bill. However, I am sure that there will be questions that the hon. Member for Torbay can handle for himself.
I shall say frankly that I am raising issues raised with the Opposition by the Community Media Association. The hon. Member for Torbay will be aware of its thoughts. It wanted amendments to be tabled, but I do not think that they were ready in time. However, after today’s clause stand part debate they may prove unnecessary; or the association may want to ask for them to be tabled later in the Bill’s progress.
The hon. Member for Torbay is right about the fact that discussions often arise about whether the words “may” or “must” should be used in a measure—or sometimes it is “will”. We sometimes spend many happy hours debating that in Committee; but in this instance the Community Media Association may be more concerned about including the words “must not” in clause 1. The first point that the association makes is that it might have been better if the clause instructed the Secretary of State not to make an order in relation to small-scale radio multiplex services, except where the description is of services to be provided primarily for the good of members of the public or a particular community, rather than for commercial reasons.
The Minister for Digital and Culture (Matt Hancock)
For the record, where in clause 1 is the provision that the hon. Gentleman is referring to? The Bill is essentially one clause; when he says amendment is needed to clause 1, a little more erudition would be useful.
Kevin Brennan
I do not want to be ruled out of order; often the Minister seeks to run Committees as if he were chairing them. I think that my remarks so far have been perfectly in order.
The Chair
For the benefit of the Committee let me say that so far the shadow Minister’s comments have been in order; but I do not think that the Minister was trying to say they were not. He may want briefly to clarify. Let us move on.
Matt Hancock
I am sorry; I am unintentionally taking more time than I meant to. I wanted to know what, in clause 1, the hon. Gentleman was referring to.
Kevin Brennan
As you will understand, Mr Pritchard, I do not want to refer to an amendment that has not been tabled. You will have noticed that I have not done so; but I have alluded to the view that an amendment could be tabled to clause 1. If that non-existent amendment had been tabled and you had ruled it in order it might be inserted, for example, after subsection (4)(c) of the new section that the clause would add to the Communications Act 2003. In that fictitious world that might be where it would be.
An order under the Bill could
“require small-scale radio multiplex services to be provided on a non-commercial basis”
but the Community Media Association’s view is that that is not a sufficient guarantee that the services will be operated primarily for public and community benefit. The association feels that there is a risk that, where a small-scale radio multiplex service is run on a commercial basis, charges to small-scale and community radio content providers could remain excessive, and opportunities to reduce their costs through the sale of spare capacity could be lost.
Kevin Foster
Perhaps the shadow Minister would refer to subsection (4)(f), which deals with making
“provision about the amount of capacity that may be…reserved”.
Among the things that could be included in an order produced under the framework is reserving a part of the capacity. I remind the hon. Gentleman that a multiplex is about the broadcast infrastructure, rather than particular services. Space could be reserved so that it could be had at a competitive price.
Kevin Brennan
That is a helpful intervention. I will go on to indicate the Community Media Association’s concerns. It says that a
“commercially operated small-scale radio multiplex operator may be inclined to populate available capacity with content from those providers prepared to pay the highest rate, rather than content of the greatest public value.”
It says as an example that
“content providers that have very low fixed costs such as those providing semi-automated predominantly music services may be better placed to afford high costs of transmission, than content providers who invest in original local content including speech and local journalism.”
Kevin Foster
I understand the points that are being made. Does the shadow Minister agree that a lot of these matters could be dealt with in the consultation on the order? Clearly, if small-scale multiplexes are not created, we will be left with just the local and national ones, on which many community radio stations cannot operate. If we were very specific and restricted it to just one multiplex, that could create inflexibility across the whole country. There may be a scenario in a wide rural area where it actually makes sense to have more than one multiplex for a particular service.
Kevin Brennan
I am sure that the hon. Gentleman is right and that will form part of the detailed consultation. However, it is absolutely right that these arguments are rehearsed and put on the record in Committee, where we scrutinise the Bill line by line, and that he has an opportunity to respond, as he just has on that point.
The Community Media Association goes on to say:
“This would reduce the likelihood of small-scale radio multiplexes encouraging local content provision and be likely to result in higher costs to local content providers, which could also price small-scale local and community broadcasters out of access to the service.”
It says that multiple ownership of small-scale radio multiplexes could also
“create the situation where a single point of failure of a multiplex operator could impact on large numbers of local content providers in a market where no alternative provider is available.”
In its view, a wider
“ecology of multiplex ownership where each small-scale radio multiplex has a unique owner, will avoid this large scale impact, increasing sector level resilience and contributing to sustainability and risk mitigation.”
The association also says:
“Multiple ownership of small-scale radio multiplexes is also likely to reduce competition and innovation in the provision of technical services, with technical service providers likely to seek to become multiplex operators in multiple locations. This would have the perverse effect of transforming innovative technical companies into rent collectors from a captive market. The requirement that no individual or entity hold more than one small-scale radio multiplex licence would have the opposite effect, encouraging competition and innovation on the supply side, opening a new market for technical services and improving choice for the multiplex licensees. Multiplex owners would be free to purchase appropriate technical services from a range of service providers, similar to the current situation that exists with analogue sound broadcasting. This would drive customer-centred development such as improved user interfaces, cloud-based services, added value services, cost competition and increased attention to quality of service”.
I do not want to go on too long on that point, but I would be very interested to hear the hon. Gentleman’s response or from the Minister if he wants to contribute any thoughts on the points raised by the Community Media Association.
There is a third issue that the association wanted to raise—again, it is a “must not” point:
“The Secretary of State is not to make an order under this section in relation to small-scale radio multiplex services except where the order includes conditions to provide for capacity on a small-scale radio multiplex to be reserved for broadcasting services of a description set out in an order under section 262”—
of the Communications Act 2003. I know that the hon. Gentleman does not agree, but the association believes:
“This does not provide sufficient guarantee to community radio services that they will be guaranteed access to the digital platform where it becomes available. Any risk that community radio services could face competition from new channels on the small-scale radio multiplex while themselves continuing to be excluded for reasons of cost or because carriage is refused by the small-scale radio multiplex operator would be unfair and unacceptable. Community radio services have made substantial investment in facilities, infrastructure, content and social engagement and have delivered broad social impact which has been evaluated by Ofcom and DCMS as a broadcasting success story”.
We agree with that. The Community Media Association believes:
“It would be contrary to the public interest for a situation to arise where the only licensed services that carry significant social gain obligations are excluded from carriage on the next generation of digital broadcasting. Just as BBC local radio services are guaranteed carriage on the existing local radio multiplexes, community radio should be guaranteed carriage on small-scale radio multiplexes”.
It would be remiss of me to finish without mentioning my own local community radio service, Radio Cardiff, since I understand that on Second Reading everybody took such an opportunity.
Kevin Foster
I thank the shadow Minister for doing exactly what he said he would do, which was to give the Bill the thorough scrutiny that we would expect in Committee. This is about setting a framework. Many of the details that the Community Media Association has raised are items that would be considered, clearly, in the detail of the consultations on the orders and in individual licence applications. We do not want to set too rigid a framework by Act of Parliament that could end up with applications that could have made real sense at a local level being stymied.
On whether one person can hold more than one small-scale DAB multiplex licence, the detail of how the new licensing regime should operate will be subject to full consultation and set out in any order. The point of the Bill is to set out what the order to be made under the power can do, not what it must or will do. The wording enables provision on the issue but does not require it or any particular policy option, leaving flexibility for the future.
I understand that ownership of a small-scale DAB licence will be included for consideration in the Government consultation on the detailed licensing and regulatory arrangements. There are likely to be other views on the number of licences that each person can hold, and on the availability of small-scale multiplex licences to commercial organisations. At this stage it is important not to prejudge the consultation or the views of other stakeholders by amending the Bill in this regard.
On the ability to run these projects and the types of company, it was interesting to speak to people involved in one of the trials in Bristol. I think one multiplex ran off a laptop for a weekend, so the costs are very small. The Bill is about creating a framework, as we have seen with community FM radio. One of my local youth centres manages to run an FM station each year on a temporary licence. It is becoming increasingly simple, so there is not the complexity that is sometimes suggested.
It is worth noting that the whole purpose of the Bill is to have a light touch and a framework that allows innovation and change, and not to set too much in stone in an Act of Parliament. I recognise the concerns and I have heard what has been said. The intention of the Bill was not to replicate through the back door what in effect we had for national and existing multiplexes—that is, guaranteed BBC coverage. However, a provision is included that would allow a determination to reserve capacity. If we specified that something had to be included, in theory we could get away with only 1% of a multiplex. It is better to allow flexibility, rather than having a statutory radio service that is similar to a statutory railway service.
Kevin Brennan
I understand the hon. Gentleman’s intention not to be too prescriptive, and there are good reasons for that in many pieces of legislation. Will he, however, reflect further on whether anything could be said or done on Report to alleviate some of the concerns expressed by the Community Media Association, not least because the other side of the experience of legislation is often that when a gateway is left open, the strongest push their way through and dominate the landscape, which we have to avoid?
Kevin Foster
I thank the shadow Minister for that helpful and constructive intervention. I will certainly be happy to go into a little more detail about our intentions on Report, and I am sure the Minister will want to go into the Government’s intentions for the consultation, assuming that the Bill makes it through Third Reading. I accept the point that too often, certainly in broadcasting circles, the larger beasts are much more able to bang the drum for themselves.
If we do not pass the Bill, however—I am sure the shadow Minister has reflected on this—the only people in digital radio will continue to be the bigger operators, the national networks and the regional broadcasters to which he referred. That is the difference: if we do not set up this framework, in reality a small-scale community station will not be going on to DAB any time soon. The purpose of the Bill is to create a scenario in which a genuine community radio station can get on to digital broadcasting.
As in my example from Bristol, an FM station could literally be run almost as a garden-shed operation, subject to the relevant licence and regulation, allowing it to take a first step into broadcasting. With DAB and digital media, people have two choices. The first is the internet, and the Bill does not cover internet-only broadcasting because it is not broadcasting as such. The second is a local area multiplex, but the likely broadcasting fees would mean a jump from an operation that can be run out of a bedroom to one with a turnover of almost £1 million a year.
I certainly hear the point and we will explore it a little further on Report. However, the point of the Bill is to open up digital to community radio stations, not to close it down. That is why we need to retain flexibility and not be too prescriptive at this stage. With that, I hope members of the Committee are satisfied that the clauses can stand part of the Bill.
Kevin Brennan
To come back briefly, the hon. Gentleman referred to some things that the Minister was going to do in the consultation. He said he thought that that was what the Government were going to do. Perhaps the Minister will intervene and confirm that so that it is on the record from the horse’s mouth.
Matt Hancock
I will be brief because it is not my day; the Bill is promoted by my hon. Friend the Member for Torbay. The Government support the Bill and I support everything that my hon. Friend has said. We have heard arguments both on Second Reading and in Committee in favour of having small independent commercial operations being able to take advantage of this Bill, as well as making sure there is enough protection to allow community stations that are not profit-making to make use of it. We will take all of those arguments into account. The Bill does not set the final position on restrictions for holding small-scale DAB licences and does not contain stipulations about licence ownership or operating on a commercial basis.
The Chair
Order. It is easily to forget that an intervention has been made on the shadow Minister, but this is an intervention rather than a contribution to the debate.
Matt Hancock
I apologise. I thought I was being called to speak rather than to intervene. Having put all that on the record in my long intervention, there is nothing further that I need to say.
The Chair
May I say for the record that I always enjoy hearing the Minister, but it was an intervention and interventions have to be short? I was reluctant to intervene on his comprehensive response, but I am always guided by the good advice of the Clerks. I have learnt always to listen to the Clerks of the House, who know what they are doing, which is certainly not the case with me. I will call Kevin Foster one more time if he wishes to respond to any of that.
Kevin Foster
I think we can move straight on. I am happy to endorse the Minister’s remarks.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2 ordered to stand part of the Bill.
Bill to be reported, without amendment.
Local Government Finance Bill (First sitting)
(7 years, 11 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text
The Chair
I have a few preliminary announcements. Please switch all electronic devices to silent. Tea and coffee are not allowed during sittings.
The Chair
Even if it is cold, I am afraid. Sorry about that.
We will first consider the programme motion, which is on the amendment paper. We will then consider a motion to enable the reporting of written evidence for publication and a motion to allow us to deliberate in private about our questions before the oral evidence sessions. In view of the short time available, I hope that we can take those matters formally without debate.
Ordered,
That—
(1) the Committee shall (in addition to its first meeting at 9.25am on Tuesday 31 January) meet—
(a) at 2.00pm on Tuesday 31 January;
(b) at 11.30am and 2.00pm on Thursday 2 February;
(c) at 9.25am and 2.00pm on Tuesday 7 February;
(d) at 11.30am and 2.00pm on Thursday 9 February;
(e) at 9.25am and 2.00pm on Tuesday 21 February;
(2) the Committee shall hear oral evidence in accordance with the following Table:
Date | Time | Witness |
|---|---|---|
Tuesday 31 January | Until no later than 10.15am | Department for Communities and Local Government |
Tuesday 31 January | Until no later than 10.45am | Local Government Association; Core Cities |
Tuesday 31 January | Until no later than 11.25am | District Councils’ Network; County Councils Network; London Councils |
Tuesday 31 January | Until no later than 3.00pm | Chartered Institute of Public Finance and Accountancy; British Chambers of Commerce; Federation of Small Businesses; Society of Local Authority Chief Executives |
Tuesday 31 January | Until no later than 3.45pm | Association of Convenience Stores; Professor Tony Travers, London School of Economics |
(3) proceedings on consideration of the Bill in Committee shall be taken in the following order: Clause 1; Schedule 1; Clauses 2 to 6; Schedule 2; Clauses 7 and 8; Schedule 3; Clauses 9 to 19; Schedule 4; Clauses 20 to 37; Schedule 5; Clauses 38 to 42; new Clauses; new Schedules; remaining proceedings on the Bill;
(4) the proceedings on the Bill shall (so far as not previously concluded) be brought to a conclusion at 5.00pm on Tuesday 21 February.—(Mr Marcus Jones.)
The Chair
The deadline for amendments to be considered at the Committee’s first line-by-line sitting was the rise of the House yesterday. The next deadline will be the rise of the House on Thursday for the Committee’s meetings a week today.
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Mr Marcus Jones)
The Chair
Copies of written evidence that the Committee receives will be made available in the Committee room.
Resolved,
That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.—(Mr Marcus Jones)
The Chair
We will now hear oral evidence on the Bill from the Minister. Before asking him to make some opening remarks, I remind all Members that questions should be limited to matters within the scope of the Bill, and that we must stick to the timings in the programme motion that the Committee has agreed. For this oral evidence session, we only have until 10.15 am.
For the record, Minister, will you state your name and responsibilities?
Mr Jones: Marcus Jones, Minister for Local Government.
The Chair
Q Thank you very much. Would you like to make a few opening remarks?
Mr Jones: Thank you, Chair, for allowing me the opportunity to address the Committee. First, I thank the many in local government and in business organisations for their substantial contribution to the development of the reforms. The Bill reflects the significant input to date and our collaboration will continue, certainly as we determine the detail of the implementation of the new system.
The key themes of the Bill are: reform of the local government finance system to move local authorities away from dependency on central Government; to provide strengthened incentives and flexibilities to local authorities to boost growth and to invest for growth; making the business rates system much more business-friendly; and to modernise the business rate billing arrangements to suit businesses in the 21st century.
A change to the relationship between local and central Government is long overdue. The Bill provides for farsighted reforms to the way in which local services are funded. By the end of the Parliament, local government will retain 100% of locally raised taxes and have taken a significant step towards self-sufficiency. We aim to implement the reforms in 2019-20, which means that local government will retain about an additional £12.5 billion in locally collected revenue.
To ensure that the reforms are fiscally neutral, some existing responsibilities will be funded by locally raised taxes instead of grant. Councils will also be given new responsibilities. The reforms will also provide greater stability for councils by moving away from annual discussions of funding to multi-year settlements, which is widely supported by local government and will continue to protect local authorities from the impact of sudden reductions in income.
This framework Bill enables us to deliver the measures through an ongoing process of engagement with local authorities and businesses over the coming months on the detail of the reforms. As I made clear on Second Reading, the Bill does not address issues of distribution or assessment of councils’ relative needs. We are considering those matters separately through a fair funding review that is on track to deliver a wholesale look at councils’ relative needs and resources. We will publish further details shortly.
At the heart of the reforms to local government finance is our aim to provide the right conditions to incentivise growth. A key function of the Bill is to provide local government with strengthened incentives to grow their business rates income and to encourage local businesses to set up and grow. The Bill provides for the levy on growth to be scrapped for good, which means that councils will keep 100% of growth in their business rates incomes between reset periods.
We are going even further and, for the first time since the establishment of the business rates system, councils will be able to reduce the national business rate multiplier for the whole of their authority, helping them to attract businesses and investment to their area. To support investment where it is needed to boost growth, the Bill enables mayoral combined authorities and the Greater London Authority to raise a small supplement on the business rates, in full consultation with businesses, to enable them to develop their infrastructure to realise the area’s growth ambitions. Together the measures will provide local authorities with a real incentive and the tools to grow significantly their economies.
The Bill also contains a package of measures to make business rates much more business-friendly, including support for small businesses and local amenities that help communities to thrive. The Bill ensures that small businesses in rural areas receive the same level of business rate as those in urban areas. It provides a new discretionary relief for public toilets. We are also helping businesses up and down the country by legislating to change the business rate indexation from RPI to the significantly lower CPI measure, which will save businesses about £370 million a year, as announced in the autumn statement. We will also provide a five-year relief for the installation of new optical fibre.
We are using the Bill to modernise business rates billing. We are taking the power to make the business rate system more convenient, ensuring every business can access electronic and more consistent bills, no matter where they are in the country. We will also allow HMRC to carry out the design work to engage and to develop proposals on how more joined-up tax billing can be achieved in future.
The Bill provides an ambitious package of reforms to the funding and focus of local government that will fundamentally change the balance of power between central and local government. It will incentivise local leaders to focus on growth and will relieve the burden on hard-pressed businesses. I look forward to working with you, Mr Gapes, and with the Committee to deliberate the content of the Bill.
Mr Gareth Thomas (Harrow West) (Lab/Co-op)
Q You will have seen overnight the concerns of the Local Government Association about the future funding of social care. Do you envisage that social care will be better funded or worse funded as a result of 100% retention of business rates by local authorities?
Mr Jones: I have been quite clear all along, during the preparation of the Bill and on Second Reading, that it delivers a framework to allow local authorities to retain the business rate. In doing that, we have been extremely clear that this is a fiscally neutral exercise and that new responsibilities will therefore be brought forward for local government as a quid pro quo for the additional £12.5 billion of business rate income to which local authorities do not at the moment have access.
In the consultation we conducted on the additional items that local government will take on, there was a question about whether the improved better care fund would be funded through the retention of business rates. That is not yet decided. It is something that we are still considering in connection with the consultation that we began last year and are due to make a response on shortly.
Mr Thomas
That was a very interesting answer, but it did not go anywhere close to answering what was a fairly simple question. I will ask it again to help the Minister, who may not have had a coffee or a glass of water to get him fully up to speed. Will social care be better or worse funded as a result of the measures in the Bill?
The Chair
Order. Can we avoid the personal remarks please? I would rather we concentrate on the Bill.
The Chair
I think it is important to set the tone now and that we do not change the nature of the Committee into something else. Please can we have questions that focus on the Bill?
The Chair
No, you are not allowed coffee. I said that earlier. If anybody has sneaked one in, I suggest you dispose of it quickly outside.
Mr Thomas
Q It was an interesting answer. I would be very grateful for an answer to the actual question I asked.
Mr Jones: The quantum of funding for adult social care is not part of the provisions of the Bill. My Department, along with other Departments in government, continually looks at the challenges and pressures around adult social care and the future sustainability of the system. I am therefore not sure that the Chairman will be keen for me to elaborate further on items that do not relate to the detail of the Bill.
The Chair
Can you dispose of it outside, please? Thank you very much. You cannot drink it inside. This was decided before you came here; it was very clear.
Mr Thomas
Q The deletion of the revenue support grant, which funds social care among other things, is one of the key aspects of the Bill. I gently ask again: does the Minister expect social care to be better funded as a result of the abolition of the revenue support grant and the 100% devolution of business rates, or not?
Mr Jones: Indeed, you are right, the revenue support grant will be rolled in to the quantum of the funding and the business rates retention. But I would also point out that the Bill puts in place a framework for the retention of business rates by local authorities. It does not go into the detail of what additional responsibilities local government will take on as a result of the additional funding. That is being brought forward alongside this through further work. We are also doing further work in relation to the fair funding review, which will certainly take into account the pressures of adult social care. We will be bringing forward that work, further consultation and a response to the initial consultation alongside work that is ongoing in relation to the Bill.
Justin Tomlinson
Q I spent 10 very happy years as a councillor and I get lobbied regularly by council leaders and experienced councillors. Minister, you are widely respected for having a good command of this area and for recognising that there is huge potential within local authorities.
I have a number of questions. The first is: the heart of the Bill is about encouraging and incentivising local authorities, but what more can we do to ensure that there is the capacity to take advantage of that? In Communities and Local Government questions, I raised the point about attracting more business-minded people. One of the challenges is that we will be expecting more of local authorities. When we go out, all of us, with our respective parties recruiting potential councillors, we will be asking more of their time. How can we attract sufficient numbers who have the expertise to be able to understand and deliver on what will be very large budgets? It is about looking at business-minded people and at councillors of all backgrounds to have that capacity.
Mr Jones: Thank you for your kind comments. You are absolutely right. The Bill is all about incentivising growth and incentivising local authorities to bring forward growth, so that a particular local authority area can benefit from the extension of its business rates base. Post-implementation of the system, it will be an exciting time to be a member of a local authority. We already have some excellent councillors up and down the country who are very focused on supporting business and growth in their areas, but you make a very good point about attracting new councillors who are business-savvy and entrepreneurial.
What we are doing here with the reforms will attract more business-savvy people in that sense, but we also have to help those people. My Department has to work with organisations such as the Local Government Association on councillor development and also on how councils work. One of the challenges when I was a local councillor and a council leader was that many council meetings were at times that were not appropriate for people who are running businesses. So councils will need to be mindful, if they want to attract high-quality people, about how that works and about how the officer team at the council works. For example, officers used to attend the council for briefings with me at six o’clock at night to reflect the fact that I had a full-time job. Those are things that certainly need to be considered, but I think that this will be a more attractive proposition for the type of people we all want to see in local government.
Justin Tomlinson
Q That is great, and hopefully the LGA will take a lead on that, encouraging local authorities, particularly on the sitting hours.
We have seen other schemes introduced, such as the new homes bonus, which provide incentives to local authorities to encourage growth, and in return they are financially rewarded. However, very few residents are aware of those schemes, so they do not see the benefits and, in turn, they do not lobby the local authority to act as the scheme was intended. With all the different incentives that are being put in place, what thought is there on how we can ensure that residents are engaged? For example, if a local authority wishes to stimulate growth by discounting business rates for certain sectors, how can we ensure that the public understand what is being done and how their money is being used for a long-term decision?
Mr Jones: The local authority, within the provisions of the Bill, will be able to reduce the business rate multiplier for its local authority area. That said, that does not prevent a local authority from giving a particular business rate discount to a particular business or a particular sector, if it chooses to do so. It is important in that context that the local authority engages properly with the community to explain the benefit that will be brought in the provision of services in the area—not just extra money to local services but other benefits such as local jobs that are created as a result.
Again, I think it is all about engagement. There is a lot of detail that we need to work through with local government and organisations such as the LGA, but that is a very important point that we should take on board.
Justin Tomlinson
Q Our annual council tax bills provide information on the areas where it has been spent within the council. Perhaps statements such as, “We have made the following changes for the following reasons” could be part of such bills.
When councils set council tax, they are ultimately held accountable in the annual or four-yearly election, with the check and balance of the electorate. When changes are made to business rates, that protection is not necessarily in place. You talked about consulting with businesses. Could you expand on that? Will that only be with the businesses that are business rate payers?
Mr Jones: There is a lot of detail within that to be determined. When a local authority or a combined authority decides to put a levy on the business rate, for example, which the Bill would allow to happen, they will have to publish a prospectus. There will be a number of things within that prospectus. We will also need to consider which businesses have exemptions from any levy. We need to consider that very carefully.
We now have a situation where all businesses are exempted from business rates up to a £12,000 rateable value threshold. There will be consultation with local business in that sense. There will also be mechanisms, from the primary legislation to the implementation of the policy, for a continuing dialogue with business and local government to ensure that we get right the balance that my hon. Friend mentioned.
Justin Tomlinson
Q Great. My final question is this. Potential changes in business rates may incentivise businesses to push for a revaluation. Is consideration being given to the capacity of the revaluation officers? Presumably, there would be a spike if there were changes, as people look to review their costs.
Mr Jones: You make another very good point, Mr Tomlinson. The number of business rate appeals, particularly regarding the way the system has failed to cope with the sheer volume of appeals, is very important and does challenge local government.
We are looking at bringing forward additional changes to the way that business rate appeals are dealt with. We want to make it easier, particularly for smaller businesses, to make business rate appeals. We also want to drive out some of the worst practice within some of the more unscrupulous business rating agencies, which lead some small business people down a path of great hope that they might get a significant reduction in the business rates, when that is an unrealistic proposition. We hope our check, challenge, appeal reform to the system will reduce that situation significantly and free up the system for legitimate business rate appeals that need to be looked at carefully and expeditiously.
Rob Marris (Wolverhampton South West) (Lab)
Q In the policy background in the explanatory notes it says,
“The reformed system will also provide local authorities with strengthened incentives for growing their business rates income.”
In fact, the Government like that so much that they mention it twice in the explanatory notes, as did the Minister in his opening remarks. I note that under an Act that is now seven and a half years old, the Business Rate Supplements Act 2009, the only business rate supplement currently in force is that levied by the Mayor of London in relation to Crossrail. What evidence does the Minister have that the proposed changes will encourage local authorities to do what the Minister by implication thinks they are not doing— that is, trying to expand their local economies and build their local businesses?
Mr Jones: There are a number of different elements to the Bill to do with expanding the business rate base, Mr Marris, and you have chosen the issue of levying the business rate supplement to provide infrastructure. That provision will be available for combined authorities and the Greater London Authority, so it will be available for authorities such as the West Midlands combined authority, of which Wolverhampton is a constituent member. In that sense, it is different from the current business rate supplement regime because it allows for consultation with business prior to the implementation of a levy on the business rate. Currently, the business rate supplement is dealt with by way of balloting businesses in the area. There is a clear distinction between the powers that exist and the powers offered in the Bill.
Rob Marris
Q But what evidence is there that those powers are likely to work, given, as I understand it—correct me if I am wrong—that neither of the consultations your Department has done has reported yet? There is a consultation on key issues across the reforms and one on the fair funding review; has either of them reported? If not, how can the Committee weigh the evidence on a key plank of the Bill, which is to do with incentivising local authorities? Where is the evidence?
Mr Jones: We will provide a response to those consultations shortly.
Rob Marris
Q But we will be discussing the Bill in Committee very shortly. Your answer is not encouraging, Minister. Will we receive the responses before the end of our sittings on the Bill?
Mr Jones: I can assure you that my intention is to bring those forward before the end of the Bill sittings.
Kevin Hollinrake (Thirsk and Malton) (Con)
Q On redistribution, I accept that the Bill gives local authorities the incentive to grow business rates, but the vast majority of income that will go to councils will be through a redistribution of the 100%, and that will be distributed according to need. The Local Government Finance Act 1988 stated that local authority funding for people should be fair, regardless of where they live. In London, local authorities have around 40% more spending power. If you add up all the local authorities of whatever tier divided by the number of people, the residents pay a lot less in council tax. Out of the total funding—business rates, revenue support grant or council tax—they have 40% more spending power, yet they contribute less in council tax. There does not seem to be any correlation in terms of need in those local authorities. That cannot be fair.
Mr Jones: I know this is a subject that you care about deeply, Mr Hollinrake. Quite rightly, at every opportunity available, you raise it with me and other Ministers in the Department. I understand that. The response to the call for evidence on the fair funding review conducted in the middle of last year will be released shortly. We will then look to introduce further consultation on fair funding. As you know, it will be complex. The way in which the needs assessment was put together more than 10 years ago means that there is significant complexity and we will have to look at the system very carefully, but we are alive to the fact that we need to bring that together with the fair funding review and the issues of redistribution by the time we get to implementing the outcome of the legislation in 2019-20. We are mindful of the fact that local authorities across the country have legitimately questioned whether the assessment of need is right, given the changes in demographic pressures and suchlike.
Kevin Hollinrake
Q I accept your points, but, as you say, it was revised 10 years ago and there is still an inbuilt unfairness in the system, which the LGA technical working group is looking at. Are we simply going to carry on and adjust it slightly? Are we going to accept regression as part of this and say it is just baked-in past formulas, rather than take a bold approach based on clear evidence and need? At the moment, 159 different measures go into the system, and it is not producing a fair outcome yet. I have no issue with any local authority or area getting more money than my local authority as long as it is demonstrably fair. We have got to get away from this opaque system and move to a fair system. We are using the LGA technical working group, but is there not some vested interest in there that will prevent this from being fair in the future?
Mr Jones: There are people involved in that working group from across the local government spectrum. They represent, for example, metropolitan councils, unitary areas, county areas, district areas and a geographical mix. The working group’s scope is deliberately set up to bring in all elements of local government so there can be a serious and proper discussion about this. As you know, Mr Hollinrake, the system is being introduced not directly thorough this legislation but through work that is happening alongside it. The Government are absolutely determined to ensure that there is a full and proper review of the situation to prevent things from being baked in or predetermined.
Kevin Hollinrake
Q The Communities and Local Government Committee recommended that there be an independent body to look at the issue, and we are bringing forward an independent analysis of funding. I am sure the Government will look at that very carefully and take it into account before they make a decision, but I seek reassurance about that.
Mr Jones: We are looking at the information that the LGA technical working group is providing, and I am sure we will also look at other pieces of work that have been done. As you know, Mr Hollinrake, in making our policy decisions, we always take into account things that the Select Committee puts forward and points out, as was the case recently when some amendments were made to Bob Blackman’s private Member’s Bill, which the Government supported.
Kevin Hollinrake
Q As part of this change to the system, another £12.5 billion of spending power is going back into local authorities, and I am sure you are going to want to see extra responsibilities commensurate with that kind of money. It is very difficult to change a system if there is no more money coming in—obviously there will be winners and losers, because it is a zero-sum game—but more money is coming in to deliver extra services. Do you think it would be fair if the local authorities that are getting an unfair deal at the moment get the greatest benefit from the extra money?
Mr Jones: That remains to be seen, but it is usual with any significant change to local government finance to have transitional measures. We will certainly need to consider that. As I said earlier, the Government have always set out our stall to make it clear that the £12.5 billion will be a revenue-neutral situation.
Jim McMahon (Oldham West and Royton) (Lab)
Q You referred to the additional £12.8 billion in your opening statement, and it is mentioned in the explanatory note. Is it net of the rate relief that is in place?
Mr Jones: Yes, it will take into account the business rate reliefs that have come through.
Jim McMahon
Q Will it be net?
Mr Jones: With the system at the moment, and the way in which it works, for example, the revaluation currently being undertaken by the Government, which comes into effect in April, will, effectively, be paid for by the Government. Therefore, there will not be any net effect to local authorities as a result of those changes. It will be exactly the same principle when the business rate system changes to the local authorities retaining the additional £12.5 billion.
Jim McMahon
Q So, to be clear, the £12.8 billion does not include the £2.6 billion mandatory rate relief or the £1.1 billion small business rate relief.
Mr Jones: If I can clarify, we would not intend to give local authorities additional responsibilities that were not covered by the additional funding. I think that is where you are coming to, Mr McMahon.
Jim McMahon
Q Perhaps I am not explaining myself clearly enough. The idea is that local government will retain 100% of business rates collected, so the quantum of money collected in business rates. What I am trying to get to is this: when that is returned to the local authorities in whatever formula is devised at the end of all this, will the Government take the burden of rate relief outside the money collected in business rates? Or do you expect it will be covered as part of the business rates that are collected?
Mr Jones: It will be covered as part of the business rates collected.
Jim McMahon
Q Right, that is quite an important point. So, the £12.8 billion that has been referred to in the report is minus the £3.7 billion relief that is in here.
Mr Jones: Sorry, just to clarify that: the £12.8 billion is the additional amount that will be going to local government. Sorry if I misled you, Mr McMahon.
Jim McMahon
Q Is it envisaged that the grants currently given to local authorities will end? So when you talk about self-sufficiency and self-financing of local government, is it envisaged that that will be solely for council tax and business rates?
Mr Jones: Yes, although as has been discussed in the consultation, there are a number of additional matters that are still yet to be determined. There is a list of different things that have been put forward that might be paid for by the additional amount of business rates local authorities will receive. One of the things we have ruled out that will not be paid for in that sense is attendance allowance, but all the other items listed there—the improved better care fund being one of them—are things we are going to consider, and we will be responding to that initial consultation very shortly.
Jim McMahon
Q There is a problem, isn’t there? If we take the £12.8 billion and we deduct the £7.1 billion that is currently spent through revenue support grant, and then you take into account the adult social care pressures as £2.8 billion as well as the additional responsibilities, the truth is there will be no new money for adult social care. By the time you get down to the bottom line, there will not be enough money to cover the social care gap.
A direct question: do you agree with the Conservative chair of the LGA who calls the adult social care situation a crisis?
Mr Jones: No, I do not agree that it is a crisis. I think there are significant challenges in the system and we are proposing significant measures to support local government in this regard. The additional council tax flexibility we have provided in terms of the adult social care precept, the additional grant we have provided this year and the improved better care fund add up to £7.6 billion of additional dedicated funding that is going towards adult social care. So we recognise the challenges and are looking to address those. What I would say, Mr McMahon, is that you cannot conflate, at this point, the figures you are referring to in terms of the additional business rate income directly to the issue of adult social care. At the moment, as I said, that is yet to be determined.
Jim McMahon
Q But do you accept that it is a significant part of local authority pressure? Adult social care and safeguarding make up the lion’s share of most local authorities’ spend.
This is a package, of course. Are you concerned that, based on the Department for Communities and Local Government forecast, council tax will increase by 25% over the life of the Parliament? What would you say to the average Oldhamer in a band E property who will be paying £2,000 a year in council tax?
Mr Jones: I am surprised at your line of questioning, Mr McMahon, because during the period your party was in Government, council tax doubled between 1997 and—
The Chair
Order. Can we get back to the Bill, please? I do not want to go into the history. I ask questioners and the Minister to get back to the actual Bill.
Jim McMahon
Q Just to be clear, I am not looking for a commentary on the last Labour Government; I am looking for a response from a Minister in today’s Government.
Mr Jones: Mr McMahon has little room to lecture, but I take on board your comments, Mr Gapes. The facts are that, at the moment, council tax is lower in real terms—9% lower—than it was in 2010.
Jim McMahon
Q Do you think that a 25% increase—a council tax bill of £2,000 for band E—is reasonable?
The Chair
Order. Just a moment, please. Time is limited and several other people wish to ask questions. Please can we focus on the actual Bill rather than getting into an argument that we can no doubt have at later stages? Three or four other people want to get in.
Jim McMahon
I understand that, Mr Gapes. That is why I am trying to push the Minister to answer the question.
Clive Efford (Eltham) (Lab)
We would like an answer to that last question though, Mr Gapes.
The Chair
Please ask questions that focus on the Bill, and can we please also have answers that focus on the Bill, rather than on history?
Mr Jones: I can give a direct answer. We have looked at the figures closely and, given that in real terms council tax today is 9% lower than it was in 2010, if you take into account the council tax flexibilities that we have allowed local authorities during this Parliament, council tax will still be lower in real terms than it was 2010.
Jim McMahon
Q Do you accept your own Department’s figures of a 25% council tax increase?
Mr Jones: As I said, council tax will still be lower in real terms in 2020 than it was in 2010.
Jim McMahon
Q Do you accept your own Department’s figures of a 25% council tax increase over the life of this Parliament?
Mr Jones: I think I have made my position clear.
Peter Aldous
Q Minister, you said at the beginning that incentivising growth is at the centre of this Bill. As I said on Second Reading, I am concerned that there may be local authorities that wish to incentivise growth but, for reasons of location, the geographical make-up of their area or issues such as site contamination, may not be in a position to do that. Can you outline how you are going to support those authorities?
Mr Jones: You make a good point, Mr Aldous. We have been clear from the outset that, in developing and introducing this new system, there will need to be a form of redistribution across local authorities to make sure that we do not leave behind those that start off with a far lower business rate. The new system will also include incentives for local authorities to invest in things such as land remediation to bring forward new developments that will expand their business rate base. Local authorities will also be offered the opportunity to have local growth zones, which will be very powerful in terms of giving an area the opportunity to retain more of the additional business rate, and to have that part protected when we get to resets of the system.
Kevin Foster (Torbay) (Con)
Q My question is similar to that asked by Mr Aldous. On Second Reading, there seemed to be a negative undertone in relation to the prospects of some areas and councils to be able to incentivise growth and actually deliver the increased business rates that we hope the Bill will bring. As the Minister, how do you see the provisions helping to defeat some of those arguments? What monitoring will the DCLG be able to do to ensure that councils are actually going ahead with it, rather than adopting that negative, anti-business attitude and then using the area’s position as an excuse?
Mr Jones: The Bill will be transformational, changing attitudes in many places. In the main, local government has a good approach to local business and trying to make it thrive. We all know, though, that that does not happen everywhere. I think that the Bill will put areas to the sword. They will have to look far more carefully at how they incentivise growth in their local areas and at their attitude to business. That is not necessarily a bad thing. It might include providing a reduction in the multiplier and other provisions. That also applies to dealing with planning applications and to the general approach and demeanour towards business, which will be transformed by this. We will monitor the effect of this policy and when we get to the point of doing resets of the system, we will be able to analyse where there has been a great deal of success in increasing business rate revenues, and where that may not have happened. At that point we will have to make a judgment on how the system will be reset. We want councils to be very ambitious in bringing forward local growth.
Kevin Foster
Q I have a second, quick question. What difference do you think the average council tax payer and council resident is going to notice if this Bill is passed?
Mr Jones: Once the system comes into full effect, the incentives that councils have will mean that many more areas will have a more business-friendly environment, where more businesses are nurtured and more jobs created. The positive knock-on effect is that councils that take to that and do the right thing will be able to grow their income to provide local services. Residents across our local authority areas want high-quality public services, and this will help to do that.
Clive Efford
Q How much of the local government grant comes from the business rate collected by the Government and redistributed to local authorities?
Mr Jones: All of the business rate, bar the £12.5 billion —or £12.8 billion, to be more exact—that has been mentioned, currently goes to local authorities, with the exception of the amount raised from the central list. That list relates to the business rate that comes from infrastructure, for example, and that money does not go directly to local government. The quantum of the funding is set out in the document.
Clive Efford
Q Sorry, can you remind me what it is?
Mr Jones: As I say, the quantum of the funding that local government gets is all of the funding from the business rate, less the amount that we are looking to bring to local government.
Clive Efford
Q What proportion of local government spend is raised locally?
Mr Jones: That is a question that I will have to come back to you on.
Clive Efford
Q It is quite a small proportion that is actually raised through council tax, so the ability of local authorities to raise money at local level is very limited in many areas in relation to business rate. What incentives are there for areas where it will prove very difficult to generate extra income through the local business rate? Will the Government be putting anything aside for those local authorities?
Mr Jones: As I say, there will be a form of redistribution, and that is important because we do not want areas to be left behind by the implementation of the new system. The system significantly incentivises local areas to encourage business growth and the growth of new businesses on the basis that they will be able to keep far more growth than ever before. That is particularly the case with regard to the current levy in the 50% business rate retention system. In effect, that is a tax on growth and the Bill will remove it.
The Chair
We are time-limited: we have one minute left. If anybody on your side wishes to come in, we have time for one more question. That is all we are allowed.
Mr Thomas
Q How do you envisage the tariff and top-up system that you intend to retain differing under 100% business rates retention from the current system under 50% business rates retention?
Mr Jones: The tariff and top-up system will very much be used to deal with things like redistribution, as I am sure you are aware, Mr Thomas.
The Chair
I am afraid that that is the end of the time allotted for the Committee to ask the Minister questions. I thank him for his evidence.
Examination of Witnesses
Councillor Nick Forbes and Councillor Jon Collins gave evidence.
The Chair
Good morning. We will now hear oral evidence from the Local Government Association and Core Cities. We have until 10.45 for this session. Will the witnesses please introduce themselves for the record?
Councillor Nick Forbes: Good morning. I am Councillor Nick Forbes, leader of Newcastle City Council. I am also vice-chair of the Local Government Association.
Councillor Jon Collins: I am Jon Collins. I am the leader of Nottingham City Council and vice-chair of Core Cities.
The Chair
Thank you very much. There are no introductory remarks; we will just ask questions. I call Gareth Thomas.
Mr Thomas
Q Two of the concerns about the Bill that have been raised with me relate to how redistribution might work—fairly or unfairly—when 100% of business rates are retained by local government, and whether responsibilities such as social care will be better funded under the new system than they are under the current system. I wonder whether you both might reflect on those two concerns.
Councillor Nick Forbes: The issue with redistribution is of concern to everyone across local government, because although collectively we sign up to the principle of localisation of business rates, we are concerned that the redistribution mechanism must be seen as fair by everyone. It would seem sensible to start with an assessment of current needs so that there is at least a level of clarity around the existing requirements to fund services in the system. One of the things that people say across the whole range of local government is that over time, because of the way that formulas have worked and settlements have been made, there has been a distancing of assessed need from funding. It would seem sensible to start with a baseline assessment.
On the point about whether social care would be better funded through this system, one of the challenges is getting right a system that is based entirely on local property taxes, but where eligibility for social care is determined through national criteria. There is a potential for the funding system not to accurately match needs, which is why, again, having some kind of national assessment of baseline needs would be a good place to start as we work through the detail of how that would operate.
Councillor Jon Collins: In terms of the effectiveness of redistribution of business rates as a way of funding local government, as Nick says that is very much going to rest on the redistribution formula on the one hand, but also on the way that the headroom generated by 100% business-rate retention is dealt with and the additional responsibilities that local government may or may not get to spend that effectively. Until we are clear about those two things, it is very difficult to make a judgment on whether the move to 100% business-rate retention is going to be fair and whether it will effectively better fund care. The nature of the funding formula, whether it relates to care or to the totality of how local government funding is passed through to local authorities, is very much the key.
If you look at how the additional funding for care at the moment has been distributed, we have two lots of clear criteria and one set of criteria that nobody can find out about. In terms of the improved better care fund, the criteria take into account the ability of local authorities to generate funding locally. The social care grant, which is £240 million, is allocated on a different formula, which does not take account of the ability to raise funding locally. Then there is transitional funding, which is in part a reflection of the additional costs of providing care, and nobody knows what the formula for distributing that is because it has not been disclosed to Parliament or to the Information Commissioner.
Mr Thomas
Q To follow on from that, there are clearly some in Whitehall who think that social care is now being properly funded and there is a package in place that will meet all the social care needs that have been identified. How would your two organisations respond to the idea that there is now a settled funding stream in place?
Councillor Nick Forbes: I do not know a single person in DCLG and I have not spoken to a single person in Whitehall who thinks that what we have for social care is anything other than a short-term temporary fix, which gets us through a few difficult months over this particular winter. There is clear acknowledgement—even the Secretary of State acknowledged this in the settlement—that there needs to be a longer-term solution for funding for social care. The LGA’s assessment is that there is a £2.6 billion shortfall in funding: £1.3 billion is required to stabilise the current system as it is at the moment and a further £1.3 billion is required by the end of the Parliament to deal with the cost pressures and demographic pressures that the system faces. It is very clear from the whole of local government—this is a cross-party view from within the LGA—that funding the social care problem is our top priority. So far, what we have had is something that gets us a few months further ahead but does not solve the problem into the long term.
Councillor Jon Collins: From the Core Cities’ point of view, every core city would take the view that funding for social care is very much in crisis and that the current arrangements just scratch the surface. If I may, I will just give you Nottingham as an example. Out of a net budget of about £260-odd million, something like £90 million is adult care. We have £11.2 million-worth of cost pressures, and that is wages, demography, additional inflation and charges from providers. The potential increase to council tax of 3% and the extra care funding we are to receive is about £5.8 million. So £5.6 million is unfunded pressures, which we will have to accommodate by making savings elsewhere in our budget, at a time when we are also seeing our revenue support grant going down from £56 million to £44 million. As you can see, the overall picture for an authority such as Nottingham—we are very typical of the core cities—is that this year’s approach helps a little bit, but that there is still massive pressure that is unfunded, and we expect the same next year. That is with an assumption that we will be increasing council tax by 5% overall.
Kevin Hollinrake
Q You have both mentioned that distribution, and assessment of need, are the keys to this. Your spending power for both your authorities is around 30% lower than some of the highest spending authorities in London, for example. Is the current system anywhere near fair?
Councillor Jon Collins: In a word, no. Spending power is an interesting way of looking at these things, but our spending power now, as a core city with major challenges in terms of deprivation, is lower than that of Rutland, which is another local authority in the east Midlands and largely covers a lake, a few sheep and a few large houses. It is a very unfair way of making judgments about relative impact of spending. Even for the next financial year, we are seeing a reduction in spending power of 1.5%, and Rutland is seeing a reduction of 0.6%. So there are major disparities—that is, if one assumes that spending power is a fair reflection of the spending needs of local authorities.
Four years ago, our revenue support grant was £126 million; next year it will be £44 million. That is the scale of funding reduction we are being faced with. We have had to make significant reductions in services in some areas. We have done other things, as most core cities have, to boost income, reconfigure services and work closely with others to make sure that we are commissioning in the most cost-effective and efficient way, which is a positive. Fundamentally, however, there has been a significant and dramatic effect on services.
Councillor Nick Forbes: One of the challenges is the currency that you use to describe the nature of the problem. It is easy to say that we have an unfair system if you look simply at a per capita rating—and that is one of the ways in which people compare different types of authorities. Spending power is another currency, and so is needs requirement. What there is not, across the system, is a settled view about which of those is the most appropriate to use. Inevitably, that gets you into the realm of which one is better for which political outcome. That is one of the reasons why there is concern about the way in which the business rates system works at the moment.
Kevin Hollinrake
Q In the current system, are you confident—which I suppose should be the case—that spending power per capita, or the total, or whatever, relates to need in that local authority area? Are you confident that that system works at the moment?
Councillor Nick Forbes: No, it does not.
Kevin Hollinrake
Q And are you part of the technical working group on the LGA that is looking at this review of how distribution occurs?
Councillor Nick Forbes: I am not a member of it, no—but there is a technical group within the LGA.
Kevin Hollinrake
Q Do you understand how the system works in terms of how it is distributed between different local authorities?
Councillor Nick Forbes: Does anyone know how the formula works? The other thing is that, in addition to the system being potentially unfair, it is also very inflexible. One of the challenges that every local authority faces is a system which, in effect, is set nationally and gives us no opportunity to vary things according to local circumstances. One of the things we are asking for within the LGA, as part of the Bill’s consideration, is flexibility for local government to be able to make changes—for example, if it has a sector that it wants to strengthen, or even if it has an area of deprivation where it wants to stimulate economic growth. As long as we can do that in a fiscally responsible way, it seems entirely sensible to allow local authorities to have those flexibilities, which currently we do not have, other than through the relief system.
Councillor Jon Collins: The formula is very complex. Relatively small changes to weightings can have a big impact in terms of the funding that local authorities get over time. The weightings have been changed very much away from need and deprivation towards per capita and sparsity. Of course, that then benefits counties and largely rural areas at the expense of large cities. That is why we can see a dramatic shift of resources to relatively well-off authorities in the south-east. Transition grant is another example: here is a £300 million pot of money to be spent over two years, none of it has gone to the core cities, 80% of it has gone to Conservative authorities, it has all gone to county councils, and there is no accountability over the formula by which it has been allocated. That is part of the funding package but while there is a little more clarity about how the criteria are applied elsewhere within the funding formula, the combination of the complexity and the lack of direct accountability for how the formula and the criteria impact on the funding for particular categories of authorities is problematic.
The Chair
Thank you. I know you wanted to ask another question, but in order that we can get everybody in in our limited time, can we please have short questions and shorter answers? You do not both need to answer if one agrees with the other.
Rob Marris
Q The Government, and indeed the Minister, have been very clear that one reason for the Bill is to strengthen incentives for councils to grow their business rates income. The Minster also said that while we all wish to encourage business growth, that is not happening everywhere. He said that this morning about the actions of councils. Is the Local Government Association aware of any council in England that is not trying hard to encourage business growth, and with it business rates growth, or is not trying hard to encourage business overall?
Councillor Nick Forbes: The short answer is no; local government knows that by 2020, when this new system comes into effect, we will be entirely reliant on two property taxes—council tax and business rates—for the totality of our income other than that which we generate commercially, so every authority understands that it is in their best interests to grow both of those tax bases as quickly as possible. I am certainly not aware, and I do not believe the LGA is aware, of any authority that does not see that as an important priority.
Rob Marris
Q Just to be clear, the Minister has not actually produced any evidence for those assertions. He may do so later, but he did not get any such evidence from the LGA because you are not aware of any such evidence.
Councillor Nick Forbes: I am not aware of any, no.
Justin Tomlinson
Q Following on from that, the whole point of the Bill is to unlock potential, to incentivise and encourage you. You have identified where those potential streams will come from, but ultimately it will only be as good as your capacity to deliver it. Are you confident that councillors have the sufficient skills base to be able to maximise it? You have just said that you do not think that any local authority is not encouraging growth, but—this is a good example—many local authorities have still not signed off their plan for the new homes bonus or are still fighting development. That is often for good reasons, but they are fighting it. Are you confident that councillors in all local authorities have sufficient capacity to take advantage of these potentially much larger budgets and incentives, which need to be chased down?
Councillor Nick Forbes: Actually, it strengthens the concept of accountability if you have a direct link between taxes raised locally and how those taxes are determined in terms of their spend at a local level. I would argue a slight counter-view to yours, which is that by doing this it is very clear where the incentives are within the system and it is then incumbent on anybody occupying elected office at a local government level to make sure that they have those finances and plans in place, because otherwise they will see a direct link between that and a reduction in funding for their area. So I think it acts as an incentive for that. As for capacity for handling it, I think that local government is, on the whole, very confident that it can handle this. Upper-tier authorities handle funding of more than this magnitude already.
Justin Tomlinson
Q So are you confident that these changes will help encourage busy people—people with business experience—to step up to help run councils, as opposed to career politicians who wish to tweet all day about various political causes? I say that as someone who was a councillor for 10 years. What we need, when we are being given big budgets, is a mix of councillors from all backgrounds. Do you think that this will provide an incentive to get some really good new councillors who do not have a career politician background?
Councillor Nick Forbes: I am not sure I recognise your characterisation of local councillors.
Justin Tomlinson
Q No, there are fantastic councillors, but we all recognise that, as things stand today, it is very difficult to encourage busy people to give up their time. We will be asking even more of them as councillors, because they will have more responsibility and more complex decisions to make. Are you confident that this will help encourage them, or will it put people off stepping forward?
Councillor Nick Forbes: My view is that there is already a very high calibre of politician in local government, across all political parties. The leadership that people have shown over the past few years, in terms of responding to the challenges that have been thrown at them, has been absolutely magnificent. Collectively, local government is up for this and wants to do it. I would not come here on behalf of the LGA, which is a cross-party organisation, and say that we want these things to be included in the Bill, if I did not have the confidence that we were capable of delivering.
The Chair
I am conscious that we have very little time and I want to get other people in.
Jim McMahon
Q The Independent Commission on Local Government Finance recommended that an independent body be established to look at redistribution, to make sure that it was fair and equitable and to take it out of the hands of Ministers being able to manipulate the funding settlement for different reasons. Is that something that the LGA still supports?
Councillor Nick Forbes: The LGA does not have a clear corporate view on that at the moment. What the LGA is doing is trying to get to a position where we have as much agreement as possible about the way in which the new system should operate.
My own view is that there will need to be a level of independent assessment because, inevitably, given the way in which local government works, there is a danger that there will be winners and losers. It would be politically unacceptable for the LGA to pick winners and losers as part of the solution.
We have a body to determine public health funding and it is a quasi-independent body. It looks at need and allocation based on need. My personal preference would be for something akin to that for local government finance, so that there is a body jointly commissioned on behalf of Government and local government that comes up with a distribution that has clear and transparent criteria behind it.
Councillor Jon Collins: I think Core Cities would support an independent approach to redistribution. The current system, when you look at the way in which funding has shifted away from the core cities over the last seven to eight years, is clearly unfair and is not related to need. Our view is that an independent approach to the allocation of resources would be very welcome.
Jim McMahon
Q The risk of appeal is obviously accommodated for in the item that we are discussing. Many local authorities have to ring-fence a significant amount of money in reserves, pending large appeals—large warehouses and supermarkets in particular can have a big impact on local funding. Do you think that there should be a tighter or shorter period in which those appealing can reclaim money due?
Councillor Jon Collins: The answer is yes. This is a major destabiliser in the whole funding approach. As we become increasingly dependent on the business rate, local authorities will have to make increasingly significant allocations of funding into reserves to hedge against the possibility of losing some very significant appeals. For example, the total now held by local government is estimated to be about £2.5 billion against losing business rate revaluations. Nottingham itself has lost about £20 million as a result of those kind of revaluations. That adds significant instability to the funding mix. What it means is that, effectively, it exacerbates our challenges and the funding reductions that we are having to make elsewhere in budget. This is something Government could make a significant difference on, and they could provide greater certainty for local authority funding.
Councillor Nick Forbes: The Government’s own assessment is that the level of appeals will go down in future years. All the evidence from previous revaluations shows that when there is a revaluation, the number of appeals goes up. Of course, that increases the risk for local authorities, which is why, as John says, £2.5 billion over the past five years has been earmarked by local government to deal with the risk of managing the appeals process.
One of the challenges is that there is no disincentive to appeal. There is nothing to stop anybody putting in an appeal. If you make a claim to an employment tribunal, you have to pay an upfront fee. Some kind of disincentive like that would be worth considering to make sure that we do not get speculative appeals from people who have no fear of any consequence of making an appeal, which simply drags the system out and causes a lot of administrative burdens.
Jim McMahon
Q Finally, the Minister does not believe that there is a crisis in adult social care. Do the LGA and Core Cities agree with that view?
Councillor Nick Forbes: The LGA position, as a cross-party organisation, is very clear that there is a crisis in adult social care. The changes made in the settlement, with the adult social care grant and the ability to raise additional money through the council tax precept, are a sticking-plaster approach. There is cross-party agreement that this is the biggest single challenge that we face as a sector. We are collectively asking the Government to use the Budget on 8 March as a way to find a longer-term solution to the problem.
Councillor Jon Collins: My answer earlier was clear that we believe that there is a crisis.
Kevin Foster
Q I have listened to the answers so far and will not go back over old ground. However, I am interested to hear more about the difference the Bill will make. There is no point in legislating for the fun of it. What actual difference will it make? Apart from the obvious use of the provision for discretionary relief for public toilets, what aspect of the Bill do you see your councils looking to use for the benefit of local residents?
Councillor Nick Forbes: Local government is asking for a number of things. One is the need to increase accountability and visibility with regard to the general principle of connecting taxes raised with money spent in a local area. More specifically, local government is asking for flexibility on the use of business rates. At the moment, the multiplier can only be determined at an authority-wide level and there is no way of targeting growth to allow us to discount specific businesses or industries. Giving us those discretions would allow us to consolidate where we have sectoral strengths in how the enterprise zone system works, but currently at a very small scale.
You could see local authorities using this to drive growth, create jobs and deal with areas where you might have a neighbourhood shopping centre that is difficult to let because of the rates. At the moment, we have no ability to discount rates. That is the kind of thing we could make a real difference around. For me, the big prize is the flexibility that the system would give to allow us to be much more responsive to local need.
Councillor Jon Collins: It has the potential to provide real incentives to local authorities to focus attention on building business rate growth. I will caveat that by saying that, ultimately, whether it is effective will depend on the distribution formula and whether there is an assumption that any headroom generated by 100% collection and use of business rates is simply centrally earmarked against some additional expenditure or there is a little flexibility so that we can invest for that business growth.
Ultimately, local authorities, certainly Core Cities, are very clear about the importance of working closely with business and promoting development as a way of generating additional business rate growth. Obviously, in doing that we are enhancing and developing our cities in the way that we know our population wants to be developed.
Mr Thomas
Q Is it fair that, under the Bill, only areas with a Mayor are going to be allowed to raise business rates up to a cap of 2p in the pound?
Councillor Nick Forbes: The LGA position is that we would welcome a conversation with the Government about how we can get maximum flexibility out of the system. The challenge is that areas that do not opt for an elected Mayor will, by default, lose out in terms of infrastructure investment. It would make sense for there to be some kind of system from which, through various routes, everybody feels that they can benefit.
Councillor Jon Collins: If devolution was an option for everybody, if there was a fair and transparent process for making bids for devolution deals, if there was a very clear understanding of the rules of the game, and if people chose not to go down that route, I think there would be an argument for making that differentiation. In the current climate, in which much of that is opaque and where there are no clear rules of engagement around devolution and the prospect of moving towards combined authorities and directly elected Mayors, it would seem very unfair.
The Chair
I am afraid that that brings us to the end of the allocated time for the Committee to ask questions. On behalf of the Committee, I thank our witnesses for your evidence.
Examination of Witnesses
Graham Soulsby, Councillor David Borrow and Guy Ware gave evidence.
The Chair
Q We will now hear oral evidence from the District Councils Network, the County Councils Network and London Councils. For this session, we have until 11.25 am. For the record, could the witnesses please introduce themselves?
Guy Ware: Good morning. I am Guy Ware, and I am director of finance, performance and procurement at London Councils.
Councillor David Borrow: I am David Borrow, deputy leader of Lancashire County Council and vice-chair of and finance spokesperson for the County Councils Network.
The Chair
And a former Member of this House.
Councillor David Borrow: Yes.
Graham Soulsby: Good morning. I am Graham Soulsby, the managing director of Kettering Borough Council and the finance lead for the District Councils Network.
Mr Thomas
Q The consultation document, which Ministers put out last year with a view to this legislation coming forward, very strongly hinted that the improved better care fund, the public health grant and the rural services delivery grant, among other pots of money, would be abolished as part of the package for devolving business rates. What impact do you think that will have on the groups of councils that you represent?
Guy Ware: I think the overall issue will be the degree to which local authorities—in my case, London boroughs and the Greater London Authority—are able to promote growth to increase the overall amount of money available and to flexibly spend the product of it. At the moment, we operate within a very centralised system where a number of individual policy issues are addressed through specific grant regimes, such as the improved better care fund. We would argue that that produces considerable perverse incentives and distortions, and that we would be better able to respond to the pressures in issues such as adult social care, which your previous witnesses talked about, if we were given the flexibility to raise and spend money in ways that are controlled locally.
Councillor David Borrow: From a County Councils Network point of view, I think we need to take one step back. Clearly, if councillors are going to be dependent on council tax and business rates, the key issue is the equalisation mechanism. That feeds back to something that is not in this Bill: the needs-based review. Fundamentally, we are looking for a fair, transparent needs-based review that is based on the cost drivers in each area. From our point of view, the bulk of our spending is now on adult social care and we clearly need to get that properly reflected in any needs-based review of funding.
The equalisation mechanism needs to go back to the theory of local government finance that I remember when I first got involved 40 years ago, which was that wherever you lived in England and Wales, the funding that was available at a fixed rate, as it was in those days, enabled the council to deliver a certain level of service. Councils may be bad or good, efficient or inefficient, and may have different priorities, such as low rates, high spending levels or high service levels. That is fundamental. What has happened is that bit by bit we have moved away from that and there is a lot of unfairness in the system, both between types of councils and due to historical accidents that have exaggerated difference.
The biggest danger we see—and this is obviously a Labour councillor speaking for a network that is overwhelmingly Conservative—is that we will not get what we want, which is something that fairly reflects the responsibilities that we have. We accept that there will be winners and losers, but we want a fair system that is moving away from the inequalities that have built up in the system. If the system is simply based on the existing spending patterns, that reinforces the unfairness. We need to get away completely from that.
Graham Soulsby: Without going over the same ground as colleagues, I would agree that one of the big things in the new system is the needs-based review and linking it to the fairer funding formula. That is a key thing in getting it right. If we move to a better position in how that works, it should give authorities a bit more power and flexibility. Obviously, the funding pot does not necessarily change, but it is about how that is distributed.
I would make the additional point that it is not just about the allocation of funding to do different things. It is also about how we can promote more prevention-based spending—moving it around and spending more at the earlier end of where the pressures are, which is cheaper than spending it at the end when the costs are a lot more.
Mr Thomas
Q The Minister painted a picture of 100% business rates retention leading to a new dawn of councils rushing out to encourage huge amounts of new economic growth. I wonder if that is a picture that you recognise. If not, what barriers to that economic growth can you think of? I ask that in the context of a rural area where the space for the type of warehouse facilities that you could imagine generating significant business rates will be much more limited.
Guy Ware: I think that “new dawn” is an interesting phrase. There are clearly incentives built into this. In our submissions to the consultation at the end of September, we identified a number of issues that prevent those incentives working clearly.
One of those, as we heard about a moment ago, is the appeals impact. Another is simply the frequency with which the system will take away the growth that is delivered by any activity in a given area. There is no straightforward answer to that. The new system has to address both the needs issues that my colleagues have mentioned and also, because it is the explicit intention of the Bill, a way of retaining a significant financial incentive while recognising those needs issues.
What are the barriers to growth? That is a very big question that it is perhaps beyond the scope of the Bill to resolve. From a London perspective, we have been very clear what we need. We think the greater local powers over these issues would enable the capital to respond better to the threats that we currently face, particularly the uncertainty arising from Brexit and also, less topically, the threat to the sustainability of growth within the capital, which to some extent is a victim of its own success.
The ability to house and transport people to keep working in London is a huge challenge. There are specific clauses in the Bill that we think would help that—for example the infrastructure supplement and designated areas—but there are others where we think it is unhelpful. For example, on the use of the infrastructure supplements, there is a broad definition of what they can be spent on, which is anything that will promote economic development, but unfortunately, two clauses later, there are specific exclusions, the first of which is housing. If you ask businesses in London, as we have repeatedly, what the biggest barrier is to continued and sustainable growth in London, they will say the lack of housing. So we want to see the Bill go further to free up local government to use some of the products of business rates in ways that are more suitable to their particular economies.
Councillor David Borrow: Given that the County Councils Network represents large rural areas and small towns, the issue around elected Mayors causes a lot of problems because elected Mayors are a prerequisite for being able to have greater control over business rates, including increased business rates to put infrastructure in. That is a real problem in shire counties. Conservative Members here know the debates they have had on that issue. The County Councils Network wants that power to be given to combined authorities without it requiring an elected mayor.
Secondly, if the Government are looking to give further responsibilities as a result of transferring 100% business rates, the LGA has clearly identified lots of areas currently delivered by Government that promote economic growth, and it seems logical and sensible for those responsibilities to be transferred to local government where they fit in with the policy of developing economic growth at the local level.
Thirdly, in many rural areas a lot of businesses are exempt from business rates as a result of the systems to promote business, and the mechanism affects the income that the council gets. You can promote small businesses, but it is different in rural areas and in more urban areas.
Graham Soulsby: The last answer I gave was about making sure we get the needs-based assessment right. The other side of that is making sure we get the incentive side of it right. Those are the two key things in terms of how the Bill might operate. The incentive side will be key in whether the changes actually promote more economic growth at local government level. From an incentive perspective, if local authorities and their communities can keep more of the additional money that comes from business growth, there is probably more of an incentive to promote economic growth.
There is an issue that we have tried to flag up through the various working groups that we have been sitting on, which have been very good, through the Department for Communities and Local Government. If a reset comes up in a five-year period, we have argued that we need to be really careful about how that works, because there could be a disincentive to economic growth as you move towards that reset. If you did it in year four of the five-year period, you would not keep much of the additional income that comes through because it would all get redistributed. We have tried to argue that for that to work properly, there needs to be some retention of incentive in the medium term so that if you want to use some of the additional business rate income, you can go out to the market and perhaps get infrastructure funding to promote some bigger schemes, but you would have to pay it back over a longer period of time. There needs to be flexibility in how much incentive there is and in how much business rate increase you can keep for a longer period to get real economic growth.
Peter Aldous
Q For the record, I am chairman of the county all-party group, for which the County Councils Network provides the secretariat. Mr Soulsby and Councillor Borrow, you very much emphasised the importance of the needs-based review of the fair funding formula being synchronised with the implementation of the provisions in the Bill. Do you think there is a case for including that in the Bill?
Councillor David Borrow: It is unusual that the two things have been separated. The timing of both parts of this change needs to be as close as possible. If they have to be done in two separate pieces, they need to be co-ordinated. Clearly, until we have sorted out the funding formula, we cannot really move ahead with 100% business rates, and getting that right is fundamentally important.
Graham Soulsby: It will be okay if the co-ordination is done properly, given that this is more of a framework. One of the things that the working groups at DCLG are working with local government on is the much longer gestation of the needs-based side of it. We have been trying to argue that the timescale needs to be brought back a bit and it needs to be done more quickly. That definitely needs to happen. Whether it needs to be part of the Bill, I am not sure, to be honest.
Jim McMahon
Q My question is for Mr Ware and London Councils. The Bill provides for business rate pooling arrangements to take place. We are in a borough where the band D council tax is £672 a year, looking at a borough across the road where the band D council tax is nearly twice that. Does London Councils have a view about the potential for council tax pooling, and have any discussions taken place with the Government?
Guy Ware: The short answer is no, there is not a clear view and there are no active discussions about council tax pooling. However, the two things will be closely interrelated. We in London would argue—this will apply in other parts of the country—that we should do this by arrangements that we devise for ourselves, but that is a slightly separate question. The two things will be interrelated because the definitions of the needs and therefore the business rate baselines that determine the top-ups and tariffs that will redistribute business rate resources between authorities will also be informed by the capacity to raise council tax. There is a whole set of quite difficult issues that sit behind that around why council tax can be very different, as you say, between two neighbouring boroughs or authorities in other parts of the country, which is bound up in previous political decisions, previous funding decisions and so on, so it is not straightforward.
We would argue that in the medium term, council tax and business rates should be reviewed together. The London Finance Commission, which reported just last Friday, certainly argues—I think persuasively—that fundamental reform of the way that property taxation is undertaken is really important. Trying to do each of those taxes independently is not necessarily the best way to go about it, because they are interrelated and affect transactions in the market and individual business rate and council tax payers.
Jim McMahon
Q One of the problems with the current council tax system is of course that Governments do not always have the courage to go forward with revaluations, which is why it is now 26 years since the last one. Is there a view that that should be localised—that that should be a local freedom?
Guy Ware: I believe it should, and I believe that the chances of it happening would be considerably greater if it were managed at a local level—in our case London-wide. The ability and the accountability of local politicians to tackle those really hard questions is greater, because the incentive is greater and the exposure to voters and taxpayers is that much greater.
Jim McMahon
Q Finally, does London Councils have a view about the abolition of the GLA transport grant?
Guy Ware: Again, we are supportive. All our submissions and recommendations on this issue have been made jointly with the GLA and the Mayor. The change that is coming in in April to fund Transport for London and the fire service revenue support grant within the GLA by retaining extra business rates is entirely in the spirit of the way that we think these things should move.
Kevin Hollinrake
Q Councillor Borrow, you were talking about how unfair the current system is and about the need for a review. I think you also said that there will be winners and losers. I agree, as I think most people would. How do we cope with that? Your local authority’s spending power, for example, is around 35% less than some London authorities with much higher spending power. There are going to be winners and losers. Mr Ware is here wearing one hat; you are wearing another. How are we going to deal with that situation without it being a fudge that bakes in the current unfairness?
Councillor David Borrow: That goes back to the issue that the longer you allow unfairness to build in the system, when you try to bring fairness back, you have to put some sort of transitional arrangements in place. That ties in with the issue of council tax revaluation. I was told 40 years ago that you needed five-yearly revaluations. Otherwise, you end up with a situation like the one I was in when I worked down here: I was in a band E property in Preston and a band E property here, but I was paying less here than I was in Preston and the property down here was worth twice as much as the property in Preston, simply because the revaluation had never taken place.
Any property-based tax system needs to have regular revaluations. We had it for business rates, but we have not had it for domestic property. I understand the political realities of that, but if we are not going to have revaluation but we are going to have some fairer funding system, given the disparity that exists now between certain authorities—you’ve got people in a band D property paying £500 in parts of London and nearly £2,000 in another part of the country—you clearly have got to have some transitional arrangements to make that fair.
Guy Ware: It will not surprise you that I would also like to talk about that, and you will not be surprised to hear me say that I think we need to be very careful when we talk about London—I fall into the same trap sometimes—as an area of high spending power. London is a very huge and diverse city and economy. There are areas of London with the highest levels of deprivation and need of anywhere in the country.
Kevin Hollinrake
You have also got nine of the 10 authorities with the highest spending power in the country.
Kevin Hollinrake
Q This is evidence. And nine of the 10 lowest council tax charges in the country. I am not saying every local council in London—
Guy Ware: We also have nine of the 10 areas with the greatest multiple deprivation. The point that we need to get to is that there is a history behind that, as one of the previous questions suggested. The differences between neighbouring London boroughs can be as great in terms of spending power and tax as between some London boroughs and some authorities in other areas of the country.
One of the previous questions this morning was about the Independent Commission on Local Government Finance. One of the commission’s key recommendations was that the variations between authorities were at least as great within regions as they were between regions. As a result, it concluded and recommended that it would be possible and sensible to devise an approach that looked at regional funding needs, which would allow authorities within a region to deal with the distribution within that region.
Kevin Hollinrake
Q Councillor Borrow will disagree with that.
Guy Ware: That is something that we have been arguing strongly for from a London perspective. I am sure Councillor Borrow will want to come back on that.
Kevin Hollinrake
Q Can you answer my question? If you change a formula, there will be winners and losers. I absolutely subscribe to the view that that should be based on need and need alone—whether that means your local authority, mine, or anybody else’s is better-off—as long as it is transparent, clear and simple, so that we can all understand it. How do we deal with that situation?
Guy Ware: There are two issues. First, any change produces winners and losers and you need to make sure that the transition is not too sharp or painful. Secondly, however, a system that is based on need and need alone, while it might sound attractive, is actually directly contrary to the spirit of the Bill and Government policy, which is that the desire to introduce an element of incentives to the way in which local government is funded is seen to be important enough to pursue. The reason that it is important is that the amount of money available is not necessarily a fixed quantum. If you can generate more business activity and, therefore, more business rates, you can bring more money into the system.
Kevin Hollinrake
Q Sorry, we are short of time. I want Councillor Borrow to come back on that.
Councillor David Borrow: Darra Singh and his committee floated the idea of regional equalisation of the business rate. All that would do is reinforce the inequality between regions, and it is absolutely fundamental that if we are to get a fair local government finance system, you have equalisation across the country. From a mathematical point of view, you can argue that it is easier to do it on a regional basis, but that simply reinforces inequality. The dramatic, obvious example is between the south-east of England and the north-east of England—that would simply reinforce the poverty in the north-east and the affluence in the south-east. It is clearly not something that any Government should be looking to do.
Clive Efford
Q Mr Ware, following on from Mr Hollinrake’s questions, does not the capacity to raise income through fees and charges and to generate local economic activity—that is what we are talking about in business rates—need to be taken into consideration? Let me explain myself. I am from the borough of Greenwich, sitting on the outskirts of inner London, and I look in on Camden and Westminster, which can raise money through things such as parking charges, which enables them to finance local government expenditure in a way that other areas cannot. Is that not a major factor? You cannot take the face value of how much one local authority charges for council tax as a way of demonstrating its efficiency.
Guy Ware: It is clearly not a straightforward measure of the efficiency of the local authority or indeed its ability to raise resources in other ways, as you suggest. There clearly are differences between authorities. There are also a number of restrictions around the use to which such income can be put. Our approach in London Councils and the GLA has been to argue for the need to be able to look at London as a system as a whole. In order to make the success of the economy that I was talking about earlier continue, you cannot look purely at a borough-by-borough level, because the concentration of employment in the centre of the city means that that is where the majority of the jobs—not all of them, but a very large proportion—are going to be, but that is not where people are going to live. We need to think about how we can balance the contributions that various parts of the capital can make to its future success, and part of that will be the ability to invest in transport, to provide housing and to raise revenue through various types of resources.
Clive Efford
Q It is that ongoing ability to raise income from other sources that areas such as London can benefit from, but other local government areas struggle to do so.
Guy Ware: Again, I would make the point that some areas of London have greater capacity than others—that is the point from which you started—and some of those are comparable to cities and rural areas outside the capital and some are not.
Clive Efford
Q How much is the capacity to raise money from fees and charges a factor for different local government areas across the country?
Guy Ware: The ability to raise fees and charges makes a significant contribution to local government’s overall financial sustainability. I know that, as a sector as a whole, we will be arguing that there should be fewer restrictions on the capacity to make charges and the rates at which we can charge. A number of them are constrained not only by what you can spend them on, but the levels at which you can charge in the first place, which do not necessarily cover the costs of the services being charged for. Planning is probably the most well-rehearsed example. So, yes, it is significant to the ability of councils to budget and maintain their services, and as a sector we would like more flexibility and control over how we use that ability.
Graham Soulsby: I would like to supplement Guy’s answer. If we are going to move a simpler but more effective needs-based system, obviously a local authority’s ability to generate income in other ways needs to be taken into account, to make it fair to other authorities. To do that in a more effective way, look at the current restrictions that are in place. Many local authorities have, over the last few years and longer, tried to maximise their income base in the best way they can, because they have had to do that. There is probably less headroom than there used to be; but nevertheless if some of the restrictions were lifted it might just help with our overall funding issues.
Rebecca Pow (Taunton Deane) (Con)
Q This slightly relates to those issues. Mr Ware commented on incentives being important; I just wondered what your views are about abolishing the levy payments, which basically are a tax on successful business. Would it help to free up more money and make a difference?
Guy Ware: We would support that abolition; we think it does help produce a greater connection between the growth of economic activity in an area and the growth of business rates that can be retained within that area. That is currently what is funding the safety net system so, once we do that, we will need to think through the consequences and how you fund a safety net that is appropriate to manage the risk of significant reductions in resources.
There are two further fundamental restrictions on the amount of business rates that can be raised—one specifically covered in the Bill and one specifically excluded. The provision in clause 5, which changes the indexation that will be applied to business rates in future, effectively from RPI to CPI, is a good illustration of my point that it is not necessarily a fixed pot. That change alone, we estimate, will take £80 billion of spending power out of local government over 20 years. At a time when we are all discussing a crisis in funding for social care—that being a good third of local government funding—to reduce by fiat the capacity and buoyancy of the biggest single tax that local government will be collecting seems to me to be worthy of debate.
The second issue—the one that is not in the Bill— is the principle that sits behind the way in which business rates are determined. Each time it is revalued it is revalued to a fixed sum, so that the yield of the tax is determined in advance by the Treasury and the multiplier is set in order to deliver the amount that the Treasury says it should. Again, that is a policy choice that the Government make. It could allow the yield from business rates to rise with the economic activity that is underpinning it, in exactly the same way that income tax and corporation tax rise with the economic activity that they are taxing. It is only in the case of business rates that we have taken the choice to set a cap for the amount of money that can be raised.
That not only reduces the buoyancy; it also distorts the distribution. The issues between London and the rest of the country become really important here, because what happens is that within a fixed sum, every time there is a revaluation, property prices in areas where they rise faster than average—which is central London, but also lots of other places—go up faster than they otherwise would. The concentration of the tax base is getting greater and greater as a result; fewer and fewer businesses are paying a higher and higher proportion of the national business rate take. That could be cured—it could be solved—and in our proposals we have suggested ways to do so; but it is not a given, as I have said. It is a policy choice that has been made, and we think it is damaging.
Graham Soulsby: On the levy payment, I think the link to the safety net is really important because, obviously, it was used to fund that; so the system needs a mechanism so that it is still able to do that. The stuff in the Bill on the safety net, and additional flexibilities if a major business went under in this particular patch, are welcome. In reality, not having levies in the system is a sensible thing to do overall. What we found in recent times is, because most authorities operate business rate pools in any event—and by operating a pool you do not pay the levy, because you can do different things with it—it is just normalising what most authorities are doing. The evidence from business rate pools is that it is generating more economic growth. For that reason, I would say that it is a good thing to do.
Councillor David Borrow: I do not really have much to add, apart from to point out that generally county councils cover larger areas. Clearly, the risks are much less for a county council than for a district council, simply because if there were a loss and a problem in one part of the county, within a county council it would be lost in the mix, whereas for a district council in a two-tier area it could have quite a significant impact.
Peter Aldous
Q As part of the whole devolution process, in order to facilitate the new business rate retention process, at present various responsibilities are being transferred from central to local government so as to ensure fiscal neutrality. I would welcome your views on that. From your perspective of taking on those responsibilities, are there any unexploded bombs that you might think are being passed to you unfairly?
Graham Soulsby: That is a really good question, but one that is quite hard to answer at this moment in time. The issue of new responsibilities, as you can see from the drafting of the Bill, is not in there. We have had discussions in the DCLG working groups about different ideas of what those new responsibilities might be, but the big point that all representatives of local government have made is that, obviously, we are open to the discussion. We do not want to take on responsibilities that have that ticking time bomb element where they are fiscally neutral at day one, but by year five a huge deficit is eating into our business rate income. As a principle, we have been trying to argue that with DCLG officials. They understand the debate, but we have not yet got to the detail in terms of thrashing it out.
Councillor David Borrow: I would go along with that. From our perspective, there is a real risk. The point that the County Councils Network would make—this may be shared by other people in local government—is that there is a first call to be made on any business rates before additional responsibilities are transferred, which is to ensure that the existing funding gap is met. Particularly in terms of adult social care and looking forward over the next few years as the revenue support grant disappears, the figures show a gap. In my own authority, we are looking at a gap of £150 million between income and expenditure in 2020-21. That sort of figure is not particularly unusual among upper-tier authorities.
Guy Ware: The equivalent figure in London, collectively, is about £2 billion, plus the GLA.
I echo what my colleagues have said. To be perhaps more positive than I have been about some other issues, one ticking time bomb has already been defused in the non-transfer of attendance allowance. I give credit and pay tribute to the joint working groups that Graham mentioned earlier and that the DCLG has been leading with the LGA. That is evidence of some listening and some progress in the joint assessment of problems.
Mr Thomas
Q Just to follow up the ticking time bomb analogy, if the £3 billion public health grant were to be abolished, would public health become a ticking time bomb for local government?
Guy Ware: I think public health is a ticking time bomb for the country as a whole. One of the comments that Graham made earlier, about the desire to shift spending into prevention and away from expensive interventions, applies fundamentally to this issue. If the grant were abolished and public health became a local authority responsibility like any others funded from council tax and business rates, the incentive to ensure that we were fulfilling the kinds of policy objectives that underpin public health would become all the stronger. There is risk involved in that, obviously—namely, that we cannot cope with the consequences—but certainly there would be benefits in aligning the responsibility and accountability for managing those services with those who are raising the resources.
Councillor David Borrow: This raises a bigger issue: local government, in terms of adult social care authorities, needs to find a way of working properly with the NHS. At the moment, there are disincentives around adult social care and the NHS. Clearly that is the direction of travel that the Government want to move in, but they need to look at what they need to do to ensure that the right partnerships between local government and the NHS can exist. With something like public health, if the funding for it is reduced, that would put more pressure on adult social care and on the NHS in the longer term, however useful that may be in reducing budgets in the short term.
The Chair
Order. I am afraid that brings us to the end of the time allocated to the Committee to ask questions. I thank our witnesses on behalf of the Committee for their evidence.
Local Government Finance Bill (Second sitting)
(7 years, 11 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text
The Chair
We will now hear oral evidence from the Chartered Institute of Public Finance and Accountancy, the British Chambers of Commerce, the Federation of Small Businesses and the Society of Local Authority Chief Executives and Senior Managers. I would like our witnesses to enjoy their hour. Colleagues will be very warm and friendly, but they are here to take evidence from you. Relax and enjoy it. I would like you all to introduce yourselves. I do not want to hear your life history; just say a few words about yourself, starting with Mr Nolan.
Sean Nolan: I am Sean Nolan, director of local government at CIPFA. Behind that is 17 years as a county treasurer and national lead in different roles, on business rates and other bits of local government finance.
Christian Spence: Good afternoon. I am Christian Spence, head of business rates policy for the British Chambers of Commerce and head of research and policy for Greater Manchester Chamber of Commerce. My background is working within the chamber network for about five or six years, and before that, working particularly with Core Cities on amendments to what is now the Localism Act 2011.
Jo Miller: Good afternoon everybody. I am Jo Miller, president of the Society of Local Authority Chief Executives and Senior Managers. In my day job, I am the chief executive of Doncaster Council—a borough of 310,000 people, which is bigger than both places represented this morning, but it does not yet have the title of city. I am also the regional lead for skills in local government.
Dominic Williams: Good afternoon. I am Dominic Williams, the Federation of Small Businesses member in charge of Department for Communities and Local Government policy. As a member, I have a day job: I run a consultancy dealing with regeneration and local government matters. I started my career with the Valuation Office Agency.
The Chair
We have only been running these evidence sessions for a few years. We never used to have them; we used to get straight into Bills. Taking evidence enables colleagues who sit on the Committee to be even wiser than they are already when they scrutinise the Bill word for word, line by line. We will go to the Opposition first and then the Government and keep going back and forth until we run out of questions. If it lasts an hour, so be it; if not, we will go on to the next witnesses.
Mr Gareth Thomas (Harrow West) (Lab/Co-op)
Q72 The Minister painted a picture this morning of a wonderful, revolutionary Bill that is going to galvanise economic growth across the country. I think that is a reasonable assessment of his performance. Do you think there is anything wrong at all with that assessment?
Sean Nolan: On the basis that it is a long-term opportunity, the Bill has some significant risks and challenges in its implementation. The analogy here is horses running in different directions. Bear in mind that business rates do not correlate with service need. In my view, business rates prospects and potential are more an accident of history and geography than anything else. You cannot all live in the capital; you cannot all live atop silicon valley. Because of that, this agenda is actually not just a technical exercise about how to retain 100% of business rates locally—it is fundamentally about how vital local government services are financed.
On my points about the lack of correlation and on prospects being more an accident of history and geography, there are inevitable inherent policy tensions in the agenda. Some areas feel they have good prospects for growth and can grow, and are very much interested in incentives; some areas are trying to cope with post-industrial Britain and are running hard just to stand still, in terms of growth prospects. Those two tensions—between the haves and have nots—pull apart.
In the world of 100% retention, the incentive—which is really important; everyone needs incentives—is to keep growth local, but it is actually the proceeds of growth that will pay for risk and for those less well off. Those inherent tensions pull in opposite directions. My view is that this is not so much good or bad, but that a reality that has to be recognised is how success is measured. I am interested in how the Bill’s sponsoring Department will define the success of the agenda, relative to those inherent tensions that pull apart—haves and have nots; incentives versus risk.
The Chair
Thank you. Just to say, there is no pressure on all our witnesses to comment on every question.
Jo Miller: In so far as the exam question on the paper might be on business rates, it is a decent response. However, I cannot help but think that we are answering the wrong exam question. I dare to suggest that the real exam question is: in a country that works for everyone, with no one left behind, how do we have the state that we can afford, pay for and need? I venture to suggest that, while retaining business rates goes some way towards localisation, it does not nearly address that question.
Similarly, my area is growing its way out of austerity; we have more jobs and more business stock, albeit from a very low base, and we will continue to prioritise growth. However, I am not sure that the incentivisation of growth in the Bill encourages the right type of jobs—for example, the jobs the Government anticipate in their industrial strategy—not least because business rates is a property-based tax, whereas many of the jobs and businesses of tomorrow will not rely on property to deliver the businesses and jobs that are needed.
Christian Spence: We wholeheartedly support the high-level objective of 100% retention. We agree that, in principle, it is better to create a decision-based model that better aligns local incentives between local authorities and the wider business community. In general, the objective is that local government should, in theory and, hopefully, in practice, be more sensitive to its business community and the opportunities for growth that may be afforded.
However, to echo comments we have already heard, although in principle we wholeheartedly support that high-level objective, we remain concerned about challenges in its delivery—particularly across different economic areas, either because of the different sectors and types of businesses there, or because of long-run examples of those local economies. In principle, it is a very good step in the right direction. In practice, we worry about how some of those things may flow.
Dominic Williams: One of the complications is that there are two separate things going on, both of which are labelled as 100% devolution of business rates. First, there is the devolution of 100% of national business rates income to the local government sector. The sector will then divide that up and give it to local authorities to spend in accordance with their own local priorities. We are fans of devolution and we think that is sensible. The problem is that local authorities have some statutory duties and some discretionary duties, and what has happened over the last few years is that they have cut business-facing discretionary activities in order to fund a shortfall in respect of the statutory obligations, particularly adult social care. In addition to cutting their own expenditure—for example, if you want planning consent for a minor alteration to your building, that becomes much more difficult because planning departments have been cut back—local authorities have increased parking charges dramatically, cracked down on penalties for traffic offences, increased their waste charges and so on. The upshot of all that is that discretionary business-friendly activities have been cut to meet other shortfalls. The important thing to us, perhaps surprisingly, is that local authorities should be properly funded to meet their statutory obligations, and then there would not be such a squeeze on discretionary activities.
Mr Thomas
Q How would you change the Bill?
Dominic Williams: I do not think it is the Bill that needs changing. Beneath the Bill several technical working groups are going through the detail of what needs to be funded and how it should be funded. We are impressed by the way in which the Local Government Association and DCLG are working together on that. We think that it is being done in a grown-up manner and we hope that the outcome of it will be a sensible settlement that is workable.
Peter Aldous (Waveney) (Con)
Q Mr Thomas has asked the question that I was going to ask. None of you, to a larger or lesser extent, have given the Bill the glowing endorsement that perhaps the Government and Minister were hoping for. What other provisions would you look to put in the Bill to address those concerns? Mr Nolan said that not everywhere is silicon valley. What are we going to do to help those areas that are not silicon valley?
Sean Nolan: I genuinely think this is very challenging. Points were made earlier about economic growth. Actually, some of that growth is not necessarily what you would see in a rates valuation. Some of the micro-industries and broadband developments—that kind of thing—do not reflect well in a technical exercise called retention of business rates. That is my first point. Secondly, and I am deliberate with my language, I do think it is a long-term opportunity, but the inherent tensions I have described are real—whether you have or have not, the management of risk and the management of incentives—and this system has to somehow incorporate that.
On the opportunity side, and I say this as CIPFA—I endorse what has been said about how well the LGA and DCLG have worked together—no one wanted too much absolutely nailed down in the Bill, to give a chance for additional scrutiny—
Mr Thomas
Development.
Sean Nolan: Development, sorry. However, looking at the opportunities, a lot depends on how the additional quantum is divvied up and how that transfer of responsibilities comes through. I think that is the opportunity set, to be honest. It deals with two bits. One is about unfunded pressures. Government have a choice there, do they not? They can look at the additional quantum to the extent that it can be part of that solution. Okay, there is a question—the Treasury will never be interested—but they have a choice. The second bit is, within that transfer of responsibilities, what is the opportunity for genuinely giving every part of the country access to agendas that they can better influence—work and skills—rather than it just becoming a technical accountancy exercise of swapping over other existing grants for the quantum? I am trying to deal with the positives, but we all need to recognise that this will end up funding local government and not just economic development, so it has to manage those inherent tensions in a grown-up way.
Jim McMahon (Oldham West and Royton) (Lab)
Q There is a tension here between business and public service in respect of the role of business rates. Businesses do not like rates, because they have to pay them whether they make money or not. Governments tend to like rates, because rates are property-based and the Government can know where to knock on doors. I have two separate questions. The first is to business: is there an alternative to business rates that takes into account the new world of commerce and how businesses make money and are taxed? The second is to local authorities: would you welcome it if the types of powers that are offered to combined authorities and Mayors were given to all billing authorities?
Christian Spence: I will start on that complex question. You are right that there is a natural tension between the business community and local authorities with respect to paying business rates. One of the opportunities that the Bill may offer is to look at trying to repair some of the disconnect that there has historically been between the payer and the recipient and spender of the funds. As for how you repair that, the Bill goes some way towards starting to advance and better connect the opportunities for businesses to further contribute, through the business rate system, to schemes and economic development opportunities of strategic importance in their area—either through the business rate supplement or through the proposed mayoral infrastructure levy.
There are some challenges. From the business side, the one thing that we must see is a way to ensure that there are sufficient democratic checks. In the fiscal climate, across all local authorities, there is a fear from business that it could very easily be seen as an easy cash cow to fill funding gaps that are being determined not through the Bill but through wider Government fiscal policy.
There are undoubtedly opportunities for better engagement, for building those relationships and for allowing those two sides of the coin—the businesses and the local authorities—to start to understand each other a little more. But I think that there are two separate issues: the Bill itself, how it deals with the relationship with business and the financing of business rates in a world of devolution and retention; and, separately, the core funding of local authorities through the supplement.
Dominic Williams: In autumn 2015, I think it was, the Treasury asked for submissions on the future of business rates and turned its face against major reform. The reality is that it is highly unlikely that a Government would suddenly give up more than £25 billion a year of certain revenue, particularly given what happened to poll tax. So I think dramatic reform is unlikely, but we may see business rates gradually becoming a smaller proportion of Government taxation. The move from RPI to CPI, which the Bill paves the way for, is likely to be a helpful step on that road.
The Chair
I think Ms Miller wants to answer the second question.
Jo Miller: The second question from Mr McMahon was whether the proposals in the Bill should be extended beyond mayoral and combined authorities in London to all local authorities, and the answer is yes. It seems to me that the more we enshrine a two-tier system, where one lot of people can have more and another cannot, the more we put inequality in place and prevent economies from being productive and growing. That said, I am clear in my day job that it must be arm in arm with business. We have a fantastic chamber of commerce and we have prioritised services to business, precisely in order to grow the economy, grow the business rate, grow skills and re-enable people to participate in the economy, so that they cost the public sector less. But we should not be in any doubt that simply saying “This type of local authority can have these powers to enable growth and this type cannot” is as regressive as council tax, if I may say so.
Jim McMahon
Q Perhaps my question was too narrow. For instance, I might have expected some contributions to make a bid for the retention of other taxes and duties that are raised at a local level, such as stamp duty, fuel duties, air passenger duties, as a way of having a broader tax base from which to generate income for public services.
Jo Miller: Where local authorities, with businesses, can demonstrate that there is a win-win, they should have the power to do so. We are in the most centralised state in Europe. Let me give another example from my day job—forgive me if I talk in examples, but it is what works for me. We put together a road scheme that was initially heralded as costing the taxpayer £110 million, when we had to follow guidelines from the Department for Transport. In fact, we worked out that it could cost £56 million: £18 million came from Government, and the rest was raised through local taxation and through business. It unlocked 10,000 jobs, 10,000 houses and £1.7 billion of private sector investment, equating to 3% of GVA in the region. That is the type of thing that good local authorities can do, working hand in hand with business, so we should grab with both hands any opportunity to make that work on a greater level.
Kevin Hollinrake (Thirsk and Malton) (Con)
Q To touch on distribution, which has been referred to a couple of times, the key now is how this pot of extra money is distributed. There seem to be some real disparities in the system at the moment; unfairnesses, I would call them. I will give a few examples at random. Harrow, for example, gets £80 more per head in spending power than North Yorkshire, despite the fact that Harrow has a wealthier, younger population. There does not seem to be any correlation between the spending power of local authorities and the need in those local authority areas.
Kevin Hollinrake
I would go for a different explanation, but what is your feeling?
Sean Nolan: Underneath the detail is a commitment by the Government to undertake what they are calling a fair funding review. That is implicit in this kind of development. In fact, interestingly, we talk about 100% retention from day one, but actually it will be preceded on day zero, so to speak—the day before—by a redistribution, in theory, of resources around the country and between councils, because the Government have committed to doing a fair funding review of need. In a sense, I cannot comment particularly on the rights and wrongs of an historical position; all I can say is that where we are now is a reflection of judgments made in the past about the right kind of formula and what is meant by need. It has been frozen for a number of years, but that is its history.
The Government—and, I suppose, Parliament—have an opportunity to eventually look at what will be, in their timetable, a complete review of needs. You have picked up on a crucial point, if I may say so, Mr Hollinrake, because that will be happening, effectively, the day before a new scheme and it will move money around. Their argument, and it is one we would clearly like to support, although the devil will be in the detail, will be that that will set a fairer base. In my experience, fairness is in the eye of the beholder, but that will be their argument.
Kevin Hollinrake
Q What you allude to is that there will be winners and losers—it is a zero-sum game. How do we cope with that? Most people will recognise that the system is unfair. How do we move to a fairer system without those people who are going to lose out being particularly concerned about it?
Sean Nolan: This is a technical point, but genuinely, fairness is subjective, not absolute, so one of the preconditions to make people feel it is fair is the quality of the consultation about the factors and the indicators. Clearly, that will be an important part of the process. The second bit about coping is about having early notice of the impact so you have a chance to plan. With all due respect, that is a political challenge, because essentially you are showing your hand early about distributional impacts, but from my experience that leadership is really important, because you give individual authorities the opportunity to understand why there is change and then begin to cope. The third element about coping concerns the transitional arrangements that the Government want to put in place. Those three conditions are quite important, but bear in mind that fairness is subjective: in my experience, losers do not think it is fair.
Jo Miller: What matters is a focus on “fair” rather than “equal”, because if everybody gets something that is equal, it does not necessarily mean that it is fair, and we have sometimes lost needs from the equation. At the same time, it is absolutely right that the Government incentivise those who are trying hardest to make their economies more productive. The Government must find a balance, in all those arrangements that Sean has referred to, between incentivising growth and addressing the fact that some places have an inherent structural deficit that means they will not be able to cope. It is right that we make sure the system works for everyone. It is a big challenge.
Kevin Hollinrake
Q Would you accept that, despite the fact that it might take time to get to a final position—there will be a transitory period—the formula should be based on cost drivers, not on what has gone before?
Jo Miller: Yes.
Anna Turley (Redcar) (Lab/Co-op)
Q Staying on the point about fairness and distribution, can you elaborate on what you think could be the characteristics of potential losers? Ms Miller, you mentioned structural deficit. As we work through the next couple of years on the detail of this, what are the demographic and economic characteristics you think we should be looking out for, as we try to balance some of the challenges to be faced? Do you think there is a commitment within the local government family to work collectively and collaboratively on this, or do you think we will see tension around competition and people wanting to put their local authority before the greater good, perhaps?
Sean Nolan: You start off.
Jo Miller: We are going to do a double act, if that is okay. First, I think you asked us what the characteristics of good look like. For me, that starts with: what is the essence of our contract with the British people? What do they have a right to expect from the state and what can the state expect from them? I believe we live in a something for something society, in that sense; therefore, what does that mean about the state of the state? How do we recognise, for example, that in the part of the world where I work, people live less long than in some other places, but in their last 10 years they live in very poor health? Yet we have a public health grant that is currently based on how long people live, not the essence of their health. How can we use these systems to take away some of the things at the moment that do not recognise that kind of fairness and equality, which need to be built in? I am pleased that we can incentivise growth, but the challenge is to make sure that we can incentivise all sorts of growth, not just those that relate to property or particular industries. That is a challenge that I cannot see being met by the Bill at the moment.
I suppose there has to be a baseline for everybody. We should encourage and incentivise growth and we should take business with us. In terms of that, will we collaborate? I do not know whether devolution has showed us in our best light in that regard. From a skills point of view, I can guarantee that the country can spend the money it is spending better, and get better outcomes. I do not think it is a good use of people’s time to be having the conversation about what good looks like 15 or 24 times over, when we could have it far less than that. It is a challenge to the sector and the Government should hold us to it, because if we start just with “I’m all right, Jack”, we will have more of the extreme events that we are having at the moment visited upon us.
Sean Nolan: If I can interpret the question about the formula review and needs, it is very difficult to look ahead and describe what the characteristics will be. Professionally and personally, I think this is an opportunity to look at cost drivers and a different way of viewing the formula. In an open way, what are the cost drivers? An important point is that, because this is a zero-sum game, because it is looking, on day zero, at how you re-divide the current cake, you are talking about winners and losers. More importantly, though, you are talking about relative need, so it is not an absolute statement. It is important to have real openness about what those indicators are and a real opportunity for the whole country to engage in whether it is the right set of indicators, so there is a sense of building consensus about what is meant by “fair”. This is just about the formula itself. On your second point, because it is a zero-sum game with winners and losers, you will inevitably have split personalities all the time. It may sound a bit foolish to say, but in my experience, people can contribute an argument to the greater good, but the following day, they live in a metropolitan, county, district or London situation, and they are thinking, “How does this work for London?”
Ultimately, I think the sector and the system will just have to recognise that when it gets to the moment when all the formulae have been churned, all the exercise of consultation has been done and it comes out with a result, that will shift money significantly, even with transition. It does not matter how good the consultation will be; you will get lots of cries of “Foul”; that is inevitable. You just need to cope with that, look back and think, “How well have we actually conducted the consultation? Can we actually defend our thought processes?”
Steve Double (St Austell and Newquay) (Con)
Q I know from my term as a local councillor that often, the relationship between elected members in particular and the business community can be quite strained and not always the best. Often, that is because many members have little experience of business. I am interested in your reflections on one thing that I see as a potential benefit of the Bill: strengthening that link between the council and the local business community. It is very much a two-way thing: the council needs to understand the local business community much more, and the business community will see a direct link between the rates that it pays and the benefit of the local community. I am interested in your reflections on that. Do you see that in the same way?
Dominic Williams: First, on the incentive in the system to encourage growth—allowing local authorities to keep 100% of additional business rates generated—our view is that that is not really an effective incentive, for a number of reasons. First, it only applies to the development of new physical property. It is an incentive to permit more development; it is not necessarily an incentive to look after your existing business community. Secondly, throughout much of the country, particularly over the last few years, there has been very little development, so it has been a questionable incentive.
Thirdly, where there has been development, it has tended to be out-of-town shopping centres. The way that the system has worked since the last reform has given local authorities an incentive to give consent to out-of-town shopping centres, which take away trade from the existing town centre. The local authority does not suffer from that, because the people in the town centre carry on paying business rates as normal. That does not get sorted out until you have a revaluation. A number of our members in retail have suffered dreadfully over the last few years through that kind of thing. There are lots of other things wrong with the high street, but that is a contributing factor.
So I do not think that that little incentive works, except in enterprise zones, where it has galvanised everyone. What I think is more important is that if local authorities are correctly funded to do what they are meant to do, they will be supportive of business. If they are underfunded—I do not blame them for this—they have to put the money towards their statutory obligations and cut back on some of their discretionary activities.
I think that there is also a wider question about what happens to activities that are now funded through ERDF European funding. Will they continue to be funded post-2020? If so, who will be responsible for delivering them? It could be that local authorities get that responsibility and get a matching amount in business rates to do it, or it could be done in some other way. We do not know at the moment. There is still a lot to be decided about how this all works.
Steve Double
Q I take your point about growth and development. I was more touching on the direct link and the fact that, at the moment, my local business community pay their business rates to central Government. There is no direct connection between them and their local council in how that money is spent, whereas if the Bill comes into force, there will be a direct connection, and the business community will see that they are directly funding the operation of the council. That was more what I was touching on. I take your point about future growth, but I see the current strengthening of that direct relationship.
Sean Nolan: That it includes the kind of richness of the conversation between a local council and its local businesses is undoubtedly part of the positive benefit. It feels like trying to do that is an agenda for every council up and down the country.
The caveat we need to bear in mind—I am afraid this is part of the complexity of what will now have to happen—is that it is not a one-to-one relationship. Because of the existence of top-up and tariffs, what businesses pay may not necessarily go to their local authority and may go elsewhere. That makes managing expectations in the conversation a bit more complicated. However, in theory it definitely adds to the benefit of the conversation, although the one-to-one relationship you describe is a bit confused by the top-up and tariffs.
Christian Spence: The 100% retention on its own has the potential to open up a greater and more transparent conversation between business and local authorities about where the money goes and how it is spent. You are right that most businesses perceive that business rates vanish into a black hole—they have no idea where it goes. However, the 100% retention aspect of this Bill alone will not deal with that. It can enable a better conversation between local authorities and local businesses, but there will be a lot of work to do to develop that aspect.
There is an opportunity in a later aspect of the Bill for greater involvement involving the widening of the bid arrangements to property owners, the Business Rate Supplements Act 2009 becoming applicable to mayoral combined authorities, and specifically the new idea of a mayoral infrastructure levy that is available to those bodies. There is an opportunity in those measures for a direct, two-way, open and honest relationship between the BID and/or the local authority on one side and business on the other, or between the mayor and the greater visibility of local government, which we should see following from 5 May onwards.
That transparency and openness are welcome. The view of businesses across the country is that if local authorities are looking to increase spending or even to levy specifically for additional strategic projects in their areas, business is not necessarily unwilling to pay—the existence of more than 200 BIDs in the country is tacit evidence that that is the case. We are pleased to see the consultation aspect of mayoral infrastructure levies move on from a majority vote of the local enterprise partnership to a wider consultation—that is in the spirit of moving things in the direction that we would like. However, the challenge in the Bill from our point of view is that it stops short of a ratepayer vote against the levy and simultaneously brings forward the wider participation of BIDs to owner-occupiers, and of business rate supplements to combined authorities, which means that the Bill is confusing its own purpose directly in two ways. We are very happy to lay on the table the opportunity for the mayor of a combined authority to levy a tuppence supplement in business rates under the 2009 Act, and to be forced to ballot local businesses to ensure buy-in and support, but, under the mayoral infrastructure levy it can deliver that same tuppence levy without a ballot of the members of the business community. If we are not careful, we will introduce a perverse incentive. Where there are opportunities to increase that engagement and build those relationships, one aspect of the Bill will damage that rather than move it forward.
Mr Thomas
Q One suggestion we have heard is that the needs assessment process should be conducted independently of Government. I wondered where the panel stands on that question.
Sean Nolan: Can I play back to the Committee some reflections from when I was involved in policing recently as a treasurer in that world? You will remember that the Home Office went through quite a challenging exercise, looking at new formulae for allocating policing, which ran into some difficulties. One of the bits of feedback that professionally a number of us put in on lessons learned is that the needs bit—the conversation we are having—is about complex statistical modelling. As well as having confidence in the actual indicators in a conversation with the sector, you also need to have confidence in the choice of statistical technique. I therefore think that it is not so much about having an independent element outside of the system. What would be really helpful would be if DCLG read across from elsewhere and brought into the process an independent element, perhaps advising in real time on the choices of statistical techniques, and some kind of independent validation of procedure. I have to say that that would be a confidence-building part of building consensus around what is fair.
Jo Miller: I thought Mr Nolan put it beautifully.
Mr Thomas
Q As I understand it, the Bill will be fiscally neutral, so in order to get the £12.8 billion of additional business rates income, local authorities will have to do more. Where do you think that will lead? I appreciate that there is still a conversation going on between the LGA and the Department but, as I understand it, they are some way apart in the discussion on responsibilities. Can you give us a sense of the flavour of where you think the extra responsibilities will fall? What do you think the impact on your budgets will be from the end of at least the better care fund, the public health grant, the rural services delivery grant and some other funds? The consultation document from last year strongly hinted at those being ended.
Jo Miller: The gap in public service funding is well documented. I think the LGA talked to you about £5.8 billion by 2020 and £2.6 billion in social care today. I go back to the point about the amount of money that Government and the people want to spend. There is still no doubt in my mind that we can spend money better by joining things up at a local level. For example, the answer in social care is not just more money, but how well that money is spent and how well the system comes together to spend that money as effectively as possible. The same goes for the criminal justice system and children and families. I encourage Government to look at the totality of money that is spent across the piece. I mentioned skills as another matter where we have to look at how we get better bangs for our buck. While money continues to come down departmental pipelines, we are missing a trick.
Rebecca Pow (Taunton Deane) (Con)
Q This is more of a general question that I would like to put to Mr Spence first. The Bill is all about encouraging growth and generating more business rates, which will hopefully then enable us to pay for more services. Would you say that the way in which that has been handled until now has potentially hampered growth, and do you see the Bill changing it? Some tools in the Bill are supposed to help—pooling, the infrastructure levy and things like that. Mr Spence, would you say that that was going to happen through the Bill?
Christian Spence: The Bill opens up some opportunities where it might happen, and in a moment I will come to why I think there are some problems. On the first part of the question and whether the business rates system today as it stands hampered growth, the answer is clearly yes, it has. The nature of the economy over the past 10 years or more has changed significantly. Usage of physical space is less important to the economy today than it was a decade ago, and we would expect to see that change continue over the coming decades and beyond.
The business rates system is still locked around its old-fashioned way of looking at a predominantly manufacturing and machinery-led economy. The inclusion of plant and machinery within the valuation system not only acts as a detriment to investment and causes perverse incentives directly to businesses as to whether to invest, but is administratively complex and procedurally onerous. As one of the largest revenues for a property tax in the world, it sets us outside our international competition very significantly in terms of how we manage commercial revenue.
Does the Bill move us closer? It has the potential to do so, but to echo some comments from Mr Williams earlier, the challenge is that, by allowing 100% retention—I spoke earlier about why we support that as a high level principle to better connect the incentives through local authorities and business—the Bill has at its heart real challenges. It is still fundamentally property based. To go to Mr McMahon’s question earlier, we do not see any reason why you would particularly want to move away from that system for well-versed economic reasons, but the challenge is that local authorities are going to grow their revenue only by introducing new floor space developments. We hugely welcome the changes in business rates policy to lift 100% relief to rateable value of £15,000 and above, but it means that properties with less than that rateable value do not add any net cash to local authority business rate receipts.
The challenge is that you are incentivising local authorities to grow their business rates revenue, which can have a perverse incentive, as Mr Williams mentioned—are you looking after your existing business base and helping it to grow, because incremental growth of most businesses is unlikely to deliver significant expansion of rateable value properties that can be levied for rates? If you are focusing exclusively on new premises of a high rateable value, the question for a lot of authorities will be: “Is there physically the land available to deliver significant growth in those areas?”
Rebecca Pow
Q Forgive me for interrupting, but what were your views about pooling? There are some good tools in the Bill for amalgamation of bigger areas to give incentivised or different business rates to encourage more economic growth in a wider area.
Christian Spence: The views representing a national organisation would vary hugely by geography across the UK and the nature of those economies. In general, yes, the pooling opportunities theoretically give greater flexibility in how those tools can be delivered, but that comes back to earlier questions about the ability of local authorities to collaborate at a time of intense pressure to each one of them individually.
In my area in the Greater Manchester chamber, we have an under-banded city centre authority and more open land on the outside. Pooling arrangements might help to spread some of that, but it is going to be hugely predicated on the ability of individual authorities to come together and share those opportunities. The difficulty of genuine, real-terms revenue growth under this system is not clear to us at this stage.
Jim McMahon
Q Just to reflect some of the debate, is there a conflict in that there are different measurements of success when we talk about growth? There is net jobs and the number of people in employment; equality, or the amount of income people can get in different types of jobs; and there is square footage—building big sheds to generate large business rates, so why not? Is it not far better to have a more rounded system of taxation and incentives so that local areas can determine for themselves what type of rounded economy they need, without being driven down one particular route depending on the flavour of the Government of the day? What I hear form businesses is that they need a long-term plan, strong local leadership and long-term certainty. It strikes me that business has not had that for quite a long time.
Christian Spence: I would certainly agree with your last point. We have not tested specifically with the national membership exactly how local government taxation works, the different tools they may or may not have at their disposal in future, or any one of those other individual points. To lift it to a higher level, I agree broadly with what you say. Business is looking for a long-term stability in the system so that it can plan for its own success as well as the success of the wider community on which it is so dependent. It wants a long-term, fruitful and strategic relationship with government in its area, locally and nationally, about how to support its own growth and how to deliver skills. You talk about generating revenue through large RV sheds on the outskirts of towns. That is right, but there is often a natural tension between local government strategic plans and the draft Green Paper on industrial strategy about whether they are generating the jobs the country would like to generate.
We have no specific answer on the detail, but business is pragmatic enough to say: “If you can deliver a solution which works in our area, both for an individual business and the wider community, we will be open to those discussions.”
Sean Nolan: The skills agenda seems to be a great bridge between what a local authority can do and business needs. That plays into an opportunity in how new responsibilities are played out. On Mr Thomas’s question, the examples you quoted—RSG and public health—are relatively neutral because they are existing grants that will be funded from the quantum. I guess the real game is the new responsibilities that will be passed over with which local authorities can influence skills for the better. The skills agenda is definitely a bridge into the business agenda.
Jo Miller: The answer to the question about whether there is a more rounded way to incentivise growth and deliveries is undoubtedly yes. It seems to me that growth is a number of issues: growing your business, starting to grow the jobs in it, and having more and better jobs. It is also about the ability of people to participate in the economy. That could be through jobs or through not costing the state money by, for example, being a carer. The challenge—I tend to think of it as profit and loss rather than as just one way—is to have a taxation system that encourages growth but that helps people to cost less money. Looking at a place enables us to do that.
The challenge for us with business rates and with what is now, ultimately, a regressive system in council tax—the council tax raised per person in Doncaster is £300, whereas in Richmond upon Thames it is £900—is that there is a better way to fund what local people expect from services than through a combination of business rates and a system that relies on 26-year-old property values, particularly in the context of businesses changing in a digital economy that will not always be property based.
Justin Tomlinson (North Swindon) (Con)
Q This is a question for Mr Spence. In the briefing that you provided to us, you said:
“We also believe that there should be a maximum amount a billing authority can raise its multiplier, alongside the maximum reduction limit per year.”
Could you expand on that, please?
Christian Spence: Certainly. This is about the provision in the Bill whereby local authorities will have the power, within limits set by regulation of the Secretary of State, to lower the multiplier in their area. Again, for all the reasons we have already discussed, there are potential incentives to local authorities and businesses in doing so. Broadly, there is a challenge regarding how much that power would be used within the current fiscal conditions that local authorities see. However, although we see in the Bill that the power to raise rates at the national multiplier level will remain set by the Department and the Government centrally—the national multiplier will rise by its new indexation from 2010—local authorities appear, as the legislation now stands, to be able to lower their multiplier in any one year and do so again the following year.
If a local authority were, for example, to lower its multiplier to tuppence below the national multiplier in year one, over three or five years the national multiplier might continue to rise and we would have a position in which that local authority’s multiplier could be 10p different from the national one. As we see the Bill now, there is no reason why that local authority could not reclaim all of that 10p difference overnight in one fiscal year. If there are limits, capped nationally, by which the rate that the national multiplier can rise from one fiscal year to the next, it would seem perfectly reasonable that local authorities should also be capped regarding how much, when recovering from a previous rate, they can raise theirs from one year to the next.
The Parliamentary Under-Secretary of State for Communities and Local Government (Mr Marcus Jones)
Q Mr Spence just made an interesting point regarding the way in which the multiplier may be increased at the point when a particular authority decides to change that policy of having a reduced multiplier. By definition, I take it you are, therefore, against local authorities having the ability to increase the multiplier, as has been suggested by some people.
Christian Spence: There is no real consensus across the entire chamber network about the rate and about how those work in individual local authorities. You can see examples in situations such as business improvement districts. There is potentially a very good example, if we can agree and move the Bill to a position where there is a ballot on mayoral infrastructure levies. Business might be happy to see increases in levy provided that the reasons given are clear, that it is a strategic scheme, that it is additional to that which has already been committed, and that businesses have been openly and genuinely engaged, consulted and balloted on whether that can take place.
The specific question for us is this: do we want a position where national Government are capping the national multiplier to CPI but local authorities retain an ability to raise their own multiplier by a rate greater if they have chosen to deviate from the national multiplier in earlier years?
Jim McMahon
Q Is there not a slight tension with that approach? Areas with historically low tax bases have to charge more council tax per property just to generate the same total. We could find ourselves in the same situation with a business rate base—local areas could be forced to increase it dramatically just to keep their heads above water. Although I am not always in favour of a national cap, I think there might be a call for it, so that the gap does not widen and so that there are proper top-ups and tariffs in place. Do you not accept that businesses can thrive only if local areas thrive? Businesses do not sit in isolation.
Christian Spence: I absolutely agree with that point. A fundamental principle is that business can never exist in its own cocoon—it is dependent and co-dependent within its wider community. The challenge for us is a very narrow point in the Bill. If a local authority chooses to lower its rate, that is its decision, and it must fund that gap on its own. I would hope we could develop a system in which a local authority is not subsidised for deciding to lower its multiplier by any redistribution. That would essentially pull at a natural tension and create perverse incentives. If a local authority does not need more money and has chosen to cut, the understanding should be that the onus is on the local authority. Yes, that may need to rise, and our fear is how we control that rise. The fear is that, in an extreme situation, we might see a 10p rise in one year.
Jim McMahon
Q But it is more likely that a local authority will be increasing or decreasing the business rate base as part of an economic assessment of growth. It is not going to do it in isolation simply in cash terms. You could see a situation, for example, where town centres have been massively hit by office relocations to out-of-town centres and out-of-town parks—we perhaps see the same with retail. If the powers were extended to a building authority to raise and to lower, you could easily see a council looking to reduce business rates in a town centre for office accommodation for retail, and creating a levy on out-of-town retail parks and office blocks as a way of making that a neutral exercise.
Christian Spence: Absolutely so, but for us it is about the profiling of those changes and ensuring that we protect against any very sudden and very large one-off rise, essentially to rectify a disparity that has grown over time.
Peter Aldous
Q I have two questions, one directed to the private sector and one to the public sector. Mr Spence averred that this form of business taxation would be different from anywhere else in the world. At this time when we need to be looking outwards, does he think that that gives us a cutting edge for the country’s businesses? My other question is to Ms Miller and Mr Nolan. Just looking at the central list and how that is to be governed, I have in mind power stations. If you have an existing power station and it is decommissioned, you are going to be facing a lot of costs. If you have a new power station—
The Chair
Witnesses, there is just one minute left.
Christian Spence: I will return very briefly to Mr Aldous’s first question. The challenge for the UK system is that we have inherited a system where commercial property rates are significantly higher than those of our international competitors. We understand that that cannot be changed overnight but, within a wider global strategy of Britain wanting to seek greater international competition, we firmly believe—our members would back us heavily—that we should look at the overall levy raised by business rates.
Sean Nolan: The second question plays into the heart of how you judge the stability of the system. It is a proper question to the Minister and his officials down the line: in that scenario, how would it work? I would contend that a really important test is what I call stress testing—not just whether this works on day one, but a series of scenarios over time. Would this survive stress testing?
The Chair
Order. That unfortunately brings us to the end of the time allocated for this session. On behalf of the Committee, I thank the witnesses for the detailed responses they gave to colleagues’ questions. Thank you very much indeed for your time.
Examination of Witnesses
James Lowman and Professor Tony Travers gave evidence.
The Chair
We will now hear oral evidence from the Association of Convenience Stores, and from Professor Tony Travers from the London School of Economics. I would like you both to introduce yourselves.
James Lowman: I am chief executive of the Association of Convenience Stores, who represent the 50,000 stores in the convenience stores sector.
Professor Tony Travers: I have spent a number of years at the London School of Economics studying the local government finance system in its many forms and iterations.
The Chair
Mr Travers is familiar with our proceedings, but for Mr Lowman’s benefit, do enjoy the session. Colleagues are just trying to gather information when they start the detailed scrutiny of the Bill and we will go from side to side for questioning. We have 45 minutes.
Mr Thomas
Q What is wrong with the Bill, in your view? Obviously, the Minister thinks it is wonderful, but no doubt you will be slightly sceptical about whether that viewpoint is completely accurate.
James Lowman: From a business point of view, we support the Bill. Our concerns are about the notion of giving councils the opportunity to reduce the multiplier. We support that, but how realistic is it that the powers will be used and applied? That is partly because of issues with local government funding that you will know about much better than I do.
From our perspective, the Government have already introduced powers for local authorities to give discretionary rate relief for whatever reason they like. That can be used to support high streets, or particular sectors or areas. That is very under-used—it is being used by about 12% of councils at the moment—which makes us sceptical about the likelihood of councils using the powers in the Bill to reduce the business rates burden, given the pressures we all know they are under. Against that, while there are many good checks and balances against the introduction of increases in business rates and levies, there is a concern to ensure that powers in the Bill are not pushed as far as they can to try to increase business rates revenues. That would be our summary position.
Professor Tony Travers: In that the Bill carries on the work started by 50% business rate retention back in 2011—and even going back to the previous Labour Government, when they had the local authority business growth incentive scheme—those things are both rational in moving towards a system where local authorities at least have some chance of retaining the uplift in any growth in the tax base they generate. That makes sense, in my view. What is wrong is what is often wrong in UK—or, in this case, English—systems of local government finance. Although this looks like a move to a system where councils are completely dependent on council tax and business rates, in truth there are still many ways in which the Government of the day can intervene, making the actual business of running local government not as predictable as would be the case if it was a purely locally funded system of local government finance.
David Mackintosh (Northampton South) (Con)
Q This is a question for Mr Lowman. On Second Reading I agreed with the point made by your organisation that there is a potential for local authorities to try to increase business rate revenues by signing off larger planning applications for developments at the cost of small businesses. How can that be mitigated?
James Lowman: That is a concern regarding having a greater incentive to bring in large chunks of business rates through large developments, which was touched on in the previous session. There is a danger in our sector if a big out-of-town supermarket application is granted because of the effect it will have on the high street, other surrounding neighbourhood retailers and so on. In the grocery market, that is less common than it was a few years ago. None the less, it is true that out-of-town developments can harm high streets. The temptation to grant those applications concerns us because that may lead to a large slug of business rates coming up in the first instance but, over time, business rates income will diminish as those town centre and high street businesses come under pressure—of course, there are other effects.
The most effective way of mitigating that would be to have a long reset period. We have suggested 10 years, but some people have suggested longer. The reason is that the impact of those big developments can be felt more fully across that longer reset period. If you have a short reset period, you may see the upside of the development without the downside of the closures and other consequences. That long reset period would be one way of reducing that temptation for authorities.
Jim McMahon
Q Mr Lowman, your members provide a very important community service. Do they feel they are on a level playing field with the large supermarkets?
James Lowman: In respect of business rates?
Jim McMahon
General taxation, of which business rates are part.
James Lowman: They do not. They feel there are a number of ways in which they are under particular pressure—that is the system. Supermarkets do much of their trade through online delivery, which is a very efficient system in terms of business rates. It is arguable whether it is an efficient system from a business point of view—not many companies make a lot of money from their online operations—but it is a very effective system in terms of business rates because the places where those businesses distribute from have relatively low land values. They are out of town and in unattractive places, but it doesn’t matter whether people can get to them. What matters is how quickly they can link to road networks and other ways to get the product out to their customers. By contrast, convenience stores and all sorts of local shops are bricks-and-mortar retailers. Some of our members do various things online—parts of their business—but fundamentally we are bricks-and-mortar businesses. Where business rates increase, all our sector is hit.
There are things the Government have done to support small businesses. The increase in the 100% rate relief up to £12,000 rateable value is very welcome, but many businesses fall outside of it. As you know, business rates are calculated on the basis of notional rental value, so it varies case by case, but essentially, businesses in prime areas, or even strong secondary high street businesses of probably more than 1,000 square feet—decent-sized stores—are still likely to be paying business rates. Therefore, with annual increases in business rates, some have been hit by revaluation badly, some better, but those small stores on high streets are still paying proportionately much more per square foot or square metre than big out-of-town stores. Yes, we are damaged by the business rates system.
Jim McMahon
Q A view has been expressed in different places that, because many convenience stores are family-owned businesses—they might have a brand, but they are essentially family-owned businesses—cash flow is tied and the time taken deal with appeals can have a serious impact on the viability of many of them. One suggestion was a differential, backdating element, whereby convenience stores have a longer period to backdate if they are successful in their appeal—they might need it for cash flow—while backdating for supermarkets potentially should not be as generous. Is that something you have discussed within your industry or with your members?
James Lowman: Yes. The business rates appeals system is a concern to us. The system is clogged up; it takes a very long time to resolve appeals. We are in discussions with the Government about the degree to which our members will be able to appeal and about the reasonable professional judgment of what constitutes a wrong valuation. I am not sure in terms of the appeals whether this is about us versus supermarkets or other businesses. The appeals system needs to be more effective, more efficient and fairer for businesses that have been misvalued and overvalued.
Jim McMahon
Q Professor Travers, you are widely regarded as a leading expert in your field—rightly, in my view. We spoke to the Minister earlier about the pressure of adult social care and asked whether he agreed with people in the industry that it was in crisis in terms of its funding. What is your professional assessment of social care funding?
Professor Tony Travers: There is no doubt—it is an objective, visible reality if we still have them—that local government spending has been held down more than the average of UK public expenditure. Within that total, local authorities have broadly protected real spending on children’s and adults’ social care in cash terms but not in real terms. Clearly that item of public expenditure has been squeezed in real terms at a time when numbers are increasing.
Having said that, how the new system operates and the total of local government spending are, in theory, unrelated. Of course, in practice, coming back to the point I made earlier, in the end in this new system the Government will still, in reality, control the total of local government spending. They have to do that because local government is a component of total managed expenditure in the UK. In a sense, moving to this new system of 100% business rate retention gives rise to an interesting question of whether local government spending in total—on aggregate, nationally, in England—could ever escape a cap set on it at the national level, even if individual authorities could build up their tax base in order to gain more income. That is an unanswered question in the system.
Jim McMahon
Q Has any research been undertaken to assess what the impact might be? If there is limited growth in the tax base for business rates and council tax within the total, but the demand for services is outstripping that available resource, is there any assessment of what that gap could be?
Professor Tony Travers: Over time, the amount of growth in the business rate base is clearly unpredictable, both at an individual authority and in total—the total will depend to some extent on the strength of the UK economy. As for the amount produced, I cannot give you an answer, in the sense that the Government would have to decide, particularly at the point of resets, which were mentioned earlier, whether they were going to ensure that local government spending always fitted back to the number that central Government had first thought of.
It is not unique: moving forward, this is the way the system operates now. So in a sense we are not truly moving forward here to a system where local government is free to determine the overall total of its income, partly because of all the new responsibilities transferred to it in the short term. In the long term, we must assume that tariffs and top-ups, which were discussed earlier, will be adjusted to the point that local government spending over time cannot significantly exceed the total first thought of so that it fits within total managed expenditure and therefore public spending planning purposes.
Kevin Hollinrake
Q Mr Lowman, how comfortable are your members with things like business rate supplements and infrastructure supplements?
James Lowman: There is concern. Half our members’ trade comes from within a quarter of a mile of their store—they are the local shop. Our reach into communities is pretty much unparalleled in any business sector. One thing that concerns them from that perspective is that large infrastructure projects may not be that relevant to them. New motorway links, new transport or major new developments will be less relevant to their particular trading position.
They are concerned about mechanisms for increasing their overall business rates bill. They broadly support the business improvement district model and the opportunity to have a very specific programme and proposal on which they can vote, and which needs an endorsement of business rates value from the majority of premises. That seems like a good double lock on ensuring that things that come through in business improvement districts are relevant to them.
We would encourage a similar sort of level of consultation without being very specific about what is being proposed. We are concerned about consultation. It is perhaps damning our own sector, but it is not routinely engaged with local authorities, local chambers of commerce or other local bodies. Perhaps they should be, but it is a fact that they generally are not engaged day to day. We are concerned about reaching those businesses in order to consult them. The relevance, the location and the mechanism of consultation is a concern, but it has been taken on in some of the checks and balances in the Bill.
Mr Thomas
Q Let us imagine that you are the ruthless, hard-nosed treasurer of a council that sees this Bill coming into force. Presumably, you are going to want to try to negotiate a very low top-up, assuming that you are a reasonably well-off area in terms of finance and land. Presumably, you are not going to look at small businesses. You are going to rush, as much as you can, to encourage the Amazon-style warehouse or JD Sports kind of warehouse. Surely that is the only incentive that is wise in the Bill in terms of business rates growth. You might actually put to one side the engine of future economies or businesses because they are not going to bring you any reward.
James Lowman: Unfortunately, Amazon warehouses do not pay that much in business rates, which is one of the challenges here. This is why we need a long reset period. There is a benefit in the intention of the Bill, and we fully support it. The benefit is that, if a council can make itself a more attractive area for businesses to invest in and to set up there and to stay in business when they are already there, they will benefit from that overall. We do support that as a principle, but as I said in answer to an earlier question there is a danger that they will be tempted by and attracted to big hits of business rates coming in with big developments. So that is a very active concern.
Professor Tony Travers: Small business has lobbied for a number of years for relief, which hundreds of thousands now have. If you move from a system where a substantial number of small businesses receive a relief, to a system where local authorities are given an incentive to build up the tax base, you must accidentally create an incentive to give planning permissions for those that are more likely to pay the business rate. It is not intended to work like that, but it must inevitably produce an incentive to give planning permission for businesses that do pay the rate rather than those that get exemption. Of course, the reliefs are partly, I suspect, built in to the base on which all of this starts, but I doubt over time that that would be uprated in line with overall growth. There is inevitably an incentive—not intended—for local authorities to give planning permissions for and to build up businesses that pay business rates compared with those that get relief, I would have thought.
Mr Thomas
Q Do you think there should be an element of independence in the needs assessment process that is being done at the moment, and that might be done at future points?
Professor Tony Travers: The needs assessment process that underpins local government finances has been an element of pressure and complexity going back to the 1920s, but particularly since the 1960s. We are now going to have a reset, after some time without a reset. Any time there is a reset, you would expect—all other things being equal—a big jump in the change, inevitably. The longer you have a period without a change, the bigger the jump between those places that have become needier and those that have become less needy, relatively speaking.
There is another tension here: the longer you leave the period between resets, the more instability you will get at the point of the reset, but you get less within the period during which there is no reset. There is then the issue that the longer you leave it without a reset, the greater the perceived—I stress perceived—unfairness for those that feel that they are being left behind. The truth is that the English system of local government finance has a very high expectation of redistribution buried within it that goes back a long time. There are a lot of pressures from politicians of all parties to make it fair—I am sorry to say this—for their authorities. Fair is more for us—which is fair enough. At the point of the reset, there will always be a war of all against all to get it right for our class and our type of authority. Having said that, I think most politicians centrally and locally would share the view, and I say this again in front of a number of politicians, that that is a reasonable thing to do—that is, to have a system that is seen to be and is fair—but delivering fairness is difficult, particularly at a time when local government finance in total is static or the total is falling.
If you think about it, in the world we are moving to, local government spending will be lower in total in 2019-20 than it is today. At the point of the redistribution—this is also true for schools’ funding redistribution, by the way—it is not as if you are redistributing at a point where it is growing by 6% a year; it is when it is growing. That makes it a far more painful business for Ministers and other MPs, simply because there is less money in the system. It is just a fact of life.
Steve Double
Q Something has just come to me while listening to the discussion and following on from the question about granting planning permission for large units. I represent a fairly rural constituency in Cornwall, where we have seen a number of convenience store-type premises that qualify for relief, perhaps small business or rural rate relief, being converted to residential units. I wonder whether there will be an unintended outcome from the Bill and whether there may be an attraction for local authorities to grant permission for change in use to residential. They are not getting the income from the business rates, because of the relief, but they will suddenly get council tax if it converts to a residential unit, therefore increasing their income. Has that crossed your mind and is there anything we can do to try to prevent that happening?
Professor Tony Travers: Before James says anything about his sector, the whole purpose of introducing this system, which, as I said, I broadly sympathise with, is to create more incentives for authorities to think about their economy and to build it up. But it is absolutely the case that, if you face a choice, particularly now there is permitted development—you can change from non-domestic to domestic more easily than in the past—if the small non-domestic property does not pay a tax and the small domestic property would, inevitably, that creates—I am not saying all authorities would take it on every occasion, but it is within the realms of the incentive that you describe.
James Lowman: Alongside that there is a significant incentive to the operator or the property owner. In most cases, that property would be worth more as residential than it would be as a business, although there would be exceptions to that. There has to be a strong and effective planning system and local plans, so that we do not have case by case, site by site conversion from retail to residential. That may have to happen—some high streets may have to get a bit smaller—but it has to be done on a planned basis. It cannot be simply site by site—the lease comes up and it is converted to residential. That way you get very long, incoherent, pockmarked high streets without a clear centre to them. I think it is really important that the planning system mitigates that. As well as the commercial incentive for that to happen sometimes, there may now be—I will leave it to councils to say to what extent that will actually act as an incentive, but I entirely take the point you are making.
Anna Turley
Q My question is particularly to Professor Travers. How do you build resilience into the process? I am thinking particularly about an area such as mine, Redcar, where the loss of one company—the liquidation of SSI—resulted in the loss of £10 million in business rates overnight to our local authority. If we are going down the route of more devolution and moving potentially to more and more being retained within a local authority, how can you mitigate that over-reliance on a large company within that process?
Professor Tony Travers: Clearly, England has an economy that is heavily interdependent. Geographically, it is quite a small country; it feels big, but it is quite small compared with a number of American states, for example. We are now moving away from the system in which local authorities were largely protected; in fact, so long as the national non-domestic rate involved 100% retention, they were completely protected from any of the vagaries in the local business rate base. However, as we move back towards a system—this is a back to the future reform; we had local business rates up to 1990. We have moved away from the national non-domestic rate, which was introduced in that year. From 2011 onwards, there was more risk of the kind of change you described—and with the introduction of 100% retention, even more still.
I have always been in favour of greater local autonomy, but it begs the question whether there is a need, in a relatively small and relatively homogeneous country such as England—that would be true for Scotland and Wales, too—for central Government to retain, as they did in Corby, when the business rate yield fell there after the Corby plant shut, the capacity to intervene in the short term when something like that happens. It is an anti-localist measure, but I think it is the way most councils and MPs in Britain would expect central Government to behave when there is a one-off hit to the system. I think you would have to retain some form of capacity for national Government to help when some massive change takes place in the short term. When there is a huge new plant or some other big growth in the business rate occurs that is not on the central list, that is a different question—would you take account of that the other way round?
Kevin Hollinrake
Q In your introductory remarks, Professor Travers, you said you would prefer to move to a totally locally-funded situation, but your remarks just then seemed to step away from that. How are those two things consistent?
Professor Tony Travers: It is an inconsistency. I am trying to say that, so far as possible, most local authorities in England could easily operate on the basis of council tax, business rates and some mild redistribution most of the time. However, there will be cases, particularly when there is a radical change in the local tax base or some unexpected need, in which the Government may need to intervene.
Personally, I like to separate out the occasional need to intervene from trying to use the underlying local government finance system year to year to take account of all of the changes that go on in a complex economy such as ours. I am a localist, but I concede that there is always going to be a role for central Government in a country such as England—or Wales or Scotland—to intervene to smooth out the big changes that inevitably and randomly occur.
Kevin Hollinrake
Q You mention redistribution, which is key and underlies the whole policy in the Bill. How fair is the current system, and what system should we move towards?
Professor Tony Travers: The current system has been in place for a long time and has not been reset for some time. I answered cautiously before about the fairness issue. Clearly, there has been radical social and economic change in various parts of England in the past 15, 20. 25 years, and you would expect the needs and resource equalisation system to catch up with that over time, so long as we have it.
The point was made earlier—I suspect that, when those new needs factors or the new reset based on need and resource changes are built into the system, you have to avoid too radical a change. If you have a big change, with huge numbers of big gainers and losers, people notice. I do not need to say here that local government finance, unlike national Government finance, is very, very visible. People understand immediately changes in spending and in tax bills. With that in mind, you have to be careful not to produce too much redistribution. In the direction of fairness, yes. Massive redistribution, never good for the system.
Kevin Hollinrake
Q You mentioned that the money coming into the system was declining by the end of the decade, but there is obviously a lot more money coming in—£12.8 billion of extra money—and it has yet to be decided what local authorities’ responsibilities will be for that money. So there is actually more money in the system.
Professor Tony Travers: Of course, but there is no doubt that the overall figures in the spending review, which I think have been taken forward a year by Philip Hammond in the most recent spending review, take us on a generally flat, slightly declining, then flat total for local government’s own controlled expenditure up to 2019-20 and that in real terms is something of a reduction.
It is true that we do not know what will happen thereafter. At the point of the reform to 100% rate retention, there will be a transfer of services, so that local government is neither better nor worse off at that point. The question is, what is the total effect of 100% retention minus, as it were, the new responsibilities? How does that leave not only the pressure on the total local government expenditure but individual authorities? The distribution of responsibilities and the full effect of all the reforms we are describing will clearly have a different effect from place to place. In fairness to DCLG officials and Ministers, they are generally very good at balancing these things quite closely, but this is a big reform all going on at once.
Kevin Hollinrake
Q Therefore, is it not all the more important that the future formula is based on those cost drivers? There will be some new cost drivers as a result of the additional responsibilities at that point.
Professor Tony Travers: It is true. Public health is one of the grants that is up there as a possible new responsibility. There is currently a ring-fenced grant, but it could in future be funded purely by local government. Clearly, the needs formula would need to reflect that if that were distributed differently from if it were all transport, further education and skills, which might be thought to be more linked, by the way, to building the local economy. That is a separate issue. So there is no question but that the responsibilities that are handed to local government as part of the reform will affect the need for the needs distribution arrangements; they will have to reflect them.
Mr Thomas
Q In the debate about how to even out changes in the tax base, let us take the example of Heathrow. The third runway is coming. One would have thought that that would inevitably make the area around Heathrow attractive to a number of businesses. Councils such as Maidenhead, perhaps, and Hillingdon will be hoping that their treasuries will benefit from substantial business rate income down the line. How do you think that sort of major structural change at local level should be dealt with under the system?
Professor Tony Travers: I will offer a personal view. I was always surprised that the potential impact of the decision about where the additional runway in the south-east was to be located did not take into account, as far as I could see, the knock-on consequences for the local authorities in the area, given the business rate retention scheme that we are discussing. Any additional runway capacity, be it in the south-east, Manchester, the west Midlands or wherever, must have significant knock-on impacts. You are right.
In principle, when properties are revalued that uplift will be captured. Then the issue, which has always been an element of challenge to even the 50% business rate retention, is whether councils keep only the uplift on new business, or the uplift for the existing properties paying higher rates. As the Bill goes through Parliament, how much of the uplift as a result of a major national change of this kind is retained locally, and how much goes back to the Exchequer through its tax mechanisms, is a very interesting question.
Rebecca Pow
Q My businesses in Taunton, particularly since I have been an MP, have had a constant gripe that they pay business rates and so little is kept locally. I am told that 7.5% is what we get. Do you foresee that this new Bill will enable a much closer relationship to be forged between business and the local authorities, now that there is the concept of keeping 100% of the business rates? It has been quite antagonistic, has it not, Mr Lowman, particularly from your experience?
James Lowman: Honestly, that is not a gripe we get back. The level of business rates, the perceived fairness of business rates in comparison with neighbouring businesses, larger businesses or internet businesses—absolutely. What then happens to that income is not something we hear back about a great deal. I think that the perception of increased business rates and worsening service in areas that matter to businesses—whether that is waste, licensing or, in some cases, things such as policing—gets drawn into that. Whatever the realities of what is funded by what, the perception is, “I am funding the area I am operating in” so if the services in an area appear to be worse, that may be part of that overall perception. But I have never had a business come to me and say, “I don’t mind paying more business rates, but I have a problem with where it goes”.
Rebecca Pow
You should meet some of the ones in Taunton Deane.
James Lowman: I would love to. Where that does come through is with things such as business improvement districts—but people see that as slightly separate from the business rates system. That would be about saying, “This area needs support, regeneration and growth; needs things doing locally”. Yes, the business rate system is then the mechanism through which businesses make a commitment to part-funding improvements. It works more that way round, from our point of view.
Professor Tony Travers: I think that what lies at the bottom of accountability—there is an accountability— are two problems. One is that accountability for business rates has been weak for many years because it is a national tax but most people pay it to the council.
Rebecca Pow
Exactly. They blame central Government— so now they are going to.
Professor Tony Travers: Central Government set the tax rate and the rules for the base, so it has been central Government’s responsibility up to now. All the rules will continue to be set by central Government. But there is a separate issue, which I realise is beyond the Committee’s remit. There are significant problems with non-domestic rates, notwithstanding the fact that they are the business property tax that we have. They are not a great tax—they are effectively a tax on inputs. They are inflexible in relation to profits, and so on. But—I respect the Treasury’s, and DCLG’s, problem—they are the tax we have got. Moving away from that to something different, which might be a radical change, is a reform that successive Governments have not been willing to make. However, there are good arguments for looking at business rates from first principles—starting all over again. That is not where we are with this Bill, I fear.
Jim McMahon
Q This is a more rounded debate about the sustainability and funding of local public services. If we are going to move to a localised method of funding, we need to make sure that it is robust and can fund the demand for public services. I have a concern about council tax in that context. People already believe that they pay far too much council tax and that all they get in return is their bins emptied—and now that is happening less often than it used to, in many areas. People are questioning why they are paying council tax and a potential 25% increase is programmed over the life of the Parliament. Is there not a risk, with business rates, in the way there is with council tax, that although a lot of this conversation has been about cost, the real debate is about the value that people believe they get in return? I would welcome a sector view, not about the total cost, which is always a bugbear for council tax and business rate payers, but on the perceived value in return.
James Lowman: I think that our members see it as a cost of doing business, rather than a payment for something. They see their contribution as business rates, the jobs they create and the tax they collect on VAT and excise duty. Where local businesses have to use local government, they pay for that. If they go for a licence, they have to pay licensing fees. Rates do not cover all the services that businesses receive from the local authority; they are seen as just a tax and a base level that they have to contribute in order to trade.
Jim McMahon
Q On that point, do you think the Bill might change that relationship? Rather than it being a straight tax, will people see it almost as a contract of joint benefit and joint growth?
James Lowman: It would be interesting if it did. I think it would be a really good opportunity. I start from the position of quite a bit of scepticism about getting to that point, but I do not think it is a bad objective.
Professor Tony Travers: We should try to get nearer to a system in which it is all set in the long term—this comes back to James’s earlier point about resets—and councils depend for all their income on council tax and business rates. If there are not further shifts in responsibilities, not many resets, and local spending is flat in the medium term, I think you would re-establish a more comprehensible link between changes in local taxation or spending patterns, the quality of services and so on. You could get back to that. For many years under successive Governments, spending has gone up while council tax has gone up less, and spending has come down while council tax has gone up. There is no particular link over time between spending changes and tax changes, which I think we all agree are the bedrock of the comprehension of a properly operating public expenditure and taxation system. The nearer we can get back to that the better, but that requires stability over time.
Jim McMahon
Q Do you think there is resilience in the valuations and the multiplier to take into account the fact that the world is changing? I do not think we have yet taken into account even the fact that we heavily tax plant and machinery. A lot of manufacturing towns have now changed to warehousing and distribution towns, and their tax base has been completely destroyed by that calculation. We are now moving to automation, which could have an impact. Do you think there is resilience in this to protect post-industrial towns?
Professor Tony Travers: As I said earlier, the short answer is that business rates are not a great tax—you have just outlined some of the reasons why. To make a very obvious point, they tax property-related businesses more than those that are less property-related, and there are more non-property-related businesses today than there were 100 years ago. That is why I said earlier that there is a need—I realise that this is beyond the scope of this Committee and the Bill—in the medium term to look at the way in which business property taxes, local property business-related taxes, or whatever we are going to call them, work with a view to creating a better tax. The Institute for Fiscal Studies convened and oversaw the Mirrlees review a few years ago, and way back in the 1970s there was the Layfield committee; they both had their doubts about the way in which business rates operate. I share those concerns.
The Chair
Minister, there are only a couple of minutes left. Do you want to ask a final question?
Mr Jones
Q I have just a couple of questions. Mr Travers, you mentioned risk at some length, which DCLG certainly understands is a real challenge. We obviously want to get the system right to mitigate risk. Obviously, we have removed the levy, which has acted as an impediment in many areas to retaining the proceeds of growth. What is your view of the provisions in the Bill relating to lost payments, the changes around pooling and the interaction with the safety net? How do you see that working? The second question I want to ask very quickly is about multi-year settlements and the certainty for the sector that will come from having a longer-term view, rather than a very short-term view, which has generally been the case until very recently.
The Chair
You have one minute.
Professor Tony Travers: I have one minute for the interaction of safety nets and the other instruments—I can try to answer it all together. The more these things can be operated to produce broad predictability and stability in the short, medium and long term, the easier it will be for the Government, and certainly for local authorities, even if some of them feel a bit cheated that they did not get the big win out of the big reform that some of them hoped they would.
The great thing about not having big winners, is that there will not be great losers. In any reform—in some ways you know this better than I do—the nearer you get to not too many winners and losers the easier it is to introduce. When it comes to matters like safety net resetting, the more one can seek to deliver broad stability in the short, medium and long term the better. I can talk more about that, perhaps, some other time.
The Chair
Order. Unfortunately, that brings us to the end of the time that has been allotted for the Committee to ask questions. On behalf of colleagues, I thank our two witnesses for the very thorough response they have given to colleagues’ questions.
Ordered, That further consideration be now adjourned.— (Jackie Doyle-Price.)