Local Government Finance Bill

Baroness Eaton Excerpts

Tuesday 12th June 2012 Lords Chamber

[Baroness Eaton]

My Lords, I declare my interest as an elected councillor on Bradford Metropolitan District Council and as one of the vice-presidents of the Local Government Association—many of whom seem to be here this afternoon. I add my thanks to the Minister for the clear way in which she presented this Bill to the House today. Knowing her vast experience in local government over many years gives me greater confidence and enables me to broadly welcome much that is in this Bill.

Many noble Lords have already mentioned the complexities of local government finance, and nothing tends to make friends glaze over more the minute you begin to talk about it. However, most of us who have spent many years in local government would still not claim to be experts, because the finance agenda is constantly changing. The most knowledgeable of us would say that local government finance is very complex.

Therefore, we all found it very refreshing to hear the coalition Government express their pledge of radical devolution of power to local government and greater financial autonomy, supporting sustainable growth and enterprise and balanced across the country. All those aims work with the philosophy of localism which has been pursued and championed by local government for a good number of years.

Full business rate localisation would be a powerful move towards localism and a great driver of economic growth. It has been long requested and supported by local government. When I was leader of large metropolitan authority, I felt that it was terribly important to have very good working relationships with businesses in the area. I always tried to further our shared agenda of the growth of business, the development of the economy and the creation of jobs. Business rate localisation will help enormously in this regard. The Government’s policy is a first step towards this objective, but it raises a number of concerns, many of which we have heard expressed today. I have great confidence in your Lordships’ ability to address those concerns in Committee.

As we have heard, rather than localising business rates in full, the Government intend to implement the Bill in a way which would give the Treasury half the proceeds for the foreseeable future. Taxes paid by local businesses for local services would be taken on the basis of national priorities instead of local ones. This appears to be so that the Treasury can continue to enforce an overall limit on local government spending. I know that the Local Government Association’s view and that of its member councils is that this is a tax on local authorities. Naturally, I would be strongly opposed to it. The department’s own published economic analysis states explicitly that the higher the central share of business rate income, the lower the growth incentive created. This gives the impression that the Treasury is buying control of council funding at the expense both of economic growth and of future tax revenue. There does not seem to be a sound case that can be made for this.

I know that my noble friend from London Councils and others in local government do not always agree with me on localising benefits, but I feel that it is a good idea and I welcome it. Local authorities have the accountability and the democratic mandate to decide what is best for their area. The localisation of responsibility for decisions about who deserves relief from local taxation could be a sensible approach. However, at the same time as localising decisions about council tax reliefs, the Government are, as we have heard, reducing by 10% the funding available and severely restricting councils’ discretion about new local relief schemes. This was ably made clear to us by my noble friend Lord Jenkin.

Pensioners and the vulnerable account for three-quarters of claimants. Simple arithmetic shows that the Government’s policy of mandatory protection for those groups means that remaining claimants face cuts in relief of a third on average and, in some cases, of as much as a half. The flexibility that the Government plan to introduce on some other council tax discounts and exemptions may help local authorities to mitigate these impacts but, in some places, it will fall short of what is required. It is therefore inevitable that some councils will be forced to reduce the services that they provide, raise council tax or penalise those most in need of benefit.

The tight timeframe for implementing those changes has already been mentioned and places even greater burdens on councils. I urge the Government to give councils the necessary time to do that in the most considered, flexible and cost-effective way. Councils need to be given as much flexibility as possible to reform council tax discounts so that they can manage the financial risk. Councils want to get this right and help the most vulnerable people who rely on their support. The process should not be rushed though.

The restrictive approach proposed by the Government is likely to have significant cost implications in later years. Pensioner numbers are growing and there is also the prospect of increased take-up of local discount to replace some of the national benefits. The cost of nationally determined commitments to retain existing levels of benefit is likely to rise.

The Department for Work and Pensions’ current forecasts for the future cost of council tax benefit appear to ignore those impacts and to be out of tune with both recent trends in the cost of benefit and local authorities’ experience of growth in claimant numbers. It is surely inappropriate for those burdens to fall on local council tax payers. The Local Government Association believes that the total resources given for council tax support after 2013 needs to be increased to reflect realistic forecasts of growth in claimant numbers, the overall increase in levels of council tax and the potential increased take-up of local discount schemes. It would be most helpful and encouraging if the Government could indicate a commitment to keep the overall level of funding under review to recognise those factors.

I look forward to the Committee stage, when I feel sure that the many concerns raised today by all of us will be addressed.