Local Government Finance Bill

Baroness Eaton Excerpts

Tuesday 3rd July 2012 Grand Committee

Then there remains the concern about the Government’s proposals with regard to the 50% that is being retained. At Report in the other place the Government first made it clear and put into legislation that it would be used for local government purposes. That was very welcome and a very necessary reassurance, but we still need to know how and in what circumstances, not simply for the first year but for the future. These are very necessary reassurances to a disappointed local government at the 50:50 split. I hope that the Minister will be able to give us some reassurance and clarity on those points. In the months to come before Report, we need to have some very serious discussions about how we address this real concern which is felt, regardless of party, right across local government.

[Baroness Eaton]

My Lords, a key concern of many local authorities, even within the new system, comes from those who are heavily dependent on government funding, the top-up grant or RSG. They are concerned with how that grant will be distributed, what factors are in the formula and whether a damping mechanism will still be retained.

When baseline rates are being calculated, the percentage share will be based on a historic average going back five years, which should help local authorities whose business rates have struggled to keep pace with the RPI. The lower the baseline rate position, the higher the top-up to which the authority will be entitled. There is potentially a small danger that there could be a significant change in an authority’s business rate’s tax base between setting the local share baseline and commencement of the scheme. Has the department recognised that and is it likely to make any allowances for it happening?

Another area of concern is that if only marginal changes are made to the current formula grant distribution model, the formula will not adequately reflect the needs placed on some local authorities, particularly for looked-after children—that is just one example—and local authorities that see a sudden increase in primary school numbers. Those are our concerns. The new RSG gives the Government scope to reduce local authority spending without having to reset top-ups and tariffs. How this reduction will be distributed is not known. For authorities where the RSG element is by far the most important element in their income, not knowing how that mechanism works makes forecasting very difficult indeed.

We have not mentioned what has been referred to on a number of occasions: the suggestion that local authorities should be interested in pooling. In principle, the pros and cons of the impact of pooling can easily be seen. It sounds a very good idea, and it is not hard to judge whether it is going to be good or bad, but if we do not have a mechanism by which to know what the outcomes will be for individual authorities within that pooling, it is very difficult not to have just a clubbing together. If you have more than that, administration and governance matters are going to be of concern because there will be a possibility of risk and reward, and that needs to be ascertained. It sounds a very good idea that we meet as a club to pool things, but the effect will be different on different authorities within that pool, and I would like the Minister to say how the Government think that will work.

[Lord Brooke of Sutton Mandeville]

My Lords, I am not a vice-president of the Local Government Association.

[Baroness Eaton]

My Lords, I am. I apologise.

[Lord Brooke of Sutton Mandeville]

It is more important that I made the remark that I made a moment ago. I am not rising to move an amendment, and I think I can give the Minister an assurance that I shall stick to that resolution about not moving amendments. I am grateful to my noble friend Lord Jenkin of Roding for reminding me that I was once a Treasury Minister, although for a reason he may not have expected by his reverence—reference.

[Baroness Eaton]

He is very reverent.

[Lord Brooke of Sutton Mandeville]

I will accept the reverence. My noble kinsman was, like my noble friend, Chief Secretary to the Treasury. In fact, he was the first, so he was allowed by Harold Macmillan to invent the title. In those days, the UGC of semi-beloved memory was a Treasury function for which my noble kinsman was responsible. Two decades later, I became Higher Education Minister. When I entered office, the hand of the Treasury was still in evidence in relation to higher education institutions, particularly in relation to the disposal of assets. If a higher education institution disposed of an asset, it had to hand back to the Treasury the entire financial fruit of its decision to so dispose. I was Higher Education Minister for two and a half years. About halfway through that period I persuaded the Treasury that its policy was not conducive to higher education institutions disposing of assets and it allowed higher education institutions to retain 50% of the assets they sold—a percentage that is germane to today’s debate. Before I left office the Treasury had come round—although it did not execute it until just after I left office—to letting higher education institutions have the whole lot. I say this simply to encourage not only the rest of the Grand Committee but even conceivably the Minister that it may be possible that concessions may be made at some stage in the future.