Baroness Hanham
Main Page: Baroness Hanham (Conservative - Life peer)Local Government Finance Bill
Baroness Hanham Excerpts
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)
My Lords, creating growth, reducing debt and handing back power to local people go to the heart of the Local Government Finance Bill. It is a limited Bill, confined to two issues: the retention of business rates, which appear in Clauses 1 to 8, and council tax, in Clauses 9 to 15. The remaining clauses, Clauses 16 to 19, deal with general provisions.
The new local retention of business rates will for the first time in a generation allow local areas to share in the proceeds of growth. The Bill incentivises local government to encourage growth through increased business and economic activity by directly linking financial benefit to the decisions that it makes. The Bill also provides a framework to allow local councils to design their own schemes for council tax support, replacing council tax benefit, which will be abolished by the Welfare Reform Act. There is wide recognition that welfare spending needs to be targeted better. Part of the way we can achieve that is for councils to have control over council tax support and for local authorities to have the freedom to decide how to help provide for the most vulnerable in their communities.
I shall spend a little time in explaining the background to the Bill and outlining the scrutiny and consultation prior to the proceedings in this House. The Bill originates in the core principles and agreement of the coalition Government and has evolved through extensive consultation. Local retention of the business rate emerged as part of the local government resource review in early 2011. The consultation on its provisions was published in July 2011, along with eight technical papers to explain the thinking behind the reforms. We have discussed the details of the scheme with local government through the Local Government Finance Working Group and its sub-groups, which have met frequently since January. Localising support for council tax is a pragmatic approach to delivering a spending decision to reduce expenditure on council tax benefit by 10%. That originated in the spending review of 2010. The welfare reform White Paper published in autumn 2010 set out the Government’s broad intentions. The department undertook pre-consultation engagement with local councils and other groups to consider the issues. Events were held in August and September 2011, and a full three-month public consultation took place from 2 August to 14 October 2011, which generated over 400 responses.
Set against this background of consultation and information-sharing, while the Bill was in the other place we published a series of statements of intent to provide clarity and assurance to both Parliament and councils about how all these reforms will work in practice. We have also published our proposals for funding localised support for council tax.
The Bill was considered at length in the other place and debate was extensive, having proceeded through a Committee of the whole House. As a result of this debate, the Government made a number of changes which we believe improve the Bill and reflect the views of Members of the other place.
On rates retention, the process for distributing any surplus levy income to local councils is being speeded up. The basis of distribution will now be set out in regulations which, once made, will enable the money to be distributed immediately to local authorities without having to wait for the next local government finance report. This change followed concerns expressed during Commons Committee stage that the process originally set out in the Bill was too long-winded and would mean that even when the Government had taken a decision to distribute some, or all, of any levy surplus to local government, authorities would have to wait between six months and a year before they received the money. Additionally, there were concerns that holding back some surplus levy income from one year to another potentially created a problem if there was a deficit in the levy fund in the early years, before any surpluses had built up. We have therefore amended the Bill to provide that, instead of holding back levy income, any deficit would be met by additional money being paid into the levy account.
Despite the Government’s assurances to the contrary, there were still concerns that the 50% central share would be seen as a cash cow and that the Government would use the money for their own purposes, avoiding returning it to local government. The Bill was therefore amended to define local government—namely, those authorities which are able to raise local taxes, precepts or levies, and to which the central share will be distributed in year.
We have also taken steps in the Bill to make things easier for local councils to press ahead with delivering local support for council tax. We have clarified that billing authorities can consult precepting authorities to produce a draft scheme and can consult more widely before the Bill receives Royal Assent. This will enable councils to start the process now if they choose to do so.
A little time might usefully be used to explain the key features of the main policies within the Bill—first rates retention, and then reforms to council tax. Business rates retention proposals represent a fundamental shift in the way that local authorities are funded, giving councils a strong financial incentive to drive local economic growth. There are some key elements to this policy, which I want to be clear on now, and I should like to take this opportunity to reassure your Lordships on a number of issues.
We will ensure a stable starting point so that no council is worse off as a result of its initial business rates base at the outset of the scheme. This will be achieved through a system of tariffs and top-ups, with councils with a business rate income that exceeds their local need paying a tariff to top-up those councils with a current tax base that is below their level of need. These payments will be fixed in future years so that councils can benefit from any growth in their business rates.
Tariffs and top-ups will be uprated by inflation to ensure, for example, that a major part of a top-up authority’s income is not eroded in real terms. We have also proposed further protections, including a safety net funded by a levy on councils with a disproportionate gain from business growth. The safety net will help to ensure that service provision does not suffer as a result of a sudden and significant drop in a council’s business rates base—for example, from a major employer going out of business. We have announced our intention to set the safety net threshold at a level between 7.5% and 10% and the proportional levy ratio at 1:1, subject to consultation this summer. I know that noble Lords will be reassured to know that where councils want to pool their business rates, sharing the rewards and risks with other local authorities and thinking together strategically about them, the Bill will allow them to do so.
Lastly on rates retention, through this system the Bill establishes the framework to deliver tax increment financing, allowing unfettered access to TIF 1 for all councils, without government control or interference. However, the Bill also allows for a second tax increment financing project. The 2012 Budget confirmed that the Government will make up to £150 million available from 2013-14 through additional funding for larger-scale projects in a number of core cities, to be financed through tax increment financing, which is known as TIF 2, if I may use the acronym.
I shall now address the measures in the Bill that relate to council tax. As your Lordships know, the Welfare Reform Act abolished council tax benefit. However, the Government are committed to retaining council tax support for the most vulnerable and the Bill therefore legislates for councils to develop their own local rebate schemes. This reform is part of the decentralisation agenda, making support for council tax an integral part of the council tax system and creating stronger incentives for councils to encourage people back into work.
Council tax benefit expenditure more than doubled between 1997-98 and 2009-10. Localising support for council tax will include a requirement for local authorities to achieve a 10% saving on council tax benefit expenditure and give them control over how this saving is found. The Government believe that councils are best placed to understand the needs of their vulnerable residents. This reform enables them to take local factors into account when deciding on levels of support. At present, councils can put up council tax without considering the impact on the cost of council tax benefit. Localising council tax support will change this and encourage greater local financial accountability.
Making councils financially responsible for addressing an individual’s need creates stronger incentives for them to encourage and assist people back into work. This reinforces the positive benefits of driving economic growth in their areas, provided through the retained business rates system. Together with the introduction of local council tax referendums, this helps make local authorities fully accountable for decisions over council tax levels and strengthens the incentive to provide value for money for the taxpayer.
I am also keen to provide reassurance that we are providing the detail and support required to ensure that councils are well placed to press ahead with the implementation of their local schemes by April 2013. For example, we have announced and paid out £30 million of initial funding to help councils meet the cost of planning and analysing draft schemes. We have also published detailed statements of intent on key regulations, including pensioner protections and the default scheme policies, so that councils understand the intended parameters of the new rebate support system.
The Government will put local authorities in the best possible position to develop and consult on their own local schemes. I stress that local authorities can make their own decisions about how they develop their schemes for working-age council tax payers, what protection they choose to offer and how they choose to fund that protection. Different areas face different challenges and will make different decisions, but that is localism.
I know that we will spend time going through the detail of the Bill but I hope that I have provided a certain degree of clarity and reassurance on the Government’s reforms. I reiterate that these reforms are designed to promote growth and decentralise power away from central government to local councils. All money raised through business rates will continue to be spent on and by local government, which will also now share in the proceeds of growth. No council will lose out on day one as we will ensure a stable starting point for all, so that no council is worse off as a result of its initial business rates base at the outset.
On council tax support, the Government have explained what the fallback default system will be if authorities do not make a local scheme in time; and in terms of administration, this is a continuation of the existing arrangements. Councils should not be fazed by using a system with which they are already familiar. Indeed, councils can build on this foundation with full flexibility to develop their own tailored schemes to support vulnerable people in their own local area. My noble friend Lord Attlee and I are keen to work with the Committee to examine the Bill in detail as it progresses through your Lordships’ House.
Baroness Hanham
My Lords, I thank all noble Lords who took part in the debate. As I expected at the outset, it covered not just principles but details, and I will not be able to answer every point made. I think that some speakers recognised that as we went through. However, all the points raised will be noted, and I have not the slightest doubt that we will return to them in Committee.
One of the first criticisms made was of the timetable. Perhaps it is worth dealing with that first. We recognise that because of the time taken for the Bill to get through the other House and this, the process will be challenging—but we are quite clear that it will be achievable. Local authorities have already received statements of intent and impact assessments. They are well apprised of what will be involved. We have published guidance to all local authorities for them to understand what their responsibilities are and are likely to be, particularly in relation to vulnerable groups and the setting out of general principles of incentives. Therefore, they can start consulting, forming schemes and thinking about discount schemes. The noble Lord, Lord Beecham, shakes his head, but the information is there. Local authorities know the purpose of the Bill; they were involved in local working parties; and while they may not all agree with the outcome, there is not the slightest doubt that they will be able to go forward and start on implementation.
I hope and expect that we will be able to discuss the issues that have been raised. I will make an offer immediately: anybody who wishes to discuss points with me and my noble friend Lord Attlee, who will deal with some sections of council tax benefit, may do so. We are open to discussion. We may not entirely like or agree with what you say, and we may not conclude that what you say is right, but it is important that Members of the Committee should know that we are available if that is what is required.
I cannot cover all the points, but there were one or two that I cannot overlook. The retention of business rates is something for which local government has asked for ages. When I was a local government leader, I thought it would be a very good idea if we were able to retain local business rates. The process we have started does that. It makes it clear that local government collects the business rate and, instead of passing it all on to central government, can keep some. That is fine. The 50% Treasury requirement will absorb some of it, but the 50% will come back to local government in the form of grants. So it is not lost to local government. I totally accept that it is not within the power of local government to alter it, but it is not lost. It is not going into the Treasury coffers and staying there; it is coming back.
As to the points that were made about Kensington and Chelsea and the north, no Member has commented today on the fact that there is a levy system. That levy system will work on councils which raise what is called “disproportionate” sums of money. It will affect councils such as Kensington and Chelsea and Westminster, whose contributions will be top-sliced off because they are deemed to be too high. By any other name it is an equalisation scheme, and noble Lords will want to recognise that.
There has been a great deal of discussion on the relationship between universal credit and the welfare reform process and how council tax benefit is aligned up with that. I know that we will have those discussions at length in Committee but I will confirm immediately to the noble Lord, Lord McKenzie, that the implementation of universal credit is not slipping from 2013. The expected date for implementation is 2013 as it has always has been. There has been no change to that.
Lord McKenzie of Luton
Can the Minister confirm whether the implementation in October 2013 is in respect of all new claimants or only some new claimants?
Baroness Hanham
There is a nod from the Box. I shall have to let the noble Lord know. I said the scheme would be implemented in 2013. My noble friend Lord Attlee will retrieve that information and I will pass it on.
The noble Lord, Lord Tope, who I thank for his basically supportive speech, asked when the draft regulations for the council tax support would be published and whether we would have an opportunity to see them. The Government will publish those draft regulations for the pensioner and default schemes in July. These key regulations will be needed by local authorities and IT suppliers, which is why we published on 17 May the statements of intent on both pensioner protections and the default scheme. As I said earlier, that information is there and should be available to local authorities.
Indeed, I know of at least one local authority which has already constructed its scheme on council tax discounts on the basis of what it knows already and it is ready to announce it. So it can be done. It is not something that anyone needs to hide behind.
I am grateful that practically everyone has supported the principle of TIF. There is no doubt that with TIF 1 councils are free to put up projects and take them forward. TIF 2 is limited because of the general financial situation at the moment; we will not be able to spend a huge amount of money on it at present. However, it is there and, if it goes well, further consideration will be given to it. As noble Lords know, TIF 2 is confined basically to the core cities putting forward good projects. That is already happening and we know that there are projects which can be developed quite quickly.
My friend the noble Earl, Lord Lytton—I call him my friend because he was very nice last time and I hope that we will get the same this time—has raised with me the question of parish councils, the contributions that they make and the fact that they do not get support from the business rate. I will come back to that because I am sure it will come up in Committee. With regard to valuations and the revaluation, as the noble Earl knows, there is no intention to re-evaluate the council tax base at the moment. On the appeals process for current appeals, we are working with the Valuation Tribunal and the Ministry of Justice to establish the mix of expertise that may be necessary to hear these appeals and ensure that they are not held up.
On impact assessments, as I said earlier, we have published a statement of intent so that there is enough information available, particularly on the equality impact assessment. We are satisfied that the work is now well under way. The amendments made on Report in the Commons are intended to make it clear that there are no legal barriers to preparing for and carrying out consultation prior to Royal Assent. A number of noble Lords referred to the complexity of the scheme. It is only fair to say that the current scheme is blindingly complex, but it is anticipated that the new one will be less so once the situation is understood and we get through the legislation.
I touched on the 100% of business rate not being held by local government, and I am sure that it is something we will discuss.
I was asked about places that struggle to attract economic growth; it was a point made by the noble Lord, Lord Smith of Leigh. Part of that will be addressed by the system of tariffs and top-ups. The base, as noble Lords have said, will be that of 2010, but it will be supported by tariffs that take funding away from local authorities with more than the base and given to those with less. There is a level playing field when all this starts, and those tariffs and top-ups will be raised by RPI.
The noble Lord, Lord Best, asked whether local authorities will be able get guidance on how to support the universal credit taper. I am pleased to confirm that the department has already published guidance on the key considerations that local authorities will need to take into account in designing a scheme that supports work incentives and the objectives of universal credit, so that is under way.
I turn now to the noble Lord, Lord Wigley, with regard to the Welsh clauses. The amendments to the Bill moved in the other place were tabled at the request of the Welsh Assembly. As we understand the process—the noble Lord may differ from me on this—the legislative consent Motion can be tabled only after the amendments have been passed and the new clauses have been laid, and they must be considered by the Assembly before the Bill completes its passage through the House. I think that the procedural arrangements sound all right but if, having thought about it, the noble Lord still does not feel they do, perhaps he will let me know as soon as possible.
The noble Lord, Lord Warner, raised the question of adult social care. I cannot answer that specifically, but as he and the House knows, adult social care is at the front of everyone’s mind. The issue is not confined to local government because it covers a number of departments. A White Paper is being completed at the moment. I think that there will be other venues in which to discuss adult social care, and in a way I hope that it does not trip up in this Bill because, while it is part of local government finance, it is not the major financial implication for local government.
Lord Warner
I think the Minister is trying to avoid dealing with the issue that I was trying to raise. I do not expect this Bill to solve the problems of social care funding. What I was asking for was some modelling to be done to see whether this Bill would actually make the situation worse, before the Government come forward with their plans. We do not know when they are going to come forward with their plans. What I wanted to pursue—and indeed will pursue in Committee—is whether the Government know if implementing the provisions in this Bill will actually make the funding of social care worse. That is my point, and I think we need an answer to it.
Baroness Hanham
We will come back to that issue in Committee, I have no doubt. My noble friend Lord Attlee and I are looking forward very much to the next stages, and I thank all noble Lords for their contributions today.