Local Government Finance Bill

Baroness Hanham Excerpts

Thursday 5th July 2012 Grand Committee

[Lord Shipley]

My Lords, I think I agree with the comments of the noble Lord. There is an issue here that relates to the deletion of “major”. Will the Minister respond on the content of the Localism Act? On the rights and powers of precepting authorities, my memory is that some crucial amendments were made to the Bill on Report, which enabled the protection of the rights of parish councils and neighbourhood planning councils. Is the Localism Act sufficient to deliver the resources that should lie within the money, particularly that raised through the community infrastructure levy, to very small neighbourhood areas? I would appreciate the Minister’s guidance on that point.

[The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)]

My Lords, I thank the noble Earl, Lord Lytton, for introducing this little amendment. Neither he nor other speakers will be totally surprised when I say that it is not acceptable in its current terms. I shall tell him and the Committee why.

We recognise that parish councils underpin many neighbourhoods across England. They have been given a specific role under the Localism Act. Local, parish and town councils are specifically mentioned as being able to generate neighbourhood plans. As has been said, they are the focal point for a wide range of local involvement and action under the Localism Act. For some parish and town councils, that range of activity and involvement will include promoting economic growth but they do not have the same financial levers to deliver growth as principal authorities do. I know—the noble Earl has just said so—that some town and parish councils are keen to receive a share of business rates. That was evident not only from what the noble Earl said but from the Government’s consultation on rates retention last year, when several parish and town councils expressed in their response a desire for a change in this matter.

However, the local government resource review was set up to look at how principal authorities are funded, with a view to giving them greater financial autonomy, strengthening the incentives to support growth in the private sector and the regeneration of local economies, and reducing their reliance on central government funding. The funding of parish councils is therefore outside the scope of the review’s terms of reference. The Government’s proposals for business rates retention are focused on changing the allocation of business rates, which previously fed into formula grant, which is not paid to parish or town councils. Therefore, allocating parish and town councils a proportion of business rates would be at the expense of the principal and major precepting authorities, thus weakening the growth incentive. I just add that of course all parish and town councils have a precepting power so that in general they are able to cover their costs. Although I accept that that may not be a great contribution to growth, it is certainly something that they are able to do.

The Government consider that it might be appropriate to reassess this position in the context of an untimed, unnamed and unexpected fundamental review of the business rate retention scheme, but I would advise noble Lords not to hold their breath on that.

As I said at the outset, the noble Earl will not be surprised when I say that I cannot accept the amendment.

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[Baroness Hanham]

The noble Earl is not a vice-president of anything.

[Earl Attlee]

I thank noble Lords for their helpful explanations of these amendments. They deal variously with aspects of the local government finance report, particularly around the consultation arrangements that will apply. I agree that proper engagement is very important to ensure a successful outcome.

The Bill provides that the central and local shares, and the basis of calculation of payments flowing to and from local authorities, will have to be set out in the annual local government finance report. As we do currently, we will continue to consult local government on a draft local government finance report in the autumn before laying the report before the House of Commons in January or February each year. The noble Lord, Lord McKenzie, accepted this point in his opening remarks.

Amendment 25, tabled by the noble Lord, Lord Smith, and I think spoken to by the noble Lord, Lord McKenzie, seeks to bring forward the laying of the final local government finance report. Although I can sympathise with the good intentions of the noble Lord in bringing forward this amendment, I cannot recommend that the Committee accepts it. Amendment 25 would bring forward the process by three months from the current timetable.

The Government have always endeavoured to give local authorities the information they need as early as possible. The noble Lord, Lord McKenzie, asked me about the timetable. The current process for the local government finance report is as follows: the summer consultation is in about July and sets out the basis of calculation; the draft report comes out in approximately November and has the detail; and the final report comes out in January 2013. As for the future process, we may not need to carry out the summer consultation in future years unless there are substantial changes to the calculations.

In the past, the local government finance report timetable has been driven by the availability of up-to-date data to make the necessary calculations. Under a rate retention scheme, this will still be the case. For example, the September RPI figure, which will be used to uprate tariffs and top-ups, will not be available until later in the year. In reset years, the need for updated data will increase.

Although I cannot accept the noble Lord’s amendment, I can assure him that the Government will continue to use their best endeavours to ensure that local government, as far as possible, has the information that it needs to undertake its budgeting processes. Although I understand the intention behind each of the amendments in this group, I ask noble Lords to withdraw them. I believe they are either unnecessary, since, in practice, consultation with local government will continue to take place as it does now as a matter of course, or, in the case of the timing of the report, undesirable, since they may limit our ability to use the most up-to-date data for calculations. I am sure that that is not what the Committee desires.

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[The Earl of Lytton]

My Lords, I shall speak very briefly on Amendment 26. I am sure that the noble Lord, Lord McKenzie, would not thank me for sitting silently when the matter revolves around the question of non-domestic rating. There are two words in the clause that the proposal seeks to amend. One is “diligently” and the other is “payable”. A great deal hinges on those two words.

I previously explained at Second Reading and in comments made in the debate on the Queen’s Speech that there is a problem with the management of the tax base, which is implicit in the bundle of rateable values that afford the basis on which this particular bit of local government finance arises. I would have to say that diligence may be there in abundance, but efficacy is not. Later on—although I suspect not today—we will come to amendments that I have tabled where I set about trying to deal with some of the shortcomings implicit in the present system.

There is no unwillingness to implement a proper and fair system at all levels of central government, government agency and local authority. But if the system is underfunded and suffers from a lack of degree of care and maintenance input, problems will arise. What may be diligence to one body of people may look like neglect to others. I am particularly concerned that if the term “payable” means what would otherwise have accrued to the billing authority in this sense but does not for whatever reason, that represents the horns of a dilemma, bearing in mind that, as the noble Lord, Lord McKenzie, said, the billing authority has no responsibility for the maintenance of the tax base. In other words, it has no stake. Some of my amendments try to address that. As matters stand, the billing authority has no role in the accuracy of the list or indeed whether something is in the list as a non-domestic hereditament or not.

It concerns me that, if the Government’s own Valuation Office Agency cannot catch up with this, to try to make that somehow by implication the responsibility of the billing authority must be wrong in the absence of additional resources in which to achieve it. Clearly, there are no additional resources because we are talking about a 10% cut. If it came to be interpreted by the courts, although I am no lawyer, I fear that the words “diligently” and “payable” may have the sort of meaning that I rather fear and the noble Lord, Lord McKenzie, fears might be attributable to them.

It could put the billing authority in an extremely difficult situation and could have knock-on effects throughout a large number of billing authorities with the potential for what I can only describe as a large degree of mayhem in local government accounting for any given year until it works through the system. I support the principle of what has been said.

[Baroness Hanham]

I thank the noble Lord, Lord McKenzie, for moving the amendment and I hope that I can reply to most of the points that have been raised. Amendment 26 seeks to remove the obligation on local authorities to act diligently, which are the words that have been questioned regarding the collection of the non-domestic rating income due to it under Sections 43 and 45 of the Local Government Finance Act 1988.

This section focuses on the need to establish the payment that will have to be made by the billing authority to the Secretary of State in respect of the central share that is due. It is obviously important that there is a clear understanding of what is meant by non-domestic rating income in this context, and this paragraph confirms that the Secretary of State will introduce regulations that provide that clarification.

In preparing those regulations, we are clear that the Secretary of State should be taking into account not just the income that the billing authority receives, but the amount that it would be reasonable to expect any authority to collect if it acted diligently. That is the amount that is due to it, and if it does not get that and its collection rate is below 100%, it is still being assessed on the former amount. This is not a new concept. The principle of diligence is well established, as the noble Lord, Lord McKenzie, intimated, in the 1988 Local Government Finance Act in its treatment of a billing authority’s contribution to the business rates pool; for example, Part 2 of Schedule 8.

Local government is therefore familiar with the principle of due diligence as part of its responsibilities for collecting non-domestic rating income. It would send a rather unfortunate signal if we were to suggest a lessening of the responsibilities of local authorities to ensure that the business rates that are due to them are actually paid. I think that most local authorities understand and make enormous efforts to ensure that they get the maximum amount of business rating that they possibly can. I certainly remember being challenged when we got up to 97%; now we want to get to 100%.

Amendment 27 relates to the regulations that will be introduced to establish the administrative arrangements to be put in place for processing payments of the central share. We are clear that we intend to be as accurate as possible in making the calculations for the amount of the central share. However, it is obviously prudent to ensure that mechanisms are put in place to deal with those scenarios where it is subsequently determined that the payments to the central share that have been handed over by billing authorities are either lower or higher than those required. Paragraph 7(2)(b) of Schedule 1 makes it clear that the regulations to be introduced by the Secretary of State on the administration of central share payments may make provision to deal with under or overcontributions. Having reflected on that paragraph, and the proposed amendment, it is not clear to me in what way the proposed amendment will improve the clarity of the intention of that paragraph.

Amendment 30 would prevent the Secretary of State including, within regulations governing the calculation of payments to be made by billing authorities to major precepting authorities, adjustments to reflect either costs that fall on billing authorities or different circumstances that will need to be reflected in any payment schedule; for example, we envisage that, in defining non-domestic rating income, the regulations will make an adjustment for the cost of collecting the business rates income. Otherwise, there is an obvious undesired outcome that the billing authority has to absorb the cost of that administration alone. Similarly, the definition of income will reflect specific circumstances where the rates collected may be apportioned slightly differently; for example, as we confirmed in our statements of intent, it is our intention that all the business rates income from new renewable energy projects will be retained by the planning authority. The regulations would enable the relevant adjustments to be made to reflect such circumstances.

Amendment 31 relates to the circumstances that might apply following an audit of a billing authority’s calculations for the purposes of making payments to its major precepting authorities. We hope that there will be few, if any, occasions, where the audit of a billing authority’s calculations and information certified by the audit did not match what was supplied to the major precepting authority. However, there might be occasions when this is the case. Paragraph 9 confirms that regulations may make provision for the use of the certified information in relation to payments to the major precepting authority. Use of certified information in this way would mirror the arrangements set out in paragraph 40(6), which provides that the Secretary of State should be able to rely on certified information and existing non-domestic rating pooling.

Transparency over the funding to be available, and the basis of the calculations used to determine that funding, will clearly be important to everyone to establish confidence. This section sets out that the regulations may include provisions to establish what might happen where there is a mismatch between the information supplied and the certified information produced by the audit. In such a scenario, we envisage that all parties would want to understand the nature of the difference and how the certified information and calculations might be used to correct, where necessary, any mismatch. In my view, the regulations are absolutely the right place to provide that additional clarity on the use of the certified calculation or information.

Amendment 39, tabled by the noble Lord, Lord Smith, and spoken to in his absence by the noble Lord, Lord McKenzie, would replace the current flexibility in the Bill and instead require payments from central government to local government to be made in just two instalments. I hope that I am able to reassure noble Lords that it is our intention, subject to consultation with local government, to spread payments in respect of the rates retention scheme, both to and from local authorities, over the course of a year. We intend to do this by setting up a schedule of payments over the year. We will consult on the number of instalments over which the payment should be made. However, we believe, at this stage, that the two payments envisaged in this amendment would be too restrictive under these circumstances. I ask the noble Lord, with this explanation in mind, to withdraw the amendment.

The noble Lord, Lord McKenzie, asked about mandatory payments. I understand that will be outside the central charge. I may need to write to the noble Lord, but mandatory payments are clearly important as they cannot be ducked. I understand the question of sports and leisure clubs is still under discussion, and perhaps we may be able to deal with that at a later stage.

[The Earl of Lytton]

My Lords, can the Minister clarify something further for me following what I said a short while ago? Let us imagine the situation of a popular coastal town, in which there are a large number of properties that may be used seasonally for holiday purposes. Many will in fact be people’s second homes and may even get a reduction when assessed for council tax because they are second homes. Because of the seasonal nature, it is difficult to track whether these are going to fall above or below what I believe is the 140-day threshold of occupation for holiday purposes. I have to say that I am not sure whether that is for general tax purposes rather than local tax, but the question then is what their whole or main use is. In theory, if one is using the property year-round for holiday lettings, that is clearly a change of use, but there is no requirement to go for planning consent and it probably does not require any building regulations control. There may be some issues to do with health and safety, but how would the billing authority know what stock lay out there and what it was used for?

I appreciate that the Minister may need to come back on this, but in such a situation, how would a billing authority know whether it was behaving “diligently” or whether it was supposed to go around tracking down who all these people are? When I did an investigation last year into holiday homes, I found that a very large number of what I understood to be holiday homes, which were clearly being advertised as such through letting agencies, were in fact subject to a council tax assessment. If we are not careful, we will be putting an absolutely impossible burden on the billing authority, if “diligently” causes it to fall foul of something that is going to be extremely difficult for it to catch up on.

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These are all possible sources of uncertainty. Before Report stage, will my noble friend undertake to take on some of the points that have been made and give us some further insight into how this judgment will be made? I was very grateful for the way in which my noble friend responded constructively to the points made by noble Lords. Before Report, perhaps a little more light could be shed on how this assessment will be made.

[Baroness Hanham]

In reply to the last point of my noble friend Lord True, if I can provide anything useful, of course I will. My noble friend is the leader of a council and, as far as I know, he has been acting under the duress of being presumed to be acting diligently ever since he took over. This has been part of the Local Government Finance Act 1988 since it was passed. It is not new. It is entirely the same wording as local government has been operating under for the past 24 years and it is well understood. Local government finance officers must also understand it. It means that you go about getting in the money that you are required to have to the very best of your ability. The challenge—particularly now, with the economy in the situation that it is—is to get in as much as possible of the amount that you should have.

I am not sure whether the Government will judge the level of diligence but it is perfectly open to someone else to challenge whether a local authority has acted diligently if, for example, its revenue drops substantially. I do not think there is anything more that we can say about it but I will be more helpful if I can. However, this is a very well worn path, which is probably no different from what we will do.

The noble Earl, Lord Lytton, raised the question of holiday homes. I know that he has extensive amendments coming up later. The local authority collects only the money as assessed against whatever the nature of the property is. If a valuation office, which must value all properties, values a holiday let as a normal domestic property, so be it. The local authority does not challenge that. It is left to the valuation office or anybody else to suggest that perhaps a property is being used as a business and might need to be looked at again. Therefore, holiday homes are not particularly relevant to this matter at the moment. I hope that is helpful.

[Lord McKenzie of Luton]

My Lords, I thank the Minister again for her response to these amendments. On the issue of acting diligently, this is a probing amendment; I did not necessarily want the words deleted from the text. I wanted to understand how they might be applied in the current situation. We are in a different situation. Previously, the collection of business rates was turned over to central government and came back via a formula. That formula drove what local authorities had. It is going to be different in future; that is what the system is about. The Minister said that this is well tried and tested. How many challenges have been made under these provisions in the past three years? Who have those challenges come from? She hinted that they might come from anyone. It would not necessarily be the Government who have to take this view. This is important, particularly in the light of the comments by the noble Earl, Lord Lytton, whose knowledge of the rating system is profound and will be very helpful to us in this Committee. He can spot nuances that would not be apparent to some of us at least. We need more information on this. We will look to bring something forward on Report if we cannot get some clearer idea.

Will the Minister at least deal with the question of whether there is a right of appeal and what the sanction will be? If a local authority was deemed not to have acted diligently, what would the Government do? Would they gross up the business rate they receive in the calculations that are made? What is the sanction? Is it one that only government can apply? Is there a right of appeal against it? This raises lots of questions.

The other amendments were effectively probing, apart from the amendment about mandatory and discretionary rate relief. Quite apart from the specific circumstances that Sporta has written about—I understand there is some discussion on them—there are issues of principle here. How will it work in future for new provision that under the old system, and under the new system, would be subject to mandatory relief? The Government would have picked up the whole of the tab for that, but now it gets shared with the local authority. The local authority picks up half the cost which, other things being equal, is likely to make it less inclined to grant relief, not because it would not wish to, but simply because it would not have the resources to do it. Is that analysis right, or is there a different analysis? I know there are issues about how the baseline is set and how the existing provision features, but can we at least have a bit more about that as well?

[Baroness Hanham]

Mandatory is mandatory. Mandatory means that you have got to do it. I am more concerned about the discretionary aspect. There are two lots: a mandatory grant and a discretionary grant. As I understand it—I am sort of swinging backwards and forwards here—the mandatory grant will be taken into account in the share. It would not be deducted, as it were, from the local authority’s income. I will write to the noble Lord on that because we do not want confusion. It seems to me that if it is an absolute requirement to pay it, there must be some payoff from that. Local authorities determine what they should collect and what they write off. Their auditors check it. I shall write to the noble Lord further on the mandatory grant because I do not think we are getting anywhere.

With regard to due diligence, it refers in practice to the sums that a local authority writes off as bad debts. It is for a billing authority to determine those sums and for the authority’s auditor to determine that they are reasonable. Due diligence would seem to me to work on the basis that you use your best endeavours. The noble Lord asked whether anyone has ever been challenged on it. I think that is going to be very hard to unearth because local authorities would be the only ones to know. If we have anything useful on that, I will let the noble Lord know, and also whether there could be an appeal. It might be helpful and save the noble Lord a lot of trouble on Report if we lay that out more clearly for him and for Members of the Committee, which I will do.

[Lord McKenzie of Luton]

I am grateful to the Minister. I am happy to leave to correspondence the issue of due diligence, the consequences, and what appeal rights there may be. I hope that we will know in good time for Report so that we can revisit it if we need to.

I will just have one more go at mandatory relief. I go back to the document that the department itself issued: technical paper 2 Measuring Business Rates. Paragraph 4.22 states:

“The main consultation paper explained that there would be no changes to the current system of reliefs, or to the criteria that determine eligibility. The Government does not believe that, under a rates retention scheme, the cost of mandatory relief should be borne entirely by the authorities in whose area it arises”.

The same follows for discretionary relief.

Particularly in relation to discretionary relief, that must be a deterrent. I presume that that comes because of the 50:50 share. From what the Minister said earlier, are the Government reviewing this issue to reconsider whether there are any changes to the impact of the legislation that they might introduce? This does not affect only sport: I am sure that the department has had representations from a number of entities on this. Again, we would certainly wish to explore this further on Report if we cannot get some clarity or solutions relating to this by the time we get there.

[Baroness Hanham]

My Lords, the answer to the noble Lord’s point is that it will be part of the consultation in the summer. Consideration is still being given to the position on reliefs and the consultation will produce an answer. I hope that by Report we will know for certain what the answer is. But I take the noble Lord point’s completely about something that you have to do and how that will be shared. Discretionary seems to be more something that is within the ability of the council to decide. But I do not want to dig myself any deeper into a hole here. I will leave it and write to the noble Lord. I understand that the noble Lord is happy about due diligence.

[Baroness Sherlock]

When the Minister is writing, will she help us to understand not just the impact on local authorities but the consequences for those bodies to which they might have contracted? Also, what impact do the Minister and the Government think that that might have on localism and the big society, for example?

[Baroness Hanham]

That is a little wider than the amendment, but we will look at Hansard and see.

[Lord McKenzie of Luton]

I do not think that the Minister is right to categorise my position as ”happy” on this, but I am content that there is a way forward and we will get some further information. Cordially, I beg leave to withdraw the amendment.

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[Lord True]

My Lords, briefly, I support what has been said by my noble friends. I understand why my noble friend and her colleagues in the Treasury have put forward this proposal but, without repeating points that I made at Second Reading, the acceptance by many authorities of the transfer from one system to another is an acquired acceptance of accumulated unfairnesses—as some would call them—of all varieties. I hope that my noble friend will consider favourably some of the points that have been made by my noble friends, such as this factor and the kind of turbulence and uncertainty that the noble Earl has just been referring to—and I gave the example of the extraordinary movement in our business rate revenue of about 11% between the last two years—the fact that, in the future, we cannot foresee it and that we are going way beyond the public spending survey period.

[Baroness Hanham]

My Lords, if the noble Lord, Lord Jenkin, was here, I would tell him that I am grateful for his amendment and the explanations that have been given on his behalf by the noble Lord, Lord Tope.

It might help noble Lords if I remind the Committee—if it needs reminding—how the rate retention scheme will deal with the spending needs of local authorities and how it will handle the changes in rates income that authorities will experience at a revaluation. When the scheme is first set up in 2013-14, we will determine whether authorities have to pay a tariff or whether they receive a top-up payment. To do this, we will compare the local share of the business rates that an authority collects with what I shall simply call the baseline funding level, which is essentially the number that currently falls out of the formula grant process. In other words, it is the share of money that the Government believe each authority should have, taking account of its needs and resources—a calculation that is done currently.

Therefore, at the point that we set up the rate retention scheme, we will have fully taken account of the needs in the same way as we do now under formula grant. Thereafter, we do not intend that the rate retention scheme will take account of needs again until the system is reset, and we have already indicated—and noble Lords have said they understand this—that our aspiration is to have the first reset in 2020 and to have resets only every 10 years thereafter; so 2020 would be eight years after the introduction of the scheme. This is to ensure that there is a sufficiently long time between resets to incentivise growth. If, instead, we were to adjust tariffs and top-ups every year, or every few years, to reflect changing needs, we would completely destroy the incentive effect that this scheme is designed to achieve.

As noble Lords will recognise, if authorities are to be encouraged to invest in growth, they need to be certain about the reward that they will get. As has already been pointed out, authorities will often incur costs as a result of growth and, just as often, those costs are incurred before the rewards from increased rates materialise. If the rate retention system were to be set up in a way that risked authorities incurring costs but then not seeing rewards because tariffs and top-ups had been adjusted, they would have no incentive to invest in growth.

How long the system needs to be stable for is a matter of judgment. Amendment 36 of the noble Lord, Lord Jenkin, would effectively require a reset for needs every five years to coincide with a revaluation. The Government believe that this period is too short. The timeframe over which investment is made and over which costs and rewards materialise will very often be longer than this, a point that was made by many of those responding to last summer’s consultation on the scheme. This is why after 2020 we intend to reset the scheme every 10 years. However, as I indicated last time, we will always retain the ability exceptionally to reset earlier if, for example, we found that the needs and resources had got significantly out of line.

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[Lord McKenzie of Luton]

That was helpful, as I have been trying to understand the difference between a full reset and a change in the tariffs and top-ups. What factors would be taken into account? The noble Baroness said that need is going to be ignored, which would certainly bother a number of us. How is that going to be achieved?

[Baroness Hanham]

My Lords, the needs assessment will be the same as the assessments for the baseline that were made initially. As I understand it, you would have to revaluate against that baseline. Any adjustments needed to that as a result of the revaluation would be made on the financial basis that there is no change to the amount a local authority is receiving unless there has been some change in the baseline or in the ingredients of the baseline. I think that is correct as to how the assessment will be made and, again, I will write if it is not.

[Lord Tope]

I am very grateful to the Minister for that explanation and to all noble Lords who took part in this debate, which raised some interesting and useful points. We will read it carefully in Hansard and I am quite certain the noble Lord, Lord Jenkin, will read it with even more care and interest. I do not speak for what he may intend to do when he has done so, but in the mean time I beg leave to withdraw the amendment.

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[Lord Shipley]

Perhaps I may intervene for a moment in relation to Amendment 37 to probe the meaning of the word “need”. I should like to raise an issue concerning exempt student households. It is becoming an increasingly serious matter on which I would appreciate the Minister’s guidance.

Student households are exempt from council tax. They are also exempt from business rates where it is a house in multiple occupation but owned by a landlord. The principle has been that councils get reimbursed from the national pot. In the past couple of years, that has not been happening as it should, and in some cases there is around a 25% deficit so that only around three-quarters of the income that would be expected is being received, yet local services are being provided without all the income that is necessary to pay for them.

I understand that the consultation that is taking place over the summer with local authorities will look at this issue, but I am seeking an assurance from the Minister that the matter will be taken very seriously. In the past, need has been taken to include full reimbursement of the loss because student housing is exempt.

[Baroness Hanham]

My Lords, as I was about to say, the noble Lord, Lord McKenzie of Luton, was asking about the consultation on the needs and the formula. That is part of the summer consultation, so it will be dealt with before we meet again on Report. I am not going to muddy the water before that, so I will leave that there. I do not think there is any intention to change the exemption from council tax for students and business premises.

The first reset will start in 2013-14 and the Government will set out in the local government finance report all those elements sought by Amendment 38, but only in 2013-14 and in any reset year. I do not need to go through again the arguments I have already deployed in relation to Amendments 35 and 36 but, as I have already said, outside of a reset year, we do not intend to reset tariffs and top-ups to take account of need. We have been through this. This is because the scheme is designed to produce, and we intend it to deliver, a significant incentive for local authorities to promote growth. We think that incentive would be destroyed. Instead, we intend that the scheme should give authorities absolute clarity for a period of up to 10 years—clearly it will be eight at the start—about the payments that they will receive or make to central government. This will give them the strongest possible incentive to respond to business concerns, secure the necessary investment and increase their income through sustained growth.

I am sure that the noble Lord, Lord McKenzie, will recognise that, for these reasons, the Government cannot accept either of these amendments, and I hope that he is persuaded to withdraw Amendment 37 and not to move Amendment 38.

[Baroness Donaghy]

Will the Minister clarify her answer to the question asked by the noble Lord, Lord Shipley? She indicated that the system would not change. Is that the system of a couple of years ago or the system that seems to have been drifted into on student accommodation?

[Baroness Hanham]

It is as it pertains at the moment, which is that students are not charged council tax and the owner is not charged business tax. I think that is correct, and there is no intention to change that.

[Lord Shipley]

I should be very happy to have a written note about this prior to Report. It would help us enormously. The issue is that the exemption should be fully refunded to local authorities; as I understand it, in the past few years it has not been. It is becoming a problem for places that have large numbers of houses that are wholly exempt because they are wholly occupied by students. There is simply no income at all.

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[Baroness Hanham]

My Lords, I will write to noble Lords on both those matters. Clearly there is a slight difference of emphasis and it would be more helpful if I wrote to the Committee.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for her reply. Of course, we are in the Moses Room so I shall withdraw Amendment 37 and not move Amendment 38. Before I do so, I return to the issue of the baseline and needs and resources. Even if one accepts that the formulation used when setting the baseline is a fair and reasonable basis on which to do so, what evidence do the Government have to suggest that it is capable of holding in an appropriate way and that there will not be a divergence of needs and resources over seven years, 10 years or any other period?

[Baroness Hanham]

My Lords, when I was winding up I said that the Government would keep this under review and that, if there were a major change, the Government would be prepared to look at it on an individual authority basis within the local government finance settlements. Is that what the noble Lord, Lord McKenzie, is asking?

[Lord McKenzie of Luton]

In part it is. I can see that the Government might feel moved to adjust the formulation following a very significant change. However, we are talking about people’s lives here. Incremental changes to support can have a dramatic effect on them. I have looked at the impact assessment and the assessment of economic benefit, which was a fairly opaque document. I am trying to identify what work the Government have done so that we do not need to worry about resetting after three years, five years or any other period, and so that we are confident that, broadly, those parameters will hold over that period.

[Baroness Hanham]

I will let the noble Lord, Lord McKenzie, know. Whatever the calculation up to that point, the intention is to ensure that there is a settled time between resets in order to establish growth and benefits from that. I have said that a couple of times. The noble Lord will not expect me to answer now on all the calculations. I shall take a look and, if I can get further information for him, I will do so in due course.

[Lord McKenzie of Luton]

I am grateful for that and look forward to the further information. It seems that, in all this, the incentive effect takes priority over the needs issue, which is unfortunate. However, for the time being, I beg leave to withdraw the amendment.

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[Lord McKenzie of Luton]

My Lords, I formally put on the record that I am pleased to be part of this expanded but temporary coalition. The case has been well made. The broader point that the noble Lord, Lord Jenkin, made is well worth pursuing, and I would be happy to talk to, and possibly again support, him and extend this coalition in those limited circumstances.

[Baroness Hanham]

If the noble Lord is going to join the coalition, why not from the Front Bench, given the way things are going?

This group of amendments presents a good opportunity to discuss the key element of the rates retention scheme; that is, the operation of the levy and the safety net. From the outset, we have signalled our intention that the rates retention scheme will include a safety net mechanism to protect local authorities from significant downward shocks to their income. We did so in recognition of the inherent volatility in the business rates system, to which my noble friend Lord Palmer has just referred, that can see rates income vary from year to year, principally because of appeals, to which the noble Earl, Lord Lytton, referred, which are generally out of the local authority’s control, or a sudden change in local economic circumstances as a result of, for example, the closure or relocation of a major business. The safety net will be funded by a levy on the disproportionate benefits that some authorities would otherwise experience simply because of their high initial business rates baseline. The detailed calculations required to determine whether a local authority is to make a levy payment or receive a safety net payment and, if so, the amount of any such payments will be set out in regulations, which will be subject to the affirmative resolution procedure under paragraphs 20 and 23 of the schedule. In both cases, those regulations will need to set out the precise detail of what is to be measured and how it is to be measured, and the provisions in paragraphs 20 and 23 give the scope to be able to include all relevant items in defining income for the purposes of the calculations. Amendment 41, moved by the noble Lord, Lord McKenzie, seeks to remove some of that scope by removing the ability in regulations to make provision for the calculation of levy payments to be by reference to some factor other than retained business rates income.

I shall lay out how we think the calculations will work. The noble Lord, Lord McKenzie, will be aware that we intend to set a proportional levy at 1:1, which will mean that all authorities can expect to retain up to 1% growth in their baseline funding level for every 1% growth in their authority’s business rates baseline. This will require the authority’s retained rates income for the year to be compared with its baseline starting level. In other words, that is the rates income we initially calculated that the authority would collect—its business rates baseline—plus or minus any top-up or tariff before applying the levy rate to the difference between the two. The initial comparison or the application of the levy rate could be described as another factor.

We are also trying to create a legislative framework that will stand the test of time. Noble Lords have already referred to the need to keep the safety net under review, and we agree with that. A consequence of keeping it under review is that we may at some point in the future want to redefine how the safety net works and we may—who knows?—want to include a reference to other factors. If a future Government were to do that, they would, of course, have to get the agreement of Parliament to those changes through the affirmative resolution procedure, so the right level of scrutiny is clearly available.

There is no secret conspiracy here. We do not intend to take account of some other mysterious factors. The provisions as they stand simply enable the way the levy payments are to be calculated to be set out in regulations. It is true that they may also provide some flexibility, but we have no plans to do anything other than provide for a proportionate levy on retained business rates income, as I have set out.

I have more sympathy with the noble Lord’s Amendment 42—that must be the first time I have said that since we started.

[Lord Jenkin of Roding]

I should have come back sooner from the Chamber.

[Baroness Hanham]

Don’t get too excited. The amendment for which I have more sympathy, Amendment 42, seeks to ensure that there is a period during which authorities can challenge the calculation of the levy payment, but I do not believe that it is necessary to set that out in regulations. The basis of the calculations is, as I have explained, to be set out in regulations and local authorities will have ample opportunity to comment on that. Individual calculations will be based on the information supplied to local authorities, so there should be no reason for the calculations to be wrong.

However, I appreciate that local authorities have concerns, as this is something that we have discussed in the working groups that we have with them. Although I am not convinced that a requirement in the Bill is appropriate or necessary, I shall take this away to give further consideration to how we might meet those concerns. That is my sympathetic bit.

Turning to the discussion on the safety net threshold, prompted by Amendments 43, 45 and 45A, noble Lords will be well aware that decisions about the levels of the safety net threshold and the levy ratio are very closely linked. They must balance a range of competing issues and they cannot be divorced. While the safety net needs to offer protection against significant shocks in the local rates base, as I mentioned earlier, it will be funded by other local authorities through the levy. Therefore, the levy ratio must be set at such a level as to generate sufficient income to fund demands on the safety net at the chosen support threshold. Equally, that level must be such that it continues to offer an incentive to authorities to pursue growth.

We have carefully considered all these issues and believe that the levy ratio at 1:1, together with the safety net support threshold in the range of 7.5% to 10% below baseline funding, offers the best combination on balance. We will be consulting local government over the summer before any final decisions are taken. Therefore, although I appreciate the intention behind the noble Lord’s amendments, I am not in a position to accept them.

I think that Amendment 44 tabled by the noble Lord, Lord McKenzie, is unnecessary. I understand his aim but he will no doubt appreciate that we will of course want to keep the operation of the safety net under constant review, particularly during the early years of the scheme. If we believe that it is not offering the right level of support, we will change it.

Finally, with Amendment 46 my noble friend Lord Jenkin seeks to ensure that provision is made for the effect of appeals on an authority’s income—a matter raised earlier by the noble Earl, Lord Lytton. We recognise that the impact of rating appeals on an authority’s income is outside the control of the authority but we do not believe that this amendment is the way to deal with it. Instead, as I have previously explained, we will be building two significant protections into the scheme. First, we will be reflecting appeal losses in the initial calculation of tariffs and top-ups. In other words, we will set the level of tariff or top-up as though authorities have collected less income from rates than is the case, recognising that over time they will lose some income on appeal. Generally, we have put in place the safety net so that, where authorities lose more on appeal than is allowed for in the initial calculation, they will be substantially protected through the safety net payments.

With those assurances, I hope that the noble Lord will feel able to withdraw his amendment.

[Lord True]

My Lords, I think I understood what my noble friend said and I am grateful for her generally positive response. However, I think I heard her say that the high-income authorities will pay for the funding of the safety net. Of course, I do not know how a high- income authority is defined. If it is a tariff authority—and my authority expects to be a tariff authority—I have just given an example: one appeal has had the effect of knocking 4% off the overall business income. I do not expect the Minister to answer this point now but I hope that there is not an assumption that every tariff authority is necessarily able to bear that sort of short-term turbulence. I should just like to put that point on the record.

[Baroness Hanham]

Within that, the authorities that will pay the levy are those described as having a disproportionate increase. That is an authority that may have the ability to raise an enormous amount of new money. If the tariff is there and an income is not coming in or is dropping, you cannot be described as having a disproportionate income.

[Lord True]

I am grateful for that, but that is probably something better dealt with in correspondence. Is anyone from Westminster here? In short-term parlance, we all understand that Westminster is the kind of authority thought of as being disproportionate, with due respect to my friends in Westminster. Could officials let us know about that disproportionate definition tariff? Obviously, if the authority that has to finance the safety net should also be one of those gaining from it, we are in a slightly odd situation as I read it.

[Baroness Hanham]

I will write to the noble Lord. My understanding is that as long as you have sufficient income left as a tariff authority, you probably would not justify help from the safety net. It is for those who lose an enormous amount of income and are not able to cope with that because it is below the base line. None the less, I shall have the noble Lord written to about that.

[Lord Jenkin of Roding]

My Lords, I am grateful for what my noble friend said about looking again at the issue raised by Amendment 46, but I am not sure that I wholly understood. I do not want to anticipate the argument that we might have on any amendment that she might bring forward on Report, but I understood that she said that one thing that the Government might do would be to try to take into account the impact of appeals. Is that what she said? How can you know before the appeal has been heard? I just do not understand. It is just another estimate, whereas the amendment is looking for full compensation for that. I am not sure whether I have properly understood what my noble friend said in her earlier response.

[Baroness Hanham]

It must be extremely difficult to work out in advance how many appeals will be won or lost. There will be an assessment of what that will be and it will be taken into account at an early stage. The noble Lord is asking for full compensation on every appeal that is lost or won—if it were the other way round, we could take money back. At present, if it is likely that a lower amount of rates will be collected than expected because of outstanding appeals, that will be taken into account. That is some form of compensation, it seems to me.

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[Lord Beecham]

My Lords, we are talking about a safety net, but it seems that both the number of holes in that net and their size are to be estimated. It is quite a difficult position. The formulation of the noble Lord, Lord Jenkin, seems much more rooted in objective fact and would give a degree of certainty. Should the Minister not take this matter back for another look?

[Baroness Hanham]

My Lords, I am happy to do that. The historic figures, which will be used across the country, will be used as the basis of what we have been talking about. We can try to bottom out the detailed calculations between now and Report. It is probably more helpful if I write to Members of the Committee so that they can see what they are. However, the rates system is not new; we have had a system of business rates for ages. At least some of it will not change at all. There have been rates and appeals for all that time. There is not a huge difference in the mechanism but the results may be slightly different. I will write to noble Lords about that as well; it will be a long letter.

[Lord McKenzie of Luton]

My Lords, I thank the noble Baroness again for her responses to these amendments. She said that business rates have been with us for a long time. They have but what is before us is a fundamental change in which risk moves from central government to local authorities. It is a lot of risk for local authorities. Like a number of noble Lords who have spoken, I understand that something is embedded in the baseline figures, but I am not convinced that that fundamentally deals with the ongoing problem that the noble Lord, Lord Jenkin, has outlined. Like the noble Lord and others, I will read the record on that. I am sure that it is something to which we shall return.

I was on the point of being overjoyed by the Minister’s response to Amendment 42 but was less so when she was not able to accept it. However, I am grateful that at least the spirit of the amendment is alive and that it will be taken away for further consideration.

On Amendment 44, I accept that there will be ongoing routine monitoring and assessment of how the safety net will work. That is not inconsistent with there being some formal report to Parliament on how it has worked and what its effects will be. We will certainly wish to return to it on Report. In the mean time, I beg leave to withdraw the amendment.

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[Lord Palmer of Childs Hill]

My Lords, the noble Lord, Lord Jenkin, has covered most of this but I wish to add a few words on Amendment 47. This ensures that the Secretary of State must consult on whether the remaining balance on the levy account is redistributed to local government or rolled over to the following year. I really feel that this amendment is trying to prevent this legislation from resembling the National Lottery, where if someone does not win a prize it is rolled over to the next round. Here, instead of there being a balance that is distributed to the people whence it came, we are suggesting that it is rolled over to the next lot of recipients in some lottery-type arrangement. All this amendment is trying to do is to limit the levy to the period to which it relates and to those who have contributed to the levy within that period.

[Baroness Hanham]

My Lords, we are in danger of amending the amended. These clauses were amended in the other place as a result of some of the concerns there. These amendments would reverse changes to the way that the Government distributes surplus levy income that were made in the other place. I recognise the noble Lord’s intentions in tabling these amendments—indeed they reflect much of the Government’s proposed process for distributing the levy surplus when we first introduced the Bill in the other place. However, as the Bill was amended to meet concerns raised there, I cannot accept these amendments. We have said that any surplus levy income that is not needed to fund the safety net will be distributed back to local authorities. We will not simply hold larger and larger surpluses.

Amendments 47 and 48 propose that the Secretary of State should consult with relevant authorities in advance of determining how much levy surplus should be distributed back to local authorities and set out the basis of distribution of levy surplus in the annual local government finance report. Although I sympathise with the intentions behind these amendments, setting out the distribution of any levy surplus through the local government finance report rather than through regulations is not the best approach. In fact, there are unintended consequences of this approach, in particular for the timings of payments to distribute the levy surplus.

When the Bill was discussed in Committee in the other place, concern was raised that the proposed process for distributing surplus levy was a bit long-winded. Setting out the basis of distribution through the local government finance report would mean that even when the Government had taken a decision to distribute some or all of any surplus back to local government, authorities would have to wait six months to a year before they saw the money. As a result of that, the Government agreed to look into speeding up the distribution and therefore amended the Bill—which is how it stands now—so that the process for distributing levy surplus, and the basis of that distribution, could be set out in regulations, ensuring that the payments can be made immediately after the decision to make them is taken.

Furthermore, to provide appropriate parliamentary oversight, the Government ensured the regulations would be subject to the affirmative procedure and hence subject to the approval of both Houses of Parliament. Regulations will need to be in place well in advance of any levy surplus being distributed, so authorities will have the certainty that the noble Lord is seeking. Once the regulations are in place, they will have this certainty each and every year until and unless they are revoked.

Amendment 49 requires the Secretary of State to report to Parliament the reasons why any remaining balance of the levy account has not been redistributed within three years. Again, although I recognise the intention behind this amendment, I do not believe it to be necessary. I reiterate that it has always been the Government’s default position not to hold back excessive amounts of surplus levy. The levy account will also operate with a high degree of transparency—the payments made both to and from this account will be easy to identify, as will the overall balance. Furthermore, the Comptroller and Auditor-General will report on the account and lay this report before Parliament in the same way as he currently does in the report entitled Pooling of Non-Domestic Rates and Redistribution to Local Authorities in England. This will provide Parliament with adequate opportunity to raise the issue of the levy balance, if required, through the normal processes.

On the basis of these arguments and the fact that this has already been amended, I hope that noble Lords will not press their amendments.

[The Earl of Lytton]

My Lords, apart from the redistribution of this levy to local authorities, it remains the case that it is funded by what is paid by businesses on their non-domestic premises. I simply wish to have an assurance from the Minister that under no circumstances could this be used or treated as any sort of contingency fund to overcome inherent deficiencies and time lags in the system. As I have previously pointed out in the context of this Bill, non-domestic ratepayers are getting a bit of a raw deal in terms of what they pay per square foot by comparison to other contributors to local government finances. Their values are based on 2008 antecedent valuation date figures, for which they are paying ever more through the processes of transition, in circumstances where their own economic situation is increasingly challenged. Furthermore, I believe that the Valuation Office Agency has admitted that there is an element in the national non-domestic multiplier for losses and adjustments resulting from appeals.

There is only one adjustment that can be made in such circumstances and that is an adjustment for a decrease in the amount of the tax base. That is the only way that the Valuation Office Agency or the Treasury can envisage such an adjustment. So businesses are paying already for an inherent error factor in the system. It would be quite wrong for me, with my associations with businesses and with the profession of valuation—which is so much at the heart of a substantial outgoing for businesses—if I did not get up and flag up that particular point because at each stage there is going to be some fund that might be redistributed or some element built in as a contingency figure, and increasing numbers of business ratepayers will start to rebel and make common cause about what starts to look like an iniquity. I am asking for some reassurance from the Minister on that particular point. On the levy side, this cannot be used as any sort of contingency fund to add to the ones that already seem to be built into the system.

[Baroness Hanham]

My Lords, I have already said that if there is a surplus on the levy it will be redistributed to local authorities as soon as possible and in agreement with them. So I do not think that the noble Lord’s comments are valuable at this point. There is a very straightforward intention here. The levy that arrives from a surplus of growth within some local authorities, if there is an excess of it, is distributed back. I must say to the noble Lord that I have 30 pages of response to amendments that he has put down on all these matters, so perhaps we could deal with them all at that stage.

[Lord Jenkin of Roding]

My Lords, I listened to my noble friend with care. Due to the extraneous noise overhead, I am not sure that I heard it all. This Room is rather vulnerable to the helicopters flying overhead. I got the impression that she feels that there is merit in what we are saying and that she understands that her regulations will in fact deal with it. Would that be a fair summary?

[Baroness Hanham]

I am happy that the changes that were made in the other place will ensure that the levy is redistributed as quickly as possible, in consultation with local government, and that will be laid out in regulations.

[Lord Jenkin of Roding]

Indeed, if that is going to happen, that is not unsatisfactory.

Can I have an assurance that the regulations that this clause provides for will be available by the time we get to Report?

[Baroness Hanham]

We have said that we will have all regulations available before we meet again.

[Lord Jenkin of Roding]

In those circumstances, I hope that my noble friends in the expanded coalition will agree that I withdraw the amendment.

--- Later in debate ---

[Baroness Hanham]

My Lords, this has been, as I thought it would be, a very interesting debate. I am not necessarily going to be able to give noble Lords all the enthusiastic encouragement that they look for but there is no doubt that this is something that will generate more discussion, and I accept that.

I know from the noble Baroness’s Amendment 51 that there has been a search for the words “TIF” and “enterprise zones” to be spelt out in the Bill. They are not specifically identified but I assure the Committee that the provisions under paragraph 37 of new Schedule 7B deliver both TIF 2 and enterprise zones. An amendment that names TIF in the Bill is therefore unnecessary.

Before turning to the substance of the amendments, I want to say that it has been interesting that the whole discussion has been on the basis of TIF 2 and none of it on TIF 1. I need to point out that the measures in the Bill relate to TIF 1, TIF 2 and enterprise zones. For the benefit of the record, I think that at some stage we need to spell out what TIF amounts to.

However, we want to clarify the position and remove misunderstandings about what is possible or not possible within the policy. I think it would be fair to say that noble Lords have not really acknowledged that, as a result of the Bill, all local authorities will have unfettered access to a share of business rate growth to increase their potential borrowing. As things stand at the moment, under TIF 1 it will be possible for local authorities to undertake developments unfettered. They can do so with their normal prudential borrowing.

TIF 1 rests wholly within the business rate retention scheme and the core feature of the rates retention system, including the levy and reset. Beyond that, the Government will not impose any further constraints, and local authorities will be able to get on with it. I know that the criticism has been—

[Baroness Kramer]

We did not raise TIF 1 here because it is more of a reset issue, but will the Minister acknowledge that, with the way the reset works, the capacity to do TIF 1 will be exceedingly limited because the whole project has to go from conception to completion and complete repayment within a very narrow reset period? The consequence is that certainly by year two or year three it will be absolutely impossible to raise the financing because nobody will have any certainty that there will be a flow of business rates beyond the end of the reset date to complete the payment cycle. Perhaps the Minister will acknowledge that it is a de minimis amendment. The language may not be de minimis but the effect of the way in which the reset period works makes it de minimis.

[Baroness Hanham]

I will persist with my view that there is an advantage here for local authorities in that they will have the opportunity with tax increment financing within the reset period of seven years, and then, with the longer reset period, 10 years, to help with those projects. In addition, the Government will guarantee long-term certainty over revenues and enterprise zones—as mentioned by the noble Lord, Lord Beecham —meaning that local enterprise partnerships, with which the revenue will sit, will be free to undertake long-term borrowing without any central government controls. Those are the two areas which do not come under TIF 2.

Finally, the Government stated, and made clear, in the 2011 Budget that they will support a limited number of TIF 2 schemes in the core cities, to which the noble Lord, Lord Shipley, referred. The Secretary of State may specify, in regulations made under paragraph 37 of new Schedule 7B, that business rates uplifts, from a very clearly defined area, will be disregarded from the levy and reset calculations for a specified period. The amendments specifically concern this measure.

The Government are fully committed to supporting growth. I noted carefully what the noble Lord, Lord Best, said about housing and about housing construction stimulating the economy. We will continue to have that debate, but the measures to do that are currently in place and are not related to TIF. There have also been a lot of questions about the £150 million in support from TIF for what will amount to a limited number of core cities. Some of those core cities have been announced today and are currently putting forward substantial and interesting proposal bids for this money. I have no doubt that it will work its way through the system.

Amendment 51 seeks a way to get TIF 2 reclassified as non-public sector debt, to which I say, “Oh dear”. Business rates are a tax, and taxes are uniquely established by the tax-raising power of government. Therefore, TIF 2 must be recorded as government borrowing. There is absolutely no choice to be made about how TIF 2 is accounted for—it is not the Treasury sitting on our shoulders here, it is the Office for Budget Responsibility that has made that decision. It is an independent body and has made very clear how this will score.

Furthermore, core cities that are successful in the TIF 2 competition will be undertaking additional borrowing that has not already been reflected in the Government’s local authority self-financed expenditure forecasts. The Government have been clear that we will need to limit the amount of TIF 2 that occurs so that the Government remain within the wider deficit reduction plans.

In respect of balance sheet issues concerning enterprise zones, the policy to allow rates to be retained within the zones will lead to an increase in the local authority self-financed expenditure forecasts and will be scored as public expenditure. As the business rates retention system does not start until April 2013, no costs have yet been accrued. The Government are working with local enterprise partnerships on forecasting these costs and will be discussing the detail with the Office for Budget Responsibility ahead of the Autumn Statement. That may give some substance for the noble Lord, Lord Beecham, who says I have not answered any of his questions. Given this, it is not possible to take TIF 2 schemes off the balance sheet, as the amendment seeks.

Amendments 52 and 53 would not only remove important controls from the system—I have already explained the importance of maintaining the Government’s fiscal deficit policy—but would add further layers of complexity to the operation of the scheme. That would potentially impact on all the calculations of central shares and precepting authorities, removing the certainty that precepting authorities would have about the income they were to receive in that year. Noble Lords will not be surprised when I say that I cannot accept their amendments. I will not be surprised if they say they are going to return to this at a later stage.

[Baroness Donaghy]

Can the noble Baroness clarify whether, when the Office for Budget Responsibility made clear that this could not be off-budget, it gave a full explanation as to why it said this, and whether the Government have to accept what the Office for Budget Responsibility says? I wonder if it is a swing of the pendulum against the outcome of PFI. Having a fuller picture of why that independent body said this might give us the opportunity to explore the subject further rather than just accept that it is closed.

[Baroness Hanham]

With regard to the point about whether we have to accept what it says, the answer is yes. The OBR advises the Treasury, but what it says pretty well has to be taken on board and dealt with in the way it says. I do not think I have a note at the moment of the reasons behind what it said. If they are in the public arena, I will make sure the noble Baroness knows what they are.

[Baroness Donaghy]

Does that mean that, on all subjects, every statement made by the Office for Budget Responsibility will be accepted by the Government?

[Baroness Hanham]

Sorry, I have to keep looking over my shoulder for. It would be better for me to quit looking over my shoulder and say that I will answer with detail in writing.

[Baroness Kramer]

My Lords, I am absolutely fascinated by the comments on the Office for Budget Responsibility. It is incumbent on the Government to provide us with the analysis or the statement that it made that requires this from its perspective to be on books because it would be very interesting and beneficial to everybody to get the comments of the accounting community and some of the various international standards boards. It would mean that we could have a fully constructive discussion. I cannot think that any of that could possibly be confidential. In fact it would be perfectly odd if it was confidential to explain why one made a decision that something needed to be allocated to one particular set of accounts or another. That would be exceedingly helpful.

It would also provide us with the criteria, because obviously there are many different ways to structure TIF projects. If various poor cities are bringing forward their proposals in such a way that they have inadvertently set them up so that they fall on books when, with some further thought and different structuring, they could be off books, that would be extremely sensible for everyone to know. That surely must be in the public arena, so I look forward to that.

Having heard the tone of this meeting, the Minister is exactly right to understand that this is an area that we would wish to pursue. I so much appreciate all of the various speeches and analysis that have happened from the noble Lords, Lord Jenkin and Lord Best, and others. It underscores the importance to local authorities up and down the country who are trying to drive forward economic growth in their communities and see TIF as a very significant tool with which to be able to achieve it.

I thank the Minister for her explanation, but she is exactly right: we will continue to push and I hope that she will take the issues back.

--- Later in debate ---

As for TIF, my noble friend’s amendment goes with the grain of the Government’s approach, even if only a tiny grain, and we covered that territory in our earlier debate. I beg to move.

[Baroness Hanham]

My Lords, as the noble Lord has acknowledged, we discussed in earlier amendments a number of the things that he has raised, focusing too on the case for requiring the Secretary of State to undertake reviews of resources and need, and for the Secretary of State to take account of changes in relative needs and resources in resets of the system. Given those exchanges, I will not rehearse all the arguments again as they will be on record.

However, it will not surprise the Committee that I cannot support the amendment, as it would fundamentally undermine the purpose of our changes to the funding of local government. There are two key principles at the core of those changes. The first is to deliver a powerful incentive for local authorities to drive growth in their area, and to benefit from that growth. I remind the Committee that such authorities are all around the country; growth is not a southern phenomenon.

Secondly, we are clear that the arrangements should deliver strong protections to those areas that are less able to generate growth or where the business rates are less than the needs of that area. That takes in tariffs, top-ups and levies. We have made clear that baseline funding levels will be equivalent to what councils would have received under the formula grant. As a result, each local authority’s baseline funding level, and therefore the calculation of its tariff or top-up, will be based on figures that take account of the different needs of each area, so our changes will recognise relative needs.

Having established the baselines, an integral part of our proposals is to provide certainty and predictability to councils. Those authorities that have a lower business rates base need to have certainty that their top-up payments will remain fixed, subject to being uprated by RPI annually. Those authorities that, at the beginning of the scheme, have spending needs in excess of their business rates need to have confidence that any tariff that they are paying is fixed—again, subject to being uprated by RPI.

That level of stability in the scheme is crucial to enabling local authorities to carry out their budget planning. At the heart of our arrangements is enabling local councils to benefit from growth. To maximise that incentive effect, we have set out an aspiration to allow 10 years before resetting tariffs and top-ups. At the start of the scheme, the statement of intent that we published in May confirmed that we would not expect a reset to take place before 2020—and I have acknowledged that that is eight years, not 10.

The use of a lengthy period between resets was also strongly supported by respondents to the consultation that we undertook last year on the parameters of the proposals. However, we have also been clear that in exceptional circumstances we could consider the need for a reset to be undertaken on a different timescale. This could reflect on significant changes in need and resources. Noble Lords can be reassured that we are not blind to such possibilities.

Noble Lords will also appreciate that each year we will publish a draft local government finance report which will be subject to consultation and approval in the other place. I am sure that authorities will use the opportunity provided by the provisional settlement, as they always have done, to make their views known on the resources available to them. As always, we will listen carefully to any such representations.

However, at this stage we are confident that we have developed the right balance between providing an appropriate timeframe for councils to benefit from the incentive effect while also providing stability and security for councils. A period of only three years between resets would not achieve that balance and would, in my view, undermine the incentive effect.

The amendment also proposes text on the designation of tax increment finance schemes. As we discussed, TIF is very firmly part of our proposals, and paragraph 37 already provides the appropriate powers to facilitate such schemes and to ensure that the business rates from such schemes are disregarded for the purposes of setting top-ups, tariff and levy amounts. With those explanations, I hope that the noble Lord will be able to withdraw the amendment.

[Lord McKenzie of Luton]

I thank the Minister for her response. I think that we have aired issues of reset and TIF enough for today. However, I want to return to the first part of my noble friend’s amendment. I did not have the chance to discuss the background with him so I am interpretingwhat he may have intended, but it gives rise to an issue about what that local government finance report will routinely look like in the future.

Obviously, the first year will have particular features, but if we look at current local government finance reports, there is a whole raft of information and regression analysis that drives the formula grant and helps establish need right across the country. What will happen to that in the future? Presumably, the information will not routinely need to be available on the Government’s proposition in that report, so what will it look like? What will it contain? It will clearly have to contain certain information that has to precede the decisions and payments and so forth that flow from the Bill, but what will be the core of that and will it have details about the revenue support grant and the basis on which it might be distributed?

[Baroness Hanham]

I am not going to detain the Committee tonight. We have the details and I will make sure that the noble Lord has them. The ingredients of the local government finance report, which will be annual, will probably change from time to time, but if I may, I will write to the noble Lord with the details.

[Lord McKenzie of Luton]

I am grateful to the Minister and beg leave to withdraw the amendment.

--- Later in debate ---

The Minister is obviously not in a position to commit the Government to great expenditure or to commit other departments to such expenditure. However, it would be helpful to have an assurance that her department is in discussion with other, relevant departments—notably, although not exclusively, the Department of Health—about coming to a coherent cross-governmental view about the policy objectives and how they might be fulfilled, particularly in partnership with local government, and about securing a long-term, workable financial basis. Otherwise, not only will people suffer in this context but the impact on other local services will potentially be very severe. All the talk of localism will disappear because there will be no scope for any decisions other than those required to support social care provision. That is not an acceptable outcome for the people who need that help or, indeed, for the rest of the community.

[Baroness Hanham]

My Lords, the problem of adult social care does not rest with the local authorities alone. The noble Lord, Lord Beecham, has already pointed out that there is a similar responsibility on the National Health Service. If this problem had been capable of being resolved, it would have been by now. I recognise the noble Lord’s frustration coming to this Bill as a result of his work on the Dilnot commission, and I understand it fully. However, everybody here will be aware of the ongoing discussions every time you turn on the radio or television. There was another discussion last night on “Newsnight” on these serious problems, which are, at the moment, more or less intractable. The last thing I want to do is to try a light touch on this. I appreciate fully that this is a very serious matter, but so do the Government. The Government are wrestling with this, like previous Governments did. If the noble Lord was dealing with social services in 1970 and was then leader of a council, he and I at both stages were dealing with having to reduce expenditure and increase and toughen criteria.

This has long been a problem and it has gradually got worse because of the demographics and the general increase in costs. We are now against the background of an enormous deficit—which was not the responsibility of this Government but which we are having to deal with—which is not helping the situation either. As I said at Second Reading when the noble Lord, Lord Warner, brought this up, the Government—as he and others know—are committed to publishing a White Paper shortly that goes across both departments. I confirm that my department is in regular touch with the Department of Health about it. The White Paper will set out the plans to transform care and support. I recognise very clearly that this is beginning to absorb an enormous amount of public funding.

Clearly, the battle is to decide whether any personal contributions have to be made or whether there are other routes. If you are forcing people to sell their houses, you are in very difficult territory. I understand the reason the noble Lord, Lord Warner, brought this up. I am not going to accept the amendments for the reason that this is not solely a part of local government and it is certainly not a part of what we are discussing at the moment. I only add that the Government have already allocated an additional £7.2 billion over four years to adult social care, so we are not pulling back on our commitment to it. We are very much committed. We now have to wait for the White Paper. I very much hope that the noble Lord will not return to this at a further stage.

[Lord Warner]

Well, my Lords, that was all very interesting from the Minister. I suppose I thank her for it. I am not sure that I was very convinced by any of it. To get it on the record, this Government set up the Dilnot commission. They encouraged us to produce a report within 12 months, which we dutifully did. It is now 12 months since we reported, and there has not been a peep out of the Government about what they want to do. I do not mind if they do not like it, but they might have had the decency to suggest another approach that they would like. However, what we have had is silence and all the signals—from the cross-party talks and elsewhere—are that what we will get next week is a White Paper and a draft Bill that will be extraordinarily silent on the subject of money. I am a very patient sort of chap. I am very happy to wait until I see this document and what the arguments are and to consider it over the Summer Recess. I do not approach that with any great optimism. I am happy to withdraw the amendment on this particular occasion but I do not give any assurances to the Minister that I will not come back to this on Report, refreshed after the Summer Recess.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, I am happy with that and do not think it is going to take very long. I start with an apology for tabling these amendments just yesterday, but they arose out of the debate we had on Tuesday and I make no apology for returning to the issue of the local and central share, and what this entails. We accept entirely that the Government intend to use the central share for the purpose of local government in England, although, as defined, this does not have to mean actually paying it to local government. This is what the statement of intent promises. It is also clear that for the first two years of the scheme, revenue support grant will be made available to local authorities to keep them whole, because their local share of business rates will be below the control total set by the 2010 spending review.

This amendment looks beyond these years and requires revenue support grant to be paid in any year when the central share is positive. It is of course at this stage just by way of a probe, because it begs a lot of questions and we need a lot more detail to make it secure. However, it is designed to give the Government the chance to say how they are going to use the central share and on what basis. They must have some notion. What principles will be applied after 2014-15? Will its use be driven by a needs/resources approach or on some other basis? What is that basis?

I was going to have another go at a question I posed previously. I think it may have been dealt with in the letter I received from the noble Baroness—for which I thank her—just before Committee started. I have not yet had a chance to absorb it. I will perhaps reserve my powder on that particular issue but the substantive issue remains as to what that central share will be used for after those initial two years and on what basis will any use of it be determined.

[Baroness Hanham]

My Lords, I thank the noble Lord for dealing with the amendment briefly. I think that other members of the Committee, who look like they are gathering their papers together, will be grateful if I can be equally brief. As the noble Lord said, we have covered quite a bit in previous amendments and I hope that my letter to all members of the Committee will deal with some of those issues. We know, and I have explained, that the central share will be repaid in total to local government. I acknowledge that it will come back in a way that is not in the control of local government but it will come back in the form of specific grants, initially with the revenue support grant part of that. The revenue support grant might reduce in due course, but, if it does, the local share will increase. It will be a balancing act between one and the other. Because of the relationship between the central share and fiscal control, it is conceivable that there could be a situation where no revenue support grant was paid but the Government would still be collecting some small amount of central share that they would again return to local government via specific grants.

In general, the proposition is that everything that goes to government by central share would go back to local government by other specific grants, some of which are laid out. We have had some discussion about that. I have had discussions elsewhere on what the specific grants would be and I hope we may be able to throw more light on that in the not-too-distant future. I hope that the noble Lord will withdraw the amendment.