Local Government Finance Bill

Debate between Baroness Kramer and Baroness Hanham

Wednesday 10th October 2012 Lords Chamber

[Baroness Hanham]

My Lords, I am sad not to be able to satisfy the noble Baroness. I know how keen and knowledgeable she is about TIF and she has been pushing a hard line ever since Second Reading. I understand why, because she feels that this will not be of sufficient benefit.

The noble Baroness has also been pushing the line that it should be off the balance sheet, so I therefore turn first to Amendment 68, as it goes directly to the heart of what we are talking about. The amendment would ensure that TIF is not scored as public sector debt. That is simply impossible. We had a long debate about this in Committee and the facts have not changed. TIF 2 must always count as public sector borrowing. Because it uses tax revenue—business rates—to secure funding for development within a predefined area; and because taxes are uniquely established by the tax-raising power of government, TIF 2 must be recorded as government borrowing, even if a private sector developer is taking on the development risk. The Office for Budget Responsibility, to which the noble Lord referred, has confirmed that that is how the borrowing must be treated in the national accounts.

It is therefore a direct impact on public sector debt which cannot be avoided. The local authorities who were successful in the TIF 2 competition—because a competition it indeed was—are now confirmed as Newcastle, Nottingham and Sheffield, which will be undertaking additional borrowing that they otherwise would not have. Therefore, TIF 2 schemes come at a cost to the Government, as we have to count the cost of the additional capital expenditure that the new borrowing supports.

The Government have been very clear that the amount of TIF 2 has been limited to £150 million at this time—I hope to have an answer for the noble Lord about the £60 million—to comply with our overriding priority of deficit reduction. The £150 million was from topslicing from councils, but it reflects the business rates retention element, not the levy element. I simply have to reject Amendment 68 on the basis that this has to be on the balance sheet.

Going back to Amendment 67, it seeks to ensure that designated areas are identified for the purposes of infrastructure provision in the Bill. This is not necessary; the Bill already allows, under paragraph 37 of new Schedule 7B to the 1988 Act, for the Secretary of State to designate areas within which the ratings income will be disregarded from the business rates retention scheme.

I am not convinced that there is much practical benefit to be gained from Amendment 69. All it would seem to do is to introduce further complexity. It is much easier for the operation of the scheme if the income is disregarded at the beginning of the year, and I am not persuaded that this has a significant detrimental impact on local authorities.

Amendment 71 looks to remove important controls from the system in that it seeks to create a framework where local authorities can advance any TIF scheme. For those reasons, I have to reject the amendments.

However, the noble Baroness talked about local authorities having many projects which they already have available and want to carry out. The point I would make is that if they are so ready, the seven-year reset is not an impediment because they could be ready to be got going in year 1, which would give them the support that they need. I ask the noble Baroness to withdraw her amendment.

[Baroness Kramer]

My Lords, I thank the Minister for her reply, although we are simply going to have to disagree on a lot of this. I would point out, however, that her comments about the OBR and accounting necessity mean that her Government now have a major problem with their enterprise zones. Perhaps she needs to go back quickly and suggest that the OBR will have to change the accounting programme that has been put in place to cope with the enterprise zones and the financing that will flow from them. That is the only logic of the statement that she has just made.

As I said at the beginning, however, I recognise that this Bill marks a significant step forward and that at least there is now a framework in legislation for TIFs, although it will take some further steps to turn them into vital and vibrant instruments for local government to use. Three at least have been done, for Newcastle, Sheffield and Nottingham. I hope that the Government will continue to follow through on the logic of their own thinking on devolution, infrastructure and joined-up thinking between TIFs and their goals for economic growth. Perhaps at a later point in this Parliament we might see further progress on this issue, but for the moment I withdraw my amendment.

Local Government Finance Bill

Debate between Baroness Kramer and Baroness Hanham

Thursday 5th July 2012 Grand Committee

[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.

--- Later in debate ---

[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.

Local Government Finance

Debate between Baroness Kramer and Baroness Hanham

Monday 18th July 2011 Lords Chamber

[Baroness Hanham]

My Lords, with reference to the noble Baroness’s last question, of course there are local authorities that have been working assiduously to promote economic growth all over the country. Authorities both north and south have worked very hard. On the other hand, they are not really benefiting from that because they are getting nothing back from the business rate. The spending totals remain the same; the control totals stay the same. If they can encourage more enterprise, or more firms into their areas, they will get some of that growth back above the tariffs. That will be helpful because they will be able to reinvest that and to promote the economy better. There is an advantage, but I would certainly not underestimate the amount of work that local authorities have already done. I have seen quite a lot of it during my year as a Minister, so I am grateful for it.

Within the spending review, the control totals will remain the same, although, as I have explained, between the tariffs and the top-ups there will be a switch of resources from those that have more business rate to those that have less. I do not think anyone will be any worse or better off as a result for the time being.

[Baroness Kramer]

My Lords, the Minister will not be surprised that as well as welcoming the announcement of this Bill in general I am particularly delighted that tax increment financing is included in the Statement. I have two things to ask her. First, could she ensure that, during the consultation, there will be the widest possible definition of tax increment financing rather than the sometimes very narrow definition that gets touted around, since the purpose of this is to ensure economic growth and maximum advantage for developing business in local communities and regeneration?

Secondly, I ask her to look favourably at the amendment which the noble Baroness, Lady Valentine, will move on Wednesday that would allow tax increment financing to go ahead much more immediately in London, thereby providing a good pilot for this new approach in the UK to financing and encouraging economic growth at a time when it is so highly valued.

[Baroness Hanham]

My Lords, I know of the noble Baroness’s interest in this. A consultation is a consultation, and if people have ideas about how wide they want the tax increment financing to go they will be able to say so in the consultation. I do not think there is anything in the consultation questions that would prevent that from happening. I am not in a position at the moment to say what my response will be to the amendment tabled by the noble Baroness, Lady Valentine.