Lord McKenzie of Luton
Main Page: Lord McKenzie of Luton (Labour - Life peer)Local Government Finance Bill
Lord McKenzie of Luton Excerpts
Lord McKenzie of Luton
My Lords, first, I thank the noble Baroness, Lady Hanham, for her clear introduction of the Bill. This may be a short, technical Bill but it has profound consequences for local government and millions of our fellow citizens. It is a framework Bill, which we would contend has been rushed through the other place—it was hardly considered at length—with implementation dates for some of its proposals, such as April 2013, which are wholly unrealistic. Despite the release of further information in the statements of intent just a few days before Report stage in the other place, there is still much that we do not know about the detail. Part of our job in Committee will be to get as much on the record as we can.
I will concentrate my remarks on the business rate retention scheme and council tax support proposals but should make clear that we have been advocates for tax increment finance initiatives and will support the progress in the Bill. However, the dead hand of the Treasury in limiting this to £150 million of infrastructure for option 2 of the TIF 2 schemes has blunted its prospects. Greater discretion over council tax and empty properties, such as second homes, are matters we can support. For some authorities, but certainly not all, the extra revenue might help to plug the funding gap that this Bill will generate.
The Government contend that their business rate retention scheme will provide a strong financial incentive for local authorities to promote growth. We do not agree. A policy to incentivise growth is entirely reasonable but it must be credible in terms of its effectiveness as an incentive and fair on its impact on outcomes for local authorities. We accept that local retention of business rates by local authorities can clearly be an incentive to grow the business rate base and to foster close relationships with the business community. How this translates into growing the local economy in terms of jobs and adding to national output is more problematic. Where is the trade-off between competing developments, one of which produces higher business rates but lower employment and less added value than the other? We need to give these sorts of issues an airing in Committee, together with an understanding of the consequences of excluding rental value increases, a matter on which we have received representations.
While an effective business rate retention scheme can help, it is entirely false to assume that local authorities have been sitting idly by in the mean time, careless of their local economies and employment. Up and down the country local authorities are already striving to regenerate and develop the economies of their areas, and seeking to redress the ravages caused by the economic failure of this Government—for example, the lack of a strategy for growth and jobs. But the cuts already imposed on many local authorities are making it difficult for them to sustain their economic development budgets.
The Government’s analysis of the economic benefits of local business rates retention acknowledges that whether a scheme could have a significant economic impact depends on the precise way in which the incentives are structured. Among the matters considered important are the need for simplicity and transparency, predictability, and being long term and credible. It cites the need for such considerations to be optimised while protecting the funding needs of authorities.
So how does the Bill measure against the Government’s criteria? Any fair system of funding for local government with hundreds of authorities with different needs and resources is bound to be complex, and this is certainly true of the formula funding approach. But it is also true of the business rate retention scheme on offer, which is fiendishly complex, in the words of London Councils, with its multiplicity of levers.
True to his localism form, the Secretary of State has included a raft of new powers to control these levers centrally. Ministers can set the local and central shares of the business rate, and can vary this. They will determine the level of the levy ratio and the parameters of the safety net. Ministers have ultimate control over the frequency and method of resets—the updating of the baseline. All these factors reduce the effect of the incentive, but perhaps none more than the 50-50 local-central split, and the continuance of this beyond 2014-15.
There are also the complexities and uncertainties around revaluations and appeals. We should recognise that the system may also introduce disincentives, and we would wish to examine concerns raised with us about leisure trusts, and what impact the Bill could have on them.
Of course, what this also entails is the shift from the allocation of local government funding solely on the basis of an assessment of need and resources to future increases in funding being on the basis of local economic growth, or, more precisely, the increase in the business rate base. There are major concerns that this will increase inequality, over time, opening up gaps between the wealthy and poorer areas. For a start, the baseline for the redistribution, which will determine tariffs and top-ups, reflects the 2012-13 formula grant applied to later control totals. This means that it reflects the consequences of two years of spending cuts under which the 10% most deprived areas lose four times as much in spending power as the least deprived 10%. Locking in this level of cuts will for some create real, unsustainable pressures on vital services.
Even if the baseline were a fair starting point, it does not mean that all local authorities have an equal ability to generate additional business rates going forward. This is not because of a lack of will or expertise; it will reflect in part the current state of local, regional and business infrastructure, and it may reflect the extent to which there is land available for development. It would be heavily influenced, say, by being close to a university research facility with existing business clusters nearby. Levies may dampen the effect for some, but it looks as though protection of the safety net will be available only for significant loss of the business rate base. Indeed, the risk of a reduction in the level of business rate income will in future fall on councils and will need to be taken account of in setting reserves.
Government retaining 50% of the business rates as a means of controlling overall levels of local authority spending means that reductions in the future, from 2015-16, are more likely to be met by reductions in grants, which are of course distributed between authorities in a completely different way to the formula grant, therefore hitting the neediest authorities the hardest. So a policy with decent intent is being undermined by obsessive control from the centre and lack of understanding of the needs of many of our communities.
The manner in which the Government are seeking to localise council tax benefit is especially pernicious. It combines two policies: a shift in financial risk from central government to local authorities and, at the same time, a cut in resources of at least 10%. It takes support for council tax outside of annual managed expenditure, meaning that demographic changes, adverse economic circumstances, and just greater take-up—because it is no longer a benefit—risks local authorities having a shortfall of funds.
At present council tax benefit provides nearly £5 billion of support for low income families. As the IFS points out, it has 5.9 million recipients; even with relatively low take-up rates, this is more than any other means-tested benefit or tax credit. It is all the more surprising therefore that the Government have set their face against including support for council tax within the universal credit. Failure to do so undermines the simplification which universal credit seeks to achieve. A coherence between council tax support and universal credit can be complex, particularly around work incentives.
Alongside universal credit there will be hundreds of different local schemes with different taper rates, applicable amounts, treatment of capital, income disregards and so on. During transition, council tax support will have to sit alongside universal credit as well as the existing benefit system. It seems from recent announcements that the introduction of universal credit is slipping. It was meant to apply to all new claimants from October 2013. I understand that this will not now happen until the middle of 2014. Will the Minister confirm that? Will she assure us that the reduction in support will be 10% of actual closing council tax benefit expenditure, reflecting the increase in case load because of increased unemployment and short-time working, and not the OBR’s assumed reduction in case load? As the IFS points out, the funding cuts will be larger in areas where council tax support is higher—the most deprived areas. It is estimated at £5 per dwelling in the City of London and £38 in Haringey. What else would we expect from this Government? Because pensioners are to be kept whole, it is calculated that nationally grants will cover only 81% of working-age claimant costs; and in one in 10 local authorities less than 75%.
As we have heard, local authorities that cannot get a local scheme in place by 31 January will have a default scheme imposed on them which will be equivalent to existing arrangements. This means that local authorities in this position will have to find the 10% shortfall because there will be no reduction in individual entitlements. For some there may be cover in additional empty rates charges, but for many it will mean further cuts in services.
The Government are also requiring that localised schemes protect vulnerable groups without offering their definition of who should be included. We will press them on this in Committee. In the mean time, local authorities are having to endure the breathtaking hypocrisy of being reminded of their equality duty and obligations under the child poverty and homelessness legislation, and this from a Government whose own policies caused them to preside over increasing homelessness and rough sleeping, growing child poverty, and whose cuts to disability benefits have created a climate of fear among disabled people.
Local authorities are being set a near impossible task to produce a truly localised council tax support scheme by January next year—just seven months away—and the Government know this full well. Those that cannot carry the burden of the 10% cut are being encouraged to adopt a scheme based on the existing architecture, hacking away at components where they can. That is just a crude approach for the Government to escape responsibility for their decisions, which are designed to cut support or services and to cut the income of the poorest. As the IFS points out, there is a trade-off between protecting those on the lowest incomes and incentives to work.
The timetable is tight in terms of necessary consultation, scheme and system design and forecasting the council tax base. In addition, we shall wish to discuss in Committee issues around consultations, disputes and risk sharing between billing and precepting authorities; the interface with universal credit and work incentives; and the challenges of collecting small amounts of council tax. We will further scrutinise the clauses relating to information sharing and tackling fraud, which were introduced late at Report stage in the House of Commons. Localised schemes for council tax support are not what we most wish to see. However, if this is to be the way forward, we will seek common cause with those who seek to defer the date of implementation so that local authorities have the chance properly to implement arrangements which are practical and as fair as funding will permit.
This is a rushed, ill-thought-through Bill which has the potential to cause great hardship to many. We will do our best to change it where we can and resist it where we cannot.
Baroness Hanham
My Lords, I thank all noble Lords who took part in the debate. As I expected at the outset, it covered not just principles but details, and I will not be able to answer every point made. I think that some speakers recognised that as we went through. However, all the points raised will be noted, and I have not the slightest doubt that we will return to them in Committee.
One of the first criticisms made was of the timetable. Perhaps it is worth dealing with that first. We recognise that because of the time taken for the Bill to get through the other House and this, the process will be challenging—but we are quite clear that it will be achievable. Local authorities have already received statements of intent and impact assessments. They are well apprised of what will be involved. We have published guidance to all local authorities for them to understand what their responsibilities are and are likely to be, particularly in relation to vulnerable groups and the setting out of general principles of incentives. Therefore, they can start consulting, forming schemes and thinking about discount schemes. The noble Lord, Lord Beecham, shakes his head, but the information is there. Local authorities know the purpose of the Bill; they were involved in local working parties; and while they may not all agree with the outcome, there is not the slightest doubt that they will be able to go forward and start on implementation.
I hope and expect that we will be able to discuss the issues that have been raised. I will make an offer immediately: anybody who wishes to discuss points with me and my noble friend Lord Attlee, who will deal with some sections of council tax benefit, may do so. We are open to discussion. We may not entirely like or agree with what you say, and we may not conclude that what you say is right, but it is important that Members of the Committee should know that we are available if that is what is required.
I cannot cover all the points, but there were one or two that I cannot overlook. The retention of business rates is something for which local government has asked for ages. When I was a local government leader, I thought it would be a very good idea if we were able to retain local business rates. The process we have started does that. It makes it clear that local government collects the business rate and, instead of passing it all on to central government, can keep some. That is fine. The 50% Treasury requirement will absorb some of it, but the 50% will come back to local government in the form of grants. So it is not lost to local government. I totally accept that it is not within the power of local government to alter it, but it is not lost. It is not going into the Treasury coffers and staying there; it is coming back.
As to the points that were made about Kensington and Chelsea and the north, no Member has commented today on the fact that there is a levy system. That levy system will work on councils which raise what is called “disproportionate” sums of money. It will affect councils such as Kensington and Chelsea and Westminster, whose contributions will be top-sliced off because they are deemed to be too high. By any other name it is an equalisation scheme, and noble Lords will want to recognise that.
There has been a great deal of discussion on the relationship between universal credit and the welfare reform process and how council tax benefit is aligned up with that. I know that we will have those discussions at length in Committee but I will confirm immediately to the noble Lord, Lord McKenzie, that the implementation of universal credit is not slipping from 2013. The expected date for implementation is 2013 as it has always has been. There has been no change to that.
Lord McKenzie of Luton
Can the Minister confirm whether the implementation in October 2013 is in respect of all new claimants or only some new claimants?
Baroness Hanham
There is a nod from the Box. I shall have to let the noble Lord know. I said the scheme would be implemented in 2013. My noble friend Lord Attlee will retrieve that information and I will pass it on.
The noble Lord, Lord Tope, who I thank for his basically supportive speech, asked when the draft regulations for the council tax support would be published and whether we would have an opportunity to see them. The Government will publish those draft regulations for the pensioner and default schemes in July. These key regulations will be needed by local authorities and IT suppliers, which is why we published on 17 May the statements of intent on both pensioner protections and the default scheme. As I said earlier, that information is there and should be available to local authorities.
Indeed, I know of at least one local authority which has already constructed its scheme on council tax discounts on the basis of what it knows already and it is ready to announce it. So it can be done. It is not something that anyone needs to hide behind.
I am grateful that practically everyone has supported the principle of TIF. There is no doubt that with TIF 1 councils are free to put up projects and take them forward. TIF 2 is limited because of the general financial situation at the moment; we will not be able to spend a huge amount of money on it at present. However, it is there and, if it goes well, further consideration will be given to it. As noble Lords know, TIF 2 is confined basically to the core cities putting forward good projects. That is already happening and we know that there are projects which can be developed quite quickly.
My friend the noble Earl, Lord Lytton—I call him my friend because he was very nice last time and I hope that we will get the same this time—has raised with me the question of parish councils, the contributions that they make and the fact that they do not get support from the business rate. I will come back to that because I am sure it will come up in Committee. With regard to valuations and the revaluation, as the noble Earl knows, there is no intention to re-evaluate the council tax base at the moment. On the appeals process for current appeals, we are working with the Valuation Tribunal and the Ministry of Justice to establish the mix of expertise that may be necessary to hear these appeals and ensure that they are not held up.
On impact assessments, as I said earlier, we have published a statement of intent so that there is enough information available, particularly on the equality impact assessment. We are satisfied that the work is now well under way. The amendments made on Report in the Commons are intended to make it clear that there are no legal barriers to preparing for and carrying out consultation prior to Royal Assent. A number of noble Lords referred to the complexity of the scheme. It is only fair to say that the current scheme is blindingly complex, but it is anticipated that the new one will be less so once the situation is understood and we get through the legislation.
I touched on the 100% of business rate not being held by local government, and I am sure that it is something we will discuss.
I was asked about places that struggle to attract economic growth; it was a point made by the noble Lord, Lord Smith of Leigh. Part of that will be addressed by the system of tariffs and top-ups. The base, as noble Lords have said, will be that of 2010, but it will be supported by tariffs that take funding away from local authorities with more than the base and given to those with less. There is a level playing field when all this starts, and those tariffs and top-ups will be raised by RPI.
The noble Lord, Lord Best, asked whether local authorities will be able get guidance on how to support the universal credit taper. I am pleased to confirm that the department has already published guidance on the key considerations that local authorities will need to take into account in designing a scheme that supports work incentives and the objectives of universal credit, so that is under way.
I turn now to the noble Lord, Lord Wigley, with regard to the Welsh clauses. The amendments to the Bill moved in the other place were tabled at the request of the Welsh Assembly. As we understand the process—the noble Lord may differ from me on this—the legislative consent Motion can be tabled only after the amendments have been passed and the new clauses have been laid, and they must be considered by the Assembly before the Bill completes its passage through the House. I think that the procedural arrangements sound all right but if, having thought about it, the noble Lord still does not feel they do, perhaps he will let me know as soon as possible.
The noble Lord, Lord Warner, raised the question of adult social care. I cannot answer that specifically, but as he and the House knows, adult social care is at the front of everyone’s mind. The issue is not confined to local government because it covers a number of departments. A White Paper is being completed at the moment. I think that there will be other venues in which to discuss adult social care, and in a way I hope that it does not trip up in this Bill because, while it is part of local government finance, it is not the major financial implication for local government.