Queen’s Speech
Lord McKenzie of Luton Excerpts(10 years, 5 months ago)
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Lord McKenzie of Luton (Lab)
My Lords, it is a particular pleasure to follow the noble Baroness, Lady Noakes. Tempted as I am to engage in the tax debate, I think I ought to stick to my prepared script and talk about local authorities.
In last month’s local elections, more than 4,000 individuals were elected in England to serve on some 160 local authorities of one description or another. Many would have been re-elected and some elected to serve for the first time. The democratic process delivered joy for some and despair for others, but for my party it delivered more than 300 more councillors and control of 82 councils. As the largest grouping on the LGA, it now falls to us to provide its chair, Councillor David Sparks, the first Labour councillor to become chair since my noble friend Lord Beecham. I propose to take this opportunity to reflect briefly on the challenges for those councillors—those continuing and those just elected—as they make their declaration of office and see what, if anything, planned for the new Session is designed to help them.
The scene has been very much set by the outgoing chair of the LGA, the Conservative Sir Merrick Cockell, who described councils as being at a tipping point, warning that council services are at breaking point. He has been reported as declaring that the current funding arrangements will not see us through for very much longer and expressed concern about the running down or wholesale closure of services such as libraries, road maintenance, school support schemes and youth clubs. We know that local authority spending on adult social care has already been cut by £1.8 billion since 2009-10, and there are 300,000 care workers on zero-hours contracts. That is before we have to face the big issues referred to by the right reverend Prelate the Bishop of Leicester.
As we have debated before, funding for local government overall has been cut by 40% during this Parliament—bigger and earlier cuts than those to any other part of the public sector—but it is the distribution of those cuts that shows the true nature of this Government. Poorer communities have been disproportionately hit, as evidenced by the fact that the 10 most deprived local authority areas lose 10 times the amount of spending power per household compared to the 10 least deprived local authorities. Liverpool gets a 27% reduction in spending power per household, while Surrey and Wokingham get an increase—so much for creating a fairer society.
At a time when we hear the Lib Dem wing of the coalition boasting about how many people they have taken out of income tax by raising the personal allowance, and Eric Pickles asserting that councils have a moral duty not to increase council tax bills, we know that hundreds of thousands of poor people are having big increases in their council tax bills because of the localisation of council tax support—delegating responsibilities but cynically not providing adequate funding. That is just one of the dilemmas confronting elected members: should they charge the poor to help pay for the very poor or should they cut services further? In the mean time, more households are being summonsed for non-payment and more are experiencing the heavy hand of the bailiffs.
If we believe that the impact on the poor is an unfortunate oversight, the plans to withdraw specific funding for local welfare provision—the successor to the discretionary Social Fund—tells us otherwise. Of course, the iniquitous bedroom tax, which we will repeal, is yet further evidence of a Government who neither understand nor care about the misery their measures are inflicting on vulnerable families.
Councillors are on the front line of having to deal with the consequences of one of the coalition's biggest policy failures, touched on by my noble friend Lady Andrews: housing. Despite a plethora of announcements and initiatives, housebuilding has been at its lowest in peacetime since the 1920s, with the number of affordable homes built last year dropping by 26%. The NAO concluded that there was little evidence, for example, that the new homes bonus has yet to make significant changes to local authorities’ behaviour in increasing housing supply.
We know that under the coalition Government, homelessness is up, rough sleeping is up and the number of families with children living in bed-and-breakfast accommodation has reached a 10-year high. Housing deprivation has ramifications across other council services. Switching government funding from investing in new homes to subsidising housing costs with housing benefit means that central government now spends more than 20 times as much on housing benefit as on building grants to support the provision of new affordable homes—as things stand, a trend that will continue.
We have seen some revival of council house building, generally led by Labour authorities, but overall, as we have heard, we are building fewer than half the new homes needed to fulfil demand, let alone to deal with the backlog. To be fair, it is not a new phenomenon and successive Governments have failed to build at the rate we once did. As a result of all that, more and more people are being locked out of home ownership and are living in the private rented sector. Across England, a quarter of adults under the age of 35 are living in their childhood bedroom. There are now 4 million households in the private rented sector, of which 1.3 million are families with children, and nearly 5 million people on local authority waiting lists. The average cost of rents has gone up by 13% since 2010 and renting is now the most expensive tenure, with renters spending on average 41% of their income on rents. Many face unpredictable rent hikes, while high and unpredictable costs are made worse by the uncertainty and insecurity of short-term tenancies of six to 12 months.
All this is helping to fuel the cost of living crisis and directly impacting on business competitiveness, especially in London. That is why we need to change legislation to make three-year tenancies the default in the market, as the Government’s voluntary approach is inadequate. We would also provide for an upper ceiling on rent increases during the tenancy, but with negotiated market rents as the starting point. There is more. We will stop tenants being hit by rip-off fees from letting agents and regulate residential lettings and managing agents to protect tenants and landlords. We will also introduce a national register of landlords and make it easier for local authorities to introduce licensing in their area, to drive standards up and rogue landlords out.
Nothing in the Government’s programme announced yesterday touches on these issues or acknowledges the problem, and nothing addresses the fundamental problems in the housing market or matches our commitment to build 200,000 homes a year by the end of the next Parliament. There is the commitment to legislate for development of a new garden city at Ebbsfleet and, as far as it goes, that is to be welcomed. However, there is a failure to ensure the provision of affordable housing or other garden city principles in that development, and the number of homes announced is some 5,000 fewer than were originally announced in 2012. The proposed reforms to planning to support small builders are ones that we could support but we will have to examine the detail. However, there is nothing to address the more deep-seated problems with the current planning system. No effective action is proposed to stop developers hoarding land with planning permission and nothing addresses the weakness in the planning system of the duty to co-operate, which is denying some local authorities the right to grow.
An incoming Government in 2015 will not be able to turn back the clock on funding but they could address the fairness in distributing the resources available. Labour councils and others are already meeting the challenges of austerity in many ways and more can be done if we build on the model of city deals throughout local government. It is crucial that we support councils to deliver economic growth in all areas of the country. This means devolving real power from Whitehall to towns and cities so that working together with local businesses—as in the city deals, where it is good that 24 have been agreed to date—they can take responsibility for transport, housing, jobs and skills and economic development. We need to be radical in breaking down the barriers to integrated working, including ending Whitehall’s silo mentality.
The Local Government Innovation Taskforce set up by Ed Miliband is looking at how Labour in local government is already innovating and responding to the challenges that our communities face. In some of the councils where we made gains last month, it is possible to see what is on the agenda. Priorities are being set locally: in Crawley, Labour will require 40% of new housing to be affordable, for example, while the priority for Croydon is to make it a living wage borough. Getting money out of the centre, from Whitehall to the town hall, is essential if we are to rebuild confidence in the power of people working together to create a future that is right for them and their communities. So, from the safety of this unelected House, I say to all those elected councillors: when the euphoria of election fades and the scale of the challenge emerges, keep the faith. Local councillors have a vital role to play for their towns and cities, their communities and, indeed, their country.
Growth and Infrastructure Bill
Lord McKenzie of Luton Excerpts(11 years, 8 months ago)
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Lord McKenzie of Luton
My Lords, I shall speak also to Amendments 3 and 14, which we have in this group. I can be brief on Amendment 3, because, to all intents and purposes, it seems to cover the same ground as government Amendment 4. Essentially, they require it to be stated in the Bill that types of application which can be directed to the Secretary of State rather than the local planning authority must be for a major development of a kind prescribed in regulations. We are content to accept the Government’s formulation.
Amendments 1 and 14 relate to the designation of a local planning authority. They require that the criteria to be applied in designating and revoking designation of a local planning authority be the subject of a parliamentary process and in particular that both Houses of Parliament be asked to approve the regulations via the affirmative procedure. We debated this in Committee and noted that the Delegated Powers and Regulatory Reform Committee had raised concerns over the lack of a parliamentary process. It is clear that the Government have responded, at least to an extent.
Designation is no trivial matter. It represents a considerable shift in process because it removes a democratically elected council’s role of having the first engagement with the planning process. We know that the Government consulted on the thresholds for poor performance and a failing authority; that is, 30% or fewer major applications determined within the statutory period or more than 20% of major decisions overturned on appeal. The consultation has now ended, although we do not yet have sight of the full government response. We have just—hot off the press, I think—received a summary of the consultation responses. These show that less than half of respondents supported the speed and quality approach; that less than half of respondents agreed with assessing major developments within statutory time limits over two years; that only about a quarter expressed support for quality being assessed as the proportion of major decisions being overturned on appeal; and that less than half agreed with the 30%/20% formulation. It seems that there is a long way to go for there to be good levels of buy-in to this approach. What are the Government going to do given this response to the consultation? It is slightly worrying that they are on record as saying that they will not deliver their response until after the Bill has received Royal Assent.
It should be stressed that the amendment seeks a process for the criteria not only for designation but for revocation. The latter was a cause of a lot of concern given that the local planning authority may not handle major applications, other than fairly administrative tasks, once designation has taken place.
We remain concerned about the proposed mechanical process of designation, although it is accepted that agreements, formal and informal, would be taken into account in any process. We were comforted also by the Minister’s words in Committee, where she said that,
“I hope I made it clear that if a local authority is going to be designated, it will be able to put forward the sort of points that he and the noble Lord, Lord Greaves, have suggested as a reason for why their applications have been slower than others”.—[Official Report, 22/1/13; col. 1047.]
That is, there will be an opportunity to make representations. How does the Minister consider this approach might be built into the designation process?
I shall speak later to the government amendments once the Minister has introduced them and to the amendment of my noble friend Lady Whitaker. In the mean time, I beg to move.
Baroness Hanham
I apologise for missing the fact that this was an aside. I will not take it any further, other than to underline the point that we listen very carefully to what local authorities say about legislation and we always will.
I am also grateful for the general support we have had. I understand that there are still concerns about this designation but we are trying to keep it as simple as we possibly can. In that regard, I will briefly address the noble Baroness, Lady Whitaker, and the noble Lord, Lord Best. We will be discussing the criteria in Amendment 10. They may want to intervene again in the next group but I think and hope I can deal with it. It is important to remember the whole purpose of this clause, which is to encourage good and timely decisions from local authorities and to give applicants for major development the choice of a much better service. There is no question here that, where the authority is designated, an applicant cannot still go to them. They are given the choice of being able to go to a local authority or being able to go immediately to the planning inspector. At the moment, they can do that after 13 weeks if an application has not been dealt with, but now they can go right from the outset.
In the context of design, sustainability is hugely important. However, it is not relevant to what we are trying to do here, which is to get the number of appeals against a particular local authority down and the applications dealt with quickly. Local authorities have to take sustainability, design and good development into account. The noble Lord, Lord Best, pointed out very clearly what my honourable friend at the other end, Nick Boles, has said. We believe very strongly in that. The national policy framework deals with that as well and makes it very clear. However, these are not tests that we ought to apply as part of assessing the designation. They are not matters that can easily be assessed on the basis of our considerations and the very limited criteria which we are employing.
Were the amendment to be accepted, there would be a very real risk of having a process that is far from transparent. We do not want that: we want it to be as open as it can be and, perhaps, open to judicial review. We wish to avoid that by employing the criteria that will ensure that the assessment process is as fair and transparent as possible. As I say, we will have a chance to consider those further in the next group.
My noble friend Lord True—I actually understood him this time and did not get it wrong—asked whether there would be clarity where the applications were sent to the Secretary of State. Again, we will deal with this later in the Bill where there are relevant amendments, but I assure him that the intention is that it should be open and transparent, with local people having the right to make representations to planning officials. With that, I hope that the noble Lord will feel free to withdraw his amendment.
Lord McKenzie of Luton
My Lords, I thank the Minister for her response to the amendments and for moving the Government’s amendments. We are happy to accept Amendment 4, with perhaps a more grudging acceptance of Amendments 7 and 19 because we think that a more robust process would be appropriate. At least now we have a parliamentary process, though, so the Government have moved on that and we should thank the Minister for it.
I agree with the noble Lord, Lord Tope, that Clause 1 is far from perfect; we would prefer it not be in the Bill and we will debate that later, but these amendments have edged it forward in a more acceptable direction.
I agree with the noble Lord, Lord True, that it is entirely appropriate that local authorities should be engaged in this consultation; in a sense, it is their powers that are potentially restricted by this. Something is still unclear to me regarding representations. Again, I take the point of the noble Lord, Lord True, that we do not want representations by the back door from people to the Secretary of State, but the opportunity for local authorities to make representations to the Secretary of State before designation takes place is still a grey area, at least to us. In Committee, the noble Baroness seemed to open the door for some iterative approach which is encompassed in performance agreements, formal or informal. I hope that we can get greater clarity on that during our deliberations today.
The noble Lord, Lord Jenkin, basically said in respect of the responses from local authorities, “Well, of course they would say that”, but the value of the consultation is not only the metrics—even though it was me who quoted them—but some of the issues that are raised, and they are very relevant to some of the debates that we are going to have.
We support the approach of my noble friend Lady Whitaker’s amendment, spoken to and supported by the noble Lord, Lord Best. It reminds us that one way to judge quality might be the level of unsuccessful appeals, but that does not really go to the heart of whether a planning authority’s decisions and engagement are focused on the quality of design and the achievement of sustainable development.
It is interesting to look at the consultation responses to Question 5,
“Do you agree that quality should be assessed on the proportion of major decisions that are overturned at appeal … ?”.
Is that the right metric for judging quality? Only 27% supported that while nearly half, 48%, were either opposed to it or had a qualified opposition to it. It is this lack of a qualitative assessment and reliance on the mechanistic approach to designation that is likely to drive down standards. Clearly, ignoring any view from parish or town councils, neighbourhood and business forums, or indeed any relevant representations, may make for clarity of criteria but, I suggest, does not assure us of the right sort of outcomes that we want from the planning process. Having said all that, though, and accepting the Government’s amendments, I beg leave to withdraw the amendment.
Lord Tope
Amendment 2 will have the effect of giving a 12-month period between a local planning authority being identified as performing poorly and the time when it may become designated. In Committee I suggested 18 months, my noble friend Lord Greaves suggested 12 months and we did not need to argue over that. I have settled on 12 months because part of the Government’s argument against the amendment at that time was that 18 months was too long.
There is a slightly different approach towards Clause 1 and designation. The Government have said that they want Clause 1 as a deterrent to local authorities. I prefer to see Clause 1 as an incentive. There is an important difference in thinking: a deterrent is something negative which implies punishment at the end if you do not comply, whereas I see incentive as encouragement, something positive, to seek to improve. That is what the Government seek to achieve as well. They are not out to punish local planning authorities—that has become very clear during the course of the many debates on this clause. They are seeking improvement too.
I suggest that there should be a 12-month period from the time when a local planning authority becomes aware that its performance is poor enough to warrant possible designation. It should then have the time to take the necessary actions itself, if it can, to bring about the necessary improvements, to join with others in a peer-led improvement, on which the Local Government Association—of which I am not a vice-president—has a very good track record and which I know the Government have appreciated on many occasions. It also gives time for the Government and others to assess the direction of travel of that local planning authority. If it is improving at a significant rate, then to designate it at the end of that period would seem to be an unnecessary punishment. We should, rather, stimulate with greater encouragement.
This amendment is brought forward in good faith in the hopes of further helping the Government to achieve their objectives. The Planning Minister, Mr Boles, has said that he hopes that neither he nor any future Government will ever have need to use the provisions in Clause 1 because local planning authorities will have improved their performance and it will be unnecessary. The amendment allows a sufficient and reasonable time period to enable local authorities to bring that about themselves without suffering the punishment of designation.
I hope that when the Minister replies she will spell out how the Government see this as an incentive to improve, not a punishment to be inflicted for poor performance. When we look at the process in more detail we can see how that is being achieved. I beg to move.
Lord McKenzie of Luton
My Lords, we heard from the noble Lord, Lord Tope, in Committee on a similar amendment proposing a period of 18 months. The intention is to give early warning to local authorities, so that they have an opportunity to improve with the help of other local authorities, the LGA, and possibly even the Government.
The thrust of the amendment is entirely reasonable. We suspect that the Government’s response will be that authorities will know in good time. Designation will be based on two years’ data and authorities will know the results of the first of these years. If they are failing the criteria for year 1, the danger signals will be there for the end of year 2. Councils will be able to seek to improve. This does not address the position at the start of the scheme where, before the ink is dry on the legislation, the die will effectively be cast.
At a recent meeting, which was kindly organised with the Planning Minister, it was hinted that there might be some easement in the early period. Perhaps the Minister will tell us whether there are any such developments. In any event, on an ongoing basis, knowing in year 2 that year 1 criteria have not been met may not give the local planning authority sufficient time to improve. Improvement may in part depend on the nature of any new applications. Tardy dealing with the major development submitted in year 1 may affect the data for year 2. For a small local planning authority, staff sickness and the timescales to recruit new staff are factors which anyway could mean that a local authority has insufficient time to turn things around by the end of year 2.
If the objective is to encourage sustainable improvement in local planning authorities, the rigid application of the criteria could be counterproductive. The noble Lord’s amendment seems to give an opportunity of improving that situation under these arrangements. I say to the noble Lord, Lord Tope, that if we do not get a satisfactory answer from the Minister today, he should consider testing the opinion of the House on this proposition.
That leads to our Amendment 15, which requires the serving of a notice of intention to designate but then, crucially, a chance for a local planning authority to make representations as to why designation would be inappropriate—not for an extensive period but for just four weeks in this case. We know that the Government will argue for the importance of transparency and certainty in the process but they should also recognise that a range of factors could affect the timeliness of dealing with applications—difficult development, statutory consultees, extended and iterative community consultation, to name but a few. It might be argued that anyone served with a prospective designation notice is bound to make representations but of course not all will be justified.
In any event, at a recent meeting, we heard from the Planning Minister that although the number of likely local planning authorities to be designated has crept up—I think that he suggested 20—that surely is not too large a group for there to be the opportunity to make representations. We should think of the damage to and the demotivation of a planning team which gets designated through no genuine reasons that it could influence.
Perhaps I may again take the noble Baroness back to our deliberations in Committee when she said:
“There are usually reasons why planning applications are delayed, and one may be that an application will take longer than the normal consultation period. Before an authority is designated, it will be allowed to put that view forward and say that it has not been able to deal with certain applications because it has agreed that the process will take longer, or there may be some other reason. A portcullis will not just come down; discussions and explanations will be possible”.—[Official Report, 22/1/13; col. 1032.]
That seems to be pretty clear and suggests that there should be scope for precisely what the amendment in the name of the noble Lord, Lord Tope, and our Amendment 15 seek. Unfortunately, from all that we have heard so far, it seems as though the portcullis will just come down and that there will be no stay of execution on this.
Baroness Hanham
I thank both noble Lords for these amendments, which, as I have said, open up the discussions on the criteria and the means of designation. The noble Lord, Lord Tope, has said that with designation we should be incentivising and not punishing. From the outset, I want to make it clear that that is precisely what we are trying to do. While we designate because of a performance, we are trying to ensure that that performance improves. If this is an incentive to do that, that is precisely what we are trying to do.
How the designation process will work is very important. As a matter of course, we are consulting on it. I think that it would be helpful if I begin by giving noble Lords an indication of what people have said and how we intend to respond. The consultation closed on 17 January and, as noble Lords have said, there were 227 responses, many of them from planning authorities. There were inevitably some differences of view and, having looked carefully at the responses, we are in a position to confirm how we plan to move forward on some of the key elements of the proposals. We will of course publish a full response to the consultation in due course, once the primary powers to be implemented have been finalised.
In the light of the consultation we have concluded that the speed and quality of decisions on planning applications are the most appropriate basis for assessing the performance of local planning authorities for the purpose of implementing this clause. The basis refers to the specific thresholds where, as the noble Lord, Lord McKenzie, rightly said, 20% were lost on appeal and 30% assessed on speed or lack of it—applying, in other words, to authorities that have had 20% or more of their major decisions overturned at appeal, or that have decided 30% or fewer of their major applications within the statutory period.
It bears repeating that these are very low thresholds. The intention behind them is to create a safeguard that encourages—or incentivises—good performance rather than to see a lot of designations. We remain of the view that designations should be a last resort and that these thresholds are in line with that objective. We will keep them under review—that is our starting point and firm intention. Through the amendments that we have made to Clause 1, Parliament will have the opportunity to consider the criteria before they are finalised.
There was considerable support for our proposal to allow extensions of time agreed between the local authority and the developer to be dealt with separately from the performance figures that we currently collect. This was one of the points addressed by the noble Lord, Lord McKenzie; where over time there are difficulties, as long as there is agreement with the developer for an extension of that time for whatever reason, that will not become part of the decision-making relating to the designation. These performance figures are part of promoting a simpler, more proportionate approach to planning performance agreements. We will reflect this as quickly as possible in the data that we collect. We also intend to proceed with our suggestion that any authorities that fall below the performance thresholds are considered for designation and dedesignation on an annual basis.
In line with this we have been giving particular thought to how we can put in place a cycle of support for authorities that are at risk of designation and have actually been designated. This is important for two reasons. First, by providing early support we very much hope that we can help any authorities that may be struggling to improve sufficiently and so avoid designation. Secondly, for authorities that have been designated we will want to make sure that they can get out of it as quickly as they can and that, if possible, designation can be lifted at the end of a first year.
In the light of the consultation responses, our position is that decisions about dedesignation should be guided primarily by an assessment of what the authority has done to address the reasons for underperformance, and its capacity and capability to deal effectively with major applications. This will mean reviewing at the time of designation what the authority needs to do to reach a satisfactory level of performance and to ensure that it can access whatever help may be required. To provide that support we have been having helpful discussions with the Local Government Association about the way that it can best be provided to those local authorities. We agree with the LGA that this is appropriately done by support from the sector, and that it has a vital role to play in driving improvement in planning services and addressing poor performances where they exist. Giving local government the responsibility to manage its performance is a principle we are committed to and have supported through our funding of the Planning Advisory Service.
Lord McKenzie of Luton
My Lords, will the noble Baroness clarify the position at the start of the process? The first round of designation will take place in October this year and as most of the data that will influence that is already in existence, there is little that a local authority can do now, given the time, even if it is extended to June, which might have been the suggested date, to have a sector-led approach to help them to improve. We are almost in March, and the legislation is not yet on the statute book. What the noble Baroness said was helpful going forward, but I do not see that it helps people and local authorities at the start of the process that much. Can she give us any further comfort on that?
Baroness Hanham
My Lords, I have two bits of comfort, if I can voice it like that. First, I think that local authorities that are in the designated zone will be very aware that they are and the Local Government Association is well prepared now to help them. Secondly, the figures that they can see at present may make them feel at risk once they have done that, but they can then approach the Local Government Association for help to see whether they can improve their figures going up to October.
“( ) Before reaching a decision on an application made to him under this section, the Secretary of State must ensure that there has been adequate consultation with the local community.”
Lord McKenzie of Luton
My Lords, this amendment is entirely consistent with Amendment 13, which I trust I will be able to support after it has been spoken to by its mover. Amendment 5 seeks to ensure that, when an application is made to the Secretary of State under the provisions of the Bill, there must, nevertheless, be adequate consultation with the local community. One of the fears arising from Clause 1 is that it facilitates the bypassing of local planning authorities and, along the way, local communities. It is a rerun of a Committee amendment because we considered that the matter was not fully resolved at that stage.
The Minister at that time asserted the intention that all current statutory requirements on local authorities would be transferred to the Planning Inspectorate, including requirements around publicity and consultation. Perhaps the noble Baroness will remind us this afternoon of the process and timing for this. Notwithstanding that, the concern lingers about the presumption that applications dealt with by PINS will largely involve engagement by means of written representations, with possibly a short hearing to allow key parties to put their views, and that this would not necessarily be typical of major applications to a local planning authority. In moving the amendment, I seek reassurance from the Minister on that point.
Lord True
My Lords, I have an amendment in this group, which the noble Lord, Lord McKenzie, has effectively summarised in the points made. I do not pretend that the specific wording or format is necessarily correct, but none the less the broad principle enshrined in it, and in what the noble Lord has just said, is important. As this process goes forward there will inevitably be fears that a Government—not this one necessarily—may in time use this process to ensure that it is made easier to secure agreement to major developments against the wishes of the local population. It might be feared that that could be done either by having a process that is conducted through written procedures or by a rather cursory appearance from an inspector for a hearing in the local area. In this process, a great deal also goes on in the pre-planning stage. Good developers are these days very active and are often encouraged by local authorities to meet local populations to discuss and undertake consultation, perhaps in relation to what might be the specific local community benefits that come from the development. All those things are best conducted locally, in the place and community where the development will take place and which will be affected by it.
As I said, I do not intend to try to write law that is prescriptive. My noble friend gave some general reassurances earlier, but in both the pre-planning stage and the period in which a planning application is under consideration, it is absolutely essential that the Government leave no suspicion in the minds of the public about their rights, about which they feel ever stronger. Those of us who have the honour to represent people in local authorities know that the people’s wish to have their voice heard is greater, not less, as time goes by. I hope that we can hear a very strong reaffirmation from my noble friend that if not the specifics of my amendment, certainly the spirit of it will be written into whatever provision the Government might follow up with as they refine secondary legislation, codes of practice and so on, once the legislation becomes law.
The public must not believe, or have any justification to believe, that there is something herein that makes it easier for development to take place in the teeth of what local people believe to be in their interests. That is not nimbyism; there is a balance in these matters. Giving people a chance to have their day in court and to have their voice heard is extremely important in the principle of securing consent to planning developments, which all of us in this House know that this country will need in the decades ahead.
Baroness Hanham
My Lords, I hope I can be reassuring on all the aspects that have been raised. We are fully aware of the necessity to ensure that residents and local communities are involved in any planning application. In any planning application process, effective community involvement is essential. It is a priority that we have been pursuing vigorously through the various planning reforms.
In Committee, I tried to be clear that we will ensure, through secondary legislation, that there is no reduction in the rights of communities to become involved where applications are made directly to the Secretary of State. Let me go into that a little further. There will be no dilution of the legislative safeguards to enable communities to become aware of applications made to the Secretary of State, to comment on them and to have their views taken into account; nor will any less weight be given to their views on the planning issues involved.
Indeed, the existing primary legislation will require a planning inspector, when making a decision on such an application, to take all material considerations into account, just as a local planning authority would. The decision would have to be made in accordance with the development plan unless there are any material considerations that indicate otherwise. Again, that is no different from the approach that a local planning authority would have to take. The local authority will, of course, be able to put its own representations to the Planning Inspectorate with regard to the application.
It was a major element of the Localism Bill that there should be pre-planning discussions, and we expect those to take place as well. This is not a fast process from that point of view. You would expect pre-planning discussions to take place before the application was lodged, because otherwise they are not worth having. That aspect will still continue. We are trying to ensure that the important protections in town and national planning policy are taken fully into account, whether the decision is made by a planning inspector on behalf of the Secretary of State or by the local planning authority.
Through secondary legislation, we will ensure that the relevant documents for applications made directly to the Secretary of State are made available at the offices of the local planning authority as well as on the planning inspector’s website. I can also confirm that our intention is that there should be short local hearings. The noble Lord, Lord Tope, asked whether hearings and discussions would be held to consider the views of key parties where a case has raised issues that should be considered in public. I hope noble Lords will understand that we are very anxious that local communities are not excluded from this process and that it is as transparent, as it would be were the local planning authority dealing with it.
My noble friend Lord Tope raised the question of the Mayor of London. Schedule 1 allows the Mayor of London to retain his ability to call in any applications of potential strategic importance for the capital where an application is made directly to the Secretary of State. To ensure that the mayor is made aware of any such application as swiftly as possible, the Planning Inspectorate will make an immediate assessment of whether any application it receives falls into this category. If it does, it will notify the mayor’s office without delay and he can then decide whether he needs or wants to call in the application for his own decision. I hope that addresses the point made by my noble friend.
The Town and Country Planning Act makes specific provision for parish councils to be notified of proposals in their area. It was a point made by the noble Earl, Lord Lytton, and the noble Lord, Lord Greaves, neither of whom are in their places today. I reassure them that parish councils will have to be notified of proposals in their area where they have notified the planning authority that they wish to be kept informed. It is voluntary as far as they are concerned.
I have two amendments in this group. Amendment 17 responds to the point made by the noble Earl, Lord Lytton, which I have just discussed, and will make it a statutory requirement for the Secretary of State to inform parish councils of any applications that affect them, provided that they have asked to be notified of the applications, which seems reasonably fair. Amendment 19 makes a minor consequential change to Schedule 1.
In the light of what I have said, while I understand and sympathise with the intention behind the amendments put forward by the noble Lords, Lord True, Lord Tope, Lord Shipley and Lord McKenzie, and spoken to very supportively by my noble friend Lord Deben, I do not think that these additional changes are necessary to ensure that effective community involvement is seriously taken into account where applications are made to the Secretary of State. As I have said, we will ensure that secondary legislation requires the same degree of consultation with communities as primary legislation, which sets out the requirements that apply when applications are made to the local planning authority. We will of course ensure that the House has an opportunity to consider the secondary legislation that deals with these matters when the time for that is ripe.
With those assurances, I ask the noble Lords not to press their amendments.
Lord McKenzie of Luton
My Lords, I thank the Minister for her response and for moving her own amendments. Clearly we support the government amendments and their provisions for the notification of parish councils. I have already indicated my support for the amendment tabled in the name of the noble Lords, Lord True and Lord Tope. I believe that the Minister has satisfied us about the legislative framework under which the Planning Inspectorate will be required to consult to make residents aware and to ensure that their views are taken into account, whether by primary legislation or by secondary legislation that is to come.
However, nervousness remains over whether the Planning Inspectorate’s approach will involve engaging with the intensity with which a local authority would, and whether its connection with the local community is as intense and engaged as that of a local planning authority. I suppose there is no way of getting greater assurance on this point until we see what happens in practice. The noble Lords, Lord Deben and Lord True, made a point about the era that we are in. Local people now have a much greater focus, and the entitlement to engage in these things is important. However, I do not think that we can second-guess what might happen; we will have to see in practice what the level of engagement is.
I hope the noble Lord, Lord Tope, has been satisfied on the mayor’s position. That said, I beg leave to withdraw the amendment.
Baroness Garden of Frognal
My Lords, I remind noble Lords that we are on Report and, under the convention in the Companion, no Member may speak more than once to any amendment.
Lord McKenzie of Luton
My Lords, I speak in favour of Amendment 9 in support of my noble friend Lord Judd, who so effectively and passionately introduced it. He argues for the inclusion of the national parks authorities and the Broads Authority in those organisations that cannot be designated.
A major concern with this Bill is that it will drive down standards—that, because of the focus on timing in the criteria that are to be adopted, planning authorities will be pushed into making less considered decisions, eschewing quality for speed. That is something that runs through our concerns about this clause. As the CPRE states, exempting those particular planning authorities would be a clear recognition that landscape considerations are paramount and that they need not be distorted by the extra pressures that are coming through, as a result of this clause, on the speed of decision-making and, of course, to avoid contesting more difficult appeals.
My noble friend Lord Judd was fantastically supported by my noble friend Lord Liddle, with his direct experience of national parks. I say to the noble Lord, Lord Deben, that the fact that my noble friend’s proposal is romantic should not preclude it from being supported. It can be effective and practical, as my noble friend argued, as well as having romanticism. I would have thought that that is what we want from our national parks.
Baroness Hanham
My Lords, I thank noble Lords for their interesting interventions on this interesting amendment, which we discussed in Committee. I am not going to endear myself to the noble Lord, Lord Judd, by saying that my answer now is the same as it was then. My noble friend Lord Deben said that he can see no reason for excluding national parks from designation just because they are national parks; nor can we. That also applies to the Broads Authority. The reason for keeping them included is that they are planning authorities. If they perform wonderfully and at a standard that I think the noble Lord said they would, this registration will not matter to them at all. It would completely leave them out to carry on doing what they are doing so beautifully. There might be authorities which fall into this category only if, as my noble friend Lord Deben suggested, they do not perform to the designated standard. They would then become involved.
It is important that national parks are served by an effective planning service. That applies just as much to them as to any other area. They are asked from time to time to put in major developments—we call them major if they are of 10 houses or more—and it is absolutely essential that there is within those areas a planning authority that understands what it is doing and makes those decisions carefully. There are some national parks that deal with a relatively small number of major applications, but some do not. The noble Lord, Lord Judd, cited figures, some of which would, I think, fall below the major applications category. I understand that the Lake District made decisions on 31 major applications in the past two financial years, while the New Forest dealt with 23 and the Broads Authority with 18. For those authorities, those are not inconsiderable numbers.
The noble Lord, Lord Judd, asked why national parks and the Broads Authority should not be included among others which had not been designated, such as the Mayor of London and the development corporations. However, these are by and large not normal planning authorities. Certainly, the development corporations get involved to deal with only very big or complex proposals and do not deal on a day-to-day basis with some of the smaller ones.
It is true that other national parks deal with fewer major applications, but the two-year assessment period that we have proposed is designed to even out some of the fluctuations. It is also important to remember that these authorities will be able to enter into planning performance agreements or agree an extension of time where there are issues that will take additional time to resolve, which may be germane only to their particular type of application. There should be no worries that if a national park or the Broads Authority were to be designated, that would result in decisions that pay less regard to their special qualities. If, in these circumstances, an application for major development were to be made to the Secretary of State, the decision would have to be in accordance with the same statutory principles that apply to the designated authority. Indeed, I expect that they would also be able to access the help of the Local Government Association.
In other words, there would be the same legal obligation to make decisions in accordance with the development plan, unless there are material considerations that indicate otherwise. The Secretary of State will also be under a statutory duty to have regard to the purposes for which the national park has been designated in making such decisions. I listened carefully to the noble Lord, Lord Liddle. I am enchanted by the fact that the national parks have such good people, but that is not what this is about. If they have really good people they are making really good decisions, so they are not in any jeopardy of being designated.
I will resist the amendment and hope noble Lords will understand that, as recognised planning authorities, neither the national parks authorities nor the Broads Authority should be exempt. The communities and businesses in their areas deserve the same standards of service on planning as the rest of the country. I hope the noble Lord will withdraw his amendment.
“( ) The Secretary of State shall arrange for an independent review into the impact of the operation of this section on local authorities to be undertaken at the end of a three year period from the date that this section comes into force, and shall lay a report before each House of Parliament.”
Lord McKenzie of Luton
My Lords, I shall be brief. If Clause 1 stays in the Bill, and we hope that it does not, then there is a need for an independent review of its impact. I acknowledge at the start that the wording of this amendment could be improved, as it should focus not just on the impact on local authorities but on the effectiveness of the planning system as a whole, including from the perspective of developers. However, if necessary we can tidy this at Third Reading.
Clause 1 introduces a significant change into the planning system. Subject to later deliberations, we could be giving the Bill approval without the Government’s clear and definitive position on some key aspects—certainly, their response to the planning performance consultation, although the Minister gave us some glimpses of where the Government are on that. We accept that there are obviously more general opportunities for parliamentary scrutiny, such as the Select Committee, but we assert that this requires an independent review. Will the Minister give us any assurance about what follow-up is planned to the Bill generally, but specifically to Clause 1 and its impact, and whether the Government would support such a review? I beg to move.
Baroness Hanham
My Lords, I have no difficulty with the suggestion that we should keep the implementation and impact of this measure under review, but that is not something for which we need legislation. We set out in the impact assessment that, as usual, we will undertake a post-legislative review of the provisions in the Bill three to five years after Royal Assent. This reflects the Cabinet Office guidance on post-legislative scrutiny, which requires that three to five years after Royal Assent the department must submit a memorandum to the relevant Commons departmental Select Committee, published as a Command Paper. This will include a preliminary assessment of the effects of the Bill. Furthermore, the data on local planning authority performance will be published on a quarterly basis and an annual basis, in line with our commitment to transparency. This will allow anyone with an interest to see how planning authorities are performing and, together with the decisions about dedesignation, it will form a view of the impact that the measure is having. The noble Lord’s amendment is not necessary, as this is certainly something that will be kept under close scrutiny. Under the circumstances, I hope that he will feel able to withdraw his amendment.
Lord McKenzie of Luton
My Lords, I thank the Minister. I anticipated that that was what she might say in response to this amendment. The only thing that I would say about post-legislative scrutiny, which I certainly support as a concept, is that it does not necessarily introduce this independent aspect of the scrutiny. Still, I wanted to get on the record what the Government planned as a follow-up to the Bill, and the Minister has helped us with that. I beg leave to withdraw the amendment.
Lord McKenzie of Luton
My Lords, this amendment would remove Clause 1 from the Bill. I acknowledge that the Government have moved a little in agreeing to a parliamentary process of designation of a supposed failing authority, but that does not outweigh the overriding concerns that remain about the clause. The right for developers to bypass the local authority planning process when an authority is designated is a profound one. Not only is it a centralist approach, quite contrary to the espoused localism of the Government, but it breaks a major tenet of our planning system that democratically elected local politicians representing their communities are at the heart of the system.
We accept that not all local planning authorities deliver a top-quality service, no more than do central government. Developers who are frustrated by this have a remedy to go to the Secretary of State for non-determination within fixed deadlines. But we should be mindful of the burden placed on the Planning Inspectorate also by this clause, which already includes the work of the abolished Infrastructure Planning Commission, the examination of local plans and the examination of the draft Community Infrastructure Levy charging schedules.
I am mindful too of the awful budgetary position of many local councils facing major cuts in resources and increasing pressure on services. If local authorities need incentives to encourage development, is that not what the business rate retention scheme was meant to be about and the new homes bonus designed to ensure? Notwithstanding that, there is a proposed basis for having parliamentary oversight; the reality is that designation criteria will be rigid, relating to the number of major applications dealt with and the numbers of major decisions overturned on appeal.
The Government seem to intend that the bar will be raised in subsequent years— this was in the consultation document. This process of designation completely overlooks the fact that timeliness of dealing with applications is not just a matter for the local planning authority. It is influenced by a number of factors: the attitude of the developers, the response times of statutory consultees, the outcome of consultation, the bunching of applications. Although formal and informal agreements with developers to extend the timeframe will be reflected in the designation criteria, it seems there will be room for no other considerations to be taken into account. So it seems that there is no process for making meaningful representations.
The Government line is that designation will apply only to very few authorities, that they will know in good time and can do something about it. But from the Minister’s comments at a meeting the other day, it seems that the numbers are already creeping up and we do not know precisely what the starting or follow-on criteria will be. A parliamentary process helps, but we know full well that statutory instruments cannot be amended. Designation will be counterproductive for an authority which has been through a bad patch and has an improvement plan under way. What are the chances of recruiting experienced quality staff when major applications are likely to head off to the Secretary of State?
The Government should be troubled by what they have heard consistently throughout our deliberations. It is also very clear that there is not strong support from all responses to the consultation. The overriding concern is that, if Clause 1 survives, local planning authorities will be more likely to approve applications with which they would generally not be happy, just to meet a deadline. Quality will be sacrificed for speed and communities will have to live with the long-term consequences. This clause needs to go. I beg to move.
Lord Beecham
My Lords, I endorse my noble friend’s amendment and refer for the third or fourth time to what used to be available to local authorities in the form of planning development grant to improve and sustain the capacity of planning departments, which now, like every other local government department, have come under severe pressure due to increasing financial constraints. Will the Minister turn her mind to capacity and how the Government can assist, possibly by restoring some form of planning development grant? They need to ensure that the necessary staff are available with the necessary skills in order to facilitate the speedy, but thorough, examination of planning applications, which is what she, the Government and the Opposition very much wish to see.
Baroness Hanham
My Lords, I think my noble friends Lord True and Lord Tope for their encouraging words and for their recognition of the amount of work that has been done in this House—and we should acknowledge the fact that the House has played a very important part in the changes that we have been able to make in this Bill. I understand that there are still real concerns about it, and the noble Lord, Lord Judd, referred again to localism. This is not an issue of localism but of ensuring that local people get a proper planning service and that local developers get a proper result from the applications that they put forward.
This is not a measure that we take lightly. It is something that we are very serious about because we believe it to be both necessary and appropriate. We are very clear—and I want to emphasise this—that planning decisions should continue to be made locally wherever possible but, as I have emphasised throughout our discussions on this clause, we should be prepared to act where standards have fallen to a wholly unacceptable level. Noble Lords will agree that the criteria that they are working to at the moment would constitute being at a wholly unacceptable level. That is no different from the approach that previous Administrations have taken, and I have pointed out how the criteria were adopted by schools, hospitals and other services under previous Governments. We should be prepared to do the same for planning, not least because of the role that it plays in supporting growth as well as being an important community service in its own right.
We listened carefully to the arguments made in Committee, and the amendments that we have brought forward put beyond doubt that this measure can be used only where it is clear that performance is inadequate and that the ability to apply directly to the Secretary of State will be open only to those seeking approval for major development. We have defined that, too. As my noble friend Lord Deben said, the choice of where this application is heard will still be in the hands of the developers; it is their option to go to the Planning Inspectorate if they are not happy having the application heard by a designated council, but they do not have to. They can leave the application and have it heard in the normal way by the council, if that is their choice. I agree, too, that some developers work very closely in particular areas and therefore have a relationship that is wholly proper with their local authorities.
I also indicated that Parliament will have the opportunity to consider again the criteria for designating authorities before they are finalised and before any changes are made to them in future, if they are to be made. By using transparent criteria, with data published on a regular basis, planning authorities will be clear about whether their performance needs to improve to avoid designation, and through the support package that we have been discussing with the LGA we hope and expect that the number of designations in future will be very limited indeed.
Of course, we also anticipate that the mere existence of this measure will encourage timely and well considered decisions by planning authorities and so avoid the need for designations. I do not accept the argument that local authorities will now rush around trying to get planning decisions through in 13 weeks to escape or grind up slightly from the percentage that might hit the criteria. We have made it clear that they do not need to rush; they need to make a very focused effort on plans. If there are reasons why the planning applications cannot go forward in the normal timescale, then the planning agreement signed and agreed between the local authority and the developer will be recognised as the reason why it has taken longer than normal.
For those authorities that are designated, we are clear that we are not removing any powers from them in any way. The Secretary of State is intervening in only a very marginal area.
The noble Lord, Lord Beecham, referred to the planning and development grant. I point out to him, as I am sure he knows, that planning fees have increased by 15%, and there has been an extra contribution to local authorities from that point of view.
I believe that this clause remains a necessary measure, albeit one of last resort. We have put beyond doubt how it may be used, and thought carefully about an approach to assessing performance that is fair, transparent and minimises any risk of perverse outcomes. My noble friends Lord True, Lord Tope, Lord Deben and Lord Judd—well, the noble Lord, Lord Judd, is a friend, but not in this instance—have underlined what I have been saying. There is a need for this, however limited the need may be. I ask the noble Lord, Lord McKenzie, to withdraw his amendment; if he does not and he presses it to a Division, I ask the House to reject it.
Lord McKenzie of Luton
My Lords, I thank all noble Lords who have participated in the discussion and thank my noble friends Lord Judd and Lord Beecham for their strong support for the amendment.
What surprises me somewhat is the view that people have taken that the clause is now so dramatically different from what it was at Second Reading, when pretty much everyone who spoke in the debate would have preferred to see it out of the Bill. Along the way, I should say that at no stage would I have it said that I had not recognised the important work that the Minister has done on this Bill, and will continue to do.
Let us look at the position. The noble Lord, Lord Tope, said that he thought that the Planning Minister would believe or hope that this provision would not affect anyone at all. At a meeting just the other day that the Minister organised, he said that the number likely to be caught had gone up and that it could be as many as 20. The criteria that are promulgated—we do not yet know what the final criteria will be—have not changed since Second Reading. The 20% and 30% criteria have been consulted on.
The noble Lord, Lord Tope, said that if local authorities are so bad, they deserve what comes their way. It depends how you judge “so bad”. Part of the challenge that we have is that the criteria are not necessarily a fair determinant of poor performance because so many other factors influence the timing of approvals and the planning process. If you look at what has changed since Second Reading when people were so unhappy with this clause, you will see that we have the term “major development” in the clause but, at the start of our consideration of the Bill here, the position was always that major developments would be caught by this and that was very clear from debate in the other place. The criteria that were promulgated at that stage have not changed.
We have a parliamentary process but, frankly, the negative procedure is the weakest parliamentary process you can have. We know full well that it is not really possible to change those regulations once they come into force. We also know that the Government are seeking to tighten those criteria in the future. They have consulted on that, although we do not know the extent to which that tightening will take place. It seems to me that very little has moved on this clause that is positive. I accept that there have been assurances around sector support, but even that was promulgated around a concept at the time when we debated this at Second Reading. From my perspective, very little has changed in practice on this clause since the Bill arrived in your Lordships’ House. I hear what noble Lords on opposite Benches have said. I am sorry that I have not been able to persuade those who have spoken, but I wish to test the opinion of the House.
“(1A) This section only applies in relation to English planning obligations agreed prior to Royal Assent.”
Lord McKenzie of Luton
My Lords, the intent of the amendment would be to restrict the application of the provisions relating to modification or discharge of affordable housing requirements to those that were agreed prior to Royal Assent. That amendment was tabled by the noble Lord, Lord Best, in Committee, and I am delighted that he has added his name to it today. I should make it clear that this is not an attempt to usurp his role in this; nobody knows the issues better than the noble Lord, but I was not sure whether he would bring it back.
If these provisions concerning renegotiation of Section 106 agreements are not to be removed from the Bill, they must be constrained. We will come on to sunset clauses shortly, but we should note that the Government’s proposition is only one small step from where the Bill now stands. In Committee, we acknowledged the significant contribution that Section 106 agreements have made to this country’s need for affordable housing. We have noted that local authorities have existing powers to renegotiate Section 106 agreements and that many are using these. We remain sceptical about the need for these new powers. However, notwithstanding these concerns, on the basis of the Government’s own logic, there is no need for the rights in the Bill to carry on for ever. If the rationale for Clause 6 is that developers entered into Section 106 affordable housing obligations when economic times were better, is it the Government’s position that things will continue to get worse?
If the clause is to be brought to an end in three years, unless the Government are expecting a further downturn in this period, it should not stand in its current form. When we debated this in Committee, the Government argued that there was continuing uncertainty in the market. That may be the case, but presumably the Minister is not arguing for a risk-free platform for developers. Clause 6 was, we understand, supposed to address the substantial change in market circumstances fuelled by the global financial crisis of 2008. Applicants should not agree to Section 106 agreements that they consider will render their development unviable. The use of viability appraisals in negotiations is becoming increasingly common.
We have added our names to Amendment 28 which, as we have heard, would introduce a sunset clause bringing to an end the provisions relating to the modification of affordable housing obligations after three years. Given that very new affordable housing requirements are unlikely to be able to make successful applications, this would generally mean a practical cut-off point of obligations entered into by about 2014. So far as the Government’s version of a sunset clause is concerned, this does not move us much further than the Bill, which already gives the power to the Secretary of State by order to repeal Sections 106BA and 106BB of the Town and Country Planning Act 1990. The Government’s version of a sunset clause, while repealing those sections at the end of April 2016, also gives the power to the Secretary of State by order to substitute a later date. In effect, there is no clear end date to these provisions. Therefore, we will look to the Government to explain in detail, when they speak to these provisions, why the firm date of April 2016 is not sufficient. If we are not satisfied, we reserve the right to return to this matter at Third Reading. I beg to move.
Lord Best
My Lords, I have added my name to Amendment 22, which was prepared by the Local Government Association. I am grateful to the noble Lord, Lord McKenzie, for introducing this amendment and explaining its purpose and value. My overarching concern is that the intention of Clause 6, which is to see stalled development up and running swiftly, will not materialise without substantial changes to this clause. Indeed, the knowledge that central government may overrule legal agreements between local government and house builders may encourage exactly the wrong response from some elements in the housebuilding industry, and this measure could backfire.
The Clause 6 procedure offers relief for house builders where they have paid too much for a site and now wish to be excused from their obligations to provide affordable housing. Amendment 22 would mean that only agreements already made could be addressed by going down this Clause 6 route. The practice of developers speculatively outbidding others—including housing associations keen to buy a site and fulfil the affordable housing obligations on it—would not be perpetuated into the future. It would no longer be possible for developers to say, “Let us gamble on house prices rising, but if they do not do so, we can go to the Planning Inspectorate and secure a release from our Section 106 agreement”.
In my most charitable moments, I can feel some sympathy for the small builder who is unable to work on a swings-and-roundabouts basis of some highly profitable and some less profitable site purchases and who unwisely paid too much for a site at the height of the boom some four years ago. The bigger house builders are currently doing very well. Persimmon and Bovis have just reported huge increases in profits of more than 50% and more than 60% respectively. Some smaller developers, however, may have been caught out in 2008 or 2009, thinking house prices would rise inexorably when they have been pretty flat outside London and the hot spots. Nevertheless, surely we do not want to encourage continuing speculation on the basis that, from now on, the state will bail out those who bite off more than they can chew. Any developer entering into a Section 106 negotiation at the current time is clearly doing so with their eyes open to the economic realities of the day. These negotiations make use of viability appraisals and the signal must go out to house builders that they can no longer sign agreements in the expectation that they will not really be necessary to honour those agreements because central government’s planning inspectors will set aside their obligations if the developers can show that they will not make a profit of 20% or so.
This amendment draws a line under state intervention in these Section 106 agreements from the date that the Bill becomes an Act. I strongly support it. Alternative amendments for a sunset clause three years hence seem to miss the point. It is now that we want people to get busy and get started on sites that they own and are currently stalled. Every time a local agreement to produce more affordable housing is set aside, households on low incomes waiting for a home are forced to wait longer. We should ensure that this happens on only the rarest occasions. I strongly support an amendment that would stop the perpetuation of the opportunity for developers to renege on agreements that they have signed with local authorities from henceforth.
Baroness Hanham
My Lords, I should like to explain the purpose and operation of the sun-setting amendment, Amendment 32, in my name in this group. After careful consideration of the concerns expressed by noble Lords in Committee, the amendment we propose sunsets Clause 6 on 30 April 2016 unless an affirmative order is made for it to continue.
Until I heard them speak, I thought that this addressed the amendment proposed by the noble Lords, Lord Shipley, Lord McKenzie and Lord Tope, and the recommendations of the Delegated Powers and Regulatory Reform Committee. As I made clear in Committee, the clause is targeted at helping development to get under way on sites that are being stalled because of the current economic conditions. We believe it is essential to allow for a review of schemes where this could bring development back into viability. This would deliver more private and affordable homes than would otherwise come forward.
The clause already contains a power for the Secretary of State to switch it off by order, reflecting our underlying thinking that this is about addressing current uncertainties. However, we have listened carefully to the arguments that we should define this more precisely. Arguments have been made that the clause should reflect the current uncertainty in the property market and that we should insert a date when the operation of the clause will cease. We have therefore set the sunset date for 30 April 2016. That is based on the forecast from the Office for Budget Responsibility that shows that investment in housing is expected to stabilise in 2016. I accept what the noble Lord, Lord Best, said; there is evidence that some of that housing is beginning to move, which is very welcome. This is reinforced by evidence from the Centre for Economics and Business Research, which expects house prices to return to pre-recession levels in 2016.
The amendment will send a clear message to local authorities and house builders to review their schemes where affordable housing viability is an issue. None of us can be certain about the future of the property market—forecasts are not guarantees—and therefore we have taken a sensible and pragmatic power to extend this date by order should that prove necessary.
The amendments to Clause 28 will require the order to be made through the affirmative procedure and both Houses will have an opportunity to vote. So there is a commitment for it to come back to this House if necessary. Although the amendment does not limit the time period for any future extension, I fully anticipate that this would be for a limited time justified by prevailing market conditions. In taking this approach, we have again followed the suggestion of the Delegated Powers and Regulatory Reform Committee when it commented on the Bill ahead of Committee. The amendment also includes a separate power to make transitional or transitory provisions related to the sunset of the clause by order.
Turning to the amendment tabled by the noble Lords, Lord McKenzie and Lord Best, this would allow only affordable housing obligations in place at the time of Royal Assent to be challenged on the grounds of viability. As I said in Committee, we are still not in a position of stability in the market and, therefore, applying such a limited amendment would not be helpful.
I also provided evidence in Committee from the Office for Budget Responsibility which indicated varied performance across the country. House price growth remains subdued across much of the United Kingdom, and it is widely varied. The recently announced 2.5% house price increase in England was driven by a 5% rise in London and a 3% increase in the south-east. However, in other parts of the country there is a wide variation in house price growth. I said earlier that the forecast of the Office for Budget Responsibility shows house price growth stabilising at 4% by 2016-17.
Concerns have been expressed that a developer could agree a Section 106 next year knowing that he could apply to renegotiate it. If the local planning authority has taken account of local economic realities and negotiates a fair and viable agreement, it is likely that there will be no case for reopening the agreement within the short-to-medium term and a developer would not have viability evidence with which to be successful on appeal. The amendments do not make allowance for current market uncertainties. We believe that we need three years for the housing construction market to stabilise. We wish to allow opportunities for scheme viability to be reviewed, even for those which may come forward after the Bill is given Royal Assent.
Amendments 51 and 52 are minor government amendments which make changes to Schedule 2. They seek to change the numbering of an existing amendment to Schedule 6 of the Town and Country Planning Act 1990. With that explanation for those amendments, and given what I have said about the reasons for the Government’s time-limit on the sunset clause, I hope the noble Lord will withdraw his amendment.
Lord McKenzie of Luton
My Lords, I thank the Minister for her response. I also thank the noble Lord, Lord Best, for his support and for properly and effectively explaining Amendment 22, and the noble Lord, Lord Shipley, for his tacit support.
The Government’s response to this is that unless you have certainty in the housing market you must always have the provision currently contained in the Bill. One might accept that argument where there has been particular turmoil in the financial markets—as was occasioned in 2008 when obligations were entered into and the market changed dramatically—but why should there now be this ongoing facility for people who can make a judgment as to what is happening in the market? Yes, there will be some uncertainty—there are always uncertainties in markets—but there is no substantial reason to prolong this opportunity. A cut-off of those things which will have happened by the time this Bill comes into effect is entirely reasonable. In fact, it could be argued that the cut-off should be earlier than that. Indeed, the changes that the Government are making to the regulations generally about affordable obligations go back only to April 2010, so that might be even more restrictive than the amendment allows for.
As to the sunset clause, it cannot be much of a sunset clause if it can be renewed endlessly. There is no certainty as to when its provisions will be brought to an end. I am inclined to support the view of the noble Lord, Lord Shipley, that we will look to the Minister to come back with something more definitive on Third Reading. If the Minister is not able to do so, we will look to amend it because this is, quite rightly, open business. We are dealing with new business tonight which has a continuing uncertainty.
As to Amendment 22, we have not heard a convincing reason why we should not press the amendment, and I seek the view of the House.
Lord Jenkin of Roding
My noble friend Lord Shipley has raised an interesting issue, which has been raised at earlier stages, as to why only affordable housing is able to be renegotiated. He has also added to his amendment the question of the community infrastructure levy. Bearing in the mind the main purpose of the CIL, I would question whether that would be an appropriate reduction to seek. The CIL is after all intended to provide local authorities with the resources to pay for some of the infrastructure that would be necessary to support the housing requirements. It is true that affordable housing does not attract the CIL, but the rest of the housing development would. If one is going to have a community infrastructure levy, I would be very reluctant to see that negotiated down on the grounds of the developer saying that their scheme is not viable.
We have not had a full explanation of why only affordable housing is able to be renegotiated, because there may well be other obligations. I, too, read the sentence in the guidance about the other “off-site” obligations and I was not quite sure what that meant. When I first read it, I thought that it meant off-site affordable housing, but affordable housing is often not immediately on the same site as the rest of the development; it can be on a different site, so I do not think that that is what it means. I would welcome an explanation from my noble friend on the Front Bench as to what is involved. Hitherto, I have wholly supported the idea of renegotiation. Indeed, it has been the main burden of complaint of developers that they have agreed in different circumstances to affordable housing obligations and that it is that which makes their development unviable. That is why there has been, as was referred to earlier, a lot of negotiation going on with local authorities anyway. However, I am not aware of any local authorities which have negotiated reductions in other planning requirements that may have been necessary.
The draft affordable housing requirements guidance states:
“Timing and level of off-site contributions may also be considered”.
What does that refer to? I think that I took the guidance off my computer this morning, so it has come just in time. I would be very much against seeking to renegotiate downwards the community infrastructure levy.
Lord McKenzie of Luton
My Lords, we received the draft viability guidance late last night, which was not particularly helpful for discussions that we were going to have this evening. I just put it on record that if, when we have had chance to study the guidance, we found particular issues relating to the Bill, we would reserve the right to pick them up at Third Reading. That should not be precluded given the lateness of the availability of that quite important information.
The noble Lord, Lord Shipley, has raised an important question as to why affordable housing should take all the strain to deal with viability. The amendment does not seem necessarily to preclude an appeal to the Secretary of State and what the Secretary of State would do in those circumstances, but that is a drafting point perhaps for another occasion.
Perhaps the Minister might cover in her response the relationship between the Bill and the updated regulations, which I think come into effect tomorrow and deal generally with the right to renegotiate Section 106 obligations, affordable housing and the rest. That would now be done within a three-year period, which I think is the thrust of those regulations. It would be helpful if that could be put in context.
I have been concerned throughout consideration of this Bill that affordable housing is asked to take the strain if a site is not viable. There are broader considerations which should come into play.
(8A) Regulations under subsection (8) shall be in the form of a statutory instrument and shall not be made unless a draft of them has been laid before and approved by both Houses of Parliament.”
Lord McKenzie of Luton
My Lords, I turn again to the tardiness of the criteria. The noble Baroness may have been able to look at them over lunch; I was dealing with the consultation responses, which arrived on my desk this morning. Having said that, we need to study the guidance and reserve our right to deal with any residual issues on Report. I was not going to move this amendment, but I did not want to leave hanging the two important amendments tabled by the noble Lord, Lord Best. The purpose of Amendment 25 is to say that it should not just be left to guidance; there should be a process and a statutory instrument that deals with viability issues, given its importance. I will be happy to reserve judgment on that once I have had the opportunity to study in detail what was issued to us late last night. On that basis, I beg to move.
Lord McKenzie of Luton
I am grateful to the Minister for that reply. I certainly propose to withdraw the amendment. I am grateful for the offer of a meeting between now and Third Reading to have at least some chance to discuss the draft guidance. I hang on to the point that, as the noble Baroness said, this is an early draft that gives us no further formal opportunity for input. The criteria will be central to the operation of the provisions. Perhaps that is a matter for Third Reading, but I would be very interested in taking up the offer of a session before then on what detail is available. I beg leave to withdraw the amendment.
Earl Attlee
My Lords, we need to be a little careful about Report stage rules.
Lord McKenzie of Luton
My Lords, we support Amendment 31; indeed, I have added my name to it. Compelling early undertaking is absolutely right when people have had the benefit of a change of Section 106 obligations. Having heard the noble Lord’s reformulation of Amendment 30, we support that as well, since it deals with the point that the Minister raised in Committee.
I understand entirely the thrust of Amendment 35 and what the noble Lord is seeking to achieve by it. I have a slight hesitation about the detail. I am sure it would be a lawyers’ paradise to try to determine whether 50% of the foundations have been laid or whether 50% of a road has been laid, for obvious reasons. Would it be cost, width, depth or whatever? However, that should not preclude an attempt to get something more effective than what is there at the moment, so perhaps that is a task to be done between now and Third Reading.
Growth and Infrastructure Bill
Lord McKenzie of Luton Excerpts(11 years, 9 months ago)
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Lord McKenzie of Luton
My Lords, we should thank the noble Earl, Lord Lytton, for his amendments because he raises an issue which is clearly of importance. I particularly commend his practice of giving us an explanatory note with his amendments. Perhaps I may commend that to other noble Lords and I shall take it on board myself.
As my noble friend said, we are dealing here with a complex compulsory purchase system in which specialist practitioners are involved. To some extent, it may be seen as just too difficult to deal with. However, my noble friend makes an important point: if it is one of the components that are holding up growth, it should be addressed. I checked with one of my colleagues, whose knowledge of this is greater than mine, his reaction to the amendment and certainly to advance payments and loss payments. The response was that the amendment does not seem unreasonable. I think that is quite a way from our saying that we are in a position to support these amendments but I look forward to the Minister's reply, particularly on the question of, if not now, when will we be able to look at the system holistically and unravel some of the complexities and inefficiencies that my noble friend has identified.
Lord Ahmad of Wimbledon
First, I join the noble Lord, Lord McKenzie, in thanking the noble Earl, Lord Lytton, for explaining the two areas of compensation code for compulsory purchase that are of concern to practitioners and to claimants and indeed for proposing some remedy. I think his explanations were very clear.
First, as regards Amendment 58, the Government are very grateful to the noble Earl for raising this matter. I, too, am concerned to hear about the poor practice in making advance payments of compensation. However, it is not clear how the new Section 52B of the Land Compensation Act 1973 would provide the necessary teeth, for want of a better term, to force the acquiring authority to make the payment when it is due.
The provision to allow an advance payment to be made before possession is taken is new but, again, the same issue arises about how to ensure that the payment actually happens. In both cases, the provisions may not be effective without the additional use of judicial review to obtain an order requiring a tardy acquiring authority to pay the necessary amount.
On Amendment 59, the Government note the view that the percentages for loss payments should be reversed, so that occupiers get the lion’s share. This would be a popular change for occupiers and perhaps less so for owners. The noble Earl, Lord Lytton, suggests that this change would be cost neutral and I have no doubt that cases can be found where this is so. Some have been set out in the Compulsory Purchase Association’s evidence to the Committee in the other place. There may equally be cases where the amount of compensation would rise. Currently, both the evidence and the views of the acquiring authorities are lacking.
For both of these amendments, the issues raised would require further investigation before they could be taken forward. As I said earlier, it is not clear where the teeth could be found to ensure that advance payments are made in time. This might be a subject for good practice guidance, as we have mentioned in respect of other areas of the Bill. That guidance should come from the sector. I am sure that some authorities do things properly, and if others were told how this was done, the situation may improve. The noble Earl was quite clear that sometimes it is not apparent how this process can be done more effectively and the information is not readily available.
The noble Earl also mentioned the letter on loss payments sent by the Minister. He raised the issue about meetings, to which I shall turn in a moment but, first, I shall speak about loss payments. It is clear that the noble Earl’s proposals will be popular with occupiers but not with investment owners. We have not yet heard the view of acquiring authorities. I am sure that the noble Earl will appreciate and understand that, at this time, I cannot commit the Government to taking either of these amendments forward. Even if I could, the argument may quite understandably be made that we need to look at these in more detail, have the necessary investigations and, of course, conduct all consultations, which may not be possible during the passage of the Bill.
The noble Earl suggested, and my noble friend acknowledged the fact, that it would be useful to meet on these amendments and on the particular proposal specifically. Therefore, it would be helpful if we asked our officials to arrange a meeting to discuss the two matters raised and invite the noble Earl and his associates to discuss these matters further. We would welcome such a detailed discussion. Based on those assurances and the offer of a meeting, I hope that the noble Earl will be minded to withdraw his amendment.
Lord Jenkin of Roding
With the agreement of my noble friend Lord Tope, in whose name the amendment has been tabled, I wish to move Amendment 60. The amendment is also in my name and that of the noble Lord, Lord McKenzie.
The amendment returns us, as I am sure the Minister recognises, to localism. She will remember that when we were debating the Localism Bill, as it then was, two years ago, we made considerable progress in persuading the Government to go for a greater degree of localism than had originally been in that Bill. At the same time, I did not seek to conceal my disappointment that it had not gone further. There is huge scope for increasing the decentralisation of power and decision-making from central government to local areas and local people.
Since then, there have been a number of developments. I start with the remarkable report prepared by my noble friend Lord Heseltine, No Stone Unturned in Pursuit of Growth. I told my noble friend that I did not agree with everything in that report, but I applauded the emphasis which he laid—indeed, in an entire chapter—on the need for achieving greater localism.
That chapter is Chapter 2, Building on our Strengths. I cannot begin to quote the whole of that chapter, and the Committee, I think, would become singularly impatient if I did, but I want to quote just two sentences. Paragraph 2.14 states:
“For the UK to face up to the challenge of increasing international competition, we must reverse the long trend to centralism. Every place is unique. Local leaders are best placed to understand the opportunities and obstacles to growth in their own communities”.
That is highly relevant to the Bill.
In paragraph 2.22, after reciting a considerable number of measures that the Government have taken—they cover two pages of the report—my noble friend goes on to say:
“We need to go further and faster to achieve an essential rebalancing of central and local power and resources, extending not just to cities, but to local areas right across England”.
I thoroughly endorse that. As my noble friend will recognise, that is what the amendment is all about.
Another development is that in December 2011, the Government announced their intention,
“to develop tailored deals with our core cities, devolving powers and supporting projects which will boost growth and jobs for the long term”.
That was widely applauded. It has been followed up vigorously by the relatively small number of cities to which it extends. The question is: why should it stop with the cities? The new city deals recognise that local leaders, rather than Whitehall departments, are best placed to understand the economic opportunities and challenges that they face and that they have a key role to play in shaping incentives and conditions for private sector success.
There is also a case for mainstreaming the devolved powers achieved in the early city deals as part of a general mainstreaming programme making those powers available to all councils to help them to boost growth. The wave 2 cities will receive a core package of devolved powers as part of their deal. I submit that the case for extending that more widely is becoming very strong.
I am told by the Local Government Association, which of course has followed that up with much enthusiasm, and has conducted seminars and conferences to seek the views of its members on it, including a seminar with the Centre for Cities on 19 December last year, that it is now receiving many expressions of interest from other cities, towns—and, indeed, not only single local authorities but groups of local authorities—which would like encouragement to develop similar negotiated deals with central Government to give them the additional powers and resources necessary for them to develop the economy in their area.
Another aspect is that when we were passing the Localism Act, the local enterprise partnerships were still very rudimentary. They had only recently been announced; they did not at that stage cover the whole country; some of them were taking longer than others to get off the ground; and they did not have significant financial resources behind them. Those are partnerships led by employers. I have always been firmly of the view that the most effective encouragement to employment, growth, and all the rest of it comes from employers rather than from central government. The Government can facilitate, encourage and provide a framework but, in the end, it is local authorities, individuals and businesses which can make it happen on the ground.
We have not only the strong recommendations of the report of my noble friend Lord Heseltine; we now have the growing experience of the city deals, which are proving very satisfactory and popular and are producing results, and the now well established local enterprise partnerships set up over the greater part of the country, which are beginning to work well. The Government have recognised that by allocating more finance to them. I very much welcome that.
The missing link is that local authorities, apart from the big cities, do not have the same power to negotiate deals with central government that would allow them to have the same opportunities and encouragement to develop their economies and provide jobs and growth in their areas. They know their areas best. We should be prepared to do that; I hope that my noble friends on the Front Bench agree.
We are not seeking by the amendment an immediate commitment for that to happen. Clearly, there needs to be study and further consideration of how, where and when that would best be done. Our amendment would add a new clause to the Localism Act entitled:
“Duty to report on proposals for the extension of devolved economic development powers to all local councils”.
The first subsection states:
“Within one year of second round of bespoke ‘city deals’ being completed”—
that is very wise, because it gives a chance to assess the experience of city deals without charging ahead too rapidly—
“the Secretary of State must lay before Parliament a report setting out the government proposals, policies and timescales for the extension of devolved economic development powers to all local councils”.
Then the amendment suggests what should be in the report. Subsection (3) states:
“Where the Secretary of State has determined it not appropriate to extend devolutionary powers to all local councils … The report must, in particular, fully set out—
(a) why this has been determined as not appropriate;
(b) include a resolution that sets out how the government intends to review this determination”.
Then the review of the determination must be laid before Parliament within a year.
That is asking the Government to take this forward positively as a further means of spreading the localism—which is the Government’s policy and has been declared to be and has rightly been at the centre of their attitude to local government—but gives them time to ensure that it would really work if extended across the country.
The amendment is reasonable. It builds on what is there already. It reflects the important chapter in my noble friend’s report, No Stone Unturned, and it fits well with the general thrust of the Government’s policy of increasing localism. I hope that my noble friends will feel able to smile on the amendment. I do not say for one moment that the wording is right, but I hope for some encouragement. Then we can return either with a government amendment or something that takes account of what Ministers have said. I beg to move.
Lord McKenzie of Luton
My Lords, I have added my name to the amendment, which we enthusiastically support. We should thank the noble Lord, Lord Jenkin, for moving it so comprehensively in the absence of the noble Lord, Lord Tope. Too often, we hear the mantra of devolving power but see the reverse: power and decision-making moving to the centre, from schools policy to planning.
We should acknowledge the progress being made on devolving powers to some areas, building on the achievements of multi-area agreements. Following the deal on the first eight cities, the Government are encouraging bids from a further 20, as the noble Lord, Lord Jenkin, said.
Perhaps I may remind noble Lords of what was involved for some in the first tranche. Nottingham City Council would be given powers to create a venture capital fund to invest in high-tech business, start-ups and growth businesses. I think that for Newcastle, Sheffield and Nottingham the deal has been backed by tax increment finance schemes. A control over part of central government’s skills budgets will be given to Sheffield, while Bristol, Leeds, Newcastle and Nottingham will join Manchester in creating apprenticeship hubs. That is just a flavour of what has been achieved from those first few city deals.
Lord Beecham
My Lords, I strongly support these amendments. It seems contrary to the whole thrust of the Localism Act that central government should impose its decision on what are absolutely fundamentally local matters, and do so in such a way as effectively to preclude the local council from taking decisions of this kind in consultation with its residents. For example, it would be interesting to know how many extensions are being built under the dispensation given by the Government. I should think that on the whole that would be more likely to engender conflict between neighbours than lead to any significant development of extended housing in urban areas.
In addition to that, we had the recent announcement, which I referred to in the Chamber a few days ago, of the Government’s decision to grant permitted development status to the conversion of office premises into residential premises. This has provoked a good deal of concern up and down the country, not least within a couple of miles of this place. I do not know whether it has succeeded, but I understood that the City of London was endeavouring to negotiate an opt-out, as it were, from this provision. That seems to be a fashionable thing to do these days.
I do not know whether the Minister can tell us what has happened with that, but can she explain why the Government deem it necessary to override local authorities? Councils can, of course, give this permission if an application is made, and indeed if it is refused it may be appealed, but why should the Government take this decision, effectively on behalf of every local authority in the country, and see that it applies willy-nilly? What is the rationale for that? Where is the evidence that it will lead to the satisfactory development everywhere of housing of an adequate standard, particularly affordable housing of an adequate standard? I recognise, of course, that in certain places that could be the outcome, but why should that decision not be made by those responsible for their local community?
Lord McKenzie of Luton
My Lords, as the noble Lord, Lord Shipley, pointed out, Amendment 71A in this group, which stands in my name, is to all intents and purposes identical to the amendment that he moved and which stands in his name and that of the noble Lord, Lord Tope. It is also identical to the amendment moved in another place by my honourable friend Roberta Blackman-Woods.
The thrust of the amendment is to reverse the current arrangements whereby permitted development is determined at the centre but with local authorities having the right to restrict or extend permitted development rights by an Article 4 direction or a local development order. It would anchor the process of permitted development rights at the local level with full obligations to prepare a draft order for consultation. The Minister will doubtless argue, as was argued in the Commons, that the powers available under Article 4 or a local development order are sufficient to secure that the decision of the centre can be modified in the local context. However, the LGA briefing—the noble Lord, Lord Shipley, endorsed this—makes clear that these approaches are heavily bureaucratic, time-consuming and resource-intensive. If the Minister does not accept that case, I would be grateful if she would provide the evidence to the contrary. Accordingly, the briefing suggests that these approaches are rarely used. As I say, if this is challenged by the Government, will they supply evidence demonstrating that these approaches are used?
I have also added my name to Amendment 71 in the names of the noble Lords, Lord True and Lord Tope. This is a narrower amendment and requires that a new or amended development order that grants planning permission for development within the curtilage of a dwelling house should have approval from the local planning authority before being applicable.
My noble friend Lord Beecham has clearly argued the case for supporting the amendment and said why the Government’s position is inappropriate. The noble Lord, Lord True, has spoken previously about concerns in his local borough regarding developments in gardens and the challenges that this poses to the local community. Alarm bells were certainly set ringing by the November 2012 technical consultation on extended permitted development rights for home owners and businesses. Its proposals included doubling the size limits for single-storey domestic extensions, although for a limited period. Will the Minister let us know what is happening with that consultation, when we might expect the Government’s response, and whether, in advance of that response, we might at least have an understanding of the direction in which it is travelling?
Amendment 60B in the names of the noble Lords, Lord Tope and Lord Shipley, seeks to remove the requirement for the Secretary of State to approve all local development orders. We agree with this, but could this not also be addressed by secondary legislation? Is primary legislation required to do that?
On Amendment 60C, will the Minister please remind us what happens to the reports that are made under Section 35 of the Planning and Compulsory Purchase Act 2004? The amendment seeks to remove the requirement for those reports. What happens to the reports that are made and how do the Government deal with them? Is there any process by which the results of that are reported to Parliament?
Baroness Hanham
My Lords, that was rather a quick ending. I am grateful for this short debate, which I thought might take a bit longer.
The amendment tabled by my noble friends Lord Tope and Lord Shipley, and Amendment 71A in the name of the noble Lord, Lord McKenzie, have the admirable aim of giving local authorities the power to decide how to adapt nationally set permitted development rights to their own local circumstances. I am pleased to say that that power is already there. Where local authorities have concerns about the impact of permitted development rights locally, they are able to consult their local communities on removing those rights via Article 4 directions. I know that my noble friend Lord Shipley said that that process is complicated, but it is really up to local authorities how complicated it is and how long it takes. It is in a local authority’s hands; it has to consult for 28 days, but after that it can decide whether to confirm an Article 4 direction. Because there are concerns regarding potential compensation issues, local authorities can, if they give 12 months’ notice that they are going to consult on an Article 4 direction, always manage to avoid compensation requirements.
Where the aim is to extend permitted development rights locally, local development orders provide a quick and simple way to do this. After a slow start, the number of local development orders being put in place across the country is increasing. Local authorities are recognising the benefits of this flexible provision, which can be put in place through a simple and streamlined procedure. More than 30 local development orders have now been put in place in enterprise zones, and local development orders are contributing to growth by helping to speed up everything from small domestic alterations to major industrial development. Rather than being a cumbersome process, as suggested, local development orders work quite well.
Amendments 60B and 60C, tabled by the noble Lords, Lord Tope and Lord Shipley, are intended to make the local development order process even more straightforward. The amendments seek to remove the Secretary of State’s role in the local development order process and remove the requirement for local authorities to report on local development orders, with the aim of reducing burdens further. The Secretary of State only exceptionally exercises his powers to intervene in local development orders. In many cases, local authorities can proceed to adoption within a few days of submitting local development orders to the Secretary of State. However, that does not mean that we should not constantly be seeking to improve and simplify the processes under which development takes place.
Officials have already begun discussions with the Local Government Association with the aim of learning from the experience of local authorities about the best way of using local development orders. That experience is growing rapidly, and it is important to capture it in deciding whether and how local development orders can be improved, including in the ways that my noble friends have suggested. Given my assurance that local development orders are a perfectly reasonable way forward, I hope that my noble friends are willing to withdraw or not move these amendments. I have also given an explanation of how the Article 4 direction plays, or could play, a particularly big role in the control by local authorities.
I turn now to Amendment 71, tabled by my noble friends Lord True and Lord Tope—I am sorry they are unable to be here—and the noble Lord, Lord McKenzie, who has spoken to it. I appreciate the noble Lords’ wish to make sure that local authorities are able to take their particular circumstances into account when considering the operation of national permitted development rights. This is indeed a vital safeguard, because nationally determined rights will of course have different effects in different local areas. As I have already outlined, local authorities have this power now through the use of Article 4 directions, which they can implement themselves. However, I remind noble Lords that every time permitted development rights are removed, local people are deprived of the benefits that they offer and become subject again to the additional work and costs of putting in a planning application.
Extending development rights will reduce the bureaucracy and delays that home owners face when they want to carry out what remain, even with these revised proposals, small extensions. That applies to businesses also. This amendment would deny people those benefits on a much wider scale. It would fundamentally undermine the well established and popular system of permitted development rights, which allows home owners the freedom and flexibility to make the best use of their homes without getting bogged down in red tape. However, I hear noble Lords’ concerns and I am sure that we will return to this issue at a later stage, when perhaps other noble Lords who tabled amendments in the group are here.
The noble Lord, Lord McKenzie, asked about the consultation. It ended on 24 December and is being considered at the moment. I hope that we will have some indication of the response in due course. There is no fixed date for the announcement of the response, but I hope, given my explanations, that noble Lords will withdraw or not move their amendments.
Lord McKenzie of Luton
My Lords, I look forward to the Minister’s reply but, on the face of it, these amendments seem entirely sensible.
Lord McKenzie of Luton
My Lords, we have Amendments 63A and 63B in this group. I should start by thanking the noble Lord, Lord Greaves, for his knowledgeable exposition on these issues. I was told by one of his colleagues that he is the world expert on these matters, as he has demonstrated.
By way of background, Clauses 13 and 14 mirror the approach taken in so much of the Bill. This issue is largely subject to anecdote, so the Government have taken the opportunity to address it in legislation in an unacceptably tough manner. Let me be clear: we reject the opportunity to use town and village green provisions to thwart development which is unwanted by some. However, we equally reject legislation that would, in large measure, make it difficult to establish such a provision in the future. Our approach is not to seek a deletion of these clauses but to amend them in an attempt to get a better balance.
Amendments 63A and 63B address the issue of the publicity that must be given to a statement under Clause 13. As the noble Lord explained, the statement is that which a landowner can deposit with a registration authority to bring to an end any period during which persons have indulged as of right in lawful sport and pastimes on the land. The knowledge of cessation of use is important because it is the trigger to the two-year window in which a person can seek to register the land as a green. Without that knowledge there is the prospect that the two years will elapse and the chance to register will be lost.
Amendment 63A inserts “must” rather than “may”—an issue that perhaps we do not need to dwell on extensively. However, Amendment 63B requires regulations concerning publicity to be inserted into the Bill. On that basis, we have broadly common cause with the noble Lord, Lord Greaves, on these amendments. His proposition about the nature of the publicity is more detailed and possibly more appropriate, but we seek to achieve the same thing by our amendments.
Baroness Young of Old Scone
My Lords, I support this group of amendments on a very important issue. I will make a perhaps slightly illegitimate point, because I probably do support the removal of the two clauses, which I consider unnecessary. I apologise to the Committee for the fact that I will not be here for the debate on whether the clauses should stand part, so I will say that were I to be here I would support the proposition that they should not.
The amendments in this group are particularly important if the clauses remain—in particular the need to publicise and notify those whose interests could otherwise be removed surreptitiously, without them realising that that had been done. However, it is important to say—as the noble Lord, Lord McKenzie, said—that these two clauses typify the Bill in that the number of applications for town and village greens has considerably reduced and is very small compared with the number of planning applications that are approved every year. Therefore, we must challenge considerably whether primary legislation is necessary. It is quite a large sledgehammer to crack a nut that probably does not exist—or, if it does, exists in very small proportions.
Local Government Finance Bill
Lord McKenzie of Luton Excerpts(12 years, 4 months ago)
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Baroness Sherlock
My Lords, in the absence of my noble friend Lady Hollis, I move Amendment 79B and speak to Amendment 83 in my name. My noble friend asked that I convey her apologies to the Committee. When she tabled her amendments, she believed that they would come up last Thursday. When that sitting was cancelled, they were moved to today when, unfortunately, she is chairing a meeting of her housing association, so she asked that I make that clear and apologise to the Committee.
Amendment 79B is designed to make clear that when a local authority makes a council tax support scheme which takes income into account in determining entitlement to support, that income should include universal credit, not just earnings or other kinds of unearned income. I presume that the Minister will need little persuasion of the merits of such an approach, as her default scheme takes precisely that approach. My understanding is that the default scheme will take account of universal credit income with some deductions relating to income that is to meet housing and childcare costs.
Having read the Explanatory Notes, I wrestled for some time yesterday trying to work out why the default scheme would want to take account of income net of the child cost element of universal credit. Why would you deduct the element designed to meet the costs of children? My noble friend Lady Hollis and I had a debate for some time trying to work out what the Government might be thinking of by this. Having read the draft regulations themselves, I concluded that this was meant to be a reference to the childcare cost element of universal credit, which of course is completely distinct from the child cost element. Having talked to an official—I am very grateful to the Minister that her department gave me access to a member of the Bill team—that is still my understanding. It would be helpful if she could confirm that on the record for the benefit of those reading the report of our debate.
I ploughed through the 155 pages of regulations as best I could with my limited understanding, and on page 105 there is a list of the rates that should apply for the various elements of council tax support under the scheme. When I read them, I panicked slightly because they are not the current rates that apply to council tax benefit. They are constructed in the same way but they are different numbers. Again, my noble friend Lady Hollis and I spent some time trying to work out why that might be and, in the usual way of politicians, ranged through cock-up and conspiracy theories trying to work out what the Government might mean by that by the wonderful old-fashioned Kremlinological means. Was this a way of saving 10% in the scheme itself? Actually, my best answer is that it is probably a mistake and that they are last year’s rates rather than the current year’s rates. Again, it would be helpful if the Minister could confirm that the intention is to use the current year’s rates, which were published this January, rather than those for last year.
We know very little about universal credit and the new system, because in those 155 pages of draft regulations the only substantive reference to universal credit comes in chapter 3 of part 10, which addresses the question of income and capital when there is an award of universal credit. That chapter is only 389 words long, and that includes the title. Of course, it would be hard for it to contain much more because there is a great deal that we do not yet know about universal credit, so I do not blame the department for the fact that it does not have that detail yet, but that is a point to which I shall come back. At least universal credit income will be taken into account. The case for doing that for everybody is compelling. Has the Minister had the opportunity to read the IFS report, Reforming Council Tax Benefit? It is a 148-page report that has an entire chapter on integration with universal credit. The report notes that the universal credit system was intended to,
“simplify the benefit system by reducing the number of different benefits that claimants and administrators must contend with”.
As council tax benefit is,
“the means-tested benefit with the largest number of recipients”,
keeping it outside universal credit,
“and allowing it to vary … undermines this simplification”,
but we are where we are. The report goes on:
“Universal Credit is also intended to rationalise work incentives by replacing a jumble of overlapping means tests with a single one, ensuring that overall effective tax rates cannot rise too high. Again, separate means tests for council tax support could undermine this, with the potential to reintroduce some of the extremely weak work incentives that Universal Credit was supposed to eliminate”.
I shall translate that for simpletons like me. If council tax rebates carry on having a 20% withdrawal rate and if universal credit is not counted as income, the effective marginal tax rate for a basic rate taxpayer could go up to 89.8%. Furthermore, it would mean that,
“income from private pensions, contributory benefits and spousal maintenance would actually make some recipients worse off”—
more money coming in, less money left behind, which is really serious—
“unless these income sources were ignored when calculating council tax rebates, which would be expensive for local authorities”,
as well as complicated. The report continues:
“This arises because income from these sources will reduce Universal Credit entitlement on a pound-for pound basis”.
I apologise for getting to this level of detail, but I am trying to illustrate the consequences of not taking universal credit into account as income.
There is no simple way out of the challenge faced by local authorities. Some authorities will decide that they have to devise their own schemes to avoid having to find the money to pay for the 10% saving by next year. The noble Earl, Lord Attlee, gave them some advice during our last sitting, on Monday, saying that local authorities,
“could opt to use the default scheme, but perhaps with some amendment to secure some easy savings. Local authorities could choose to develop a more sophisticated scheme later, but that is a choice that they will have to make … However, if a local authority wants to have a complex scheme, it can have one in later years, and it can go for a simple scheme perhaps based on the default scheme in year one”.—[Official Report, 16/7/12; cols. GC 15-17.]
A simple scheme based on the default scheme of 155 pages of draft regulations would be quite difficult. More complicated still is that any means-tested system is basically a complicated ecosystem.
Although I am teasing the Minister, I do not blame the department at all for having 155 pages of regulations. It is impossible to devise simple means tests that work well; that is why there are 155 pages, and they are based on the regulations for comparable benefits at the moment. If a council were to try to find an easy way forward, the reality is that its most likely step would be, for example, simply cutting 20% off the top of the applicable amount that goes to everyone or the maximum amount, but it may not fully understand the consequences of doing that distributionally across incomes or different types of activity. It is very complicated.
As the IFS notes, it would be simpler for local authorities to have an independent taper from that used for universal credit, but to do so would be worse for effective marginal tax rates. The key question is, “Why should we not leave it up to local authorities to decide how they will individually treat universal credit income?”. The answer is that one of the Government’s main arguments for the upheaval involved in creating universal credit is that it would reduce the very high marginal tax rates faced by some working claimants, so there is a clear risk that council tax rebates will undermine one of the main advantages of universal credit, namely the elimination of those high effective marginal tax rates.
In other words, it is a policy question. Think for a moment about the impact that this could have on the noble Lord, Lord Freud, the DWP Minister. If the Government cannot determine how universal credit income interacts with the taper on the various council tax support systems, it is impossible for central government to determine the effects of changes it makes to its own universal credit systems. The noble Lord, Lord Freud, could make a decision to do something that is more generous and has a particular effect, but when he pulls that lever he will not know what will move in the various parts of the country that have devised their own schemes. That is simply a bad policy outcome given the billions of pounds of public money being spent on universal credit. It is clear that the Committee should agree to this amendment and direct councils to take universal credit income into account.
I turn now briefly to Amendment 83, which would require a local authority to consult not just on the scheme it proposes under the current social security system but, at the appropriate time, on the scheme in the world of universal credit. The reason is very simple. There is a whole series of decisions that a local authority will have to take, even if it sought to devise a scheme that mirrored as closely as possible in the universal credit era that obtains in the current tax credits and benefit system. Simply maintaining the status quo is not possible, as the department has already discovered, because universal credit replaces a range of tax credits and benefits for working-age adults that are currently treated differently for council tax benefit purposes. For example, tax credits count as income, but income support does not, and nor does jobseeker’s allowance or income-based employment and support allowance. In universal credit, if one half of a couple is under state pension age, the whole household is treated as that, as my noble friend Lady Hollis reminded the Committee last week, but that is different from the current situation. Somebody on income support, JSA or income-related ESA is automatically passported on to maximum council tax benefit. That will not be possible in future. If universal credit income is taken into account without making corresponding adjustments to the means test, as the IFS noted:
“It could be impossible even for those with no private income at all to be entitled to maximum rebate”.
In other words, once a local authority has its own scheme in place, when universal credit comes in, it will be impossible, even for those in the current system, to know for sure what will happen to their entitlements unless there is an additional consultation and more information is made available. Indeed, although I had a very helpful conversation with an official earlier, which has moved me along in understanding this, I am not completely clear about what will happen to somebody in the default scheme. Will the Minister take this opportunity to tell us on the record? The Explanatory Notes to the draft regulations for the default scheme state:
“Applicants with an award of Universal Credit may still receive 100 per cent support under this system”.
“May” is good; “will” would be better. The Explanatory Notes also state that use will be made of income and other assessments. My understanding from the notes and the conversation is that in the default scheme the means test made by the Secretary of State for universal credit purposes will be taken across, certain deductions will be made for housing and childcare allowance and it will then be applied. For simplicity, will the Minister tell the Committee whether, if somebody is on income support, JSA or ESA and is passported on to maximum council tax benefit, when the new system comes in under the default scheme, that person will still get the maximum 100% council tax support, assuming no complicated changes of circumstances or other unknown factors? Simply person for person, will the very poorest still get the most?
This is an issue for all kinds of councils, especially those that do not use the default scheme or that want to make the 10% saving because they may want to use thresholds but they—and certainly the population—will not know what the consequences will be. Local authorities should simply be told that they must consult again under the universal credit regime. It is particularly an issue given, as I understand it—and I think we come back to this on a later amendment—that authorities may not amend their scheme in-year but must determine it some way ahead, when they may not know how universal credit is going to work in practice. Finally, when the Government are consulting they could take the opportunity of combining it with a take-up campaign, if they can afford it, of course. I beg to move.
Lord McKenzie of Luton
My Lords, I shall start on a somewhat disagreeable note, which is to register our protest about the tardiness of the regulations that we now have before us, to which my noble friend Lady Sherlock referred. They were published on Monday, and there was some challenge to get hard copies so that we could work on them on journeys and when away from screens. It is unacceptable, particularly bearing in mind the point my noble friend made that it was quite possible that this amendment would have been taken earlier before we had seen the regulations or known what was published on that day. At least we have the chance now to get into them before Report. The scope of the regulations is profound indeed, and we should at least have had last weekend to review them in some depth. I am grateful to my noble friend Lady Sherlock; it is clear that she has done so from the presentation that she just made.
Lord Greaves
I wonder if the noble Lord shares my alarm at the announcement by the noble Baroness that looking at the regulations had made her head hurt, and whether that is something that those of us who have not yet had the chance to look at them have in store.
Lord McKenzie of Luton
The noble Lord raises a point perhaps in jest, but there is a heck of a lot of detail in these regulations that is highly germane to some of the debates that we are going to have. To not have had the chance to review those regulations and plough through them in some depth before we were due to debate them is unfair. Just before I move on, I encourage the Minister to have a discussion with the noble Lord, Lord Freud, who, in relation to the Welfare Reform Bill, was very good at holding seminars and giving us good notice about the seminar meetings before the regulations saw the light of day. That is the more effective way in which to do it—and this is not just nitpicking. We are engaged in this process to challenge and press amendments, but we want to see what comes out of this system work as well as the Government do. On a number of occasions when we were looking at the Welfare Reform Bill, the input of my noble friends in particular made a difference and was recognised as having done so.
As my noble friend explained, the amendment refers to universal credit being included as income in devising council tax support schemes. It is really to highlight the potential interactions between universal credit and council tax support schemes and why they need to be addressed. The Minister will doubtless tell us that local authorities have to decide themselves, but my noble friend Lady Sherlock stated clearly why that should not be the case and why in this regard at least there should be a mandation on local authorities.
Since the amendment was crafted, we have had the benefit of some draft regulations, to which I refer, including the default scheme. My noble friend referred to the comments of the noble Earl, Lord Attlee, about simple systems. We now know that the default scheme has 155 pages of simplicity. As we on this side maintained in earlier debates, the creation of a fair benefit system is complex; the multiplicity of circumstances that have to be catered for are amply reflected in the draft default scheme. It is a measure of the challenge that local authorities will face. Whether local authorities that cannot carry the full cost of a local scheme start with the default scheme, as the noble Earl suggested that they might, or start from the bottom up, is obviously a matter for them. But the default scheme demonstrates the range of issues that local authorities will have to weigh and the potential scope of the evidence base on which they will need to consult to justify their schemes. Clearly, local authorities could import chunks of default schemes, particularly round the national boundaries of the scheme, into their local scheme. But this hardly makes it a local scheme. The default scheme sets out some information and how it will deal with recipients of universal credit; administratively, as my noble friend said, it will tap into the assessment of applicable amounts, income and capital, compiled for universal credit, and will modify them. The principle is that universal credit is taken into account as income but netted for any childcare and housing cost elements.
Some issues have already come from the draft regulations in the time that my noble friend has been able to spend on them. She has identified the confusion between child costs and childcare costs.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)
I can confirm that; it might save the noble Lord another six lines of his speech. Childcare costs is correct.
Lord McKenzie of Luton
Yes, indeed—but the documentation that we had was confused on that matter, which is why the diligence that my noble friend brought to bear was important. Also there was the issue around the actual rates. Again, I agree with my noble friend that this is not to be overly critical of the team. These are complex matters usually dealt with by DWP officials whose whole life is around benefits. That is what drives them.
So far as housing costs are concerned, this potentially deals with the point that, absent such a change, anyone claiming the housing component of universal credit would see their council tax support significantly reduced or even eliminated.
So far as childcare costs are concerned, the IFS points out that in certain circumstances those previously on housing benefit will see their effective support for childcare costs reduced. I have not had a chance to look at that in depth in the regulations but perhaps the Minister can say whether that is the situation on the basis of the draft scheme that we have.
My noble friend rightly focused on the issue of work incentives and the marginal tax rates. Including universal credit in the default scheme as income would appear to avoid the very high overall withdrawal rates of 90%, higher for unearned income, which could be in excess of 100%. But a withdrawal rate of 81% rather than 90% for effective marginal tax rates is still high.
One way of avoiding that would be to avoid overlapping withdrawal of benefits, in particular for council tax support to be withdrawn by the time that universal credit is withdrawn. Can the Minister say what modelling around this issue, clearly on the basis of current understanding of allowances, income disregards and tapers, has been undertaken for the default scheme? What is the range of effective marginal tax rates that flow from the proposed scheme? Who is affected?
We also clearly support Amendment 83, which is to do with consultation. There is a timing issue around this. It is clear that more detail, possibly the final detail, of universal credit will not be known until October this year. Even then, that may not be the final detail. That is important for local authorities devising their schemes. We know that if local authorities are to hit the timeframe of having a council tax support scheme in place by January next year, they would have to be well under way with their consultation by then. Therefore, if further information comes through around universal credit, particularly given its significance over a number of areas, it must be right that local authorities have to consult again on that.
The Committee will see the difficulty with the timeframe. If local authorities are consulting now and in August, September and maybe October on their current understanding and if things change in October when more detail is known, the practical opportunities for them to consult again will be restricted, but it is important that they do. It brings us to an amendment in the name of the noble Lord, Lord Jenkin, that we will come to later and that seeks to remove the restriction on revised schemes having to be promulgated by January of the preceding year. Effectively, as I understand it, the current arrangement does not give any scope for in-year adjustment of a scheme when new information comes forward—whether that is in relation to universal credit or anything else.
However, we know for certain that more precise information about universal credit will come through later this year, but at a point in time when most councils will have already started—if not completed—their consultations on the scheme without that extra information. It is important that it is made clear to local authorities that they should consult around the consequences of universal credit when that detail is known. Somehow, in the timetable for these processes, we need to build in for them the scope to do that.
Baroness Hanham
My Lords, I thank noble Lords for both those contributions. From the outset, I must say that I am surprised at the criticism that the noble Lord has levied across the Room on the timing of the draft regulations. The statement of intent has been out since May and it is quite indicative of what would happen. The draft regulations are in fact almost identical to those that currently support council tax benefit—there are probably 196 of those. I appreciate that the noble Lord finds the timing of this difficult but while I am sure it is necessary for us to discuss some aspects of those regulations here and to get the principles right, local authorities will already be well under way with what they are producing for their schemes.
Lord McKenzie of Luton
Can the noble Baroness then specify the extent to which the default regulations before us actually differ from the current detailed arrangements? Reference was made to the statement of intent—yes, but that is a very broad document and does not in itself set out any detail. It falls far short of the information you would need to devise an effective and important scheme.
Baroness Hanham
But even so, local authorities have been waiting for and expecting these regulations, and they have started off. Also, on consultation, they are now entitled to do less than the 12 weeks—that is in the Bill—so they can curtail or tailor their consultation to different timescales. Moreover, local authorities are far better equipped and far further on than noble Lords opposite are giving them credit for. I have spoken to quite a lot of local authorities, and if they do not already have their scheme in embryo they are all just about there and about to undertake the consultation. While I do not mean any discourtesy to this Committee about the regulations, the most important aspect of this now is that local authorities are getting on with what they are doing and while some may find some difficulties, most are making a good fist of it.
The noble Lord referred to my noble friend Lord Freud. He will appreciate that up until now it has not been entirely in our gift to have discussions since the regulations were published. I do not know the timing for this Bill when we come back but perhaps I can give the noble Lord an undertaking that if it is not considered in the first week, we will make arrangements to have the discussions he has asked for before we get to Report. We may find that helpful and even if there is a day, we will make sure that we do it on that day. I hope that is all right.
I have clarified to the noble Baroness that we were referring to childcare costs; she was quite right to say that. While I am picking up on her questions, before I read my reply, I should say that the universal credit rates are indeed last year’s and will be updated in November, which is in line with the normal uprating procedure in the Department for Work and Pensions for this year.
Lord McKenzie of Luton
Perhaps I could follow up on two points. I do not think that the Minister dealt with the question of consultation and timing. On a couple of occasions, the expression was used, “We continue to work on the detail of universal credit with the DWP”, and that is fine and we understand. But if when that detail emerges it has consequences for the schemes that local authorities are proposing, how will that fit into the timeframe? They are consulting now, they have to have a scheme in place by January, they have to engage with upper-tier authorities first and have two rounds of consultations. If they have done that on the current understanding of the default scheme as adjusted and of universal credit but the detail changes in a way that might be significant, how can they feed that into their final schemes?
Is it not right that, as proposed, you get a chance every year to change your scheme but you have to have that done by January in the preceding year? As a practical matter, the timing does not seem to fit, does it? If in October you get a raft of new information and presumably there is support for a further round of consultation on that, it will make it impossible to meet those deadlines—or extremely difficult. If authorities are consulting now to try to get the thing done in time, the timeframe becomes pretty impossible, does it not? That was one question—the need to go again on consultation because of new information.
The broader issue about being able to change the scheme in-year is one that we will come on to in a later amendment, but what work has been done by the Government either by the DWP or CLG about the interrelation of tapers on the basis of the information that we have at the moment—the applicable amounts and income amounts in the default scheme and what we know about the components of universal credit? How do those tapers currently correlate? Do we have much of an overlap, if any, between the withdrawal of the council tax support taper before you get to that position on universal credit? What is the crossover? What evidence do the Government have and what work have they done to try to evaluate that? That is also key to effective tax rates and therefore work incentives.
Baroness Hanham
My Lords, I am not sure whether the noble Lord would expect me to answer his last point, which was about modelling, today. That has largely been done by the DWP, and it would be more effective if I wrote to the noble Lord giving details of that and did not try to muddle my way through today. We ought to do it properly.
On the question of consultation and the scheme that local authorities are working on, I said very clearly that the current council tax benefit scheme is almost transferable into the one that they will have to operate from January. People who are already receiving council tax benefits and those in the pipeline will automatically be put in, so they will not require any more work done on that. As far as consultation is concerned, I have also dealt with this. The consultation does not have to be 12 weeks. Equally, say if you just have one consultation going out for your scheme, that will be back before the 12 weeks are up. Where there is a precepting authority involved, this is going to have to be a joint scheme and one would expect discussions to take place, or to have taken place, before the scheme was put out for consultation. It should be something that goes smoothly and seamlessly between the two.
We are satisfied that the work that has been done, the way this has been translated and transferred, and the amount of information that is available is absolutely sufficient for local authorities to be working up their schemes now.
Baroness Hanham
My Lords, it is after taking account of inflation, so it is a very substantial increase. The 10% saving across the piece in the council tax benefit scheme is making a small contribution to help tackle the deficit.
Localising support for council tax increases financial accountability and helps to make local authorities fully responsible for decisions over council tax levels. They now have a requirement to make sure that that is transparent to people who are claiming it and to people who are helping with it.
Amendment 81 would not only prevent a reduction in funding to local authorities. It could, in fact, lead to an increase in government expenditure because it would require the Secretary of State to provide funds to cover all eligible claimants under a new local scheme, however the scheme had been designed. One of the things that would be quite difficult to work out is how many people are eligible for the benefit if they do not apply for it. The amendment is simply not credible or affordable. The saving scored in the spending review has to be delivered, and local authorities are charged with finding ways to deliver that.
It may be helpful if I tell noble Lords what they already know: local authorities will receive the same amount of money this year to support council tax benefits as they received last year, minus 10%. That will be fixed for seven years until the next business rates reset. Meanwhile, if they can get the number of council tax benefit claims down, if they can get people into employment, if they can make a scheme that goes across the whole of their business front, then from now on they will know how much they will get. It is extremely helpful to them because they can always work within those parameters.
Lord McKenzie of Luton
Will the noble Baroness clarify, with reference to this year and last year, precisely which years we are talking about?
Baroness Hanham
It is 90% each year for seven years, and that will start in 2013-14. It is based on the estimate for 2013-14.
“( ) Where the Secretary of State has agreed to make a payment on account in accordance with paragraph 26 of Schedule 7B, consideration shall also be given to the provision of additional funds for the council tax discount scheme.”
Lord McKenzie of Luton
My Lords, I do not propose to detain the Committee long on this amendment, although it is influenced by the discussion we have just had about seven-year fixed resources. It deals with situations where the Secretary of State has agreed that an in-year payment is to be made under the safety net provisions of the business rate protection scheme. Such payments are to be made under regulations to be promulgated by the Secretary of State. The amendment requires that a payment on account under the safety net provisions should also be a trigger for consideration of additional funding under the council tax support arrangements. The point is obvious. As we have discussed before, the localisation of council tax support switches risk from central government to local authorities. That requires local authorities to estimate the effect of their local discount schemes, including take-up, on their band D equivalent numbers.
The challenges that that presents to local authorities in budgeting have already been discussed. In most instances, a significant, possibly catastrophic, reduction in the business rate base will have other consequences, which are likely to include employment—or, more likely, unemployment—consequences. Redundancies will place strain on the benefit system and certainly on any local council tax support scheme. Some of those events may be predictable, but some will not. They may be the result of decisions taken continents away. Some councils may be able to take the strain; others may not. All that the amendment would provide is a process which triggers consideration of additional funding being made available in-year to support unpredictable claims on council tax support schemes. I beg to move.
Baroness Hanham
As the noble Lord said, this amendment is shorter than some others and would expand the scope of the business rate safety net into the council tax support scheme, so that there would effectively be a safety net for benefit, as there is for the business rate. The provisions we have made for the business rate safety net will ensure that no council’s retained rate income falls by more than a set percentage below its baseline funding. Business rates provide a significant revenue stream for local authorities, and unexpected volatility of rates could have a significant impact on an authority’s budget, so it is right that we make that safety net available.
However, revenue from business rates is of a different order of magnitude from the cost of council tax support. In 2010-11, the contribution of business rates to the pool—that is, the net yield after allowances for collection costs—was more than four times the cost of council tax benefit expenditure. During the passage of the Bill, comments have been made about the impact of a large local employer closing down—the noble Lord used that as his example—on business rate revenue and demand for council tax support. There is a distinction between the two. Although there is a clear, direct link between the closure of a business and a reduction in business rate revenue, the impact is likely to be more complex in relation to demand for council tax support. To take one example, employees may not be residents of the borough or the council area; they may come from a much wider area, in which case that will affect other local authorities instead.
Councils have greater control over their council tax support scheme than over business rates, although they are encouraged to make sure that those increase. They will be able to design their scheme to reflect their local circumstances and, particularly, to work with their major precepting authorities to agree an approach to managing risk. Authorities will be able to plan and manage council tax reductions carefully, just as they already do for many other vital local services. Mechanisms are already in place to share the effects of a reduction in council tax collection rates between billing and major precepting authorities. They will enable financial pressures which result from increases in demand for support to be shared. In addition, we are making provision in the Bill to enable billing authorities to arrange with major precepting authorities to vary the amount of precept to be paid in-year to reflect any shortfall in council tax receipts. This could help to protect billing authorities from financial pressure in-year, until they manage to get the matter sorted out.
I hope that with those remarks the noble Lord will feel able to withdraw his amendment.
Lord McKenzie of Luton
I thank the Minister for her reply. Of course, I will withdraw the amendment as we are in Grand Committee. I accept entirely that the arrangements require an approach to managing risk and that, particularly in the early years, they will be new challenges for local authorities. They always have to manage risk, but the particular risks that come with the business rate retention and council tax support schemes are new and additional risks.
The Minister said that local authorities had greater control over their council tax support schemes. I accept that point, but they do not have that in-year control. One point that we will discuss at a later stage is the ability of the local authority to change and revise its council tax rebate scheme. My understanding is that it cannot do that in-year. If it can, I would be interested to know that. Even if it could, that would not necessarily help with the problem that we are trying to focus on here, when you have a catastrophic situation and a closure leads to big reductions in local employment. I accept entirely the point that it would not just be people in a particular locality; big factories, so far as they still exist, are likely to draw in labour from a number of authorities. In Luton about a decade ago when the Vauxhall car plant closed we saw what impact that had on the local economy. It would have had an impact on the council’s finances under these new arrangements. Having said that, I think that there is only so much merit in pressing the case and, for the time being, I beg leave to withdraw the amendment.
Lord McKenzie of Luton
My Lords, this has been a good debate. We heard a very powerful speech from the noble Lord, Lord Best. We have acknowledged in this Committee, on the Welfare Reform Bill and other committees his principled and powerful leadership on a range of important issues but I am sorry to say that we cannot travel the whole of the journey that he outlined for us today on this particular occasion.
I will come to Amendment 93ZA shortly, but our starting point is different. Although we have supported localism across a whole range of areas, our position on council tax support or council tax benefit is that it should be part of universal credit. If that is not possible, it should be a national scheme. That is the right way to structure it. Therefore, anything that moves us away from that position creates difficulty for us.
If Amendment 82 is carried, it would not only deal with the issue of removing the powers in relation to pensioners, there is a whole range of other issues that it would cover. We should look at the draft regulations, which we now have, which cover things such as temporary absence from the UK, persons treated as not being in GB, persons subject to immigration control and a whole raft of things which if central government do not put down the rules, would be pretty nigh impossible for local authorities to deal with consistently. Whatever improvements there may have been for pensioners, we do not want to diminish their current living standards. We are talking about those on council tax benefit: we are not talking about rich pensioners so far as this is concerned.
Amendment 82A in the name of the noble Lord, Lord Jenkin, is simply about consulting. It seems entirely reasonable: one could never really object to a process requiring consultation. The noble Lord, Lord Jenkin, also spoke to Amendment 88B. When I referred to it earlier, I had a slightly different take on it. His particular point is its interrelation with potential council tax referendums and how that timing works. Like the noble Lord, I would be interested to understand the Minister’s response on that. But there is another issue, which we touched on earlier. If you need to fix a local council tax support scheme in-year because you realise that something is going wrong—because you do not have the data right or you have the wrong amounts—what is the process for being able to change that in-year rather than having to wait for a year and change the scheme in January to operate in the subsequent year? That is a problem.
On Amendment 88D, if we are talking about transition provisions between council tax benefit and localised council tax support, there must be a role for the Secretary of State or for those currently responsible for the benefit system. Part of it would be how you would deal with back-dated claims—for example what happens across the dividing line? That cannot just be left to the individual decisions of local authorities. Surely, central government is entitled to have a say in that because it impacts on their bit of the council tax benefit system.
We had a preview of Amendment 93ZA from the noble Lord, Lord Best, on Monday. As we know, the discount is currently set at 25% in legislation, but with a power for the Secretary of State to change the percentage. It is not one of those things currently subject to local discretion. The origins of the policy set out in the helpful note provided by the Lords Library—and endorsed by my noble friend Lady Hollis, who was involved in creating the legislation at the time—explains that council tax consists of two elements: 50% being a property element and 50% a personal element. The personal element assumes two adults resident in a property. In circumstances where only one is present, a 25% discount is given. That is how it is derived.
The noble Lord argues for the setting of the percentage to be devolved to local government, particularly the billing authorities, consistent with the Government’s localism agenda and the provisions to them of powers to settle discounts for empty properties and second homes. Any change from the 25% discount might be argued to undermine the integrity of the council tax system, although in the context of broader things this might not be the most important issue. If the starting integrity of the system is to change, should that be done on an ad hoc basis at local level or does the responsibility rest with the Secretary of State? At local level, there is no opportunity to redistribute on the basis of need the extra revenue that change in the discount would engender.
Noble Lords have, as we have, referred to the IFS report, which analysed the proposition of a reduction of the discount to 17.5% but with pensioners being protected—and seemingly no other vulnerable groups being protected. It is not a proposal: it is simply an example of how it might work on the basis that the change would garner revenues that in total would match the 10% cut that the Government seek to impose. But that is not distributed evenly between local authorities. It would raise, for example, 14% in London and almost as much in the south-east, but only 8.5% in the north-east. On the IFS example, 20% of people in the poorest income decile would lose out. The big losers would be single people and lone parents in work.
So there are issues about going down this path, and those issues would be exacerbated and much less comprehensively addressed if done on an ad hoc basis at individual local authority level. We have not had the opportunity to study the distribution analysis of the noble Lord’s proposition, which we should clearly do before Report.
There may be a case for the Government to address the appropriateness of this relief and if they are to do so, to see how the revenues might be redistributed on the basis of need. But any change to that has to be done at national level. Dealt with at individual local authority level, it could certainly generate inconsistencies and distributional effects that we would not, overall, be comfortable with. I am afraid that on this particular amendment we are not able to follow the noble Lord.
Baroness Hanham
My Lords, I thank all noble Lords who have taken part from all sides in debate on the amendment. I hope that I will be able to provide some reassurance as we go through that all is not quite as terrible as has been put forward.
Before discussing the detail of these amendments, it might be helpful for me to set out the Government’s intentions in relation to regulations. On regulations in general, it is not our intention to prescribe closely the operation of local schemes in relation to working-age claimants. The Government have said that local authorities should have flexibility in relation to their local schemes. That is why very few elements of schemes in relation to working-age claimants are intended to be prescribed and any that are will be largely administrative.
The Government have been clear from the outset that we intend to protect pensioners from any reduction in support as a result of this reform, and support for that has been expressed on both sides of the House. This policy will be given effect through regulations. I confirm that low-income pensioners will be protected.
The default scheme, which we will discuss in detail when we come to group 38, is intended as a legal backstop to ensure that local authorities cannot avoid their duties to bring forward a scheme and so fail to offer any support to those in financial need in their area. That will be prescribed in regulations.
The Government also intend that, in line with wider government policy and existing council tax benefit arrangements, non-EEA nationals who have leave to enter or remain are subject to a prohibition on accessing public funds, and those nationals who are inactive or do not satisfy the habitual residence test will be treated as not being in Great Britain and will not have an entitlement to council tax reduction. We think that this is important to avoid cost pressures on local authorities, and will give effect to it in regulations.
As noble Lords will be aware, we have published statements of intent setting out what we intend to provide in regulations, and have published draft regulations for the default scheme and prescribed requirements, so there can be no doubt as to our plans.
I turn to the amendments. Amendment 82 would remove the ability of the Secretary of State to prescribe requirements for schemes by regulations under paragraph 2(8) of new Schedule 1A. The Bill provides that the Secretary of State may prescribe, in regulations,
“other requirements for schemes”.
As has been referred to many times, the Government have published a detailed statement of intent on regulations. That explains that this power will be used by the Secretary of State to impose requirements on authorities to make provision in their schemes for people of pension credit age—those who are referred to as pensioners—to exclude certain people of limited immigration status from schemes, and to put in place any key administrative requirements for all schemes.
The Government have made it clear that they intend to use prescription to retain, for pensioners, the criteria and allowances currently in place for council tax benefit. The Government have been clear that pensioners who have worked hard all their lives and have had no opportunity to increase their income, should not experience a reduction in support as a result of the introduction of this reform. The Government will achieve protection of pensioners by prescribing a rules-based scheme in regulations. As at present, that will be means-tested, so the amount of support will be based on individual circumstances and changes of circumstance will also be taken into account.
In protecting pensioners and giving consideration to the design of their local scheme, billing authorities will, of course, have choices about how they manage the reduction in funding under the reform. They will be able to choose whether to pass the reduction on to council tax payers, use flexibilities over council tax, or manage the reduction within their budgets.
The Government also intend that, in line with wider government policy and existing council tax benefit arrangements, people from abroad not currently eligible to apply for council tax benefit for the reasons I outlined before will not be able to apply for council tax reductions.
Finally, the Government set out in their statement of intent that they also intend to prescribe for all schemes a small number of administrative regulations and powers currently provided for under social security legislation and which will need to be provided for in future under the regulations we bring forward for council tax support—for example, the requirements for applicants to provide adequate information to local authorities in support of their claims.
The recent publication of draft regulations covering the default scheme and prescribed requirements, including requirements for pensioners, should put beyond doubt the Government’s intention in relation to prescribed requirements and the operation of the default scheme.
I therefore see no benefit in Amendment 82, which would leave low-income pensioners vulnerable to increased council tax bills. Persons currently unable to claim council tax benefit can benefit from local council tax reduction schemes, and mean that local authorities would not be required to put the effective arrangements in place for administering such schemes.
My noble friend Lord Jenkin referred to consultation. Amendment 82A would require the Government to consult on regulations prescribing requirements for schemes.
I recognise the importance of external scrutiny of our plans for the detailed framework by which local authorities will be required to operate their schemes. That is why, on 17 May, the Government published the statements of intent for the key regulations to deliver that policy and further statements of intent on data sharing and fraud on 9 July. They provide an opportunity for us to engage with local authorities on the detail of our plans before draft regulations are brought forward, and provide them with the key information that they need to develop those schemes. That will provide further clarity on the content of the regulations and enable local authorities and other professional groups to scrutinise them while in draft form. It will also make clear how we intend to use the key regulation-making powers in the Bill, while it is subject to consideration in this House.
Given the publication of statements of intent and draft regulations, there is no need for the additional requirement to consult local authorities that Amendment 82A would impose.
Lord Palmer of Childs Hill
My Lords, this particular amendment finds me echoing the words of the noble Lord, Lord Jenkin of Roding, that the Secretary of State is being required to get involved in minutiae. If one looks at the five regulations in paragraph 3(5), one almost finds that local authorities are being required to photocopy both sides of every piece of paper, put first-class stamps on everything and so on, and this is mollycoddling of the greatest degree. If we are talking about localism, the idea that the Secretary of State can suggest to any local authority that they should do things in this manner tends to assume that it is made up of idiots who cannot run anything. That really is the opposite of localism.
This is little more than a probing amendment, as the noble Lord, Lord Jenkin of Roding, said, but one that goes very much to the heart of localism and the Secretary of State’s tendency to get involved to a completely unnecessary degree.
Lord McKenzie of Luton
My Lords, Amendments 84 and 87 stand in my name, but I shall first address the issues in Amendment 83ZA, which has just been spoken to. It goes without saying that I support Amendment 88 in the name of my noble friend Lady Sherlock.
As far as Amendment 83ZA is concerned, we are not enamoured of the Secretary of State having a raft of central powers, but we have to balance this against our concerns about a fragmented system. With the prospect of hundreds of different authorities adopting hundreds of different schemes, all with different criteria, some standardisation of approach has merit. For example, the form and content of documents to be produced raises the question of what distributional analysis should be included and what the requirements should be for a general impact assessment and indeed an equality impact assessment. Having some central guidance on these matters may help to head off problems of potential judicial review for some councils.
Amendments 84 and 87 continue the theme of the default scheme which, as we have discussed, has now been produced in all its glory—all 155 pages of it. Despite its lateness, it has moved us on. It has been difficult in the time available comprehensively to absorb its content and to read across the existing council tax benefit provisions, and we have an outstanding question to the Minister from our earlier amendment about where the default scheme has not been able to replicate existing arrangements. However, given that Amendment 84 is just a probing amendment, I am content to proceed on the basis that any discrepancies or differences are minimal, and that the first part of the amendment has been addressed.
That being so, we are seeking from the Government their view of the protection that their scheme provides to vulnerable people. What, on the basis of 155 pages of regulations, is included in the default scheme for vulnerable people and how does the default scheme address their needs? In this age of austerity, we presume that the Government would not sanction any scheme that provides superfluous or excessive relief, so we are simply asking them to spell out how they are providing for vulnerable people in the default scheme and which aspects of the scheme provide particular support for which groups. Given that the Government have made judgments about who should be protected by the default scheme, they should have a view about who should be considered under local schemes. The amendment does not require any local authority to follow the Government’s view on this; they can exercise their own judgments, but should be able to do so armed with the knowledge of why the Government have made certain decisions.
Baroness Lister of Burtersett
My Lords, perhaps I may crave the Committee’s indulgence and go back to an issue that we discussed at our last meeting. Although this is not technically about the default scheme, it is about vulnerable people and about carers. The Minister very kindly wrote to my noble friend Lord McKenzie and copied the letter to other members of the Committee. It responded to our concerns about carers not being mentioned as a vulnerable group. In her letter, the Minister said,
“The guidance we have published on the statutory requirements in relation to vulnerable groups does not refer to carers”—
as we said—
“but as was made clear in the discussion, it is not intended to be exhaustive”.
The guidance talks about disabled people, duties under the Child Poverty Act, homelessness, and even the Armed Forces covenant. When local authorities have ticked all those boxes, and when they have addressed the requirement on them to take account of work incentives, very few local authorities will say, “Hang on, let's see if there are any other vulnerable groups that we should be thinking about”, and turn their attention to carers.
I ask the Minister to take this away, not to put it on the face of the Bill, but perhaps the department would consider reissuing the guidance so that it specifically mentions carers among vulnerable groups. I have not heard the Minister say anything to suggest that she does not think that carers are a vulnerable group. So if the Government accept that carers are a vulnerable group, and as we do not have concern for any other vulnerable groups that are not mentioned in the guidance, is there any reason why they could not be put in the guidance? My fear is that, yet again, carers will be overlooked.
Lord Jenkin of Roding
The whole Committee will be grateful to my noble friend for her careful answer to the points made in the debate. We shall want to read carefully what she has said and, if so advised, to return to the matter later. Before I withdraw the amendment, perhaps I may say that I am about to withdraw myself. I have to make preparations to get off to celebrate my diamond wedding in Scotland. I hope that I may be forgiven. With that, I beg leave to withdraw the amendment.
Lord McKenzie of Luton
Before the noble Lord withdraws his amendment—I would not wish to keep him from his celebration and we pass on our best wishes to him for it—I note that, again, the Government refuse to give any practical help to local authorities on the issue of vulnerable people. We know why that is, as they are leaving local authorities high and dry to make those difficult decisions, not wanting to take any responsibility themselves. That will be a continuing theme of the Bill, and I am sure that we will return to it.
Baroness Hanham
My Lords, I cannot let that go unchallenged. It has been clear from the outset of the discussion on the Bill that the intention is to give local authorities the maximum flexibility to decide how they want the scheme to operate. The noble Lord may not agree with that, but it is not the intention of the Government not to give support but to ensure that local authorities manage their own affairs.
Lord McKenzie of Luton
In a sense, the noble Baroness is saying that the Government are imposing on local authorities the judgment on whether to help vulnerable people at the expense of slightly less vulnerable people. If the Government are imposing such decisions, they should take responsibility for making those judgments.
“(4) Both billing and precepting authorities shall be entitled to hold such balances to deal with shortfalls in council tax receipts as agreed with their auditors.”
Lord McKenzie of Luton
My Lords, perhaps I can move the amendment on behalf of my noble friend Lord Smith of Leigh. He did not provide me with a script, but I believe I understand what was in his mind when he crafted the amendment. This is a relatively straightforward issue. It requires that:
“Both billing and precepting authorities shall be entitled to hold such balances to deal with shortfalls in council tax receipts as agreed with their auditors”.
We have touched on this at various stages of our discussions. We have touched on the fact that both the business rate retention scheme and the council tax support scheme will make budgeting that more complex for local authorities. They will be challenged with new issues around the level of balances and what reserves should be held against them for contingencies that might flow. I imagine that if the provisions are agreed with auditors, that would be validation enough, but in moving the amendment I am interested to hear what the Minister puts on the record in this regard. This issue is important to a number of local authorities.
Baroness Hanham
My Lords, I thank the noble Lord for moving this amendment on behalf of his noble friend. I agree with him that local authorities will want to consider what sensible provisions they should make to manage their finances generally. Frankly, I do not think that the amendment is needed.
Individual authorities already decide what reserves they are going to budget for, and would be free to decide to hold reserves for the purpose of easing council tax benefit if they needed to. Determining the level and use of reserves is a matter for individual authorities, as part of their overall financial and risk management. There is no prescriptive national guidance on the minimum or maximum level of reserves, either as an absolute amount or as a percentage of the budget.
Reserves can help authorities to respond to unexpected situations, and give them room for manoeuvre on their finances, including helping to protect key front-line services. All authorities should keep sufficient reserves so that they have a financial cushion to meet sudden unexpected costs. What is sufficient should be determined by the authority themselves, in relation to their overall budgets and their individual circumstances.
Amendment 88C also requires the auditor to agree the level of reserves. I do not think that that would be appropriate, because that could prejudice the independence of the auditor, who might wish to comment later on the level of reserves. I do not think that the auditor could give a blessing to a certain amount of reserves before any auditing was done.
The overall level of reserves is agreed by the authority at the start of the financial year. Under Section 25 of the Local Government Act 2003, the chief financial officer is required to make a formal report to the authority on the budget and adequacy of the reserves. Although I am very grateful to the noble Lord for raising this issue, I do not think that the amendment is needed, or that the proposal that the auditor should agree the reserves would work legally.
Lord McKenzie of Luton
I thank the noble Baroness for her reply. I did not—although I can see that one could—read the amendment to say that the auditor had to be part of the process of agreeing reserves rather than taking a view in due course, as it would on the totality of the accounts, but the point is well made.
The amendment may, in part, have been prompted by concerns—real or imagined—that the Secretary of State has his eye on local authority balances and on putting down a marker that, in the new era into which local authorities are moving, it should be recognised that appropriate balances should be permitted, not challenged and viewed by the Secretary of State as a means of chopping back other resources. However, what the noble Baroness said has been helpful, and I beg leave to withdraw the amendment.
“Report on effects of provisions
At a date no later than three years from the implementation of this Act, the Secretary of State shall prepare a report detailing the effect of these provisions on—(a) the number of people receiving or eligible to receive council tax support in each local authority, including the number in employment, the number actively seeking work, and the number of pensionable age;(b) the costs incurred by each authority in running the scheme, including the cost of appeals; and(c) the impact on work incentives.”
Lord McKenzie of Luton
My Lords, I beg to move Amendment 92 on behalf of my noble friend Lady Sherlock and speak to Amendment 93ZB, which effectively covers the same ground. Amendment 92 would require the Secretary of State to report on the effect of these provisions within three years of their implementation and specifically to report on three aspects of these changes.
First, it would require the Secretary of State to prepare a report on take-up of council tax support in each local authority, detailing eligibility and take-up, including figures for those who are in work, actively seeking work and pensioners. This information will be crucial in enabling an assessment of what impact the changes have had on eligibility, support by different groups and, crucially, take-up. As the noble Lord, Lord Shipley, reminded us so powerfully earlier, there is a potential disincentive for local authorities to encourage higher take-up because they would have to absorb the cost of any increased take-up as the funding will no longer be demand-related and will come not from DEL but AME.
The amendment would also require the Secretary of State to report on two other aspects: the costs incurred by each authority in running the scheme and the impact on work incentives. That is simply good governance. We are having robust debates here about the likely effect of these changes. We fear these changes could damage incentives; while the noble Earl, Lord Attlee, has opined that they would have the opposite effect by incentivising local authorities to encourage their residents into high-paying jobs. Some noble Lords believe take-up may fall; others that it may rise and be expensive. Either way, the Government are confident that that will not be a problem.
This report will answer three questions and many more. We can simply reconvene in 2015-16, if we are still here, and find out who is right. More importantly, policy-makers of the future will learn lessons and, if necessary, a future Government can make changes to legislation in this area. The Minister may say that this is unnecessary, that the Secretary of State will collect this information anyway, but we have heard from my noble friend Lady Lister today that even the DWP proposes to stop collecting take-up statistics. Certainly, we want to return to press that issue. I submit that the need is clear. Government should gather this information and Parliament has the right to see it. I beg to move.
Baroness Hanham
My Lords, I thank noble Lords for their contributions. It will not be entirely a surprise when I say that I support my noble friend Lord Deben’s general emphasis on this issue.
Paragraph 7 of new Schedule 1A to the Local Government Finance Act 1992 is inserted by Schedule 4 to the Bill and enables the Secretary of State to require authorities to supply specified information to the Secretary of State. The Government, in their equality impact assessment of this reform, made it clear that the powers could be used to collect information to support future evaluation of the policy.
Council tax support will become part of the council tax system that we have been through today. The Government already collect key data for the council tax system, including data on exemptions and discounts. We are currently working with other government departments and local government to determine the necessary data that will be required in future as part of the council tax system, or through other mechanisms, to monitor the policy and how best to collect this. To ensure proper scrutiny, new requests for data from local government will need approval by the single data list gateway group, which has been established by this Government to consider and challenge new data requirements from local government.
Amendment 92 requires a report on the impact of work incentives. To do so would place another administrative burden on local authorities. The purpose of the policy is not to make local authorities report to the Government on work incentives; rather it is to encourage local authorities to get people back into work. It will not be in the interest of local authorities to lock their residents into poverty and low aspirations. They will want to design schemes which support claimants into work, and the department has issued guidance helping local authorities to understand the importance of work incentives and how they can design schemes which support the objectives of universal credit.
The second part of Amendment 93ZB would require the Government to adjust funding allocations to reflect any changes in the number of eligible claimants. The amendment does not make it clear whether this is funding from within the council tax support scheme or additional funding from outside. Funding for council tax support will be included as a fixed allocation within the business rate retention scheme. Councils will have the responsibility and flexibility to deal with these on a local level. Councils, in designing their schemes, will need to consider the risk of variation in demand. In relation to in-year fluctuations in demand, mechanisms are already in place to enable billing authorities and major precepting authorities to enter into arrangements. This will enable financial pressures as a result of unexpected increases to be shared.
The Government do not think that it will be necessary or helpful for local authorities to be asked to provide that a report be published in Parliament. There are transparency requirements on local authorities to make sure that all of what they do is understood and made clear and, where possible, put on the internet. We think that that will be sufficient to ensure that there is wide knowledge of what each local authority is doing.
Lord McKenzie of Luton
My Lords, I thank the Minister for that reply and the noble Lord, Lord Shipley, for his support. The noble Lord made the point that two years may be more appropriate than three, and I think that we would happily take that on board when we approach the subsequent stage.
My noble friend Lady Lister dealt with a point made by the noble Lord, Lord Deben, about the significance of the change that we have here. About 5 million people are in receipt of council tax benefit at the moment, and those people—the most disadvantaged and poorest in our community—are the ones who are going to be subject to this new system. Our intention is not to limit the localising process, although we do not like it, this is simply about the Government understanding the consequences of their policies. From what the Minister said, it seems that there are potential requirements on authorities to provide a range of information anyway, so that provision does not seem to be limiting the Government’s thirst for localism. The impact on work incentives is crucial. It is a major plank of the Government’s policy, not only on the business rate retention scheme but to the council tax support scheme. The whole thing is designed and driven by trying to get more people into work. There are issues about where the jobs are going to come from and how that is going to work, but it must be of interest to the Government to know how that part of its policy will work in practice. I cannot see why it would not be.
We will return to this issue on Report. It is important that there is a transparent process back to Parliament. It does not negate what local authorities will do or limit the powers or scope that they have under the Bill. All it asks for is a report by the Secretary of State back to Parliament to evaluate how it is working in practice and whether it is delivering what the Government believe that it will—and what we, for our part, are sceptical about. Given that and given the hour, I beg leave to withdraw the amendment.
Lord McKenzie of Luton
My Lords, Amendment 93ZBA is a narrow and technical amendment. It relates to long-term empty dwellings and the power given to local authorities to terminate entitlement to discounts and increase council tax by up to 50% of the applicable rate, so councils will have the power to charge up to 150% of council tax provided that the property has been unoccupied and substantially unfurnished for more than two years. It is accepted that the term “substantially unfurnished” is not specifically defined anywhere in legislation and has been the subject of case law. Clause 11(9) appears to treat property as unoccupied despite short interim periods when it was occupied. However, such intermittent occupancy might imply that the property was not substantially unfurnished during that period, so it would cease to be a long-term empty property. That would seem to negate the purpose of Clause 11(9), so the amendment seeks to ensure that any concomitant period when the property was not substantially unfurnished is equally ignored. I beg to move.
Baroness Hanham
My Lords, this short amendment specifies that in determining whether a property has been unfurnished for any period of six weeks or less during which it was furnished should also be disregarded. Clause 11 sets out that a dwelling is classified as long-term empty and subject to a premium if it has been unoccupied and substantially unfurnished for a continuous period of two years. Any period of six weeks or less during which the dwelling was occupied is disregarded. The amendment would add a second consideration of time to the application of the period by requiring a billing authority to take into account any periods during which the dwelling was furnished. This would add an unnecessary level of complication to the administration of the empty homes premium. It would potentially require billing authorities to monitor the interplay of periods of occupation and furnishing of a dwelling. Clear criteria for the scheme and ease of administration are highly desirable for billing authorities and, perhaps more importantly, council tax payers to know where they are.
Lord McKenzie of Luton
My Lords, I do not want to prolong this but I am not sure whether we are at cross purposes. The amendment was meant to be helpful and quite narrow. If the legislation is saying that despite the fact that the dwelling is occupied, it is treated for certain periods as being unoccupied—it is understood why that would be the case—the problem with that is that when it is actually occupied, is there not a greater risk that it will be treated as being not substantially unfurnished, because it would need to be furnished for somebody to occupy it? All this amendment tries to do is to ask: when you disregard that period of occupation, why not also assume it to be “substantially unfurnished”? Unless you do that, in a sense you negate in large measure the effect of subsection (9). It may be that the Minister wishes to take it away but that was the only purpose of this amendment. It is not meant to otherwise complicate it or create other difficulties, or to disrupt and undermine the localism agenda. It is a very narrow point.
Lord McKenzie of Luton
I thank the Minister for that and look forward to the reply in due course. In the mean time, I beg leave to withdraw the amendment.
Baroness Hanham
My Lords, this minor government amendment allows the Secretary of State to commence the provisions of Clause 12 by order, rather than having them come into force automatically on 1 April 2013. The Government remain committed to the principle that mortgagees in possession of a dwelling should be liable for council tax but are proposing this amendment for practical reasons. As stated in their response to consultation on this reform, the Government do not intend to implement this provision until discussions have taken place with the mortgage lenders sector, leading to satisfactory and workable administrative arrangements. These discussions are being pursued and the Government intend to implement the provisions as soon as practical. However, I move this amendment and hope it is accepted.
Lord McKenzie of Luton
My Lords, we clearly do not disagree with this amendment but I note a certain timing discretion given in respect of these circumstances that is not allowed to local authorities for the big challenges that they have, but that is a debate for another time.
Local Government Finance Bill
Lord McKenzie of Luton Excerpts(12 years, 4 months ago)
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Lord McKenzie of Luton
My Lords, I shall also speak to our other amendments in this group. The amendments would defer the requirement on local authorities to introduce a council tax reduction scheme by one year so that it will be made no later than 31 January 2014 to come into effect on 1 April 2014. I am delighted to see that this has the support of both parts of the coalition, or at least I think it does since noble Lords have put their names to it, but perhaps things have changed. We should recognise that the Secretary of State has a power under the Bill to defer the introduction of these requirements, but seems intent on rushing ahead with the current timetable. This amendment is not designed to be a wrecking amendment. We have made clear our preference for any council tax support scheme to be part of universal credit, or at least for there to be a national system. However, should this preference not prevail, what is to be put in place must be properly thought through and consulted on, be capable of implementation and be fair.
Designing a council tax support system is not to be taken lightly. Council tax benefit, despite its relatively low take-up, currently offers support to nearly 6 million recipients: by definition, the poorest and the most disadvantaged. The Bill provides only the framework for what is required. The detail will come with the regulations and we are told that these will definitely be with us before Report, but that could be October. We have the statement of intent, but it is not the definitive position and an addendum is promised, and perhaps we can inquire when that will be forthcoming. As I say, designing a benefit or support system is never straightforward. People do not all live straightforward and routine lives that can easily be categorised and encompassed within a simple set of rules. The Government’s own timeframe, in designing and implementing universal credit, is in part recognition of this. It is new territory for local councils. Administering a system is one thing; designing one is something else, especially as the design is supposed to encompass clear work incentives and to sit alongside both the universal credit and the existing benefit system for some years to come.
The current council tax benefit system is hugely complex and no doubt this is one of the reasons for low take-up, but it has a whole raft of components that are there for good reasons. This is not an exhaustive list, but the matters catered for include a basic applicable amount, disabled child premiums, disability premiums, enhanced disability premiums, severe disability premiums, carers’ premiums, the ESA support group component and the ESA WRAG component. There is a disallowance of certain benefits that we compute in income, which include attendance allowance, child benefit, constant attendance allowance, and DLA care and mobility components. There are income disregards at different rates, deduction of income for childcare costs for lone parents, permitted work rules, the second adult rebate alternative, the backdating of claims and the run-on provisions. Moreover, the interface with universal credit is complex, and we will debate that in more detail in subsequent amendments.
This is not only about deciding whether universal credit will feature as income in a council tax support scheme. There are related allowance issues, embedded in the current system, which might be otiose or need to be supplemented: the treatment of unearned income, childcare costs and passporting. Currently, I understand that some two-thirds of council tax benefit recipients are passported on to 100% benefit. Having to means-test all these will present a major administrative burden for local authorities. Of course, we have not yet had the final details of universal credit. These are not due, we understand, until the autumn. Perhaps the Minister will confirm that that is his understanding.
What is the current expectation of when all the detail will be known? How confident is the Minister that local authorities have a full understanding of the intricacies of the possible interactions between universal credit and the existing system? What is the current understanding of the volumes that will flow on to universal credit next year? Which features of the default system reflect the interface with universal credit? We know that universal credit is going to be taken as income, but that is just one component.
We are told in the statement of intent that in prescribing the requirements of those who have reached the qualifying age for state pension and for the default scheme, the requirements will replicate as far as possible the existing provisions. Can we be advised of the detail where the provisions are not replicated? I am happy to have that by letter if it is not available this afternoon.
Of course, the risks for councils are huge. The system is no longer to be demand-led AME-funded. Financial risk passes to local authorities together with the 10% cut—or indeed more—in central government funding. As London councils point out, the focus in the short term may be the 10%, but there is a need to consider the sustainability of any system in the longer term. Increased demand and take-up will add to cost.
The need for local authorities to have more time should be obvious. If the Government want local authorities to have regard to local factors and to have schemes that deliver positive incentives to work, those local authorities need the capacity to do the job properly. To have to do this in short order at a time of considerable turbulence, when staffing levels are under pressure, budgets are being cut, system and organisational changes due to housing benefit are being rolled into universal credit—
Lord Colwyn
My Lords, I think everyone has returned. Shall we continue with the noble Lord, Lord McKenzie?
Lord McKenzie of Luton
My Lords, I was explaining that to have to do this in short order at a time of considerable turbulence—when staffing levels are under pressure, budgets are being cut, and systemic and organisational changes due to housing benefit being rolled into universal credit are being contemplated—is simply unreasonable. At this point, perhaps I should refer to the report of the Local Government Chronicle from 16 February this year. It says:
“More suppliers have joined in the criticism of the government’s welfare reform timetable that risks leaving councils to foot the entire bill for a £480m gap in council tax benefit funding. With Capita having already labelled next year’s deadline ‘impossible’, other suppliers have confirmed they have raised the issue with the Department for Communities and Local Government. As previously reported by LGC, Capita wrote to more than 150 customers in January telling them: ‘It will not be possible to put new systems in place by March 2013, when councils are due to set up their own council tax benefit schemes incorporating a 10% cut in funding’”.
If local authorities are to fulfil the task of taking account of local factors, and in particular to deliver positive work incentives in drawing up a draft scheme, they must know the detail of the universal credit, which will come into existence in 2013. This is especially so given the need for consultation. The statement of intent requires a billing authority to consult any major precepting authority that has the power to issue a precept to it, then to publish a draft scheme, and then to consult such other persons as are likely to have an interest in the operation of the scheme.
What is the latest time at which the Government think that consultation can proceed under these provisions? As for major precepting authorities, it has yet to be determined how funding is to be allocated between the tiers. Although the final say is with the billing authorities, any disagreement on the draft at this point might have considerable impact on the timing of the publication of a draft scheme. Those others who are likely to have an interest in the operation of the scheme could be a very wide group of people.
We discussed last week that it should certainly include local precepting authorities, which will bear part of the cost. When the Government have felt fit to remind local authorities of their responsibilities under the Equality Act 2010, making it clear that they will have to consider how a scheme might affect people who share a relevant protective characteristic, they will certainly need to consider the impact of their scheme on disabled people.
Local authorities have a specific duty under the Child Poverty Act to work with local partners to reduce and mitigate the effects of child poverty. They will be required to take into account their local child poverty needs assessment in designing and developing localised schemes. They will also need to have regard to the position of those at risk of becoming homeless. The statement of intent makes it abundantly clear that inadequate consultation could lead to judicial review, a matter to which we will return shortly.
The Government know that they are putting local government in an extremely difficult position by this timetable. That is why they are validating consultation commenced before the passing of the Act and why they are implicitly encouraging a consultation period of less than the 12 weeks encouraged by the code. This simply will not do. The statement is clear about the prescribed pension credit age scheme, and the Government have been clear that, in developing local council tax reduction schemes, vulnerable groups should be protected. They declined to define further “vulnerable groups”, but we will press them on that later.
Vulnerable groups should be protected and are clearly entitled to be consulted in a meaningful way. The Government are offering or insisting on one they made earlier, in the form of a default scheme. This is designed to be equivalent to existing arrangements. Of course, for those tempted to take this up or who are left with no practical option but to do so, that comes at a cost, because they will have to find the 10% cut in funding. Those who cannot live with the default system are encouraged to adopt a system using the same factors as present, as that would reduce the amount of time and expense in changing the IT systems. That is hardly a principled base on which to build a council tax benefit system.
If local authorities are to play the part required of them, whether we agree with it or not, it must surely be right for them to be given time to do the job properly. We are well aware that councils are working hard to meet the exceptional challenges that this legislation brings. Local government has a strong history of delivering the near impossible, but the timetable must be judged not by the pace of the quickest and the best resourced—those who have a ready pool of extra resources from second homes and empty properties—but surely by the least well resourced, who run the risk of having the default scheme imposed with the 10%-plus hit on services.
We are aware that there is a view that if there is to be a year’s deferral, the Government will extract their 10% by some other means. The Government seem to be adept at finding money here or there for a waste collection scheme or change in fuel duty. However, this is fundamentally about fairness; the Government are asking a lot of local authorities. A chance to do the job properly in the interests of the poorest and most disadvantaged is not unreasonable. I beg to move.
Lord Jenkin of Roding
My Lords, I added my name to some of these amendments. I do not need to go quite as far back as 16 February, which was the date of the Local Government Chronicle article from which the noble Lord, Lord McKenzie, quoted. I go back to a meeting held on 28 May for London Councils, which that body asked me to chair and which was attended by a number of your Lordships. It was addressed by senior officials of London Councils and it aroused in me considerable apprehensions about the timetable to which the noble Lord, Lord McKenzie, referred. At that time, it was clear to those officials that a number of councils in London would have difficulty in adhering to the timetable. That caused me some alarm. My noble friend Lady Hanham will remember that I came to see her and expressed some of the anxieties that had been voiced on that occasion. My noble friend undertook to take account of them and asked that the bodies write to her directly because she had not had quite the same message from the officials in her department, and they did.
However, since then it has become apparent that quite a lot of councils have taken the bit between their teeth. They have realised where they are, and that they will have to devise and adopt schemes for council tax support, as required by the Bill. I am sure that many of them have no wish to be involved in a default scheme, although that is always a fall-back. They have got on with it.
Indeed, when I consulted the Local Government Association—I do not think I need to declare my interest again—its members’ view was made clear to me. Given, as the noble Lord, Lord McKenzie, said, that £500 million savings have to be found in any event, and one remembers that actually the commitment for that goes back to the initial statement in 2010, the dangers of postponement exceed the dangers of trying to keep to the timetable. In putting my name to the amendment, I wanted primarily to raise the anxieties that had been expressed by London Councils, recognising, as does the noble Lord, that this is not a universal view of local authorities.
The main problem that London Councils saw in implementing the date in the Bill is that it would be nearly impossible for councils to be able to achieve what they wanted to achieve by the due date, given the administrative problems with which they would be faced. More particularly, they would be faced with IT problems. Councils, as everyone knows, use a great deal of IT in drawing up their budgets, devising policies and administering the results of their decisions. Much of that is quite properly outsourced to expert providers. At that time, back in May, London Councils saw that there would be some difficulty in getting those providers to come up with the necessary changes.
However, as I said, it now becomes clear that a good many councils are getting on with it. It is to the credit of local government that they are not sitting back, holding up their hands in horror and saying that they cannot deal with it. They do not wish to be where they are, but they have to accept that the Government have set the timetable and they are jolly well going to do their best, as the representatives of the people in the area for which they are councillors, to go ahead and get on with it.
Earl Attlee
My Lords, that is always the danger of straying from local government affairs. My point is that the 10% cut in council tax benefit is painful, and I do not deny it, but we have very good projects to spend the money on.
Localising support for council tax is an important localist reform that gives local authorities a greater stake in the economic future of their local area and stronger incentives to get people back into work. It helps to make local authorities fully accountable for decisions over council tax levels and strengthens the incentives to drive down fraud and error. Localisation also has the advantage of giving local authorities real control over how a reduction in funding is managed. It will enable local authorities to offer council tax reductions that match local circumstances and local funding while supporting local policies. Local authorities will take different approaches to managing the reduction, but that is localism in action. Local authorities know their services, their taxpayers and their vulnerable groups, and are best placed to take decisions that affect them.
Delaying localisation does not mean that there will be no saving. There will still be more than £400 million savings to find in 2013-14. Funding for council tax support makes up a significant amount of the local share in the retained business rates system. Not giving local authorities control over this funding from the outset will significantly reduce the funding in the local share and so reduce the incentive that retained business rates are intended to deliver. I know that many noble Lords are supportive of the proposals to enable local authorities to keep a share of the proceeds of growth and would be keen to see local authorities benefit even more from growth. Not localising council tax support would have the opposite effect.
Concerns have been expressed about local authorities’ readiness to implement the schemes. I should like to remind the Committee of the number of significant steps taken by the Government to ensure that local authorities are well placed to press ahead with the development of their local schemes. We have paid £30 million of initial funding to help meet the costs of planning and analysing draft schemes for both billing and precepting authorities. We have provided a free online calculator to help local authorities analyse the potential impacts of their proposed schemes. We have published statements of intent, setting out the details of what will be covered in secondary legislation. We have issued a consultation setting out provisional funding allocations for all authorities. We have published guidance to ensure that local authorities understand their existing responsibilities in relation to vulnerable groups, which I know was a very important point for many noble Lords. We have published guidance setting out the general principles of supporting work incentives to help local authorities design support.
The Government have been clear that local authorities must ensure that they are on the front foot in preparing for this reform. There are things that councils should be doing to help in their preparations: understanding the circumstances of those in their area who currently claim support; ensuring that elected members are aware of the decisions they will need to take; engaging with precepting authorities, such as police and fire authorities; and preparing for consultation.
My noble friends Lord Jenkin and Lord Tope, the noble Lord, Lord McKenzie, and the noble Baroness, Lady Hollis, talked about IT issues. Noble Lords are right to suggest that local authorities and IT suppliers are already getting to grips with the problem. However, there is no need to go for a new and complex system in year one. I would add that if I was an IT supplier, I would point out initially how difficult and expensive it will be because it would be a sensible thing to do in order to try to encourage delay, but noble Lords know that we cannot delay.
The Bill was amended on Report in the other place to make clear that local authorities are able to consult precepting authorities, produce a draft scheme and consult more widely—all before the Bill receives Royal Assent. This was intended to support local authorities in their preparations. I am pleased to note that some local authorities, including that of my noble friend Lord Tope, have already embarked on a public consultation on their schemes.
The noble Lord, Lord McKenzie, talked about the complex matters that LAs will have to take into consideration. However, it seems that LAs are already getting stuck into their work and that it is not an insurmountable obstacle. Local authorities are best placed to take decisions about who should receive support with their council tax. Councils should have the flexibility to manage the reductions in central funding that are crucial to our plans for reducing the deficit. Local authorities should also have a strong incentive to grow their economy by bringing as much funding as possible into the retained business rates system as early as possible and giving them every reason to go for growth.
The noble Lord, Lord McKenzie, asked whether the universal credit details will be available. He is right to suggest that they will be available in the autumn. He also touched on the default scheme. LAs could opt to use the default scheme, but perhaps with some amendment to secure some easy savings. Local authorities could choose to develop a more sophisticated scheme later, but that is a choice that they will have to make.
Lord McKenzie of Luton
My Lords, I thank the Minister for his response and all noble Lords who have spoken in this debate, particularly my noble friends who spoke in support of the proposition. The noble Lord, Lord Jenkin, and the noble Earl, Lord Lytton, passed on their concerns about the apprehensions that still exist out there over the readiness of all local authorities to deliver.
I shall comment first on the contribution of my noble friend Lady Lister, who made a crucial point. Designing systems of benefit can be complex. People’s lives are complex. How does the Minister deal with the point that my noble friend raised about the lack of child poverty strategies? The Government themselves have issued literature that says that councils should have regard to their obligations under the Child Poverty Act. However, here we are, knowing that there is a big gap in the system but the Government want local authorities to press ahead irrespective of that. That issue alone opens up the prospect of judicial review in a whole raft of cases.
No one is arguing—I certainly am not—that local councils are simply sitting back and ignoring all this. I accept that local councils have a strong track record of delivering in very difficult circumstances. However, in something such as this, surely the key point concerns the time capacity of all councils to be able to deliver. The consequence of councils not being able to deliver, particularly those that are less well resourced, is that they are more likely to have to fall back on the default system or to have it imposed on them. That is a double whammy for them: not only do they not have sufficient opportunity to look at local needs but they must pick up the 10% funding tab. That seems particularly iniquitous.
My noble friend Lord Beecham made the point that we are not dealing here with a national scheme. Local authorities that are dealing with the process will perhaps want to weigh one scheme against an adjoining scheme. My noble friend Lady Hollis talked about the issues of timing in two-tier authorities. My understanding is that in that first round of engagement, even though there does not have to be formal agreement between an upper tier and a district or authority, there is meant to be a meeting of minds and a process by which it can take place. That has to be a real process and it takes time. That is a different process from reaching a conclusion and then consulting widely among a range of people on its outcome. I suggest that that requires something much more substantial.
We recognise that deferral would mean that the so-called localisation of council tax could not deliver the saving that the Government are looking for in that way for 2013-14. I simply reiterate the point that the Government have been adept in other ways in finding funding for this or that project. Looking across the whole of government, I find it difficult to believe that something of an equivalent scale could not be delivered in this case.
I object to the characterisation of what is happening as a little cut here and a little cut there. We are talking about reductions in support for some of the poorest people in our communities. I would not characterise that as a little cut here and there.
The Minister said that nobody was required to reinvent a whole new system, but the reality is that we have a whole new system coming down the track called universal credit. We are not arguing here that council tax should be part of that, although the more one goes into the detail the more blindingly obvious becomes that argument. But that is not what this amendment is about—it is trying to probe the interaction and relationship between universal credit and any revised council tax benefit system. There are lots of points where it ought to interact, if we want to have issues around work incentives properly structured.
The IFS booklet—and what on earth would we do without the IFS?—has a complex chapter on this. But if the details of universal credit are not going to be known until the autumn, which the Minister has confirmed, how can local authorities properly take the detail into account in devising their schemes and consulting on their schemes? It is a practical impossibility. Quite apart from the time needed to understand and test what those interactions with that system should be, it seems entirely wrong to say that it is irrelevant to the timing when it is fundamental.
The Minister did not answer the point about what components of universal credit were at the moment incorporated in the default scheme that the Government are going to impose. We know one aspect of it—that universal credit will take account of income—but that is just one of the possible interactions. What are the consequential changes to the allowances, the housing component and a range of other things? Presumably, the Government have taken a view at least in respect of the default scheme. It would be helpful to know the detail.
The noble Lord, Lord Palmer, said that we should not put off until tomorrow what we could do today. I do not disagree with that, but we are not asking for time for local authorities to sit back and do nothing. We are asking for some local authorities that will struggle the most to get a meaningful system in place to have a bit more time to get it right. So we do not judge this by the well resourced and bigger councils that do not need to worry about the cost of it because they have plenty of second properties on their patch and can generate extra revenue from that. The smaller and more challenged resource-constrained are the ones that we particularly speak for in this amendment.
I see that we will not have a meeting of minds on this across the Room this afternoon—
Earl Attlee
My Lords, I am grateful for the opportunity to contribute again. The noble Baroness, Lady Lister, talked about the complexities of the scheme. Yes, I understand that it is a very complex area and there are lots of factors to be taken into consideration. However, if a local authority wants to have a complex scheme, it can have one in later years, and it can go for a simple scheme perhaps based on the default scheme in year one.
The noble Baroness raised a very interesting point about the child poverty strategy. We are merely stating that there are existing strategies that councils need to consider in developing schemes. However, she raised a very interesting point about absent child poverty strategies. I will look into the issue and come back to her.
Earl Attlee
Today, yes. I remind noble Lords that, in respect of the difficulties of devising schemes, we have provided £30 million for local authorities.
Lord McKenzie of Luton
I pick up on the point about complexity. I do not think that local authorities are anxious to devise complex schemes; they are trying to devise relevant schemes, particularly those that are focused on poorer members of their communities. It is good news that the default scheme details have been issued today, but I struggle to see how they might be comprehensive if some key aspects of the universal credit are not going to be available until October. Surely how those two things sit together is pretty important for the development of schemes.
The Minister said that the regulations issued today would cover issues about the protected arrangements. Perhaps he could answer a specific question. How does the protection given for pensioners apply to households with two people entitled to state pension credit if one person has reached that age and the other is below that age?
Earl Attlee
On the point about universal credit, we are aware that the approach in the regulations needs further refinement, and we will continue to work with the DWP on the detailed approach to be able to set this out for LAs in the autumn. However, we believe that that provides a clear general indication of how we intend income to be taken into account in the default scheme, which is intended as a legal back-stop and not a model scheme. While LAs will be free to adopt or build on the approach taken in the default scheme regulations, they will not be compelled to do so if they bring forward their own scheme. I hope that that helps the noble Lord.
Lord McKenzie of Luton
I understand the point. If the details of the universal credit that we know can be taken account of only generally in relation to the default scheme, which may or may not help the authorities that want to rely on that, surely it is equally the case for any other tailored scheme that a local authority may wish to devise. How can it consult on something that inevitably is incomplete? We are trying to get an answer to that point. I am not sure that we shall succeed this afternoon. We have given this matter a good airing. I believe that the noble Lord, Lord Tope, said that we should make the best we can of this. Frankly, that is not good enough when we are devising detailed benefit schemes. We ought to have a higher standard than that. I think that is being denied to some local authorities by this timetable. For the time being, I beg leave to withdraw the amendment.
Earl Attlee
My Lords, I thank the noble Baroness for explaining her amendment, which she has done with some useful detail. I have plenty to say, but perhaps I will have to write to her on some of the detail after consulting my officials.
Amendment 74 would require local authorities to have regard to the impact of their scheme on the work incentives for those in work or actively seeking work. The noble Baroness is right to point to the importance of local schemes supporting incentives to work. It is of the utmost importance that people get more overall income in work than out of work and that people should get more overall income from working more and earning more. It will not be in the interests of local authorities to design schemes that discourage work, locking their residents into low aspiration and poverty. Making local authorities financially responsible for the provision of support gives them a real stake in getting people back into work.
To aid local authorities in designing schemes that support positive work incentives and the objectives of universal credit, we have already published guidance setting out the key design features that could support work incentives and which local authorities will want to consider in designing their schemes. The guidance considers the main design features of local schemes that can be used to support work incentives, including how income from universal credit is treated, how other income is treated and the point at which support is withdrawn. It also considers other factors that can influence decisions about work, including how the scheme is administered and communicated to applicants.
Data sharing related to universal credit between the Department for Work and Pensions and local authorities will be an important way in which local authorities can ensure that their schemes work with the grain of universal credit. The Department for Communities and Local Government and the Department for Work and Pensions are working together to ensure that the necessary data-sharing arrangements can be put in place. We want to ensure that, where possible, local authorities continue to have access to the same data on claimants of existing benefits and will be provided with a breakdown of the full universal credit award before the application of any tapers or sanctions, together with the final amount that the claimant receives.
Furthermore, the Government are doing everything in their power to reduce the risk of potentially unhelpful interaction between local schemes and national universal credit. Indeed, changes have already been made to the proposed design of universal credit to increase some income disregards. These changes will help to reduce the risk of “dual tapering”, where council tax support and universal credit are withdrawn simultaneously, leading to higher marginal deduction rates—the rate at which the gains from increased earnings through work are reduced by the withdrawal of benefits and increased tax—and will help to ensure that the incentives to enter work remain strong.
Finally, as I have already mentioned, we are today publishing draft regulations that set out how we propose to treat universal credit income under the default scheme. We will continue to work with the DWP on the detail of the approach, but we believe that it provides a clear general indication of how we intend to take UC income into account in the default scheme. Local authorities will be able to consider whether to take this or a similar approach. With those explanations, I hope that the noble Baroness will feel able to withdraw her amendment.
Lord McKenzie of Luton
The noble Earl referred to data sharing, in particular to help in the transfer of people who otherwise would be in receipt of 100% benefit under the existing system. I think that all the documentation we have seen talks about the Government working on these matters. Can the noble Earl say when that process is going to be completed? Will the arrangements for data sharing definitely be in place by 1 April 2013? I think that he also said that the Government are doing “everything in their power” to ensure a sensible outcome so far as universal credit is concerned. One would dispute that because the phrase “everything in their power” could include putting council tax benefit where it belongs as part of that. But the noble Earl said specifically that they have addressed the issue of income and how that is to be dealt with—I think we understand that, because we touched on it in an earlier session. What other adjustments so far as universal credit and its interrelation with other schemes are concerned are currently being contemplated? Will the Government be publishing any thoughts, analysis or guidance?
Earl Attlee
My Lords, the answer to that question is, I understand, yes. My answer to the noble Lord, Lord McKenzie of Luton, is that clearly the arrangements for data sharing will have to be in place by 1 April, otherwise it will not work. We are working to ensure that the data-sharing arrangements are in place at the appropriate moment. Universal credit will come in next October.
Lord McKenzie of Luton
Is the Minister saying that the appropriate moment by which the arrangements have to be in place is October?
Earl Attlee
My Lords, I think that this revises my initial comments. Universal credit will come in next October.
Lord McKenzie of Luton
Perhaps I may press the Minister on that point because it was originally understood that in October next year all new claimants would be claimants for universal credit. There seems to have been some change to that and this issue is obviously important because local authorities have to assess the volume of claims that they will deal with. Can the Minister confirm that the arrangement is that all new claimants coming through from October 2013 will go straight into universal credit and not into JSA, ESA or income support?
Baroness Hollis of Heigham
The legacy cases will spend two, three or perhaps four years coming across.
Earl Attlee
My Lords, council tax support is part of the total rate retention support. Local authorities can make arrangements for their scheme. They do not have to rely just on the funds relating to council tax benefits.
Lord McKenzie of Luton
I wonder whether the Minister could help me on one further point. He talked about pensioners being protected. Can he deal with the point about the circumstances in which one member of a couple may have reached state pension age but the other has not? Is that household protected under the Government’s proposition?
Earl Attlee
My Lords, it is clear that I am going to have to write to noble Lords on a lot of these points.
“( ) No regulations under paragraphs 2 and 4 of the new Schedule 1A to the LGFA 1992 shall be made unless a draft of the instrument has been laid before and approved by resolution of each House of Parliament.”
Lord McKenzie of Luton
My Lords, this is a brief and, I hope, straightforward amendment that I trust the Minister will accept in principle, if not in its detailed wording.
Schedule 4, as we are all now well aware, introduces a new schedule to the Local Government Finance Act 1992 and hence the framework for the council tax reduction schemes. However, regulations under paragraph 2 of the schedule can cover a range of matters, including stating who must or must not be included in a scheme, maximum and minimum reductions, and what might be included to mirror existing arrangements. Paragraph 4 covers regulations for a default scheme. The Delegated Powers and Regulatory Reform Committee, in its fourth report of the Session, reviewed the powers of the Bill and concluded:
“The change from national rules to local schemes is not an insignificant one in an area of law that the government acknowledges must secure appropriate support for vulnerable individuals, and the constraints and requirements imposed by regulations under paragraph 2 will form an important feature of the local schemes. It seems likely that some authorities may model their own schemes on the ‘default scheme’ established by regulations under paragraph 4. In the light of that, we recommend that the Bill should require the affirmative procedure for regulations under paragraphs 2 and 4 of new Schedule 1A”.
This is what the amendment seeks to achieve. I beg to move.
Earl Attlee
My Lords, the effect of the amendment would be to make regulations prescribing the requirements for a local scheme and prescribing a default scheme subject to the affirmative procedure. I fully recognise that these regulations will be vital to the operation of local schemes and that provisions in the default scheme could influence the decisions that local authorities take about the shape of the scheme that they wish to operate for working-age claimants, which will generally not be covered by the prescribed requirements.
It is because of the importance of both sets of regulations that the Government published their statements of intent in May, setting out in great detail what they intend to cover in these regulations. Importantly, the statement of intent made clear that with a very few limited exceptions the effect of these regulations would be the same as those currently in operation in relation to council tax benefit: that is to say, local schemes will be required to include provision in respect of pension credit-aged claimants that is the same as the current council tax benefit scheme. For the default scheme, regulations will recreate the current scheme for all claimants.
We are today publishing the draft regulations for the local scheme—which in the main will set out the requirements relating to those of state pension credit age, and which I will refer to as the pensioner regulations—and the default scheme. This will put beyond doubt that our intention is to recreate the effect of existing council tax benefit regulations in the default scheme and to require equivalent provision to be made for those of pension credit age in all local schemes.
Council tax benefit regulations have been in force in various forms for a number of years. Local authorities understand their operation and effect. It is not our intention to bring in significant new untested processes and procedures, and by publishing draft regulations well in advance of the regulations actually coming into force, and ahead of Royal Assent, there will be considerable opportunity for scrutiny by local authorities, Members of this House and the other place.
The default scheme is not intended to apply generally, but only in those authorities who fail to adopt a scheme in time, and for the first year of the localised scheme. Thereafter, any scheme in operation in a local authority will in effect be its adopted scheme, and it will be able to review and alter or replace it for 2014. I understand that the Delegated Powers and Regulatory Reform Committee has indicated that additional scrutiny is needed because local authorities may choose to model their schemes on the default scheme. If they choose to do this, they will in effect be choosing to model their scheme on the existing regulations. The changes that we will be making in bringing forward our own regulations will be limited and largely confined to taking into account changes in other parts of the welfare system. While local authorities may choose to model their schemes on the default scheme, they will not be required to do so.
In relation to the pensioner regulations, government may from time to time need to amend the regulations. This may be needed to amend cash values in the means test, or to reflect future changes to the welfare system. It would not be a good use of parliamentary time to require a debate each and every time an amendment is required.
In conclusion, I am not persuaded that it is sensible to make subject to the affirmative procedure regulations that will recreate provisions that have been in operation for a number of years and that will be published in draft form for consultation while this Bill is still before the House and well before Report. This will give noble Lords ample opportunity to debate the regulations, and I am not clear what value there would be in further parliamentary debate at the point where they are made. In publishing draft regulations now, noble Lords will nevertheless be able to consider while the Bill is still before Parliament what, if any, provisions in the draft regulations differ sufficiently from the existing regulations to warrant making the regulations subject to the affirmative procedure. I therefore suggest that the noble Lord withdraws his amendment.
Lord McKenzie of Luton
My Lords, I thank the Minister for his reply. I must say that I am a bit taken aback. I thought that it would be pretty much routine to accept the recommendations of the Delegated Powers and Regulatory Reform Committee. I thought that the reasoning was a bit spurious. It is welcome that regulations have been published now and welcome that we will, I hope, have some chance to debate them when we get to Report, although debating at that stage is not necessarily the iterative process that we could have in Committee.
Baroness Hollis of Heigham
Can my noble friend recall any other instance in the past 10 years or so when recommendations from the Delegated Powers Committee suggesting that we go for an affirmative rather than negative procedure have not been followed by the Government?
Lord McKenzie of Luton
I cannot. I can remember one occasion as a Minister when I was minded not to take the advice, but Ministers always did if it was pressed upon them. I am truly shocked by what the Minister says. We have other business to debate tonight so I am not going to prolong the thing, but this is something to which we will come back on Report because I do not think that the answer is satisfactory. I beg leave to withdraw the amendment.
Local Government Finance Bill
Lord McKenzie of Luton Excerpts(12 years, 4 months ago)
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Lord Jenkin of Roding
My Lords, I am delighted that what we have come to call the enlarged coalition is supporting the amendment.
It addresses a simple point. Under the existing system whereby business rates are pooled and go to central government, a change in the system of relief from business rates is entirely a matter for central government and has no implications for local authorities. However, once the retained business rate scheme is working, then local authorities will of course have a direct interest in such changes. Indeed, there could be circumstances where a change in the way in which business rates and relief from them are assessed could give rise to some considerable difficulties for local authorities in their budgeting and managing their expenditure.
Of course, this is inherent in the change. The Government are indeed transferring some of the risk to local authorities because that seems to be an inevitable consequence. What we are asking for here—it is a simple point—is that the Government should consult local authorities and the local authority organisations before any such changes are made, so that they can at least have a say and perhaps do their best to persuade the Government when a particular change is not appropriate. Those local authorities and organisations will have an argument because the change may well affect their funding. The least we can therefore ask, and it is a modest request, is that the Government accept this new clause and accept that local authorities should be consulted before there are changes in the business rate. I beg to move.
Lord McKenzie of Luton
My Lords, I am happy to confirm that the broad alliance remains intact. We are very happy to support the amendment. The key points have been made. We are in a changed environment where what happens to business rates can have a direct impact on local government and this request is straightforward and honest, as the noble Lord described.
Lord Tope
My Lords, I am not sure now whether I am part of an enlarged coalition or a broad alliance, but whatever it is I am pleased to be part of it. I feel comfortable in such a coalition and alliance. My name and that of my noble friend Lord Palmer of Childs Hill have been added to the amendment and we are pleased to support it. The points have been made.
Perhaps I may add one thing. I suspect that it is unlikely that the Minister will stand up in a moment and say, “No, of course the Government will not consult anyone about this; we will just do it”. I do not think that that is going to happen. I am sure that we will receive reassurance that consultations would take place. I expect that we would have reassurance that the results of the consultation would be taken carefully into account. However, it is the next stage that also concerns many local authorities, and it certainly concerns me. If, as is very likely, there are financial implications from any such policy changes, the reassurance that I should like from the Minister is that the cost and effect of such policy changes will be fully funded by the Government, either anyway or under the new burdens initiative. Frankly, that is one of the key points that we are concerned about—not whether the Government will give us warm words and reassurances about consultation, but whether the effects of any such change will also be fully funded. I look forward to the Minister’s reply.
Lord True
My Lords, the noble Earl has raised a number of issues and I know that my noble friend will respond. That will be important because as business rates take the burden over the coming years these issues will become matters of considerable controversy and potentially democratic controversy. Knowing the noble Earl’s expertise and the courtesy of my noble friend, I am sure that these matters will be discussed further over this summer. I hope that in her response she will not necessarily rule out the idea of at least exploring these proposals. It may be that the Government have the necessary powers that the noble Earl is referring to in Amendment 96 to make adjustments in the system. But if that is not the case, it is a matter that we ought to consider further because this area will bear further examination. Indeed, I referred to an incident in my borough, which demonstrated the problems that can arise.
I am not going to tempt the noble Earl to his feet immediately, but perhaps when he replies to the Minister’s response he will say how he envisages in Amendment 70ZC this concept of a decline in market value being a reason, rather than a proximate event, to occasion appeals and change. I am not absolutely certain as to how he envisages that would be triggered. Would it be triggered by each individual land holder? You could have whole series of appeals in the light of a general trend in market decline. The noble Earl nods, so I think that that is the case. If that doctrine is to be imported into law, for some of the reasons that the noble Earl set out, some mechanism might be needed for collective action in those circumstances, otherwise it could be another reason for a proliferation of appeals that might come out of the works.
I listened with great interest to what the noble Earl said and I hope that we can be assured we will have the flexibility to address some of these issues as they arise over the next few years.
Lord McKenzie of Luton
My Lords, the noble Earl has treated us to a veritable manifesto of issues. Like the noble Lord, Lord True, I am grateful to have had the benefit of his expertise on these matters. Perhaps I may also say in the noble Earl’s defence, if he needs it, that I am advised that the 20-minute rule does not apply to legislation—quite apart from the fact that the noble Earl could have degrouped all his amendments.
It also seems that some of the issues raised would impact on local business rate deals. In line with the discussion we have just had and the amendment of the noble Lord, Lord Jenkin, we would expect there to be some consultation on that. I hope that noble Lords will understand if we formally reserve our Front-Bench position on some of these issues, at least until we have heard from the Minister. The list prompted a visit to the Valuation Office Agency website to try and get some briefing. It is worth reflecting that the group of amendments brings home the breadth of responsibilities of the Valuation Office Agency and underlines the importance of the points made in earlier debates by the noble Earl about the significance of maintaining this important service. Its work includes not only the compilation of rateable values for some 1.7 million non-domestic properties in England and 100,000 in Wales, and the list of council tax bands for some 23 million properties in England and 1.5 million in Wales, but determining local housing allowances across 153 broad market rental areas in England. That is a heck of a responsibility and a major task.
The theme of much of the noble Earl’s group of amendments is the fitness for purpose of the current system, with particular issues around appeals. If the noble Baroness is unable to give satisfaction on that this afternoon, it would lend itself to an amendment on Report, saying that there should be, within a period of time—maybe two or three years—a specific report on how the system is coping with the business rate retention scheme. Given where we are, that is probably the best that we can do with the generality of those issues. Have the Government recently assessed the fitness for purpose of the Valuation Office Agency and the system that it supports in driving forward the business rate retention scheme?
Having said that, perhaps I might comment on one or two specific amendments. Amendment 62 requests the paying off in instalments of backdated liabilities. I seem to recollect that we had some heated debates about the backdated liabilities suffered by some ports. They were paid off in instalments. There was a facility to allow that, so I wonder why there is not sufficient in the system to protect that at the moment.
As the noble Earl identified, there are issues not only for rural petrol filling stations but for shops and rural pubs. I am particularly interested in who bears the cost of these reliefs under the current system. How will that break down under the business rate retention scheme? Will there be a switch in the bearing of costs for that? Will 50% now be borne by local government and 50% by central government? What is the change on that?
On Amendment 64, the noble Earl talked about no reallocation of funding coming the way of parish and neighbourhood councils. My understanding is that there is certainly an expectation that the grant for council tax support will be paid to billing authorities and major precepting authorities. The bit attributable to local precepting authorities goes to billing authorities and there is an expectation that they should engage with parish and town councils with the prospect of payment being made. Therefore, to that extent at least, there will be some relief.
In Amendment 65, the noble Earl refers to completion of a single annual return. We are not opposed to this principle, although if the system is creaking at the moment, I am not sure of the benefit of imposing another annual return—even a simple one—if there is no resource to deal with it. There is nothing worse than having a system of returns that simply cannot be coped with; the system is brought into disrepute.
Perhaps the Minister will tell us how central rating lists will work under the business rate retention scheme. The central bit of these rating liabilities deals with hereditaments such as railways, telecoms infrastructure, toll motorways and so on, which straddle multiple billing authorities. These liabilities are collected by the Secretary of State. How is the local share fed back to appropriate billing authorities, if at all?
Amendment 68 seeks to reflect the role of billing authorities in the appeal system, given the changed circumstances that arise where billing authorities have a more direct interest in the outcome of rates collection. That does not seem unreasonable. I shall be particularly interested in the response of the noble Baroness on that. I will not comment further on the specific amendments, but there is a case emerging for having a specific look at the whole system—not to hold things up, but so that we can make a judgment in a relatively short space of time as to whether it is fit for purpose for the new demands that are being imposed upon it.
Baroness Hanham
My Lords, I am not sure that I can wind this up in 20 minutes, but I will do my best, gracefully, as I go along. I first thank the noble Earl for raising this subject in the way that he has. I am also extremely grateful to him for the discussions that we have had following the previous day, when I pointed out to him that if I had to answer every amendment one by one I would have 30 pages of speaking notes, which might take us longer than 20 minutes.
With the noble Earl’s agreement—and, I now hope, the Committee’s—I propose to tell the Committee what the noble Earl’s four main themes are, and will then write on each of the specific amendments so that the Government’s answer to each is there. That will help the Committee at the next stage. I am manifestly not going to be able to answer all the points today.
The answers are grouped under the noble Earl’s points about the valuation system not being well managed; that it should be independent of the Treasury; that the Valuation Office Agency and the Valuation Tribunal Service have been adopting, as the noble Earl put it, several bad practices; and that there are abuses by a small number of rating advisers. Those are the four themes that I will go through and, following the Committee sitting, we will make sure that every Member of the Committee and the Library has a response to each of the amendments. I thank the noble Earl for grouping them together, as it could have been even longer had he chosen to speak only to two or three at the same time.
First, on the resourcing and management of the rating and appeals system, ratepayers expect their rating assessment to be correct, and for appeals to be resolved quickly. This will always be the case, but under the rates retention system it would become increasingly important that the rating system delivered a good service for both ratepayers and local government. I appreciate the noble Earl’s concerns regarding the backlog of appeals in the rating system. We share those concerns. The Valuation Office Agency is working flat out to clear over 250,000 appeals by the end of March 2013, including the majority of the outstanding appeals against the 2005 rating list. It has recruited additional front-line staff and has transferred staff from other work areas to speed up the clearance times for these outstanding appeals. Around 75% of all appeals on the 2010 list to date have resulted in no change to the rateable value, but we are well aware of how significant business rates are to all businesses and that this makes the fast and efficient processing of appeals vitally important. Likewise, the Valuation Tribunal Service is proactively working to ensure that appeals that cannot be resolved through initial discussions with the Valuation Office Agency are listed and dealt with by the tribunal. In fact, only some 2% of listed cases result in disputes being brought before a tribunal panel, with the rest being settled between the parties.
I hope that I have been able to offer some comfort to the noble Earl that the valuation and appeal system will be able to cope with the rates retention. Let me also assure him that the resourcing and performance of the Valuation Office Agency and valuation tribunal are a matter for regular discussion in the Government, especially now as we move into the rates retention system. As with all public bodies, the Valuation Office Agency and valuation tribunal have to deliver their services in challenging financial circumstances, but we are fully aware of the important role that they will play in the rates retention system and we will ensure that they have the necessary capabilities to meet these objectives.
The second theme of the noble Earl, Lord Lytton, is the Valuation Office Agency’s response to rates retention. An example of those capabilities is the way in which the Valuation Office Agency has responded to the planned introduction of rates retention. Since as early as late last year, the Valuation Office Agency has been working with local government to understand what local authorities will need to budget effectively under rates retention. It recognises that there will be step change in its relationship with local government and it has established a dedicated project team for rates retention. This has already led to several discussions with local government and with the Local Government Association. While I understand the concerns of the noble Earl, I hope that he will agree that to date the Valuation Office Agency has responded well to the rates retention scheme and is working with local government to ensure its smooth implementation.
The Valuation Office Agency is independent. An essential part of any system of tax is that the public have confidence in their tax assessments—not only in the accurate level of those assessments but in the manner in which they have been reached. I agree with the noble Earl that the independence of the Valuation Office Agency is important. That is why valuation officers who perform their statutory functions, such as the assessment of individual rateable values, act independently of Ministers. In this respect they have to answer to the courts rather than to the Government.
We also have to recognise that the Valuation Office Agency is a public sector body, spending public funds, and is part of the delivery system for business rates and council tax. That is why it is right that the Valuation Office Agency should answer to the Government for its overall performance. As such, the Valuation Office Agency forms part of Her Majesty’s Revenue and Customs and reports to Ministers in the Treasury for its work. It also accounts to Parliament—this is the point about the report—in the form of an annual report, and senior officials in the Valuation Office Agency can be called to give evidence to Select Committees.
While I appreciate the noble Earl’s point, in practice we have to strike a balance to preserve both the independence of the Valuation Office Agency’s statutory functions and the need to maintain the accountability of public servants. The noble Earl’s amendment would prevent the Valuation Office Agency from reporting to either the Treasury or the Department for Communities and Local Government, and under those circumstances I do not believe that we could deliver that accountability.
The noble Earl also raised concerns about some of the practices and procedures of the Valuation Office Agency and the valuation tribunal. Having just stressed the importance of the independence of the Valuation Office Agency when exercising its statutory functions, I think that the Committee would be disappointed if I signalled a willingness to interfere in its day-to-day work. I appreciate the concerns that the noble Earl’s amendments have raised in such areas as invalid appeals and the use of a strike-out by the valuation tribunal. We have powers to make regulations on any matter relating to the valuation tribunal and we have made regulations under those powers that describe when a strike-out can be used. However, in line with other tribunals, we do not describe all the necessary procedures in those regulations, but instead allow the valuation tribunal to make directions. Those directions describe the procedures that must be followed in taking an appeal through to a valuation tribunal hearing. The Secretary of State has given the valuation tribunal, in line with other tribunals, the power to strike out appeals where the appellant has failed to follow the directions.
This is not a matter that we take lightly. It is important for the effective operation of a fair judicial system that a valuation tribunal is able to set directions and enforce them through the use of a strike-out. The tribunal will consult its users before it introduces any standard directions, and any parties will be made fully aware of the requirements, by means of practice statements and information leaflets, when they make an appeal. Therefore, while noting the noble Earl’s concerns, I do not believe that we should change the current system. Allowing these matters to be set out in directions rather than regulations will ensure that the tribunal can lay down procedures that reflect the nature of the court and are responsive to changing circumstances. The system would not be improved through our direct intervention or by bringing all the procedures into regulations.
The noble Earl referred also to abuses by some agents. He raised valid points about abuses of the system by ratepayers’ representatives. I know that he works closely with the Royal Institution of Chartered Surveyors and the Institute of Revenues Rating and Valuation. Both organisations have clear professional standards. The Valuation Office Agency includes guidance on its website about employing a rating agent and how to contact these organisations for advice, so it would not be appropriate to regulate in this area. I hope that the noble Earl will agree that by stringently and consistently applying professional standards, the professional bodies and the Valuation Office Agency can address some of the abuses that he mentioned.
I have not addressed every amendment—as I said I would not. However, I thank the noble Earl for the knowledge he brought. I hope that he will feel able not to press his amendments on the basis of the explanations provided and of the assurance that, before Report, he will have a reply to each one.
I was asked by the noble Lord, Lord McKenzie, whether under the current system local government pays all costs of mandatory reliefs. It pays between 0% and 75% of the costs of reliefs for eligible businesses and some not-for-profit agencies. If a local authority chooses to go beyond the existing rate reliefs to grant extra relief using the business rate discount powers in the Localism Act, it can meet the cost locally. If not, the cost will be reimbursed. However, from next April the system of funding business rate reliefs will change as part of wider reforms. We will shortly publish a consultation paper setting out the details of this. The basic principle is that changes in rates income, including changes in relief, will be shared 50:50 with central government. I hope that that answers the noble Lord’s question.
There may be other points that noble Lords wish to pursue with me. I think that I answered the point of my noble friend Lord True about the fact that a number of important issues have been raised, and individual replies will be given on all the amendments so that we can consider them further at a later stage.
Lord McKenzie of Luton
Perhaps the noble Baroness is in a position to answer the question about how a system of central lists would work alongside local and central shares for business rate retention purposes.
Baroness Hanham
I would rather leave that and answer all the questions together, so that there will be a composite answer to all the points raised.
The Earl of Lytton
My Lords, briefly, I stand guilty as charged in the sense that I made my maiden speech in this House during the passage of the Local Government Finance Act 1988, which introduced the poll tax. I said at the time that it was unfair and unlikely to work, but I was a greenhorn and my comments were probably not well informed.
I will follow on from what the noble Lord, Lord Beecham, said. The constraints that will fall on council tax payers, and in particular on those in receipt of relief, will of necessity enable those who are so advised to mount an appeal against their banding. In circumstances where the bandings are 21 years old, there will be every opportunity for a challenge to be successful on account of the age of the tax base. It was for that reason that I tabled my earlier amendment on the transfer of the loan to the valuation tribunal.
Dealing with the personal circumstances of individual claimants who are partly supported by benefits will not be quick. It will not be easy to dispose of such cases in a short time. The risk is that the system will become clogged by appeals that will take an inherently long time to resolve because they will have to delve into the details of individuals’ financial circumstances. We will debate an amendment tabled by the noble Baroness, Lady Hanham, which will probably assist us. None the less, the policy will produce a significant load on the system unless it is better resourced.
I make no comment on whether the process is destined to work. This goes into areas of local government finance that are beyond my ken. However, I warn against the inevitable transfer and the unforeseen consequence of what may happen in the wider domain of appeals.
Lord McKenzie of Luton
My Lords, the amendments in this group seek to include support for council tax as part of the universal credit. We support them all. My noble friend Lady Hollis made a typically powerful presentation, and the amendments were spoken to in a supportive way by almost every noble Lord, including my noble friends Lady Sherlock, Lady Lister and Lord Smith, and the noble Lord, Lord Greaves. The noble Lord, Lord Tope, expressed a degree of equivocation. The noble Lord, Lord True, issued the caveat that we should be careful about amendments that we had yet to debate.
Including council tax as part of universal credit is not a new position. We argued strenuously during the passage of the Welfare Reform Act that this was where it belonged, and we know that Ministers in the DWP agree. The Government’s arguments in favour of localising council tax support are that it can be varied across the country in accordance with local need; and, because the costs will fall on local councils, there is an incentive to promote employment so that people are floated off benefits. My noble friend Lady Hollis destroyed that argument pretty powerfully. Of course, the Government are pursuing two policies—one of supposed localisation and one of cuts. That is what makes these things particularly challenging. The incentive effect depends on how these cuts are to be applied since means-testing support for council tax more aggressively leads to weaker work incentives than reducing support for all claimants. As the IFS put it:
“Reforms that save the full 10% typically involve reducing support for those currently entitled to maximum CTB—those on the lowest incomes. And those options that do protect the poorest claimants either fail to generate large savings, or significantly weaken work incentives”.
That is why my noble friend Lady Sherlock pointedly asked: how, at one time, do you both help the poor and make people better off in work? That was the commitment made by the Government. How will they do it on this basis? Issues around work incentives for localised schemes are not straightforward and must be considered in the context of universal credit as well.
As my noble friend Lady Hollis made clear, we have supported the concept of universal credit—not every aspect of its proposed implementation, including payment frequency, second earners and wallet-and-purse issues, but the fundamental architecture. It is a structure that, as my noble friend explained, clearly simplifies the benefit system and provides a common taper which, together with income disregards, will make work pay and give clear incentives to work. It encompasses tax credits as well as benefits and is an “in and out of work” benefit. It is the natural home for council tax benefit and it is understood that this was the original intention. However, it would be good to have on the record the point in time at which the Government’s position on this changed and why.
Keeping council tax benefit outside universal credit, with the prospect of dozens if not hundreds of local schemes, undermines that simplification. It potentially undermines the rationalisation of work incentives, with the prospect of overlapping taper rates. These are not just theoretical matters. The Government have promulgated a default scheme that will be imposed on local councils that do not introduce a local scheme by next January. How does this default scheme sit alongside universal credit? In particular, how is universal credit to be treated for the purposes of the default scheme? My noble friend Lady Lister referred to an answer given to my honourable friend Stephen Timms in another place: it is up to local councils to decide how they do this. However, we are dealing here with a scheme that the Government have promulgated and that they will impose on local councils. Therefore, the Government must know how they will treat universal credit in that default scheme—that is the scheme that they are promoting.
At present, tax credits are taken into account as income for council tax benefit. Income-related benefits, such as JSA, IB and ESA, are not and passport individuals on to maximum council tax benefit. Universal credit substitutes for benefits and tax credits, so how will it be treated in the default scheme? Will the Minister also tell us how overlaps in tapers between universal credit and the default scheme are to be avoided, if they are? These are not just points of interest; they are fundamental to the operation of the scheme that the Government will impose in just a few months’ time. The logical route in all this is to follow my noble friend’s prescription and include council tax benefit as part of universal credit from the start. We do not doubt that this is where it will end up eventually.
My noble friend Lady Hollis made the point that the proposition advanced by the Government means that take-up campaigns will be deterred. With a number of noble Lords, she talked about the collection of small amounts and the difficulty that that will create. My noble friend Lord Smith and a number of noble Lords referred back to the poll tax and all that that entailed, particularly the point that young people disappeared from the system. We cannot allow that to happen again. My noble friend and the noble Lord, Lord Greaves, referred to the difficulty in budgeting that the proposed system will bring forward. I understand that there are not many second homes in Wigan and we do not have too many in Luton either.
Lord McKenzie of Luton
My Lords, we support the thrust of these amendments. I will start with Amendment 73A, spoken to by the noble Lord, Lord Jenkin, and supported by the noble Lords, Lord Shipley and Lord Tope, about the new burdens doctrine. I was broadly going to support this anyway. A new burden in this context would be if there were increased take-up of the benefits system in a subsequent year, so on that basis it is doubly worth supporting. It is not as though we are dealing with a new service or something of that nature, but if we are including in that definition the fact that there will be changes in the volume of take-up, it is certainly right to push back at the Government on that.
My noble friend Lady Hollis’s amendment gave a devastating critique of what the proposals will actually mean for individual local authorities and the people who will be hurt. My noble friend talked about adjoining authorities, one that included DLA in the computation of income and one that did not. What a nonsense when people are being forced into those sorts of judgments.
The noble Lord, Lord Shipley, said that one of the problems is that the timescale is too tight. I hope that we will be able to have common cause in an amendment that is coming up—I hope shortly; if not, next week—to address that specific issue.
My noble friend Lord Smith asked what local authority would not want to find jobs for young people. Part of the problem for some local authorities is that their economic regeneration departments are under pressure from the cuts that are already there, so it is not lack of desire to do that; the capacity to do it is becoming increasingly constrained.
Issues were raised about who is going to do the forecasting for the council tax benefit expenditure for the year in question, not only for 2013-14 but for subsequent years. The fear has been expressed here—and I share it—that 90% of forecast subsidised council tax benefit expenditure in reality will be an underestimate for what actually comes to fruition.
Perhaps I can press the Minister on a couple of techie points. I would guess that at the moment the reimbursement to local authorities for council tax benefit is on subsidised council tax benefit expenditure, and I think that is because there is not a full subsidy where a benefit is paid incorrectly or late. How is that going to work under a supposed localised system? Who is going to make the judgments, under various schemes that do not have the same parameters, whether a benefit is paid incorrectly or late? Is that what we mean by the reference to subsidised council tax expenditure?
Can the noble Earl also deal with the fact that this is going to be funded by way of the business rate retention scheme? What does that actually mean in practice? Are we saying that part of the central share is going to be used to fund this? Will it be deducted from the total business rates collected in the first instance and then split on a local and central basis? Precisely what does that mean?
On the specific issue of having to forecast subsidised council tax benefit expenditure, if that means making a judgment about that which is paid properly, correctly and in accordance with the scheme, it is clearly going to be much more difficult with a whole raft of different local schemes. The fundamental point that noble Lords have made is that is that the 10% cut—or whatever it turns out to be—is going to impose impossible conditions on local authorities having to make the judgment of Solomon. It is deeply uncomfortable and deeply unfair.
Earl Attlee
My Lords, I thank the noble Baroness, Lady Hollis, for the explanation of her amendments. The noble Baroness first asked me what was wrong with the CTB scheme. The answer is that there is no incentive on the local authority to reduce the claimant count.
Earl Attlee
My Lords, I accept the noble Lord’s analysis of what would happen but the question is: why does it not happen now? Why do we not suddenly see a 20% increase in claimants? The noble Lord is describing a hypothetical situation.
Lord McKenzie of Luton
The Minister may wish to cast his mind back to the Pensions Bill, which we debated a couple of yours ago, and the representations that were made by the Royal British Legion, for example. It wanted a change to the name of council tax benefit because it believed that elderly people in particular were dissuaded from taking it up. They saw it as a benefit and that was something with which they were uncomfortable.
Baroness Hollis of Heigham
They wanted it to be called a council tax rebate.
Lord McKenzie of Luton
The nature of this arrangement could cause more people to claim without a campaign for take-up. Why on earth would we want to build any problem into the scheme that would dissuade councils or anyone else from encouraging people to take up their rights?
Earl Attlee
But unfortunately we have to make savings.
The noble Baroness, Lady Hollis, suggested that this reform does not support local financial accountability. I disagree. Currently, local authorities can put up council tax without any regard for the impact on the cost of council tax benefit. This reform changes that by ending the subsidising of council tax increases from the benefits bill. There have been previous attempts to address this acknowledged problem. The recent report by the Institute for Fiscal Studies, to which the noble Baroness Lady Sherlock referred, noted that this reform restored the link between council tax increases and the benefits bill.
I was asked who should not get CTB. It is not black and white. The point of localisation is that councils will have the option to continue with the current scheme and find savings elsewhere, or to reduce some awards a little and raise money on empty homes. Localisation will mean that councillors will have choices about how they manage the cuts. There may be different schemes across the country. We trust local government to choose how to deliver local services to vulnerable groups. We trust them to deliver this scheme to support local people with their council tax bills. This is local accountability in action.
Speaking to Amendment 73A, my noble friend Lord Jenkin asked what happens once the spending review period ends and whether there are any guarantees for local government. Funding for the first two years of localised schemes is derived from the Office for Budget Responsibility forecast for spending on council tax benefit, which reflects existing spending and therefore assumptions about underlying demographic changes and council tax increases. Thereafter, decisions about overall levels of funding will be taken as part of the spending review process, which will provide an opportunity to consider cost pressures. Funding will be allocated via the retained business rate system, and the recent consultation set out provisional allocations.
Lord McKenzie of Luton
I am sorry to interrupt the Minister; I know he is trying to make progress. Assuming the first year is 2013-14, if the forecast by the OBR proves to be inadequate, will there be a basis for revision for the subsequent year within the spending review? Can the Minister say precisely what funding being provided by the business rate retention scheme means in practice?
Earl Attlee
My Lords, that is one of those matters of detail that the noble Lord will have to look forward to in my letter.
The noble Lord, Lord Jenkin, asked whether this policy reform was a new burden. This reform is not a new burden. Local authorities will have a significant degree of control over how a 10% reduction in expenditure on the current council tax benefit is achieved, enabling them to benefit local priorities and their own financial circumstances as they see fit. The Government are committed to carrying out a new burdens assessment regarding the administration of the schemes, and are gathering data on administrative costs to support this assessment.
I was asked whether the Government would be able to adjust allocations. As I said, the spending review provides an opportunity to review overall funding levels. Funding is allocated through the retained business rates. Baseline allocations will be set for 2013. Councils will have the flexibility and responsibility to design schemes that match local circumstances. Adjusting allocations would undermine the key principle at the heart of our reforms to local government finance, since funding will be within the retained business rate system. As we discussed in previous debates, it is essential that there is a sufficiently long period between resets to incentivise growth. Frequent adjustments to funding allocations would undermine this wider principle. Local authorities will have a range of flexibilities enabling them to manage costs in the mean time, including making adjustments to their own organisations and costs.
Increasing local financial accountability is a key objective of the localism agenda. Localising support for council tax gives local authorities an increased stake in the economic future of their local area, strengthening the incentive to support people back into employment. It also increases financial accountability by helping to make local authorities accountable for decisions over council tax levels, putting an end to the central subsidy of council tax increases.
There is widespread recognition of the need to reduce welfare spending. As I mentioned, spending on council tax benefit doubled under the previous Administration and it is essential that we take steps to bring it back under control. The saving from localisation announced in the spending review is a crucial contribution to the vital task of tackling the deficit.
Localisation gives local authorities significant control over how to manage the reduction in funding. Authorities will be able to offer council tax reductions that reflect local circumstances and priorities. They can decide whether to pass the reduction on to council tax payers, use flexibility over council tax or manage the reduction within their budgets. The noble Baroness, Lady Hollis, talked about the difficulty of collecting relatively small amounts of money and I will have to weary the Committee by repeating that it is up to local authorities to devise their schemes and take account of that difficulty.
Amendment 71 makes delivering the savings impossible and would in fact encourage local authorities to plan for that. The intention behind it is not realistic. The 10% saving has to be delivered, and we have given local authorities the freedom to decide how best to do this in their local area.
I do not deny that we are in hard times. The noble Baroness went into government in 1997 in a period of steady economic growth. The present Government are faced with truly dreadful financial circumstances.
Lord McKenzie of Luton
Does the Minister accept that when the coalition Government came into office they were experiencing a period of economic growth?
Earl Attlee
My Lords, I will accept that, but we also know why we have gone into a double-dip recession, which is not our responsibility.
The default scheme is intended as a legal back-stop, a safety net to ensure that those in financial need can continue to receive support. To fund a default scheme fully, as Amendment 71 would require, would send a message that local authorities do not need to take responsibility for developing a local scheme. It would make delivering the saving—which was called for in the spending review—impossible. Local authorities do not need to wait for the default scheme. Pragmatic councils are pushing ahead with the job at hand. Local authorities are starting to think through how to manage the reduction to best reflect local priorities: Harrow, Brent and Chiltern councils are already consulting on the design of their schemes.
Amendment 75 seems to be intended to prevent local authorities from designing a scheme to help deliver a saving. This does not seem responsible. It is right that local authorities have the flexibility to decide how to manage a reduction in funding, reflecting the circumstances of their area. Constraining their ability to do this prevents them from taking sensible local decisions about their priorities and what is affordable.
At the end of our debate on the last group of amendments the noble Baroness, Lady Hollis, accused me of not answering some of her more technical questions—questions that, I suggest, even my noble friend Lady Hanham would find taxing, so it is not surprising that I cannot answer them. Of course I listen to the Committee’s concerns very carefully and I will discuss the technical points with my excellent team of officials. I do not accept that there is any weakness in the team behind me. Any weakness lies with me because I am not an expert in local government. However, I will try to serve the Committee as best I can.
Local Government Finance Bill
Lord McKenzie of Luton Excerpts(12 years, 4 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Earl of Lytton
My Lords, in moving Amendment 18 and speaking to Amendments 28 and 29, my purpose is primarily to flag up an issue of principle. I remind the Committee of my involvement with the first tier of local government, as president of the National Association of Local Councils, the national body representing parish and town councils, and whose assistance in this matter I acknowledge.
My support for the idea of a larger share of business rates going to billing authorities under the business rate retention scheme which we discussed on Tuesday was, I have to admit, not entirely altruistic. It was founded on the belief that too little was being channelled back to the billing authority given the many other claims on the funding stream implicit in that arrangement, certainly if we are to have any real incentive flowing from it. By implication, therefore, little or nothing would be available in practice, even if the principle of my amendments was agreed, to flow to the first tier of local government.
The Bill is—in part, at any rate, or so we are led to believe—about introducing the financial aspects of the Government’s localism agenda, which I support wholeheartedly. It is a process of trickling down powers and responsibilities from central government to local government and from local government to neighbourhoods and parishes. I hope that that is a given—I am glad to see the Minister nodding. At Second Reading, I flagged up an issue concerning a defect in the Bill, namely that the process of financial trickle-down seemed to halt at the principal authority level. There is nothing in the Bill for parish, town and neighbourhood councils. In short, and viewed in very local terms, the financial benefits do not flow to the very local level where the properties on which the tax is raised are actually located and in which locality exists a neighbourhood-based, statutorily constituted and precepting local authority.
I remind the Committee that local initiatives which would raise revenue in business rate terms are not by any means confined to principal authorities. Parish and town councils up and down the country are, and continue to be, involved in schemes to encourage retail, commercial and other value-added activity.
These amendments are framed in what I admit is a deliberately crude fashion with a view to highlighting the complete absence of a local council share in the retained element of the BRRS and to ask why, in the name of all that is called localism, the redistribution of this is limited to major precepting bodies only. Removing the word “major” from various provisions as a qualification to the beneficiary precepting bodies is intended thereby to include local councils which also have a precept in the redistribution benefit.
Before 1989—I think that was the date, but my memory may have failed me—parish and town councils did get such a share, but it was scrapped when the community charge was introduced. While that denial of benefit might have been appropriate at the time, local councils have made enormous advances and shown what they are capable of doing. Indeed, I have a list with me of the very many initiatives up and down the country which all show how much can be achieved with tiny sums of money. I think that the Minister would be amazed at just how much can be done with very little money if the collaborative ethos and common purpose that particularly hallmark neighbourhood and parish initiatives are given a fair chance. However, that cannot be done without any resources at all.
Many of these initiatives are specifically aimed at business activity. The demise in the ability of principal authorities to fund many services, let alone any new initiatives, leave the local council—often a parish or town council with quality council status and a real drive to benefit their community—to pick up the reins. As I have said, this cannot be achieved without some resources. We already know the common practice of principal authorities agreeing to pass services and functions to parishes yet simultaneously claiming that there is no budgetary allocation to pass on to enable those services to be provided in practice.
I do not entirely blame principal authorities. In fact, I have been involved on and off with principal authorities for rather longer than I have been involved with parish and town councils in many respects. Principal authorities have been caught financially between what can only be described as a rock and a hard place. However, at local council level it looks bad and in neighbourhood terms it seems almost like a financial sleight of hand, which is known in the jargon of the sector as double taxation; namely, the service is passed further down the line but none of the resources—which are somewhere implicit because there is a cost element in a principal authority’s budget—get passed on. The closure of public toilets in resort towns that rely heavily on coach loads of day visitors and attempts by the town councils to keep them open is just one exemplar of that situation.
I cannot know what the Minister’s response will be, although I have my suspicions. Probably the least likely outcome is that she will accept the amendment. The question then is: what does she propose? Will there be a line of funding that will benefit the local council sector, and what guarantees can she give that, if that money is made available via a principal authority, it will be passed on?
I am realistic about funding things at neighbourhood and local council level. I accept that the question of how to distribute such a local council share will arise if the principle is accepted, but that is further down the line. Furthermore, I also accept that the last thing that we need is a plethora of very small schemes or even those which are not worth while just because money is available or because it will be lost if it is not spent in a particular financial year. Worthwhile projects, unfortunately, have lead-in periods that do not sit conveniently into a fiscal year template. I am familiar with the undesirable effects of an overrestrictive “use it or lose it” regime.
The Government’s message regarding local government finance is clear: not only is there no new money but there will be a 10% cut. However, if anything is to work at neighbourhood, parish and town council level, there has to be some redistribution of resources, unless the Government are willing to stand accused of some sort of large-scale deception by the very constituents they promised to assist. I hope that that is not the case. However, given that the maximum effect can be achieved with tiny resources and the ability at local council level to leverage a huge amount of voluntary commitment, there is a very good reason to make a modest redistribution. I look forward with interest to the Minister’s response on this matter, which I believe is critical to the objectives of true localism. I beg to move.
Lord McKenzie of Luton
My Lords, this is an intriguing series of amendments, and we have a degree of sympathy with them. The amendments would include parish and town councils within the scope of those for whom billing authorities must share their portion of the business rates. I suspect that the difficulty with this is that other parts of the components of the scheme for business rate retention would have to be applied as well. You could not just make the payment without the other bits and apply it potentially to many thousands of authorities.
Under the current local government arrangements business rates are paid to central government and come back via the formula grant, not, I understand it, to local precepting authorities but to billing major precepting authorities. However, this does not work under the business rate retention scheme. The retained business rates have to be allocated between authorities and the proposed basis is that, with two-tier arrangements, 80% of the business rate would be allocated to district authorities and 20% to major precepting authorities—police and fire and rescue included. As I understand it, the rationale for the 80/20 split is that lower-tier authorities are typically responsible for planning and more able to influence economic development.
The noble Earl might well argue—he touched on this—that the new regime for neighbourhood planning opens up that opportunity more to parish and town councils. Some are already very much involved in a drive to improve the economy of their areas. However, if such councils are not to be encompassed within the tariff top-up arrangements for billing authorities, it would seem to follow that they should have their own calculation. It might not be difficult to establish the business rate base but to derive a funding amount would presumably require some breaking out of the formula grant, and I am not sure how easy that would be to do.
In passing, we should note that there will be a requirement for billing authorities to work with local precepting authorities to address the council tax support funding. If I have read the documentation correctly, it is envisaged that this could well involve a payment from such authorities to town and parish councils.
While I understand where the noble Earl is coming from on this, the practicalities make the amendment difficult to accept. However, I will be interested to hear the Minister’s response. There is the germ of an idea here that needs support.
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 percentage referred to in paragraphs (a) and (b) shall be determined following full consultation with local government”
Lord McKenzie of Luton
My Lords, I shall speak also to Amendments 32 and 40 in this group. Amendment 19 relates to the determination of the central and local shares and requires them to be set after full consultation with local government. It is accepted that this determination must currently be specified in a local government finance report and thus be subject to a parliamentary process, but that is not a substitute for engagement with local government.
We accept that there has been extensive engagement in relation to the Bill but what does the Minister see as the regular process going forward in this regard? Perhaps she could outline for us an anticipated timeline of events in future years after the introduction of the business rate retention scheme, although I hesitate to call it a steady state.
Amendment 32 relates to tariffs and top-ups. The local government finance report will spell out the basis of the calculation of these payments, but before it is laid, the Secretary of State must notify such local government representatives as he sees fit. The amendment requires there to be a consultation rather than local government just being notified. Amendment 40 is a parallel amendment related to the process for amending reports.
I will just touch on the amendments in the name of my noble friend Lord Smith, who is unable to be here today. Amendment 20 mirrors our Amendment 19 and is identical. Amendment 23 causes the finance report to give details of the consultation; a proposition which we support. Amendment 25 requires the report that should be sent to local authorities to be there by the end of November, for obvious reasons. Amendment 33 mirrors our Amendment 32 and is a duplicate. Amendment 34 requires that the Secretary of State must consult on the detail and not just on the general nature of the proposals, which is the requirement at the moment. These amendments are all about proper engagement with the local government sector. Perhaps the Minister will let us know the Government's intention. I beg to move.
Lord Shipley
My Lords, I first declare my interest as a vice-president of the Local Government Association, which is the first of the afternoon. I apologise for missing Tuesday's Committee when large numbers of noble Lords were making a similar declaration.
Lord Shipley
That would actually be a quicker way of proceeding.
I agree with the amendment moved by the noble Lord. The Localism Act was about devolving power and decentralising decision-making. This set of amendments makes it clear that there should be full consultation with local government before decisions are made. When decisions are made, that cannot just be about notifying those decisions but should clearly explain through consultation first but secondly explanation of the decision that has been made, particularly in a matter as complex as tariffs and top-ups. Thirdly, there has to be consultation on the detail not just on the general nature of things.
I hope that the Minister will take on board that feeling because the Localism Act has changed the balance of responsibility between central and local government. It would help enormously if it were not just left for the Secretary of State to have a set of powers whereby things can be announced but not actually explained.
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.
Lord McKenzie of Luton
My Lords, I thank the Minister for his reply and all noble Lords who have spoken in this short debate. Nearly every one who spoke was sympathetic to and in agreement with the thrust of these amendments. Indeed, that was the tenor of the noble Lord’s comments. I understood from what he said—it seems to be on the record and we will read it in Hansard tomorrow—that there is the clear intention to continue to consult with local government on a timely basis. That is very important.
We have to reflect a bit on the issue around getting that information available in November, but the noble Lord, Lord True, and the noble Earl, Lord Lytton, made some very powerful points in support of the amendment—in particular, the sooner you know what your resources are, the better able you are to deal with those who are looking to you for support and engagement.
I agree with my noble friend Lord Beecham, as ever, that there are other interested groups here, particularly concerning the central share and how that is going to be dealt with. I think that the noble Lord, Lord Shipley, was right when he said that the Localism Act has basically changed the scene so far as this is concerned. I take a degree of comfort from the Minister’s response—particularly the commitment to make sure that the consultation continues.
I guess that we will have to see what the nature of the components is. We will be coming later to what is likely to be in a local government finance report, given that formula grants are going to be less important, if not disappear altogether. We will also be dealing with what is in the document to consult on. In the mean time, I thank the Minister for her response and beg leave to withdraw the amendment.
Lord McKenzie of Luton
My Lords, I shall speak also to Amendments 27, 30 and 31. Amendment 26 relates to payments to the Secretary of State of a billing authority’s central share. Regulations can define the non-domestic rating income and include, among other things, an assumption of an authority acting diligently. Ministers may well say that this term is well embedded in the local government finance legislation, and doubtless the Minister will be able to point us in the right direction so far as concerns its meaning and why it is necessary. However, perhaps we can just recap. Whose judgment will determine whether an authority has acted diligently and what regard will the judgment have to what might be varying policy frameworks? Are the Government looking for something here which goes beyond efficient billing and collection arrangements?
On Tuesday, we heard from the noble Earl, Lord Lytton, about the maintenance of the business rating system and the challenges faced there. He highlighted the fact that collection risks are on local councils but that maintenance obligations lie with the Government. Perhaps the obligation for authorities to act diligently will be matched by an obligation on the Government properly to fund the valuation service.
If the Secretary of State deemed a council not to have acted diligently, what would the consequences be? Would the council have a right of appeal? If the Government are confident about the benefit of the incentive in these provisions, why is it not enough to encourage councils to act diligently?
Amendment 27 is a minor probe concerning payments of the central share. Paragraph 7(2) of Schedule 1 contains the words,
“in the course of the year”,
which suggests that all payments, even if subsequently adjusted, will be made during the year rather than later and in respect of the year. The amendment of my noble friend Lord Smith suggests that it should be paid in two instalments. Perhaps the Minister can enlighten us about the Government’s intent on that.
Amendment 30 refers to payments to major precepting authorities. This provision again deals with an authority’s non-domestic rating income, which will be defined in regulations as the amount payable to it,
“subject to such adjustments as may be specified”.
It is understood that the adjustments that would be made will include such matters as mandatory, discretionary and hardship reliefs, and the cost of collection, et cetera.
The noble Baroness will be aware of representations received from Sporta concerning the impact of the new system on mandatory and discretionary relief. Sporta represents charitable, leisure and cultural trusts. Under current arrangements, the Government meet the cost of mandatory relief and a proportion of discretionary relief, which is recognised in the government’s technical paper 2, Measuring Business Rates. I have the authority of the chief executive of Sporta to quote from the letter. It refers to the business rate retention scheme and the central and local shares. He says:
“The effect of this approach will dissuade many authorities to set up, extend or support leisure and cultural trusts—for two main and exceptional reasons. First, leisure trusts operations can involve large amounts of buildings and facilities, and therefore business rate concessions are significant. Therefore any transfer to them, or new investments by existing trusts, would impose substantial unfunded costs on the local authority. Second, unlike with the position of most other charities, local authorities can themselves directly influence the creation of trusts—by deciding or not to transfer assets to them on a lease and by awarding, or not, a contract to them for operation of facilities. The disincentives created by unfunded concessions could therefore be great and thus the benefits of having more community facilities run by trusts would therefore be lost—and this is happening now as local authorities react to the statements which the Government has already made”.
It goes on to say:
“We understand that the DCLG Working Party which is considering the regulations recognises in principle the problems for the charitable sector which the prospective loss of compensation for local authorities will create. However, we should like to ensure that DCLG are fully aware of the special problems which will be faced by leisure and cultural trusts, because of their scale and as a result of the fact that the formation of the trusts can often be dependent on the decisions of local authorities themselves”.
The concern relates to new or extended provision, as it seems that existing provision would be reflected in calculating the baseline and, therefore, the tariffs and top-ups. Those will not be changed—apart from RPI adjustments—until resetting. In the mean time, local authorities will take a 50% hit for any relief granted. Perhaps the noble Baroness can give us an update on current thinking because this seems to be a particularly serious issue. I would be interested to hear if there is a solution in hand.
Amendment 31 is again a minor probe. This is about certified accounts. It makes reference to the use of certified calculations or information, which is related to payments to the major precepting authorities. Can the Minister expand on what use is anticipated of these accounts and information? There is a broader issue, which I do not propose to press, about what is being certified by auditors and what the nature of that certification is, but perhaps that is a matter that I might take up outside of the Committee.
Amendment 39, in the name of my noble friend Lord Smith, requires the Secretary of State to make top-up payments in two instalments, which seems an entirely reasonable proposition. I beg to move.
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 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.
Lord McKenzie of Luton
My Lords, as we have heard, Amendment 35 requires that any review of tariffs and top-ups must be undertaken in conjunction with any revaluation of rateable values. As I understand it, that is broadly the intent of the Government. However, it would seem that locking into this approach effectively gives fixed reset periods. One of the problems with this, as the Government have identified, is that the further in advance a reset period is known, the more possible it becomes for local authorities to plan on that basis and potentially manage growth and investment in their areas to achieve maximum gains from the reset process. This could result in perverse outcomes as local authorities seek to defer growth in their local areas in the year before a reset is due. It also produces a rigidity in the system and an ability to have regard to how resources in the system are aligned to changing levels of underlying need.
In their response to the resource consultation, the Government have said that it is proposed to adjust each authority’s tariff or top-up following revaluation to ensure as far as possible that their income from business rates retention will be unaffected by the valuation. However, I am not sure whether that necessarily amounts to a full resetting involving the recalibration of the baseline; it seems to be a different process. Perhaps we can have some clarification on this. Indeed, I am not sure that it would be possible to use the formulation to set the baseline at the point of a revaluation because the business rate base would be the historic one, not the updated one. I would be grateful for some clarity as to what is involved in an adjusting of tariffs and top-ups that is not the full reset—I can see from the Box behind the Minister that that probably is the position. Of course, having regard to changes in relative needs in resources is absolutely key, and we support that.
It is a difficult balance between preserving the flexibility of earlier resets so that you can respond more quickly to changes in needs and resources and seeking the benefits of a practical update that perhaps has the benefit of a longer-term incentive. On balance, we would argue for the flexibility to be able to respond more readily, particularly given some of the data about how quickly the council tax base can change over time.
The Earl of Lytton
My Lords, I support the principle of what the noble Lord, Lord Tope, said in moving the amendment because we are in circumstances of unparalleled turmoil in the non-domestic sector. The present—2010—local rating lists are based on an antecedent date of 2008. It will not escape the Committee that that coincides with the peak of the market before much of the fallout of the financial situation had filtered its way though. One of the effects of that has been to produce some significant shifts in the way in which land use is now looked at. It will also be apparent to many noble Lords that there has been a growing level of conversions of properties that were once commercial into residential. This is, for many reasons, to do with the problems of building on greenfield sites, issues concerning the interim arrangements regarding the national planning policy framework and the removal—effectively the abolition—of the strategic planning system when the coalition came into being. I do not apportion any blame. We are where we are.
It is quite clear that a lot of businesses are paying rates on the basis of transitional relief escalation based on 2008 levels of value and are increasingly of the view that they are unsustainable. I have previously pointed out that on a like-for-like basis, non-domestic ratepayers appear to be paying more pro rata for their floor space than residential property owners pay under council tax for equivalent space. That may not be the case in central London—I have to defer to the noble Lord, Lord True, and others with greater knowledge of that—but in the rural shires, that certainly seems to be the situation. This fuels all sorts of things. If something is used for a commercial purpose, it fuels a lack of willingness to make any sort of declaration because people do not want it to go that way. One might say that there is no incentive on a billing authority to point something up as a non-domestic hereditament in circumstances where it gets 50% clawback. If it were under council tax, it would have got the lot, but I leave that for the time being because that is not the thrust of what I wish to say.
Next year we will have another antecedent valuation date for the 2015 valuation. The likelihood is that outside central London large numbers of values will fall. The transitional relief for substantial movement may well kick in, so as they have been counting up year on year towards 2015, after 2015 they may well be counting back down again. I have great concern about the reset not being until 2020 because the turmoil visited upon all sectors, residential and non-domestic, public sector and private sector alike, is making for great uncertainty and a great deal of unpredictability. It seems to me that by 2020, seven years down the road, assuming this comes into force in 2013, it will be so far out of date that something needs to be done about it before that time. I know that the Institute of Revenues Rating and Valuation, of which I am a member, is equally concerned about the long-term effects, given the problems with the arrangements for the reset and valuation being so out of kilter in their degree of modernity.
This is a science. One has to try to work out how many financial criteria dance on the head of one pin, and I might not be the best person to describe this in detail, but I foresee a problem and I would like to hear what the Minister has to say about it.
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.
“(3) Such basis of calculation must take account each year of an assessment of the level of need in each local authority, and in particular their ability to comply with their equality duty and obligations under the Child Poverty Act and homelessness provisions.”
Lord McKenzie of Luton
My Lords, in moving Amendment 37, I shall speak also to Amendment 38. We are still with tariffs and top-ups, which are important because, apart from levies and safety nets, they are the route to seek to address matters of needs and resources. Some local authorities collect more business rates than they currently receive in formula grant, while business rates collected by others are lower than their current funding levels. Hence, there is a need to rebalance resources, a process that we support. However, this requires establishing a business rates baseline for each authority and a baseline funding level. Amendment 37 sets down a general test for this, which requires that the basis for calculation that must be set out in the local government finance report should specifically have regard to an assessment of need. This amendment particularises that local authorities should be resourced to be able to comply with their equality duties, their obligations under the Child Poverty Act and homelessness provisions. The noble Baroness will note that these are the very same issues that central government has pressed on local government, reminding it of its responsibilities in relation to council tax support schemes.
Amendment 38 requires the local government finance report to set out details of the calculation of the baseline position. Establishing the baseline requires establishing the business rate that each billing authority collects and how this is shared between billing and non-billing authorities. The Government have proposed that this is determined by averaging business rates income, although the number of years over which it is averaged has not yet, apparently, been agreed. The amendment requires this to be made explicit in the finance report, but perhaps the Minister can in any case give us an update on this as well as set out the criteria that will determine the final basis of determination. Reverting to our previous discussion, how would this work in relation to a revaluation if the basis of the business rate baseline was an historic average? It would be difficult to do that at the point at which you had a revaluation because you would be averaging on the old basis. There is a difficulty there, but that is an aside.
Establishing the baseline also involves determining an income or funding level, and it is proposed that it is based on the 2012-13 formula grant, subject to some adjustments. It is these adjustments that the amendment also requires to be spelt out. In this regard, we support the decision to update population data, as these are a key driver of the cost of services.
So far as relative needs formulae are concerned, the Government maintain that they have increased the proportion of formula grant distribution going to relative needs at the expense of the central allocation, as this would support the most dependent authorities. For the purpose of the tariff/top-up calculation, the higher the formula, the lower the tariff or the higher the top-up will be. Can the Minister update us on what is happening on these adjustments and tell us the current thinking because the outcome of these deliberations is locked in until a reset and it can be significant? If the proposal is to set the formula grant for the current year, the Government switched data to help the disadvantaged authorities by the central and relative needs shares. If they are thinking of putting that into reverse for the purpose of this calculation, then presumably the risk is that those disadvantaged authorities will not have the benefit that the formula for the current year has given them. I should be very grateful if the Minister could deal with that.
Paragraph 2.47 of the resource review consultation document states:
“In the current settlement we increased the proportion of formula grant distribution going to relative needs at the expense of the central allocation to support the most dependent authorities but made no change to relative resources”.
On the consultation, it states:
“Responses were mixed on this point and we have decided to look again at this issue prior to further consultation, when we will take a decision on whether, or not, to consult on any proposals”.
So the question is: are the Government going to consult and what are those proposals? I beg to move.
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, 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.
Lord McKenzie of Luton
My Lords, in moving Amendment 41, I shall also speak to our other amendments in this group, Amendments 42, 44, 45 and 45A. Amendment 41 is a probing amendment. It concerns regulations about the levy payment calculations. These can be made,
“by reference to such other factors as may be specified in the regulations”.
Will the Minister indicate the type of other factors that it is envisaged might feature?
Amendment 42 would require the Secretary of State to allow 28 days for representations to be made on the basis of the calculation and to implement a process for receiving representations. I am sure that there will be informal arrangements but there should be some formal process by which local authorities can challenge the calculation.
Amendment 44 requires a report to Parliament after three years. The Government have yet to conclude on the safety net but it could be something like a 7.5% to 10% reduction from baseline funding, which, as time goes by, other than being uprated by RPI, would become an increasingly distant figure. Can we have an update on the thinking and on what evidence will be used? A significant diminution in base funding for an authority could be cumulative and we would be very concerned about that. We have debated before a significant loss of the business rate base: we heard from the noble Lord, Lord Greaves, last week. Some of it might be involuntary because of major closures; some of it might be voluntary, such as the discouragement of major regeneration projects. We need a clear path to review how it is working, so we believe that a report to Parliament at three years to see how that safety net is operating is very important.
In similar vein, Amendment 45 seeks to put down some criteria and the need for an evidence base. I apologise for the late tabling of Amendment 45A; it just got stuck in the system. It is a probing amendment intended to focus on the cumulative impact of the safety net, particularly when local authority reserves are being depleted and, in any event, the Government are focusing on levels of reserves.
I have put my name to Amendment 46, which is in the name of the noble Lord, Lord Jenkin, who will perhaps talk to it if necessary. There is something of a hotchpotch of issues there but it is intended to be probing in order to understand issues concerning the levy concept. I beg to move.
Lord Jenkin of Roding
My Lords, this group includes Amendment 46 in my name, to which I am delighted to see the noble Lord, Lord McKenzie, has added his name. We come to this in a splendid example of a total coalition, if I may put it like that to my noble friend the Minister.
I will say a word about a special point that affects the City of London in a moment, but the point about Amendment 46 is that it is asking that volatility in local authority income due to rating appeals is formally recognised and “fully compensated”. The justice of this is self-evident. Under the current proposals for business rate retention, local authorities will be unable to benefit from business rate yield growth due to rental increases after revaluation. However, when it comes to reductions, local authorities are expected to manage and absorb funding volatility caused by rating appeals after revaluation, subject to the provisions of the safety net. Of course, volatility in funding will fall entirely on the local authority.
Just as with other matters of this kind, it is not within the control of local authorities because the rating revaluations are all done by the Valuation Office Agency, which is outwith local authority control, and yet the Bill is providing that local authorities must bear the risk. This seems unbalanced and unfair. If it is right one way, it must surely have the converse effect of being right the other way. I should be grateful to hear my noble friend’s answer to that.
Under the current proposals there is what London Councils describes as asymmetry—a view that I entirely endorse. It seems to me that they are wholly asymmetrical and that, in these circumstances, there must be some form of indemnity from the Government against significant VOA errors. Without this, local authorities will simply have to bear the whole risk, which could be quite substantial.
I give notice that the City corporation has raised with me a separate point on which it may wish somebody to table an amendment on Report. It is a slightly different point but it comes up under the same general issue. It is technically distinct from our proposal, which I have just described under Amendment 46; nevertheless, it seems to be in some way similar. Our Amendment 46 deals with appeals founded on some error by the VOA. The City’s difficulty concerns appeals or alterations founded on a subsequent change of circumstances—namely, for instance, a movement in the local property market that produces an oversupply of commercial property. They have had experience of this in the City. Of course, it does not affect just one office or one set of business premises; it affects them all at much the same time. Therefore, it could have quite a serious impact on the City and on other areas where there are high concentrations of high-yield commercial property.
Even after the dispute has been resolved, the refunds can be backdated for several years, which means that the local authority has to wait for them. Here again the argument should be that local authorities should not be exposed to this kind of risk, because the Government have already accepted that they are not to be exposed to bearing the risk of general movements in the local property market. If it is right there, why is the same argument not applied to movements due to appeals from the valuation office? I understand that it would be appropriate to raise a separate amendment if one was going to try to incorporate something in the Bill, so at this point I am just giving notice of this issue to my noble friend. However, I think that there is a point on which she may wish to comment—she probably knows about this—as well as on what I would call the enlarged coalition proposal under Amendment 46 that the volatility of the ordinary valuation process should be borne by the Government and not by local authorities.
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.
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.
Lord Jenkin of Roding
We now turn to the issue of the distribution of the remaining balance of the levy fund, which comes on page 36 of the Bill. As the Bill currently stands, it is entirely up to the Secretary of State to decide how that is going to be done: whether it is going to be rolled over or distributed to local authorities. Amendments 47 and 48 propose that this should be a matter of consultation between the local authorities and the Government, and then be subject to approval by Parliament via the local government finance report. Without that, there is no way for Parliament to exercise any control over the distribution of the levy, which could be quite a significant sum at the end of the period to which it applies.
The logic of the system that the Government are introducing is that it is local government money. It should therefore be returned to the local authorities and not be the subject of a further centralisation of control by the department. It is the old question and the department seems to want to retain overall control over the decision as to whether the balance should be rolled over or distributed, whereas in accordance with any sort of localism agenda it should be recognised that it is local government money and it is for local government to decide what should happen. At least it should be the subject of consultation, as the amendment provides, and then be dealt with subsequently in the local government finance report and so be within the control of Parliament. I hope that my noble friend will be able to see the sense of that and how it is in accordance with the Government’s overall policy of localism. I beg to move.
Lord McKenzie of Luton
My Lords, I have added my name to Amendments 47 and 48 and wholeheartedly support the proposition that has been argued by the noble Lord, Lord Jenkin. There is nothing more to say on that matter.
The noble Lord, Lord Beecham, and I also have Amendment 49 in this group, which is a bit of a failsafe proposal. It says:
“Should any part of a balance on a levy account for any year remain undistributed after 3 years from the end of that year, the Secretary of State shall report to Parliament on the reasons therefore”.
If it is accumulating over that period, there is real cause for concern. This is an added protection and certainly does not displace the propositions in the earlier two amendments.
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.
“Publication of Impacts and ResetsCalculation and supply of information on the impact on total resources available for Local Authorities39A (1) The Secretary of State must for each year and in relation to each billing authority in England identify—
(a) the total level of resources available for each billing authority in the preceding year including—(i) the local share of an authority’s non-domestic rating income;(ii) the total of any top up or tariff;(iii) the total of any levy paid to the Government;(iv) the total of any safety net paid by the Government;(v) the total amount of resources raised through council tax;(vi) the total of any homes bonus paid by the Government;(vii) any other payments made by the Government considered appropriate to be included by the Government following consultation with local government;(b) an estimate of the total level of resources available for each billing authority in the forthcoming year including—(i) the local share of an authority’s non-domestic rating income;(ii) the total of any top up or tariff;(iii) the total of any levy paid to the Government;(iv) the total of any safety net paid by the Government;(v) the total amount of resources raised through council tax;(vi) the total of any homes bonus paid by the Government;(vii) any other payments made by the Government considered appropriate to be included by the Government following consultation with local government. 39B (1) The information under paragraph 40A must be set out in a report, to be called an “Impact of Business Rates Retention Report”.
(2) The Secretary of State must for each year, alongside the local government finance report, lay or make arrangements for laying, the Impact of Business Rates Retention Report before the House of Commons.
(3) As soon as is reasonably practicable after an Impact of Business Rate Retention Report is laid before the House of Commons, the Secretary of State must send a copy of the report to each relevant authority.
Resets of the Business Rates Retention System39C (1) The Secretary of State shall be required to make arrangements for a ‘reset’ of the Business Retention System every 3 years to coincide with each spending review period.
(2) The reset is to take on board a reassessment for each authority of—
(a) relative spending needs;(b) relative resources available through council tax income;(c) relative resources available through business rates.(3) The assessment of relative need is to be determined in full consultation with local government.
Designation of tax increment financing schemes39D (1) The Secretary of State may by regulation—
(a) designate one or more tax increment financing schemes;(b) provide for the calculation in accordance with the regulations, for each year for which the designation has effect and in relation to the billing authority of the amount mentioned in sub-paragraph (2);(c) provide for that amount to be disregarded for the purpose of the calculation under paragraph 39C(2).(2) The amount referred to in sub-paragraph (1)(b) is the total amount which, if the authority acted diligently, would be payable to it for the year under section 43 or 45 in respect of the hereditaments in the tax increment financing scheme.”
Lord McKenzie of Luton
My Lords, I beg to move Amendment 54 in the name of my noble friend Lord Smith, who is unable to be with us today. The thrust of the amendment is to cause a report, termed an,
“Impact of Business Rates Retention Report”.
It calls for the report to be laid before the House of Commons alongside the local government finance report. I believe that the intention is that the report would cover the current and upcoming year. It further calls for the Secretary of State to make arrangements for a reset of the system every three years, which we have debated already, to coincide with each spending review period. We have not particularly touched upon that issue. The amendment also requires the Secretary of State to designate one or more TIF scheme and for the revenues to be disregarded in assessing the reset of the business rate retention scheme; a matter which we have just debated at some length.
The thrust of this amendment is a reminder of the complexity of the new system and the difficulty which will confront local authorities in setting their budgets, especially in the early years of implementation. I note in passing that the proposed report is focussed on billing authorities, but it would seem logical to extend it to major precepting authorities. In any event, the report should include payments to major precepting authorities. It would also be appropriate for such a report specifically to identify revenue support or Section 31 grants payable to local authorities and also the central share of business rates aid to central government.
My noble friend’s amendment, however, raises the issue of what the local government finance report will look like in the future. No doubt thousands of councillors will miss ploughing through the intricacies of the formula grant, although this will have to be covered at the outset to set tariffs and top-ups. Under this Bill, the local government finance report must precede the specifying of central and local shares, the basis of calculation of tariffs and top-ups and the amounts to be credited to the levy account. However, what will happen routinely to the relative needs formula after the initial calculation of these matters? Will this still feature as part of the annual local government finance report? If not, on what basis will the Government be able to assess need for determining whether there should be an early reset or an in-year safety-net payment—indeed, for the distribution of revenue support grant itself? It would be helpful if the Minister at least outlined these and perhaps arranged to write in detail.
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.
Earl Attlee
My Lords, the Committee has made very good progress but I would be extremely grateful if we could consider this amendment. I do not think it will take very long and it would be advisable to take it.
Earl Attlee
My Lords, I have agreed with the usual channels that we would do so.
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.
Lord McKenzie of Luton
I thank the Minister for her reply, which has taken us a little further forward. We well understand that, one way or another, the central share will be used in its entirety for local government in England. Knowing what that means in more detail, particularly its distributional effect, still eludes us. It certainly eludes me. It would be helpful if more information on that could be forthcoming between now and Report. I know we will want to return to this issue. For this evening’s purposes, I am happy to beg leave to withdraw the amendment.
Local Government Finance Bill
Lord McKenzie of Luton Excerpts(12 years, 4 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
“( ) paragraph 6 (regulations about non-domestic rating income);”
Lord McKenzie of Luton
My Lords, I shall speak also to Amendments 2, 3 and 4. At the start of our deliberations, it might be helpful if I set out our approach to these Committee proceedings. This is a framework Bill. A tremendous amount is being left to regulation-making powers in the Bill—at least a couple of dozen powers on my count—which comprises just 19 clauses. We accept that the framework has been filled in in part by recent statements of intent and that there is a plethora of technical and other papers, but that is not the same as having a complete set of draft regulations. We will therefore use the opportunity of this Committee to probe the detail of what is intended and get as much as we can on the record. We will also seek to insure, where appropriate, that those regulation-making powers give the maximum opportunity for parliamentary scrutiny, hence these amendments.
Clause 1 introduces new Schedule 7B, which contains the nuts and bolts of the business rate retention scheme. It provides, among other things, for certain of the new regulations to be by way of the affirmative procedure and the rest by the negative process. This group of amendments adds to those that should fall into the affirmative category.
Amendment 4 concerns paragraphs 37 and 38 of the schedule. The Delegated Powers and Regulatory Reform Committee recommended that regulations made by virtue of paragraph 39 should be subject to the affirmative procedure because they impose a liability on a billing authority. This is what the amendment seeks to achieve. Paragraph 39 refers to regulations under paragraphs 37 and 38, and it is presumably those that should be subject to the affirmative procedure. Although we will want to discuss the detailed provisions later in our deliberations, we assume that the Government accept the Delegated Powers Committee’s recommendations on this matter, even if not our precise wording.
Amendment 1 deals with paragraph 6. This requires, following a local government finance report, payments of the central share of non-domestic rates to the Secretary of State. However, the regulation-making power includes the power to define what non-domestic rate income is and what adjustments can be made to amounts payable. We will discuss some of the detail of this later, but the power to define what income is for the purposes of the local/central split, including judgments about authorities acting diligently, is, we suggest, significant and should be subject to the affirmative procedure, at the very least on its first use.
Amendment 2 seeks to bring the provisions concerning payment on account under the safety net arrangements within the affirmative procedure. Again, we argue that this is much more than a mechanistic provision concerning calculation. It is potentially very significant for some authorities. It covers the circumstances in which safety net payments might come about. We welcome the fact that other regulations relating to the levy and safety net are to be subject to the affirmative procedure and consider that the same should apply to paragraph 26. So far as we can tell, the issues around payment on account are not covered in the statement of intent or in the government response to the resource review consultation. The consequences of catastrophic reductions in year of a business rate base, likely to be accompanied also by an upsurge in eligibility for council tax support, need serious consideration and should be subject to the affirmative procedure.
Finally, Amendment 3 focuses on paragraph 30, which deals with transitional protection payments. These are existing arrangements designed to dampen the effect of changes to business rate liabilities arising from revaluation. This could have a significant implication for the business rate retention scheme, and it is proposed to take the effect of this outside of the scheme. This requires regulations concerning calculations of a billing authority’s deemed rate in income and actual rate in income, including judgments about whether an authority has acted diligently. This is, again, a very significant provision, which should be subject to the affirmative procedure. We are in uncharted waters over lots of these areas, on a range of key issues, and we should do all we can to strengthen the parliamentary scrutiny. I beg to move.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)
My Lords, as the noble Lord, Lord McKenzie, said, this is framework legislation—as indeed is Local Government Finance Act 1988, which precedes it. It is therefore to be expected that there will be a number of detailed matters which will be dealt with in regulations. The appropriate level of parliamentary scrutiny for each set of regulations will differ depending on the precise subject matter at hand, and we have carefully considered the appropriate level of scrutiny for each of them.
This is why provision is already made for a number of regulation-making powers in the Bill to be subject to the affirmative procedure, as the noble Lord acknowledged. Regulations under paragraphs 8, 20 and 23, for example, which all deal with the calculation of various payments under the scheme, will be under affirmative order. The Government have made these regulations in particular subject to the affirmative procedure in recognition of the need for the highest level of parliamentary scrutiny over such types of finance provisions, given their significance and impact within the rates retention scheme.
Similarly, the tariff and top-up payments that will flow to and from local authorities will be determined by the local government finance report for a year, which must be approved by resolution of the House of Commons. That again affords the appropriate level of parliamentary scrutiny over key payments within the scheme.
All other regulation-making powers in connection with the non-domestic rating in the Bill are subject to the negative resolution procedure, as the noble Lord said. This is in line with the approach that is currently taken in the existing Schedule 8 to the Local Government Finance Act 1988, and also reflects the more technical or administrative nature of those powers. These include the regulations specified by the noble Lord in his Amendments 1 and 4.
The Delegated Powers and Regulatory Reform Committee, as the noble Lord has acknowledged, has carefully considered the Bill in advance of our debate today. The fourth report of the Committee, published on 21 June, considered that not only is the balance in new Schedule 7B between provision in the Bill and provision in delegated legislation “about right”, but also that the level of parliamentary control over regulations set out in the Bill is, subject to one exception which I will come on to in a moment,
“appropriate according to the relative significance of the various powers conferred”.
Noble Lords will not therefore be surprised when I say that I agree with the conclusions of the Delegated Powers and Regulatory Reform Committee on this point and therefore cannot accept their amendments.
We have carefully considered what the appropriate level of parliamentary scrutiny should be for each regulation-making power in the Bill, and our approach is supported by the findings of the Delegated Powers and Regulatory Reform Committee, whose responsibility it is to consider such issues. However, I hope that the noble Lord’s disappointment in my response will be tempered by my confirmation that we will bring forward an amendment at Report to make those regulations made by virtue of paragraph 39 subject to the affirmative procedure. I think that that is what the noble Lord was looking for. This is the exception to which I referred earlier, and in line with the recommendations. With those explanations, I hope that the noble Lord may feel able to withdraw the amendment.
Lord McKenzie of Luton
My Lords, I thank the Minister for her reply. Of course, I will withdraw the amendment given where we are. I am pleased that the Minister has confirmed that government amendments will be tabled to deal with the recommendations from the Select Committee. But I shall dwell for a little on two provisions to try to explain further why we believe that their significance is such that they should be subject to wider parliamentary scrutiny.
On payments on account of the safety net, the provision was put in the Bill, as the Minister knows, to give local authorities that are suffering in year from a significant downturn in their business rates an opportunity to get support during the year rather than wait until after the year, which is the general structure of the scheme. In the circumstances in which those opportunities present themselves, it is of crucial importance to local authorities to know what the rules of that provision are. I would have thought that it was also important for our scrutiny of something of that magnitude, which is not simply an issue of narrow accounting but an issue of real substance as to how a key part of the business rate retention scheme will work. I shall not dwell further on the paragraph 6 issue, other than to say that this is not just about accounting for the debits and credits; it is about a definition of income for the purposes of these provisions. I am sure that I will not manage to change the Minister’s view on the matter this afternoon, but we would like to reflect on it because these are significant provisions that deserve wider parliamentary scrutiny. I beg leave to withdraw the amendment.
Lord McKenzie of Luton
My Lords, in moving Amendment 5 I shall also speak to the other consequential amendments—Amendments 55, 57, 58 and 60—in this group. The amendments would defer the introduction of the business rate retention scheme for at least a year, as determined by a resolution of Parliament. We recognise that the Secretary of State already has power in the Bill to defer its introduction until a later year, but all the indications are that he has no intention of doing so. The Minister will no doubt confirm that.
My noble friend Lord Smith’s Amendments 6 and 7, which we support, are very much an alternative formulation. If passed, they would require the Secretary of State to defer the introduction.
This is not about seeking to wreck the proposal or to kick it into the long grass. We support a localist approach and the concept of a business rate incentive scheme, so why should we defer? First, and very importantly, we do not yet have legislation; it will be October or even November this year before the Bill becomes law. I am bound to say that it seems somewhat discourteous of the Government to prejudge what might come out of your Lordships’ deliberations. To be clear, we are intent on proper scrutiny of the Bill but are not trying to slow it up. The Localism Act, of which I am sure we all have fond memories, ended up in a completely different place after it had been through your Lordships' House. I do not predict quite the same rate of change on this one. However, it seems to me that we should wait to see the final shape of the legislation—to pre-empt it would be unfortunate.
Lord Palmer of Childs Hill
My Lords, may I pick up on the point made by the noble Lord, Lord Beecham, about reserves? I hope that when the Minister replies to that point, as she was asked to do, she will include within it how the strong reservations of the accountants’ organisation CIPFA about how much local authorities should hold in reserves will fit in with what the Secretary of State has apparently said. I hope that she will talk about specific reserves as well as unallocated reserves. It would be great if this could be clarified at some stage.
Lord McKenzie of Luton
My Lords, before the Minister replies, perhaps I might return to the reference made by the noble Lord, Lord Jenkin, to London Councils. I accept entirely that London Councils has changed its position on deferment of the business rate component of this Bill—the briefing that we had a month ago certainly put us in a different slot—and I was not seeking to suggest otherwise. However, I was seeking to relay what is still its current view, as I understand it, which is that the scheme needs to be urgently revamped if it is to produce the radical shift in the structure of local government funding that the Bill proposes. I do not know what process the noble Lord might feel there is to achieve that if there is no deferment of the Bill. Are we going to follow up with an amendment Bill next year? How is it actually to come about? What is there within the Bill that would enable that radical restructuring that is apparently wanted? I do not know whether that is what the noble Lord supports.
Lord Jenkin of Roding
I am grateful to the noble Lord for giving me an opportunity to explain. I referred a few moments ago to the number of amendments tabled on the first part of the Bill that would make quite substantial changes, particularly about the division between the central and local shares of business rates revenue. That would be a change that, if my noble friend Lady Hanham could persuade her colleagues that it might be accepted, would go a long way towards meeting the concerns not only of London Councils but of the Local Government Association and local authorities generally, which are anxious to see a faster process of the localisation of business rates revenue. I will no doubt have an opportunity to talk about this a little later, but I do not think that the questions of timing and of the changes that we are proposing are in any way inconsistent. As my noble friend Lord Tope said, there would be some regret if this were to be delayed. I think that both he and I were making that point. Perhaps that is a way of explaining to and satisfying the noble Lord, Lord McKenzie, that there is no inconsistency in what we were arguing.
Lord Smith of Leigh
My Lords, I welcome the Minister’s reassurances that information will be in the hands of local authorities—we will test that on Report in October when we can see what happens. I do not think that I ever said that I wanted this provision to be deferred; I simply made the point that a stage will come when it is too late. The Minister herself said that, in using the word “extremes”. I would be interested to know what those extremes might be that would delay the provision from 1 April. She also thinks that there could be circumstances that lead to delay. My point was very simple: as long as the information is available so that we can put it into place, that is fine. But we will obviously be able to test that out.
Lord McKenzie of Luton
My Lords, I thank the Minister for her response to the amendment, which I will in due course withdraw. I follow on from the wise words of my noble friend Lord Smith, who has incredible practical experience of leading a major council. I was unclear from the Minister’s reply whether we had the assurance that all draft rates will be available by the time we get to Report, or all the information needed. There is not necessarily a position on that; all the information that somebody needs is one thing, but seeing it in terms of regulations that will, we hope, in due course go through the parliamentary process is something else. The Minister said that the timeframe is consistent with the current timeframe of the local government financial settlement. Well, yes—but this is not a routine local government finance settlement. It is a significant change, so aligning it timewise is not necessarily appropriate. The noble Lords, Lord Tope and Lord Jenkin, both said that there would be disappointment if there was a deferment. That may be the view of some but I know that it is not the view of everyone.
I am not sure that we fully covered the issues raised by my noble friend Lord Beecham and the noble Lord, Lord Palmer, about reserves, particularly the issue around CIPFA advice. It would be good if the Minister covered that before we put this matter to bed.
The noble Earl, Lord Lytton, again made a very powerful point. I was struck by his contribution at Second Reading. Summarising the concerns, he said that risks are about to be bestowed on billing authorities but the maintenance of the tax base is with central government. That mismatch is a real issue. Later in our deliberations we will come to some amendments that may enable us to go into that, but I am not sure that there is not a broader issue about having the ability to test the appropriateness of the rating system to bear the weight of this new way of dealing with local government finance. However, we will have to see when we get to those amendments.
Perhaps the noble Baroness would deal with the issue of reserves and clarify whether we are talking about draft regulations or about information in another form. We have had lots of statements of intent, which have been very helpful, but they do not amount to fine detail. If we have draft regulations by Report, when is it expected that they will come into effect? What is the rough timetable?
Baroness Hanham
My Lords, the regulations that are going to be of significance will be in draft form. I guess that that will be most of them and any that are not will not be worrying us. I think that I can give the Committee an assurance that the draft regulations will be available for us to consider by Report. That is what I would want to happen and I take that on board.
I apologise for not having picked up my noble friend Lord Palmer’s comment about reserves. I shall have to write to him about that, although I ought to know how they are interlocking. Unfortunately, I did not hear the Secretary of State’s speech at the local government conference but I am sure that, whatever he said, he was not getting at local government in any way. However, there are a number of aspects of reserves—main reserves and specific reserves—and perhaps I may write to Members of the Committee before the next stage to give them the information that I think they are looking for. I hope that that will satisfy that aspect of their queries.
Lord McKenzie of Luton
My Lords, I thank the noble Baroness for her further explanations on that. I propose to withdraw the amendment. In doing so, I would just comment that I did not refer earlier to the comments of the noble Lord, Lord Jenkin, on deferral of the council tax benefit support scheme. I think that that might be more fruitful territory when we reach that provision. I beg leave to withdraw the amendment.
“Representations from local authorities regarding a re-set of the system
(1) The Secretary of State shall establish a mechanism to allow local authorities to make representations on whether they believe a re-set of the system is required.
(2) The Secretary of State shall, prior to the publication of the Local Government Financial Report in any year, give consideration to any representations he has received, and must lay before the House of Commons a report detailing—
(a) any representations he has received from local authorities on whether it would be appropriate to re-set the system; and(b) his or her decision on such representations and the reasons for that decision.”
Lord McKenzie of Luton
My Lords, Amendment 8 would introduce a new clause concerning a reset of the system. A reset would involve reassessing individual authorities’ baseline funding levels and a recalculation of tariffs and top-ups. The technical paper issued last year on establishing the baseline suggested that a reset might involve a completely new method of assessing relative needs and resources, but the purpose of this amendment is not to stray into that territory. The purpose of this amendment is to cause there to be a mechanism that would allow local authorities to make representations on whether they believe a reset of the system is required. Such a mechanism would include an obligation on the Secretary of State to report to the House of Commons on representations received and decisions made thereon, with reasons.
In their response to the consultation on the business rate retention proposals the Government made clear their aspiration for the reset period to be 10 years, and they have stated that they do not propose to reset until 2020 at the earliest—an aspiration, we should note, that would extend to the end of the next Parliament and beyond. However, they have acknowledged that in exceptional circumstances a reset could be required within the 10-year period. Will the Minister tell us what would count as exceptional circumstances?
We acknowledge that certainty over not only the quantum but the period of an opportunity will enhance the incentive. The longer the period between resets, the greater the likely incentive for business growth, as local authorities will retain the benefit of the growth for longer and it will be more encouraging of longer-term investments. That is notwithstanding the fact that the legislation would permit a reset on an annual basis.
There is, however, another side of the coin. Long periods between resets could lead to circumstances where the baseline funding position of an authority does not reflect its funding needs. Population movements, which the Government themselves identified in their response, could lead to the level of resources diverging significantly from core service pressures. We have a debate next Thursday on funding for adult social care, which is a clear example of pressure on services. Setting needs for a decade based even on an updated formula grant for 2012-13 might not be the firmest foundation.
Absent resetting, how could local authorities address the divergence experienced between needs and resources? With the safety net only being available when the business rate base falls by a certain amount and with restrictions on council tax rises—even if those were possible—where can authorities look? We will soon be debating how the Government intend to deploy the 50% central share of business rate, so I would be interested to know the basis on which that might occur longer term.
This amendment seeks only a modest but formal process for local authorities to propose a partial or full reset of the system. Of course there will always be informal opportunities to press a case, but in the interests of transparency we argue for the amendment. I beg to move.
Baroness Hanham
Yes, I will. We feel that this would be overly bureaucratic. As I laid out in my response, this can happen. If somebody has a reason or a need for a reset, or they think that they have, they can make representations. I do not think that that requires legislation. I do not intend, unless I am pushed at another stage, to accept that it is necessary at all, as such provision already exists. There is already a process by which that can happen.
Lord McKenzie of Luton
My Lords, I am grateful to the Minister. We have probably aired this enough, at least for this occasion. I am grateful in particular for the acknowledgement that exceptional circumstances exist when issues are out of line with need. That begs a whole range of other questions, but having that on the record is useful. We might want to explore it further at a later stage, but for now I beg leave to withdraw the amendment.
Lord McKenzie of Luton
My Lords, there are a number of propositions on our agenda concerning the local/central share. We welcome the opportunity to probe all of the issues, as indeed we have done in this debate, and I hope to focus on a consensus for the next stage of our deliberations on Report. I am happy to work with the noble Lords, Lord Jenkin and Lord Tope, to try to achieve just that.
The central share and its application is one of the more troubling aspects of this part of the Bill. It is troubling in the sense of lacking considerable detail, certainly beyond the early years of the scheme. It may be that all of this detail is tucked away in the plethora of documentation provided to us, and doubtless the Minister will point us in the right direction if it is. But there is not much light shed on the subject in the revised statement of intent of last month. Our concern, which has been echoed today, is that the central share will be used in whole or in part to fund matters that would otherwise have been funded by central government. Another concern is clearly the basis on which the central share is to be returned to local government, and there is of course the quantum of the share—the 50:50 split. But these issues about where the money will go and where it will end up clearly troubled the noble Lord, Lord Greaves, and the noble Earl, Lord Lytton, and others who have spoken.
What is driving the local/central split is the Government’s desire to control the overall envelope of local authority spending, routinely determined through the local government finance settlement. What this is currently controlling of course is the formula grant and its distribution. There is a range of other funding available to local government—its own fees and charges and council tax—as well as hitherto a series of grants, some non-ring-fenced and others which are. These grants do not all fall within the orbit of CLG. Such grants are controlled through the usual departments’ DEL processes. Although we have challenged the Government’s draconian cuts for local government—28% in Wigan, as we heard—we were not proposing to open up a broad debate on this aspect except to say that, by the reduction in the control total, the Government have added to the certainty that the business rate in aggregate will exceed the control total.
Of course, currently the whole of the business rate collected is returned on some basis to local government through the formula grant. Indeed central government tops that up with revenue support grant as well as formula police grant. We are now told that for the key year of 2014-15, which has the lowest spending control total, business rates will exceed that total and, therefore, cannot just be left uncontrolled in the hands of local government. A percentage will be peeled away to be applied to local government by central government.
For the record, perhaps the Minister would set down how the 50% has been calculated. What is the forecast of national business rates for 2014-15 and the extent to which that exceeds the control total? How is the 50:50 local control share split derived from that? The technical paper 2 sets out how that will be done and which multipliers are to be used, but some work must have been done to derive the 50:50 proposal. It would be very helpful if we could have that detail. Please can we be given the figures? How much headroom have the Government given themselves between the control totals and the local shares for 2014-15? The intention is that local authorities will be kept whole for 2013-14, based on the application of the formula grant. Can the Minister say whether it is expected to utilise the whole of the central share for that year in this way?
Appendix A to The Local Government Finance Settlement in England: A Guide to the Basics sets out a complete list of grants for the current year. Can the Minister confirm that, at least in theory, any of those could, in whole or in part, be funded from the central share? If you look at it, you will see that it includes, from the Department for Education, the dedicated schools grant, the pupil premium grant, the early intervention grant, the extended rights for free travel, and from the Department for Health, the learning disability and health reform grant. Those are very substantial amounts of money that concern local government in England and, on the proposition that the Government have advanced today, they could fall within the ambit of that description. If not, it would be good to have a denial on the record.
There is a separate issue about the extent to which the local and central shares are calculated after deducting amounts to cover the new homes bonus and other matters. Reading the various documents, I was a little confused about where the funding for the new homes bonus was ending up. Originally, I understood that it came from central Government and was not part of the local government settlement. On the basis of what we have read, I am not sure whether it is now being met from within the business rate total, the top-slice in a sense. If that is wrong, perhaps the Minister could put me right on that.
If the central share is to be used to replace any of these grants, the distribution of it would presumably follow existing rules, but if we prevent that happening, what other options do the Government have for distributing the central share? That hugely important question has been asked by many noble Lords in this debate. We are entitled to know the basis on which the central share will be made available to local government. At one extreme, which we could probably support, it might be distributed strictly by reference to a needs and resources analysis, such as formula grant, which, notwithstanding tariffs and top-ups, could ameliorate the consequences of the distributional effects of the business rate retention scheme. So it might be good for equity but not as good as an incentive. At the other extreme, it could be distributed in a way that is neutral between authorities or as favours the more advantaged authorities. There are no hard and fast rules and we need some clarity from the Government on this crucial point.
Lord Greaves
I wonder whether I can help the noble Lord. Does he agree that a further question, in addition to the very detailed ones that he is asking about the different grants, is whether any of this money might be distributed through non-departmental bodies—quangos and so on—such as the Homes and Communities Agency, and whether some of the money that they disperse might come from this source?
Lord McKenzie of Luton
That is a very interesting question. We have an amendment coming up which is intended to probe the heads under which various categories of institution are counted as qualifying as English local government. It is a possibility but we can specifically probe that when we come to the next group of amendments.
This really is the most troubling aspect of these proposals. Unless I am missing something, it is an area where we do not have enough information. On one basis, we might be happy with a share that is not 50% but 30%, and on another basis we would not want any central share at all. Under Amendment 9, my noble friend Lord Smith probed why we have that particular formulation. I am sure that the Minister has an answer.
Amendment 17 touches on the hugely important issue of not only having information about the current year but being able to project what is likely to happen in subsequent years, particularly in an environment where councils are having to save every penny they can and take painful decisions about cutting back on services.
Amendment 12 in the name of the noble Lord, Lord Jenkin, seeks to ensure that the quantum of the central share will not grow from year to year. Given the RPI increase in rateable values, this should mean that the percentage of the central share gradually declines.
However, we need to be mindful that all these matters could be achieved by central government charging grants against the national business rate collection so that both central and local shares decline in amount— effectively top-slicing. Perhaps we can have amendments to deal with that, as we need to protect against that possibility.
Amendments 21 and 22 in the name of the noble Lord, Lord Jenkin, offer a rather novel approach, which dictates a gradually reducing percentage share of a billing authority’s central share and a gradually increasing percentage of a billing authority’s local share, so that whatever is top-sliced—if anything is—what remains is increasingly skewed to the local share. I think that that approach has some real merit. I should be very happy to engage in discussions to see how it might be developed and made watertight if it is to be included in the legislation so that the Government do not have a way round it. Subject to what the Minister says about the distribution of the central share, we would seek to support that.
Amendment 16 in the name of the noble Lord, Lord Best, seeks to preclude the determination of a local and central share after the financial year ending 31 March 2015. Whether we can support this depends on what happens to the central share. If its application provides a means of redressing possible adverse distributional consequences of the BRRS, there may be an argument for its continuance. Otherwise, it is the business rate scheme that will drive the distribution of the control total, or its equivalent. Even if the rebasing is fair at the point that tariffs and top-ups are established, the dynamic does not mean that it will continue in that way until the reset date.
I shall comment briefly on a few of the contributions to this debate. The noble Lord, Lord Greaves, made the point that whether the figure is 50% or somewhat higher, it will not necessarily change the world for some authorities, particularly smaller ones. I would echo that from Luton’s perspective. My noble friend Lady Hollis reiterated the point about cutting the link between business and local government through the nationalisation. However, we should not berate the noble Lord, Lord Jenkin, any further; I think that he has redeemed himself by his approach, and he has certainly done so with his introduction to this debate, which was very constructive.
The noble Baroness, Lady Eaton, talked about the RSG distribution and the formula grant. I think she was referring to how you set the baseline and the parameters that are going to be used, and we are going to have some debate on that. If the resetting is not going to be for seven or 10 years, getting that as right as possible is hugely important. It might be—we might get some good news from the Minister—that it could be ameliorated in part by use of the 50% central share, but I am not sure that we are going to get that news this afternoon. I am looking forward to the Minister’s reply.
Baroness Hanham
My Lords, so do I. I am grateful to all noble Lords who have spoken to their amendments. They asked a number of questions, in particular, the noble Lord, Lord McKenzie of Luton, at the end. Some of them I will be able to deal with, but some I will not. I think the sensible thing is for me to make sure that we give a written response to questions where there is a need for detail so that we can come back to them at the next stage or have discussions in between, if that is necessary on the full information, not all of which I have today.
I shall start with Amendment 9, which was moved very shortly by the noble Lord, Lord Smith, and seems to require about six pages in reply. I am going to have to skim through this extremely important matter which has clearly shaken the tree a bit. On the face of it, Amendment 9 makes a very simple change to the accounting arrangements for the central share but, as the noble Lord, Lord Smith, probably knows, it has a far greater effect than it may seem.
I shall say a little about how the provisions will work. Paragraph 1 of new Schedule 7B requires a “main non-domestic rating account” to be kept for a year. Most payments to and from local authorities in respect of business rates will be made into and out of this account. The exceptions are levy and safety net payments, which we will come on to later.
Paragraph 2 sets out the payments to be credited to, or debited from, the main account. This includes sums received from local authorities in respect of the central share. We have said that the central share of business rates would be used for the purpose of funding grants to local government outside the rates retention scheme. I shall return to that later. The provisions that enable this are set out in sub-paragraphs (3) to (5).
Amendment 9 seeks to make it clear that the sum that can be debited from the account in respect of the central share shall equal the payments received by the Secretary of State from authorities in respect of the central share. That sounds very simple and sensible, but in fact it does not take account of the Government’s intention to use some of the central share money to fund the transitional protection payments provided for in Part 8 of the schedule. This is because, following revaluations, the Government are obliged by current legislation to put in place a transitional relief scheme, so that business ratepayers whose bills increase significantly can see their bills phased in over a number of years. The transitional relief scheme is paid for by similarly phasing down the bills of those ratepayers who see their liability fall significantly as a result of a revaluation. Earlier, the noble Earl, Lord Lytton, was discussing the effect of appeals on precisely this area.
In the context of the rates retention scheme, this means that some authorities could see lower income as a result of the transitional scheme being put in place for ratepayers and some higher as the transitional scheme unwound. That is clearly an untenable situation. Authorities’ income is supposed to reflect their success in promoting development and not the technical vagaries of the transitional relief regulations, so we have always said that we would take transitional relief completely outside the rates retention scheme and provide for a separate series of payments to and from authorities depending on whether they see more or less income as a result of the transitional relief scheme. Part 8 gives effect to this.
The payments themselves, however, will be credited and debited to the main rating account. I hope that the Committee is following this. The scheme will be set up to balance over time but, in any year, we may pay out more to authorities than we get in. So the current wording in paragraph 2(4), which Amendment 9 seeks to change, demonstrates that if there is a deficit, it can be met from central government’s share. In other words, central government will bear that cost. So while central government could choose to debit less than it has received from authorities by way of central share income, it cannot debit more. On the strength of this explanation, I hope that the noble Lord, Lord Smith, will feel able to withdraw his amendment.
I turn now to the remaining amendments in this group. The noble Lord, Lord Jenkin, explained very clearly and plainly what he is trying to do. Amendments 12 and 21 would effectively mean that the central share could never be increased, since it could never be greater than the previous year’s central share. Amendment 16 would set the central share for the current spending review period only, and Amendments 17 and 22 would fix the central and local share—or a trajectory for them—over a number of years.
The noble Lord, Lord Jenkin, and other noble Lords asked about increasing the local share. We have always made it clear that over time we would hope to increase the local share, particularly once we have the finances back on track. It is difficult to see how legislatively we could allow that bearing, in mind that this whole question of the economy is such a difficult area at the moment.
We have also made it clear that in setting up the rates retention scheme, our aspiration is to provide for a long period between resets of up to 10 years. The corollary of that is that the central and local shares and also the tariff and top-up payments will be fixed for the duration of the reset period. By definition, the 50% rate would go on for 10 years unless there is an amendment. Between resets, therefore, we do not anticipate central and local shares changing from year to year. The 50% will last until 2020. That will give local authorities much greater long-term certainty about their financial obligations to central government and the funding that they can expect to receive from government than under the current three-year spending review process. However, the Government must retain the ability to alter the local share of business rates where it is necessary to maintain affordability and protect the interests of the taxpayer and the wider economy. However, it would be imprudent to presume that there might never be a time when we might need to increase the central share.
The percentage approach to the central and local shares of business rates was adopted in response to views expressed in last year’s consultation about the potential risk of being expected to pay a fixed sum in business rates to central government. By sharing business rates on a percentage basis, some of the reward of positive growth, but also some of the risks of negative growth, will be borne equally by central government. The Government have, and always will have, an interest in public spending, and it is unrealistic to expect the Government to take their hands off it completely and to constrain themselves, as Amendments 12, 16, 17 and 21 suggest.
I will have to write to noble Lords about some of these points because I may not have the answers, but I was asked how the 50% share was set. How did we get there? The Government have considered a range of factors involved. If the information about the setting of the 50% share is not available before the next stage, it will be available in the local government finance report in the figures for business rate totals. That may not be soon enough for noble Lords.
Lord McKenzie of Luton
Can I just clarify this? The detail of the clarification is to come but, in respect of 2014-15, is it the case that the local share that derives from that calculation is equal to, or about equal to, the control total that the Government are seeking to apply to local government and that there is no extra in there?
Baroness Hanham
It is going to be based on the base from this year. Every local authority will be equal when it starts on this system, but the tariffs and top-ups will bring that to the equality base when there is too much in one and not enough in the other. So that will be the first shuffle to get the equality base across the piece.
Lord McKenzie of Luton
If the Minister could just clarify this, it would be really helpful. As I understand it, the local and central shares have been calculated by reference to the lowest of the control total years. I understand why arithmetically that is so. In respect of that year, is the 50% local share that comes from that calculation equal to the control total for that year? Is it the case that there is no extra in the central share and that just enough has been left for 2014-15 to be able to apply the control total and keep it intact, or has central government taken more than that?
Baroness Hanham
The Government will provide revenue support grants to make up the difference between the local share of the business rates and the spending control totals for local government in 2013-14 and 2014-15, having taken into account the amounts needed. Noble Lords asked about the new homes bonus. In future years, the total amount of grant funding will be determined through spending reviews and the Government will set up the base for distribution in the annual local government finance report. I do not think that that will answer the noble Lord’s question, but I will write to him.
Baroness Hanham
And I had better write to the noble Lord, I think. That seems pretty fair.
I was asked about the specific grants. The funding will be from the central share and the finance for specific grants, and that will include the revenue support grant. I will write on the specific grants that already exist and tell the Committee what is included.
The noble Baroness, Lady Eaton, asked about the local authorities’ pool and how the money gets distributed if they go into one with others. Frankly, that will be a matter for the pool to decide; they will regulate themselves. We would expect there to be a local government lead on that so that they can receive payments and that formal arrangements would be agreed on the operation of a pool, so it will be governed by some sort of constraints.
The noble Baroness, Lady Hollis, asked who paid and who gained, but that rather depends what you mean by who pays and who gains. We have always said that no council will be worse off as a result of its business rate base at the outset of the scheme. That was what I was trying to explain about the base, the tariffs and the top-ups. I am sorry if I did not come across well, but that is what the situation is. The information that the noble Baroness sought will be available at a point of the draft local government finance report. That will be my answer to some of the questions: that the information will be ready for a bit later on, I hope before we consider this matter further. I hope that that covers the points made.
There have been a lot of discussions, some of which we will come to on further amendments. I note what the noble Lord, Lord Tope, said about local government’s disappointment regarding the split. I appreciate that that is the situation, but we ought not to ignore the fact that by making the local business rate stay with local government, even if things are then done to it, we are setting a very sensible principle: giving the business rate to local government and maintaining it with it. That principle can then be worked on in the future, regarding how much is left. However, I think we have established an important principle here. I hope the noble Lord is happy to withdraw the amendment.
Lord Palmer of Childs Hill
My Lords, in moving this amendment, I shall speak also to Amendments 13 and 14. It appears that the effect of the central share is to allow the Government to reduce what would have been grants outside the formula grant—that is, paid for by general taxation—and thus allow the business rates to take up the slack. The Treasury could thus substitute business rates for other taxes. I would like to ask if the Minister agrees that there is a danger of improving central government’s fiscal position at local taxpayers’ expense. That is the crux of this very short amendment.
This would not have an immediate effect; the estimates have been made by various local government bodies that the effect could begin in 2016-17, but it could be a real effect.
The central share will come back to councils, as we have discussed, but not necessarily the same councils, in the form of grants. Other noble Lords have given an example of Westminster and have said that that is why there has to be a reallocation of these moneys. I understand and appreciate that, but the real problem is that one reallocates business rates to give an incentive to local authorities to improve businesses within their areas and improve the economy in those areas. Many of them need that incentive; the current system of business rates whereby you collect the money and keep none of it is not an incentive, which is why this is an improvement. If you take away and redistribute, you lose a lot of that incentive from the places where there could be a great improvement in the economy.
Mention has been made by other noble Lords as to the 50%. I could have come in at that stage, but I thought that I would include it in what I am saying now. There is one other aspect to a 50% share, which has not been broached by other noble Lords—that 50% for the Government and 50% for the local councils is a dangerous percentage. Local authorities will lose, as they have in other instances, the difference between the half-empty and the half-full bottle. You know exactly what it is when it is 50%, but it is more difficult when they start recalculating and the share is 51% and 49%, as has been my experience in local authorities. Measuring the value of local council housing, when the example given by CIPFA was 50:50, when the local authority came to use the calculation they took the wrong half, because it was never 50%—it was always something else. Someone in Whitehall may know how to do it; there is a rumour that that is the case. But there is a danger that when you have 50:50, you will end up with 51:49, which would mean that you would not know which was the Government’s share and which was the local authorities’. I would hope that the larger share would be for the local authorities.
The amendment makes the point that the Treasury will be able to switch grants that have been paid for by general taxation into the rates system and in effect raid local businesses to assist the Exchequer. All this will, of course, be in addition to the cut of £500 million, in terms of the legislation overall. Amendments 10, 13 and 14 seek to protect local councils and central government from that usual thing of temptation, because it is not easy to resist temptation. As Oscar Wilde said, “I can resist anything except temptation”. I do not think that we should put too much temptation in the way of central government. I beg to move.
Lord McKenzie of Luton
My Lords, we have Amendments 11 and 24 in this group. Amendment 11 is a very straightforward probing amendment; it refers to paragraph 2(5) on page 20 and is to do with payments to local government in England. Presently it reads:
“The reference in sub-paragraph (3) to use for the purposes of local government in England includes the making of payments under an Act or an instrument made under an Act (whenever passed or made) to”—
then it gives a range of authorities.
Baroness Hanham
My Lords, as I was saying before I was rudely interrupted by the television screen, currently the Government determine how much local government spending the country can afford and they set local government grant totals—both formula grant and specific grants—accordingly. Redistributed business rates income is then used to fund formula grant and any difference is made up from revenue support grant. That is the situation at the moment. The more business rates there are in the system, the less revenue support grant is needed, and vice versa. Therefore, since 1990, business rates have been used in partial replacement of revenue support grant.
Although the mechanism is different under the rates retention scheme, the principle is exactly the same. The business rates retained through the central share will be used to finance both revenue support grant and specific grants in the same way as they are currently used to finance formula grant. Earlier the noble Lord asked me, although I was not able to answer, whether grants relevant to local government from other departments are included. They will be put into that one pot, so all the grants will be relevant. Therefore, we cannot see why the Government would need to accept Amendment 14, as it would place greater restrictions on central government than currently exist. I hope that, looked at in this way, the noble Lord will agree not to press his amendment.
Amendments 10 and 13 accept the principle that the central share should be used to finance other grants but seek to ensure that this happens only if the Government are satisfied that the overall needs of local government will be met. The overall need of local government will be, as it is now, a factor that, along with the wider economic situation, will inform the amount of specific and revenue support grant that government will provide to local authorities.
At future spending reviews, the Government will have regard to the resources available to authorities from their own resources—council tax and, in future, retained business rates—along with the overall spending needs of local government and the fiscal situation of the country, to determine how much grant should be provided.
I hope that, having reflected on the nature of the spending review and the reality that the overall needs of local government will be fully considered as part of that process, the noble Lord will agree to withdraw his amendment. The Bill contains assurances that any money paid by way of central share will be used by government only for the purposes of local government.
On Report in the other place, amendments were made to the Bill to make clearer what was meant by “local government” in this context. The list set out in paragraph 2(5) of Schedule 1, however, was not intended to be exhaustive. Rather, it was illustrative of the sorts of bodies that would be covered by the phrase “local government”. Amendment 11 would have the effect of making the list definitive—something that it was never designed to be, and therefore I cannot accept the amendment. It could otherwise be added to or detracted from and have something else substituted.
Amendment 24 would require the Secretary of State to set out in a local government finance report what payments the Secretary of State had made from the central share. I have rather more sympathy with the principle of this amendment and, although the details are probably over the top, we have discussed it and I think we have said that it will be available just before the local government finance report. However, I must say to noble Lords that the amendment is unnecessary. It will be clear from government accounts how much revenue support grant and specific grants central government have paid out in any year. It will also be clear how much has been collected by way of the central share and debited from the national accounts. It will therefore be obvious whether the Government have used the central share money in support of local government.
Nevertheless, I am prepared to think about whether, regardless, it would be helpful to set this out in the local government finance report in respect of an earlier year. Because of the timing of the outturn data, that would mean that we could not set out this information except in respect of the two previous years, which might make it a little out of date. However, we will consider that and talk to the LGA about it. I hope that, having heard those comments, the noble Lord will be happy to withdraw his amendment.
Lord McKenzie of Luton
The noble Baroness dealt with the question of whether the list in sub-paragraph (5) is complete, and the answer was that it is not. If it were, however, what other bodies would be on there? Would it be a vast range? Can she give us a clue as to which others might have sat on that list?
Baroness Hanham
I think I have said all I can say. The list is not complete and others can be substituted or interposed if necessary. Those will arise at other times but I do not know what they are. If we have information on or a sort of idea of which others we might be talking about, I will let the noble Lord know, but at the moment it is simply left that other bodies may be included.
Airports (Amendment) Bill [HL]
Lord McKenzie of Luton Excerpts(12 years, 8 months ago)
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Lord McKenzie of Luton
My Lords, I apologise for rising to speak in the gap, although I have given notice. I readily accept the importance of air transport in connectivity. We should congratulate the noble Lord, Lord Empey, on bringing forward this important discussion. I will speak briefly about the role of—even—London Luton airport, and why its position should be enshrined as part of the air infrastructure, and to make sure that that is fully acknowledged and encouraged.
The Bill seeks to amend the Airports Act 1986. I remember that Act being introduced. It was a means of forcing local authorities to put their airport into separate corporate entities. We railed against it at the time—in retrospect, wrongly. It is bizarre to think that, before those days, we operated Luton Airport as a committee of the council. Things have moved on. London Luton Airport has had the benefit of a public/private partnership. It was the UK’s fastest growing airport last year. It plans to deal with some 10 million passengers in the current year, and is consulting on a planning application that could increase capacity to something like 16 million passengers a year, or maybe even higher. Not in any way to deny Heathrow or the arguments advanced for it, I would argue that the airport should be seen as an integral part of the London air transport network. It already serves a significant part of the collective catchment area of London airports.
Issues about connections are important. If the issue is how quickly you can get from Belfast to the capital, going via Luton could be just as fast as going via Heathrow, if you have to get off the flight and get on the train or underground, get a taxi or whatever. That is not to argue against improvements to those rail networks. The point about connecting flights is a fair one. Clearly that is more difficult to do. Even within Heathrow itself, it depends where your connecting flights are going from. With five terminals in Heathrow itself, it is not like stepping from one platform to another.
My point is that, in all this debate, the contribution of airports such as London Luton Airport should not be overlooked. It is not a perfect solution to all the issues of connectivity that have been raised by the Bill, but while there are constraints on Heathrow, whatever the future of its expansion entails, airports such as London Luton Airport have a real contribution to make. They have the benefit of having the strong support of their local communities, principally because a big franchise fee comes into the local council and helps to keep spending up, or council tax down, or both. London Luton Airport should feature, and I urge that it does feature, in the Government’s consideration of airport policy to deal with these issues as well as others.
Gypsies and Travellers
Lord McKenzie of Luton Excerpts(12 years, 8 months ago)
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Earl Attlee
My Lords, the noble Lord makes an important and interesting point. It is much easier to have an unauthorised encampment removed if the local authority has already made appropriate provision.
Lord McKenzie of Luton
My Lords, as the Minister has acknowledged, there is a shortage of adequate permanent and transit sites for Gypsies and Travellers, but, at the same time, the Government are dismantling regional spatial strategies, one of the objectives of which was to set targets concerning the number of pitches that each local authority should provide. What evidence do the Government have which suggests that the replacement duty to co-operate will better encourage local authorities to meet their own and their neighbours’ responsibilities?
Earl Attlee
My Lords, as I have said, we have not seen the full government policy because that will be announced shortly. The previous Government’s model of top-down pitch targets under regional strategies has not delivered. Between 2000 and 2010, the number of caravans on unauthorised developments increased from 728 to 3,895.