Local Government Finance Bill

Debate between Lord Palmer of Childs Hill and Lord Jenkin of Roding

Thursday 5th July 2012 Grand Committee

[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 Palmer of Childs Hill]

I rise to make the coalition complete and show that it is indeed a multi-coalition point. My name appears on this amendment, as does that of my noble friend Lord Tope. Most of what I wanted to say has been covered by my noble friend Lord Jenkin. I just emphasise that the Valuation Office Agency is another separate body and that it will make decisions on appeals. It will decide whether there is any liability but local authorities will have to pick up the pieces. It seems that there is central government on one side and local authorities on the other. To my shame, I am not sure whether the Valuation Office Agency is still a part of HMRC but it certainly was as a valuation office. Local authorities will be caught between a rock and a hard place because things will happen that neither government nor local authorities will be involved with, and local authorities will then just pick up any compensation that might be needed. Although my noble friend Lord Jenkin widened it in many ways, so far as I can see, all the amendment is seeking is to ensure that losses due to appeals are fully compensated from the safety net. We believe that this would be fair and equitable for local authorities.