Cities and Local Government Devolution Bill [HL]

Lord Scriven Excerpts

Monday 29th June 2015 Lords Chamber

[Lord Smith of Leigh (Lab)]

My Lords, one of the amendments put forward by my noble friend Lord Beecham has reminded me that in Greater Manchester we had an argument with the Government about getting back our share of growth in business rates for the actions that we were taking. Through the city deal process we managed to convince Ministers that it would be a good scheme to take up, but unfortunately we then had to go to the Treasury and it took 18 months or more to get agreement on that. However, it is a model by which we can clearly demonstrate that the growth created through the work of the combined authority could be used for further investment to benefit and create further growth in the area.

I am certainly a supporter of fiscal devolution, which in a sense is the missing clause in this Bill. We need to think about what it is and what we mean to achieve. However, if we are to get the allocations of money from central government, which is a form of decentralisation, we need further freedom to agree with the Government what would be provided by the money. We can transfer funding from one field to another in a different and more effective way in some areas, provided that we do what was agreed in the deal with the Government.

I have said a number of times in this House—sometimes late at night a couple of years ago when my noble friend Lord McKenzie and I were talking to the Government about the change to business rates—that our system of local government finance in the UK is now a busted flush. There are two main taxes that we rely on. The revaluation means that business rates are no longer justifiable. There needs to be a major review and I am pleased that the Government are carrying that out. The other main form of taxation—council tax—has not been revalued since 1991, so a new house built in 2015 has to be valued as though it was built in 1991. A connection to broadband would not be a feature, because clearly in 1991 such things were not invented. There obviously has to be all-party agreement on this, because we do not want a system that is going to be changed when there is a change of government. We have to have a system, built for the 2020s, that gives local authorities the independence and freedom they need.

On fair funding, I am surprised that my noble friend Lord Beecham and the noble Lord, Lord Shipley, did not quote their former council, Newcastle City Council. It has done some wonderful work on this and produced what it referred to as a “heat map”, which shows in red the areas that have had the greatest reduction in council funding and in green those that have had the least. Guess what: most of the red areas are in the north or in urban areas, and this could be substituted for political control.

[Lord Scriven (LD)]

I wish to emphasise what my noble friend Lord Shipley and the noble Lord, Lord Smith, have just said. In Committee last week, I said that the real elephant in the room was the issue of fiscal devolution; otherwise the Bill is about decentralisation. I listened to the Minister and I agree with my noble friend Lord Shipley and the noble Lord, Lord Smith, that this will ultimately get lost unless there is something specific in the Bill. I hear what the Minister says about this being an enabling Bill, but there needs to be something in it that gives a framework—not a straitjacket—to understand the kind of fiscal autonomy that local authorities could have. If there is not, then we are, fundamentally, talking about a local government finance system that is not fit for the 21st century possibly being reallocated in a different way.

I accept that there is talk about TIF or business rate growth being able to be held at local level. However, it is fundamentally much more than this. As my noble friend Lady Janke said, it is about different approaches. Last week, the noble Lord, Lord Heseltine, spoke about the Mayor of Tokyo talking to potential international investors in his city. I am a former council leader who talked to international investors. As I said last week, they do not necessarily ask about the nameplate on your door. They want to talk about what tax incentives my area can give compared to elsewhere, rather than there being a national scheme. In the real world, those are the kind of issues being looked at.

So I ask the Minister to reconsider. This is so important; we are talking about a brand new deal for devolution and for local areas to become much stronger and authors of their own destiny. But we need some framework in the Bill. Otherwise, like the noble Lord, Lord Smith, I fear that when the Treasury gets hold of this, it will not treat it, as the Minister wishes, from a local government perspective.

[Baroness Hollis of Heigham]

My Lords, I support the comments made by my noble friend Lord Smith about the increasing frailty of the existing council tax structure to bear the responsibility we ask of it. I believe I am right in saying that, had the older rates system remained in place, the most expensive properties, compared to the median average, would be in a ratio of something like 20:1. In fact, the ratio of the top band to band D—the fulcrum point on the council tax scale—is only 3:1. That shows just how narrow the redistributive effect of council tax has become.

In the past, the Government have resisted looking at council tax revaluation, even though a full-scale revaluation went through fairly smoothly in Wales, without any great hiccups in the procedures. A few years ago, some of us did some work on this. It was clear that it would be desirable to revalue all properties—but at the very least, you could fish the top band. I was advised, by the Valuers’ Association and the Government’s valuation service that that would represent less than the valuations which happen now whenever a flat becomes a shop, a shop becomes a flat or a house is sold and is given a new valuation. So the amount of work required to allow local authorities to increase the bands above the current top band would be quite modest—I am assured of that by the district valuers who carry out this work, day in, day out, on other use changes and so on and so forth—and would allow us to stretch more fairly and produce more revenue in a way that was more reasonable.

Certainly the compression that has come from council tax bands compared to the old rate bands is probably, in my understanding, the narrowest in the OECD. In America, Australia and most of the countries in Europe, the property range of bands is far wider than we now have in the UK as a compression of council tax. As I said, we have only about three or four bands above the band D fulcrum compared to the 20:1 ratio that we used to have under the old rates system. So it is a perfectly serious proposition that this would be a fair and appropriate way to increase revenues to local authorities and to reflect local need and local ability to pay.