Growth and Infrastructure Bill
Debate between Lord Smith of Leigh and Baroness Hanham
Lord Smith of Leigh
My Lords, I rise to speak to the question of whether the clause should stand part of the Bill and will try, at this time of night, to avoid repeating some of the comments made by the noble Earl, Lord Lytton, and my noble friend Lord McKenzie of Luton. The significance of this clause is that it breaks the consensual approach to business rating that has been in place since the Local Government Finance Act 1988. Here we are, on the eve of the revaluation which would have taken place later this year, being asked to delay it. The process of revaluation seems to have been clearly explained in The Council Tax and Non-Domestic Rating (Demand Notices) (England) (Amendment) Regulations, which the Government issued in 2012 and which say:
“All rateable values are reassessed every five years at a general revaluation. The current rating list is based on the 2010 revaluation. Five-yearly revaluations make sure each ratepayer pays their fair contribution and no more, by ensuring that the share of the national rates bill paid by any one ratepayer reflects changes over time in the value of their property relative to others”.
That seems a very clear statement of intent. Now the Government are delaying that process so, despite what they said only earlier last year about a commitment to fair share, that commitment has, presumably, been broken.
Noble Lords mentioned the Government’s case about volatility, but volatility has always occurred whenever we have had a rating revaluation and we can cope with that. The data we have from the Valuation Office Agency are pretty sketchy. I will not repeat the comment about the rather suspicious addition of the 500,000 others who make the balance of the case. Before that the balance was that there were more winners than losers. The various revaluations that we have seen—I got a briefing from Colliers International—show that in all parts of the country rateable values in the retail sector seem to have fallen by at least 19%. For the individual centres they looked at, well over 80% had shown considerable falls, with a third of them over 25%. By contrast, the West End had shown an increase of 26%. These figures come from what Colliers calls its midsummer review, which happened last year. If the Government go ahead with this delay, the retail sector might well refer to this as a midsummer murder.
Both the noble Earl and my noble friend mentioned the Lyons review, which is the most recent authoritative report on local government finance. To further my noble friend’s point, I quote directly from Lyons about more frequent revaluation:
“This would make the tax more responsive to the actual state of the property market and could have economic advantages by reducing the burden of taxation on businesses in economic downturns”.
Goodness me—we are in an economic downturn. Lyons has suggested what should happen, but the Government have taken the opposite conclusion to this evidence. We need to understand why this has happened.
Both noble Lords mentioned the Portas review so I will not go into that again. One briefing I read also said that a further unintended consequence of the review could be its impact on property prices over the next couple of years. In areas of decline, this will put further downward pressure on prices so that property values fall much further than they might have if the review had taken place. In areas where property prices have risen, the effect may be the opposite—property prices would rise to soak up the impact of the lack of change. By the time we get to the proposed revaluation two years hence, the amount of turbulence will be significantly higher than it would have been if we had gone ahead with it now. Therefore, it is going to take a Government some degree of courage in 2015 to go ahead with that review if we are going to implement it. As noble Lords have said, this is a really important step. The Government need to give us a lot more information, if they have it, about how they can justify doing this, or we will need to come back to this on Report.
Baroness Hanham
My Lords, I am rather surprised by the amendment and the tone with which it has been introduced by noble Lords. The reasons for introducing the postponements were quite clear; we are in the middle of one of the most difficult economic situations we have ever had and businesses are suffering from that as well. Therefore, what we can do to help is not to make major changes at this time. I remind noble Lords that the Michael Lyons review was carried out under the previous Government, who decided not to implement any of it, so I do not think we need Michael Lyons quoted to us at the moment.
As noble Lords have said, Clause 25 postpones the 2015 revaluation of business rates. The clause amends some of the most important parts of the business rates legislation so it may be useful if I say a bit about those provisions first.
Local Government Finance Bill
Debate between Lord Smith of Leigh and Baroness Hanham
Baroness Hanham
My Lords, I shall start by answering the noble Lord, Lord Smith of Leigh, with regard to reserves. We have discussed this issue before and we have all accepted that local authorities need to have, and must have, reserves. The amendment is almost exactly the same as the one the noble Lord laid on a previous occasion and would make it explicit that local authorities are entitled to hold reserves to deal with any shortfalls.
I entirely agree that it is sensible for local authorities to consider what reserves they are going to budget for. We acknowledge that reserves can help local authorities to respond to unexpected and exceptional circumstances. Local authorities can build-up reserves for particular aspects and they can act as a support for budgets. However, individual authorities are already free to determine the level and use of reserves as part of their own overall financial risk management. It is a matter for individual authorities to consider taking into account their local priorities. 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. For that reason, I do not think that the amendment is necessary.
With regard to Amendment 106A, that would require the auditor to agree the level of reserves. As I explained when the previous amendment was tabled in Committee, that would not be appropriate because the auditor is meant to be independent and therefore should not give advice on reserves, although he can comment if he thinks they are not appropriate. Sometimes auditors ask what is going to be done with the reserves, but they do not direct how much should be held in order to help cover expenditure. I hope it is clear that there is nothing against reserves. From time to time it might be suggested that if they were too large, they could be used for something the local authority had not thought of, but that is good financial management anyway. I hope that the noble Lord will be able to accept that as the final answer. I have said the same thing twice, and I hope that it is sufficient.
Amendments 107C and 108 would both require the Government to provide additional funding in certain circumstances to support local authorities to deliver council tax reductions, and indeed the noble Baroness, Lady Hollis, drew attention to the situation where there might be a big change in circumstances as regards the amount of money being held by a local authority. Central government are not going to leap in and help out in those situations. The funding for council tax support is going to be formed as part of the baseline funding under the new local government finance systems, and as noble Lords know, that will not be changed until the reset. However, we recognise that there will be fluctuations in the demand for council tax support, and primarily we will be looking to billing authorities to work with their major precepting authorities to agree an approach to such management risks.
As noble Lords will be aware, mechanisms are in place to share the effects of a reduction in council tax collection rates between billing and major precepting authorities, and that will be the same for financial pressures that result from increases in demand for support so that it can be shared. We are also 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. It will be a partnership between the billing authorities and local authorities if the sort of pressure that is anticipated—it will not happen everywhere—comes to pass.
The noble Lord, Lord Shipley, asked about the data that have to be collected. Our expectation is that data requirements on local authorities will be very small and significantly less than those in relation to council tax benefit, which is the one where council tax support is coming from. We are working with local authorities to establish what data on the value of reductions offered under the scheme will be collected for both pensioner and working-age people, and we also want to make use of the information collected in the Family Resources Survey to support future policy evaluation. We do not expect too much data to be required.
In relation to the publication of statistics, the Department for Work and Pensions has conducted a consultation on proposals to cease publication of the annual Income Related Benefits: Estimates of Take-up. The consultation closed on 4 October, and a response will be published in due course. No doubt the noble Baroness knows about it. If she does not, she should ask me and I will make sure that she gets to see it. There were a number of options in the consultation paper. The DWP is not going to cease any data collection, just the calculation of estimated take-up rates—which was the point made by the noble Lord, Lord Beecham—and the data source is and will continue to be available, so it will be possible to do the calculations later.
Noble Lords asked about pressures on budgets. I hope that I have answered that. On the question of promotion, it will be up to local councils to make sure that they get people coming for council tax support. The noble Lord, Lord Beecham, is correct that one of the things we understood to be holding people back from applying for benefits was the name, so “council tax support” will we hope make them more interested in doing it. Once again, local authorities will have to manage their budgets in order to deal with that.
I hope that with those explanations, the noble Lord will be willing to withdraw his amendment.
Lord Smith of Leigh
My Lords, I thank the Minister for her response. I am not sure that I take it as an assurance that she recognises that we need to hold more balances now as a result of the Bill that we are currently enacting. She might not carve her name in history like her predecessor Lord Bellwin, but until we get the “Hanham reserves” to support this, I will accept what she has said.
I thank the noble Lords who supported me on Amendment 107B: the noble Lord, Lord Shipley, and my noble friend Lady Hollis, who raised the issue of the economic shock and the impact that could have on council tax benefit. I remind noble Lords that that will have an impact the other way as well because it will probably affect the business rate collection, so local authorities will be squeezed in both having to pay out more council tax benefit and receiving less business support.
I sincerely regret that the Government have now confirmed that the real value of any contribution they make to the council tax support scheme is going to fall significantly over time. None of us really understands what that will be, it depends on the changes that happen over a period of time, but we need to say before we start that it will bring instability into the system. I regret that, but I beg leave to withdraw Amendment 106A.
Local Government Finance Bill
Debate between Lord Smith of Leigh and Baroness Hanham
Lord Smith of Leigh
I do not intend to delay your Lordships too long on this amendment but I was intrigued by the subsection in the Bill which reads:
“A payment by the Secretary of State to a relevant authority under sub-paragraph (2) must be made—
(a) in instalments of such amounts, and
(b) at such times in the year to which the local government finance report relates,
as the Secretary of State determines with the Treasury’s consent”.
If the process is that flexible, all the money could be paid out on 31 March in any financial year. The amendment probes what the Government intend to do in terms of the payment. I am sure that the Minister is concerned about the Government’s cash flow but I am concerned about that of local authorities as well.
Baroness Hanham
My Lords, I shall try to do better on this one. This amendment concerns the timing of top-up payments from the Secretary of State to local authorities. Top-ups will be paid to those authorities which at the start of the system receive less in business rates than their funding level. They will be set out in the draft local government finance report.
Our objective is to put in place a system of payments which is easy to administer and fair to local government. Currently, local authorities pay their business rates to the Government in 24 fortnightly instalments. That is a system which has worked well and is understood by local government and it may be that the same system of instalments would work well under rates retention. But if local government believes there are better options then we will, of course, consider them. That is why the summer 2012 technical consultation invited views from local government on how many instalments we should have under the new system.
We will continue to listen on how best to set up the payments system and study carefully the responses to the consultation. The Bill gives us the flexibility to adopt different payment and instalment arrangements in response to those discussions with local government whereas the noble Lord’s amendment would constrain us to two payments for the top-up. I do not think that that would support our dialogue with local government on this point but I hope I have given the noble Lord some assurances that the instalment arrangements we will put in place will reflect the views of local government. I invite him to withdraw the amendment.
Baroness Hanham
The answer on regulations is yes. What comes out of the consultation will either be in the regulations or, if we can make it available, we will. Is that helpful? That probably sets the scene for us on this amendment.
We have always been clear that the levy and the safety net were as one. The reason for the levy is to provide money for the safety net. They cannot be separated. The reason for the levy relates to disproportionate growth, in that people have more than they should have in terms of equalisation and that money will go to the safety net. The safety net is to deal with a sudden collapse of a business or something mega happening that leaves the local authority without finance or as much finance as it needs.
In considering the safety net, we thought that it should not be so generous that authorities cease to care about whether their business rates grow or decline. We want the system to provide an incentive to authorities, first, to maintain and then to grow their business rates. Secondly, the safety net cannot be so lacking in generosity that vital local services are put at risk when authorities see, even temporarily, a decline in the business rates, particularly as this can be for reasons entirely outside the authority’s control—we recognise that—for example, because of losses on appeal. We have discussed what happens on appeal. That can be supported by the safety net. Thirdly, wherever the safety net is set, we need to keep an eye on the scale of the levy that would be needed to fund it. A safety net that requires a very stringent levy might work for the safety net, but if it means that authorities keep next to nothing of any growth that they generate, it will have failed the overall scheme.
I will not pretend that this is an easy judgment about what to do. It is not. It is one that, initially at least, we believe is met by setting the safety net threshold, as I have just explained, somewhere between 7.5% and 10% below baseline funding level; in other words, guaranteeing authorities somewhere between 90% and 92.5% of the funding that they could expect to see from the rates retention scheme. We will want to keep this under review and possibly adjust these percentages in the light of the actual operation of the scheme and certainly as a result of the consultation. Building fixed percentages into the Bill would effectively deny us the opportunity to respond to the concerns of local government, in future, if the percentages turn out to be either too high or too low.
I am not sure that I understand the problems that Amendment 50 seeks to address, and I am not persuaded that the concerns that underpin it are justified. It is undoubtedly true that a major redevelopment to, say, a town centre, could cause a temporary loss of income before the potential benefits of the scheme come to fruition. But if such a loss were significant, it would be covered by the safety net, which, as I explained earlier, would guarantee the authority between 90% and 92.5% of its baseline funding. To create, therefore, a special class of events—redevelopment—where an authority could be guaranteed to secure more than 90% to 92.5% of its funding, as this amendment would effectively do, seems to be wrong in principle. Why just redevelopment and why not other things? I am sure that other authorities could make a case for other one-off events which might, they would claim, be equally deserving of special treatment. Moreover, by providing indemnity for the early-years loss of income, we might end up with the law of unintended consequences and find ourselves simply indemnifying delay in bringing schemes to fruition, with all parties safe in the knowledge that no cost will fall to them. Where there is a redevelopment, obviously there is an initial loss of money, but the expectation is that as redevelopment takes place, the rating potential will come back in. I hope that explanation will satisfy the noble Lord and he will withdraw his amendment.
Lord Smith of Leigh
I was pleased that the Minister said that we would have, by regulation, an opportunity to debate this. It is important that we have a consultation so that we can consider it. She made the important point—with which I certainly agree—that many of these changes are outside the local authority’s control. Obviously we would like to produce growth but we cannot always do it.
The Minister said that when the process was up and running there would be some kind of review. I will just check that we will not have to wait until 2020 for it. I hope that when the safety net process has been in operation for a year or so it will be reviewed separately from the system as a whole.
Baroness Hanham
My Lords, I am told that the answer to that point is yes; there will be a separate review just of the safety net and the levy.
Local Government Finance Bill
Debate between Lord Smith of Leigh and Baroness Hanham(12 years, 4 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Hanham
I return to the fact that unfortunately I did not hear, and do not know, what the Secretary of State was referring to. Of course, reserves are part of local government finance and part of control systems in local government. I should like to make some further inquiries about how that interlinks, if it does, with what we are talking about—the business rate retention scheme—so that I do not mislead the Committee. I know that the provision and use of reserves—and sometimes councils have large reserves—could potentially be used to help to ease the current financial situation. I shall not say anything more about that because I do not know what was said but I shall come back to it.
I was also asked about the police authority, and again I apologise for not picking that up. As I understand it, and I shall write if I am incorrect, the police authority will make the precept because it will be in place until November. It would be pretty unreasonable to ask a new police commissioner to come in to sort that out in the short time available. Therefore, what he or she inherits from the police authority will be what goes forward for the first year. After that, the police commissioner will set his or her own precept. I am not being prodded from behind and being told that that is incorrect but I will let noble Lords know if it is not correct.
Lord Smith of Leigh
I am sorry to intervene again, but that contradicts what I was told on Friday. Because of the problems of timing, the police commissioners would want to set the budget for the year from 1 April. In fact, I have just written a letter to the Home Office to ask whether we can do something about that because it makes timing very difficult.
Baroness Hanham
If there is a disagreement on that then I must make sure that we know the answer. I have given the answer that I think is correct.
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 Smith of Leigh
My Lords, that was a very interesting grouping of amendments, which received a wide range of contributions. I congratulate the Minister on the scope of her responses. She gave a full and helpful answer on the first amendment that I moved, Amendment 9. I will obviously read what she said in Hansard, and if necessary come back. She was definitely trying to be helpful in understanding it. However, she did not really respond to Amendment 17. She noted at the time that she was not sure whether there would be continuity, but perhaps she would like to write to me on that one.
I thought that the debate was really interesting, because it got some way to the fundamental parts of the Bill. The contributions of the noble Lords, Lord Jenkin of Roding and Lord Greaves, seemed to be a contradiction. We all want the Bill to achieve growth in local areas for the country. However, to use a Lancashire expression, I say to the noble Lord, Lord Greaves, that 50% of nowt is nowt and 100% of nowt is nowt. Therefore, it is not really going to help in those areas where there is no growth.