Cities and Local Government Devolution Bill [HL]
Debate between Lord Smith of Leigh and Lord McKenzie of Luton
Lord Smith of Leigh (Lab)
My Lords, I rise somewhat reluctantly to participate in this debate. I declare my interest as leader of Wigan Council and a member of the Greater Manchester Combined Authority—so maybe I have a little experience there. I am also a vice-president of the LGA, and perhaps my contribution will show that, whatever party they are from, vice-presidents of the LGA do not always agree with each other. I have been a councillor only since 1978, so I am a mere stripling compared with some people here, and I do not intend to go back over my version of local authority history. However, the noble Lord, Lord Heseltine, was right—there has been increased centralisation for a number of reasons. Partly, it was to do with mistrust of local councils. The irony is that, having given the pass to Whitehall, has Whitehall done any better? The answer is no—and in many cases, it has done a lot worse.
In facing the current austerity, there is more innovation going on in local government than in any other part of the public service. We actually have to deal with the problem on a day-to-day basis, and we are not doing it by simply slicing bits off as we might have done in the past. We are thinking radically about what we need to do and how we do it, and how we engage with the community. It is good.
In Wigan, there is a Labour council. Whatever I have done over the past five years, I have done it from my own perspective. I have always done something in Wigan that has, quite frankly, reflected my political values. I think that we get that difference in local authorities.
Electoral participation has gone down in local government, but my goodness it has gone down in national government, too. It is a real problem for the country that we do not get people to think that what we do as politicians is important.
In my experience of trying to get devolution from Governments of different colours, what is on offer now is the only thing that has been real. In the past, we got sympathy in Greater Manchester from Ministers but, frankly, they did not have the determination to get it through departments. Now we have a Government who are actually beginning to break that down and who are offering us some devolution.
The combined authority, which the last Labour Government set up—and a lot of us are trying to say this—is a new way of working. It is not working as in the past but working in a new manner. I think that the Minister will say that in Greater Manchester different parties sat down together to work in a consensual manner for the good of the conurbation. At one stage, when I was chairman, we had five Labour and five opposition members, but we worked together through that issue. As the electoral cycle has swung in other areas the balance is now eight to two, but we have not changed the style in which we work. I have still not had a vote as chairman of the combined authority, and if I did have one I would think of it as a failure.
It is about the leadership provided by leaders, who need to think how they can make an area more economically viable—because that is the objective. In Greater Manchester we have the twin aims of growth—clearly, everyone has that aim—but also reform of public services.
In Greater Manchester, over the last summer and into the autumn we had a long debate about how we saw the future of our governance. We came to the conclusion that the system that we had was not working properly, and we needed someone separate from the leaders—and we have 10 leaders in Greater Manchester. There is a view that Manchester is one city with nine outriggers, but Bolton would not regard itself as a suburb of Manchester and neither would Wigan. In fact, parts of where I come from, in Leigh, do not regard themselves as part of Wigan. With all those obstacles to overcome, we do it in a different way. It is not as though Manchester was some wonderful, single city where we can all work together. We do work together, but we need someone who is going to be independent of local authorities who can help to get it through, with more powers and responsibility, and be an executive for Greater Manchester rather than someone representing a district.
In the autumn, we met the Chancellor, who offered us a deal, with significant devolution—a bit more than we thought we were going to get; although we knew that we were going to get quite a lot, we got slightly more in some areas. There was a price—it was a deal—and the price to pay was to have the elected mayor. My noble friend Lord Grocott will be pleased to know that I am not the greatest fan of the elected mayoral model but, quite frankly, the prize was worth it—it was worth getting more powers and devolution to be able to influence the lives of ordinary people in Greater Manchester and not have all the decisions made by Governments and civil servants who live in Surrey, and so on. We wanted that change; we wanted it to happen.
And it is not one size fits all. The model that we are going to work in greater Manchester will be different from the elected mayor model in London. The elected mayor in Greater Manchester will be subject to the wishes of the combined authority and will not be superior in lots of ways. That is important. It is not one size fits all; it is what you want to make it. We want to make it a model for governance that can deliver significant change for Greater Manchester.
Lord McKenzie of Luton (Lab)
My Lords, it falls to me to give the Opposition’s official position on this amendment. I hope that in doing so I do not disappoint too many of my noble friends. Overall, we are not able to accept this amendment as it stands. There are a number of issues to raise, but there is the prospect of recasting the amendment by the time we get to Report so that we may well be able to accept it.
Subsection (1) of the new clause proposed in Amendment 3 must be subject to further consideration of the report by the Delegated Powers Committee which has crossed over this issue because it focuses on orders and delegated powers and talks about whether that broad order-making power is appropriate. Subsection (2) suggests that any order or a proposal must start with the combined authority and then go to the Secretary of State. My understanding is—my noble friend may be able to confirm this—that this is an iterative process. In any event, if that unwittingly stopped additional powers going to a combined authority after it had been set up simply because they were initiated by the Secretary of State, that would be a backwards step.
On democratic accountability, I am not sure from what the noble Lord, Lord Shipley, said whether this is an integral part of the elected assembly. We have a debate coming on the elected assembly in due course, and I will hold my comments generally until then, but I will make the point that if we were to accept the amendments’ proposition of an elected assembly, which I would oppose, we would end up with a situation in which we would have first-past-the-post elections for members of the combined authority, a supplementary vote system for the elected mayor and STV for assembly members. That seems unnecessarily convoluted.
We see circumstances where an elected mayor might be entirely appropriate, but we do not believe elected mayors should be prescriptive and mandatory. We think it should be for local areas to make their own judgments. That is the thrust of the amendment which will be our next business, but I shall deal with it now rather than have a repeat of this debate. The amendment I proposed to move was to make clear that there must not be an inevitable linkage between having the full benefit of the devolution provisions of the Bill and the acceptance by a combined authority of an elected mayor. It is accepted that devolution deals entered into ultimately involve an agreement, and if an elected mayor is included, it could be said that it is with consent. However, if there are circumstances where that is a clear red line for the Government—it was clearly so in the case of Greater Manchester, as my noble friend Lord Smith outlined—our amendment was seeking to address and negate that proposition. It is difficult to implement at the margins because there is an iterative discussion going on. I shall take this opportunity to be clear where the Government stand on this, but before doing so, I should make it clear that strong visible leadership is essential to the success of devolution. That leadership could well come in the form of an elected mayor, and combined authorities should have the opportunity to choose that course if they think it is right for them, but they should not be forced to have an elected mayor if they consider that an alternative leader model suits their circumstances. This view is consistent with the recommendation of the noble Lord, Lord Heseltine, in his No Stone Unturned report.
Local Audit and Accountability Bill [HL]
Debate between Lord Smith of Leigh and Lord McKenzie of Luton
Lord McKenzie of Luton
My Lords, at the start of our proceedings, for the record I should declare that I am a member of the Institute of Chartered Accountants in England and Wales, although I am not sure it is an interest.
In moving Amendment 1, I shall speak also to Amendment 13. Amendment 1 focuses on the desirability of retaining capacity for national or central procurement of auditor appointments in future, in addition to the arrangements for smaller authorities. The amendment requires the actual arrangements to be in place, but not necessarily activated before the Audit Commission is abolished. We have tabled a further amendment, which we can debate on Wednesday, which is a more enabling and flexible approach, adapting the proposition in the Bill for smaller authorities. As we are in Grand Committee, we will, obviously, not be voting on these amendments, but they give us the opportunity for a serious debate on one of the central issues arising from this Bill.
By the time the key provisions of this Bill come into force, it is to be expected that all of the audit contracts for principal local bodies will be undertaken by private sector firms under arrangements entered into with the Audit Commission. This will comprise some 800 principal authorities, including local authorities, NHS bodies, police authorities, national parks authorities, et cetera. Perhaps the Minister might arrange for us to have a comprehensive list at some stage. These arrangements run through and cover audits for periods to March 2017. The contracts—I believe that there are 10 of them—can be extended through to periods to March 2020 at the discretion of CLG, but decisions to extend would effectively have to be taken by the beginning of the year 2016-17 if an EU-compliant procurement process is to be undertaken. If these contracts are not extended under the Bill, the local public bodies would go their own way and make their separate appointments, although there is flexibility for authorities to jointly procure, together with other bodies.
It seems very clear that procuring centrally on this basis is driven by significant savings in audit fees; 40% is the quoted figure, which I understand is accepted by the Government. These benefits can be extended should contracts be extended. This is a very substantial saving to local government, in particular at a time when budgets are under the severest pressure and likely to remain so as a result of the spending review.
Noble Lords will have seen the outcome of some modelling undertaken by the Audit Commission for the LGA, which looked at six potential procurement options ranging from local choice to central procurement. It summarised the outcome in its briefing to us; indeed, that briefing showed that of the six choices, from local choice through to central procurement, the central procurement was clearly the least-cost option. The conclusion reached was that central procurement could save the public purse some £200 million over five years.
We should not overlook the fact that along with central procurement comes the management of the contracts and, in particular, the arrangements concerning auditors selling other services to their audit clients. Perhaps the Minister will tell us what safeguards will be in place when local appointments hold sway. How will it be assured that such practices will not impede independence requirements? We hear that appointment of local auditors is part of the localism agenda and that local bodies should be able to choose auditors who better suit their needs. However, this seems largely to overlook the fact that audit is, quite properly, a heavily regulated activity. Who can act, supervision of the firms, a code of audit practice and the accounting requirements are, and will continue to be, set nationally. Those matters are not, by and large, optional, nor should they be. What will happen to audit fees when there is local procurement depends on a number of factors and will be made more complicated by the fact that local procurement is invariably a few years distant.
We can see the Government’s perspective on this at paragraph 103 of the impact assessment. It states:
“While local bodies may not realise the whole of this saving”—
that is, the 40% achieved on outsourcing and central procurement—
“when they procure their auditors themselves, there should be plenty of scope to negotiate fees well below … the 2009/10 [levels]”.
That means that the Government think that audit fees will rise as a result of local procurement.
Clearly, much depends on how the audit market develops over the next few years. The outsourcing by the commission did not do much to widen participation levels in the local authority and health sectors. The outsourcing of the in-house commission practice went to only seven firms—most to the big four plus Grant Thornton. Research shows that market concentration in audit services leads to higher audit fees. There is a credible argument that individual procurement would act against market concentration but the major providers in the market are large, economically powerful entities with resources to invest to tackle new opportunities. One of the risks is that the larger authorities will fare well in this because they will be more attractive clients to the big firms. Smaller authorities will in practice have less choice, may be junior partners in joint appointments, or may miss out on the services of the larger firms or be unable to afford them.
The market will be affected by developments in the EU and, quite possibly, by the deliberations of the UK competition authorities to which the big four have been referred. Procurement could be more costly. Given that those principal bodies are likely to award contracts for five years, it is estimated that more than 90% of them will have to follow EU procurement rules, and EU thresholds will apply to the total value of the contract awarded. For audit work this is €130,000. Pricing will be affected by other factors, especially as the commission will no longer be providing cover for limitation of auditor liability.
The Government will doubtless say that authorities can group together, as indeed they can, but there is no clear framework to support this. Indeed, there is no explanation, for example, of what happens if there is joint provision but a conflict develops between one of the authorities and the firm involved.
It is clear that there is great uncertainty about how the local procurement plans will work out, and that is why it must make sense to retain the option to undertake central procurement should the Government’s assessment be unduly optimistic. We have not been prescriptive about how that capacity might be provided—there are clearly a number of options—but it would be imprudent not to keep the opportunity in reserve.
Amendment 13 is a very narrow amendment. Clause 4 sets out the general requirements for audit and yet refers to the accounts of a relevant authority and the imperative for them to be audited in accordance with the provisions of the Bill. The clause requires the auditor to have been appointed by the particular authority in question. However, if the auditor for the relevant authority has been appointed by the Audit Commission under a contract which may not expire until 2017 or even 2020, these provisions would not seem to apply. I wonder whether that is the intention. The new regulatory regime is due to commence, as I understand it, in 2015-16. What will be the situation if there is a joint appointment or a framework agreement is operated? How can that requirement be met? I beg to move.
Lord Smith of Leigh
My Lords, I first declare my interest. I am leader of Wigan Council and the chairman of the Greater Manchester Combined Authority—which I notice is covered in Schedule 2. I am also a vice-president of the LGA. I apologise to noble Lords for missing the Second Reading. Unfortunately it clashed with the annual meeting of my council. As I am the executive leader of the council and had to choose which meeting to go to, I think that I probably made the right choice.
I want to speak in support of my colleague Lord McKenzie of Luton and particularly to expand on what he rather dismissively described as his Amendment 13, which removes those three little words. What puzzles me is that the Government are—I believe rightly—encouraging a lot of joint working with local authorities to deliver lots of services, in many cases allowing joint appointments for senior officers, particularly for smaller authorities. As we know, in many cases it is a financial necessity to do this. As we have discovered in Greater Manchester, which is working on the community budgets pilot, joint working is essential if we are to deliver the Government’s agenda of reforming public services. We are working with 10 authorities in Greater Manchester. The three boroughs in London and so on are also good examples of places working very closely together. However, if joint work is going on, where is the audit taking place? The sensible thing would be to have a joint audit—to have someone who can audit all of the activity in a simple and straightforward way.
Given my noble friend’s knowledge of the accountancy profession he addressed the power of large audit firms and the way in which that might operate unfairly in the market. One way of reducing that power would be to allow local authorities to procure jointly. That would give them greater power in the market, enable them to get larger contracts and—one hopes, with the economies of scale—help them to get reductions in fees. I think that Amendment 13 is important and I hope the Minister responds to it.
Growth and Infrastructure Bill
Debate between Lord Smith of Leigh and Lord McKenzie of Luton
Lord McKenzie of Luton
My Lords, I added my name to this amendment, which, as the noble Earl, Lord Lytton, says, mirrors that moved by my honourable friend Nick Raynsford in another place. Like the noble Earl, I am grateful to those who have briefed us on this matter, particularly Gerald Eve, who has given us some compelling data.
As the noble Earl has explained, the amendment would prevent the postponement of the business rate revaluation scheduled for 2015 until the Government have produced detailed, up-to-date estimates of those likely to pay more and those likely to pay less, depending on whether the revaluation is deferred for two years and, crucially, until there has been a proper consultation with those likely to be affected. Requiring proper analysis and consultation is hardly revolutionary. It is the very least that should be expected if such a significant step as postponing a revaluation is to be taken.
This is a hotchpotch of a Bill, but Clause 25 sits particularly oddly with the rest of its provisions. The lack of prior consultation points to a last-minute decision that by all accounts does not generate unanimity within the ranks of the coalition Government. Our suspicions about this are reinforced by the fact that no mention was made of a possible postponement when we were discussing the Local Government Finance Bill just a few months ago. This is strange, given that we spent some time discussing the VOA and its role in the business rate retention scheme, prompted, as I recall, by the noble Earl, Lord Lytton. Concerns were expressed about its capacity to cope, especially with the backlog of appeals from two prior revaluations, although they were brushed aside by the Minister.
Notwithstanding that, the impact assessment now states that postponement will,
“allow the Valuation Office Agency to focus more resources upon continuing to improve the valuation process and supporting local authorities with the rates retention system”.
In replying, perhaps the Minister will give us a clear update on the capacity of the VOA and the resources available to it, or we might be tempted to revert more directly to this matter when we reach Report.
We should be clear that the purpose of rating revaluations is to achieve fairness in the business rate system by ensuring that rateable values are based on up-to-date rental values. Given that aggregate business rates are kept whole in real terms, revaluation would redistribute resources to those areas and sectors that have fared relatively badly since the last revaluation from those that have fared relatively better. Clearly, the extent to which this fairness is maintained depends on how frequently rateable values are updated. Since 1990, this has been every five years, a period that is seen as the maximum interval between revaluations.
The noble Earl, Lord Lytton, referred to the Michael Lyons report, which suggested that more frequent revaluations are justified, particularly during the economic turbulence and downturn that we have experienced since 2008. If the Government are to change the frequency of revaluations, especially to lengthen it, there is surely an obligation on them to provide a robust rationale for the change from the practice that has been maintained since 1990 free of political interference. This, I suggest, has not been done.
The Government are overwhelmingly basing their case on the VOA estimates of winners and losers should the revaluation proceed—supposedly, 800,000 facing a real-terms tax increase and only some 300,000 facing a fall. However, as the VOA makes clear—and the noble Earl has touched on this point—these are “high level” estimates, not forecasts, they are based on limited rental data, and neither the rental data nor judgments have been subjected to moderation and validation. Moreover, even on the VOA data given, experts have questioned whether the data can be used to justify the figures used by the Government. This has been set out in the briefings we have received, which have specifically drawn attention to the 528,000 hereditaments classified as “other”—not retail, office or industrial—which have been assumed to be the subject of an increase in rates, where some would clearly fall into the category of those that will benefit from a reduction.
The Government’s analysis is at best crude. It does not seek to address the likely level of increases and decreases, and their distribution; nor is there any consideration of what the likely position might be two years hence. The overwhelming suspicion is that this is a political decision taken to avoid a revaluation operating in 2015, at the time of the general election. It is accepted that revaluations bring a degree of turbulence, but transitional relief has hitherto dampened the effects. If the Government are to refute this challenge, they can do what this amendment asks—produce a proper analysis and then consult with those affected.
One clear consequence of postponement will be that those areas and sectors which have done comparatively poorly since 2008 will be denied for an extra two years the reduction in tax they might have expected. Those that have performed comparatively well will have a postponement of the increase in tax. Of course, a reduction in rental values and rateable values will not necessarily generate a reduction in business rates because the tax rate—the multiplier—will rise to keep the aggregate business rates steady. However, if rental values have fallen across England by 14%, those areas and sectors which have done worse than this are the likely losers from the postponement. The issue cannot be seen just in terms of regions or cities, but information provided by the Investment Property Databank highlights that, between March 2008 and September 2012, rentals have fallen in Leeds by 31%, Nottingham by 27%, Bristol by 25%, Sheffield by 21%, Liverpool by 21%, Manchester by 19% and Newcastle by 18%. In terms of the sectors, although retail has held up in some areas, the situation in many high streets is grim. As the noble Earl, Lord Lytton, said, five out of six of the Portas pilot areas have seen rental falls greater than 14%, and news of major retail closures are all too familiar.
For those who are struggling and who had an expectation of some moderation in their business rates, the decision to postpone will prolong the agony. While “no change” may be good news for some, the undermining of a system for political ends is not conducive to building business confidence. This amendment asks for a proper analysis so the Government can justify the decision they are seeking to impose.
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.
Local Government Finance Bill
Debate between Lord Smith of Leigh and Lord McKenzie of Luton
Lord Smith of Leigh
My Lords, my view of the political process these days is somewhat prejudiced because I watch “The Thick of It”. I can understand the meeting taking place in the Department for Communities and Local Government with government advisers and civil servants when the idea was mooted for changing the council tax benefit, saving £500 million as a contribution towards deficit reduction but at the same time raising money through changes to the council tax scheme by technical adjustments which would actually fund it. In previous times, that might have been called a stealth tax, but we do not use those words any more.
That might seem superficially attractive, but the major flaw, as my noble friend Lord McKenzie of Luton said earlier, is a misunderstanding of geography. It works very differently in different parts of the country. As we said earlier, the capacity of local authorities to raise money through technical changes depends on a number of factors, including the number of second homes. I made the point that Wigan is not seen as a place in which people live in second homes, and we understand that we might raise £20,000 from that source. I suspect that in the London Borough of Kensington and Chelsea, which the noble Baroness used to run, a single house might raise that. So we are limited in the amount that we can afford.
Secondly, there is a mismatch with the need for council tax benefit support. Those authorities with the least capacity to raise it probably have the greatest liability to pay out council tax support. In Wigan, 25% of our households are on some form of council tax support at the moment, and 65% of those are on full benefits. That is because we have a large number of people on low incomes as well as a large number of pensioners.
The Institute for Fiscal Studies, in its report on the cuts which my noble friend Lord Beecham mentioned, showed that the geographic distribution is not fair. Places such as Wigan, Newcastle and many others have the triple effect of having difficulty raising funding through the council tax adjustment, the need for expenditure on council tax support and the biggest level of cuts to implement.
Last week, when we were debating business rates, I noted with interest that the noble Baroness stressed the importance of equalisation to provide fairness in the distribution of business rates. The amendment is there to say: if it is right to do it for business rates, to ensure that there is a fair playing field for local authorities, we should do it also for the amount of money that can be raised through council tax administrative changes. Then we would have a level playing field and would not need to fritter away £100 million in a strange manner; it could simply be applied and the system would be fair. I beg to move.
Lord McKenzie of Luton
My Lords, my noble friend Lord Smith raises an interesting point in his amendment. There are two bits to it. One is the extent to which local authorities have the capacity to raise revenue under the new freedoms that they get under the Bill; and the second is how that should be dealt with under the revenue support grant as an equalisation process. One difficulty with this in the longer term is that, as I understand it, we do not know whether we will have revenue support grant on an ongoing basis. That is tied up with the issue of the central share, how it is to be used and what redistributive mechanism there will be. Obviously, the greater the local share, the smaller the central share. The more that the central share is used in Section 31-type grants or their equivalent, the less capacity there is in the system to equalise—to do what my noble friend rightly says should be done.
I am not sure what the resources component of the current revenue support grant in the three-part calculation is, or the extent to which that would pick up those issues. It certainly should if it does not. This is an imaginative and appropriate amendment and I look forward to hearing the Minister’s response.
Local Government Finance Bill
Debate between Lord Smith of Leigh and Lord McKenzie of Luton
Lord Smith of Leigh
Before the noble Baroness sits down, perhaps I can clarify what I said. I was using cumulative figures of inflation to show the impact on different items. We heard from the noble Lord, Lord True, and the Minister that the problem was that council tax benefit doubled under the previous Government, and, in a financial sense, it did. However, underlying those figures is the fact that the number of claimants did not rise; it fell between 1997 and 2002 and then began to rise, reflecting the changes in the economy, as one would expect. If we look again at the figures for the difference in council tax—if we smooth out the increase in council tax—there was a decrease in payment on council tax benefit, not an increase, so the problem is not council tax benefit, it is council tax.
Lord McKenzie of Luton
My Lords, I am grateful to all noble Lords who have spoken in the debate on the amendment. I am particularly grateful to my noble friend Lord Smith for his interjection on some of the data.
As for procedure at Third Reading, I was not suggesting that we would necessarily consider bringing back this amendment at Third Reading. I was referring to some of our other amendments—on issues such as tapers and vulnerable people, for example—which are affected by a greater understanding of the transitional funding that has just been announced. From the briefing session that we had on Monday we very much took it that there would be some flexibility because of the timing of the announcement. If the noble Baroness is saying that that is not the position then we will have to take account of that as we proceed later today.
Lord Smith of Leigh
My Lords, I think I should make a contribution on this as well. I declare my interest as a vice-president of the LGA and, in view of the remarks made by the noble Lord, Lord Best, about the discussion he had with the chairman, I should say that I am also the vice-chairman of SIGOMA.
As I said in the debate on the previous amendment, I am having to make some very practical decisions on this matter, and I still think that it ill behoves Members opposite to say that Members on this side are not interested in poverty issues, when they voted Not Content on the previous amendment. Putting that to one side, I found the contributions really interesting. It has been confession time. One noble Lord confessed to being the author of the poll tax and another to being the author of the council tax. Had we time, I am sure that we could debate those issues to a great extent.
However, I agreed with the noble Lord, Lord Jenkin, when he said that one issue about what is being proposed here is that local authorities are going to have the agonies of collection that we had under the poll tax. In fact, before coming down this morning, I spoke to the North West Legal Consortium, which is a group of local authority lawyers. I said I was coming down to your Lordships’ House to participate in this Bill and I assured them that while one outcome may well be that it creates more poverty, it will also create more work for lawyers.
We are getting round to the fact, as I said earlier, that this is actually the poll tax mark 2. We are now in a situation where we are going to take money from the poorest, and to collect it will be very expensive. Local authorities will have that dilemma of whether and how to collect very small sums, when the cost of collection will outweigh the amount of money they will get. But we will have to make those decisions.
I would not have thought that an adjustment in the single person discount would be something that I would be able to support, except in the most exceptional circumstances. I have to tell your Lordships that these are those most exceptional circumstances. This is not a panacea by any means. In Wigan, the shortfall in the council tax support scheme is about £4 million. About a third of households receive the single person discount, just under 50,000 properties, and they get the benefit of about £10.4 million. In my area, a band D property is regarded as something that is not a poor household, but it obviously depends on where you live. The vast majority are in bands A and B, which are poor properties. If I was to try to raise the £4 million simply out of the single person discount, I would be reducing the single person discount by a very significant amount, which would be far more than I could do. So it is not a panacea to the problems that authorities like my own face.
However, and this is probably where I part company with some on my own side, we have already got our hands tied behind our backs because we cannot do anything about pensioner discounts, and we are now having them further tied behind our backs in the sense that we are not allowed to look at flexibilities in other areas. I am having to make really tough decisions about the working poor. Some of the decisions that I might make, such as reducing the single person discount, would not have as great an impact on the poor people of the borough and I would like the flexibility to do so.
As the noble Earl, Lord Lytton, said, there is an interesting contradiction here, where, on the one hand, the Government want to support a single person discount, which allows people to be rattling around in properties that are perhaps too big for their actual needs but, on the other hand, we have agreed to a system where if you are on housing benefit you have to pay bedroom tax. If you want the privilege of that, you actually pay more for living in a property that is deemed too big for you, and here we are giving people money to support them doing that. That seems to be a lack of coherence in policy.
We should trust local authorities. If we believe in localism, local authorities should be trusted to implement the scheme in a way that best meets the needs of all the people in their area. I would not want to reduce the single person discount by a significant amount, but it would help me make more palatable some of the cuts that I shall have to make in council tax benefit.
Lord McKenzie of Luton
My Lords, we have heard from the noble Lord, Lord Best, an authoritative case. As ever, he approaches the issue from the point of view of protecting the poorest in our society. I guess that that makes my task slightly more difficult than it otherwise would have been, because, to be clear, we are not convinced that the proposition is the best solution to the problem that local authorities face. I can understand—my noble friend Lord Smith has just emphasised the point—that local authorities, desperate for some source of funding, could see it as a ready means of getting that, but, as my noble friend Lady Sherlock and the noble Lord, Lord True, said, to change the structure of a tax system just for that reason without a broader approach and analysis is not the right thing to do.
We are concerned that the wording of the amendment does not exclude pensioners. It gives local authorities the discretion to exclude pensioners but does not of itself exclude them. It does not exclude a reduction in the single person discount which is greater than 5%; it would be up to local authorities to do that.
We broadly accept, on the basis of numbers that we have seen and the LGA analysis in particular, which picks up some of the IFS data, that the proposition would in comparison to what is in the Bill produce a generally better redistribution outcome, particularly for poor people. However, if you look at that outcome in the context of the debate that we have just had and the adverse decision that we now face, you see that it is not so favourable. I have not seen from the data that have come across my desk how the proposition works at individual authority level. I concede that, when you look at things in aggregate, you have a less regressive, or perhaps a more positive, redistribution, but what is the impact down at individual authority level? If an authority has lots of second homes and is very rich, it is more likely than a poorer authority to be in a position where it does not have to change the single person discount. In terms of redistribution, that is going in the wrong direction. I accept that the proposition would result in a redistribution that is better than is in the Bill, but it is not as good as we can get and where we should leave it.
The noble Lord, Lord Palmer, charged that we want poor people to suffer. If I may say so, that is a disgraceful thing to say. If he were to look at the record of this side of the Chamber, the propositions that we have advanced, what we have voted for and what we have voted against, I hope that he would see that that is not true. We have just tried to stand up for poor people more positively and more strongly than the noble Lord is seeking to do now. The noble Lord, Lord Tope, said that it was quite inexplicable that we could not put our name to the amendment and engage in the wording. We find it quite inexplicable that the Lib Dems, who have in many ways a proud tradition of liberal thinking and action, should allow the Government to put in place a system that leads to the problem that we are trying to ameliorate with the amendment. That is the fundamental problem that we face. As the noble Lord said, we know that the Government are not going to move on the single person discount. We seemingly know that the Government are not going to move on the 10% cut, so where do we go? This amendment seeks one route to break that logjam; we have tried another which would have a better outcome. That is why we have some concerns with this approach. I accept the strong intent behind it and I accept that there are circumstances where it could lead to a better outcome because the pain is being spread over more people, but that pain would still be spread to some who are fairly low down the income scale, which is not the right thing to do.
I agree with the noble Lord, Lord Jenkin, about collection issues, as I think does pretty much every noble Lord who has addressed this issue. That will be a real problem with the system that we face. Dealing with the single person discount might change that a bit at the margins, but it, and certainly the transitional funding, do not change the problem fundamentally—arguably, they make it worse, because authorities are encouraged to reduce council tax benefit by 8.5% rather than 20% or 30%. They therefore have a smaller sum to collect with at least the same, and arguably greater, costs because of the problems with collection. That is the real issue which I hope will cause the Government to wake up and say that we should deal with this differently.
It is a pity that we did not pursue the issue of a report on the tax base, a theme returned to by the noble Earl, Lord Lytton, and how it would operate in practice, because it would have served us well in due course. The noble Lord, Lord Shipley, talked about child poverty. I simply make the point again: if the noble Lord and his colleagues are seriously concerned about child poverty in our country, they will know that there have been plenty of opportunities during the past couple of years for them to stand up and address that issue in a far more positive way than just supporting this amendment would do. The Lib Dems need to think strategically about where they are going on this rather than pick at something which I accept is very well intentioned and would ameliorate the problem to a certain extent but which in the wider scheme of things is just a sticking plaster on the problem when we need to address the problem itself. We cannot alone cause the Government to change their mind. We and the Lib Dems, with help from Cross- Benchers, arguably could, so that ball is in the noble Lord’s court.
I always hesitate to disagree with the noble Lord, Lord Best, because my colleagues and I have been shoulder to shoulder with him on many important issues where we have challenged and overturned the Government’s wishes even if they have subsequently been pushed back to us. I know that he raises this issue with the best intent, but there are some technical problems, if none other, with his approach which mean that this amendment cannot be supported. It is with some regret that I say that.
Local Government Finance Bill
Debate between Lord Smith of Leigh and Lord McKenzie of Luton
Lord McKenzie of Luton
My Lords, this amendment requires the undertaking of an independent review of the business rate retention system within three years of its introduction. It specifically requires a recommendation about whether there should be a resetting of the system. We have later amendments—Amendments 79 and 81—that propose additional and alternative approaches to resetting. We recognise that the changes introduced by the business rate retention scheme represent a major change to the system used for the funding of local government, and it is, in part, a step into the unknown. The changes are being introduced at the same time as the localisation of council tax benefit, together with a cut in its funding, and so far as the overall resources for local government are concerned, the change is taking place against the backdrop of a sharp reduction in the overall local government spending control total, given a further twist in July’s proposition that government should hold back substantial funds to pay for the new homes bonus capitalisation and the safety net, not to mention the early intervention grant scheme.
There is a fundamental switch in method. Under the current system, the formula grant largely determines the extent of shares of government funding for local authorities and, while accepting that it is somewhat opaque, it has the considerable merit of reflecting local needs and resources in the allocation of grant. In the new world, the revenue support grant will play a diminishing role with the retention of 50% of the business rates being the driver of resources. Of course, not all local authorities have an equal ability to grow the business rate base. Areas such as Luton, which is highly developed with tightly drawn boundaries and significant unmet housing need, simply do not have the land available for the continuous development of additional business. It is accepted that the Government are seeking to rebalance resources at the outset of the scheme through the system of tariffs and top-ups, essentially comparing business rates collected with formula grant allocations. However, once set, it is proposed that tariffs and top-ups will not be changed or reset, other than uprated by RPI, until 2020 at the earliest.
The review which this amendment would introduce could cause an earlier reset than 2020, but would not inevitably lead to one. In that sense, it is more modest than Amendment 81, which would actually require a reset every three years to coincide with each spending review period. The Government argue that the longer the period between resets, the greater the certainty in the system and the greater the incentive. All other things being equal, there is of course some merit in this argument. It begs the question of how much incentive there is in the system in any event, given the complexity of its diverse components, and whether that incentive presents itself to all local authorities equally. Conversely, the argument for an earlier and shorter period between resets in part expresses the concern that the setting of the tariffs and the top-ups in the first place may not be fair to all authorities. Each authority’s starting point under the new system will be based on what their share of the overall funding available for 2013-14 and 2014-15 would have been under the current formula grant system but, of course, the formula has been flexed, for example, to increase allowances for sparse areas. We know that the LGA has expressed strong reservations about how the proportionate shares of business rates are determined, another key component of the calculation.
However, even if we accept for the purposes of debate that, at the start of the system, the Government have achieved their objective of no local authority being worse off as a result of its business rate base at the outset, and that there are adequate protections to ensure that all authorities can maintain services for local people—an assertion we reject—why would it follow that this position can be maintained by just uprating the tariffs and top-ups by RPI until a reset? The proposition would seem to take no account of changes to the data which feed the formula in the first place, population movements being but one. It is of course possible that the manner in which the central share is to be deployed will counter any negative redistributive effects of the system, but we have only silence on this issue beyond the first two years. I am not optimistic about that.
Faced with the prospect of limited opportunities for raising extra revenue from council tax, a further freeze, a 2% threshold on referendum provisions, increasing restrictions overall on local government expenditure control totals, the central share of business rates being increasingly deployed otherwise than through formula grant and therefore, inevitably, on the basis of needs, poorer local authorities will only be able to look to their top-up, which is fixed in real terms, and any growth that they can muster in their business rates to meet their expenditure needs. For some, the retention of a share of the business rate growth will be fine, but for those who do not have the same opportunity, due not to ambition or leadership, but perhaps just the geography of an area, and those who also have a higher percentage of their spend currently met from grants—the more highly geared councils—the problem will be compounded.
We know that draconian cuts are already making it near impossible for many councils to deliver adequate services. The growing demand for some of those services, adult social care in particular, will make matters worse.
I stress that the amendment also requires the review to look at the issue and the extent to which the business rate retention scheme is actually incentivising growth. There are concerns that the level of the local share, at 50%, is too low, and that the overall scheme, as I said, is far too complex to produce a real incentive.
Under the Government’s proposal that there should not be a reset until at least 2020, these challenges could be left unaddressed for at least seven years. This, I suggest, is far too long. We should at least be taking stock after three years of the system so that, if necessary, it can be recalibrated. It will doubtless be argued that the Secretary of State has the ongoing power to do this anyway. I accept that there is the technical power, but some independent review of how it is working should be a necessary safeguard. This is all we seek by this amendment. I beg to move.
Lord Smith of Leigh
My Lords, again I support my noble friend’s amendment. This Bill is a huge gamble. It is the most radical shake-up of local government finance since the poll tax. Noble Lords may think that if there had been a review of the poll tax, we would not have had the riots and the other problems which led to getting rid of it. My noble friend identified two fundamental issues. First, will the proposal enable the system to be fair? Will top-ups and tariffs work fairly for all authorities—those paying the tariffs as well as those which might be in need of top-ups? We need to know that. Secondly, will it be flexible enough to meet adjustments in the system when the pressures are bound to rise?
As my noble friend has said, this proposal is being introduced at a time of extreme turbulence in the world of local government. We have the reductions in public spending, which are bearing heavily on local authorities. The timing is not brilliant for that. We also are in a period of economic uncertainty. In Committee, the noble Earl, Lord Attlee, mentioned that local authorities should try to encourage business in their areas. Perhaps I may remind the House that that is what most local authorities have been trying to do for many years but under current circumstances it is very difficult.
Over the summer, noble Lords probably heard about the problems of JJB Sports plc, which is located in my authority, Wigan. It was once very profitable and employed a large number of people across the country. The head office and its staff were in my authority but clearly it will not be an employer for very much longer.
Again in Committee, I mentioned that the impact is not just on the private sector where fundamental changes are going on. In Greater Manchester, we have learnt of a review of the provision of acute hospital places. That will almost certainly lead to the closure of two, if not three, district general hospitals. District general hospitals are not only big employers in local areas but, through their ownership of land and property, they are major contributors to business rates.
Therefore, things can change by government policy. If we wait until 2020 for this review, there could be some significant shifts. An independent review is called for. The Government have put down some noble objectives behind the Bill. Let them see whether those objectives are being met and not run away from them.
Local Government Finance Bill
Debate between Lord Smith of Leigh and Lord McKenzie of Luton(12 years, 4 months ago)
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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?