Business Rates (North-East)

Lord Stunell Excerpts

Tuesday 25th October 2011 Westminster Hall

[The Parliamentary Under-Secretary of State for Communities and Local Government (Andrew Stunell)]

It is a pleasure to serve under your chairmanship, Mr Amess. I congratulate the hon. Member for Sunderland Central (Julie Elliott) on securing the debate. I think that this is the second time that she and I have found ourselves discussing matters of importance to the north-east in this Chamber. The proposed reforms are important, not just for local authorities in the north-east but, as some Members have noted, for areas throughout the country. There are implications beyond the north-east.

I thought that there was general agreement and consensus that this country has the most centralised and complex local government finance system in the world, with the possible exception of Malta, which has a much simpler governance structure in any case. In all my time in local government—I served on three different local authorities in the north-west of England—I never liked the decisions of any Government on local government finance. I have seen a series of disastrous mistakes, resulting in more power and responsibility being taken away from local authorities and their being subjected to choices—sometimes arbitrary and, clearly on many occasions, not taking account of local services—made in Westminster and Whitehall.

[Mr Iain Wright]

Will the Minister give way?

--- Later in debate ---

[Andrew Stunell]

I will give way to the hon. Gentleman, who is a former Communities and Local Government Minister and one of those who has delivered so many arbitrary decisions to people like me.

[Mr Wright]

I am grateful to the Minister, who is my successor at the Department for Communities and Local Government. Does he think that, with tariffs, top-ups, resets and redistribution, the system that he has to implement will be less complex than the current system?

[Andrew Stunell]

Yes, most certainly. It will be transparent. I think that the hon. Gentleman, for whom I have a great deal of respect, knows that the formula system, which was made even more convoluted during his period in office, has clearly passed its sell-by date. It is impenetrable, even to chief finance officers of local authorities, not to mention voters on the street.

In the time remaining, I will explain some of our proposed scheme’s features and talk about the consultation process. The aim of the proposals is to change the dynamic from a centrally controlled system to a locally controlled system. That is the purpose of the reform.

[Alex Cunningham]

The Government do not let local authorities set the business rate and they dictate the council tax through freezing, so where is this great accountability and devolution of power to our elected councillors when it comes to finance?

[Andrew Stunell]

I do not want to go too far astray, but I point out to the hon. Gentleman that the referendum proposal in the Localism Bill, which will change who is accountable to the local electorate for excessive council tax rises, is a huge transfer of control from Whitehall to local communities over the council tax income-raising power of councils. The transfer of business rate distribution from a formula determined by central Government to one that gives local councils a real incentive to build their own income base is a fundamental change in both of the aspects that have been mentioned. I am sure that the hon. Gentleman, like me, would like to go much further than that, but let us be clear: these are significant steps.

The consultation was published on 18 July and was backed up by the publication of eight technical papers on 19 August. They included an interactive, electronic paper that allows councils to feed in different parameters of the consultation so that they can establish what the outcome would be for their local authority. I can only suppose that local finance officers in the constituencies of certain Members who have spoken during the debate have not shared that information with them, because there is a clear gap between the worst possible case constructed by that interactive model and the worst case presented in this debate.

I want to make it clear that the baseline will be based on the formula grant that would have been received by a local authority had there been no reform of the system, and that it will be neither better nor worse than that. We made that clear in the consultation. That baseline will not get lost in the future, so local authorities in the north-east will have it as their fixed point for the future. Once we get beyond the period of the comprehensive spending review, growth beyond that baseline will be theirs to have.

[Mrs Hodgson]

The Minister is short of time, so I am grateful to him for allowing me to intervene. Will he clarify whether Sunderland will not be worse off by £60 million, but that we will retain our current funding level, upon which we can grow?

[Andrew Stunell]

That is exactly what I said and it was clear in the consultation document from the very beginning. I am sure that the former Minister, the hon. Member for Hartlepool (Mr Wright), had his tongue in his cheek when he said that he thought that Hartlepool faced a drop of £13 million. That is not the case. If the figure for Hartlepool is £40 million—which is the figure that he quoted—that is the baseline from which all further development for Hartlepool will be taken.

[Helen Jones]

The Minister is being generous in taking interventions. Will he confirm that the only promise from the Government is that local authorities will not lose out in the first year that the scheme comes into operation? There is no guarantee after that first year.

[Andrew Stunell]

The hon. Lady misunderstands what the Government have said. The baseline is fixed permanently in the system. The losses and gains come from changes in the business rate income that an authority might receive. I point out to Members who represent constituencies in the north-east that, over the five years from 2006, the total business rate income in England rose by 5% per year—not 5% overall, but per year—and by 5.1% in the north-east. In other words, the rise in business rates in the north-east during that five-year period was greater than that in England as a whole. Furthermore, a rise of 5% per year is significantly higher than RPI, CPI or, indeed, any rise in formula grant that any of those authorities gained. This is not a zero-sum reform. Beyond the CSR period, there is every prospect that the north-east will do well out of this system of having an increasing flow of business rates.

A number of points have been made about whether or not this is an incentivising system. If, during that five-year period, the north-east was able to secure an annual rise of 5.1% in its business rate income without any incentive, it seems to me that, even if the incentive effect turns out to be quite weak, it is likely to be better than that, than RPI and than the increase in formula grant, which the previous Government, in their munificence, decided was appropriate for north-east authorities. It is important that we nail some of the misunderstandings that have arisen.

My hon. Friend the Member for Redcar (Ian Swales) made the point that the regional growth fund is active and effective. Fourteen companies in the north-east have had support, and that will provide more than 5,200 direct jobs and 8,300 indirect jobs.

The Chief Secretary to the Treasury has announced a £500 million growing places fund for infrastructure in England, for which local authorities in the north-east will be eligible. I am sure that the hon. Member for Tynemouth (Mr Campbell) will make sure that his local authority makes a suitable proposal to deal with the roundabout on the A19 that he mentioned.

The consultation is still—

[Mr David Amess (in the Chair)]

Order. It is time for the next debate.