Local Government Finance Bill

Lord True Excerpts

Wednesday 10th October 2012 Lords Chamber

[Lord Palmer of Childs Hill]

My Lords, I take a contrary view, as this amendment would add uncertainty to a situation that is already too uncertain. I believe that local authorities and the businesses to which the noble Earl referred want certainty most of all. They want to know what the rates are and roughly what local authorities will be able to retain. There will be a problem with valuations and the changes experienced by businesses. The noble Earl considered how the measure would affect businesses, but we are talking about the local retention of business rates by the local authority and how that affects that local authority’s expenditure. With respect, I suggest that the measure’s effect on businesses will be a problem whatever system we have: the current one or another. As the noble Earl rightly said, many accountants, surveyors and the like will look for ways to avoid paying taxes for all the right reasons, whatever the system. Therefore, this amendment would do no more than add further confusion and uncertainty to an already uncertain situation.

[Lord True]

My Lords, I take a similar position to that of my noble friend who has just spoken but I have a different perspective. I declare an interest as leader of a London local authority—the worst-funded local authority—which will be a tariff authority under the system put forward. One might therefore conclude that I would look forward to a review of these matters. In the unlikely and unfortunate event that the party opposite finds itself back in power, I take this amendment as a pledge that it will conduct a review.

I spoke at some length in Committee on the philosophy of these questions so I do not intend to detain your Lordships on the same issues now. My authority calculates on the basis of the information that has been provided so far. Through my noble friend the Minister I thank officials for their courtesy in contacting my officers. My authority currently expects to be about 17% adrift of our business rate target. We have absolutely no prospect whatever of growing business rates to get out of that hole, which is a continuation of a historic hole in which my authority has sat for a long time. That ought to lead me to say, “Yes, let’s have this review”, but, actually, that would be a rather mechanistic approach. I am not happy at all, as I made clear in Committee. Nor am I happy with the idea that there should be no reset before 2020. That position is absolutely unsustainable and there has to be a system whereby these matters are reviewed before then. I would like them to be looked at before 2013, as the amendment suggests. However, I thought that I heard my noble friend say in Committee that, although she would not be prepared to entertain an overall, general reconsideration of the system, there would be some kind of ongoing consideration of problems and issues as they arose, and there would not always be a flint-hearted, Treasury-style response, although there would be many such responses to questions that might arise.

I agree with the noble Lord, Lord McKenzie, that we need to know more, and I am grateful for the assurances from my noble friend that we will hear more. My feeling is that if we park this away and do not have a review until 2013, everyone will say, “Oh well, there will be a review one day”, and nothing will happen. We need an ongoing dialogue, and I shall listen carefully to what my noble friend says in response. I hope she will indicate that there will be flexibility and a continuing readiness to listen, not only before 2013 but after, and that she will agree that 2020 is not the date before which no move will be made.

[Lord Tope]

My Lords, my noble friend referred several times to a review in 2013. While I am sure that he would like to have a review in 2013—would not we all?—I suspect that he might have meant 2016, which is the intention of the amendment. A review in 2013 is not a practical possibility, even if it were desirable.

My noble friend also said—and I rather agree with him—that the amendment from the Labour Benches is possibly the first firm election pledge that we have heard from the party opposite. I must say that I took it in a slightly different way. Although we will certainly have a new Government, of whatever composition, by 2016, this amendment seems to be an expression of doubt that the party opposite will be in a position to have a review even if it wants one. I am not quite as confident as my noble friend Lord True regarding the Labour Party’s intentions here.

My noble friends on this side have made the point that a review may very well be desirable, and of course there are a lot of uncertainties in introducing something as far-reaching as this—of course there must be, they are unavoidable. The review would also come in uncertain times, to say the least. However, I very much doubt whether we need to have in the Bill a binding commitment to a review in 2016. As my noble friend said, it would introduce yet another uncertainty. People would say, “The review is going to come. What will it say? Shall we try and hang on for another year or two?”. A review may very well be desirable at some point. It may happen in 2016, before that or afterwards. If the Government of the day, whoever they are, were able to carry out a review at such a time, in such circumstances and with such terms of reference as they chose, I would caution against having it as a legislative requirement in an Act of Parliament, three years in advance.

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[Lord Tope]

My Lords, I intended that my name should also be added to the amendments tabled by the noble Lord, Lord Jenkin. Due to some mishap, that did not happen, but the noble Lord knows that and that I support the amendments that he has moved so ably. He and my noble friend Lady Eaton and others have said much that needs to be said and, perhaps unusually in this Chamber, I do not intend to repeat it all.

I would like to add a little context to remind noble Lords of the situation here. Ever since the business rate was nationalised some 20 years ago, successive opposition parties pledged themselves to denationalise or localise it, and it has not happened. At last the coalition Government announced that they were going to localise business rates, and I think it is fair to say that that met with a general if cautious welcome across the whole of local government. It was something that all parties in local government had long wanted and argued for, and at last it was going to happen. As it became clearer and clearer exactly what was going to happen and what the intentions were, the wisdom of a cautious welcome became clearer and clearer. It was not quite as good as it was thought to be. And then the announcement came that, at least in the first year, the set-aside would be as much as 50%. For most that came as a shock rather than just an unwelcome surprise. That is the context in which we approach the amendments today.

Local government on all sides is understandably suspicious and doubtful not of the Government’s good intentions but of their fulfilment, and that the 50% rate may remain for ever. Therefore, the amendments that the noble Lord, Lord Jenkin, has proposed are a very good way, although it might not be perfect, to introduce some certainty into what I am sure is the Government’s intention: that it should not remain at 50% but should escalate so that one day we reach that dream world where 100% is retained by the local authority, when it will be a real incentive. I hope that the Government will consider very carefully the amendments and most particularly the intentions behind them.

I want to say a few words from personal experience in support of the amendment proposed by the noble Baroness, Lady Thornton. I was very interested to listen to the noble Lord, Lord Smith, talk about the Wigan Leisure and Culture Trust. In common with many local authorities, my own has considered, for perhaps a little too long, a similar sort of culture trust for the services for which I had executive responsibility right up to May. It is therefore no surprise that I am still involved with this area. We are a little way yet from a decision on it—there are inevitably many pros and cons with these things, and things to be considered—but one key aspect is the question of the NNDR. I could almost go so far as to say that that is a deal breaker or a deal maker. It makes a critical difference to the finances of this operation. Therefore, I support this amendment very strongly and what has been said by the noble Baroness, my noble friend Lord Shipley and the noble Lord, Lord Smith of Leigh. Indeed, I want to know more about the Wigan trust.

I hope that if what we have been discussing is an unintended consequence—I want to believe that it is—active consideration is being given to what to do about it. As I said, I have a personal interest in the sense that this issue is very live with my own local authority. I know that it is equally live with a lot of other local authorities. We need to know, particularly at this budget time, what the position will be by next April.

[Lord True]

My Lords, I wish to follow that point and add my support to the principle of the amendment put forward by the noble Baroness, which I am afraid I saw only when I came down to collect the relevant papers before coming to the Chamber. From what she has said I understand that there is continuing dialogue on the issue. I may be reading wrongly paragraph (b) of the noble Baroness’s amendment, which states, “arising between resets”, but it appears to generalise beyond the specific issue raised of mandatory and discretionary rate relief. I am not sure whether that is the case but it is something that we would have to discuss. However, I endorse everything that has been said by the noble Lords, Lord Smith and Lord Tope, and others. I discussed this issue with two other London council leaders only yesterday.

One of the principles of wishing to promote social enterprise and trust approaches is to support the principle of local involvement, localism and local understanding. If a perverse disincentive is being created quite by accident to offload institutions to far more remote bodies or else to keep the matter in-house, that would be a great pity. In the case of mandatory rate relief, I do not know how it will evolve, but if we are to have an increasing number of charitably run academies and other institutions, these are issues over which local authorities have no control whatever under existing legislation.

I hope that the noble Baroness will not press the amendment at this stage, although I do not think that is her intention. I hope that my noble friend will listen to the points that have been raised, and to which I add my voice, as this Government have a proud record in supporting localism, social enterprise and charitable activity. I do not think that anyone, certainly not in my noble friend’s department and I would hope not in others, would wish unintentionally to cause any disadvantage. Therefore, from these Benches I add my voice in support of these amendments in principle.

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[Lord McKenzie of Luton]

My Lords, I think that I can be brief because this follows on from the debate that we have just had. Amendment 16 seeks to enshrine in primary legislation that the local share must never be less than 50% of the business rates aggregate. Therefore, it is entirely consistent with Amendment 13, to which the noble Lord, Lord Jenkin, spoke a moment ago.

In Grand Committee on 3 July, the noble Baroness, Lady Hanham, declared in response to an extensive debate about central and local shares that,

“it would be imprudent to presume that there might never be a time when we might need to increase the central share”.—[Official Report, 3/7/12; col. GC 327.]

The import of that was, I think, to increase it beyond 50%. We have just had a good debate about how the business rates should be shared and about the strong desire, which we support, for the local share to be higher than 50%. Perhaps I may say to the noble Lord, Lord Jenkin, that my reticence about the formulation was not necessarily due to the mechanistic approach; it was a question of whether you can just change the central and local shares without having to address all the other ramifications and components of the system. That arises in respect of another amendment in the name of the noble Lord. I would not assert that that is the case but there is an issue there that needs to be resolved.

Of course, the difficulty in setting an increasing share, by a ratchet mechanism or otherwise, is that the shares cannot be seen in isolation. They have to be considered together with all the other components of the business rate retention scheme—the tariffs and top-ups, the levy and safety net. There is also the important question of how the central share is to be deployed. The system has to seek to promote an incentive for growth as well as ensure that local authorities have adequate resources to carry out their functions. However, it clearly also, from the government perspective, provides a mechanism to control local government expenditure, and we have seen the latest devices for taking yet further resources from local government.

The Government are controlling expenditure next year at a level above the local share by using all the projected central share—and more—in revenue support grant. However, all the indications for the future are that the revenue support grant will reduce or disappear, so the Government cannot use that mechanism to control expenditure. Their reach in this respect cannot go beyond the central share. Therefore, the prospect of increasing the central share and reducing the local share implies particularly draconian expenditure controls on local government, perhaps even if there were dramatic growth in the business rates over the period.

Therefore, the amendment does not mandate increasing local shares, although there is a strong argument for that, which we would support; it simply prevents the local share reducing beyond what the Government see as a fair starting point, and we believe that that ought to be locked into the legislation. I beg to move.

[Lord True]

My Lords, I do not know whether my noble friend intends to support this but I think that if she did it would be very odd. We have just heard from her a clear statement of the direction of travel in which the Government wish to go. She sees 50% as the minimum and we are going further. Given the state of the economy that we have inherited and still have—and there has been agreement across the House on many things during the course of the Bill—limiting, in effect, the discretion of any Government in the future in this way in respect of local government finance would probably not be, if I may borrow the word, a prudent step. Therefore, if the party opposite presses this amendment, I certainly hope that my noble friends will not be gulled into that Division Lobby.

[Baroness Hollis of Heigham]

In that case, what does localism mean if its revenues are available for raiding by central government when it chooses?

[Lord True]

My Lords, I have made a general statement of principle about public finance. I do not think that anyone who has heard my contributions to debates on this or other Bills relating to localism would doubt that I am very strongly committed to it. I would like the direction of travel to be as my noble friend has indicated. I am simply saying that ring-fencing local authority provision for ever in this manner does not seem an appropriate way to tie the hands of any future Chancellor from whatever party.

[Lord Tope]

My Lords, that intervention reminds me that almost exactly a year ago we had quite a long debate in your Lordships’ House about what localism is. My noble friend Lord Greaves and I tried to set down, at some length, what we think localism means and it rapidly became clear that localism means what you want it to mean. In the ensuing 12 months, it has become increasingly clear that localism means what you want it to mean. Increasing pronouncements from central government—from my Government—demonstrate that point.

I am sure that there is no one involved with this Bill and no one in local government who does not agree with the view expressed in this amendment. In that, I include the Minister, who will speak for herself. I am sure she cannot say that but I am equally sure that she agrees with the views expressed. I even dare to go so far as to say that I suspect that the Secretary of State would agree with the view expressed. However, we all have to recognise the reality that no Minister in any Government will accept this amendment. The Treasury would simply never let them. That is a hard reality of life and one that I personally regret very much. Before today, the Minister has gone a considerable way, and I hope she will in a few minutes’ time, when she replies, make it very clear to us that the genuine intention of the Government is that it should not and will not go below 50%. I was not at the Local Government Association conference—I am one of the few people here who is not a vice-president—but I read that the Secretary of State, Mr Pickles, was urging delegates there to continue campaigning for a higher share than 50%. Perhaps that was just a populist appeal at the time but I like to think that that was the sentiment.

I think we all share the view expressed in the amendment. If we are honest, I think most of us realistically understand that no government Minister, of whatever party or coalition, would be able to accept that amendment. I am grateful to the noble Lord, Lord McKenzie, for moving the amendment and allowing us to press the point even further. I think the point is well and truly made and accepted. When the time comes, I hope that he will feel able to withdraw the amendment.