Local Government Finance Bill

Baroness Eaton Excerpts

Wednesday 10th October 2012 Lords Chamber

[Lord Shipley]

My Lords, I declare my interest as a vice-president of the Local Government Association. I agree with my noble friend Lord Jenkin about the share of the business rates. If the central share continues at 50%, there is a disincentive to local growth by local authorities. The series of amendments tabled by my noble friend, in favour of an escalator, would result in local growth being driven more strongly. His amendment should therefore be supported.

I will concentrate on Amendment 37A. It is an extremely important amendment, the implications of which were discussed in Committee; I had thought at that time that they would have been resolved by now. I have been a strong supporter of the concept of the big society. There is enormous value in promoting volunteerism, trusts and social enterprise. I have been encouraged by the positive approach of the Government to this. However, we have to assist and encourage volunteers and not put barriers in their way, so I am genuinely puzzled by what is still contained in this Bill when these problems were indentified in Committee. Sports and leisure trusts, as we have heard, the Association of Independent Museums and Social Enterprise UK have all pointed out that the incentives to keep such public services in-house, in local authorities, or else to privatise them, will become more pronounced as a consequence of the Bill. Discussions over the summer seem not to have solved the problem. The amendment does.

Under the Bill, there will be serious consequences for expanding trusts, for the creation of new charitable trusts and for the outsourcing of running council buildings which might be better run locally by a charitable trust structure. This is because the incentives to create trusts and mutuals will be reduced and local authorities will have less incentive to grant discretionary business rate relief.

On charities and charitable trusts, councils will be compensated for only 50% of the cost of a new or additional charitable concession on business rates. Currently, all of the mandatory cost—that is, 80% of the total business rate and 25% of the discretionary cost—has been met by central government. In future, that central contribution will drop to 50% and local authorities will have to meet the other 50%. Yet local authorities retaining services and facilities in-house will pay only 50% of the business rate cost because they will split the business rate income 50/50 with the Government. Previously, local authorities have paid 100%, all of which has gone to the national pool.

The incentive for councils to create their own trusts will be reduced. Such new trusts will have to meet additional business rate costs that keeping provision in house would not. Similarly, local authorities that outsource the operation of facilities and services to a private contractor will keep 50% of the business rate that these companies pay; previously, of course, 100% of these payments went to the national pool. There is therefore in this Bill a financial incentive to privatisation.

Trusts can involve significant transfer of buildings and facilities, and unfunded additional costs need to be avoided if more charitable trusts are to be encouraged. We really must give them the means to do the job. The solution is for the costs of mandatory and discretionary concessions to be met by the central share of the business rate revenues where there is an additional net cost to a local authority. Such a decision would remove barriers to trusts being formed.

I hope that the Minister will take on board these concerns and prevent significant additional costs arising for local authorities if they wish to transfer facilities and services to trusts. The proposal is of course revenue-neutral overall and I hope that we can secure all-party agreement to a different way of proceeding prior to Third Reading.

[Baroness Eaton]

My Lords, first, I must declare an interest as an elected member of Bradford Metropolitan District Council. Along with many Members of your Lordships’ House, I am also a vice-president of the Local Government Association. The amendment in the name of my noble friend Lord Jenkin is an extremely valuable contribution to the consideration of this Bill and I am very happy to support it. I should make it clear that I support the localisation of the business rate and congratulate Ministers on having pushed this policy through against much resistance. I campaigned for this change as chairman of the Local Government Association and I am pleased to see it becoming a reality.

However, today we are addressing a typical problem faced by a Government who are trying to get ideas from the drawing board of policy into the workshop of implementation when there are so many eager Civil Service helping hands to pass through on the journey. The amendment forces us to face up to a basic difficulty with the Government’s decision to set the central share of business rates at 50%. It is a problem we can even put a figure on thanks to the Government’s own evidence. As we have heard, we have a £10 billion problem.

My noble friend Lord Jenkin explained fully, competently and clearly the Government’s analysis of the scheme and the economic value of localising the business rate. I am sure that the Minister will explain what in this case trumps growth. But we have a few indications from the Government already about their reasons for setting the central share at 50%. For example, the Treasury is explicit that it will use the central share mechanism in order to continue to impose control over how much councils can spend, even though that spending is self-evidently funding itself without any impact on the national taxpayer or the deficit. This control has nothing to do with the Government’s deficit reduction plans, which are entirely necessary and correct. The expenditure and the local revenue balance out without any impact on borrowing. As I see it, it is control of the amount of spending for control’s sake alone.

With such a large central share the opportunities will be legion over coming years for the Treasury to try to share responsibility for programmes which are currently funded by the Exchequer into the ambit of the central share, to which the noble Lord, Lord McKenzie, has already referred. That would go beyond mere control into a zone where local ratepayers are being asked to shoulder burdens that previously would have been funded by national taxes. Perhaps I am being cynical but I feel that this would give me great concern.

The local share escalator proposed by my noble friend Lord Jenkin is a very elegant solution to resolving this problem over time. It would recall the Government to their localist and growth-focused principles, and bring the Bill closer to its advertised purpose. I am very happy to support it.

[Lord Smith of Leigh]

My Lords, I have a couple of amendments in my name and one which I share. Before I turn to them, I should like to comment on the significant amendment moved by the noble Lord, Lord Jenkin of Roding. I agree with much but perhaps not quite all of what he said. He is right about what it reveals about the Government’s attitude to localism, which is schizophrenic at best. In some ways they push very much on to local authorities and at other times they want to put controls in. I think that this is one on which the Treasury is not willing to trust and give up control entirely to the local authority. He is absolutely right that there should be, as I am sure there is, a consensus in this House about the need to achieve economic growth. We come from every different angle. I look at the level of youth unemployment in my area and of unemployment generally and, clearly, I want to achieve growth. My own local authority is working together with colleague authorities in Greater Manchester—perhaps I should have said that I am chair of the Association of Greater Manchester Authorities, too. We put a lot of effort and resources into trying to achieve growth. At a time when local funds are being squeezed, this is discretionary spending; it is not something that we have to do as local authorities, but we do it because we believe that it is important.