Baroness Hanham
Main Page: Baroness Hanham (Conservative - Life peer)Local Government Finance Bill
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Baroness Hanham
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)
My Lords, in moving Amendment 31, I shall speak also to Amendments 14, 16, 17, 18, 28, 29, 30, 37, 38 and 50, which, taken together, ensure that the Bill provides for the appropriate assurance of calculations and information supplied under the business rate retention scheme.
Currently the Bill provides for the audit of calculations and information supplied under the scheme, and it should have referred to certification, so that the Government and the major precepting authorities have the assurance that they need about calculations and information supplied by the billing authorities and on which the payments to central government and precepting authorities will be based. This will then mirror what already happens under the current arrangements.
Amendment 50 removes an amendment to the Audit Commission Act 1998 that would have required the Audit Commission to have made the arrangements, if requested, for the certification of calculations and information supplied in respect of the new business rate retention scheme. However, with the proposed winding up of the Audit Commission as set out in the draft Audit Bill published in July, we need to provide for alternative certification arrangements. These amendments, along with the provisions in the Bill, will provide the necessary framework for the appropriate assurance of calculations and information for the new scheme.
With this explanation, I ask noble Lords to accept these amendments.
Lord McKenzie of Luton
My Lords, I thank the Minister for her explanation of the amendments, but could she say a little more about what is perceived as the difference between a process that leads to a certification and that which is subject to an audit? Is it the nature of the judgment that is different, or is it what is being given assurance on that is different? What are we actually changing here and what is its outcome? I am not making an issue of it, but it would be helpful to have a bit more information as to why this change is being undertaken.
Baroness Hanham
I think that an audit is carried out by an independent, external auditor and certification can be done by internal people just certifying that something is correct. I think that that is the difference. It is the difference between having something externally verified and signed off and having something done internally and signed off.
Lord McKenzie of Luton
That is helpful. If we are saying that it is the status of the person who is making the judgment that is being changed here, I can understand that. It is whether the judgment being undertaken is of a different nature, given that it is not an audit but a certification, that I was unsure about.
Baroness Hanham
It is not intended to be. That is why the amendments are quick and simple, slipping in the relevant words. I shall read the document that I have. I think that that will help the noble Lord enormously. We anticipate that the certification arrangements will be provided through a tripartite agreement. Under this approach the Secretary of State through regulations and directions will define the assurance requirements and produce certification instructions. At the end of the financial year the local authority will make the arrangements for the assurance to be provided, most likely by the auditor who audits the local authority’s accounts in line with the certification instructions. Therefore, I was half right and half wrong, if I am generous to myself.
Lord McKenzie of Luton
I thank the noble Baroness. I think that she has half helped me but we shall look at the record and come back in due course if necessary.
Baroness Hanham
Lord Smith of Leigh
I do not intend to delay your Lordships too long on this amendment but I was intrigued by the subsection in the Bill which reads:
“A payment by the Secretary of State to a relevant authority under sub-paragraph (2) must be made—
(a) in instalments of such amounts, and
(b) at such times in the year to which the local government finance report relates,
as the Secretary of State determines with the Treasury’s consent”.
If the process is that flexible, all the money could be paid out on 31 March in any financial year. The amendment probes what the Government intend to do in terms of the payment. I am sure that the Minister is concerned about the Government’s cash flow but I am concerned about that of local authorities as well.
Baroness Hanham
My Lords, I shall try to do better on this one. This amendment concerns the timing of top-up payments from the Secretary of State to local authorities. Top-ups will be paid to those authorities which at the start of the system receive less in business rates than their funding level. They will be set out in the draft local government finance report.
Our objective is to put in place a system of payments which is easy to administer and fair to local government. Currently, local authorities pay their business rates to the Government in 24 fortnightly instalments. That is a system which has worked well and is understood by local government and it may be that the same system of instalments would work well under rates retention. But if local government believes there are better options then we will, of course, consider them. That is why the summer 2012 technical consultation invited views from local government on how many instalments we should have under the new system.
We will continue to listen on how best to set up the payments system and study carefully the responses to the consultation. The Bill gives us the flexibility to adopt different payment and instalment arrangements in response to those discussions with local government whereas the noble Lord’s amendment would constrain us to two payments for the top-up. I do not think that that would support our dialogue with local government on this point but I hope I have given the noble Lord some assurances that the instalment arrangements we will put in place will reflect the views of local government. I invite him to withdraw the amendment.
Baroness Hanham
Baroness Hanham
My Lords, I congratulate the noble Lord on his coolness under fire. I heard most of what he said and I hope that other Members in the Chamber did as well.
Perhaps I may deal, first, with the consultation—which the noble Lord asked me about—because I think that it is most relevant to what I am going to say next. We have been consulting on the threshold over the summer. That consultation has only just ended. There have been 400 responses and so before we make an announcement on the level of percentage reduction, we need to look at those. That will happen later. At the moment, we are still sitting between 7.5% and 10%.
Lord Beecham
I thank the Minister for that. What will be the process? Will the safety net limit be prescribed by regulations so that we would then have an opportunity to debate it? Presumably the results of the consultation will be available for us to consider at that time, if not before.
Baroness Hanham
The answer on regulations is yes. What comes out of the consultation will either be in the regulations or, if we can make it available, we will. Is that helpful? That probably sets the scene for us on this amendment.
We have always been clear that the levy and the safety net were as one. The reason for the levy is to provide money for the safety net. They cannot be separated. The reason for the levy relates to disproportionate growth, in that people have more than they should have in terms of equalisation and that money will go to the safety net. The safety net is to deal with a sudden collapse of a business or something mega happening that leaves the local authority without finance or as much finance as it needs.
In considering the safety net, we thought that it should not be so generous that authorities cease to care about whether their business rates grow or decline. We want the system to provide an incentive to authorities, first, to maintain and then to grow their business rates. Secondly, the safety net cannot be so lacking in generosity that vital local services are put at risk when authorities see, even temporarily, a decline in the business rates, particularly as this can be for reasons entirely outside the authority’s control—we recognise that—for example, because of losses on appeal. We have discussed what happens on appeal. That can be supported by the safety net. Thirdly, wherever the safety net is set, we need to keep an eye on the scale of the levy that would be needed to fund it. A safety net that requires a very stringent levy might work for the safety net, but if it means that authorities keep next to nothing of any growth that they generate, it will have failed the overall scheme.
I will not pretend that this is an easy judgment about what to do. It is not. It is one that, initially at least, we believe is met by setting the safety net threshold, as I have just explained, somewhere between 7.5% and 10% below baseline funding level; in other words, guaranteeing authorities somewhere between 90% and 92.5% of the funding that they could expect to see from the rates retention scheme. We will want to keep this under review and possibly adjust these percentages in the light of the actual operation of the scheme and certainly as a result of the consultation. Building fixed percentages into the Bill would effectively deny us the opportunity to respond to the concerns of local government, in future, if the percentages turn out to be either too high or too low.
I am not sure that I understand the problems that Amendment 50 seeks to address, and I am not persuaded that the concerns that underpin it are justified. It is undoubtedly true that a major redevelopment to, say, a town centre, could cause a temporary loss of income before the potential benefits of the scheme come to fruition. But if such a loss were significant, it would be covered by the safety net, which, as I explained earlier, would guarantee the authority between 90% and 92.5% of its baseline funding. To create, therefore, a special class of events—redevelopment—where an authority could be guaranteed to secure more than 90% to 92.5% of its funding, as this amendment would effectively do, seems to be wrong in principle. Why just redevelopment and why not other things? I am sure that other authorities could make a case for other one-off events which might, they would claim, be equally deserving of special treatment. Moreover, by providing indemnity for the early-years loss of income, we might end up with the law of unintended consequences and find ourselves simply indemnifying delay in bringing schemes to fruition, with all parties safe in the knowledge that no cost will fall to them. Where there is a redevelopment, obviously there is an initial loss of money, but the expectation is that as redevelopment takes place, the rating potential will come back in. I hope that explanation will satisfy the noble Lord and he will withdraw his amendment.
Lord Smith of Leigh
I was pleased that the Minister said that we would have, by regulation, an opportunity to debate this. It is important that we have a consultation so that we can consider it. She made the important point—with which I certainly agree—that many of these changes are outside the local authority’s control. Obviously we would like to produce growth but we cannot always do it.
The Minister said that when the process was up and running there would be some kind of review. I will just check that we will not have to wait until 2020 for it. I hope that when the safety net process has been in operation for a year or so it will be reviewed separately from the system as a whole.
Baroness Hanham
My Lords, I am told that the answer to that point is yes; there will be a separate review just of the safety net and the levy.
Baroness Hanham
Baroness Hanham
“( ) if the authority is subject to a requirement imposed by a direction under paragraph 40 (direction to make calculations or supply information) or by or under regulations under paragraph 40A (regulations about calculations and supply of information) for the purposes of this paragraph, as soon as is reasonably practicable after the time for compliance with that requirement,”
Baroness Hanham
Baroness Hanham
Baroness Hanham
My Lords, this amendment removes the requirement for the Secretary of State to undertake consultation on pooling proposals before he may designate a pool or revoke such a designation. This will simplify the process for establishing and closing a pool without materially reducing the safeguards in place for pool authorities.
Amendments 32 and 33 remove the duty to consult those likely to be affected by a pooling designation or its revocation. In tabling these amendments, we are responding to the strongly held views of local government. Local authorities will warmly welcome this change. The rationale is that, in practice, the impact of a pool designation or its revocation is limited to the members of the pool and, because each local authority in the pool must have consented to be there, the removal of the consultation requirement will have no practical impact on the pool authorities. The amendments therefore simply remove a superfluous bureaucratic procedure.
Moreover, the Government also consider that the removal of the consultation requirement will not reduce transparency, since pooling designations will be identified in the draft local government finance report, on which we will consult widely. Other persons will therefore be notified of the pooling designations that are to have effect for the following financial year.
Amendments 34 and 35 concern the operation of the pool and the Government’s ability to alter any conditions they may have attached to a pooling designation. Apart from pool members, no other parties are likely to be affected by the addition, modification or deletion of a condition, so a duty to consult persons outside the membership of the pool is unnecessary. However, the Government will continue to be required to consult pool members themselves before varying any conditions, since pooling arrangements are intended to be voluntary and it is not right that we should vary conditions without first seeking the views of the members of the pool.
These arrangements tidy up the provisions around pooling arrangements and remove unnecessary and burdensome procedural requirements, and are widely welcomed by local government. With this explanation, I hope that noble Lords will accept these amendments.
Lord McKenzie of Luton
My Lords, can I confirm that we are dealing with Amendments 63, 64, 65 and 66? I thought I heard the Minister refer to Amendments 34, 35 and so on.
Baroness Hanham
The noble Lord is absolutely right. I apologise. I thought it sounded a bit funny when I said it.
Baroness Hanham
Baroness Hanham
My Lords, I am sad not to be able to satisfy the noble Baroness. I know how keen and knowledgeable she is about TIF and she has been pushing a hard line ever since Second Reading. I understand why, because she feels that this will not be of sufficient benefit.
The noble Baroness has also been pushing the line that it should be off the balance sheet, so I therefore turn first to Amendment 68, as it goes directly to the heart of what we are talking about. The amendment would ensure that TIF is not scored as public sector debt. That is simply impossible. We had a long debate about this in Committee and the facts have not changed. TIF 2 must always count as public sector borrowing. Because it uses tax revenue—business rates—to secure funding for development within a predefined area; and because taxes are uniquely established by the tax-raising power of government, TIF 2 must be recorded as government borrowing, even if a private sector developer is taking on the development risk. The Office for Budget Responsibility, to which the noble Lord referred, has confirmed that that is how the borrowing must be treated in the national accounts.
It is therefore a direct impact on public sector debt which cannot be avoided. The local authorities who were successful in the TIF 2 competition—because a competition it indeed was—are now confirmed as Newcastle, Nottingham and Sheffield, which will be undertaking additional borrowing that they otherwise would not have. Therefore, TIF 2 schemes come at a cost to the Government, as we have to count the cost of the additional capital expenditure that the new borrowing supports.
The Government have been very clear that the amount of TIF 2 has been limited to £150 million at this time—I hope to have an answer for the noble Lord about the £60 million—to comply with our overriding priority of deficit reduction. The £150 million was from topslicing from councils, but it reflects the business rates retention element, not the levy element. I simply have to reject Amendment 68 on the basis that this has to be on the balance sheet.
Going back to Amendment 67, it seeks to ensure that designated areas are identified for the purposes of infrastructure provision in the Bill. This is not necessary; the Bill already allows, under paragraph 37 of new Schedule 7B to the 1988 Act, for the Secretary of State to designate areas within which the ratings income will be disregarded from the business rates retention scheme.
I am not convinced that there is much practical benefit to be gained from Amendment 69. All it would seem to do is to introduce further complexity. It is much easier for the operation of the scheme if the income is disregarded at the beginning of the year, and I am not persuaded that this has a significant detrimental impact on local authorities.
Amendment 71 looks to remove important controls from the system in that it seeks to create a framework where local authorities can advance any TIF scheme. For those reasons, I have to reject the amendments.
However, the noble Baroness talked about local authorities having many projects which they already have available and want to carry out. The point I would make is that if they are so ready, the seven-year reset is not an impediment because they could be ready to be got going in year 1, which would give them the support that they need. I ask the noble Baroness to withdraw her amendment.
Baroness Kramer
My Lords, I thank the Minister for her reply, although we are simply going to have to disagree on a lot of this. I would point out, however, that her comments about the OBR and accounting necessity mean that her Government now have a major problem with their enterprise zones. Perhaps she needs to go back quickly and suggest that the OBR will have to change the accounting programme that has been put in place to cope with the enterprise zones and the financing that will flow from them. That is the only logic of the statement that she has just made.
As I said at the beginning, however, I recognise that this Bill marks a significant step forward and that at least there is now a framework in legislation for TIFs, although it will take some further steps to turn them into vital and vibrant instruments for local government to use. Three at least have been done, for Newcastle, Sheffield and Nottingham. I hope that the Government will continue to follow through on the logic of their own thinking on devolution, infrastructure and joined-up thinking between TIFs and their goals for economic growth. Perhaps at a later point in this Parliament we might see further progress on this issue, but for the moment I withdraw my amendment.
Baroness Hanham
My Lords, let me start by confirming for my noble friend that this would come under the schedule he referred to. While I understand the concerns that prompted him to table this amendment, I hope that I will able to convince him that it is unnecessary, and that he can have confidence about the Government’s intentions in terms of the way the rates retention scheme will treat the business rates paid by new renewable energy projects and by nuclear power stations, so that he will be able to withdraw his amendment.
I should say initially that we do not believe that my noble friend’s amendment is needed. Paragraph 38 of the schedule is clear that the Secretary of State may, by regulation, designate classes of hereditaments by reference to such factors as the Secretary of State thinks fit. The regulations will in effect enable the authority to keep the business rates attributable to property falling within that particular class of hereditament. The business rates revenues from that development would be disregarded in the calculation of the levy or any reset of the system. The Bill quite rightly makes no attempt to specify or to restrict the possible classes that may or may not benefit from such provision. The Government have been very clear that authorities which host new renewable energy projects will be able to benefit from the full level of business rates paid on such projects. That particular commitment was set out, as noble Lords have said, in the coalition agreement and we will deliver it—not in the breach, but through regulations under paragraph 38. The Government set out in their statement of intent published on 17 May the technologies that would qualify as renewable energy projects for the purposes of that commitment.
With regard to rateable property which generates electricity from other forms of low carbon sources, including nuclear power stations, the Government’s proposals for business rates retention, as provided for in this Bill, already provide strong benefits to authorities which host such developments. For the new generation of nuclear power stations, the business rates are likely to be substantial, and there is therefore likely to be a significant financial boost to those authorities hosting one. In addition, the Government made clear in the national infrastructure plan that they would bring forward proposals for a community benefits package for nuclear power stations by 2012. We have been working closely across government to develop such a package. My honourable friend in the other place, the Minister of State for Environment and Climate Change, confirmed as recently as 18 September that the Government remain on track to deliver the package. We cannot yet reveal the details of the community benefits package for nuclear power stations or how such a scheme might work. However, I can assure him that, if it were decided to use the business rates retention scheme to provide even greater support to those authorities hosting new nuclear power stations, the Bill already has the flexibility to enable us to deliver such a mechanism. There is no need to include in the Bill specific types of development that may be designated under paragraph 38. I am sure that he will understand from what I have said that nuclear power stations would be included. I hope that, with that explanation, my noble friend will feel able to withdraw his amendment.
Lord McKenzie of Luton
My Lords, before the Minister sits down, will she clarify something for us? I think the thrust of her point was that there is going to be a community package for such provision in any event and therefore it is not planned that it will be provided under the business rates retention scheme proposals in the Bill. It is certainly not included in the list of qualifying technologies in the statement of intent. Is the Government’s point that it will accommodate requests to be included in those qualifying technologies or that nuclear power will have to be dealt with by a different route or a different package?
Baroness Hanham
The community benefit aspect of this will be constructed about the nuclear energy, which I think is the point the noble Lord is making. Local authorities—there is likely to be more than one—that host nuclear power stations will get to keep the revenue from the rates. I am not sure that I have convinced the noble Lord.
Lord McKenzie of Luton
I apologise. I do not want to prolong this as the clock is ticking, but I did not see that. Perhaps I am misunderstanding the qualifying technologies set down in the statement of intent. I assume the statement of intent is the Government’s starting position on what technologies are going to avail themselves of this support. I am happy for this to be dealt with in correspondence, if that would be helpful, but if the Government proceed on the basis of the statement, it does not seem to include nuclear power.
Baroness Hanham
I will write and confirm to the noble Lord. I am pretty well convinced that it does, but I will confirm it.
Lord Jenkin of Roding
My Lords, I am extremely grateful to my noble friend for her assurances. I certainly take heart from them. On the question asked by the noble Lord, Lord McKenzie, as I think I said, Mr Letwin’s letter said:
“While this commitment did not extend to all low-carbon technologies, the design of the business rates retention proposals”—
I think that is what we are talking about, and I am grateful for the confirmation that paragraph 38 is appropriate—
“will ensure that there will be significant ongoing benefits to those authorities hosting low carbon energy infrastructure. It is likely that nuclear power stations will generate significant increases in business rates revenues in line with the scale of the programme”.
I think it was a perfectly fair question, and I hope we will all get a copy of the answer that will be sent to the noble Lord, Lord McKenzie of Luton. In the mean time, I am happy to withdraw the amendment.