Local Government Finance Bill

Ben Gummer Excerpts

Tuesday 10th January 2012 Commons Chamber

[Hilary Benn (Leeds Central) (Lab)]

I should like to begin by wishing the Secretary of State—and, indeed, you and all other Members, Madam Deputy Speaker—a happy new year. I am sure that our return to the House has been looked forward to with even greater anticipation than usual, given that the first piece of legislation that we are to address is the Local Government Finance Bill.

The Secretary of State touched on the fact that local government funding has long been debated and much argued over. At the heart of the matter is the age-old question, which was highlighted by the Layfield report in the 1970s, of whether central or local government should take the decisions. That question has never been fully resolved because the answer depends on the decisions involved and on what we are trying to achieve. Partly for that reason, Bills proposing fundamental changes to local government finance have not come along very often. The previous two were the Bill that brought in the poll tax, which should stand as a warning of what happens when a Conservative Government get things spectacularly wrong, and the one that replaced it with the council tax. That experience should remind all of us that how we fund local authorities and the services that they provide to all our communities is a matter of the greatest importance.

The Secretary of State reminded us of what the coalition agreement said about a radical devolution of power and giving greater financial autonomy to local government. Indeed, he also referred to his words of last July, when he said that councils would no longer have to come to him with a begging bowl. He has set a very high bar against which his Bill is going to be judged.

Let me start by examining the way in which the Bill is being handled, which is the subject of tonight’s programme motion. The local government resource review was first announced in the summer of 2010. The terms of reference were published in March last year. I recognise that there has been consultation on the proposals, but that consultation has simply not been carried through into the consideration of the Bill. The Bill was published on 19 December, just before the Christmas recess. We are having the Second Reading debate today, just two sitting days later, and we did not start the debate until 20 minutes to 7 in the evening.

The Government seem determined to take all the stages of the Bill on the Floor of the House, not because of the nature of the Bill but, as everyone knows, because the business managers are desperately trying to fill up time in the Chamber following their mishandling of the long parliamentary Session. They are not scheduling it in this way as a matter of precedent. Neither the Act that created the poll tax nor the one that replaced it with the council tax—the two Acts that this Bill, in the main, amends—had their Committee stages on the Floor of the House; they went into Committee. This Bill should also go into Committee. That is why we will vote against the programme motion.

By not allowing the Bill to go into Committee—[Interruption.] No, I hope that the Under-Secretary of State for Communities and Local Government, the hon. Member for Bromley and Chislehurst (Robert Neill) will listen to me. If the Bill is not allowed to go into Committee, there will be no opportunity for wider scrutiny of what the Bill—as opposed to the consultation —says. There will be no pre-legislative scrutiny of the Bill, and there will be no evidence sessions. Nor have we seen any of the regulations in draft. This is a pretty shoddy way for a Government who say that they support pre-legislative scrutiny and evidence sessions to deal with the scrutiny of a Bill.

On the substance of the Bill, the Secretary of State has advanced three main reasons for the changes—namely, that the present system is too complex, that it gives Governments too much power and that it does not provide sufficient incentive to local councils to develop their economies. I want to address each of those points in turn.

I accept that the current system is complex, but the truth is that any system will have a degree of complexity if it is to take account of the differing needs and circumstances of different communities. That is why we have complexity in the system. The alternative would be to leave councils and communities to sink or swim, saying, “Right—you take what you can in council tax and business rates; the Government will not get involved at all.” I do not support that.

Many of us, however, are in favour of as much localisation as possible, and, in principle, of allowing councils genuinely to benefit from business rate growth. However, those who put forward these proposals have an obligation to come up with a system that meets a number of tests. Those tests must determine whether the proposals will actually put more power into the hands of the councils, whether they will provide the right incentives, and whether resources will be distributed fairly. They must also determine whether councils will be reasonably certain about the money that they will get, and whether they will get the right help to enable them to meet local need and changing circumstances.

The problem with the Bill, and the reason that we will oppose it tonight, is that it does not give the reassurance that many people are looking for on those five fundamental principles, either on local government funding or on the localisation of council tax benefit. There is no guarantee that any council will not be worse off, except in the first year. It is unclear exactly how much incentive will be offered. As my right hon. Friend the Member for Greenwich and Woolwich (Mr Raynsford) suggested, the Bill will replace one complicated system with another that is, in the words of London Councils, “fiendishly complex”. One might think that that body would be arguing strongly in favour of these measures, given its position on business rates. Lastly, the Bill will give the Government a huge amount of control over how the money is distributed and how the system works, even though they claim that they want to devolve power.

When we read the Bill, which is supposed to be about putting local authorities in charge, what is really striking is the amount of power that it puts in the hands of the Secretary of State.

[Ben Gummer (Ipswich) (Con)]

Will the right hon. Gentleman give way?

[Hilary Benn]

Will the hon. Gentleman bear with me for a moment?

Under the Bill, the Secretary of State will determine the baseline for every local authority, including, in effect, what he thinks every council needs to spend. He will decide how much business rate income central Government will take and how much will be left with local authorities. He will be able to change the central share from year to year, and to specify the tariff or top-up payment for every local authority in England. He will also decide how much any council must pay him in levy in respect of disproportionate gains in business rate income—and he will decide what “disproportionate” means.

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[Hilary Benn]

I would merely say this. First, if councils had a choice between the system under the last Labour Government and the resources made available then, and the cuts imposed over the last two years and the system offered now, I suspect that they would say, “We prefer the old system.” Secondly, the Secretary of State argues that this is all about giving away power and responsibility, but I am pointing out—I can understand why the hon. Member for Meon Valley (George Hollingbery) and his colleagues get irritated—the huge number of powers that he is keeping for himself to shape the whole system and how it works. Given that the Secretary of State has all this power, I gently say that I doubt very much whether the local authority begging bowl is going to disappear any time soon. The right hon. Gentleman has form on this, however. In his equally misnamed Localism Bill, he took for himself more than 100 powers. He says that he is passing down the levers of power, but the truth is that he is hanging on to them very tightly.

[Ben Gummer]

The right hon. Gentleman professes to be in favour of localism and to want to see it in local government, but he was a prominent member of the previous Government who for 13 years produced numerous White Papers, manifesto commitments, and the entire Lyons report, which took three years to compile—yet nothing was produced or brought before this House over that period to localise business rates. He nevertheless stands up here and complains about what is being done.

[Hilary Benn]

First of all, if we are talking about centralisation, the hon. Gentleman needs to think about who nationalised business rates. It was his party. Who was it who abolished London-wide government and who made a mess of the poll tax? In all honesty, I say that making a change in haste in the wrong way is done at one’s peril. The warning of that is provided in the poll tax. If we look back at the debates when the poll tax was being argued for, we find Ministers arguing that this was the most wonderful thing. The people who have really made a mess of local government financing in this country are the Conservatives. Local government would much prefer to have the resources they had under the 13 years of the Labour Government than what they are experiencing under the current Government.

The point is this. It is not about whether we trust local councils or local communities. The question people looking at this Bill will be asking themselves—and, to judge by the consultation, they are—is whether they trust this Government and whether they trust this Secretary of State to use all these powers in a fair way. To judge by what has been done so far, there is not much room for confidence. We know that this Bill is being introduced at a time when local authorities are facing unprecedented cuts. Cuts do have to be made—[Interruption.] Well, I have said that on a number of occasions, but there is no excuse, no rationale and, so far, no justification for why these cuts are being applied in such an unfair way to communities.

As the House knows, one shocking statistic from SIGOMA—special interest group of municipal authorities —tells us everything we need to know about this Government’s idea of fairness. It is the fact that the 10% most deprived upper-tier authorities are facing a reduction in their spending power that is nearly four times greater than that faced by the 10% least deprived authorities.

Let us take just one example from figures produced by Newcastle city council. For every local authority, it looked at the cuts for 2010-11, 2011-12, 2012-13, transition and council tax freeze grant and the provisional new homes bonus allocations. The figures show that Basingstoke and Deane authority will see a cumulative gain of £6.30 per person, whereas Knowsley will see a cumulative loss of £227.35 per person. If that is not balancing the books on the backs of the poor, I do not know what is. What possible justification can there be for such unfairness? When I asked the right hon. Gentleman about it at Communities and Local Government questions recently, all he could do was bluster, so how can councils have any confidence that they are going to be treated fairly under the Bill, particularly for communities where there is a great deal of deprivation, communities with fewer opportunities for business rate growth and communities where a lot of people cannot find a job?

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[Ben Gummer (Ipswich) (Con)]

It was said at the beginning of the debate that we live in one of the most centralised states in Europe, if not the world. Only Malta, according to the Government, has a more centralised system of local government. The Netherlands, in my understanding, is the only other country that collects less of its tax locally than Britain. That is bad not just in itself but because it goes against the Government’s stated objectives of localising as far as possible, not just down to local government but from local government to communities, from the European Union to national Governments and so on.

The shadow Secretary of State, the right hon. Member for Leeds Central (Hilary Benn), put the debate in the context of Layfield and the broader history of local government finance, and correctly so, but we cannot speak about local government and its relationship with business without thinking about why we have many of our local authorities and why they were successful 100 years ago or 150 years ago in creating the great towns and cities that many of us are profoundly lucky to represent.

The hon. Member for Stoke-on-Trent Central (Tristram Hunt) has written eloquently on this subject and I feel that, as he sits on the Opposition Benches, we almost have the ghost of Joseph Chamberlain with us—a man who showed that the union of business and local authority, through municipalism and corporatism, could create urban spaces that were good for every type of person in that authority, creating wealth, prosperity and growth and the great civic buildings of our towns and cities. That approach created the urban growth that made wealth and prosperity possible in the latter half of the 19th century, with the first great slum clearances, the provision of a good water supply and all the things on which we still depend today.

The way in which we have gone from that position to where we are now, when, if we are honest with ourselves, councils represent in many cases a desiccated, demoralised and often moribund arm of the state, is a profoundly sorry story and one for which responsibility is shared, as the shadow Secretary of State so correctly said, by Governments over many years. It started a long time ago, in 1835, which was the first time that central Government took a precept from local taxation. Even by the 1870s, 90% of taxation was still raised locally and that figure did not fall beneath 70% until the 1950s. The decline fell to the point at which, between the period covered by 1993-94 and the 16 years that came afterwards and 2011, there were only two years when 50% or less of the funding was provided by central Government. The result is threefold: we have a declining calibre of councillor and officer from parties represented in every part of this Chamber; we have a rupture in the relationship between business and councils that has stifled economic growth, especially in our provincial towns and cities; and we have falling participation and democratic interest from the electorate.

The Bill does an enormous amount to start to turn the clock back to a position in which local authorities have responsibility for growth and can reap the benefits of seeing businesses start up, employ people and create prosperity and wealth in their areas. Importantly, it also includes the downside risk, and this is where I welcome the Government’s reform of council tax benefit. Councils must feel the heat under their feet that will be caused by the fact that if they do not get local economies going, they will have to bear the consequences of dealing with the result, which is joblessness. It is important that they do everything in their power to ensure that companies can prosper and employ, creating jobs and growth.

The much-stated aim of councils is that they want to work with businesses, but frankly, as we know, they often pay just lip service to that. I ask the Government to look even further at tax competition between local authorities, so that we can have a genuine fight for jobs, prosperity and growth in the towns and cities across our country.