Local Government Finance Bill

Bill Esterson Excerpts

Wednesday 18th January 2012 Commons Chamber

[Bill Esterson (Sefton Central) (Lab)]

My hon. Friend is making an incredibly important point, which cuts to the heart of the matter. The Government say that they are in favour of localism, yet they have created a Bill in which the Secretary of State retains many powers. As my hon. Friend says, those powers are not defined, so it is not clear whether local government will keep business rates and how much it will keep, or whether and when the Secretary of State will intervene.

[Helen Jones]

My hon. Friend makes a powerful point. As the Bill progresses, we will table amendments to attempt to clarify some of those matters. However, at the moment, local authorities are in the dark about what they will deal with next year, if the Bill is passed.

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[Bill Esterson]

My right hon. Friend makes the point about the new system trying to do too much, which goes back to what my hon. Friend the Member for St Helens North (Mr Watts) said. The evidence is that the potential economic impact of local councils in trying to develop business locally is perhaps only 20% of the total impact, with far more of the impact coming from the private sector. The new system is putting an awful lot of responsibility on to local government for generating new business, therefore putting a huge responsibility for the generation of business rates on to local authorities, when there is relatively little that they can do, particularly in areas such as St Helens or Sefton, or my right hon. Friend’s area.

[John Healey]

My hon. Friend is right. One of the strengths of this debate, as shown by contributions from all parts of the Committee, is exemplified by what he has just said. He has served as a councillor in north Kent and brings that experience and perspective to this debate. He now serves as the Member for Sefton Central, in the north-west of England, and also brings that perspective, reinforcing his point.

I want to draw the Minister’s attention to the future position of fire and rescue services. Can he provide me and other Members who are interested with details about his modelling and assessment of future revenue streams? Can he say how many and which fire authorities will be top-up authorities in future, and how many and which will be tariff authorities? There is concern among senior fire staff that if the incentive that this system is designed to deliver works as the Government say it will, the top priority for councils in the future will be those functions for which they are responsible that help to build business growth. However, those who serve in our fire and rescue services—services that do not directly contribute to economic and business growth—are concerned that a consequence of that will be that in future they will not get the priority for funding that the proper protection of their area may deserve because they do not contribute to business growth. Let me quote a chief fire officer who fears that that may—but not necessarily will—happen. He says:

“I am concerned that the proposed funding model could foster an antagonistic relationship between the fire authority and the local authorities if they begin to see us as a service which takes money from the business rates but does not actively participate in the business growth agenda.”

There is a strong case for fire and rescue services to be funded in future on the same basis as the police, with a very clear, consistent and comprehensive assessment of risk, need and resources built into the allocation of funding for fire services in England. What we start to see with the fire and rescue services, in common with the rest of local government, is concern about the uncertainty—what it means, what the funding is likely to be and how hard it makes it to plan sensibly for the future, particularly the ability to plan and manage within diminishing resources, which by and large is accepted. As another senior fire officer told me, stability is the most important factor. The Minister could do the Committee and many in local government a favour by giving a clear and strong reassurance this afternoon about the stability and predictability of the system in future.

I am conscious that there are a number of other amendments in the group and that other right hon. and hon. Members want to speak to them, so let me return to my starting-point of amendment 46. It is a probing amendment, but it contains a proposal that all revenue raised from what is a tax on businesses designed to pay for local services should provide funds for local government—not for national priorities or services around which the cloak of local government can be loosely thrown at their funding streams and categorised as local government. Post-2015, this will build in a real localising ratchet. Post-2015, when the business rates take is projected to be bigger than the sums distributed to local councils, it will mean that where central Government want to use funds to cover non-council services, they will have to transfer the responsibility and devolve the power and control for those services to local government in order to use the business rates revenue to help fund them. Thus my proposal will mean Ministers truly putting their money where their mouths are. It will mean putting into reverse the post-war centralisation of government that this country has seen, and it will mean making the localist rhetoric a reality.

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[Mark Field]

There is a duty, although it will apply to potentially different sets of needs. I think one of the most destructive elements of local government has been the almost constant lobbying—whether it be for three-year settlements or the annual settlements of the past. Although we might return, well before 2022, to specific concerns about elements of need that have rightly been referred to, the idea of having a 10-year period is a positive route forward in providing certainty for local authorities.

Westminster city council strongly supports the principle of allowing local authorities to retain a proportion of the business rates generated in their area—no one seriously suggests that either of my two local authorities should retain all their business rates, although there are common councilmen in the City of London, and members of Westminster city council, I am sure, who would rather like the idea, but even I would not suggest that that would necessarily be an entirely sensible way forward. As other Members have rightly pointed out, local authorities have played an increasingly important and integral role in supporting and growing businesses locally.

[Bill Esterson]

I am grateful to the hon. Gentleman for acknowledging that the most wealthy local authorities, in terms of business rates, could not possibly keep all those rates. What sensible balance can be struck to ensure that some local authorities do not struggle because of loss of income and that local authorities who are worried, for good reason, have their fears allayed?

[Mark Field]

I will be coming to that later, and will be asking the Minister to clarify the matter.

I would like the Minister to address a number of concerns. Why have the Government decided to cancel out any natural inflationary growth in the business rates programme? Why are increases in what might be described as revaluation growth not included in the Bill? A major revaluation has particularly affected London local authorities in recent years. Why does the Bill fail to provide for an adjustment in the growth calculation, in order to remove the negative effect of valuation appeals, which might become much more prevalent once the Bill is on the statute book? Under the proposed reforms, every local authority, as has been pointed out, will become a tariff—contributory—or top-up recipient authority, relative to its annual grant. In that regard, I take on board the comments of the right hon. Member for Wentworth and Dearne in relation to the responsibilities on fire authorities. One key question considered through the consultation was whether tariffs and top-ups should be uprated annually by the retail prices index. As the Minister knows, the Bill proposes that business rates will continue to be uprated annually, but taking the same approach to tariffs and top-ups would cancel out any natural inflationary growth that might otherwise have been expected by local authorities.

Why have the Government decided to cancel out natural inflationary growth in business rates? The clauses in the Bill that are subject to consideration today do not allow for revaluation growth, which is regrettable. Inevitably, all Members will use the examples closest to our hearts—our own local authority areas. Westminster city council’s total rateable value at the last five-year revaluation—18 months or so ago—rose by some 60%, but the proposed reforms would allow for none of that increase to count towards growth. In many ways, that is a disincentive to doing a lot of the hard work that went on in the second half of the last decade. As a result, local authorities would receive no benefit for enhancing their commercial environment or making their area a more attractive location for businesses. Having pacesetter authorities with business improvement districts in place at the outset was one of the most important elements of the previous Government’s work in that regard. Such authorities will be almost disincentivised and penalised under the proposals, which does not make much sense.

Given that rental and rateable value growth reflect the relative profitability from which central Government benefit through VAT, corporation tax and income tax, will the Minister clarify the reasons why increases in revaluation growth have not been included in the Bill? On physical growth, one key principle of the scheme, as I understand it, is to enable local authorities to benefit from new building and construction. However, as the Minister knows—although he represents a suburban London constituency—here in the capital, the high levels of rateable value reductions that are granted on appeal often wipe out the physical rateable value growth that has been achieved through new build. A great many appeals may be heard following revaluations, and as they are accepted the total rateable value in a billing may be reduced over time. Since those reductions result from errors made by central Government valuation officers, it seems unfair to penalise local authorities for such mis-valuations. We should also note the uncertainty that would be injected into the final settlement, given that one of the main aims of the scheme is to iron out such uncertainty.

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[Helen Jones]

My hon. Friend makes the valid point that the need for all these services varies across authorities; more to the point it is not within councils’ control. A council cannot control how many elderly people are going to need social care, or how many children are going to need intervention from their children’s department. That is the real problem. There are huge variations in demand for children’s services and educational services across the country, and that is often linked with poverty. Middlesbrough, which is the ninth most deprived local authority area in England, has almost seven times as many children receiving free school meals as Wokingham. Almost all councils showed a huge increase in referrals and in the taking into care of children following the tragic baby Peter case, which we all know about. That was not under their control, but the differences between the numbers of children in care across the country are still stark. Surrey has 32 looked-after children per 10,000 population, whereas Wokingham has 22. In Middlesbrough, the figure is 104 and in Newcastle it is 100. In Liverpool, there has been a 60% increase in child safeguarding referrals since 2009-10, whereas the average national increase is only 10%.

[Bill Esterson]

I keep being struck by the tension between, on one hand, the Government’s stated support for localism and the retention of business rates that they want to bring in and, on the other, the retention of powers by the Secretary of State. My hon. Friend is describing extremely well the growing gap among different local authorities and it seems to me that unless the Secretary of State addresses the issues in amendment 19, he will not be able to avoid that growing gap. I cannot understand why the Government would not want to support amendment 19.

[Helen Jones]

My hon. Friend is right. His intervention highlights the fact that no matter how much we want to make local government finance simple, it is never going to be simple because of the variation in need and the difference in resources. There is a balance to be struck between simplification and unfairness, and we do not think the Government have got that balance right in the Bill.

Some councils are coping with huge demands on their resources. Some form of equalisation will be necessary if, for example, children in poorer areas are not to be placed at risk. The idea that children’s services or the care of the elderly should depend on the number of businesses persuaded to relocate to a particular area is difficult to get to grips with.