Clive Betts
Main Page: Clive Betts (Labour - Sheffield South East) Local Government Finance Bill
Clive Betts ExcerptsMonday 23rd January 2017
(7 years, 3 months ago)
Commons ChamberRead Full debate Local Government Finance Bill 2016-17 View all Local Government Finance Bill 2016-17 Debates Read Hansard Text
Mr Jones
That is a valid point, and, like in the current system, going forward there will be redistribution; it will be one of the core principles within the system, because in setting up the system we must make sure there are not areas that fundamentally lose out just because they do not start from the same position as other areas in the amount of business rates collected. A number of hon. Friends have asked about rural areas and the fact that many of them are very dependent on very small businesses, many of which will be exempted from business rates completely by this Government’s £6.7 billion package on business rate relief. I can reassure my hon. Friend and other Members that the effect of the 2017 revaluation will be mitigated for local authorities, because the system will be reset to make sure areas do not lose out. Indeed, that will also be the case prior to the new 100% business rates retention system getting under way.
Mr Clive Betts (Sheffield South East) (Lab)
On the issue of redistribution, we currently have the needs assessment, and indeed the Government are going to conduct another review of needs before they start the new 100% business rates retention system. The House has information each year on the needs assessment within the local government financial settlement and, indeed, votes upon it. I understand, however, that in future we are not going to have that system; instead, we are going to have something called the principles of allocation statement, which is made and set for the rest of the period over which the system runs. The principles of allocation statement will not come to this House for approval, however. Why is the House being circumvented in this decision-making process?
Mr Jones
The hon. Gentleman is Chairman of the Select Committee and has a great deal of knowledge and commands a great deal of respect in the House on local government matters, but I say to him that we are now in a very different world from the one we were in only a few years ago, when local government collected the whole of the business rate incentive and gave it to the Government. In that sense, 80% of the spending of local government was distributed from central Government on the basis of the principles the hon. Gentleman mentions. Now we are moving to a system where by the end of this decade 100% of money within local government will be raised locally, and therefore Government will not year on year be redistributing the funding, which has been the case hitherto. The other point I would make, which has been well-recognised by local authorities in the last year on the basis that 97% of local authorities have signed up to a four-year deal, is that local authorities have asked for certainty of funding, which this system certainly will provide for them.
Mr Jones
I think my hon. Friend is referring to what we term the improved better care fund, which will go directly to local authorities. That funding has been brought forward as part of the spending review 2015. She will probably know that that funding effectively was obtained by changing the way in which the new homes bonus operates, and sharpening the incentive in relation to the way in which that system operates. As such, therefore, that additional money is not freed up quickly enough to do what she says. Although this year £105 million comes into the system, next year it will be £800 million and the year after that—the last year of the Parliament—it will be £1.5 billion. Alongside that, in this financial year we have also put an additional £240 million into the social care system as a dedicated social care grant, which again has been realised from additional savings made through the new homes bonus.
Mr Betts
I thank the hon. Gentleman for giving way a second time. I entirely accept his explanation in relation to the year-on-year arrangements, because there will not be a change every year in needs assessment as there currently is; that will be fixed for the period of a longer settlement. What is essential, however, is that right at the beginning of this new system, when the new needs assessment has been done and an allocation is agreed in the first principles of allocation statement, that comes back to this House so that we can take a view on it.
Mr Jones
As I said earlier, the hon. Gentleman commands a significant amount of respect in this House in regard to these matters, and, while he does not always realise it, there are Government Members who listen to the suggestions and concerns he raises, but I reiterate to him that we are moving into a different world, and that is why we have chosen to implement the system laid out in the Bill.
Mr Clive Betts (Sheffield South East) (Lab)
I rise to support this Bill in principle, although much of the detail, which will determine whether it will be effective in practice, is not in the legislation itself, but will be worked out in due course.
Just in passing, I note that the hon. Member for Christchurch (Mr Chope) gave himself credit for the uniform business rate system. I noticed that he did not give himself credit for the other part of that Act when it came in at the same time.
Mr Betts
The hon. Gentleman is the last Member standing who supports that legislation.
Let me refer to the first report this Parliament of the Communities and Local Government Committee, which went into considerable detail about the Government’s proposals on business rates. As we were conducting our inquiry, the Government announced a further consultation, so this was a list of matters for the Government to consider, which I hope they are doing. We had a good deal of evidence about issues that do need consideration and resolution before the system finally comes in. I will not refer to the general issues of local government finance. My concern is that, since 2010, local government has received far more than its fair share of the austerity measures, and that local councils, such as my own northern council in Sheffield, have received more than their fair share of the cuts that local government as a whole has had to endure.
I welcome the devolutionary approach that the coalition Government took and that this Government are now taking, but only as far as it goes. I recognise that devolution cannot simply be about devolving powers and giving councils more control over money that Government give to them, but councils must have more ability to raise that money in the first place. Fiscal devolution is just as important, and the Committee has recognised that. This Bill, in a very small way, goes in that direction, but it still leaves us the most centralised country in western Europe.
I thought the Minister was getting a little bit carried away at the end of his speech when he called the measure “revolutionary”. I cannot really see this as a revolutionary change in local government finance. It leaves us with local authorities having to rely on council tax—I have no problem with that—which raises about 28% of local government finance. It is the only tax in central and local government that needs a referendum to increase it beyond a given amount, which is determined by the Secretary of State.
I have one little point about this proposed legislation: in future, this House will no longer be able to approve Ministers’ decisions on the threshold at which local authorities have to bring in a referendum to have a council tax increase. That is yet another power taken away from this House. I hope that, at some point, Members will have the chance to express a view on that.
On the business rate retention, it is a 100% retention of the growth in business rates—that is what the system means—with no power to determine multipliers, except to reduce them. On the supplement, in very limited cases—for mayoral combined authorities or the Greater London Authority—the business rate can be increased by a very small amount for specific projects. It would be right and more democratic if councils themselves had the ability to determine business rate multipliers at a local level, even if they did it on a joint basis with other councils. That would take us back to the system that operated before the hon. Member for Christchurch had his say and brought in the new legislation.
I do not know why Ministers are so resistant in this regard, because, in the end, if councils cannot determine multipliers, they have very limited ability to raise income from business rates. I accept that they can do it by approving development—the whole purpose of this is to give more incentives to do that—but that is limited control indeed. It still leaves us with a very centralised system.
There are some important details that we must get right. We had an enormous amount of evidence in our inquiry that showed that the appeals system is a major problem for councils. Rather than falling on the central pot, the cost of appeals potentially falls on individual councils. I understand that, collectively, local authorities are holding back about £1.5 billion in reserves to cushion against appeals. When my own local authority in Sheffield gave evidence, it said that 33% of its business rate base was subjected to appeal, which is a very high figure. We need to deal with that uncertainty for local councils.
By far the biggest challenge in this Bill is how we marry the need to give incentives for development, which I entirely accept, with the need to equalise within the system—to recognise those authorities that cannot grow their base as rapidly as others but still have needs that are high and that might grow in future. My concern is that trying to do that with one tax is a bit like trying to play a round of golf with one club. Can we really do competing things—equalise and incentivise—with the same tax, or are we going to keep some form of grant to do the equalisation, which might make the system an awful lot simpler? Equalisation is never simple, but it could become more complicated because it is now being addressed as part of the business rate system. I will leave that with Ministers to think about.
I welcome the fact that Ministers are going to be doing the new needs assessment with the Local Government Association, which I understand will have a working group. The Communities and Local Government Committee will do some research on that as well.
Let me move on to the complications with resetting in the system, which is really important. If we reset too often, we take the incentives away, but if we do not reset often enough struggling authorities will struggle for longer. Will Ministers look at some form of rolling reset— this is an interesting idea that the Committee heard in our inquiry—so that we do not have a cliff edge where we say, “Right, all the extra business development you have had in the past six years will now be stopped in the system and the whole thing will be reset.” What happens if there is a new development only six months before the reset? Why would any authority want to encourage that development when, if it waited another few months, it would fall into the new period and get the benefit of the business rate for longer? Those are some technical issues that we really need to address.
Will we have a new needs assessment every reset period, or will the needs assessment that is done at the beginning of the system last in perpetuity? If it is the latter, how is the needs assessment going to work with the reset periods? Again, I think that it would be much easier if the needs assessment were done in relation to a separate grant kept within the system. I accept that if we had a separate revenue support grant we would need to devolve even more powers to local government to absorb the money from that grant, but it might be easy to do, and it would be in the spirit of devolution then to devolve even more powers. I ask the Minister to look at our Committee’s report in that regard.
I am pleased that tenants allowance has been taken off the agenda. If we are going to devolve powers, can we make them powers that are relevant to business mainly in relation to transport and skills, which were asked for in relation to economic development? Businesses could then understand that, although they could not have an immediate say in linking the money raised from business rates to a particular project, their taxes are, in principle, related to business activities in their area. I also say to Ministers that if we are to have a new system, there are still powers under section 31 for them to give grants.
We cannot consider a whole new system without looking at social care. We have to look at a long-term, revised arrangement for funding social care. One of the real concerns—it came out during our inquiry—is that social care demands are likely to increase faster than income from business rates. If we are relying on income from business rates to fund social care in the long term, there is bound to be a growing disparity. If we build that into the system right at the beginning, the system will never succeed in doing its job. Let us have an independent look at social care, and at whether some other form of funding needs to come in to support it in the long term.
Dr Daniel Poulter (Central Suffolk and North Ipswich) (Con)
The hon. Gentleman makes a good point about social care, because far too often one solution is plucked out of the air as the golden bullet to tackle a real funding crisis, with demand for social care services increasing by at least 5% a year across most local authorities. He is absolutely right that we need a long-term solution. Will he say how that could be incorporated into the Bill?
Mr Betts
I am not sure that we could get that into the Bill, given its long title. The Government have to think about the longer term. If they are going to completely reform the business rate system at the beginning of 2020, and the funding for the responsibilities of local councils, without addressing the fundamental problem of social care and the demand to which the hon. Gentleman rightly draws attention, with 5% year-on-year growth, they are devising a system that will fail. I do not want it to fail; I want it to succeed. I want us to give more powers and responsibilities to local councils and increase their ability to raise funds, but we need to address this problem and see it in the wider context, even if it cannot be incorporated into the Bill.
I have one final point to make, and it is a very important one. The previous Chancellor announced plans to extend small business rate relief and change the way in which the multiplier for business rates was calculated, from the retail prices index to the consumer prices index. Both those measures reduce the amount of money that local councils get from the business rate. What the Government have said so far, as I understand it, is that they will compensate councils in the current system for those changes, and no doubt they will be reflected in the amount of money taken forward for the new system for which councils will then get new responsibilities. What would happen if a Chancellor were to make some similarly drastic changes to the business rate system? How would local councils be compensated if there were no revenue support grant to do so? I think that Ministers have to address that very important point. Either the Government want to give up their powers to change the business rates system once it is set, or they will bring in changes in future, in which case how will they compensate councils if they remove their grant-making powers altogether? That point is so fundamental that I think Ministers have to address it.
I will end where I began. I support the Bill in principle, because it is a very small step towards more devolution and giving councils more powers and a little more control over the money they raise to spend on the important services they deliver. I cannot agree with the Minister that it is revolutionary, but it is a small step in the right direction. I look forward to seeing more of the detail, but in principle I support the Bill.
Jim McMahon
I am going to make some progress, because it is the Minister’s birthday and he has cake with candles waiting at home. There are also a great deal of unanswered questions that he needs to address at the Dispatch Box.
Jim McMahon
Given my hon. Friend’s position as Chair of the Select Committee, it would be rude not to give way to him.
Mr Betts
I thank my hon. Friend for giving way and I am sorry that there are so many disappointed faces on the Government Benches. Oppositions are always better than Governments at arguing in favour of giving more powers and control to local authorities. That has happened over the years. Looking to the future, does he accept that we need to develop a local government system whereby local authorities have greater ability to raise money themselves and make their own decisions in doing so? We also have to address the issue of equalisation and recognising needs. There has to be an element of central funding, but it would be helpful if local government as a whole had the right to be given control of a specified amount of income tax, rather than have to be reliant on Governments, who can change the system and take away powers and money on a whim.
Jim McMahon
My hon. Friend puts on show his experience with a detailed assessment of the types of variable taxes that local government really needs in order to be sustainable in the long term. We are in the process of looking at local government finance in the longer term, and I make this plea: that we look a bit more broadly than the traditional council tax and business rate base; that we are open-minded about having a more varied range of taxes for local authorities to take; and that, in doing so, we ensure that local authorities are held to account and that they can work together to secure the right distribution method so that funding is genuinely based on need.