Clive Efford
Main Page: Clive Efford (Labour - Eltham)Local Government Finance Bill (First sitting)
Clive Efford Excerpts(7 years, 3 months ago)
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Clive Efford (Eltham) (Lab)
We would like an answer to that last question though, Mr Gapes.
The Chair
Please ask questions that focus on the Bill, and can we please also have answers that focus on the Bill, rather than on history?
Mr Jones: I can give a direct answer. We have looked at the figures closely and, given that in real terms council tax today is 9% lower than it was in 2010, if you take into account the council tax flexibilities that we have allowed local authorities during this Parliament, council tax will still be lower in real terms than it was 2010.
Kevin Foster
Q I have a second, quick question. What difference do you think the average council tax payer and council resident is going to notice if this Bill is passed?
Mr Jones: Once the system comes into full effect, the incentives that councils have will mean that many more areas will have a more business-friendly environment, where more businesses are nurtured and more jobs created. The positive knock-on effect is that councils that take to that and do the right thing will be able to grow their income to provide local services. Residents across our local authority areas want high-quality public services, and this will help to do that.
Clive Efford
Q How much of the local government grant comes from the business rate collected by the Government and redistributed to local authorities?
Mr Jones: All of the business rate, bar the £12.5 billion —or £12.8 billion, to be more exact—that has been mentioned, currently goes to local authorities, with the exception of the amount raised from the central list. That list relates to the business rate that comes from infrastructure, for example, and that money does not go directly to local government. The quantum of the funding is set out in the document.
Clive Efford
Q Sorry, can you remind me what it is?
Mr Jones: As I say, the quantum of the funding that local government gets is all of the funding from the business rate, less the amount that we are looking to bring to local government.
Clive Efford
Q What proportion of local government spend is raised locally?
Mr Jones: That is a question that I will have to come back to you on.
Clive Efford
Q It is quite a small proportion that is actually raised through council tax, so the ability of local authorities to raise money at local level is very limited in many areas in relation to business rate. What incentives are there for areas where it will prove very difficult to generate extra income through the local business rate? Will the Government be putting anything aside for those local authorities?
Mr Jones: As I say, there will be a form of redistribution, and that is important because we do not want areas to be left behind by the implementation of the new system. The system significantly incentivises local areas to encourage business growth and the growth of new businesses on the basis that they will be able to keep far more growth than ever before. That is particularly the case with regard to the current levy in the 50% business rate retention system. In effect, that is a tax on growth and the Bill will remove it.
The Chair
We are time-limited: we have one minute left. If anybody on your side wishes to come in, we have time for one more question. That is all we are allowed.
Kevin Hollinrake
Q Sorry, we are short of time. I want Councillor Borrow to come back on that.
Councillor David Borrow: Darra Singh and his committee floated the idea of regional equalisation of the business rate. All that would do is reinforce the inequality between regions, and it is absolutely fundamental that if we are to get a fair local government finance system, you have equalisation across the country. From a mathematical point of view, you can argue that it is easier to do it on a regional basis, but that simply reinforces inequality. The dramatic, obvious example is between the south-east of England and the north-east of England—that would simply reinforce the poverty in the north-east and the affluence in the south-east. It is clearly not something that any Government should be looking to do.
Clive Efford
Q Mr Ware, following on from Mr Hollinrake’s questions, does not the capacity to raise income through fees and charges and to generate local economic activity—that is what we are talking about in business rates—need to be taken into consideration? Let me explain myself. I am from the borough of Greenwich, sitting on the outskirts of inner London, and I look in on Camden and Westminster, which can raise money through things such as parking charges, which enables them to finance local government expenditure in a way that other areas cannot. Is that not a major factor? You cannot take the face value of how much one local authority charges for council tax as a way of demonstrating its efficiency.
Guy Ware: It is clearly not a straightforward measure of the efficiency of the local authority or indeed its ability to raise resources in other ways, as you suggest. There clearly are differences between authorities. There are also a number of restrictions around the use to which such income can be put. Our approach in London Councils and the GLA has been to argue for the need to be able to look at London as a system as a whole. In order to make the success of the economy that I was talking about earlier continue, you cannot look purely at a borough-by-borough level, because the concentration of employment in the centre of the city means that that is where the majority of the jobs—not all of them, but a very large proportion—are going to be, but that is not where people are going to live. We need to think about how we can balance the contributions that various parts of the capital can make to its future success, and part of that will be the ability to invest in transport, to provide housing and to raise revenue through various types of resources.
Clive Efford
Q It is that ongoing ability to raise income from other sources that areas such as London can benefit from, but other local government areas struggle to do so.
Guy Ware: Again, I would make the point that some areas of London have greater capacity than others—that is the point from which you started—and some of those are comparable to cities and rural areas outside the capital and some are not.
Clive Efford
Q How much is the capacity to raise money from fees and charges a factor for different local government areas across the country?
Guy Ware: The ability to raise fees and charges makes a significant contribution to local government’s overall financial sustainability. I know that, as a sector as a whole, we will be arguing that there should be fewer restrictions on the capacity to make charges and the rates at which we can charge. A number of them are constrained not only by what you can spend them on, but the levels at which you can charge in the first place, which do not necessarily cover the costs of the services being charged for. Planning is probably the most well-rehearsed example. So, yes, it is significant to the ability of councils to budget and maintain their services, and as a sector we would like more flexibility and control over how we use that ability.
Graham Soulsby: I would like to supplement Guy’s answer. If we are going to move a simpler but more effective needs-based system, obviously a local authority’s ability to generate income in other ways needs to be taken into account, to make it fair to other authorities. To do that in a more effective way, look at the current restrictions that are in place. Many local authorities have, over the last few years and longer, tried to maximise their income base in the best way they can, because they have had to do that. There is probably less headroom than there used to be; but nevertheless if some of the restrictions were lifted it might just help with our overall funding issues.
Rebecca Pow (Taunton Deane) (Con)
Q This slightly relates to those issues. Mr Ware commented on incentives being important; I just wondered what your views are about abolishing the levy payments, which basically are a tax on successful business. Would it help to free up more money and make a difference?
Guy Ware: We would support that abolition; we think it does help produce a greater connection between the growth of economic activity in an area and the growth of business rates that can be retained within that area. That is currently what is funding the safety net system so, once we do that, we will need to think through the consequences and how you fund a safety net that is appropriate to manage the risk of significant reductions in resources.
There are two further fundamental restrictions on the amount of business rates that can be raised—one specifically covered in the Bill and one specifically excluded. The provision in clause 5, which changes the indexation that will be applied to business rates in future, effectively from RPI to CPI, is a good illustration of my point that it is not necessarily a fixed pot. That change alone, we estimate, will take £80 billion of spending power out of local government over 20 years. At a time when we are all discussing a crisis in funding for social care—that being a good third of local government funding—to reduce by fiat the capacity and buoyancy of the biggest single tax that local government will be collecting seems to me to be worthy of debate.
The second issue—the one that is not in the Bill— is the principle that sits behind the way in which business rates are determined. Each time it is revalued it is revalued to a fixed sum, so that the yield of the tax is determined in advance by the Treasury and the multiplier is set in order to deliver the amount that the Treasury says it should. Again, that is a policy choice that the Government make. It could allow the yield from business rates to rise with the economic activity that is underpinning it, in exactly the same way that income tax and corporation tax rise with the economic activity that they are taxing. It is only in the case of business rates that we have taken the choice to set a cap for the amount of money that can be raised.
That not only reduces the buoyancy; it also distorts the distribution. The issues between London and the rest of the country become really important here, because what happens is that within a fixed sum, every time there is a revaluation, property prices in areas where they rise faster than average—which is central London, but also lots of other places—go up faster than they otherwise would. The concentration of the tax base is getting greater and greater as a result; fewer and fewer businesses are paying a higher and higher proportion of the national business rate take. That could be cured—it could be solved—and in our proposals we have suggested ways to do so; but it is not a given, as I have said. It is a policy choice that has been made, and we think it is damaging.
Graham Soulsby: On the levy payment, I think the link to the safety net is really important because, obviously, it was used to fund that; so the system needs a mechanism so that it is still able to do that. The stuff in the Bill on the safety net, and additional flexibilities if a major business went under in this particular patch, are welcome. In reality, not having levies in the system is a sensible thing to do overall. What we found in recent times is, because most authorities operate business rate pools in any event—and by operating a pool you do not pay the levy, because you can do different things with it—it is just normalising what most authorities are doing. The evidence from business rate pools is that it is generating more economic growth. For that reason, I would say that it is a good thing to do.
Councillor David Borrow: I do not really have much to add, apart from to point out that generally county councils cover larger areas. Clearly, the risks are much less for a county council than for a district council, simply because if there were a loss and a problem in one part of the county, within a county council it would be lost in the mix, whereas for a district council in a two-tier area it could have quite a significant impact.