Local Government Finance Bill

Dan Poulter Excerpts

2nd reading: House of Commons & Carry-over motion: House of Commons & Money resolution: House of Commons & Programme motion: House of Commons & Ways and Means resolution: House of Commons
Monday 23rd January 2017 Commons Chamber

[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.