Local Government Finance Bill

Gareth Thomas 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 Jones]

I absolutely understand that local government has been complaining for far too long that the incentive to create growth is not there, particularly because of things such as the levy, which was implemented in respect of the 50% business rate retention scheme. As my right hon. Friend will know, that levy is being scrapped by the Bill.

This is not a Bill that increases spending and puts a greater strain on local taxpayers. Rather, it offers a focused package of reform that will encourage and support local growth, while we continue to live within our means. I will start with the commitment made in October 2015 that by the end of the current Parliament local government would retain 100% of locally raised taxes. In implementing our reforms, we will move local authorities away from dependency on central Government grant and towards greater self-sufficiency. Let me take this opportunity to record my gratitude for the substantial contributions made by many in local government, and in businesses, to the development of the reforms. The Bill is a major milestone in the process, and establishes the legislative framework for the reformed system. It reflects the significant input that we have received to date, and our collaborative approach will continue as we determine the detail of the implementation of the new system.

A key part of the new system will be the introduction of stronger incentives for local authorities to increase their business rate income. That will build on the current system of 50% business rate retention. Under the reforms, which we aim to implement in 2019-20, local government will retain about an additional £12.5 billion in revenue. To ensure that the reforms are fiscally neutral, authorities’ grant will be replaced by locally raised taxes for existing responsibilities, or they will be given new responsibilities. Those matters will be subject to separate discussions, and will not be dealt with in the Bill. However, the Secretary of State announced last week that the devolution of attendance allowance funding was no longer being considered as part of the business rate reforms, and I am happy to confirm that today.

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

In the consultation paper that they published last year, the Government, suggested that attendance allowance might be passed down to local government—I am glad that that is not happening—and that the £3 billion public health grant, and the better care fund that is so crucial to local authorities that face a social care funding crisis, would be axed as part of the fiscal quid pro quo applying to business rates devolution. Is that still the Minister’s intention?

[Mr Jones]

As the hon. Gentleman will know, the Bill does not deal with the principle of what additional matters will or will not be devolved to local government. Social care funding is an extremely important issue. It is this Government who have given local authorities the opportunity to spend up to an additional £900 million on social care in the next two years, on top of the additional package of £3.5 billion to which we have given councils access. In total, we have given them access to an additional £7.6 billion in the spending review period, which is dedicated solely to adult social care.

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[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

The people of England should have more power to shape their own destiny without having to wait for the say-so of Ministers. However, the Bill is just one part of a mix of new law, funding reviews and detailed regulations, and only when all are publicly available will we know whether Ministers have merely devolved responsibility for more badly funded local services, or if serious opportunities for local initiatives are genuinely being created.

The Conservative party has too often had a hostile attitude in practice to the idea of local people being given the power to govern themselves properly. Opposition Members well remember the attacks of the late Margaret Thatcher on local councils, the introduction of the poll tax, the abolition of London local government and the nationalisation of business rates. Notwithstanding recent deals on extending local powers in some areas, local council services have been one of the hardest hit areas of Government funding in every Budget since 2010.

[James Heappey]

While we are reminiscing, does the shadow Minister remember that the Labour party made harsh cuts to rural councils during its time in office, which was the cause of many of the problems with the imbalance of funding that we now face?

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[Mr Thomas]

I do not remember that. Under the previous Labour Government, I remember rural local councils being well funded and able to invest in local services, unlike the position that they face at the moment.

Devolving more financial power to local areas so that public services can be properly funded, with new business activity encouraged and vital infrastructure investment given the go-ahead, is an ambition that we would support, but the detailed implementation of the measures that the Bill paves the way for could make the difficult funding situation facing local government even worse, exacerbate the social care crisis and leave council tax payers having to foot even more of the bill for local services. If the measures are badly introduced, regional inequality could deepen and divisions between areas with a large business community and those with more entrenched barriers to growth might increase. We support the principle of 100% business rate retention, but such a policy needs to be accompanied by a redistribution formula that addresses the divide between those councils that have sizable business rates income and those that do not. It must ensure that no area of England is left behind or worse off than it is now.

[John Redwood]

Has the shadow Minister given any thought to what incentives might work in some Labour council areas where the business rate level is low and there does not seem to be any industrial or jobs growth?

[Mr Thomas]

I have given that some thought. If the right hon. Gentleman is successful in getting on to the Bill Committee, I hope that we can debate such questions a bit more.

The Bill does not answer the many questions that local councils have about how business rate retention will work in practice. In particular, there is no clarity about what additional responsibilities councils will be allocated in return for 100% business rates retention.

The Government’s record on local government will give few people confidence that they are capable of addressing such concerns. Over the past seven years, this Government and their predecessor have taken an axe to local government spending. The people of England have been left paying more council tax for worse local public services. Last month’s local government settlement only brought more of the same: Ministers forcing councils to put up council tax and make more cuts to local services.

[Mr Marcus Jones]

What the hon. Gentleman is saying is interesting because council tax is 9% lower in real terms than it was in 2010. Does he accept that council tax doubled when Labour was in government? That is not a record to be proud of.

[Mr Thomas]

Figures from the House of Commons Library suggest that there will be a 25% increase in council tax over the lifetime of this Parliament as a result of the Government’s measures. Local authority funding from central Government has been cut by around 40%.

[Mr Jones]

Even with the adult social care precept, which many councils have welcomed, council tax will still be lower in real terms in 2020 than it was when the Labour party left government in 2010.

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[Mr Thomas]

I admire the Minister’s wishful thinking in coming up with that fact. I gently suggest that he looks at his Department’s spending record on local council services. This year, councils will spend some £10 billion less than they spent in 2010-11. By 2020, according to the Local Government Association, councils will face a £5.8 billion gap just to fund statutory services. Since 2010, powers have been passed to councils without the necessary funding to go with them, so it is hardly surprising that sceptics wonder whether the Government are really interested in meaningful devolution, or just in devolving responsibility for cuts.

Every local authority has a list of lost services. The doors have shut on libraries, day centres and museums. Leisure centres, swimming pools and playing grounds have closed. Rural bus services, fire safety checks and youth services have been reduced, abandoned or shut. Legal advice services have been axed and women’s refuges have been lost. Investment in parks and street cleaning has been limited. All those services are treasured by local communities and represent vital lifelines for vulnerable residents.

[Kevin Foster]

It is interesting to hear the shadow Minister’s list. Can he remind me exactly how much extra funding the then shadow Chancellor, Ed Balls, promised as part of Labour’s plans for government in 2015?

[Mr Thomas]

If the hon. Gentleman looks at our manifesto, he will see that we committed to devolving £30 billion of additional spending from Whitehall to local government.

The Government like to pretend that it is simply ineffective management that stops councils providing key basic services, and that those local councils that are not making cuts to such services are managing their resources effectively. The former Prime Minister David Cameron, perhaps inadvertently, exposed the delusion best when he wrote to the Conservative leader of Oxfordshire County Council in 2015:

“I was disappointed at the long list of suggestions…to make significant cuts to frontline services—from elderly day centres, to libraries, to museums. This is in addition to the unwelcome and counter-productive proposals to close children’s centres across the county. I would have hoped that Oxfordshire would instead be…making back-office savings and protecting the frontline.”

That lack of understanding of the consequences of his own Government’s actions received the response it rightly deserved from the council leader, who wrote back to explain that some 2,800 council employees had already lost their jobs, that the remainder had experienced pay freezes or below-inflation pay increases for a number of years, and that assets had been sold off to fund revenue costs.

[Bob Blackman]

Will the shadow Minister help the House by clarifying one Labour party policy? There is currently a cap on the amount by which local authorities can raise their council tax. If councils wish to raise it further, they have to call a local referendum. Does he support that cap, and does he agree that there should be a referendum if local authorities wish to raise their council tax further so that we can get the democratic view of local people?

[Mr Thomas]

I will address the hon. Gentleman’s interesting question in the context of Surrey County Council’s announcement last week that it will hold a referendum on a 15% increase in council tax. I wonder how he or Ministers in the Chamber will be advising people who live in Surrey, including the Chancellor of the Exchequer, to vote in that referendum.

Perhaps one can sympathise with Surrey county councillors after not a single penny of new money was put into local government to help to tackle the social care crisis. Few people in local government think that the Secretary of State’s statement last month on local government finance will stabilise the care market, enable the recruitment of extra frontline care workers, ease the pressure on NHS hospitals, or ensure that all families with loved ones who need help will see them getting the level of care they actually need.

One reason why Surrey’s decision is so striking is because it has been able to increase spending on adult social care by more than 34% since 2010-11. Some councils have had to decrease spending on adult social care by almost the same proportion over the same period. In fact, only two out of the 152 social care-providing local authorities have been able to increase their spending on social care by more than Surrey, so if Surrey says that it cannot cope with the demand for social care, where can?

Although even Oxfordshire and Surrey have been unable to protect frontline services, the impact of local government cuts has been disproportionately felt across the country. The Bill offers no guarantee that the situation will get any better. The poorer an area, the greater its needs and the more it relies on public services, which are often funded by the revenue support grant, yet this Government’s cuts have hit the poorest areas the hardest.

The Institute for Fiscal Studies has stated that those councils

“among the tenth which are most grant-reliant have had to cut their spending on services by 33% on average, compared to 9% for those…councils among the tenth which are least grant-reliant.”

We cannot even call that a postcode lottery. It is true that postcodes matter, but it is not luck or chance that determines the quality or quantity of local services; it is the actions of this Government and their decisions taken in Whitehall. That is the context in which we must consider this paving Bill today.

Before any Government Member again tries to advance the idea that local councils are set to get a significant stream of new funds from keeping 100% of business rates, Ministers have always made it clear that what they give, with great fanfare, with the one hand today, they will take away on another day—probably when fewer people are looking—with the other. The Bill will apparently be fiscally neutral.

[Steve McCabe]

Birmingham City Council is a perfect example of giving with the one hand and taking with the other. It has been pretty brutally treated by this Government. Birmingham gets £5.6 million from the new adult social care fund, but it is losing £5.6 million as a direct result of the changes to the new homes bonus.

[Mr Thomas]

My hon. Friend makes a good point. Many local authorities throughout the country have seen services such as housing similarly disadvantaged by the Secretary of State’s decision.

There is no detail of what extra responsibilities will be passed to councils, or which of the additional grants that councils currently receive for their responsibilities will be taken away. Even though councils’ statutory responsibilities are not being properly funded now, Ministers expect councils to take on even more while losing further funding.

As I have indicated, I welcome the Secretary of State’s confirmation that he will not go ahead with his predecessor’s plan to get councils to handle attendance allowance but, as I made clear in my intervention on the Minister, this merely raises the question of what will happen to other specialist funding. The House will have heard the Minister refusing to rule out the end of the better care fund, which I hope the hon. Member for Totnes (Dr Wollaston) clocked, or the end of the £3 billion public health grant. Members representing rural areas would be right to worry about the future of the rural services delivery grant, which is also flagged up for possible axing in the Government’s consultation document.

The Minister has again promised that no local authority will lose out. Does that mean that local authorities will not lose out in year one because there might be some transitional help, or does it mean that every council will be better off and able to meet its statutory responsibilities in full throughout the next Parliament? I welcome Ministers’ intention to pilot their policy approach in five areas, and it is crucial that there is a fair system of top-ups and tariffs for redistributing resources between authorities.

Ministers have indicated that the system will be similar to the one that they introduced under the 50% business rate retention scheme in 2013-14, but that is not wholly reassuring. The Institute for Fiscal Studies has considered what would have happened between 2013-14 and now if 100% of business rates had been retained instead. It found that 16 councils would have seen their funding increase by 20% or more, whereas just one council has seen such a significant increase under the 50% retention scheme. Conversely, 122 councils would have seen their funding fall, with 12 losing more than 2% of their funding. No council has lost that much under the 50% scheme. To have a fair funding system under a 100% business rate retention scheme, the system of top-ups and tariffs must be amended, so why have Ministers introduced the Bill without publishing the responses to their consultation on the detailed implementation of that measure, which closed last July, and without even a date for the publication of their fair funding review?

The Bill raises more questions than it answers. For example, how will Ministers handle the business rates income of a local authority that benefits from a major national Government decision, such as to expand Heathrow or to build a high-speed rail terminus in its authority area? The business rates of Hillingdon Council, which neighbours my council, have always benefited from Heathrow. Westminster City Council similarly benefits considerably from business rates income that arises because of its fortunate proximity to major national assets. In such cases, how will some of the inevitable growth in business rates income, which will have little, if anything, to do with council policy, be redistributed to help authorities that do not benefit from such big advantages? Ironically, although Hillingdon Council has opposed the expansion of Heathrow, it stands to benefit significantly from business rates growth while doing nothing at all to help to generate it.

We also want to explore what would happen if a major business closed or moved away through no fault of the local authority concerned. The sudden loss of a major source of business rates income would have huge implications for the future of local services, but the safety net that Ministers are proposing looks less than generous, especially when we do not know how frequently the needs of each local authority will be reassessed and the top-ups and tariffs system will be reset.

The decision to allow only mayoral combined authorities to introduce an infrastructure supplement appears petty and vindictive. If a community needs infrastructure urgently, local English leaders should not have to jump through extra hoops to put together funding just because they are not a mayor.

Too many big decisions relating to how the business rates regime will work in practice are not yet clear, and too many big decisions will remain with the Secretary of State once the new regime is in place—that much is clear. As my hon. Friend the Member for Sheffield South East (Mr Betts), the Chair of the Select Committee, made it clear, it therefore seems a little drastic to abolish the need for Ministers to be held accountable annually for their performance on local government finance. It appears that they will still be decisive players in deciding which parts of England benefit more from business rates and which less so. The House should be able to hold the Secretary of State to account specifically for his performance on this matter.

Local government in England and the local services that the people of England rely on have been poorly treated by the Conservative party in the years since 2010, and the Bill could make things even worse. We will give the Bill a fair wind tonight and seek to improve it, but if significant change is not forthcoming, we will have to consider afresh our approach to the Government’s handling of this issue.

[Several hon. Members rose—]

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[Kevin Foster (Torbay) (Con)]

It is a pleasure to follow the hon. Member for Dulwich and West Norwood (Helen Hayes). The only observation I would make is that, as in many other speeches from the Opposition Benches, we heard a list of local authority funding and what happened in the last Parliament between 2010 and 2015, but I am drawn back to my earlier intervention on the shadow Minister. After nearly five years of complaints from the official Opposition about local authority funding, the then shadow Chancellor, now a “Strictly Come Dancing” star, was challenged about how much extra he would be putting in, with the plans until 2017 having been published, and the answer was nothing. It has therefore been interesting to hear some of what we have heard again tonight.

I came to this debate with high hopes, because, having read clause 9, I knew this would certainly not be a bog standard Second Reading debate.

[Mr Gareth Thomas]

Will the hon. Gentleman give way?

[Kevin Foster]

I am happy to give way—certainly on that point.

[Mr Thomas]

I have a copy of our 2015 election manifesto. It makes clear that we would have transferred £30 billion of funding to the city and county regions, so I hope that the hon. Gentleman will withdraw his remark.

[Kevin Foster]

The shadow Minister talks about transferring funding, but his party would have transferred responsibilities. When in January and February 2015 there was a direct challenge to the former Member for Morley and Outwood—it is interesting that he is the former Member—on how much extra Labour was going to put in, the answer was nothing. While there would have been a transfer, there certainly was not going to be anything extra after five long years of complaints. Perhaps that was also one reason why people did not have much confidence in the Labour party having a real programme for government and duly dealt it the electoral blow that surely had to follow, and that I suspect will soon follow again.

I want to go into the details of the Bill and explain why overall it is welcome. When I became the cabinet member for city development in Coventry—I had some quite constructive dealings with the hon. Member for Coventry South (Mr Cunningham) at that time—as part of the training scheme we were briefed on what was called the Birmingham dilemma. Previously, councillors in Birmingham had chosen to spend money on regenerating the city, but of course to do that they had had to take money out of the services they were responsible for. While the regeneration had created new jobs and brought new business rates in, they took the blame for the cut in the services that they had had to make to fund it, and they did not get the reward when a significant amount of extra revenue was generated for the national Exchequer. We were briefed on that, and on how we could balance the fact that if we wanted to start regeneration or push forward a project as a local councillor, we did not get any of the reward for doing that financially; we only got the esoteric reward of being able to point to lower unemployment figures in our area or point out that the town centre was looking a bit better following the regeneration scheme. The incentives in terms of day-to-day profit and loss, or, rather, the revenue budget, were just not there. That is why the change to give local authorities more ability to retain the business rates growth they receive and remove that dilemma from local councils is welcome.

It is particularly good that we are now moving to 100% of that growth being retained. Of course in scrutinising this Bill in detail there will need to be some mechanism for when there is a sudden windfall; to be fair, that was touched on by the shadow Minister. Through a stroke of luck, a piece of national infrastructure might be dropped off in a district council area, but that might not necessarily be a sign of taking radical decisions for growth. Likewise, however, if a community is getting a piece of national infrastructure dropped off in its area, it is not unreasonable for it to want to get a direct reward from the business rates concerned.