Gareth Thomas
Main Page: Gareth Thomas (Labour (Co-op) - Harrow West)Local Government Finance Bill (Fourth sitting)
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Mr Gareth Thomas (Harrow West) (Lab/Co-op)
On a point of order, Mr Gapes. In what is a wonderful coincidence, one of my written parliamentary questions about when we can expect the publication of all the responses to the consultation document that Ministers released in July last year has been answered today by no less a figure than the Minister present himself. Helpfully, the answer tells me that there were 450 responses; less helpfully, it implies that they will be published in the fullness of time and only in summary form. Do you have any explanation, Mr Gapes, for why only a summary will be published? In the interests of full transparency, what is wrong with allowing us to see all the detail of the responses?
The Chair
I have not had an explanation for anything. As the hon. Gentleman knows, the procedure for publishing written answers does not come through the Chairs of Committees. I suspect that this will be a matter for debate as we go on. The Minister is present, so he will no doubt be able to answer questions or interventions at a later stage. Without further ado, we resume the debate.
Clause 1
Local retention of 100% of non-domestic rates
Amendment proposed (this day): 1, in clause 1, page 1, line 7, leave out subsection (2).—(Mr Thomas.)
This amendment would remove subsection (2) of Clause 1, retaining the requirement that a billing authority pays a proportion of non-domestic rating income to the Secretary of State.
Question again proposed, That the amendment be made.
Justin Tomlinson (North Swindon) (Con)
It is a pleasure to serve under your chairmanship, Mr Gapes. Through your leadership, we have had a very positive beginning to the Local Government Finance Bill.
I am mindful that I am following a very good speaker, someone who has significant powers and influence: first, the hon. Member for Harrow West magicked up a written answer over lunchtime; and, secondly, he was so persuasive when challenging my hon. Friend the Member for Northampton South to engage with South Northamptonshire Council that that meeting also took place over lunchtime. Therefore, I fear that our very able Minister may be tempted to accept some of the amendments and I feel a need to step up and defend the thrust of the principle behind the debate.
The whole principle is that of incentivising and trusting local authorities, as we heard in evidence on Tuesday. From the Local Government Association briefings, it is clear that councils would like to have the 100%. That is vital in my opinion. I served as a councillor for 10 years and I have been lobbied by and have spoken to a number of local authority representatives. They are interested in seeing further details—I am sure we will be going over things in great detail in coming weeks—but the principle is that they wish to be trusted. They are best placed to make those decisions and to take those actions. On Tuesday, I challenged the witnesses about that. I asked whether there was sufficient business capacity. Understandably, the witnesses were quite defensive, but I was encouraged by their enthusiasm for the challenge and the opportunities being presented.
We must not forget the residents; that is also vital. Often, when we talk about growth in business rates, it means new businesses, expansion and development. That is not always universally welcomed by local residents, as anyone who has ever served on a planning committee would know. It is right that the principle is that, if they are going to be inconvenienced as a community, they should also be rewarded for that.
That also provides a focus for local authorities. I am very fortunate. My local authority is very proactive in this area—our local plan was agreed very early on and it does its best to encourage growth—but it does not necessarily have sufficient focus to speed up the process sometimes. I am lobbied by people trying to bring new development to my constituency, who say, “We would like it to be quicker.”
Mr Thomas
I am delighted that the hon. Gentleman has been encouraged, no doubt by the Minister and the Whip, to speak in defence of the Bill. As he will remember from Tuesday’s sitting—I think he was present—one of the witnesses, one of the voices of business, said that, because of the scale of the cuts in funding to local authorities, many of the services labelled as discretionary which help businesses have been substantially cut. Does that not underpin the concern that we on the Labour Benches have about the need for proper redistribution?
Justin Tomlinson
First, to be absolutely clear, I do not need any encouragement by the Whips to engage. I was elected in my own right. That intervention actually strengthens my point. Whoever is in government, difficult decisions have to be taken about public spending, and elected representatives are mindful of the people they are accountable to. It is often easier to focus decisions on some of the services—perhaps those that will directly affect businesses, since they will not necessarily queue up at the ballot boxes. However, under the proposed new system, protecting business income through business rates will become a greater priority for local authorities. We have rightly focused on new opportunities, but the change will also protect existing businesses and give them a greater ability to get an audience with decision makers and say, “By working together, we can not only grow but protect existing jobs.”
Justin Tomlinson
The hon. Gentleman pre-empts some of the things I am coming to. I made it clear that I am very lucky to be the MP for an area with a local authority that is proactive in this respect, but that is not a given across the rest of the country. I do not disparage other councils, because all councils have to decide their own priorities. I represent a high-growth area where, for those who are interested, 8,100 jobs have been created since 2010. I know it is hard to believe, but that is greater than the average gate at the County ground. That is because the council recognises that it should be proactive. Could we have done that faster? Yes. We are landlocked by several local authorities that are less keen on additional development and growth. They have their reasons for that, and I respect those.
We will deal later with the pooling of some decisions and the sharing of some benefits. I was particularly taken by the point about Heathrow, which I will come back to, because I see further potential in that area.
Mr Thomas
Before the hon. Gentleman flies away to Heathrow, may I take him back to the example that I gave this morning of Allerdale Council? Its one major town is Keswick and it is surrounded by natural barriers to growth, so it is highly unlikely that there is substantial space for the type of property-based development that I accept the Bill could encourage in some areas.
Justin Tomlinson
I was coming to that point. As a broad principle, we are looking at not only new opportunities but protecting established industries, which is obviously topical. Local authorities can lobby the Government to ensure that such industries are protected, particularly if there is ever a change in the country.
Justin Tomlinson
May I ask the shadow Minister to be ever so slightly patient? I am being tempted to fly in various directions. I will finish this point, then turn to that one.
Why does this matter? We all talk about new income opportunities and providing incentives, and trusting local authorities as the best vehicles to deliver those. That is incredibly important, but we seem to be missing the emphasis on creating jobs. As I said, 8,100 new jobs have been created in my constituency and unemployment has fallen by 60%, in part because new regeneration and development projects have attracted businesses from other local authority areas that have not supported the business community so proactively. Those things matter to the people on the ground, because they benefit directly. As I said, the 60% fall in unemployment is making a genuine difference to people. We have to protect the maximum potential of the incentives on offer.
Justin Tomlinson
Absolutely. I only focused on Heathrow because that was the one that was mentioned; there are lots of national infrastructure projects. The reality is that Heathrow will be expanded, so those residents are going to be inconvenienced.
At least this proposal would have allowed an opportunity for the respective and closest local authorities to do those deals and say, “We can see the inevitability, but we could speed up the process if we were to gain some more of the reward for the inconvenience of this national infrastructure project that happens to be sited in our area.” I would think that was a reasonable ask of my local area, if there was a demonstrable and tangible gain for that area.
Mr Thomas
The hon. Gentleman is advancing an interesting argument and I can see how, in certain circumstances, pooling might enable the benefit of a big infrastructure investment to be shared more widely.
Let us come back to the third runway. That is a national piece of infrastructure that will benefit the whole country. Therefore, the pooling point is surely less applicable than that about ensuring that the business rate growth that the third runway generates can be redistributed across the country. Amendments 1 and 23 would help to achieve that; I suspect pooling would not mean that every local authority in England would benefit.
Justin Tomlinson
I understand that, but that is saying to the local authorities, “We don’t trust you to lead on those sorts of negotiations.” I was incredibly impressed by the witnesses who gave evidence on Tuesday. I wanted to challenge and push them; I expected them to say that they were not up for this, but their enthusiasm and capability to deal with such matters was crystal clear. I am excited by these opportunities. There are lessons to be learned. We have seen some of this take place with LEPs. They are not perfect—they are still in their infancy —but there have been examples of good practice.
For me, the clause is about giving local authorities power, and a savvy local authority council leader would be leading conversations. I do not say that randomly. I have been an MP for six years and a councillor for 10 in a fast-growth town that has taken more than its fair share of housing development—in fact, it has been one of the fastest-growing towns, year on year, for the last 20 years. We have learned that it is better to lead those conversations, do the deals and talk to our less inclined neighbouring authorities to try to find ways to speed up the process, because, while I appreciate that there is inconvenience for local residents, it is good for the economy and good for people to be given jobs and housing. There is no better way of doing that than by releasing income.
Mr Thomas
The hon. Gentleman makes an interesting point. I agree that councils are often better at grasping the opportunities—be they for housing or infrastructure—that come in the wake of big decisions, and there are many examples of Labour leaders having taken a similar approach, Manchester’s being a classic case. However, that is not an argument against amendments 1 and 23, or indeed amendment 2. What does he have against the substantial redistribution that the amendments would achieve?
Justin Tomlinson
That neatly ties into my conclusion, which is purely about blunting the maximum incentive potential. If we are to focus minds, we should say to those innovative, great local authority leaders, “We will give you the tools to generate income and growth, and create new jobs, and to be rewarded for the inconvenience of growth and development.” We have to give them every single opportunity. If we have redistribution, local authorities will keep knocking on the door repeatedly to plead with the Minister for their special cases.
I have never found an MP or local authority who does not feel that their area is hard done by in some way. We are all skilled in looking at the statistics and saying, “We have a unique, special case for additional funding.” We need to allow like-minded local authority leaders who work well together, who lead with the LGA and share best practice, to have those sensible conversations. Fundamentally, we are not a million miles apart; it is just that the Government side are probably a bit more confident and trusting of the abilities and enthusiasm of local authority leaders.
Justin Tomlinson
That is a very interesting intervention. By pure coincidence, I happen to have the Honda factory in my constituency. Another MP raised that point on the Floor of the House during the Brexit debate. I gently remind the hon. Gentleman that Honda operations, which used to supply 100% of its cars to Europe three years ago, was ahead of the Government and public opinion and switched to global exporting of the cars: 80% of the cars now go globally. The impact of the referendum does not cause any issue at all, now or in the future, to the major employer in my constituency.
We could look at this hypothetically. There will always be issues beyond local authority control, because the world changes. Industries and technologies will change. That is why there are protections in the Bill. There would also be an incentive for local authorities to start planning and looking ahead. Local authorities and MPs get lobbied regularly by employers telling us either that things are going great and they are looking to expand, or that things are potentially going wrong. When we are told that things are going wrong, there will now be an extra incentive to engage with them to find a way forward.
I remember when Honda was struggling during the financial downturn. It was still producing all those cars but could not sell them. The local authority—this is a good example—found the company significant amounts of land to store those cars on. Again, I was lucky that we had a forward-thinking, proactive local authority. Every local authority is different and they have competing priorities; this is about ensuring that that priority is absolutely at the top.
Mr Thomas
I have been listening keenly to the hon. Gentleman. He was going to come to the example of the council that has a series of natural barriers to growth: the Allerdale Borough Council, which Keswick sits in. I have not heard him talk about how the Bill will generate massive new incentives for it, but as the hon. Member for Waveney is now present, perhaps he might allude to the problems facing coastal authorities, where there is an obvious natural barrier to economic growth.
Justin Tomlinson
I would not dare to incur the wrath of the Chair of the Committee, Mr Gapes, who has made it clear that this is not the time to discuss coastal matters, although I am sure that by the end of the 10 sittings we would all welcome a day trip to some of those coastal constituencies to see them at first hand.
I felt I had addressed the point about landlocked areas. Although some areas will find it easier to attract additional large-scale developments, such as the warehouses I mentioned, this is also about maintaining and protecting industries that are already there. That may be a case of lobbying national legislators not to make changes, in order to protect them. It is also about expanding microbusinesses to tip them into a size at which they have to pay business rates, having grown sufficiently and increased their headcount. Not every element of additional revenue will be raised purely by big expansion; it will also be done by speeding up organic growth that delivers income and jobs.
Mr Thomas
Is there not a broader point here about the sustainability of support for council tax? The Prime Minister has made much of trying to help those who are “just about managing” with their family budgets. A 25% increase in council tax, introduced because Ministers in the Department for Communities and Local Government have no clout with the Treasury, will have a huge impact on the budgets of those whose finances are in the “just about managing” category. Does that not also play into the debate about the future of local government finance?
Jim McMahon
It is actually worse than that. If people thought, “Okay, the things that I rely on as a taxpayer are being taken away, but it will mean that my elderly relative or neighbour is being better looked after”, there might be a begrudging acceptance that that is the new settlement. The problem is that the additional council tax that is being collected will not even pay the additional national insurance contributions or living wage contributions that are expected. Even though people will be paying more in council tax, it will not mean more people receiving adult social care when they need it, because local authorities are struggling to keep their heads above water.
When local councils came to the Government to ask for support for adult social care, the Government did a three-card trick. They said that they would provide new money, but they took the money from the pot that already funds council services. They took £241 million from the new homes bonus, refreshed it and put it back in as an adult social care grant of exactly the same amount. Within the total amount of money in local government, there is no new money for adult social care.
The increase in precept that council tax payers are paying for this year will be a negative £6.7 million throughout the country, because all that money is going towards paying for the increase in national insurance and living wage contributions. It is not even enough funding to keep councils’ heads above water. Of the councils that have had new homes bonus money taken away, 57 receive less for adult social care under the new system than they did before. We asked for information on the criteria used to assess where that money went, but there were none. It was all completely fictitious—it was made up.
Let us be honest: the Local Government Association is a fantastic membership organisation, but it is often accused of going down to the lowest common denominator because it cannot quite get cross-party agreement. However, the one issue that has absolutely united the different parties on it is adult social care. The LGA highlights that there will be a £2.6 billion funding gap in social care by the end of the decade and notes that the Government’s settlement
“will…fall well short of what is needed to fully protect the care services for elderly and vulnerable people today and in the future”.
The LGA also states that
“increasing the precept raises different amounts of money for social care in different parts of the country unrelated to need and will add an extra financial burden on already struggling households…it is hugely disappointing that today’s settlement has failed to find any new money to tackle the growing crisis in social care.”
So a cross-party organisation chaired by a Conservative Member of the House of Lords, which at some point will consider amendments to the Bill, has come to a cross-party agreement to call this a crisis, yet in his evidence session the Minister completely denied that there was a crisis in adult social care. I am not sure what else we can call it, when a million people who need care are not receiving it and when the Government are putting the burden on council tax payers but not even covering the cost of keeping people’s heads above water. I am not sure how we can say that there is no crisis, when the new model does not at all take into account the pressures being put on people.
We hear that new money has been provided in the form of the improved better care fund. Let us bear in mind that the LGA identified a £2.6 billion funding gap. The better care fund provided £105 million. That is a drop in the ocean compared with the real adult social care pressures that we have. We still need to see the detail, but our expectation is that the £12.8 billion of additional business rates referred to in the evidence session will swallow up all the grants that are currently distributed to local authorities. The truth is that there will be no new money for social care as part of this. That is why amendment 2 is so very important.
Mr Thomas
I do not know whether my hon. Friend has seen the publicity about the statement that the Association of Directors of Adult Social Services made today on its submission to the Treasury ahead of the forthcoming Budget. It makes the case, similar to the Local Government Association, that there needs to be an injection of £1 billion now to prevent the social care system from going even further into crisis. Does that not also underline the case for amendment 2? If there are problems now and we do not sort them out, they will only be greater in 2020 when this new system comes in.
Jim McMahon
I absolutely agree with the professional response. The problem is we do not have proper checks and balances and we do not have a system of tariffs and top-ups and a proper safety net that catches people when they fall. We hear that that will come, but we have not seen the detail. We are being asked to agree a framework that allows this Bill to go through without actually knowing what impact it will have on individual local authorities across the country. It is a fundamental consideration when passing law that one understands the impact that law will have. We do not mind making bad decisions, but we should not be making bad decisions without all the information.
We are in a situation where spending on adult social care has declined by £65 per person in the most deprived areas of this country, but has increased by £28 per person in the least deprived areas. I would not resent that increase if it meant people got the care they need, but I do resent the fact that people who live in deprived communities are not getting the same access to social care that people in more affluent parts of the country are. We are meant to be one nation. We hear that all the time in the Brexit debate; when the Scottish National party kicks off about what is happening in Scotland we all say, “We are meant to be one nation. We take a collective responsibility for our nation.” Let us have a collective responsibility for adult social care and make sure that everybody gets the support they need.
Jim McMahon
I am going to pay a visit to Swindon at some point—it feels like it is the hallowed land for development. I have visions of 20-storey tower blocks shadowing the town.
It is not accurate to say that we are proposing to tax students. Let us approach this issue in a mature and measured way and stop the cheap headlines. This is about making sure that there is a resilient and robust tax base in every area so that local authorities can generate the tax needed for public services in their own places.
We know the impact of not doing so. Adult social care complaints have gone up by 25%—people who are in receipt of services have increased the number of complaints they feel they have to make—and there has been a rise in 15-minute visits. This is not a cost-free exercise. Government seem to have a view that if we just turn a blind eye, say that it is not our problem and tell local authorities to find a solution—and if we just move money around without there being any extra money, which just helps us feel a bit better about ourselves—there is no problem. Well, speak to NHS England and ask what the problem is. The longer we ignore the pressures on adult social care, the more we push the burden on to the NHS. People who should be looked after in their homes are being forced into hospital to get the treatment that they need, and people in hospital cannot go back home and are having delayed discharges because the support they need is not ready for them to be able to go home. The cost of that is £820 million a year. There is a cost of doing nothing.
Mr Thomas
At the risk of injecting a partisan note into the proceedings, which you know I hate to do, Mr Gapes, I wonder if my hon. Friend has had the chance to look at the 20 councils responsible for the highest number of delayed discharges from hospital, which the Prime Minister has raised concerns about. The majority of those councils are Conservative authorities. I sympathise with those authorities because I do not think that they should be under attack from Ministers when there is a huge funding crisis in social care. I wonder whether my hon. Friend has seen those figures.
Jim McMahon
I have seen them and they tell a story. Instead of just reading out numbers—this is that kind of debate—I am trying to focus on how I would feel if I were in that position and one of my family members needed that type of care. I would feel bitter, not just about council tax but about the country. Our elderly relatives have given their lives to this country, worked hard and done what was asked of them. They have made a contribution. Many have served in the armed forces in order to provide the freedoms that we enjoy, but when they are at their most vulnerable and need us most, we turn our back and say, “It’s not our problem.” That is not the type of country I want to live in.
The Minister needs to accept at some point that this is a Government problem born out of Government indifference and deferral. It is high time that they stepped up. If they did so, we might not have the highest number of delayed discharges from hospital for elderly people since records began, or an 18% increase in A&E admissions for elderly people. Those are real challenges and real problems.
Mr Thomas
My hon. Friend said that he wanted to go to North Swindon and I know that he will travel back to Manchester. May I encourage him to reflect a little more on the current situation? When the right hon. Member for Cities of London and Westminster (Mark Field) spoke on Second Reading, he drew attention to the fact that Westminster City Council collects the most business rates; the figure is some £1.8 billion a year and he expects it to rise to £2 billion. Without amendments 1 and 23, is there not a risk that some of the redistribution from Westminster—I do not know whether Swindon benefits from that, but Manchester and Harrow certainly do—might be lost?
Jim McMahon
It would be ludicrous if the paper on distribution, which we are waiting to see, resulted in Westminster, which has had every advantage, keeping 100% of £2 billion. I would be amazed if any Government would be that stupid. I know that the Minister would not allow that to happen, because the kick-back from Conservative authorities would be as loud as that from Labour authorities. It strikes at the heart of fairness. It cannot be right that the seat of Government, with so many Departments involved in the payment of business rates into the system, has nothing to do with the actions of Westminster City Council. History shows that we have reached this point because that is how the UK Government have developed over time.
Jim McMahon
I absolutely believe that there is more to be done to bring together health and social care budgets into one pooled pot for the local area, with local government being given the responsibility for teeming and ladling and being held to account by the public for that. That is absolutely the right way to go. Only by doing that can we break down the institutional silos.
To be fair, the NHS has not reformed in the same way that local councils have had to reform. Joint working could benefit both parties, but we have to be honest about the transition required to do that, and accept that any pilot that has enough money and energy thrown at it can be made to work. We need to consider whether the pilot can be mainstreamed. Different people may approach everyday activities in different ways, so the two systems will have to run alongside each other for a certain period, with the inherent demand continuing as the new system kicks in.
Councils have to be able to see that change through. It could take a five to 10-year project to see through the cultural change to systems and processes, staffing terms and conditions, and everything else that would need to be looked at to ensure that it works. We are seeing that with troubled families. The Government do not have the long-term vision or appetite to see through genuine cultural change in how we deliver public services. If they do not see a saving after year one, two or three, the money is pulled and we start from scratch with another pilot. I absolutely believe in reform, but it has to be sustained reform over a period of time, and we have to be realistic about the amount of time it will take.
Mr Thomas
I highlight a small vignette of the crisis. It is odd that Ministers have not addressed the additional cost for social care providers as a result of the so-called national living wage. It is a good thing, in and of itself, but care providers need funding to compensate for the rise in costs, and nothing that Ministers have had to say, including on funding pots, has addressed that. Does not that need to be addressed before the new system is introduced?
Jim McMahon
That problem relates to my earlier comment about the need for a transition period when aligning staff terms and conditions and salaries. The truth is that staff employed by local authorities and private social care providers are on significantly worse terms and conditions than those of their NHS counterparts who have similar responsibilities to them in hospitals.
The Government do not have an answer as to the number of care providers that could go bust. Councils will have a limited amount of money that they can pay, and some providers will decide whether they can remain in the industry. We do not have a solution if a significant number of those providers give up and pass the responsibility on to social care in the local authority. We cannot afford what we are doing today, and if they took such action we certainly could not afford the increase.
There is almost a double whammy: we want the local authority provision to be a decent place to live and a decent employer—because that is the state, and we want it to set the bar for a decent place. Not only are we telling private providers to pay the national minimum wage; we are telling them to pay between visits. It is not good enough that people get paid only for a 15 or 20-minute slot, and not while they are travelling to the next appointment. We have been pushing—good local authorities have been policing it—for their staff to be paid for their hours working on the job, including travel time. However, for some providers that has increased the staffing bill significantly, on top of national insurance contributions and the national living wage.
I have talked enough about social care. If I am honest, the Minister probably still has not been brought to the point of changing his mind about whether there is a crisis. However, I am satisfied as to my own experience in local government, as a member of the community with family receiving council services, and of listening to what is being said by professional social workers, the LGA, NHS England and, to be fair, Conservative council leaders. It strikes me that everyone accepts that there is a crisis—except the Minister, when he gave evidence to the Committee. I invite him today to put the record straight, face his responsibilities, accept that there is a crisis and commit today to doing something about it.
The Parliamentary Under-Secretary of State for Communities and Local Government (Mr Marcus Jones)
It is a pleasure to serve under your chairmanship, Mr Gapes. I thank the hon. Member for Harrow West for tabling the three amendments about the current central share of business rates income, and welcome the opportunity to discuss the important matters they raise.
To begin with amendment 1, removing the central share is essential to enable local government to retain 100% of locally raised business rates and to move away from its dependence on central Government and towards a more self-sufficient future. On Second Reading, the hon. Gentleman was supportive of the principle of 100% business rates retention, but his amendment would let central Government take a share of locally raised business rates income.
We have been working closely with local government, including doing significant work with the sector on developing the policy and on how 100% of business rates can be retained in local government. Keeping the central share would cut across the joint endeavour that the Government and the local government sector have embarked on.
The hon. Gentleman raised the principles of the fair funding review, the consultation response and further consultation. We have made it clear that it is a fundamental review of the approach to setting a baseline for 100% business rate retention. It is guided by the principles of fairness, simplicity and transparency, and we have been working in collaboration with local government in that respect. As the hon. Gentleman knows, we shall consult shortly.
Mr Thomas
The principles that the Minister outlines are all wonderful—who could possibly be against them?—but there is a touch of motherhood and apple pie about them. Will the index of multiple deprivation feature highly in the categories that the Minister has in mind for influencing how the fair funding review will play out?
Mr Jones
Last summer, we put out an open call for evidence from local government in order to get its views on that very type of issue. We have received its responses and we will provide them in due course. We have spent a significant amount of time today scrutinising this proposed framework legislation, and the hon. Gentleman will know that the detail of how the fair funding review will work, including with regard to redistribution and setting the baseline, will be dealt with at a later stage, when we have the time and information and have worked with the local government sector to put together a fair package. Many local authorities have responded to various departmental consultations in recent years by making it clear that they do not believe that the needs assessment, which was last looked at properly well over 10 years ago, truly reflects their demographics, because they have changed significantly since it was last done.
Mr Thomas
I entirely accept the Minister’s point about the needs assessment—it is entirely reasonable, in my view, that a new one be conducted—but there is a touch of mañana about his argument. He said, “The fair funding review will come in the fullness of time. Don’t worry about that. It will come in due course.” He could have submitted the Bill for prelegislative scrutiny; instead he is rushing ahead with it before any of the 450 responses have been published. Why is he so desperate to get the Bill through Parliament before we have had the chance to see the outcome of the fair funding review and a draft of the regulations?
Mr Jones
As the hon. Gentleman knows, this time last year the Government put out a four-year offer regarding the local government settlement to councils, 97% of which accepted it. At the same time, we made it clear that we would honour those commitments. We also made it very clear that we would be moving to a system of 100% business rate retention and that we would look at the fair funding situation. We made the timing of the move to the new system clear, and we have to have framework legislation in place to make that timing happen. Given that the fair funding review will be a significant piece of work and that we are going to look very carefully at need, we also need time to follow that piece of work through. So we need the legislation, and then we need to put the pieces of the jigsaw together to come up with a complete picture. I am sure the hon. Gentleman understands that.
Mr Thomas
I am grateful to the Minister for giving way. He often hides behind the four-year offers to local authorities when a difficult question is asked about the funding of local councils, but already the basis on which councils signed up to that four-year assessment has changed, because of the changes to the new homes bonus and the money being taken out for adult social care. I gently suggest to him that when it comes to completing jigsaws, it is helpful to have all the pieces to do so. At the moment, this Committee does not have all the pieces; we just have one third of them.
Mr Jones
The Government are committed to and have shown good faith in keeping to the agreement we made about the four-year settlement. Regarding the new homes bonus, which was not included in that settlement, we made it very clear at the time that there would be changes to it. In fact, this time last year we embarked on a consultation explaining that we wanted to sharpen the incentive in relation to the new homes bonus.
In addition, it was quite clear to local government at the spending review in 2015 that the new homes bonus would change, because the improved better care fund, which will total £1.5 billion by 2019-20, was intended to be funded by savings made from it. As such, changes to the new homes bonus have not necessarily been a shock to the sector.
Mr Jones
The point was that local government knew there was a challenge to be met and they knew they were not immune to the reductions in public spending. Coming back to the point, what local government had asked for for many years, above a lot of other things, was certainty. With the four-year deal we have given a significant level of certainty to local authorities that hitherto had always been hanging on the word of Government come December as to what their position would be when they set their budget for the following financial year, which would start at the end of March and take them through to early April. Generally, local government have welcomed that. As to whether they would want a quantum of money within the settlement, I am sure many local authorities would, but at least the deal has allowed local authorities to plan and to use other resources. For example, in many cases it has allowed them to use reserves to bring forward transformation plans that enable them to meet the challenges that they face.
Let me respond to the point that was made about two-tier authority areas by the hon. Member for Harrow West and the way in which the splits would be made in terms of income between the different tiers of local government. The amendment to retain the central share does not achieve that aim. How business rating can be shared between the tiers will be set out in regulations under part 4 of schedule 7B to the Local Government Finance Act 1988. We do not need to retain a central share to distribute business rates income between tiers of Government. As has been the running theme through this and I think will be a running theme in Committee, we are working with local government to work out how the split should work under 100% business rate retention.
Mr Thomas
To pursue another running theme, is there any sense of timing for when those draft regulations might become publicly available so that local authorities, not just those on technical working groups between the Department and the LGA but local authorities in all their full glory, can see and understand what those regulations might mean for their finances?
Mr Jones
As I have said, there is still a significant amount of work ongoing with the sector that we need to bring forward to amend those regulations. That work will continue. When we get to the point where we are able to put more meat on the bone, we will certainly do so and that information will certainly be available to the House.
On amendments 2 and 23, the explanatory statement provided by the hon. Gentleman on amendment 2 demonstrates that he is seeking to ensure that a proportion of business rates income is retained specifically for the purposes of spending on social care services. Similarly, amendment 23 seeks to impose conditions on how locally raised business rates should be spent by a council and by central Government if we were to retain the central share. I will explain why the amendments are not necessary.
As the hon. Gentleman is aware, decisions are yet to be taken about the services to be devolved to local government to make 100% of business rates retention fiscally neutral. That does not require primary legislation and is therefore not a part of the Bill. Funding for all services that councils deliver, including social care services, will be part of the considerations. The fair funding review, which I mentioned earlier, will also consider the relative needs of local authorities, including adult social care, and will set initial funding allocations for the 100% rates retention system.
As I said earlier, we recognise the pressure on councils. Despite the comments from Labour Members, we also recognise the challenges of and the pressures on social care services, but we have taken action to help with such pressures. Local government will receive up to £7.6 billion over the course of this Parliament to spend on adult social care services. I assure the hon. Member for Harrow West that the introduction of the 100% business rates retention system does not mean that local government may no longer receive any funding from a central Government grant. Where there is need to provide a funding stream for a specific service or outcome, the Government can continue to make such provision.
I hope that I have reassured Members in a reasonably pithy way that the amendments are not necessary and that we can achieve their aims without taking a central share of business rates income. I therefore ask the hon. Gentleman to withdraw the amendment.
Mr Thomas
We have had an interesting debate. The challenge set before the Minister in amendments 1 and 23 was to clarify the Government’s intent towards the redistribution concerns of local authorities. We have not yet had clear answers to my specific questions on redistribution.
I asked how redistribution would work in practice. We have not had an answer to that question. I asked whether there would be amendments to the system for tariffs and top-ups. I do not think that the Minister mentioned them at all in his response. I asked how, given the importance of revenue support and other grants to ensure that areas’ spending power is equalised, the new system would make such compensation. We have had only a partial answer to that—I will come back to it in the clause stand part debate. I asked for more clarity on the key principles on which the fairer funding formula will operate. It is true that I got that offer of some principles, but no clarity beyond those very basic, broadbrush principles; nor was there any clarity—or even, I am sad to say, any recognition—about the concerns facing the poorest areas in income and spending power, as opposed to wealthier areas such as Westminster, under the new system.
I am concerned that we are no further forward. It was interesting to hear the Minister talk about the need to get the Bill through in order to move ahead with the other elements of the package, but as I indicated in an intervention there was nothing to stop the Minister from submitting the proposals to prelegislative scrutiny. The obvious place to do that would have been in the Communities and Local Government Committee, as has happened in the past for similar pieces of legislation.
The only thing that would appear to be absolutely fundamental for Ministers in the Bill is the abolition of the local government finance settlement and the scope for a debate in the House of Commons on the state of local government finances. The only thing that Ministers will benefit from immediately seems to be the absence of that particular form of financing.
Rob Marris
On the issue of redistribution that the amendments cover, does my hon. Friend agree that we could look at it and say that the Government have put the cart before the horse? They have decided that there will be 100% devolution, but as the Minister said a moment ago, they have not yet decided which additional responsibilities they will devolve to local government. Almost invariably, additional responsibilities require additional expenditure. They are setting the finance out in the Bill, but they are not telling anyone what to spend it on until down the road.
Mr Thomas
My hon. Friend makes a good point. I will come back to the issue of new responsibilities, if he will forgive me, because it is better covered in our debate on clause 1 stand part than on amendments 1 and 23.
It was lovely to have the hon. Member for North Swindon get up and take part in this debate. I hope he will not be intimidated and will be a regular contributor on other occasions. I had a sense of Don Quixote and his trusty, loyal servant Sancho Panza as the hon. Gentleman defended the Bill’s principles without really getting into the issues of redistribution that we touch on in the amendments. It was rather revealing that he talked about the blunting of incentives if redistribution continued to be a significant factor; that rather gave the game away and will worry many in local government as to what this measure will mean in practice.
I was fascinated by the hon. Gentleman’s recollection of witnesses’ enthusiasm for the incentives in the Bill. Let me draw him back to the evidence we received on Tuesday from Mr Dominic Williams of the Federation of Small Businesses. Commenting on the incentives that Ministers suggest are in the Bill, he said:
“our view is that that is not really an effective incentive, for a number of reasons. First, it only applies to the development of new physical property. It is an incentive to permit more development; it is not necessarily an incentive to look after your existing business community. Secondly, throughout much of the country, particularly over the last few years, there has been very little development”.
That would suggest that the current system of 50% distribution has not produced evidence that 100% business rates retention will offer any more of an incentive. He went on:
“Thirdly, where there has been development, it has tended to be out-of-town shopping centres. The way that the system has worked since the last reform has given local authorities an incentive to give consent to out-of-town shopping centres, which take away trade from the existing town centre.”
He also said something rather revealing on incentives to work with business:
“What I think is more important is that if local authorities are correctly funded to do what they are meant to do, they will be supportive of business. If they are underfunded—I do not blame them for this—they have to put the money towards their statutory obligations and cut back on some of their discretionary activities.”––[Official Report, Local Government Finance Public Bill Committee, 31 January 2017; c. 45, Q81.]
Justin Tomlinson
It was very kind of the FSB to strengthen my case. First, 50% clearly was not enough; that is why we need the maximum incentive. On the town centre principle, I addressed in my speech how councils are only looking at car parking revenue, not the business rates collection within town centres; that strengthens my point. My final ask is that the FSB rallies its members to stand for positions in local authorities, so that they can directly influence how effective local authorities are.
Mr Thomas
As I said, the hon. Gentleman’s contribution was inspirational in terms of recalling great literature of the past and the tale of Don Quixote and Sancho Panza. The evidence from the FSB was revealing: the economic incentives will not be anything like as significant as Ministers hope and the measure will help to drive further reductions in spending power, it would appear, without any evidence from Ministers to the contrary.
Rob Marris
Does my hon. Friend agree that this demonstrates a triumph of hope over experience? If an apparent incentive is not working, we double it. Well, vitamin A is good for people, but after a certain point doubling the intake of vitamin A kills them.
Mr Thomas
I take my hon. Friend’s analogy—50% versus 100% is interesting. Given that 50% business rates devolution was championed as an economic incentive in promoting growth, and the business community does not think it has worked, it is not clear what evidence there is to justify the so-called economic incentives still being in place and arguably being greater when there is 100% business rates devolution.
Kevin Hollinrake (Thirsk and Malton) (Con)
Is the hon. Gentleman supportive of the principles of business rates retention or not? His colleague, the hon. Member for Sheffield South East (Mr Betts), chairs the Select Committee on Communities and Local Government, where we undertook a detailed inquiry looking at this policy and he stated that
“this is an important policy and we want it to work.”
Does the hon. Member for Harrow West not agree with his own colleague?
Mr Thomas
The hon. Gentleman was unfortunately not here at 11.30 am when I made clear our support for the principle of 100% business rates retention. Clearly, we want the system to work. However, I suggest to him that the purpose of this Committee is surely to probe what evidence there is for the case that the Government are making. He is slightly more considered than the usual Conservative MP one gets to sit opposite on these Committees, so I ask him where the evidence is, for instance in an impact assessment, to suggest that there will be a significant increase in economic growth as a result of the Bill? If the 50% business rates devolution did not offer that evidence, as one would have expected it might, where is the evidence that 100% business rates devolution will produce that?
Let me make it clear: I do support the principle of 100% business rates devolution, but the job of the Opposition is to expose where there is a lack of evidence, to challenge Ministers to provide that evidence and to ask for the detail of how the system is going to work. In the absence of that, one is entitled to have a little scepticism.
Mr Jones
The hon. Gentleman asks what additional incentive is provided for a local authority in a move from the 50% regime to the 100% regime. I am sure he will know from the Bill that we are scrapping the levy, which is effectively a tax on growth. That will give local authorities far more of an incentive to do the right thing, support businesses and widen their business rate base.
Mr Thomas
It is interesting that the Minister chooses to talk about the levy and not the lack of evidence for economic growth having been generated by the 50% business rates devolution. One would have thought that there would have been some evidence to justify the assertions that were made in 2013-14 by his predecessor that a whole new wave of economic growth would be generated as a result of the measures. In the clause 1 stand part debate, I hope to suggest that factors other than local councils’ attitude to development might be holding back economic growth.
Sadly, we did not hear anything from either the Minister or the hon. Member for North Swindon that offered confidence to a council such as Allerdale Borough Council that its difficulties with the barriers to economic growth will be dealt with. The hon. Gentleman made a valiant try by suggesting that pooling might work. I do not know whether he knows Keswick in the Lake District, which is the central town in Allerdale.
Mr Thomas
It is not a coastal area, but it is surrounded by other local authorities that are part of the Lake District national park, which are similarly challenged in terms of constraints on the land they can use. One suspects that the natural pool of authorities that Allerdale council could work with would face similar challenges in terms of land being available for economic growth. That underlines the concern about redistribution.
Jim McMahon
Does my hon. Friend agree that one solution for Allerdale would be to have a broad tax base on which they could draw to fund public services? It strikes me that in such an area a significant amount of money must be generated through stamp duty income from the sale of high-value homes in the district.
Mr Thomas
My hon. Friend tempts me now into very difficult territory. The shadow Chancellor has long eyes and if I were to rush to pronounce on a whole series of new measures on fiscal devolution without having first spoken to him, I would get into very serious trouble. Nevertheless, my hon. Friend makes a very interesting point.
The Chair
May I also say that that would perhaps move a little bit away from the provisions of the Bill? I think we should narrow our focus a little bit.
Mr Thomas
I am grateful as ever for your advice, Mr Gapes. The other concern that was touched on, but not answered, by both the Minister and the hon. Member for North Swindon was the concern about Heathrow. The extra business rates growth that will surely come in the wake of a third runway at Heathrow—their treasurers, if not their local residents, will surely already be beginning to count up and look forward to all the extra revenue—will probably be far more significant in terms of promoting economic growth in the areas surrounding that third runway than anything that local councils might do.
Steve Double
Does the hon. Gentleman not recognise that expanding Heathrow is about growing not the economy around the airport but the economy of our nation? Cornwall expects to benefit in economic growth from the expansion of Heathrow because of the additional links that it will create with businesses in Cornwall.
Mr Thomas
With respect to the hon. Gentleman, that is precisely my point. In terms of business rates, the authorities that will benefit most from a third runway at Heathrow will be the local authorities in the immediate surrounding area. Without effective redistribution, there might be some additional business rates from businesses operating in Cornwall that are perhaps attracted to Britain as a result of a third runway, but primarily the main authorities that will benefit from the increase in business rates growth from that third runway will be the local authorities in the surrounding area.
Rob Marris
May I caution my hon. Friend on this line of argument? The local authorities adjacent to Heathrow will have to spend shedloads more money dealing with the health problems caused by a deterioration in air quality and will be spending more in social care.
Mr Thomas
I gently suggest to Government Members that Heathrow brings the issue into fairly graphic light. In the evidence that Professor Tony Travers gave on Tuesday, he acknowledged that, where there is a major infrastructure development, that, rather than any actions of the local council, is likely to be the key driver of economic growth and business rates in an area. One can imagine the same issue with High Speed 2, which, wherever a main station or terminus is located, will be the key driver of economic growth in an area, notwithstanding other measures that the local authority might take. That surely justifies even more the case for redistribution of the revenue generated by business rates.
Mr Thomas
The Minister says that it will be, but he opposes amendments 1 and 23, which seek to re-enshrine redistribution at the heart of local government funding arrangements. He has given us no information about how redistribution will work. We have to wait until mañana for the fairer funding review to report—it will not report for at least another 12 months, even if it sticks to time.
In his excellent contribution, my hon. Friend the Member for Oldham West and Royton underlined the point about the lack of money for social care. The interjection into the debate by the Association of Directors of Adult Social Services about what the Chancellor of the Exchequer should do in the Budget is a further timely reminder of our responsibilities in thinking about social care provision beyond 2020. My hon. Friend talked about the additional responsibilities that will fall on local government, as did my hon. Friend the Member for Wolverhampton South West. The clause 1 stand part debate will give us an opportunity to focus on the revenue support grant and the issues associated with ending that, and that debate is perhaps a better place for me to comment about those new responsibilities.
In winding up, the Minister came back to the idea of how wonderful it is for local authorities’ finances that four-year deals have been offered. It is already clear that the terms on which local authorities signed up to those deals are beginning to change. Many authorities that signed up believing it was the right thing to do and still believe it was the right thing to do, for the reasons that my hon. Friend the Member for Oldham West and Royton gave, will nevertheless not be reassured about their financial situation from 2020 given the changes that have taken place already since they signed on the dotted line. It is clear from the Minister’s response that an awful lot of detail about how redistribution will work in practice is missing. Granted, that work is taking place and many people in local government have had the opportunity to think about it, but worryingly, no one in local government or this House has had the chance properly to look at that detail.
I do not intend to press amendments 1 and 23 to a Division, but I do intend to press amendment 2. The Minister has not given us any reassurance that he grasps the scale of the social care crisis. He could have said that he and the Secretary of State were marching daily down to No. 11 Downing Street to lobby the Treasury for more finance for social care. In that context, I might have been willing not to move the amendment, but the social care crisis is so serious that we feel that we need to divide the Committee on amendment 2. I beg to ask leave to withdraw amendment 1.
Amendment, by leave, withdrawn.
Amendment proposed: 2, in clause 1, page 1, line 7, leave out subsection (2) and insert—
“(2) In Schedule 7B, in paragraph 8 of part 3, after sub-paragraph (1) insert—
‘(1B) The regulations may, in particular, make provision for the determination of an amount to be deducted in order that the billing authority retains the specified amount for the purposes of funding social care services.’”—(Mr Gareth Thomas.)
This amendment would enable billing authorities to retain a specified proportion of non-domestic rating income specifically for the purposes of funding social care services.
Question put, That the amendment be made.
The Chair
We have had an extensive debate on the amendments to the clause, so I ask that the stand part debate be very brief.
Mr Thomas
The question of whether clause 1 should stand part of the Bill cuts to the heart of the debate about incentives for economic growth versus concerns about redistribution. In an intervention earlier today, the hon. Member for Thirsk and Malton drew my attention—as if I needed it drawn—to the strong support of the Chair of the Communities and Local Government Committee, my hon. Friend the Member for Sheffield South East (Mr Betts), for the principles of the Bill. However, on Second Reading, my hon. Friend recognised that we need to
“marry the need to give incentives for development…with the need to equalise within the system”.
He said:
“My concern is that trying to do that with one tax”—
business rates—
“is a bit like trying to play a round of golf with one club.”—[Official Report, 23 January 2017; Vol. 620, c. 85.]
I have to say that I do not play golf; my source of leisure is watching the mighty Arsenal scoring their way to victory, so I will make the same analogy in football terms: it is like trying to play a match with defenders but no strikers, or with strikers but no defenders.
I believe that other measures are needed to encourage incentives for economic growth and to achieve equalisation within the system. When we debated amendments 1, 2 and 23, we did not focus on whether the revenue support grant should continue to be offered. We can see from the way the Bill is drafted that Ministers want to abolish the revenue support grant completely. My concern about that is that the revenue support grant has hitherto been one of the key ways of equalising things within the system of local government finance. We have debated the importance of equalising things out, because there is not enough of a revenue support grant in social care, but councils have a huge range of other responsibilities: school improvement, provision of leisure services and so on. Without a revenue support grant, if an authority has a small business rates tax base and a small council tax base, it may face having to offer much worse provision, in terms of leisure centres, school improvements, refuse collections and so on, than an authority with a high business rates tax base.
Why is that so important? If one looks at the regularity with which Governments seek to change the landscape for local authorities, one can sympathise with any treasurer or director of finance in local government who tears their hair out immediately after a Budget, whether it is from my party or the Conservative party, such is the change that comes local government’s way. One need only think of the previous Chancellor of the Exchequer’s most recent Budget, in which measures to extend business rates relief to smaller businesses and shops will take some £700 billion out of the total business rates take in England over the next five years. There was very little consultation about the loss of that funding from the business rates tax take for local authorities. The revenue support grant might help to compensate for that loss of revenue, but at the moment Ministers are saying that they want to abolish any provision of the revenue support grant at all.
There is some suggestion that local authorities will be compensated for that £700 billion loss. If that is right, it would be good news. However, keeping the provision to allow some revenue support grant to be provided by Ministers to equalise variations in the impact on finances would surely be a good thing if we are committed, as my hon. Friend the Member for Oldham West and Royton said, to the idea of a one-nation England with no person or area left behind.
The change from the retail prices index to the consumer prices index, again announced in that Budget, may mean that businesses have to pay substantially less in business rates over the years. That is a good thing if one is a business owner; for the director of finance at a local authority worrying about how to pay for the provision of local services, it is not such a good thing. Again, very little consultation took place before that measure was announced. We have touched on the changes around the new homes bonus to provide a little bit of extra social care funding. All those changes dramatically affect the local authority finance landscape. Keeping the revenue support grant is one way of helping to ease the challenges facing those local authorities in particularly difficult circumstances because of the scale of the barriers to economic growth in their area.
My hon. Friends the Members for Oldham West and Royton, and for Wolverhampton South West, talked about the measure supposedly being fiscally neutral. As a result, some £12.8 billion-worth of new responsibilities are likely to be passed to local government. That is a concern, because there is still absolutely no clarity about which of those extra responsibilities will be passed down, or about the impact on local government’s financial budgets. Surely it is sensible to keep provision for some revenue support grant to be paid to local authorities while the debate about which new responsibilities will be passed to local government is concluded.
The consultation document—Ministers have still not published the 450 responses generated since last July—gave a strong hint that at least five of the pots of additional money available to local government will be abolished. The rural services delivery grant is, I think, worth about £65 million and the public health grant is worth some £3 billion. One would think that Conservative Members of Parliament representing rural areas would get to their feet at some point to say that they worried about the impact that the additional responsibilities and loss of funding might have on their area. Retaining the provision for some revenue support grant to be paid might be a way for the Minister to settle the concerns of rural Members of Parliament.
Justin Tomlinson
Surely if developers were converting employment land into residential land, the council would still receive income, but through council tax rather than business rates.
Justin Tomlinson
I do not have all the figures immediately to hand, but I would be very excited about the new homes bonus money that would be released very quickly following the decision to transfer that land.
Mr Thomas
The hon. Gentleman makes an interesting point. He would also acknowledge that if one has significant numbers of new people living in an area, one has to increase the services there. He presents an optimistic scenario, but although the business rates income might be matched, there might be additional costs arising from the provision of new or extra services.
Mr Jones
The hon. Gentleman has made the point about converting offices, for example, for residential use several times. In the spirit of localism, which is what the Bill is all about, let me ask this question: is it not right that if a local authority does not want to take that approach, it could issue an article 4 direction, which would protect that office block as offices?
Mr Thomas
The Minister is right: the local authority could do that, but let us assume that, for whatever reason, it does not. Not every local authority will want to stop every landlord from converting land to offer housing. I think about my council and the housing crisis in London. There is a very difficult conundrum and balancing act for local authorities. Do they try to take action to deal with the housing crisis, because of the 100% business rate devolution? Do they look to encourage business rates growth? If Ministers cannot sort out the housing crisis, local authorities in this situation will be caught between a rock and a hard place, and they will have to make very difficult choices.
The Chair
Order. As a London MP, I am finding this absolutely fascinating, but this Bill is not about the provision of housing in London and I ask both sides, “Please can we get back to the focus of the actual Bill?” And Mr Thomas, a number of your colleagues also wish to make contributions, so I would be grateful if you could be relatively brief.
Mr Thomas
I am very grateful, Mr Gapes, for your direction that we should not talk about the housing crisis in London. However, you will realise that the revenue support grant helps to provide finance to address some of the concerns about homelessness. Obviously, one of the reasons for wanting to retain, potentially, some revenue support grant within the current local government system is to make it easier for financially challenged local authorities to deal with homelessness and some of the other issues that we have mentioned.
My last point, Mr Gapes—
Mr Thomas
For now. My last point is to ask whether there is a whole series of other impediments to economic growth. The implicit assumption that Ministers always seem to make in relation to the Bill is that local government is responsible for a lack of economic growth. Ministers are careful not to say that in such specific and grand terms, but that is the implicit charge behind the Bill.
One thinks of the difficulties in gaining access to finance that many small businesses experience as just one example of an impediment to growth. Therefore, local authorities deserve more recognition from Ministers, and not only those run by Conservative council leaders but others—such as Manchester and Oldham, and some in London, such as Hackney or Haringey—where there is a championing of the business community at local level and a real desire to see economic growth.
Surely, keeping the provision in the Bill for a little bit of revenue support grant might be, in the long run, one way of dealing with some of the issues on local government finance. That is worth thinking about by Ministers.
Rob Marris
It is, as ever, a pleasure to appear before you, Mr Gapes.
I am intrigued that my hon. Friend the Member for Harrow West is leaving as soon as I have started talking. [Laughter.] He has probably heard what I am going to say and agrees with it; I hope so.
I will focus on clause 1(3), which deals with the abolition of the revenue support grant, and to the surprise of some, I will actually be brief, Mr Gapes. I am concerned about that measure. We have heard talk of incentives but no evidence of that. I am concerned about the inequalities that the abolition of the revenue support grant may lock in.
Mr Thomas
Is my hon. Friend aware of figures I have seen from the House of Commons Library that suggest two thirds of businesses do not pay any business rates at all? If the point about economic incentives is right, authorities have to get particular types of businesses. If they cannot, they are in trouble—all the more reason, surely, to retain provision for revenue support grant to be offered, to help authorities that cannot attract that type of big business.
Rob Marris
My hon. Friend is quite right. We touched on the issue this morning, so I will not rehearse it again, but the whole thrust of the Bill is that councils need the big hitters because, as he points out, small businesses—understandably, to encourage the growth of small and medium-sized enterprises—will not be paying business rates. If they get a big hitter, there is a problem if that big hitter moves away and there is no revenue support grant to make up for it.
There is a real problem for disadvantaged authorities such as mine and those up in the north-west, such as the constituency my hon. Friend the Member for Oldham West and Royton represents, where there will be a crisis in local government funding. The underpinning support within our society in terms of social cohesion and solidarity provided by the revenue support grant will, under clause 1(3) be withdrawn. I urge the Government to look at that again, because otherwise they will run into the same problems they have run into with the so-called fair funding formula for schools, which is causing uproar around the country, including on the Conservative Back Benches.
Mr Thomas
Can my hon. Friend see a case for the retention of at least some revenue support grant in a situation where an authority with a low business rate base receiving a top-up decides to reduce the business rate multiplier? There is a risk that other local authorities paying a tariff will be effectively subsidising the reduction in business rate multiplier in that area, hence the need for the revenue support grant as an alternative.
Rob Marris
I agree—there is a risk of a beggar-my-neighbour downwards. The Government really ought to think again, in the absence of evidence that this will produce the change we all want in terms of business growth and growth of the tax base.
Rob Marris
I will not make the same mistake twice and get tempted off-piste by that, because we will discuss the multiplier later in the Bill.
Mr Thomas
I hope I can tempt my hon. Friend a little more on the Minister’s intervention. That is probably the first bit of clarity we have had on how the system might work in practice. The Minister appears to have said that if an authority reduces the business rate multiplier, no top-up will be available to it, even if it has a low business rates base, making it even less likely that authorities will choose that option. Keeping revenue support grants, surely, is potentially a better alternative for a local authority worried about its long-term financial position.
Rob Marris
With his brain like quicksilver, my hon. Friend was quicker than I was to pick up that. I cannot take credit for wheedling that out of the Minister—it was entirely serendipitous, in as much as it happened. It is, however, interesting that we have a little more clarity, I certainly agree there. I urge the Government to think again about subsection (3).
Jim McMahon
That is absolutely correct. The Select Committee went on to say that it
“calls on the Government to specify how it will protect councils which rely on redistributed business rates and are worried that they will lose out under the new system.”
Let us have full, rounded contributions.
Mr Thomas
I hope that my hon. Friend will have noticed and will address the fact that, if I may say so, the hon. Member for Thirsk and Malton slightly distorts what I asked the Minister. I asked: where is the economic evidence that 100% business rates retention will work? Presumably, 50% business rates retention has been successful in encouraging the sort of development that the hon. Member for North Swindon thinks will be part of the new Jerusalem under 100% business rates retention. If the Minister can point me to that piece of economic evidence, I will sleep even easier at night than I do already.
Jim McMahon
I feel slightly like I am in the middle of a different debate, but my hon. Friend’s point about the new Jerusalem is quite apt. When I think about the new Jerusalem, I think of the dark satanic mills that bound the skyline of Oldham and by and large are still there. They create an inherent unfairness in the business rates base of a town such as Oldham.
The devil will always be in the detail, which we have not seen or discussed. There is aggressive provision in the Bill for pooling arrangements. Local authorities will come together as pools, which will have lead authorities that take responsibility for deals. In some ways, that provision continues that inherent unfairness, because it allows negotiations about distribution to take place within areas. There seems to be a view that creating a pool will allow areas to teem and ladle, less affluent areas will benefit from more prosperous areas and, by and large, there will be an overall benefit. But because more prosperous areas have the upper hand since they have the lion’s share of the business rates take, they can negotiate preferential retention arrangements that other areas in the same city region or neighbouring authorities cannot.
For example, in Greater Manchester, the business rates pool expands beyond the city region, in recognition of the fact that the travel to work area goes into Cheshire, so the pool includes the 10 Greater Manchester authorities, Cheshire West and Chester. The two Cheshire councils have negotiated 50% retention before any money goes into the pool to be redistributed across the conurbation. They might argue that they are not part of the Greater Manchester combined authority or the devolution deal that has been struck with the Government, and they add value to the pot but do not really take away investment. There is some sense in that, but Stockport and Trafford, the two most prosperous areas of Greater Manchester, have negotiated arrangements under which they will retain a third of business rates growth before it goes into the pool, because that was the only way of getting them to the table. Even within a pool there is not equity or the type of redistribution that the Government have promoted.
A town such as Oldham is caught between a rock and a hard place. What should it do? Should it leave itself vulnerable to central Government changing the rules or go into a pool even though it will effectively be treated as a second-class local authority in that relationship? That is a fundamental challenge to where the Government want to go. Either we are bringing local authorities together to work in partnership and act as first among equals, or we are saying that the wealthiest local authorities in an area will always have the upper hand. I do not think that is fair or just, and I do not think it can continue if a national scheme is rolled out, because it will eventually start to breed resentment. People will look over the border and say, “That’s just not fair. Why are we in this situation where Trafford, Stockport and Cheshire get to retain the lion’s share when we’re meant to be part of the same city region and the same business rates pool?”
The Chair
Order. We are in danger of moving away from debating clause 1. If possible, can we try to focus on clause stand part, however interesting it is to talk about what happened in the rose garden in 2010?
The Chair
I am not saying whose fault it is. I ask all of you to please focus on the Bill and clause 1.
Jim McMahon
I need to give my response the caveat that I do not believe that enough money is being provided to local government services. If this is about redistributing a very scarce resource, it will lead to some very severely affected losers. I would like a single place budget, so that we looked at an area’s public sector spend from the Department for Work and Pensions, the health service, the Ministry of Justice and so on and allowed local authorities more power and control over that money, knowing that they could administer it better, teem and ladle and, hopefully, modernise public services. If we could do that, we might be able to see the future of local government financing, but that is not where we are today; today we are saying that the money we have is the money we have, and we will try to teem and ladle it in a slightly fairer way.
I have to say that towns such as Oldham have 700 asylum seekers, while the Prime Minister’s constituency has not a single one, yet no account is taken in any funding formula of ways to give the local authority the resources to support those people in the way they need. We need to ensure that any funding delivered has the right criteria, not just the sort of selective criteria that we saw being used for the rural services delivery grant.
Mr Thomas
My hon. Friend makes an important point about support for authorities in areas in which there is an increase in refugees being housed. Surely keeping the provision for revenue support grant would give the Government an easier mechanism for helping local authorities and their citizens to handle some of the additional issues that will arise. Retaining the revenue support grant in legislation would also enable Ministers to get money more easily to areas that are hit hard by flooding. When the hon. Member for North Swindon visits Keswick Town Council and Allerdale Borough Council, he will understand the significance of my point about flooding.
Jim McMahon
My hon. Friend hits the nail on the head. We have established the Allerdale question as a measure of whether—
Mr Jones
The Government support clause 1, which will enable the introduction of 100% business rates retention for local government. It covers a number of different decisions, including the changes in schedule 1, which I will come to later.
We discussed the scrapping of the central share extensively when we debated the Opposition amendments—
Mr Jones
I am not going to reopen that debate. I say that as a direct answer to the hon. Gentleman, who is quite good at looking backwards and never forwards in life—but I will not hold that against him. Instead, I will speak about the payment of revenue support grant, about which there has been much discussion during this debate.
Clause 1(3) will remove chapter 2 from part 5 of the Local Government Finance Act 1988, which provides for the payment of the revenue support grant in England. As part of 100% business rates retention, we will devolve existing grants and new responsibilities to councils. As the Committee has discussed on a number of occasions, that will give councils control of approximately an additional £12.5 billion of business rates to spend on local services. The revenue support grant, which will be worth £2.3 billion in 2019-20, is part of that.
Let me be clear that the Government will retain a number of powers. Much has been said about how the Government might be able to deal with payments to local authorities. To reassure Opposition Members, under section 31 and section 36A of the Local Government Act 2003 and section 88B of the Local Government Finance Act 1988, payments can be made by Government to local authorities. I will give a couple of examples.
Mr Jones
Before I give way to the hon. Gentleman, I will mention another example: the Homelessness Reduction Bill, brought forward by my hon. Friend the Member for Harrow East (Bob Blackman). He has done a magnificent job with a Bill that the Government fully support and that will reduce the number of homeless people in our country. To support that Bill, the Government will make available additional funding—£61 million in this case—to local authorities through a section 31 grant. The assertion that if an authority does not have revenue support grant, funding cannot be given from central Government to local government, is false.
Mr Thomas
I intervene briefly to make the point that perhaps the difference between the provision of revenue support grant and of the grant for flooding to which the Minister alluded is that the grant for flooding was given after the event, whereas the provision of revenue support grant allows authorities to think ahead—“There may be issues around flooding here, so we will allow flood defences to be built earlier by providing a bit of money though the revenue support grant now.”
Mr Jones
I would not disagree with the principle of the hon. Gentleman’s argument, but there are mechanisms other than revenue support grant through which payments will be made within the system. In particular, while 100% of the money raised through business rates will be retained by local government, quite clearly a core principle of that will be redistribution.
The removal of revenue support grant is part of wider changes we are making to provide increased funding for certain councils, which we know councils welcome. We are helping to move local government away from dependency on Whitehall through clause 1(4), which introduces schedule 1 to the Bill, containing a framework in law for multi-year settlements.
Mr Jones
As we have covered quite extensively, there is redistribution within the system. There will be resets of the system, and a baseline will be set, so there is the mechanism to provide that. The overriding point, as acknowledged by local government, is that it is good that the revenue support grant mechanism is not in the Bill.
Mr Thomas
One small reason to celebrate at the end of this clause stand part debate will be the revelation that something the Minister proposed in the consultation document is confirmed and will be a reality. As he is on a roll in that respect, will he tell us how long the gap between reset periods will be? Has his Department made a decision on that?
Mr Jones
As I have said to the hon. Gentleman on a number of occasions, a number of regulations and other pieces of work under the Bill will be needed to determine the detail of the scheme. We will be working carefully with local government to determine matters such as that to which he refers.
I do not intend to delay the Committee for much longer. Together the changes reflect the fact that under 100% business rates retention there will no longer be an annual finance settlement to distribute central Government grant to support local services. Local authorities will be more financially self-sufficient, funding local services from local resources. I therefore recommend to the Committee that the clause stand part of the Bill.
Mr Thomas
I will respond briefly to the Minister. The Labour party will not object to the clause standing part of the Bill, but with this caveat: the abolition of so much grant funding from central Government to local authorities is an issue of considerable concern to local government, notwithstanding its general support for the principle of 100% business rates devolution. We will reflect on what the Minister has said, we will celebrate the little bit of clarity that we got in the debate, but we will not object to clause 1 standing part of the Bill.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Jackie Doyle-Price.)