Local Government Finance Bill

George Hollingbery Excerpts

Wednesday 31st October 2012 Commons Chamber

[Robert Neill (Bromley and Chislehurst) (Con)]

I welcome the stance that my hon. Friend the Minister has taken with this Bill. It is sensible to adopt the Lords amendments that he has outlined, and I am glad to see them. When I was responsible for the Bill in my previous role, they seemed to me to offer useful clarification and to strengthen the Bill.

I am particularly pleased that my hon. Friend referred to pooling. It is important that we encourage local authorities to explore to the maximum the opportunities that pooling makes available. The reason for that—the reason I think the Lords amendments are helpful—is that as the economy picks up, as it will, development opportunities will in many cases enhance the interdependency of neighbouring authorities. My London borough of Bromley is a good example. Many people in Bromley work in central London, but they are effectively part of the same economic area. The borough council pays for the services it gives people as residents, who contribute to the London economy through their work in the west end, the City of London or elsewhere, including, in some cases, across London borough boundaries—they may work in Croydon or somewhere such as that.

There is therefore great merit in giving local authorities not only the maximum flexibility to pool, but the maximum encouragement to do so, because one would not want a council to approve a substantial development on its boundaries that might bring it all the financial benefits, but which needed planning support from neighbouring authorities under the duty to co-operate and their good will because of where the work force come from. Pooling is important, and the Lords amendments give us sensible flexibilities.

Importantly, pooling fits with some of the other parts of the Government’s localism agenda. One of the arguments made earlier—I noted it in their lordships’ discussion—was about enabling local authorities to have adequate critical mass with their retained business rates, which they can use for tax increment financing, for example. The Bill has been important in taking steps forward on that. A pool will have a greater critical mass of funding, which can be used to approach the markets and enables greater leverage.

[George Hollingbery (Meon Valley) (Con)]

My hon. Friend did a great deal of work on the Bill, for which I thank him. The Select Committee on Communities and Local Government visited Manchester some months ago, where we saw some fantastic examples of regeneration. Some had gone incredibly well, although admittedly one or two had not gone quite so well. Does he feel that pooling arrangements are likely to help such projects in future?

[Robert Neill]

I believe they can. Manchester is an interesting example. Indeed, my hon. Friend must be intuitive, because I was about to say that pooling can often fit sensibly with the other development that we have seen—in which Manchester has been something of a pathfinder—which is the establishment of joint authorities. It is a classic means of dealing with co-operation by local authorities from the bottom up without the need for—dare I say it in the current climate?—unitary reorganisation. The ability to form a joint authority creates the ability to procure jointly, pool business rates jointly and, therefore, invest jointly, as well as a raft of other things, which are beyond the scope of this Bill.

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[Robert Neill]

That is taking the argument beyond what I was considering when I left office, which gave me more time to reflect on these matters. My hon. Friend and I both had a little time to reflect over the summer. Like me, he has been putting it to constructive use. I think there is merit in providing that option: why not? If the economic geography is such that the two areas hang together, why should we rule out such a possibility? In this day and age, investment decisions will be driven precisely by factors such as economic characteristics, infrastructure opportunities and the nature of the work force and the market, rather than by geographic contiguity alone.

I mentioned earlier, for example, that Slough has a great deal in common with the economy of west London, without being actually contiguous to the London borough of Hillingdon. As I recall, a little bit of the county of Berkshire is located between the two. If such arrangements were wanted, merit could be seen in allowing Slough to enter into a pool with Hillingdon, with some other west London authorities or with Watford. Equally, going in the other direction, Slough might want to involve Reading. There is an argument for saying that there is a natural economic geography that starts almost at the Hammersmith flyover and which goes out through Brentford and then through what is generally called silicon valley. Those opportunities are also important.

[George Hollingbery]

My hon. Friend is making an interesting argument. I wonder if I might plumb his expertise a little further. It occurs to me that some of the local enterprise partnerships that have been formed are natural economic areas that plainly do not run according to local authority boundaries. I am thinking particularly of what I think is called the Gatwick partnership, which runs from Croydon all the way down to Brighton. Indeed, in my own county of Hampshire, we have the M3 partnership, which runs up that artery towards the businesses and markets of London. I want to examine my hon. Friend’s knowledge of this subject. Is it possible for local authorities to pool partially, as it seems to me that in certain cases—with the Solent partnership, for example—there would be some logic in that? It seems right and proper that some of the moneys from Portsmouth and Southampton should be invested in that partnership or be centred on its work, but perhaps those two cities could look outside that area as well. Will he explain how that might work?

[Robert Neill]

I suppose it comes back to the technical issues that I mentioned on coping with tier splits in two-tier areas. We should not rule out the ability to try to achieve that, particularly if it can be done by agreement. It would be interesting to see if partial pooling could be achieved. It might not be something that happens at the beginning, but the point to remember about the whole of this local government finance reform is that it is making a major change in providing the legal mechanisms and the tools necessary for local authorities to use in relation to retained business rates. That is very important in itself, as this is, after all, the first time in many of our political lifetimes that the Treasury has forgone an element of revenue.

At the moment, all the business rates are, in effect, nationalised, taken back to the Treasury and distributed on a formulaic basis, which does not provide the sort of incentive for economic development and investment that we all wish to see. The Bill puts that right. I hope it will be possible to make pooling more attractive over time. As the deficit is paid down and the economy grows, the local share available to go into the pool can perhaps increase from its current 50% level. That would make retention as a whole and pooling more attractive, because the pot produced from the pool will, of course, be greater, and therefore even more attractive as a potential investment vehicle. I think we should examine the case with some care.

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[Robert Neill]

That was a helpful intervention, and I hope that it will go some way to helping my hon. Friend the Member for Birmingham, Yardley (John Hemming), because one important source of funding for passenger transport authorities is the allocations that come to the constituent local councils, which they can then use. This is about ensuring that there can be a sensible linkage. If they pool the allocations, it will be logical to find a mechanism whereby they can pool the product of the retained business rate, so that the two can be aligned. The hon. Gentleman makes a very important point.

[George Hollingbery]

Understanding, always, that this is exclusively about the pooling of business rates, it occurs to me that there might be the odd occasion when councils wish to pool some element of their council tax. Will my hon. Friend confirm whether that was considered as a possibility for the Bill or whether it was rejected at an early stage?

[Robert Neill]

When I was in the Department, we did not get into the issue of pooling council tax, for the simple reason that we were dealing with the business rates element. As I saw it, the first step in the equation was to secure the return of a significant amount of business rates revenue to local authorities, rather than for it to be taken back through the nationalised system, as I might call it, whereby it goes to the Treasury and is then redistributed through the formula grant, the point being that over a period of time we would be able to make local authorities less dependent on formula grant as the principal source of their income.

Interestingly, we should perhaps explore, as a future step along the road, the means whereby local authorities might voluntarily—I stress that this must have a voluntary basis—examine ways of aligning their council tax receipts. After all, authorities can seek to pool the product of that in their investment decisions at the moment. I referred to the success of the communautés urbaines in France, which has come about because they have been able to set up joint investment funds and procure directly. In a sense, they have been putting together the product of their local taxes, and we might able to do that. We must remember that the billing authority sets the level of council tax in any given place, but there is no reason now why local authorities in an area could not deliberately align their council tax levels if they wished to do so to make sure that their area was not disadvantaged economically by having different rates within what might be almost the same built-up area. That is important. The level of the business rate is not changed by these proposals, because the multiplier continues to be set nationally, but the incentive is in retaining the product. The amendment provides us with the important tool of giving maximum flexibility in the pooling of the product to get the maximum benefit from investment for the area, particularly in economic development terms.

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[Annette Brooke (Mid Dorset and North Poole) (LD)]

It is a great pleasure to follow my hon. Friend the Member for Bromley and Chislehurst (Robert Neill), who has identified some key issues that are important both generally and in relation to particular areas. I want to add to his comments on pooling and the arrangements for different types of authorities.

I represent a constituency that has district councils, a county council and a unitary authority. Indeed, Dorset’s local enterprise partnership has boundaries that encompass two unitaries, umpteen districts and the county council. It is important that we should be clear on how pooling can take place so that we can facilitate it, because I certainly see it as a driver for growth. The important point, however, is about choice. Some authorities might not want to play and although that might be a pity, the important point is that this is all about our localism agenda and putting more power into people’s hands at the lowest possible level.

[George Hollingbery]

Rather than yielding to recommendation 11 of Lord Heseltine’s report, which is that we should impose unitary authorities, is it not true that we are much more likely to get unitary-type authorities by accretion through election and localism than by imposing them from the top down? They will also last longer and be more robust.

[Annette Brooke]

I sincerely believe that the driver must come from local people at a local level. Anything imposed from above inhibits good local decision making and will inhibit growth.

I am talking about making decisions at the lowest possible level and I and, I assume, many other Members have been lobbied by the National Association of Local Councils. Of course, my hon. Friend the Member for Bromley and Chislehurst dealt with the question of the distribution of the business rates between the billing authority and the precepts but, as I understand it, town and parish councils do not come into the equation. I would be very pleased if the Minister could clarify the difference the amendments will make and how it will be possible for the billing authority to drive activity down to the local level and to town and parish councils. I happen to be attending the annual meeting of the Dorset Association of Town and Parish Councils on Saturday, so it would be helpful if I could be clear about what we pass today.

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[Helen Jones]

My right hon. Friend may well be right. The Government seem to be able to get into a mess quite easily. The problem is that the people on the receiving end of their decisions are the poorest and most vulnerable in our community.

[George Hollingbery]

There is no doubt that the hon. Lady makes a powerful argument, and as a former deputy leader of a council I appreciate the difficulty that councils will have. It is also an unfortunate truth that those who need benefits will suffer most when they are withdrawn. However, I do not quite follow her argument about what she would like done about that. Does she wish the whole scheme to be repealed, so that we end up with the status quo ante, does she wish to have further delays in the scheme, or does she wish to implement it in part? I understand her arguments against it, but I do not understand what she thinks would replace it.

[Helen Jones]

We made it clear that we did not want the scheme in the first place, and we voted against it. We made it clear that if the Government were introducing universal credit, they should make it universal. The clue is in the name—if there is to be universal credit, it has to include everything.

[George Hollingbery]

There is a question that clearly follows, which I know is asked many times of the Opposition. Given that half a billion pounds of annual savings are attached to the change, can the hon. Lady please tell me where the extra half a billion pounds of savings would come from?

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[Robert Neill]

The right hon. Gentleman is always touchy when his Government’s record is called into question, but he must learn to live with that, because his record is questionable. The simple truth is that the Labour Government’s doubling of spending on council tax benefit is not a success; it is a mark of failure. I have heard not one word on what Labour Members would do to redress the situation.

I am relaxed about whether there is a review. The provisions of the Bill require local authorities, at local level, to keep their schemes under review. I am confident that a national review would demonstrate that the measure is necessary. Not a word has been said by Labour Members about how they would make good the funding gap that would be left if nothing were done. There is nothing from them about that. It is like the old prayer that is adopted—“Lord make me virtuous, but not yet.” They say they want to reduce the deficit, but they will not tell us when or how they will do so. Failing to reduce the deficit damages the underlying economy, real and sustainable growth, and the prospect of real and sustainable jobs for the very people about whom they claim to be concerned. Locking people into a massively complicated benefits system, which they created, is not helping—[Laughter.] Labour Members’ laughter demonstrates the air of unreality that hovers over them. They will not accept their responsibility. They behave like ostriches. To paraphrase the late George Carman QC, they prefer to put their heads in the sand, thereby revealing their thinking parts.

[George Hollingbery]

As I have said, it is inevitable that those who are on benefits suffer when benefits are withdrawn, but there is nothing compassionate about the long-term failure of the previous Government to address the number of people on benefits and the enormous increase in the bill for those benefits. The inevitable consequence was that one day, when spending had to contract, as it now most definitely does, that group of people would suffer. What is compassionate about that?

[Robert Neill]

My hon. Friend is absolutely right. There is nothing compassionate about that. The attitude of Labour Members is blinkered—to put it as charitably as I can. They think the only way to deal with people compassionately is by continuing with a rigid and failed system.

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[Robert Neill]

We did some very sensible and mature things a year ago: we paid out £30 million upfront to assist with the design of the scheme; we gave early notice of our statement of intent; we enabled local authorities to run their consultations early while the secondary legislation was going through; and we listened to suggestions for further refinements, such as ensuring that the taper works smoothly so that it eases people back into work as their income rises. The Government should be congratulated on taking all that on board, not criticised, but that is not going to happen, of course, such is the Opposition’s unreal mindset. They seem to have locked themselves into a closed way of thinking.

What is the best way of getting people back into the labour market? How do we deal with the fraud that, I regret to say, is an issue with some benefits? The vast majority of benefit claimants act honestly and properly, but significant sums are, I am sorry to say, lost to fraud. That is far better dealt with locally, because local council officials and members have better local knowledge and are better linked to the various enforcement agencies. Significant savings for the honest and genuine claimant can be made through the better running of the scheme and by dealing with issues such as fraud, but those things are better dealt with locally.

[George Hollingbery]

In considering the proposal from the other place for a review over the next two or three years, does my hon. Friend agree that there is scope for the administration of grouped or pooled schemes across a local area? Under such a scheme, specialist advice, such as fraud advice, might be more economically obtained.

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[Brandon Lewis]

I think the hon. Gentleman is starting to understand that localism means that local councils can do what they think is right for their local communities, understanding that what might work in one local community would not necessarily be right in another local community in respect of the schemes they devise to secure economic growth, to create more jobs or to get more people off benefits in the first place.

[George Hollingbery]

It is not an absolute certainty that localising council tax will indeed lead to fiendish complexities. It is entirely within the gift of local councils to negotiate among themselves to have council tax schemes grouped, which could then be agreed across, say, Hampshire. Given the commonality of economic prosperity in the area I represent, that would seem to make sense. Does the Minister agree?