Graham P Jones
Main Page: Graham P Jones (Labour - Hyndburn)Local Government Finance Bill
Graham P Jones Excerpts(12 years, 3 months ago)
Commons ChamberRead Full debate Read Hansard Text
Robert Neill
The hon. Lady must simply not have been listening to my hon. Friend the Member for Poole (Mr Syms), who made the point perfectly that our proposal is a desirable and a good thing. I know it is difficult for her to get this point, but two things are involved. First, we are giving an incentive back to local authorities. Secondly, we are giving local authorities an additional tool in the box of their financial levers. I would have thought that she would have recognised that from her long experience in local government.
Robert Neill
I will give way once to the hon. Gentleman and then I shall make some progress.
Graham Jones
The Minister talks about business growth, but given the changes in the national planning policy framework does he agree that this measure may be an incentive to develop commercial premises on greenfield sites, more so than in the past, and that it might override planning priorities?
Robert Neill
Absolutely not, and to see that the hon. Gentleman has only to think about two things, the first of which is planning policy. Any planning application has to be in accord with the planning policies that are set out—both in the local plan and in our new national planning policy framework—which give protection against ideas such as he mentions. Secondly, we cannot create a market and demand where there is none, although perhaps he does not get that fact, and so neither of the things he mentions would occur. Our approach enables and incentivises local authorities to work much more closely with their business communities on an ongoing basis.
It is very surprising to hear such a degree of criticism from Labour Members, because they need only look at what is done in most of the United Kingdom’s competitor countries to see that, in general, a closer alignment of local funding mechanisms with local business growth advantages the local economy. That is a basic proposition and they just do not seem to want to take it on board.
Robert Neill
I shall deal with both those points and give a little detail as to why the suggestion that we are rushing is not well-founded. It is worth remembering that the Government consulted widely on this proposal, and let me deal first with the point about business rate retention.
Last year, we set out a detailed consultation document outlining our proposals, and the local government information unit has recognised that we have amended a number of our proposals on tariffs, set-asides and top-ups to reflect those matters. We issued eight highly detailed technical papers, to which we received some 461 substantial responses. The idea that there has not been very full engagement with the local government sector simply does not hold water. Indeed, there have been collaborations and discussions between officials of my Department and the local authority organisations throughout the process. To deal with the design of the systems and the regulations that go with them we have set up an official-level working group, which includes representatives of the Department, the Local Government Association, the Society of District Council Treasurers, the Society of County Treasurers and the other financial bodies—so the point is specifically being worked on. The timetable is challenging, but the ability to return a proportion of the business rates to local government is a really important tool, not only to give local authorities greater resilience in their funding streams, but for ensuring national growth.
Robert Neill
I have given way to the hon. Gentleman once already.
It is also worth remembering, in the context of other points made, that we are sticking to the existing timetable that applies to the local government finance settlement process. I understand the frustrations of my hon. Friends the Members for Bradford East (Mr Ward) and for Portsmouth South (Mr Hancock) about the suffering that everyone in local government has undergone in the past few years, but I do not think that keeping the current flawed floor blocks and formula grant model for another year would benefit anyone. I can certainly assure them that we will work with the local government sector and the professional members and officers as we go forward.
Before the new scheme is introduced in April 2013, local authorities will be consulted on their baseline funding at the end of 2012, and after a debate in this House, where scrutiny will be provided, they will receive their final settlement early in 2013. So there is no change to the current timelines that local authorities have to work on. Of course there is plenty of precedent for developing regulations as the Bill is taken forward, and they, in turn, will be subject to scrutiny in this House. This is an enabling Bill, just as the Local Government Finance Bill was in 1988; we are following the precedent.
John Healey
They will indeed. As my hon. Friend states, there is a double disadvantage to areas such as his. He paints that picture and concern very vividly.
Graham Jones
My right hon. Friend is being generous with his time. I want to add a third whammy and take up the point made by my hon. Friend the Member for Denton and Reddish (Andrew Gwynne). Large parts of the country will have no incentive at all because they are in shire and district areas, where the district authorities will probably be the planning authorities that will make the business decisions, yet the shire authorities deliver 85% of services, including fire and police services, and might have little say in how much they take from business rates in terms of business growth. It will be difficult for them to increase their base if district authorities act unproductively or do not co-operate.
John Healey
My hon. Friend is right, and I suspect that it will be one of the Minister’s biggest headaches in the system. I doubt whether he will come to the conclusion—although perhaps he should—that the real answer is unitary authorities across the country. [Interruption.] But I sense that I may be tempted into territory that falls well beyond my amendment and the whole group of amendments.
Graham Jones
When authorities suffer a significant loss in business rate revenue, there will surely be a downward pressure on what the Prime Minister would describe as the big society, in which rate relief is given to charities, sports clubs and all sorts of other organisations that do social good. In the poorer, more deprived areas that will lose out under the new system, will not those organisations lose out as well?
Mark Field
The hon. Gentleman has almost taken the words out of my mouth. Given the Government’s commitment to the big society and to empowering the organisations about which he has expressed concern, removing discretionary awards would be controversial, and—given that they account for only a small proportion of the business rates that are collected—of little use. I hope that we can be given some clarification about why the Bill fails to provide for any adjustment in the growth calculation to remove the negative effect on valuation appeals.
I do not wish to sound too negative myself. Obviously we are trying to make the legislation better, and I think that the principle of allowing local authorities to retain a greater proportion of the business rates that they generate in their areas is a positive step. Nevertheless, the detailed proposals relating to RPI increases, revaluation and physical growth fail to offer the incentives for growth in high-yield areas for which we had all hoped, and I fear that they may result in excessive penalties for such areas. I realise that Opposition Members may view the issue from the point of view of relatively low-yield areas, but I think there is a risk that high-yield areas will not receive benefits for themselves and that, as a consequence, the Exchequer will not receive them either.
Encouraging economic growth at any level is critical to the national economy. Local authorities are uniquely placed to provide incentives for growth in their areas, recognising what will work even in specific parts of a single authority area—I observe a great variance within the 6.5 square miles of my own constituency—and that creates a bedrock for the national economy. I hope that serious scrutiny will be given to the reasons for the Government’s proposals, in the light of some of their potentially negative implications for areas that would be expected to generate the most significant growth.
Let me take up the point made by the hon. Member for Denton and Reddish (Andrew Gwynne) about pooling. We are living in a climate in which it will become the norm. I do not wish to pre-empt discussion of an issue that I am sure will be subject to much criticism and debate on the Floor of the House in the years to come, but I suspect that there will also be a reorganisation of local government. I foresee that in particular for London. It currently has 32 local authorities as well as the City of London, and that situation may well be subject to radical reform in the near future.
I hope the Minister gives serious thought to encouraging the pooling of resources. As he will know, in my area the tri-borough arrangements among the City of Westminster, Kensington and Chelsea, and Hammersmith and Fulham have worked well in a number of respect, and it is to be hoped that that continues.
It is in the interests of central Government for there to be pooling, but I fear that the proposals in paragraph 9 of schedule 1 will serve to remove any form of incentive for it. I accept that there will be some additional costs, but pooling is the way forward for many local authorities and the Government should encourage it in this Bill.
I am broadly in favour of the proposals, but I hope the Minister gives serious consideration to the points I have made.
Helen Jones
Yes, my hon. Friend is absolutely right. That is one of the reasons for including the council tax base as one of the measures that ought to be taken into account. I shall say a little more about that later.
Graham Jones
My hon. Friend is very generous in giving way and I am grateful for that. Let me extend that point and return to those made about shires and districts. Where is the incentive in a scenario in which there are a large number of band A properties, for which council tax cannot be used, and in which the receipt will be only 15%, such as in my district authority? It seems to me that the system has not been thought out.
Helen Jones
My hon. Friend has hit on another flaw in the Bill and that is one reason for our complaining earlier about it being rushed through. Such matters need to be considered in detail.
If service provision is to be increasingly based on the ability to raise local business rates and council tax, this Bill has nothing to say about the levels of need. For example, parts of the area I represent used to be heavily industrialised. It is now a mixed area because a new town was built, but part of it was a mining community and we had heavy industry. Many other local authorities have much worse problems than my area, but all those areas are still dealing with the long-term health issues linked to heavy industry and poverty. That is why in an area such as Halton, a neighbouring authority to mine, one in five of the population has a limiting long-term illness. That is why the north-east has higher levels of deprivation, child poverty and poor health than the English average. Sunderland, for example, has 34 neighbourhoods that are in the top 10% most deprived areas of the country. The legacy of poor health, deprivation and poverty is what many local councils are constantly striving to deal with. There is no lack of effort on their part or lack of will. The failure is not theirs, but results from a long industrial heritage followed by the collapse of much heavy industry in the ’80s and ’90s.
Graham Jones
My hon. Friend is making a very good point; there is a risk in the system. She mentioned Sunderland—not my area—and Nissan is a very large employer in that region. Who is to say that in five years’ time the company will still be present there?
Helen Jones
Indeed—my hon. Friend makes a very good point. Later, we will debate the provisions for safety nets and how the Bill can cope with risks.
Bob Blackman
I am not saying that councillors, council officers or local authorities of any persuasion deliberately decide that they want their areas to be deprived. I am saying that there is a perverse incentive for those areas to be deprived. The Bill changes that presumption. It will be for every local authority where there is deprivation to encourage and promote prosperity and businesses to set up in their areas, so that there is a deliberate move to create economic growth in areas that have been unfairly deprived for far too long.
Graham Jones
The hon. Gentleman is being very generous in giving way on that point. I realise that he is under a lot of pressure given the comments he has just made. Does he accept that what we actually see in deprived areas is better partnership working between local authorities and businesses? That is certainly the case in Lancashire. Relationships and partnership working between the business sector and councils are not as good in west Lancashire, which is an affluent area. Councils in the east of Lancashire have an exemplary record, because there are deprived areas that need business. The answer in those deprived areas is not grants from the Government, but businesses, which is why those local authorities pursue that avenue.
Bob Blackman
I recognise that partnership working has almost been forced on local authorities. Some embraced it; others were forced.
Bob Blackman
That did not happen only in deprived areas. I come from somewhere that had areas of great deprivation and which formed local strategic partnerships and other such organisations. However, those areas still have huge deprivation and are among the most deprived parts of London and the country, even though they have had huge amounts of money pumped into them by Governments of all persuasions. The key issue remains: there has been no incentive for economic growth in those areas.
Graham Jones
The hon. Gentleman makes a self-defeating point, because he reminds the Committee of local strategic partnerships, which were mandated only in areas of deprivation, and to which the previous Government handed out grants. His point is that the previous Government instructed local authorities in deprived areas to work, through LSPs, with the business community and the private sector, and the supply and education chains.
Bob Blackman
I take the hon. Gentleman’s point, but we have to consider cause and effect. I do not decry what the last Government instructed local authorities to do, but the key point is that it failed. The areas of deprivation then are still the areas of deprivation. This Government are trying to introduce a direct incentive to business growth and economic growth in those areas and right across the country. They are giving local authorities an opportunity to change their view and see the direct incentive to have economic growth. Local authorities will keep the money, which they can then invest in the local services that people need. That does not mean that there is not a need for national investment in local areas when infrastructure improvements and regeneration are needed, but that is very different from creating economic growth.
Bob Blackman
I completely agree with my hon. Friend. I return to my central argument, which is that there was a perverse incentive for deprivation to continue. Here, in the Bill, we are taking the first step—it is not perfect by any means—towards saying, “Instead of failure, success will be rewarded.” That is the approach that we seek to take, and it is the right approach to take.
I ask the Minister to consider two final points. First, there is concern about how the scheme will be administered and about its fairness and transparency. It is right that we consider the elements of the scheme and undertake to conduct a review to ensure that it is working appropriately, fairly and transparently, so that not only the House but every local authority in the county can say, “Yes, this system works.”
Graham Jones
The hon. Gentleman is being exceptionally generous in giving way. I thank him for that. He referred to success. What does he mean by “success”? Does it mean a local authority that leans back in its chair as a large employer turns up, or a local authority—presumably like the one he ran in Brent—that fights to defend and save jobs? There might not be growth, but an awful lot of work goes in to maintain the position. Which model would he describe as successful?
Bob Blackman
That is exactly my second point. In large parts of the country, particularly in suburbia, there has been a gradual leakage of businesses, as business land—areas designated for business land and investment—have been turned over to housing. There is an incentive for local authorities to do that, because it increases the council tax base and makes it easier for local authorities to get new homes bonus money. It does, however, reduce the business rate income. At the moment, those local authorities suffer no penalty for doing that.
Under the new system, there can still be a leakage of land and employers. I am talking not about a catastrophic failure where one major employer closes down—that would obviously be a huge loss to the local authority—but a gradual process, over a number of years, under which industrial land has been turned over to housing, resulting in a leakage in business rate income. Has the Minister considered that point? How will it be looked at in the round? I raised the matter on Second Reading but so far we have not had an answer.
Finally, one thing that will be true in this brave new world is that there are risks associated with both the income and expenditure of local authorities. We know that there are huge numbers of demand-led services that every local authority must provide—they have been mentioned already: adult social care, children’s care, and so on—and I recognise that. It is also the case that income levels can sometimes be unpredictable. The more predictable they are, the better. However, there is the pooling approach. I wonder whether the Minister can say what directions will be given if certain local authorities just sit back and say, “We’re alright, Jack. We’re fine. We’ll just keep the money. We’re not going to pool our risk. We’re not going to pool our opportunity. We won’t co-operate with our neighbours.” That is an important point, which the hon. Member for Hyndburn (Graham Jones) raised. How will the Government direct local authorities to pool resources, in order to spread risk across a number of authorities?
Mr Betts
It is very nice of the Minister to say so, so I will smile in return. However, even he could not rise now and say that this is a simplified system. It is a new system—it is a radical departure—but it is certainly no less complicated than what went before it; rather, it is complicated in a different way.
Let us talk about transparency. By that I mean the possibility that when a development is put forward in part of a local authority area, it is possible to say to residents, “If that development is granted, these will be the financial consequences.” There is no chance of that happening with this piece of legislation. It will be very difficult for local authority treasurers to explain to their members collectively what the implications of the new legislation are, let alone for a local councillor to tell residents looking at a planning application, “These are the financial consequences of accepting this proposal.”
I have no problem with the principle behind the Bill; indeed, I think there is a shared principle across the Committee. We all realise that there must be more incentives in the system to reward local authorities for encouraging and promoting growth in their areas. There is no problem with that principle at all. The difficulty, which is reflected in the responses to the consultation on the legislation that we are considering today, is that the authorities with a relatively high business rate base, or the potential to develop one and grow their business rate relatively easily, are obviously all arguing for lower tariffs and top-ups, whereas those that have lower business rate bases and more difficulty in attracting growth to their areas, perhaps including those with the greatest need, are arguing for more top-ups and tariffs.
As I said on Second Reading, the Government have a fundamental problem. Because of the effective removal of Government grant to local authorities from 2013-14, they are now trying to use the business rate to do two potentially contradictory things. They are trying to use the business rate as a mechanism to encourage growth and development, rewarding authorities by allowing them to keep the business rates that are raised from development and growth, but they are also trying to use it as a method of redistribution to help authorities that cannot achieve development and growth easily, and that have problems of deprivation. The Government are trying to do two things with one tax, which is a problem. That is why we have such a complicated arrangement.
If there was a separate element of Government grant that could be used for redistribution and if authorities were then allowed to keep their business rates, separately—as was the case with the old system, which we have just discussed with the hon. Member for Harrow East (Bob Blackman)—that would be relatively easy. There would be a business rate that was an incentive and a Government grant for redistribution. The fact is that we do not have the second of those; complications thus arise.
Some of us can remember the GREAs—the grant related expenditure assessments—the SSAs or standard spending assessments and other complicated arrangements like regression analysis that used to be done on all these matters. On every consultation, local authorities in various parts of the country would have different views about the allocation of resources and the finance system—of course they did, and the same applies on this occasion. What the Secretary of State and this Government have managed to do this time, however, is to unite the whole of local government on one fundamental issue—a feat that I do not think has been achieved before by any Government or any Secretary of State in relation to local authority finance.
Every local authority association and every local authority in the country has united against the principle of set-aside. They all view this as central Government putting their hands into the local authority pot and taking money out of it for themselves. When we used to debate local government finance, as we still do, most people rightly assumed that it was a debate about finance for local government. Now the debate is going to be about finance from local government, as local government will be contributing to national Government and the national Treasury. We will no longer talk about a business rate that is collected locally and distributed nationally, but a business rate that is collected locally and spent nationally. That does not strike me as a terribly localist move.
The Government have created a fundamental problem for themselves with set-aside. One can see the Secretary of State sat in his office, snaffling local government resources and getting into the Chancellor’s good books by passing those resources over and saying, “Look, I’ve done it again, Chancellor. I’m the good guy in all this; I’m giving you lots more money to spend.” Perhaps it is more like good cop, bad cop. We generally see the Secretary of State coming along to join the Minister for these debates, with the Secretary of State doing the broad sweep and the Minister knowing the detail. Perhaps they will go along to the Local Government Association in future when the pantomime season is in bloom. The Minister will go along as the wicked uncle, describing how much the set-aside is going to be worth in that year and how much is going to be taken away, while the Secretary of State will come along as the fairy godmother to say, “Look at all the goodies I’m going to give you back when I spend the set-aside. The problem is that when I wave my magic wand, what you get might not be what you thought you were going to get, because the money is going to be spent on things for which you would previously have had a grant.” This is the delusion being created.
The reaction on the part of local government is obvious. It says, “You are asking us to accept 28% cuts to Government funding over a four-year period and to cut our fundamental services.” Despite what the Minister said to the Select Committee today, there is not a local authority in the country that is not having to cut social services and social care. That is what is happening. At the same time as local authorities are being asked to make profound cuts to front-line services—it is happening to authorities of all persuasions up and down the country—the Government are saying, “By the way, we are now going to take away from local government resources that could be spent on local services, by means of the set-aside.”
All this explains why I tabled the amendments. Amendment 44, for example, is an attempt to make the point that something must be wrong when a Government say that they are going to take the set-aside away—irrespective of the real needs of local authorities, which they are clearly unable to meet in the current financial situation.
Graham Jones
On the same argument, would my hon. Friend add to that the housing benefit and council tax cuts, which are on top of the 28% and have a disproportionate effect on deprived areas? Does this not mean that we are talking about cuts of 28% plus—and they are growing rapidly?
Mr Betts
My hon. Friend is absolutely right that we should look at the totality of the effects of the cuts on local authority budgets. Before the Secretary of State takes this set-aside from local authorities, he should look at what is happening to social care and with council tax increases, which authorities will have to impose after the freeze or deferment comes to an end. He should look at what is happening to concessionary travel for young people, which gives them their independence and mobility, and to care for the elderly and to road safety schemes, which cannot now go ahead. He should look at what is happening to proper protection for private sector tenants from rogue landlords, which authorities will probably not be able to fund, or at the diminishing possibility of providing weekly bin collections across the country—something close to the Secretary of State’s heart. Before looking at set-aside, surely the Secretary of State ought to consider how far local authorities have been able to meet such needs.
Mr Betts
I am not sure, because how the set-aside ends up being used is fundamental. Will it simply go to the Treasury, and we never see it again? Alternatively, will Department for Communities and Local Government or other Ministers say, “We used to fund certain council services, and now we will use set-aside for that.” It will save central Government money. A classic example is the requirement on local authorities to fund 10% of the cost of council tax benefits in the first year—that will almost certainly rise if unemployment rises. What will stop Ministers saying in future, “We have already established 10%, so next year it will be 20%, 30% or 40%”? That will bring no benefit in council services or to local taxpayers or councils; it is just a saving to the Treasury. From a Minister’s point of view, however, it is a neat way of linking two parts of the Bill together.
Graham Jones
Another Treasury or DCLG idea could be to use the set-aside to pay for wasteful weekly bin collections.
Mr Betts
It could be; we are not sure where that funding is coming from. In future, a whole variety of things, such as police grant, could be paid for out of set-aside. Things that Government would have paid for through another source could be paid for out of set-aside, saving the Treasury money. We do not know, because the Bill does not contain the detail. All that we can say is that there will be no power at local level, or among local government collectively, to decide such things. Will there be any power in the Chamber to decide such things, or will it all be up to Ministers?
Graham Jones
My hon. Friend raises a crucial point that has not been mentioned—the role of local enterprise partnerships. Lancashire has had a terrible problem with LEPs, which are skewing investment in certain areas and not interested in other areas—those who have been involved have said as much. The role that LEPs play across these district areas is not promoting business in certain parts, and that is having an adverse consequence. How can business be promoted and how can success be obtained in those conditions? Again, the Government are accountable for this.
Mr Kevan Jones
Again, that is part of the contradiction in the Government’s thinking and policy. As we have seen, LEPs are toothless tigers. They are not going to produce much growth or investment, as I know from the ones in the north-east. Certain people in the business community are becoming increasingly cynical and feel that LEPs are just going to be talking shops, rather than organisations that will do things to regenerate areas or attract growth.
Amendment 19 refers to “need” and, as my hon. Friend the Member for Warrington North (Helen Jones) said, it sets out the important issues that we need to take into consideration. I know from my north-east constituency that unemployment is a very important issue to take into account. The level of unemployment stands at 11.7% in the north-east of England, which is 3.5% above the national average. As my hon. Friend said, unemployment means that additional services are required and it puts further strains on local councils, which is why it is important to take it into account.
This debate is also about where we start from, which is why it is important to take the council tax base level into account. In the north-east, 50% of properties are in the lowest band, band A, whereas the corresponding figure for Surrey is just 2%, with 75% of properties there being in band D and above. It is very difficult for councils in the north-east to raise extra finance outside the business rate, so we are not starting on a level playing field. Mention has been made of South Tyneside, where 66% of properties are in band A, and that must be compared with the figure for Kensington and Chelsea of less than 2%.
Robert Neill
My hon. Friend specifically gave the example of his own council. The point that the hon. Gentleman and many other Opposition Members do not get is that the Bill is not just about dealing with the short-term issues of one-year funding settlements. It is about creating a system that certainly has an element of equalisation in it, because as we all know, all local government finance systems going back many years have always had a degree of equalisation. The hon. Member for Sheffield South East, the Chairman of the Select Committee—
Robert Neill
I will make a little progress before I give way again.
The hon. Member for Sheffield South East took us a little way down memory lane with GREAs and SSAs. There has always been an element of equalisation and that will continue. The rather complicated and highly prescriptive process that is built into the amendments does not improve on what is set out in the Bill. Indeed, it would undermine some of the key objectives of the Bill.
The hon. Member for Warrington North (Helen Jones) and her hon. Friends are seeking to place what we regard as an unnecessary requirement on the Secretary of State to undertake multiple and frequent assessments of needs. That undermines the key objective of long-term certainty which provides the incentive and also stability in a local authority’s funding. As it is, the needs and resources elements are taken into account at the setting of the baseline. The baseline is set and then it runs forward. They are taken into account. Some people say, “Go back to a previous year on the baseline”, even though that would involve more out-of-date data and formulae. Many would say that that was not fair.