Local Government Finance Bill

Heidi Alexander Excerpts

Wednesday 18th January 2012 Commons Chamber

[Mr Ward]

The issue that I want the Minister to consider is not so much to do with the resets—whether they should be every 10 years or every three years—because the reset implies that something needs changing, and the truth is that we do not know whether anything will. What is much more important, as we venture into the unknown, is how quickly everything is reviewed. That might be after one year, or two years, and not necessarily the three years proposed by the amendment. We need to have clear evidence as soon as possible about the impact and the consequences of what is proposed in the Bill.

[Heidi Alexander (Lewisham East) (Lab)]

I am grateful for the opportunity to speak in this debate, Mr Amess. I just want to pick up on the point made by the hon. Member for Bradford East (Mr Ward) about the principle of this Bill. I think that he said that most people in the Committee agree with it. I agree with the principle that local authorities should do all they can to promote economic prosperity and growth in their areas. I am not sure that I necessarily agree with the principle of retention and localisation of business rates, although I will not repeat my concerns about that point, which I expressed on Second Reading last week.

I support the amendment tabled by my right hon. and hon. Friends on the Front Bench, because it is overly optimistic, shall we say, of the Government to think that they will be able to get this legislation through and that councils will be able to put the requisite systems in place to introduce the new system of finance in 2013. If we are to have this new system, the commencement date should be moved back, to 2014.

Last week on Second Reading we heard a lot about how the issue of local government finance had been much debated and how the previous Government commissioned the Lyons review. We had an historical “tour de force”, going through the history of local government finance, even referring to the work of Layfield in the 1970s. Government Members seemed to suggest that there was a case for just getting on and doing something to localise business rate retention, but doing something for the sake of it is not the same as doing something because it is the right thing to do and because it will work. The complexity of the new scheme that is being proposed will not make the system of local government finance any more transparent to local councils and councillors, or even the general public, because what we have before us is a system with a whole range of baselines, tariffs, top-ups, levies, set-asides and safety net payments.

[Andrew Gwynne]

My hon. Friend mentioned the issue of setting the baseline. It is absolutely crucial that we get that right, so that local authorities are not put at an immediate disadvantage. She talked about the tariffs and top-up system. However, the introduction of the new system is also predicated on every local authority in the country having the same council tax base and the same ability to raise income from council tax if it faces a reduction in its business rates. Local authorities such as Tameside—where more than 90% of the properties are in band A or B—do not have the same ability to raise extra income from council tax, should they lose out on the business rate formula.

[Heidi Alexander]

My hon. Friend makes a very fair point, and if I am correct, those on our Front Bench have tabled amendments for debate later that deal with exactly that point.

We need to take longer to scrutinise the Bill and for the proposals within it to come into force, because I would contest that this Government do not know whether they are coming or going in relation to local government finance and the retention of business rates, or how this proposal will stimulate growth in local economies.

[Mr Kevan Jones]

What is clear from the Bill is that the Secretary of State will not only retain but increase his powers to interfere in local government finance. The question of how a future Secretary of State should use those powers will be of great concern to many councils.

[Heidi Alexander]

I think it will be, and that very point was made last week. The Government claim to be localising but they are, in effect, centralising.

I thought one of the most telling points on Second Reading last week related to where the Government are coming from with this Bill and what they understand local authorities to be doing to promote economic development. The most telling point was when the shadow Secretary of State stood up to expose this Government’s inconsistencies on what local authorities are doing currently. He pointed out that one document published by the Government said:

“We know that local authorities are keen to grow their local economies”,

while another said:

“local authorities are generally reluctant to...promote economic growth”—[Official Report, 10 January 2012; Vol. 538, c. 91.]

The Government are speaking with a forked tongue on this issue, and if the rationale is not clear, why are we going through this process of rushing to get this measure on the statute book and forcing local authorities to implement a scheme that might not have the impact on local economic growth that the Government want?

I think the Government are unclear about what local authorities are doing now to promote economic development, and I think they are unclear about the impact of their own cuts on economic development services in councils, which, as we all know, are a non-statutory service. I know that difficult decisions are having to be taken. My local authority lost a town centre management team, which was a liaison point between the business community and the council. That happened precisely because the Government imposed unfair cuts on local authorities in Lewisham to the tune of £80 million over the next three years out of a £270 million revenue budget.

When the Secretary of State came before the Select Committee in September last year, I questioned him closely about what he anticipated local authorities would do differently from what they are doing now to encourage economic growth and development in their areas as a result of this proposal. I argued that these measures were being rushed through, that we need more time and that the Government need to be clearer about what they are doing. Let me share with the Committee what the Secretary of State said to me when I questioned him in the Select Committee. I had to question him three times. I was asking a specific question about what local authorities would do differently. The Secretary of State said:

“I think they would see the reward.”

I said:

“No. What would they do?”

He then said:

“Please do not badger me like this; I am a sensitive man.”

[Interruption.] Well, the Minister says that it was a joke, but I can tell him that the Secretary of State’s following paragraph most certainly was a joke. To be honest, it was a complete load of nonsense. The Secretary of State could not answer my question, and he started to talk about sea shanties. I think this cuts to the heart—[Interruption.] I know, it was mad; I could not fathom it at all, to be honest.

My point is that Ministers are not clear about what they expect local authorities to change as a result of the new system of local government financing. They may have started with the best will in the world, but we have a hugely convoluted and complex system that, as I said earlier, contains a whole series of assumptions about baselines, about which authorities are tariff authorities and which are top-ups, about how much the set aside is going to be and for how long it will apply, about how much the levies will be, about who decides on what counts as disproportionate gain, and so forth. The position we are left in is vague, opaque and no clearer than under our current system.

[John Healey]

My hon. Friend is making a powerful case about the volatility, the unpredictability and the rogue factors that can throw out revenue from a business rate base. Is not the real argument for delaying the commencement of these provisions connected to that, combined with the fact that 2013-14, when this system is supposed to come into place, is also year three of local councils having to deal with the spending review settlement introduced by this Government? The finances are very tight, so predictability and certainty will be key to councils planning their way through that. Those are the really powerful arguments that my hon. Friend is making to justify putting back the commencement, as recommended by our Front-Bench team.

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[Heidi Alexander]

My right hon. Friend expresses the case incredibly well; I agree with everything he said.

Have we not seen examples in this Parliament of the Government taking a pause—taking a break—and saying, “This is quite a complex piece of legislation”? I am referring to the Health and Social Care Bill. While this Bill might not be as sexy—I do not really think that the proposed changes to the NHS are in any way sexy; indeed, I think they are destructive and very controversial—these proposals are very controversial as well. I suggest that the Government pause and listen to what local authorities are saying.

[John Healey]

My hon. Friend amplifies her case. On Second Reading, she told the House something from which this Committee would benefit. I believe she pointed out that the ninth largest business in her borough was the local police station, while the biggest business rate payer was a business with a small office above a bowling alley, which happened to be the national headquarters of a national firm. That illustrated perfectly how contingent a local council’s business rate take is on accidents and other contingencies of business location and so forth. It showed how unpredictable and volatile the business rate stream can be.

[Heidi Alexander]

I was not going to repeat my comments on Second Reading, but my right hon. Friend tempts me into reiterating some of my remarks about the differing ability of different councils to promote and develop their local economies. Sometimes the business rate take will be dependent on a whole range of different things, not just on what a local authority is or is not doing. I suggest that Ministers go back to their geography lessons and learn what we all learned at school about why businesses locate in different parts of the country and how success can breed success so that areas with a large business rate are likely to grow much faster than those with a smaller rate. I know that the Government propose to check disproportionate growth and the effect of having a larger business base to start with, but it is undoubtedly the case that different parts of the country have different abilities to attract and grow businesses.

The Government’s policies are making those differences even more explicit. Last year saw the National Insurance Contributions Bill, which gives a national insurance holiday to small businesses that are starting up outside London and the south-east, so it is not really a level playing field for local authorities. A small business setting up in, say, Middlesbrough or Birmingham might be able to get a tax break, while a similar business setting up in Lewisham might be operating in exactly the same type of area, employing exactly the same number of people with the same turnover and the same profit margins, yet not get such a break. Is that company as likely to locate in an area where there is a tax break as in one where there is not, like London?

[Alison Seabeck]

My hon. Friend makes her point well. The Government’s left hand does not know what their right hand is doing. Let us consider transport policy and the potential impact of transport infrastructure investment in benefiting one area over another. No high-speed rail link is proposed for Plymouth, for example. Even though Plymouth is struggling and needs good transport interconnections, the money is not going there. Such issues are hugely important in businesses’ decisions about where to locate or expand.

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[Heidi Alexander]

I completely agree with my hon. Friend. I tried on Second Reading to make some of those points. Local economies grow because of a range of factors, including transport and the availability and type of land—it is not all about what a local authority is doing. One can argue that a local authority should foster economic growth through its planning policies and decisions, but the vast majority of councils across the country do that already. The partial retention of business rates will not stimulate local authorities to think, “Hang on, we need to look at our planning policies to decide what more we can do to foster economic growth.”

[George Hollingbery]

As I mentioned on Second Reading, I had exactly that reaction from Havant borough council, which is by no means a wealthy council. When I explained the changes, it was enthusiastic and said explicitly, “We will now have to re-examine how we plan. We will have to think about what we will do to stimulate business.” It was excited and believed that the proposal would make a difference to its policies towards businesses in the local area.

[Heidi Alexander]

I have not had the same reaction from my local authority, although the hon. Gentleman and I represent very different parts of the country. If the Government’s proposal prompts local authorities to think more positively about what they can do, that is all well and good, but it is not the whole answer. I would also urge caution, as developments need to be appropriate. The benefits of increased business rates as a result of new commercial development, arguably in unsuitable locations, might drive more local authorities to grant planning permission for unsuitable developments. We need the right development in the right place, with local government financed in a way that allows it to provide the services needed by the local population.

[Andrew Gwynne]

My hon. Friend is getting to the heart of why a pause is needed for deliberation on the possible impacts across the country of such far-reaching changes: some local authorities might have an over-reliance on one sector in developing economic regeneration plans. In my local authority, Tameside, the largest business rate take is from IKEA, the second largest is from Morrisons, and the third largest is from the Crown Point North retail development in Denton. The three main beneficiaries of the proposal would therefore be retail developments. There is no capacity for more retail on such a scale in Tameside without destroying the market across Greater Manchester, of which Tameside is an integral part.

[Heidi Alexander]

My hon. Friend is right to ask whether the proposal will result in the development and business growth that the country needs. There are only so many supermarkets and out-of-town retail centres that the country needs. It was suggested on Second Reading that the kind of economic growth that we would ideally like has a lower business rate take. In my constituency, I am struck by the small companies that start up in people’s homes—Lewisham does not have large tracts of land where businesses are located. The Government need to think hard about the development that the proposal would stimulate. I support the amendment.

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[Robert Neill]

My hon. Friend is entirely right. Unfortunately, under the previous Government there was a belief that we had to create an increasingly centralised and complex system to deliver results. The party that is criticising us now brought in capping and the comprehensive area assessment, which trammelled local authorities rather than freed them. I can understand, however, why this is a sensitive topic for Opposition Members. In their 1997 election manifesto they said they would localise the business rate, and they spent 13 years not doing so. Some of the principal architects of that commitment are sitting on the Opposition Benches in today’s debate, so I can understand that they might have a bit of a guilty conscience.

[Heidi Alexander]

rose—

[Robert Neill]

I shall give way to the hon. Lady, as she may not have been here during that time—although I do not entirely exempt her from what I said.

[Heidi Alexander]

I certainly was not here when the previous Administration were in government, but I would like to give the Minister another opportunity to answer the question put to him by my hon. Friend the Member for Warrington North (Helen Jones) from the Front Bench about what exactly a local authority would be doing differently under these proposals from what they are doing now. If this is about planning policy, what evidence does he have to suggest that granting permissions for extra commercial floor space results in an increased business growth take?

[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.

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[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.

[Heidi Alexander]

My right hon. Friend was talking about the principles and practicalities at the heart of the Bill. Does he agree that the real problem is that because the proposed system is so complicated—with central and local shares, top-ups, tariffs, set-asides, safety nets and levies—the incentive for a local authority to do anything differently could be marginal? Even if we accept that the incentive is there, it is so complicated that councils will not be sure whether it will be worth doing something differently anyway. Is that not the real problem?

[John Healey]

My hon. Friend is right. She made that point powerfully last week in her Second Reading speech, which was one of the best that the House heard. Whether for children or councils, incentives need to be simple, and the rewards and rules need to be clear, but the system that the Bill will introduce falls far short of those basic objectives for any system of rewards and incentives.

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[Helen Jones]

My hon. Friend highlights the role of local authorities in achieving such gains. I believe that those authorities are constantly working to improve things for their communities and that the assumption underlying much of this Bill—that they do not want to do that—is simply untrue.

Returning to the issue of need, Durham council spends more on older people than a similar council such as Surrey because it has higher levels of deprivation and ill health. That means not only that it faces a greater requirement for social care but that it has fewer people who are able to finance their own care. Fifteen times as many people per 1,000 population receive a community service in Durham compared with Surrey, and 2.4 times as many receive a home care service. That kind of variation in need exists right across the country.

A similar pattern can be seen with children’s services and the level of child poverty, which all experts estimate will rise as a result of many of the Government’s actions. In Hartlepool, 29% of children are in poverty, whereas in Newcastle the figure is 27%, as it is in Liverpool—more than 91,000 children. In comparison, the figure in Wokingham is 7%. I defy anyone to argue that there should not be some resource equalisation to deal with that, but nothing in the Bill requires the Secretary of State to take account of the level of need when he determines the central and local share of non-domestic rates.

[Heidi Alexander]

My hon. Friend is talking about the growth in demand for council services that might occur in future and about the need to have some way of assessing that growing demand. It is relevant to services such as adult social care, particularly elderly care, that the geographical distribution of older people in our country is not the same across every local authority. In the shires, for example, there will be more of an ageing population than in my local authority. Does my hon. Friend think it is important to find a way of assessing those differing growth rates in need, which are often for services that are highly resource-intensive?

[Helen Jones]

My hon. Friend makes the valid point that the need for all these services varies across authorities; more to the point it is not within councils’ control. A council cannot control how many elderly people are going to need social care, or how many children are going to need intervention from their children’s department. That is the real problem. There are huge variations in demand for children’s services and educational services across the country, and that is often linked with poverty. Middlesbrough, which is the ninth most deprived local authority area in England, has almost seven times as many children receiving free school meals as Wokingham. Almost all councils showed a huge increase in referrals and in the taking into care of children following the tragic baby Peter case, which we all know about. That was not under their control, but the differences between the numbers of children in care across the country are still stark. Surrey has 32 looked-after children per 10,000 population, whereas Wokingham has 22. In Middlesbrough, the figure is 104 and in Newcastle it is 100. In Liverpool, there has been a 60% increase in child safeguarding referrals since 2009-10, whereas the average national increase is only 10%.

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[Bob Blackman]

The key is not that local authorities turn away business or prosperity; I am pointing out that there is an in-built presumption that areas of deprivation follow extra grant from Government. As a direct result, there has been hardly any change in areas of deprivation across the country. Despite the fact that local authorities—of all political persuasions—with areas of deprivation have had huge amounts of money put in over 30 or more years, those areas of deprivation remain the same.

[Heidi Alexander]

I am interested in what the hon. Gentleman is saying, because the implication is that local councillors and local authorities want to maintain deprivation in their areas because they get more money into their coffers. Is he really saying that? In my experience, local authorities and local councillors do the jobs they do because they want to make the lives of the people whom they serve better; they are not interested in getting money into their coffers to serve their own purposes.

[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.

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[Bob Blackman]

That, of course, is local democracy—if people want to pay higher taxes, they are welcome to do so. I am personally a great advocate of annual elections to local authorities instead of referendums, so that if councillors want to raise local taxes exorbitantly they will be voted out at the ballot box. I therefore take the hon. Gentleman’s point.

[Heidi Alexander]

The hon. Gentleman has argued that incentives have not previously existed for local authorities to stimulate economic growth in their area. He is a distinguished former leader of a large London local authority, Harrow. Given that those incentives did not exist, did he not do anything in his time as leader to stimulate the local economy in Harrow?

[Bob Blackman]

I was actually the leader of Brent council, not Harrow, but I thank the hon. Lady for making that point. I was the chairman of a city challenge company that was part of the London borough of Brent, and for five years we had Government money flowing in. We retained every job that we had and expanded the number of jobs in the area, but by the end of the five years unemployment in the area had increased, not reduced. We had had huge amounts of money but, perversely, unemployment had risen, which meant that we could go back to the Government and say, “We need more money.”

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[Mr Betts]

Absolutely. We just do not know. All the power and the decision making are going to Ministers in a completely opaque way. We have a right to ask certain questions.

The Government initially introduced the principle because the comprehensive spending review, in placing limits on local government spending as a whole, created a problem for them. It was and is quite possible, with the rise in business rate linked to inflation, for the business rate and council tax collection after 2013-14 to amount to more than the spending control totals. The Government had to find a way of dealing with that problem, but there is no reason why it need continue after the current comprehensive spending review round. In future, the Government could make an assessment of the likely increases in business rates on the basis of their new system and accommodate that within the spending control totals, thus removing the need for set-aside altogether.

I understand the difficulties that the Government have got themselves into in the current spending round, but why continue the principle after that? In amendment 45, I have tried at least to raise the possibility of not allowing the set-aside to become an ongoing, potentially increasing amount of money that is decided by Ministers for ever and a day.

[Heidi Alexander]

London Councils describes the existence of the central share beyond the current comprehensive spending review period as

“a cynical attempt by the Government to limit the extent to which local government can benefit financially from the growth it will drive through its economic development activity and engagement with the business community.”

Does my hon. Friend consider that to be a fair assessment of what the Government are doing?

[Mr Betts]

What the Government are doing is twofold, because two problems are being exacerbated by the set-aside. By limiting the amount of money in the local government system, they are reducing not only the incentives for councils but their own ability to do some redistribution. If they did not use the set-aside and allowed more money to remain in the local government system, they might be able to resolve the conflict caused by their attempt to do two things with one tax. The less tax that they have in the system and the more restrictions they impose, the more that conflict will come into play—the conflict between the retention of money to encourage investment and more growth, and the need for redistribution and the mechanism enabling it to take place.