Local Government Finance Bill

James Heappey Excerpts

2nd reading: House of Commons & Carry-over motion: House of Commons & Money resolution: House of Commons & Programme motion: House of Commons & Ways and Means resolution: House of Commons
Monday 23rd January 2017 Commons Chamber

[Mr Jones]

I am sure that, having perused the Bill, the hon. Gentleman will know that NHS hospitals do not feature in the increase to which he referred. I think he was referring to the 2017 business rate revaluation. That exercise has been undertaken by the Valuation Office Agency, which is independent of the Government. The Government have provided a package of transitional relief amounting to £3.6 billion, and NHS hospitals will be subject to the same transitional relief as other ratepayers whose business rate bill will increase as a result of the revaluation. As many Members will know, the revaluation was not designed to raise more or less business rate overall. It is a fiscally neutral exercise, which means that some business rate bills have increased and others have decreased as a result of the independent valuations made by the independent agency.

The Bill does not determine funding levels for individual councils. We continue to work with people throughout local government to deliver the fair funding review, which takes a wholesale look at councils’ relative needs and resources. We remain committed to implementing a new funding formula in time for the implementation of 100% business rates retention in 2019-20.

[James Heappey (Wells) (Con)]

Does the Minister agree that, although the devolution of business rates is extremely welcome, the funding gap between predominantly urban and predominantly rural authorities is already too wide? Does he agree that the review must ensure that that gap closes as soon as possible, and certainly does not widen?

[Mr Jones]

That, indeed, is why a rural services delivery grant was inserted into last year’s local government finance settlement, with its four-year deal. As my hon. Friend knows, this is not part of the Bill, but we are undertaking a fair funding review because local authorities in many parts of the country have apparently pointed out that the last proper needs assessment took place about 10 years ago, and that in many areas the demographic has changed completely in the intervening period. We are considering carefully how resources should be distributed across the system.

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

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

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

[James Heappey]

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

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[Kevin Foster]

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

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

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

[James Heappey]

It is not always the case, of course, when a significant piece of national infrastructure is dropped into a community’s lap that the local authority keeps the business rates. It would be great if a nuclear power station did mean that, but at the moment it does not.

[Kevin Foster]

I am sure that some of the residents living around Hinkley Point would be very pleased if their district council got those business rates. In some areas where very large developments go ahead, that would probably involve a dividend being declared rather than a council tax being set. However, it is right that our system has balance. Certain circumstances could not possibly be affected by a local authority’s decision—a steel plant closing down, for example—so we would have to look at a situation like that from the other way round. These are the details that we need to go into, but it is absolutely right that local councils should be able to take decisions to innovate and get an actual hard cash reward for doing so, which they can then use to benefit the residents who have been prepared to support them in taking those decisions.

In looking at how we fund local government, I am pleased that we are not considering measures such as a tourist tax, which have been suggested in the past. That would be completely counterproductive in an area such as Torbay. The last thing we need to do is create additional costs for people visiting and staying in the UK, and I am pleased that those kinds of ideas have not come anywhere near the Bill.

There is an issue with social care. We have heard a lot of talk today about this in relation to urban and rural areas, but there is also a real issue in coastal areas. A lot of coastal authorities in county areas, as well as stand-alone unitaries, can find themselves taking a hit at both ends of the spectrum. For example, my local authority has a ward in which 9% of the people are aged over 85, which presents its own challenges, and at the other end of the spectrum, I have a higher than average number of children in care and one of the highest rates of teenage pregnancy. That can present unique challenges for coastal communities, regardless of whether they are unitary authorities or part of a county or two-tier structure. Perhaps we need to have a debate about how we can reflect those different challenges in relation to funding opportunities.

I also welcome the fact that the infrastructure supplements are being brought forward, particularly for combined authorities. There has been some talk about why these powers have been given instantly to directly elected mayors. I expect it is because they are directly accountable and it is they who take the decision to implement these measures. Again, I think it is right that we should look at that question over a wider area. In many cases, a local urban area that might experience business rate growth could be dependent on infrastructure coming through nearby rural areas. For example, one of the biggest boosts for Torbay’s infrastructure—the south Devon link road—is 99% in Teignbridge District Council’s area, but the road clearly has a huge benefit for Torbay. In the future, could such development projects be dealt with through this kind of arrangement, rather than having to wait decades for a decision at national level?

Overall, the Bill is welcome. This is its Second Reading, so there is clearly time for far more detailed consideration in Committee and when it returns to the House on Report. From my perspective, and from my experience in local government and seeing what is happening in places such as Torbay, I believe that the Bill sets the framework for a debate about how we can deliver a real incentive to local authorities and a clear reward for those communities that innovate and grow, but without penalising any other community.

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[James Heappey (Wells) (Con)]

I welcome the proposed devolution of business rates, so in that sense I support the Bill enthusiastically. I have no doubt that the retention of business rates will encourage local councils to be more entrepreneurial and rejuvenate economic development departments in city and county halls. In the long term, I am sure that the new focus on local economic development, and the Government’s industrial strategy, with its focus on growth in all parts of the UK, will deliver self-sustaining local authorities that deliver high-quality public services in all parts of the UK. But we are not there yet. In fact, we are nowhere near.

Per capita funding for predominantly rural local authorities is significantly below that for predominantly urban authority areas. Why? Because that is just the way it has always been. There is no rhyme or reason to it; it is simply a legacy of old funding formulae, so rural areas have continued to be at a disadvantage. That is iniquitous, and it needs to be corrected. Instead, under the settlement announced, the gap will widen further. Last year, rural MPs on both sides of the House won a concession for extra money in the rural services delivery grant that effectively ensured that last year’s cuts were shared equally between urban and rural areas, but that was just a sticking plaster that did not change the settlement for this year, or the two that follow. However, I remain ever hopeful that, like last year, some additional money can be found to provide some extra rural services delivery grant to ensure that, again, the cuts fall fairly and that rural residents are not left at a disadvantage. I am clear, though, that that will be just another sticking plaster, and that what local authorities need more than anything is certainty—certainty to borrow, invest and budget in the long term so that local public services are on a more stable footing. That means that the current review of local government funding needs to be accelerated, and accelerated urgently.

Furthermore, we should be bold in our ambition for the scale of that review. A review of local government funding is needed that fully recognises the costs of rurality; the costs of an ageing population; the other costs faced by local authorities around the country in both rural areas and urban areas; the costs of communities in which English is predominantly spoken as a second language; and the costs of pockets of high deprivation both in urban and rural areas. All those costs must be understood. We need to put in place a new funding formula for local government that is entirely transparent and entirely fair for all our constituents, whether we represent rural or urban areas.

In Somerset, we are already paying extra on our council tax to protect ourselves from flooding. We will pay extra on our council tax for adult social care. Our cost of living is rising fast, because fuel costs are going up, which impacts on rural areas more than on urban areas. In return, Somerset residents are getting their bins collected less often, the libraries are open less, youth clubs have lost their funding and bus routes are being lost.

Somerset County Council has done a great job running into this headwind, not least because it does so while carrying the enormous debt left by the Liberal Democrats when they were last in charge at county hall. That £20 million a year interest and debt repayment is a very useful reminder of why Somerset is better off under Conservative control. We should be clear that the alchemy of the Conservative administration at county hall in Taunton—just as in other county halls across the country—cannot go on forever. There must be a review that not only delivers the devolution of business rates, but, in the short and medium terms, ensures that we continue to redistribute money from London and the south-east to the rest of the UK so that local authorities in rural areas, and in the regions of the United Kingdom, can be given a financial settlement that allows them to continue to deliver high-quality local public services with the certainty that is required so that they can borrow, plan and budget for the long term.

I agree with the principle of this Bill. I absolutely agree with the devolution of business rates to local authorities. It is a great idea to give local authorities the opportunity to be more entrepreneurial, to invest in their economic development departments and to reap that return by growing on their patch the number of businesses paying rates, which allows them to do even more by way of public services. Clearly, it is the long-term future, but we should make no mistake: that system will not work immediately on its introduction. What we need in the interim is a full review of local government funding so that our county councils, district councils and councils everywhere else in the UK can operate with some certainty. We do not have to have this year-by-year cut to local public services that annoys our constituents and that means we have such full mailbags.

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[Jim McMahon]

My hon. Friend makes a very important point about the burning platform coming down the line towards many local authorities. Local authorities that we support have had to make very short-term decisions and they have a horrible task of trying to meet growing demand, particularly for safeguarding young and vulnerable adults and children and for social care. The principle of devolution has to mean having a national framework with an answer for devolution for every part of England. It should not be about picking areas off one by one and against each other.

[James Heappey]

rose—

[Jim McMahon]

I will give way in a moment. Devolution also has to have fair funding at its heart. There is a fundamental difference between the Opposition and the Government on fair funding. One view says that fair funding means that everybody gets the same amount, regardless of the local community’s need, but we believe that fair funding—[Interruption.] I do not judge Government Members on their heckling; I judge them on their actions, the coalition years and the financial settlements, which are still coming through, that show that councils are having their budgets stripped away while demand goes through the roof.

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[Jim McMahon]

My hon. Friend puts on show his experience with a detailed assessment of the types of variable taxes that local government really needs in order to be sustainable in the long term. We are in the process of looking at local government finance in the longer term, and I make this plea: that we look a bit more broadly than the traditional council tax and business rate base; that we are open-minded about having a more varied range of taxes for local authorities to take; and that, in doing so, we ensure that local authorities are held to account and that they can work together to secure the right distribution method so that funding is genuinely based on need.

[James Heappey]

Will the hon. Gentleman give way?

[Jim McMahon]

I need to make progress, because the Minister has already given notice that he wants to address a number of very detailed points that have been made. I think it is fair that we allow him to do that. Members will be sad to hear that not all of us will have the pleasure of sitting on the Bill Committee and going through the Bill in great detail.

As important as incentives are, so, too, is certainty. Yes, we should share the benefits of growth where growth can happen and where local authorities can demonstrate that they have had some role in it, but it is important to make sure that local authorities are not allowed to sink if they cannot do so for whatever reason. We have had some examples of situations in which that could be completely outside the local authority’s control. If a very large employer decides to relocate somewhere else in the world, it would be wrong for the local taxpayer to feel the brunt of that in their public services. The safety net is absolutely critical, and so is the detail, which we look forward to seeing, on tariffs and top-ups. My hon. Friend the Member for Dulwich and West Norwood (Helen Hayes) raised the importance of not just having the tariffs and top-ups in place, but making sure that the redistribution method is transparent and has fairness at its heart.

When we talk about certainty and the future of local government, we need to bear in mind that we are not talking about institutions. Councils do not exist for councils’ sake; they exist because they provide public services for public need and public demand. We miss a trick if we do not put at the front of our mind the real impact of the cuts on local communities not just in terms of austerity, but in their effect on communities’ ability to benefit genuinely from growth and devolution.

My right hon. Friend the Member for Knowsley (Mr Howarth) was very clear about the true impact on his local community of nearly £100 million of cuts to the local council’s budget. Let us be honest: there is no way in which we can take that amount of money out of the system and expect there to be no impact on the local area. We heard the same thing from my hon. Friend the Member for Manchester, Withington (Jeff Smith). He made it clear that Manchester, which is held up as an example of an excellent authority and which is at the forefront of devolution in leading the Greater Manchester devolution deal, has had to make some terrible decisions just to balance its everyday revenue book. That cannot be right.

Looking down the line, we have a serious problem coming our way: a £2.6 billion black hole in adult social care. If we do not deal with that, it will not mean that we have £2.6 billion more to spend, to save or to give away in tax breaks; it will only push demand elsewhere in the system, as we have seen with delayed discharges and queues for A&E. That can be prevented, but only by providing the money up-front to keep people in their homes for longer, putting far more money into preventive services and making sure that we are not spending money unnecessarily—not because people do not need that service, but because they will get a better service by being well for longer at home. That is really important.

We talk about the people who are already in receipt of social care not getting the support they need, but according to Age Concern 1 million people who would have been entitled to social care in 2010 are no longer in receipt of it. We are talking about somebody’s mum, dad or grandparent. I hope that when I get to the stage of having to think about my father or mother needing that type of care, we will have got a grip on the system. As mindful as I am of that, I am also mindful of the fact that as a Parliament we have a responsibility for the 1 million people who need social care. They have worked and contributed all their lives, and when they really need that care, it is right that the Government stand up for them.

The situation is bad in Oldham and Greater Manchester, but let us just look at Surrey. I know the Conservative leader of Surrey Council, David Hodge; we worked together on the LGA. He is not a grandstander, and he is not trying to make petty points. He is raising a very real issue about the lack of funding in social care. If Surrey had to raise council tax by 15% just to keep its head above water, just look at the authorities that have had their budgets cut even more than Surrey has. Some are in a terrible situation.

I will leave it at that and allow the Minister to come in. I ask him to work with us. Labour Front Benchers absolutely believe in devolution and in sending power from this place down to our communities, and we will table positive amendments, as well as probing ones. It is not enough for the Government simply to let go a little; they need to learn to let go full stop.

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[Gavin Barwell]

Absolutely. We want the definition of infrastructure to include looking widely at all the different things that can help to drive economic growth. In the industrial strategy Green Paper published today, getting the right digital infrastructure in place is a key part of trying to ensure that we get the broad-based economic growth that the country needs. Again, we should aim for the best connections not just in core urban areas, but right across the country, so that all communities can benefit from that technology.

[James Heappey]

Will the Minister give way?

[Gavin Barwell]

Yes, I shall give way one more time.

[James Heappey]

I am grateful. Clearly, the challenge in making sure that business rates are being retained and that they are sufficient to fund all local services is to grow the tax base locally. Does the Minister agree that focusing on growth deals that aggressively target those areas where the business rate base is smallest might be a good thing to do over the next two years?

[Gavin Barwell]

I know that the Secretary of State is really keen to work with communities right across the country to get these growth deals in place. We absolutely recognise that if we want to drive economic growth, the role of local communities—local councils, local businesses and local enterprise partnerships—is critical. The Government giving additional freedoms to help make that work possible can play a huge role.

One other measure that has not been touched on is the provision to change the inflation indicator for business rates from RPI to CPI. As the Association of Convenience Stores says in its submission, this will lower annual rate increases for businesses, providing a reduction in the burden of business rates that businesses are going to experience.

In conclusion, local government is a crucial part of our democracy. Many Members, including myself, but going right up to the Prime Minister, have served as councillors before coming to this House to serve as Members of Parliament. All of us know just how important the work of councillors is to the local communities that we have the privilege to represent. For too long, councils have been forced to rely on us here in Westminster and have lacked the levers and incentives required to drive growth and investment in communities, and those communities have suffered as a result. This Bill presents a historic opportunity to change that forever. A global Britain can only be built on a strong local foundation. This Bill will help to provide that, and I commend it to the House.

Question put and agreed to.

Bill accordingly read a Second time.

Local Government Finance Bill (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7),

That the following provisions shall apply to the Local Government Finance Bill:

Committal

1. The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

2. Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 21 February 2017.

3. The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Consideration and Third Reading

4. Proceedings on consideration and proceedings in Legislative Grand Committee shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.

5. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

6. Standing Order No. 83B (Programming committees) shall not apply to proceedings on consideration and up to and including Third Reading.

Other proceedings

7. Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Chris Heaton-Harris.)

Question agreed to.

Local Government Finance Bill (Money)

Queen’s recommendation signified.

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Local Government Finance Bill, it is expedient to authorise—

(1) the payment out of money provided by Parliament of any expenditure incurred by the Secretary of State in consequence of the Act; and

(2) any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Chris Heaton-Harris.)

Question agreed to.

Local Government FInance Bill (Ways and Means)

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Local Government Finance Bill, it is expedient to authorise—

(1) the payment of sums to the Secretary of State in respect of non-domestic rating, and

(2) the payment of those sums into the Consolidated Fund.—(Chris Heaton-Harris.)

Question agreed to.

Deferred Divisions

Motion made, and Question put forthwith (Standing Order No. 41A(3)),

That, at this day’s sitting, Standing Order No. 41A (Deferred divisions) shall not apply to the Motion in the name of Secretary Sajid Javid relating to the Local Government Finance Bill Carry-over. (Chris Heaton-Harris.)

Question agreed to.