Jim McMahon
Main Page: Jim McMahon (Labour (Co-op) - Oldham West, Chadderton and Royton)Local Government Finance Bill (First sitting)
Jim McMahon Excerpts(7 years, 11 months ago)
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Jim McMahon (Oldham West and Royton) (Lab)
Q You referred to the additional £12.8 billion in your opening statement, and it is mentioned in the explanatory note. Is it net of the rate relief that is in place?
Mr Jones: Yes, it will take into account the business rate reliefs that have come through.
Jim McMahon
Q Will it be net?
Mr Jones: With the system at the moment, and the way in which it works, for example, the revaluation currently being undertaken by the Government, which comes into effect in April, will, effectively, be paid for by the Government. Therefore, there will not be any net effect to local authorities as a result of those changes. It will be exactly the same principle when the business rate system changes to the local authorities retaining the additional £12.5 billion.
Jim McMahon
Q So, to be clear, the £12.8 billion does not include the £2.6 billion mandatory rate relief or the £1.1 billion small business rate relief.
Mr Jones: If I can clarify, we would not intend to give local authorities additional responsibilities that were not covered by the additional funding. I think that is where you are coming to, Mr McMahon.
Jim McMahon
Q Perhaps I am not explaining myself clearly enough. The idea is that local government will retain 100% of business rates collected, so the quantum of money collected in business rates. What I am trying to get to is this: when that is returned to the local authorities in whatever formula is devised at the end of all this, will the Government take the burden of rate relief outside the money collected in business rates? Or do you expect it will be covered as part of the business rates that are collected?
Mr Jones: It will be covered as part of the business rates collected.
Jim McMahon
Q Right, that is quite an important point. So, the £12.8 billion that has been referred to in the report is minus the £3.7 billion relief that is in here.
Mr Jones: Sorry, just to clarify that: the £12.8 billion is the additional amount that will be going to local government. Sorry if I misled you, Mr McMahon.
Jim McMahon
Q Is it envisaged that the grants currently given to local authorities will end? So when you talk about self-sufficiency and self-financing of local government, is it envisaged that that will be solely for council tax and business rates?
Mr Jones: Yes, although as has been discussed in the consultation, there are a number of additional matters that are still yet to be determined. There is a list of different things that have been put forward that might be paid for by the additional amount of business rates local authorities will receive. One of the things we have ruled out that will not be paid for in that sense is attendance allowance, but all the other items listed there—the improved better care fund being one of them—are things we are going to consider, and we will be responding to that initial consultation very shortly.
Jim McMahon
Q There is a problem, isn’t there? If we take the £12.8 billion and we deduct the £7.1 billion that is currently spent through revenue support grant, and then you take into account the adult social care pressures as £2.8 billion as well as the additional responsibilities, the truth is there will be no new money for adult social care. By the time you get down to the bottom line, there will not be enough money to cover the social care gap.
A direct question: do you agree with the Conservative chair of the LGA who calls the adult social care situation a crisis?
Mr Jones: No, I do not agree that it is a crisis. I think there are significant challenges in the system and we are proposing significant measures to support local government in this regard. The additional council tax flexibility we have provided in terms of the adult social care precept, the additional grant we have provided this year and the improved better care fund add up to £7.6 billion of additional dedicated funding that is going towards adult social care. So we recognise the challenges and are looking to address those. What I would say, Mr McMahon, is that you cannot conflate, at this point, the figures you are referring to in terms of the additional business rate income directly to the issue of adult social care. At the moment, as I said, that is yet to be determined.
Jim McMahon
Q But do you accept that it is a significant part of local authority pressure? Adult social care and safeguarding make up the lion’s share of most local authorities’ spend.
This is a package, of course. Are you concerned that, based on the Department for Communities and Local Government forecast, council tax will increase by 25% over the life of the Parliament? What would you say to the average Oldhamer in a band E property who will be paying £2,000 a year in council tax?
Mr Jones: I am surprised at your line of questioning, Mr McMahon, because during the period your party was in Government, council tax doubled between 1997 and—
The Chair
Order. Can we get back to the Bill, please? I do not want to go into the history. I ask questioners and the Minister to get back to the actual Bill.
Jim McMahon
Q Just to be clear, I am not looking for a commentary on the last Labour Government; I am looking for a response from a Minister in today’s Government.
Mr Jones: Mr McMahon has little room to lecture, but I take on board your comments, Mr Gapes. The facts are that, at the moment, council tax is lower in real terms—9% lower—than it was in 2010.
Jim McMahon
Q Do you think that a 25% increase—a council tax bill of £2,000 for band E—is reasonable?
The Chair
Order. Just a moment, please. Time is limited and several other people wish to ask questions. Please can we focus on the actual Bill rather than getting into an argument that we can no doubt have at later stages? Three or four other people want to get in.
Jim McMahon
I understand that, Mr Gapes. That is why I am trying to push the Minister to answer the question.
The Chair
Please ask questions that focus on the Bill, and can we please also have answers that focus on the Bill, rather than on history?
Mr Jones: I can give a direct answer. We have looked at the figures closely and, given that in real terms council tax today is 9% lower than it was in 2010, if you take into account the council tax flexibilities that we have allowed local authorities during this Parliament, council tax will still be lower in real terms than it was 2010.
Jim McMahon
Q Do you accept your own Department’s figures of a 25% council tax increase?
Mr Jones: As I said, council tax will still be lower in real terms in 2020 than it was in 2010.
Jim McMahon
Q Do you accept your own Department’s figures of a 25% council tax increase over the life of this Parliament?
Mr Jones: I think I have made my position clear.
Peter Aldous
Q Minister, you said at the beginning that incentivising growth is at the centre of this Bill. As I said on Second Reading, I am concerned that there may be local authorities that wish to incentivise growth but, for reasons of location, the geographical make-up of their area or issues such as site contamination, may not be in a position to do that. Can you outline how you are going to support those authorities?
Mr Jones: You make a good point, Mr Aldous. We have been clear from the outset that, in developing and introducing this new system, there will need to be a form of redistribution across local authorities to make sure that we do not leave behind those that start off with a far lower business rate. The new system will also include incentives for local authorities to invest in things such as land remediation to bring forward new developments that will expand their business rate base. Local authorities will also be offered the opportunity to have local growth zones, which will be very powerful in terms of giving an area the opportunity to retain more of the additional business rate, and to have that part protected when we get to resets of the system.
The Chair
I am afraid that that is the end of the time allotted for the Committee to ask the Minister questions. I thank him for his evidence.
Examination of Witnesses
Councillor Nick Forbes and Councillor Jon Collins gave evidence.
The Chair
I am conscious that we have very little time and I want to get other people in.
Jim McMahon
Q The Independent Commission on Local Government Finance recommended that an independent body be established to look at redistribution, to make sure that it was fair and equitable and to take it out of the hands of Ministers being able to manipulate the funding settlement for different reasons. Is that something that the LGA still supports?
Councillor Nick Forbes: The LGA does not have a clear corporate view on that at the moment. What the LGA is doing is trying to get to a position where we have as much agreement as possible about the way in which the new system should operate.
My own view is that there will need to be a level of independent assessment because, inevitably, given the way in which local government works, there is a danger that there will be winners and losers. It would be politically unacceptable for the LGA to pick winners and losers as part of the solution.
We have a body to determine public health funding and it is a quasi-independent body. It looks at need and allocation based on need. My personal preference would be for something akin to that for local government finance, so that there is a body jointly commissioned on behalf of Government and local government that comes up with a distribution that has clear and transparent criteria behind it.
Councillor Jon Collins: I think Core Cities would support an independent approach to redistribution. The current system, when you look at the way in which funding has shifted away from the core cities over the last seven to eight years, is clearly unfair and is not related to need. Our view is that an independent approach to the allocation of resources would be very welcome.
Jim McMahon
Q The risk of appeal is obviously accommodated for in the item that we are discussing. Many local authorities have to ring-fence a significant amount of money in reserves, pending large appeals—large warehouses and supermarkets in particular can have a big impact on local funding. Do you think that there should be a tighter or shorter period in which those appealing can reclaim money due?
Councillor Jon Collins: The answer is yes. This is a major destabiliser in the whole funding approach. As we become increasingly dependent on the business rate, local authorities will have to make increasingly significant allocations of funding into reserves to hedge against the possibility of losing some very significant appeals. For example, the total now held by local government is estimated to be about £2.5 billion against losing business rate revaluations. Nottingham itself has lost about £20 million as a result of those kind of revaluations. That adds significant instability to the funding mix. What it means is that, effectively, it exacerbates our challenges and the funding reductions that we are having to make elsewhere in budget. This is something Government could make a significant difference on, and they could provide greater certainty for local authority funding.
Councillor Nick Forbes: The Government’s own assessment is that the level of appeals will go down in future years. All the evidence from previous revaluations shows that when there is a revaluation, the number of appeals goes up. Of course, that increases the risk for local authorities, which is why, as John says, £2.5 billion over the past five years has been earmarked by local government to deal with the risk of managing the appeals process.
One of the challenges is that there is no disincentive to appeal. There is nothing to stop anybody putting in an appeal. If you make a claim to an employment tribunal, you have to pay an upfront fee. Some kind of disincentive like that would be worth considering to make sure that we do not get speculative appeals from people who have no fear of any consequence of making an appeal, which simply drags the system out and causes a lot of administrative burdens.
Jim McMahon
Q Finally, the Minister does not believe that there is a crisis in adult social care. Do the LGA and Core Cities agree with that view?
Councillor Nick Forbes: The LGA position, as a cross-party organisation, is very clear that there is a crisis in adult social care. The changes made in the settlement, with the adult social care grant and the ability to raise additional money through the council tax precept, are a sticking-plaster approach. There is cross-party agreement that this is the biggest single challenge that we face as a sector. We are collectively asking the Government to use the Budget on 8 March as a way to find a longer-term solution to the problem.
Councillor Jon Collins: My answer earlier was clear that we believe that there is a crisis.
Kevin Foster
Q I have listened to the answers so far and will not go back over old ground. However, I am interested to hear more about the difference the Bill will make. There is no point in legislating for the fun of it. What actual difference will it make? Apart from the obvious use of the provision for discretionary relief for public toilets, what aspect of the Bill do you see your councils looking to use for the benefit of local residents?
Councillor Nick Forbes: Local government is asking for a number of things. One is the need to increase accountability and visibility with regard to the general principle of connecting taxes raised with money spent in a local area. More specifically, local government is asking for flexibility on the use of business rates. At the moment, the multiplier can only be determined at an authority-wide level and there is no way of targeting growth to allow us to discount specific businesses or industries. Giving us those discretions would allow us to consolidate where we have sectoral strengths in how the enterprise zone system works, but currently at a very small scale.
You could see local authorities using this to drive growth, create jobs and deal with areas where you might have a neighbourhood shopping centre that is difficult to let because of the rates. At the moment, we have no ability to discount rates. That is the kind of thing we could make a real difference around. For me, the big prize is the flexibility that the system would give to allow us to be much more responsive to local need.
Councillor Jon Collins: It has the potential to provide real incentives to local authorities to focus attention on building business rate growth. I will caveat that by saying that, ultimately, whether it is effective will depend on the distribution formula and whether there is an assumption that any headroom generated by 100% collection and use of business rates is simply centrally earmarked against some additional expenditure or there is a little flexibility so that we can invest for that business growth.
Ultimately, local authorities, certainly Core Cities, are very clear about the importance of working closely with business and promoting development as a way of generating additional business rate growth. Obviously, in doing that we are enhancing and developing our cities in the way that we know our population wants to be developed.
Peter Aldous
Q For the record, I am chairman of the county all-party group, for which the County Councils Network provides the secretariat. Mr Soulsby and Councillor Borrow, you very much emphasised the importance of the needs-based review of the fair funding formula being synchronised with the implementation of the provisions in the Bill. Do you think there is a case for including that in the Bill?
Councillor David Borrow: It is unusual that the two things have been separated. The timing of both parts of this change needs to be as close as possible. If they have to be done in two separate pieces, they need to be co-ordinated. Clearly, until we have sorted out the funding formula, we cannot really move ahead with 100% business rates, and getting that right is fundamentally important.
Graham Soulsby: It will be okay if the co-ordination is done properly, given that this is more of a framework. One of the things that the working groups at DCLG are working with local government on is the much longer gestation of the needs-based side of it. We have been trying to argue that the timescale needs to be brought back a bit and it needs to be done more quickly. That definitely needs to happen. Whether it needs to be part of the Bill, I am not sure, to be honest.
Jim McMahon
Q My question is for Mr Ware and London Councils. The Bill provides for business rate pooling arrangements to take place. We are in a borough where the band D council tax is £672 a year, looking at a borough across the road where the band D council tax is nearly twice that. Does London Councils have a view about the potential for council tax pooling, and have any discussions taken place with the Government?
Guy Ware: The short answer is no, there is not a clear view and there are no active discussions about council tax pooling. However, the two things will be closely interrelated. We in London would argue—this will apply in other parts of the country—that we should do this by arrangements that we devise for ourselves, but that is a slightly separate question. The two things will be interrelated because the definitions of the needs and therefore the business rate baselines that determine the top-ups and tariffs that will redistribute business rate resources between authorities will also be informed by the capacity to raise council tax. There is a whole set of quite difficult issues that sit behind that around why council tax can be very different, as you say, between two neighbouring boroughs or authorities in other parts of the country, which is bound up in previous political decisions, previous funding decisions and so on, so it is not straightforward.
We would argue that in the medium term, council tax and business rates should be reviewed together. The London Finance Commission, which reported just last Friday, certainly argues—I think persuasively—that fundamental reform of the way that property taxation is undertaken is really important. Trying to do each of those taxes independently is not necessarily the best way to go about it, because they are interrelated and affect transactions in the market and individual business rate and council tax payers.
Jim McMahon
Q One of the problems with the current council tax system is of course that Governments do not always have the courage to go forward with revaluations, which is why it is now 26 years since the last one. Is there a view that that should be localised—that that should be a local freedom?
Guy Ware: I believe it should, and I believe that the chances of it happening would be considerably greater if it were managed at a local level—in our case London-wide. The ability and the accountability of local politicians to tackle those really hard questions is greater, because the incentive is greater and the exposure to voters and taxpayers is that much greater.
Jim McMahon
Q Finally, does London Councils have a view about the abolition of the GLA transport grant?
Guy Ware: Again, we are supportive. All our submissions and recommendations on this issue have been made jointly with the GLA and the Mayor. The change that is coming in in April to fund Transport for London and the fire service revenue support grant within the GLA by retaining extra business rates is entirely in the spirit of the way that we think these things should move.