Local Government Finance Bill (Third sitting)

Jim McMahon Excerpts

Thursday 2nd February 2017 Public Bill Committees

[Mr Thomas]

My hon. Friend speaks to one of the tensions at the heart of the Bill. On Tuesday, we heard considerable concern about the impact of that tension from the witnesses in both the morning session and the afternoon session. I want to dwell on that tension in due course.

The other question associated with the concern about redistribution, and I hope the Minister will be willing to dwell on this in his response, is, what are the key principles that the fair funding formula will operate on? As I understand it, the fair funding review is currently working its way through his Department. We have no idea, sadly, when we can expect publication of that document. We are none the wiser about the rules by which the fair funding review is being conducted and the criteria that are being used.

[Jim McMahon (Oldham West and Royton) (Lab)]

Does my hon. Friend agree that this point is critical to assessing the impact of this measure, whether a positive or negative change is being made, and the way in which the Minister has tried to decouple the framework from the actual financial impact on local authorities?

[Mr Thomas]

I do agree. One wonders what the rush is to get this Bill through now, before the fair funding review and the draft regulations associated with the Bill have been published to allow proper scrutiny. Perhaps Ministers’ minds are focusing on the provision later in the Bill to delete any annual consideration of the state of local government finance and the scrutiny thereof, and that is motivating them to rush the Bill through. That is something I want to come to later in the Committee’s proceedings, if I may.

[Mr Thomas]

There does seem to be a pattern of Ministers shying away from parliamentary scrutiny. I do not know why, because we always enjoy the Minister’s appearances, but it is a concern, as my hon. Friend the Member for Oldham West and Royton also made clear. Given that this measure is one leg of the triptych of elements that are associated with 100% business rates devolution—the paving Bill, which we are discussing here, the fair funding review and the detailed regulations—one would have thought it better to have seen all those together at one moment so that we could have assessed the benefits or not.

[Jim McMahon]

That is a very good point. Given our assessment of this, it is very easy to be cynical about the motives for not wanting parliamentary scrutiny. It could well be that the plan is so bad that there is a fear of parliamentary scrutiny, but it could be that the Minister is just very nervous. If it is any help to the Minister, perhaps we can say that we will be gentle, encouraging and supportive during that scrutiny and that he should not fear it.

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[Mr Thomas]

My hon. Friend makes a very interesting point. On Second Reading, I mentioned some Institute for Fiscal Studies analysis that bears repeating. When the IFS considered what would have happened between 2013-14 and now if 100% of business rates income were retained at that point rather than having the 50% business rates retention scheme, it found that 16 councils would have seen their funding increase by 20% or more, whereas only one council saw its funding go up by 20% or more under the current scheme. Conversely, on the basis of the IFS analysis, 122 councils would have seen their funding fall under 100% business rates retention between 2013-14 and now, with 12 of those councils losing more than 2% of their income. No council has lost that much under the 50% scheme.

Therefore, the concern put by my hon. Friend in his usual forceful manner—it was about whether there might be further serious cuts in the spending power of local authorities and, crucially, how they would be distributed—was a point well made. That is a genuine concern, which the Minister needs to address.

[Jim McMahon]

Local authorities have commented that, because business rate valuations are so heavily dependent on rental values, every time there is a revaluation it has a bias to London authorities, where the rental market is overheated, and disadvantages local authorities outside London. There is a risk that, without the top-ups, tariffs and safety nets, presented in such a way that we can scrutinise them, local authorities could be seriously disadvantaged at the next revaluation.

[Mr Thomas]

My hon. Friend makes a good point. I would not say that the concern from the business community about business rates revaluation has dominated the pages of the Evening Standard, but it has been a significant theme for those who follow local government in London and business rates issues, as I do.

To return to the distribution of funding between multiple tiers of local government and, particularly, the allocation of funding between counties and districts, one concern is that if districts’ funding share were to be reduced, they would be less reliant on top-ups but more exposed to the risk of a fall in business rate income. Clearly, counties face the reverse risk that, if Ministers decide to reduce the available top-ups, services offered by county authorities to residents will come under even more pressure.

A similar tension was noted earlier by my hon. Friend the Member for Wolverhampton South West. Ministers have talked about an incentive under the Bill for districts to capture business rate income by championing big businesses that want to build warehouses or other property, but would a lower share of income for districts reduce that incentive? The system of top-ups and tariffs critical to the extent and effectiveness of redistribution arrangements under the Bill is key to whether the incentives to promote new economic development that Ministers say the Bill will generate will work. Whether the incentives work in practice is intimately linked to the redistribution arrangements.

Amendment 1 would still require districts to pay a percentage of business rates to the Secretary of State, so that some of the funding could be directed onward to counties and beyond. This is an opportunity for Ministers to clarify their intentions as to redistribution between districts and counties. As I have suggested, one concern about the Bill is whether the huge incentives—the revolutionary incentives that the Minister talked about—for local economic development will materialise in practice. If they do not, the practicalities of redistribution become even more critical.

We have heard at some length about the type of economic development that could be created under the Bill. It is property-based growth. The only way in which local authorities will benefit from the purported incentives under the Bill will be by large businesses locating in their areas. It is easier to see how those incentives might exist for an authority with a large amount of land capable of development. However, quite a few authorities —you will not find it hard to imagine which ones they might be, Mr Gapes—face significant barriers to that type of development, and therefore to that type of local economic growth. That underlines the need to get the redistribution arrangements right.

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[Mr Thomas]

My hon. Friend makes a good point, but if he will forgive me, it is apposite to the clause 1 stand part debate, when it will be worth dwelling on the revenue support grant in a little more detail.

I was focusing on authorities that might have concerns about how redistribution would work. Many urban authorities currently benefit from top-ups under the scheme—perhaps that top-up or income is not quite as much as they would want—but are nevertheless very concerned about redistribution. I am thinking of my own authority. The London Borough of Harrow has a very high density of housing, and although there is some scope for new business development, it is a very highly developed area, and obviously constituents and the council want to preserve the character of the area. The Minister may say that there are incentives in the Bill to promote economic development, but in practice there are significant barriers to growth, even in many urban areas. That is one reason why the amendments are critical.

[Jim McMahon]

An important consideration, as I hope my hon. Friend will agree, is that this is not just about square footage, but about the value of that square footage. Let us take an industrial space in Oldham. According to the valuation office website, the average value of that land is £22 a square meter, compared with £42 a square meter in Trafford, so even within the same city region there are massive variations in land values. Clearly, Greater Manchester is part of a pooling arrangement, but other authorities, such as Oldham, that are not currently part of pooling arrangements would not benefit. In future revaluations, they could be seriously damaged.

[Mr Thomas]

My hon. Friend underlines the point that I am making about the concern that urban authorities face significant barriers to the type of economic growth that the Minister says will now sweep the land as a result of the Bill. They are looking to the Minister for more detail about how the redistribution arrangements will work in practice.

In the context of amendment 23, I want to focus on one example of where redistribution as a result of economic growth is particularly interesting. This is a topical issue, because it relates to the third runway at Heathrow. Members of Parliament not so lucky as we are to be on the Local Government Finance Bill Committee have to content themselves with a discussion in the main Chamber about the consultation arrangements for the third runway. I invite the Committee to assume that the third runway at Heathrow will be built. It is something that I strongly support—I only wish Ministers had got on with it a long time ago, but we are where we are.

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[Jim McMahon]

As much as people will see a direct benefit from that investment, we also expect local authorities that are not part of pooling arrangements to take a grown-up approach to, say, healthcare reorganisation. Local councils are part and parcel of such reviews. In some cases, they have accepted the downgrading of hospitals in their area and services being moved elsewhere. Under the current arrangements—

[The Chair]

Order. I remind the hon. Gentleman that he is making an intervention, not a speech.

[Jim McMahon]

Of course. Does my hon. Friend agree that, under the current arrangements, that could be a barrier? If a council loses the business rates income from a hospital, will it take the mature decision that is in the wider interest?

[Mr Thomas]

My hon. Friend makes a good point. I think again of Allerdale Borough Council. In Keswick, there is a hospital that used to have an accident and emergency department, but that has been reduced to a walk-in centre and there is talk of it being closed. That is of considerable concern to the local community, but I suspect that it is also of concern to the treasurer of Allerdale Borough Council because of the potential lost business rates income. I hope that my hon. Friend will catch your eye, Mr Gapes, so that he can dwell on that point.

I want to dwell a little further in the context of amendments 1 and 23 on redistribution between poorer and richer areas. As I pointed out in response to the hon. Member for Waveney, if one analyses local government reaction to the Conservative party’s enthusiasm for 100% business rates retention, one will see that there is real enthusiasm for it in wealthier areas, because councils can see the potential benefits of the extra business rates income that might come their way, particularly if they have lots of land for development. However, poorer areas that have already lost out in terms of the revenue support grant, as my hon. Friend the Member for Wolverhampton South West says, and where there is less scope for large-scale property development, are more worried about what this measure might mean.

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[Mr Thomas]

I agree with the broad thrust of that; those in poorer areas, as evidenced by the index of multiple deprivation, are likely to be at most risk, in terms of social care. However, figures now available on social care funding suggest that the crisis is hitting areas beyond those that are poorer. There is clearly a national emergency, and I fear that it may get worse if the issues raised in amendment 2 are not addressed.

[Jim McMahon]

My hon. Friend rightly highlights the fact that money is being reused and recirculated. Does he agree that a fair assessment was not made of where money was taken from? There is deep concern in the 57 local authorities that are now worse off under the new homes bonus changes to adult social care. No accurate assessment has been made of the impact.

[Mr Thomas]

My hon. Friend makes a good point. I want to explore issues to do with current social care financing, because they are pertinent to the case for amendment 2. Local councils have had to deliver billions of pounds-worth of savings since 2010. Indeed, in the previous Parliament there was a 40% real-terms reduction in local government spending, which inevitably hit councils’ ability to provide social care.

The impact on social care spending has been severe. More than half of social care authorities reduced spending on social care between 2010-11 and 2016-17. The fear is that, if the Conservative party does not embrace amendment 2, authorities already hit by the current scheme’s redistribution elements will find that the same redistribution mechanisms, if they are used again, will mean even more severe social care cuts after 2020.

The cost of providing social care is of course not flat, so the spending cuts are an underestimate with respect to the actual reduction, and I have some pertinent examples, because 122 social care authorities have cut spending in real terms in the past seven years. Again, it is very sad that the hon. Member for Thirsk and Malton is not here, because his social care authority, North Yorkshire County Council, has been one of the lucky ones; it has been able to increase spending in absolute and in real terms. It is also sad that the hon. Member for Waveney has had to depart, perhaps to focus on coastal erosion outside the Chamber.

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[Mr Thomas]

The hon. Gentleman can go and look at the evidence: it is called the Labour party manifesto 2015. It brings back sad memories when I look at it, but perhaps it will help to correct him and guide him in making future interventions.

[Jim McMahon]

I share my hon. Friend’s view that the 2015 Labour manifesto was a beautifully crafted piece of work, although it is fair to say that unfortunately it was not much read by the public. Does he share my view that this is not necessarily about the total amount of money spent by the public sector, but about where that money goes? There is still a massive block between the money spent in the NHS and the money spent on adult social care. By bringing that together, which was the manifesto commitment, social care would be better off.

[Mr Thomas]

I have considerable sympathy with my hon. Friend’s point. The new Prime Minister has taken up so much of our manifesto that one hopes she might want to take up that commitment as well. Certainly, that might help to deliver one other part of the long-term solution to the social care crisis, which I think everyone apart from Communities and Local Government Ministers thinks is necessary.

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[Mr Thomas]

My hon. Friend makes a good point. He and the rest of the Committee should look at the very particular situation facing Surrey County Council. We have heard that every councillor in Cornwall and in South Northamptonshire is an enthusiastic supporter of the current distribution of finance and of these proposals. As I hope Conservative Members recognise, however, not every Conservative-run council shares that enthusiasm for the way in which local government funding is managed. Many have serious concerns. It is important for us to consider the evidence from those councils as well as from the South Northamptonshires and Cornwalls, in the context of whether the social care crisis will continue beyond 2020 under the Bill.

Surrey County Council’s leader, David Hodge, an experienced figure in local government, has revealed that he will call for a referendum on a proposed 15% increase in council tax. My hon. Friend the Member for Oldham West and Royton, who has significant recent experience of local government, tells me that Mr Hodge is an extremely effective and astute leader and an imaginative figure in local government.

[Jim McMahon]

I concur, having worked with David on the Local Government Association. Councillor Hodge, however, is more than just leader of Surrey County Council; he is also group leader of the Conservative group on the LGA. That adds significant weight to his intervention.

[Mr Thomas]

My hon. Friend underlines my point. Mr Hodge is a figure we cannot ignore in the context of this Committee’s work. Surrey County Council covers one of those otherwise great areas of the country that sadly lacks a Labour MP. [Interruption.] I did not expect to be heckled on that point. I can hear the objections from Government Members.