Draft Non-Domestic Rating (Rates Retention) and (Levy and Safety Net) (Amendment) regulations 2017

Jim McMahon Excerpts

Monday 20th March 2017 General Committees

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

It is a pleasure to serve under your chairmanship, Mr Wilson.

The much anticipated calculation is here; it takes a certain degree of genius to work out what it means in practice, but it is good to have that detail. Clearly, we are talking about the pilot authorities today, and we have been keen to see a bit more detail on those to understand how the measure might work when the Local Government Finance Bill is enacted. Rates retention affects every local authority in the country, particularly when we take into account the top-ups, tariffs and the safety net regime that is currently in place, as well as the deletion of the revenue support grant and what that means for councils’ baseline funding. Although we talk about this issue in a technical way, it has real-life consequences. When we talk about the calculations in this Committee, we are talking about whether local authorities will have the money to pay for adult social care, safeguarding services and the more than 700 public services that people rely on in localities.

When I became council leader in Oldham, revenue support grant in that year was £80 million; under this arrangement, revenue support grant will not exist. In terms of 100% retention, a town such as Oldham is in a net position from revenue support grant—it used to give back roughly what it now receives from business rates—so, from net position, it has lost £80 million of revenue support grant under this deal. We should not try to pretend in any way that this is about the Government being generous and giving money away. What councils have decided is that it is far better to have certainty and to plan for the long term than to plan continually in a short-term way, not knowing what their finances will be like in two, three or five years’ time. The measure provides a degree of certainty, but the jury is out—indeed, there is a great deal of scepticism—about whether it will provide the money that is required to provide the decent public services on which our communities rely.

There is a lot of detail that we expect to see, and have not yet seen, about local arrangements and local agreements for the growth element of business rates retention. What we see here is effectively the baseline retention—what local areas can expect to receive—but where local areas grow their business rates baseline far more than that, under these arrangements it will be retained at a local level, usually in combined authority arrangements. However, there is no detail about what agreements have been reached between individual local authorities. For example, of the 10 local authorities in Greater Manchester, only one is forecast to grow its business rate base to a net position and pay back into a pool. For a number of years, that council has negotiated greater retention of that money before any growth goes back into the business rate pool, which goes against the spirit of combined authorities and of generating economic growth in city regions. Local authorities with historically healthier tax bases can negotiate from a stronger position to achieve special arrangements that other places in combined authority areas cannot secure. Given that the measure lays the foundation and framework for retention, we expect that level of detail to be provided in the regulations, but it is missing.

We wait to see, too, what this means for the rest of the country, and whether Third Reading changes that. We have selected pilot authorities to test the measure—I agree that sometimes that is better than a big bang approach when we do not fully know the consequences. The baseline calculation will affect the whole country when the Bill is enacted. What will be the impact on local authorities across the country, and what will it mean for areas with historically low council tax bases? There is a requirement for areas to pay above their assessed needs into the pot to be redistributed. What will be the position of those local authorities if, after 100 years of changing economic circumstances in their area and—not for want of trying or because of a lack of local or civic leadership and modern-day investment in economic development and growth—they simply cannot generate enough money to fund decent public services in their area?

We have yet to see what type of top-ups or tariff system will be in place. We do not know what safety net will be in place for any mid-year shocks that might result. I hope that, once we introduce the measure and pilot areas test it on the ground, we see greater detail about what it means for the whole of England.

In the devolution deals, individual areas have been picked off in pilot arrangements, leaving a fragmented picture, with many parts of England outside a devolved settlement. That is bad enough for civic leadership and the question of where power sits in the country, and it certainly should not be allowed to be the case when vital public services depend on assured funding for the long term.

In the spirit of supporting the direction of travel on devolution, and recognising that local authorities have agreed to the arrangement—that is why the measure has been introduced—we do not propose to divide the Committee. We will keep our powder dry and hopefully there will be more detail on Third Reading.

[Mr David Winnick (Walsall North) (Lab)]

My hon. Friend said that it was important that local authorities agreed with the measure, and I understand why. The local authority in my borough in the heart of the west midlands and of the Black country faces an acute financial crisis, with substantial services such as libraries being reduced in location or removed altogether simply because there is no money. It is against that background that we should consider the measure.

[Jim McMahon]

My hon. Friend makes a forthright and relevant point. Local authorities are not there to simply justify their own existence—they are there to provide a public service that depends on public need. We are still waiting for an assessment of what local authorities need for baseline funding to provide public services for their locality. We have been promised that that calculation will be produced as we approach Third Reading. We have not yet seen it, so in some ways we are dealing with pilot authorities in isolation. The truth is, whether we agree to the pilot areas or not, when the Bill is enacted, the revenue support grant will disappear completely. Areas that are not part of the pilot authorities will be disadvantaged whether the regulations are introduced or not. That is why we are not seeking to divide the Committee, because it is important to recognise the financial circumstances of local authorities. The measure allows them, to a certain degree—not to the extent that we would like—to become the masters of their own destiny in what is a fairly horrible financial settlement from central Government.

I have one final point that it would be helpful to clarify today. We have been told that the RSG will be deleted and that local authorities have agreed to forgo its receipt. I suspect many of them did so because they recognised it will not exist in 12 months’ time anyway. However, the context for discussions about the Local Government Finance Bill is that there will be 100% retention in exchange for local areas taking on additional powers and responsibilities. We have not seen through the pilot agreement what additional responsibilities local authorities will be expected to take on, as will happen across the whole country. If the Minister could go into a bit of detail about that, it would be extremely helpful.

Finally, I want to clarify whether the local areas have agreed to forgo any other central Government grants in the same way that they have forgone the RSG—for instance, the better care fund, the early years intervention grant or the independent living fund. Will those be retained as part of this arrangement or will they be forgone in the same way that the RSG is being taken away?

I recognise that this is a very technical Bill, but it would be helpful to have a bit of information on those two matters. I repeat an offer that I have made in Committees like this on a regular basis. We believe in devolution, and quite a lot of these issues are not partisan at all; they are more about getting the framework in place to enable things to happen than about the politics of how much money gets put where. Again, if the Government have the will to work in partnership to prepare a framework for devolution for the whole of England, I would certainly be up for a discussion on that basis.