Provisional Local Government Finance Settlement

Jim McMahon Excerpts

Wednesday 18th December 2024 Commons Chamber

[The Minister for Local Government and English Devolution (Jim McMahon)]

The Government were elected on a mandate of change, to deliver a new era of economic growth and national renewal, and reverse the years of failure and decline that we inherited. Through the tough decisions that we took in the Budget, we prevented a return to austerity while protecting working people’s payslips. The plan for change that the Prime Minister unveiled earlier this month is the next stage on the journey of reform—a plan to kick-start growth and get Britain building again, putting more money in people’s pockets and delivering 1.5 million new homes, good jobs and opportunities for all.

Just this week, we announced our plans to rebuild and reform local government, and to empower local leaders to deliver that change so that the benefits are felt in every community. We cannot do this alone. We need strong, empowered local government to work with us, as equal partners in a new relationship. Public service is our collective duty, but after a decade of cuts, fiscal mismanagement and the failure of the previous Government to fix the foundations, it is a fact that councils of all political stripes are in crisis. The broken local audit system in England and the scandal of the unacceptable backlog that led to the recent whole of Government accounts disclaimer further illustrate the dire straits of the system and the legacy that we must reconcile.

The Prime Minister gets this. As a former director of a critical public service, he knows that reform is vital, and so does the Deputy Prime Minister, having worked on the frontline as a home care worker, seeing the human impact every single day. I am proud to have public service and local government in my blood too. That is why I take the responsibility to lead the Government’s work to rebuild the sector with the seriousness that is due and the urgency that is required. The work has already begun, and today marks a major milestone in our mission to rebuild local government and put councils on a firmer financial footing, as we publish the provisional local government finance settlement for ’25-26 and launch our consultation on these proposals, alongside our consultation on wider funding reform.

In the autumn Budget, the Government announced £4 billion of additional funding for local government services, of which £1.3 billion would come in the settlement presented today, but we know that we need to rally. That is why I am announcing over £700 million of additional grants. That includes over £200 million of extra funding for social care since the policy statement. I also confirm that the new funding includes £515 million that will be made available in the final settlement to support councils with the increase in employer national insurance contributions. The package in the provisional settlement will enable local government to invest in the vital services that people rely on, making £69 billion available—equivalent to a 3.5% real-terms increase in councils’ core spending power when compared with ’24-25. I confirm that this will increase even further in the final settlement.

Today is the start, not the end. Taken together, the additional funding made available in this settlement and the Budget will deliver over £5 billion of new funding for local services over and above local council tax. Alongside that, every authority in England will receive a one-off share of £100 million currently held in the business rates levy account.

Together, we must ensure that public investment is used for long-term prevention and reform of local public services, rather than expensive short-term crisis responses, which often have much worse outcomes. We are determined to end the cycle of failure that we have seen for too long, and we will provide certainty by ensuring that no authority will see a reduction in its core spending power after accounting for council tax flexibilities next year. We are also ensuring that taxpayers’ money goes to where it is needed the most. That includes an immediate down payment: a highly targeted £600 million recovery grant, funded through repurposing the rural services delivery grant and the services grant, ahead of broader reforms to a fairer funding system later. Today, we are launching a consultation on local authority funding reform starting in ’26-27.

There will always be tough decisions to make, but we are determined to ensure that we fairly reflect the real drivers of cost, including demand, the need for public services, and importantly, the ability of councils to raise revenue locally. That is why we are making up to £3.7 billion of extra funding available through this settlement to help local authorities to meet the spiralling costs of social care. That includes an additional £200 million uplift to the social care grant, which I confirm today, taking the total increase to the grant for ’25-26 to £880 million. That includes the new children’s social care prevention grant, first announced in the policy statement, which I today confirm will be uplifted in a further final settlement by £13 million, taking the total to £263 million. That is the first step in our national roll-out of transformed family health services, as we double settlement investment in preventive children’s social care services to over £500 million next year. I place on record my appreciation, and that of the Deputy Prime Minister, for the partnership and determination shown by the Treasury, the Education and Health Secretaries, and their Ministers and officials.

We will not do as the previous Government did and impoverish councils, and those who need support the most, then parade them around for public shaming. That helps no one. We must work together to get councils back on their feet financially. The principle stands that it is for local authorities to decide at what level they set their council tax, and they are accountable to local taxpayers; however, we are committed to keeping taxes on working people as low as possible, and we have to strike a balance, so we will maintain the previous Government’s policy, as set out in the Office for Budget Responsibility forecast, of setting a 5% council tax referendum principle, made up of a 3% core principle and a 2% principle for the adult social care precept. That means that residents will have the final say over increases that go beyond that.

We have put in place a framework for 2025-26 to support those councils in the most financial difficulty. Similar to the approach taken by the previous Government, we will consider requests for bespoke referendum principles on a case-by-case basis. We expect the changes outlined today will give the respite needed and clarity on the direction of travel, but we also know that 14 years have hit hard and, for some, the recovery grant and the other measures will still mean that additional support is required. We will put taxpayers and the impact on working people at the forefront of our decisions, and we will look carefully at councils’ individual circumstances—for instance, how much they charge in council tax and the strength of their plans to protect vulnerable people on low incomes.

To recognise the impact of council tax on households across all councils, we are consulting with the sector on changes to payment instalments, which will allow annual council tax bills that are spread over 10 months to move to a 12-month schedule by right, helping household budgeting, spreading the cost for working people and mirroring how most household bills are paid.

Ensuring local government can deliver for working people in the long term requires a root-and-branch reform of the way that councils are funded. That is why through the 2026-27 settlement—the first multiyear settlement in 10 years—we will introduce an up-to-date assessment of councils’ needs and resources. Today we are launching a consultation on the objectives and principles of those changes. We will consider representations from all corners of the sector to develop our understanding of the drivers of need, including deprivation, and of the impact in rural areas on service delivery—fairness for all delivered once and for all. We will redouble our work to shift power away from Westminster into the hands of those communities who know their area best. We will reduce the myriad of funding pots that councils have to contend with, giving them the flexibility they need to deliver local and national priorities.

That effort is underpinned by our strategy to streamline and simplify the local audit system in England. Local communities deserve transparency, accountability and the effective early warning system that local audits provide. We are taking immediate action by replacing the broken and dispersed system with a focused, proportionate and value-for-money local audit office, ensuring that the system is fit for purpose. This is a long-term challenge, and it will take hard work and dedication to achieve, which is why we are wasting no time in fixing the foundations, getting the audit backlog under control, overhauling the system for the long term, returning to secure multiyear settlements, and bringing forward ambitious plans for devolution, growth and reform of public services, while improving standards, accountability and efficiency. We are building for the long term to get local government fighting fit, legal and decent, and as equal partners to rebuild our country from the ground up, and ready to play its part in delivering the Government’s missions through our plan for change. I commend the statement to the House.

[Mr Speaker]

I call the shadow Minister.

[David Simmonds (Ruislip, Northwood and Pinner) (Con)]

It is Christmas. The two wise men and the wise woman on the Government Front Bench have arrived bearing their gifts for local councils, but on closer inspection, while the goal is beautifully packaged, the box is somewhat emptier than people had been expecting.

It has been a challenging few weeks for local government. We have heard the Government’s plans to take as much of the local as they can out of local government, and it is clear that this statement will leave our local authorities facing further challenges in doing their day jobs and significant uncertainty as we go into the new year. All that comes from a Government who promised just a short time ago that they would end the bidding war, as they called it, among councils. They then promptly started a new bidding war for homelessness funding, rather than addressing it through the settlement given that it is a core statutory duty of local authorities. The consequence of the Government’s approach is that localism, on central Government terms only, represents just in London a £700 million net cut in the funding that councils will have available to deal with homelessness at a time when rough sleeping is at 27%.

Councils face uncertainty about the cost of funding elections. The Minister told us just a few days ago that he would be considering whether to cancel local elections in places facing local government reorganisation. Up and down the country in all those local authorities, our returning officers are booking and paying for the polling stations, hiring the staff and carrying out the canvassing. They need certainty as we go into the new year.

Of course, our councils face additional and uncertain challenges that were announced in the Children’s Wellbeing and Schools Bill, as well as from various statements made by other Ministers, that clearly imply a significant increase in the cost of new statutory duties coming the way of our local authorities, with no clarity about how those may be funded. All of that is on top of bringing forward local government reorganisation proposals to a deadline early in the new year. It is not clear whose interests that serves, but for all those local authorities that may be considering that, it represents a significant additional cost pressure.

As many of our councillors go away for their Christmas break and try to digest the detail of the settlement over their Christmas lunch, they will face rumbling indigestion as they realise that their budget pressures will grow significantly, especially in rural local authorities, which face huge losses from the cancellation of funding that supported the additional and quantified costs of local government services in a rural environment.

I will be fair to the Minister: the £2.7 billion black hole that we spotted at the time of the Budget announcement has shrunk by around £700 million, but when it comes to council tax increases that will be announced by our local authorities in February, how much will they have to put up council tax to meet the shortfalls? How much will they have to put up council tax to cover the Government’s new approach to asylum, which is driving up the cost of temporary accommodation? When will the Government provide clarity on the dedicated schools grant override, given the impact it has on our local authority budgets? When will they provide clarity on the election preparation costs? Given that the Local Government Association has identified a £1.766 billion shortfall just from the Government’s national insurance contributions measure, when will they announce further funding to cover those costs?

Let us consider this: the cancellation of the new homes bonus means £3 million lost by Birmingham, £3.7 million lost by Buckinghamshire, £4 million from Central Bedfordshire, £5.3 million each from Ealing and Milton Keynes, £3.7 million from North Yorkshire alone, £9.5 million from Lincolnshire, £14.3 million from the rural services grant and an £18 million cut for a rural local authority in this Budget. It is clear there are tough times ahead for local authorities as they begin to look at the detail. The new homes bonus, in particular, means the places that have built the most homes are the ones that lose the benefit. If this is fixing the foundations, I would not want to stay in the tent which is the only thing they would hold up in our local authorities.

[Jim McMahon]

Here we go again. I would think that after 14 years of councils being on year-to-year watch to find out what position they would be in, the Conservatives would at least welcome the preparation now for multiyear settlements. They had 14 years to get their house in order, and they could not even line up to give councils more than 12 months’ certainty about what was coming. The one thing councils were absolutely certain about was that it was only going to be bad news after bad news. When there were crises in adult social care and children’s services and when homelessness was rising at a rate of knots, the last Government were completely missing in action—that was what councils were facing. How many councils went bust on their watch? Councils were lining up saying to the Government that they could not afford—

[Kevin Hollinrake (Thirsk and Malton) (Con)]

Birmingham.

[Jim McMahon]

Let us talk about Birmingham, because the Opposition referenced the £3 million new homes bonus. The new recovery grant—£600 million of brand new money targeted at those councils with high deprivation and low tax bases—just for Birmingham is £39 million. That will start the repair work of rebuilding the foundations.

When we talk about fair funding and why it is needed, we will not do what the previous Government did, where they put party politics ahead of the national interest. Let me remind the Conservatives of what the previous Prime Minister, the right hon. Member for Richmond and Northallerton (Rishi Sunak), said in Tunbridge Wells in 2022:

“We inherited a bunch of formulas from Labour that shoved all the funding into deprived urban areas and that needed to be undone. I started the work of undoing that.”

That is a record of shame. It is nothing to preach about. To right the wrongs of the past 14 years and finally get money where it is needed, this Government will work for public service, not party interest.

[Madam Deputy Speaker (Ms Nusrat Ghani)]

I call the Chair of the Housing, Communities and Local Government Committee.

[Florence Eshalomi (Vauxhall and Camberwell Green) (Lab/Co-op)]

I thank the Minister for outlining this much-needed funding uplift. I agree with him that councils up and down the country, regardless of their political persuasion, need the Government to support them, not to criticise and denigrate them, which is sadly what we have had in some cases over the past 14 years. He mentioned some of the authorities that still face those pressures, including Birmingham, Nottingham and Woking, which have already effectively faced bankruptcy. The Local Government Association has outlined that up to one in four councils is likely to require additional emergency support.

A Sky report has today outlined that families are stuck in temporary accommodation for an average of five and a half years. We should not be calling that “temporary accommodation.” Imagine spending the entirety of your school life in temporary accommodation because you do not have your own home. The funding that the Minister has announced for tackling homelessness is welcome, but it is a sticking plaster, if we are honest, because it does not give councils the tools to build social housing. Homelessness will end only if we build new homes, so what steps is the Minister taking to ensure that councils have those powers?

In the short term, the £18 billion boost to the homelessness prevention grant is a step in the right direction, but the Government must consider the unintended consequences. Local authorities are already reliant on that funding to plug gaps in temporary accommodation—many use up to 75% of it for that purpose—but the new rules mean that only 49% of the grant may be used in that way. How will that change not lead to a further reduction in funding for temporary accommodation, at a time when, as we all know, the system is broken?

[Jim McMahon]

I thank the Chair of the Select Committee for her question. We are all getting ready for Christmas and looking forward to time with our families and our own respite, but in the end it is hard to enjoy that moment given the prospect of just how many children in this country are in temporary accommodation. Some 159,000 children do not have a secure, affordable place to live and so are in temporary accommodation. In my own town, there are 500 such children. We do our best—we martial for the Christmas parties that charities put on—but it is no replacement for a secure family home.

There will be lots of differences in the exchanges that take place here, but we need to focus on why we are doing what we are doing. The reason we are building 1.5 million new homes is of course economic, and about decent, well-paid, working-class jobs—we talk a lot about that—but in the end it is about sorting out the housing crisis. If we sort out that crisis, we sort out the temporary accommodation crisis and the financial crisis in local government. If we sort out the crisis in adult social care, of course we sort out the financial crisis, but we will finally deliver on the promise of the state looking after the generation who gave so much. If we sort out the crisis in children’s social care, we finally deliver on the state promise to invest in the next generation.

Repairing the foundations is, of course, about financial foundations—that is important—but it is also about people and communities, and in the end that is what we are all here for.

[Madam Deputy Speaker (Ms Nusrat Ghani)]

I call the Liberal Democrat spokesperson.

[Vikki Slade (Mid Dorset and North Poole) (LD)]

I refer the House to my entry in the Register of Members’ Financial Interests, as I am a Member of Bournemouth, Christchurch and Poole council. Local government was brought to its knees under the last Conservative Government, with funding slashed and responsibilities piled on its depleted and exhausted workforce. I thank the local government workforce and wish them a happy Christmas.

I and my local Liberal Democrat colleagues welcome the move to multi-year settlements—something we have long called for—and the funding announced today for homelessness prevention. I agree with the Deputy Prime Minister and the Minister that we must eliminate the use of B&Bs, especially for families at Christmas. I also welcome the announced consultation on changing the funding formula, as listening to our local leaders is absolutely crucial.

However, we remain really concerned about the removal of the rural services grant, which suggests that the Government do not understand the nature of rural communities, including the difficulties of providing services over sometimes vast areas, subsidising public transport, and identifying hidden poverty, often among older populations—that costs an awful lot.

On special educational needs, it is deeply worrying that councils—particularly those that may literally run out of money, such as Bournemouth, Christchurch and Poole council—still have no idea about what will happen to the statutory override. How are they supposed to set their budgets in February without that certainty? Can the Minister confirm that no council will be forced to join the Safety Valve scheme, for example, which would put at risk the support provided to some of the most vulnerable children?

As we go into winter, the impact on social care is of the greatest concern. Dorset council shared with me a letter sent to the Dorset Care Association in which the director of adult social care states:

“We simply will not have the resources to meet the national insurance contributions for providers.”

Indeed, the Minister told me, in response to a written question, that only direct national insurance costs would be covered. What does he say to providers and to staff in charities such as Diversability, who fear for their jobs this Christmas?

[Jim McMahon]

It is important that we have a debate on local government finance based on the numbers. I have said already that, when taking into account council tax, no council will see a reduction in its core spending power. That means that before the final settlement, and not including extended producer responsibility and live parts of the grant, the hon. Lady’s own council will see an increase of at least 5.8%. We are covering the national insurance contributions made there, and in addition we are funding an extra £880 million through the social care grant. We have heard representations through the sector.

We are not saying that all this will fix everything today—it cannot. We are less than six months into the new Government and we have 14 years to reconcile. I hope the hon. Lady does not mind, but I remind her that a number of those 14 years were under the coalition Government. What we missed then and are trying to make up for now is that if we take away community and preventative services, which we all know make a big difference—not just in cost but in outcomes—we end up paying more and more at the back end, but for worse outcomes. The cruelty is that the Liberal Democrats’ moment in government, which I accept was short, was the time to invest in reform and prevention. That time was not taken and that opportunity was missed, and 14 years later we are reconciling that and fixing the system from the ground up. We will do that.

[Dame Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)]

I welcome this commitment to local government and recognise that the Minister has a big job to do in addressing the challenges that have arisen because of the last 14 years—not least in local government audit. I welcome what seems to be a commitment to embracing the Redmond review. Will he give more detail about what will replace the Office for Local Government?

[Jim McMahon]

Most in the sector would agree that Oflog—the Office for Local Government—had a vague remit that was an expensive way of gathering data. In the end, if it were to be developed, we could risk mission creep whereby its remit would verge into the areas that local authorities so disliked about the former Audit Commission. We are trying to get the right balance between the early warning system that enables us to see which individual councils are under stress, and, importantly, noting any developing systemic threats or themes for which central Government might have to take much earlier action. We want to rebuild that early warning system.

However, we are absolutely clear that we are not replacing the Audit Commission. For one, it was hugely expensive, and we need to ensure that any money goes to the frontline of local public services. Honestly, councils do not need inspectors going in to mark their homework when they should be trusted to get on and do the job well. People understand what the National Audit Office is, so we hope that they will understand and see the benefit of a local audit office, and that it will be embraced by the sector.

[Joy Morrissey (Beaconsfield) (Con)]

Will the Minister set out how he expects local authorities such as mine in Buckinghamshire to absorb with such little notice multi-million pound impacts from significant changes to the social care funding formula, and the effects of the NICs rises on commissioned services and suppliers, particularly charities such as Mind, which will be greatly affected by the changes?

[Jim McMahon]

Again, the hon. Lady’s council will see a core spending power increase of 5%, and that is only this part of the settlement—it does not include extended producer responsibility or billions of pounds in other grants that will come. This is a genuine attempt to make sure we give councils the funding that is needed, and I think we have succeeded in a very difficult context, but it is a matter of fact that some councils’ local tax bases are stronger, for reasons that go back many years and, in some cases, many centuries. That is not because of the efforts of the local council—it is what it is—and for too long, councils in deprived communities with lower tax bases have done everything that has been asked of them. They have raised council tax to the maximum, so local communities are paying more and more, but increasingly they are getting less and less. They are seeing their neighbourhood services diminish.

There are tough choices, and we do not shy away from that. We have been very honest in the oral statement about the trade-offs that have had to be made, but the increase of 5% in the core spending power of the hon. Lady’s council will help deal with the issues she has raised.

[Peter Dowd (Bootle) (Lab)]

I would prefer to see the wise men and women on Labour’s Front Bench than Ebenezer Scrooge and Jacob Marley on the Conservative Front Bench. Does the Minister agree that the statement he has made today is in stark contrast to the legacy left by the Conservative party, which left local government in dire straits?

[Jim McMahon]

That is the point: the previous Government knew just how bad the situation was, but they put off the tough decisions. For example, how many times in 14 years did the previous Government promise that they would go back to multi-year settlements so that councils knew where they were, but failed to do so? How many times did the previous Government say that they would bring in a fair funding review, but failed to do so? How many times did the previous Government say that they would deal with the audit backlog? They did not just fail to do that; the backlog got worse. If we had not taken action, it would have been 1,000 sets of audited accounts, and that was not due to covid, because those accounts went back to 2015. That failure was systemic, and it was all on the watch on the previous Government. What that meant in practice was £100 billion of public money that they could not account for, so they did not really know the state of the sector, because they completely gave up on monitoring it.

[Greg Smith (Mid Buckinghamshire) (Con)]

Following on from the question asked by my hon. Friend the Member for Beaconsfield (Joy Morrissey) and the Minister’s answer, can I assure him that there are areas of deprivation in rural communities such as Buckinghamshire? Further to the point made by the shadow Minister, my hon. Friend the Member for Ruislip, Northwood and Pinner (David Simmonds), while the devil is in the detail, it already looks from the figures like Buckinghamshire will take a multimillion-pound hit from the loss of various grants. Can the Minister give an assurance that rural communities will be treated equally to urban ones, and will not be left behind?

[Jim McMahon]

Either the hon. Gentleman does not know the status of the rural services delivery grant, or he is trying to mislead the House. A large share of large rural authorities should have got the rural services delivery grant but did not, because that grant was not about rural services. When the previous Prime Minister stood up in Tunbridge Wells and said that the Government had taken money from deprived communities and moved it across, he did not mean that it was for all communities; it was for party politics. So where were Conservative Members then when it came to those rural communities that did not get the grant? I did not hear anybody standing up and asking for their rural community to get the money for those services that Conservative Members are now trying to champion. We will absolutely make sure that deprivation and need are part of the funding reforms that are coming, but we will also make sure that we genuinely take into account the cost of delivering services in rural areas. The sector needs a fair funding review, and we are determined to deliver one.

[Helen Hayes (Dulwich and West Norwood) (Lab)]

I welcome the Minister’s statement, particularly the additional funding to tackle homelessness and provide early help and support for families. I also welcome the principle that resources should be directed according to need. However, as the Minister knows, the elephant in the room of local government finance is that the statutory override for deficits related to special educational needs and disabilities is due to come to an end in March 2026. Councils will be setting their budgets in the new year through to the end of March 2026, and if there is no plan to address the SEND deficits, many councils will be issuing section 114 notices. Councils urgently need certainty at this point, so what discussions are taking place with local authorities about the statutory override, and when will they have the certainty they need?

[Jim McMahon]

I agree about the importance and significance of the statutory override—that is felt very acutely in the Department and in the sector. We are consulting now on a number of matters, including the statutory override, and we are in constant dialogue with the Treasury about how we deal with that in the long term. In the end, this is another example of the legacy we have inherited. We are taking very difficult decisions to reconcile, reform and repair the system—decisions that should have been taken earlier but were not. That issue is very much on our agenda.

[Madam Deputy Speaker (Ms Nusrat Ghani)]

I call Lee Dillon, a member of the Select Committee.

[Mr Lee Dillon (Newbury) (LD)]

I refer Members to my entry in the Register of Members’ Financial Interests: I am a member of West Berkshire council. Last Christmas, I was the leader of that council, and I can honestly say to the Minister that I would much rather receive in my inbox the settlement proposed by the Government than what I received from the Conservative Government.

In his statement, the Minister talked about fixing the foundations. I welcome the £3.7 billion for social care, but does he agree that, with councils spending up to two thirds on their budgets on adult and children’s social care, social care needs full-scale reform if we are to fix the foundations? Will he support the Liberal Democrats’ calls for a commission to undertake that piece of work?

[Jim McMahon]

To be honest, although I absolutely agree that we need reform, I believe the urgency is today. Think about the number of older people who would have been entitled to adult social care in 2010 who now do not even get support from the local authority, because eligibility has changed in so many areas. There is a crisis, and that crisis is not just being felt in the homes of all the people who have given to this country and deserve better; it is being felt in the acute sector and in the health service, where we are paying far more at the back end because community preventative services are not in place. We are working with the Cabinet Office and the Treasury to say, “Let’s learn as we go” on some of this, in terms of innovation and pilots where we can invest to save—invest in those community preventative services up front, to try to better reduce demand. Of course, it is about money, but in the end it is about the service we provide. I appreciate the hon. Gentleman’s comments about the settlement in the round.

[Shaun Davies (Telford) (Lab)]

I refer Members to my entry in the Register of Members’ Financial Interests as a councillor in Telford and Wrekin, as well as an honorary vice-president of the Local Government Association.

The Government’s first step to restore funding for local government after a very difficult 14 years is welcome, but council areas such as mine have fast-growing populations, provide outstanding services and provide leadership to the sector. On all three of those counts, until this point, that has not been reflected in the settlement that Telford and Wrekin council has received. Will this Government change that? I also gently remind the House that when I was chair of the Local Government Association over the past couple of years, there was not a single Conservative councillor who thought the settlement or the last Government’s approach to it was fair or proportionate.

[Jim McMahon]

I am pleased to say that this year, core spending power in my hon. Friend’s area will increase by 8.1%, and again, that does not take into account the billions of pounds that will follow. That reflects the service demand pressures, but also the reality of the local tax bases in that area. Telford, like many areas, does a very good job of providing local public services, but the council itself recognises that the neighbourhood services that most people see and feel—those that make a difference to quality of life—have been retreated on because of the need to fund targeted services, and social care in particular. We are absolutely determined to rebuild adult and children’s social care and sort out the housing crisis, but we also want people to live in good places that people are proud of, which requires those neighbourhood services to be rebuilt. It will take time to do that, but our commitment to Telford and the rest of the country is that we are absolutely determined to do so.

[Mike Wood (Kingswinford and South Staffordshire) (Con)]

The core spending power tables that the Government have published today show that total Government funding for South Staffordshire is down by 7.5%. Just what do the Government have against council tax payers in South Staffordshire?

[Jim McMahon]

Given the hon. Gentleman’s background, I am surprised that he is displaying such ignorance of council finance. The Government’s role in local government finance is to be an equaliser. As he knows, everywhere has the ability to raise tax locally through council tax and business rates, but he also knows that some areas have the ability to raise far more than others because of their tax base. It is the job of the Government to equalise—to make sure that when it comes to demand for services, everywhere gets the service provision it needs. That requires the Government to provide more funding in some places to reconcile that lower tax base, so that everyone gets the services they are entitled to. The presentation that the hon. Gentleman has offered shows either ignorance or politics, but I think the country deserves better.

[Mr Clive Betts (Sheffield South East) (Lab)]

I very much welcome today’s statement and the extra funding that has been announced. I commend the Minister for repeatedly reminding the Conservative party of 14 years of austerity, during which local government saw bigger cuts to its budgets than any other part of the public sector. Of course, the Lib Dems were a party to the coalition Government when the worst of those cuts were made.

May I ask my hon. Friend two questions? First, when he comes to consider more fundamental reforms—which we accept will not be in place for another year—will he look at the council tax system as a whole? It is an unfair and regressive system that takes a disproportionate amount of money from the poorest people in the poorest houses. Secondly, can he confirm that the local audit office will be a stand-alone body that looks at public sector audit, not an add-on to the audit, reporting and governance authority—a previous proposal—which was basically to be a private sector body that looked at local government as an afterthought?

[Jim McMahon]

I thank the former Chair of the Housing, Communities and Local Government Committee for that question. I can confirm that the core spending power of that element in this settlement for Sheffield will be 8.5%, which is before the additional funds that will follow. Sheffield gets a good settlement from this, but we recognise that it is in a context of growing demand, so we hope councils see that we are meeting them on the challenge they face.

On whether we will review council tax, I think every Government recognise that there are huge limitations with council tax, and also huge geographical variations. It is regressive, which is the nature of a tax based on property values rather than the income of the people in them. However, council tax is understood, its collection rates are high and it is really the foundation—although not the total, as my hon. Friend knows—of the funding of council services. The urgent issue we need to face is that previous Governments moved away from their role as the equaliser in the system. Whereas the revenue support grant used to be in place to support councils by reconciling lower tax bases, recent Governments have been missing in action. We are saying to councils of all political stripes, across every type of authority and every part of the country, that we will reconcile that and work with them to equalise the situation.

On the local audit office, we are absolutely determined that this will not be a return to the Audit Commission. We are trying to do a number of things. First, we want to rebuild the early warning system to make sure that we see any systemic problems developing in the system. However, we also recognise that the cost of audit has increased by 150%, which is a direct cost to taxpayers, and that there is fragmentation in the market, and we need to look at the fall-back position as opposed to auditor supply. There is quite a lot that we need to deal with, but this is very much about the provision of audit and making sure the early warning system is rebuilt; it is certainly not a blow to the inspection regime.

[Madam Deputy Speaker (Ms Nusrat Ghani)]

I know the Minister wants to give thorough responses, but I have absolute confidence that he can do that with fewer words.

--- Later in debate ---

[Jim McMahon]

That is exactly the point of moving to a fairer funding formula—and we will of course consult on the component parts making that up. We have to take this in the round—I genuinely want any part of the country and any type of local authority to be able to interrogate the system, and even if they disagree with the quantum—there will always be arguments that—to be able to say that the rationale and the evidence base hold. It is a matter of accepted fact that there is a premium on the cost of rural service delivery, just because of the travelling involved. For example, for a home care worker, there is the travel time between appointments and all the rest of it. However, it is probably also accepted that the evidence base is not as robust and strong as it needs to be, so we want to make sure through this process that we take into account the need for that strong and robust evidence base.

[Chi Onwurah (Newcastle upon Tyne Central and West) (Lab)]

Fourteen years of Tory austerity and fiscal mismanagement have halved the central Government funding for Newcastle city council, sucked the blood vampire-like from our local economy, and left local businesses and families drowning in uncertainty, so I welcome this increased funding and the specific commitments on housing and social care. However, can the Minister reassure me that there is further light at the end of the tunnel, because this Government’s work on reforming public services, local funding, business rates and innovation investment will mean that the people of Newcastle and the north-east will have the power and the resources to build the public services and the economy that we choose?

[Jim McMahon]

That is completely right. By the way, I give credit to council officials, frontline workers and councillors, because it is local government that has led on innovation and reform and that has bound together local communities in very difficult times—and, I would say, with other parts of the system too often working against the local interest, not with it. We need to find a way of sending that message not to local government, because I think it is understood there, but to the wider system. We need to say that when we make such public sector investment in Newcastle and other places, we expect the whole system to rally around a single plan for the place and its people. We expect local government to be respected as the local leader—the convenor of place—that can hold the ring to make sure there is not duplication or contradictions and that the money delivers the right outcomes for local people. We are absolutely committed to that.

[James Wild (North West Norfolk) (Con)]

Large rural counties such as Norfolk face higher costs in delivering their services, and the Government’s jobs tax adds £14 million to the pressures that Norfolk county council is facing. Can the Minister clarify whether the NICs funding he referred to in his statement, which will go to Norfolk county council and other councils, will cover the cost of social care commissioned services?

[Jim McMahon]

First, I pay tribute to the leaders in both Norfolk and Suffolk for the conversations we are having, particularly on devolution. We look forward to, I hope, making progress on that in the near future, because that is where the real prize is. We can sort out the foundations of council funding and reorganise public services to get efficiencies, but in the end we need to see devolution. We need to see power coming out of this place and being given to local communities. The best way to achieve that is through a mayoral strategic authority working hand in glove with local authorities.

On the question about NICs, we have provided over £500 million for the costs of employers’ national insurance contributions and we are providing additional money through the social care grant, and it is for councils to decide how best to spend that money.

[Emma Foody (Cramlington and Killingworth) (Lab/Co-op)]

I welcome the Minister’s statement and the fact that this Government are starting to fix the damage done by more than a decade of disastrous settlements for local government. In my constituency, that means increases of more than 5% for each local authority in core spending power, but does the Minister agree that as important, if not more important, is the consultation on long-term proposals to fundamentally improve the way that local government is funded through a fairer system?

[Jim McMahon]

That is exactly right. We have approached this year as very much a recovery operation. We could see that councils were in the ditch and needed to be pulled out and taken home, and that is exactly what this one-year settlement will do. However, what they need and deserve is a multi-year settlement that gives long-term security and stability, and for that long-term settlement not to be the continuation of a broken system, but a system that has been rewired and put right. With the fair funding review, the multi-year settlement and the reform agenda, putting prevention at the heart of public services, we will begin to achieve the end to which my hon. Friend rightly points.

[Tom Gordon (Harrogate and Knaresborough) (LD)]

We have heard a lot from colleagues about the delivery of rural services. Harrogate and Knaresborough was one of the areas that saw local government reorganisation, and we are now geographically the largest council in England. So what reassurances will there be on making sure that rural services can be provided? One of the biggest barriers the council faces is being able to deliver home to school transport, the cost of which has gone from £5 million just a few years ago to what is expected to be over £25 million this year.

[Jim McMahon]

I have covered the rural services element before, so I will home in on the home to school transport issue, which I know is a huge issue in many county council areas, where children are carried further away to get to schools. I will be honest and say that some of that is absolutely required, and has always been required, but quite a lot of it is the result of a broken system in which education is not being provided in local communities and parents have been forced to move further out. The plan we have to rebuild education and to invest in schools, some of it funded through impositions on private schools to get that money into the state sector, is about rebuilding local education provision so that parents have the choice and the confidence to go to the state school nearest to their home. That will have an impact on council budgets for home to school transport.

[Gareth Snell (Stoke-on-Trent Central) (Lab/Co-op)]

After eight years of Conservative rule in Stoke-on-Trent, the council was taken to the brink of bankruptcy, and the Minister will be well aware of the extraordinary financial support that we have received and about which we are having additional conversations. How will the recovery fund interact with authorities in receipt of extraordinary financial support? May I also put on record the thanks of the city to Councillor Alastair Watson and Jon Rouse, the chief executive, for the work they have done to stabilise council finances in difficult times?

[Jim McMahon]

I thank my hon. Friend for that question, and I join him in paying tribute to the council officers and council leadership in Stoke-on-Trent. As a direct cash payment—the down payment I mentioned earlier—Stoke-on-Trent council will get £8.7 million, and its core spending power will increase by 8.6% just in this round, but that may well over 10% by the time the full allocations come through. That is part of the rebuilding process, and as I have said, it reflects the fact that we cannot punish councils because of their inherited historical tax base. We must make sure that the Government step up to their role to equalise the system so that everyone has fair access to public services.

[Clive Jones (Wokingham) (LD)]

I thank the Minister for his statement. I recognise and accept the importance of proper funding for areas of high deprivation, but it is important to acknowledge that councils with low deprivation face rising demand for their services. In my constituency of Wokingham, children with special educational needs and disabilities are suffering from this lack of investment. They are deprived, too, but in ways that are not being measured, so their council is not getting the crucial funding to look after SEND services properly. We want Wokingham borough council to get on with the job of delivering more for local residents, so how will the Minister ensure that Wokingham receives what it needs?

[Jim McMahon]

I thank the hon. Member for coming to one of our surgeries to make representations on behalf of his council. I know that he cares about these issues. We need to be careful not to think that those who have received the recovery grant are the only places that have deprivation, because that is not the case. The recovery grant is very targeted and has two components: one is whether the area has a weaker tax base; the other is whether the area has significantly higher deprivation than other comparable areas. We are clear that we need to root out deprivation and need wherever they exist. The fair funding review is intended to take into account many different component parts, including the cost of rural service delivery, general overheads, premises costs, deprivation and the rest, so that, whatever the issue and whatever the context, councils have confidence that the funding is correct.

[Amanda Martin (Portsmouth North) (Lab)]

I thank the Minister and his team for listening to the voices of Portsmouth North and for the additional funding allocated to homelessness and rough sleeping, so that Portsmouth city council’s projected deficit can be addressed. It would be remiss of me not to thank the council workers, alongside Bev and all the volunteers at Helping Hands and other charities in the city. They have supported the growing number of people on our streets under the shameful Tory coalition’s reign of recklessness. Can the Minister confirm that after five months in government, this is just the start of additional support for our councils? Can he also clarify that, should the Lib Dem-run Portsmouth city council need further advice, his door is always open?

[Jim McMahon]

I congratulate my hon. Friend on her question to the Prime Minister earlier.

The council’s overall core spending power will increase by 7.8%. Putting Portsmouth to one side, whatever measures we take in general terms, we can never cast the net so wide and so thinly that we catch every council at the extreme ends. If we did, the net would never get to the depth needed. The door is open to any council that needs a conversation about their particular circumstances. Regardless of party politics, councils can have absolute confidence that we will deal with them professionally, appropriately and with the respect they need.

[Several hon. Members rose—]

[Calum Miller (Bicester and Woodstock) (LD)]

I draw the House’s attention to my declaration in the Register of Members’ Financial Interests as a county councillor in Oxfordshire. In my constituency and in my surgeries and correspondence, the frustration, desperation and anger of parents and children with special educational needs is constant and shocking. Their needs are not being met, and as the Minister has acknowledged, the funding shortfall for the high needs block is significant and has led to a deficit, which the Local Government Association estimates will be £3.6 billion at the end of this financial year. I very much welcome the Minister’s focus on this issue, as well as that of his colleagues in the Department for Education. Can he assure parents and children in my constituency that, under the multi-year settlement to which he has referred, the future needs of these children will be adequately met, and the needs of the council addressed, as we face those huge deficits?

[Jim McMahon]

Yes, I can confirm that we are providing, with the support of the Department for Education, new funding of £1 billion to support the high needs block in SEND for the reasons that the hon. Member says. We also know that money today is not the answer in the long term. We have to reform SEND provision in the mainstream, so that parents and pupils get the support that they need.

[Josh Fenton-Glynn (Calder Valley) (Lab)]

I welcome the money for homelessness in today’s statement. Evidence increasingly suggests that prevention works in homelessness. Calderdale is one of three local authorities working with Crisis to pilot a system of early prevention. In six months, that has already led to a 20% reduction in people using temporary accommodation. Will the Minister look at that work and commit to championing what works?

--- Later in debate ---

[Jim McMahon]

My hon. Friend makes a good point. Where councils such as Calderdale are doing well and excelling, they are working hand in glove with the local community and voluntary organisations to ensure they get the coverage to reach into communities. I applaud that work, and I hope that the 7.4% uplift in core spending power in this part of the settlement goes some way to supporting it.

[Jim Shannon (Strangford) (DUP)]

I thank the Minister for a positive statement on the funding that is available. Government policy states that local government is the foundation of a good state, from bin collections to driving economic growth. It is paramount that that is done across the whole of the United Kingdom of Great Britain and Northern Ireland. What discussions has the Minister had, or will he have with the Secretary of State for Northern Ireland regarding the possibility of securing greater funding through the Barnett consequentials so that Northern Ireland can have the funding it needs to stimulate local, community and economic growth?

[Jim McMahon]

I probably have to be a bit careful not to stray into that, given that this is a statement about councils in England, but the premise of the hon. Member’s question about adequate funding for local public services is correct. Let us remember that councils deliver more than 800 different services to local communities in England. They employ more than a million people, many of whom will be local people of the community. Councils are a huge power and force for good, and I will certainly ensure that the representation he has made is passed on to the Secretary of State for Northern Ireland.

[Deirdre Costigan (Ealing Southall) (Lab)]

Massive cuts to local government services by the previous Conservative Government have seen rough sleeping more than double and families in temporary accommodation regularly forced to move from hotel to hotel with their belongings in black sacks. I welcome the record £14.7 million in homelessness funding that the Minister’s Department has awarded to Ealing council. That is an increase of almost £4 million. Can the Minister outline how that will help those people sleeping out in West Ealing and in Southall town centre tonight? How will it end the use of hotels and bed and breakfasts for families in Ealing Southall?

[Jim McMahon]

That is precisely why we have provided an extra £233 million to meet the demand. We do not take any pleasure or pride in that, actually. It is a sign of a system that is not working that we must keep on providing more and more money for temporary accommodation, to the benefit of hotel owners and not to the benefit of the people who need a safe, secure and affordable home. This funding has to be part of a wider plan. That is why the 1.5 million new homes are so important. If we do not provide those safe, affordable homes for people, we will always be in this cycle of trying to play catch up, and that is not sustainable.

[Emily Darlington (Milton Keynes Central) (Lab)]

May I, too, welcome the multi-year certainty given by the statement today? As a former deputy leader of Milton Keynes council, I can say that it is the kind of certainty we ask for, rather than getting a letter—on Christmas Eve, usually—setting out what the funding might be, already halfway through our budget-setting process. I also welcome the fact that Milton Keynes is getting more than £7 million to prevent homelessness. I welcome the fact that there will be transparency, but can the Minister give reassurances to Milton Keynes that with the loss of the new homes bonus, additional funding will be given to Milton Keynes to make up for that difference?

[Jim McMahon]

I thank my hon. Friend for the advocacy that she shows for Milton Keynes and for the local authority. Overall core spending power in Milton Keynes will increase by 6.1%, and that is only part of the settlement—the council can easily expect that to increase in its final settlement. It shows that the Government are working in partnership with the council to deal with the issues that she raises.

[Natasha Irons (Croydon East) (Lab)]

I welcome the extra funding going in to tackle homelessness, especially the £15 million allocated to Croydon council. After 14 years of Tory Members turning their backs on local councils, local councillors and the communities they serve, does the Minister agree that there is a cost to doing nothing when it comes to reforming local government funding? Can he outline what kind of support might be available to councils still carrying large amounts of debt?

[Jim McMahon]

There is a legitimate question to ask the previous Government about why on earth some councils were allowed to borrow disproportionately to their revenue. In the end, some councils have found themselves on the wrong side of that. When we were designing the recovery grant, that was about deprivation and low tax bases, and dealing with the quantum was about directing money to particular services, but I will be honest: there will always be councils—Croydon will be one of them—which, because of their unique situations, are just outside that general allocation. We are ready to have one-to-one support conversations where needed.

[Chris Vince (Harlow) (Lab/Co-op)]

Madam Deputy Speaker, let me wish you a lovely Christmas break. [Hon. Members: “Ah!”] Don’t put me off. I welcome the Minister’s statement. As someone who worked for a homeless charity in Harlow, I welcome the additional at least £1.2 million of funding to support homelessness and rough sleeping in Harlow as well as the additional £1.6 million of funding to neighbouring districts, which partly overlap between me and the hon. Member for Epping Forest (Dr Hudson). That is coupled with multi-year funding for councils, for which I achieved cross-party support in the Harlow district council chamber. Does the Minister agree that that shows a clear desire by the Government to support the most vulnerable people in my constituency, but that that must come with joined-up thinking on the planned 1.5 million new homes and investment in our NHS?

[Jim McMahon]

That was a cute way to get a long question in—merry Christmas, Madam Deputy Speaker.

My hon. Friend is absolutely right. I pay tribute to the work that he does to represent the people of Harlow as well as the local authority. We stand ready to work on those long-term funding settlement issues to ensure that we genuinely rebuild the foundations.

[Peter Lamb (Crawley) (Lab)]

I commend the Minister for his work in bringing forward the settlement to secure a fair deal for the sector, but, as many hon. Members have alluded to, the elephant in the room is temporary housing. That is in large part due to decisions taken by the last Conservative Government to freeze the housing benefit subsidy at 2011 levels and cap the local housing allowance at a far lower level than local housing tends to cost, with the end result being that local government is subsidising central Government’s welfare bill to an astounding extent, with two thirds of the council tax in my local area going towards paying that bill. As an advocate for the sector, will the Minister meet with counterparts in the relevant Departments to try to lift that cap, so that people are housed at a rate that is cheaper both financially and socially?

[Jim McMahon]

We come back again to the broken housing market. The need to build 1.5 million new homes is there, but—let us be clear—they have to be the right homes in the right places for the need in the local area. That means not only more social homes but council provision. We continue to see a cycle—we have all seen today’s inflation figures, which are driven by private rent—in which the taxpayer pays more and more for accommodation that is often substandard and does not even meet the decent homes standard, with no benefit to the taxpayer. We have got to rebuild council housing and social housing and make it fit for purpose and affordable.

[David Baines (St Helens North) (Lab)]

Thank you, Madam Deputy Speaker, and merry Christmas—I won’t get any longer for saying that.

I thank the Minister for his statement and welcome the announcements made today. In 2010, the last year of the previous Labour Government, St Helens borough council received £127 million in central Government funding. Under the Conservatives, that was cut to just £13 million a year. Services cannot be run on thin air and, despite the best efforts of council staff and Labour councillors, cuts have had consequences. Will the Minister assure me and my constituents that under this Government we will get the funding for the essential services that we need?

[Jim McMahon]

That is exactly the reason core spending power in St Helens will increase by 8.6% just through these measures. Given the type of council, we could easily expect that to top 10%. That is our down payment to say, “We need time to prepare the multi-year settlement and we need to do the fair funding review, but we know that councils cannot wait for that, given the last decade,” as my hon. Friend described.

[Madam Deputy Speaker (Ms Nusrat Ghani)]

The last question goes to the ever-patient Mark Ferguson.

[Mark Ferguson (Gateshead Central and Whickham) (Lab)]

Thank you for squeezing me in, Madam Deputy Speaker. I refer the House to my entry in the Register of Members’ Financial Interests. I was glad to hear my hon. Friend refer to the unfair funding formula championed by the previous Prime Minister, laser targeted as it was at reducing support to communities like mine. There are parts of Gateshead where the average life expectancy for a man is 73 years, yet the last Government focused wholeheartedly on reducing support to areas of deprivation like that. I welcome the almost £2 million that Gateshead council is receiving to tackle homelessness this year on top of its previous allocation, but given that one of the shameful legacies of the last Government is crumbling infrastructure in communities like mine, what efforts will be made to support councils like mine with the infrastructure they need?

[Jim McMahon]

In the end, some of it is about the quantum of funding, and some of it is about freedom of funding. Taking away the ringfencing and reporting is absolutely critical to that. Gateshead, and every other council, has our absolute commitment.

Finally, Madam Deputy Speaker, may I say thank you to the millions of public sector workers, council officials and, importantly, councillors for the work that they do in providing good public services every year, day in, day out? May I wish everyone a merry Christmas and a happy settlement day?

Local Government Finance Settlement

Jim McMahon Excerpts

Wednesday 18th December 2024 Written Statements

[The Minister for Local Government and English Devolution (Jim McMahon)]

Our fiscal inheritance means that there will be tough choices to get us back on the path to recovery. Fixing the foundations of local government will be a long process following the 14 years of decline and instability overseen by the previous Government. But our programme of reorganisation and reform will lead to more efficient structures; will mean funding is sent to where it is needed the most; investment focusses on crisis prevention, rather than an expensive crisis response; and councils once again have the certainty and flexibility they need to focus on their priorities. Together, we will fix the foundations for everyone.

We are under no illusion about the scale of this task. The demand for, and cost of, services has increased significantly. The persistent failure of the previous Government to do the right thing, underlined by their decision to drop the long-overdue fair funding review, compounded by spiralling inflation and a failure to grow our economy, has left councils of all stripes in crisis. Our fiscal inheritance means that there is no easy route to solving this.

This 2025-26 local government finance settlement and our programme of reform for the future mark the first steps towards stabilising and rebuilding the financial sustainability of local government. We will take a more efficient approach to Government grant funding, including a one-off recovery grant to get councils back on their feet. And, in 2026-27, when we move to the first multi-year settlement for local government in a decade, we will ensure that grant funding goes to where it is needed the most: delivering better services by investing in prevention, and improving value for taxpayers’ money. Our consultation on local authority funding reform sets us on this path to recovery.

More secure finances must go hand in hand with higher standards and stronger financial decision making, both of which are impeded by the broken local audit system that we have inherited in England. Today we launched a strategy to streamline and simplify the local audit system through the establishment of a new and proportionate local audit office—combining the functions of the existing system—and ensuring that the core underpinnings are fit for purpose. We will embed transparency, restore our public financial early warning system, and ensure that every council is equipped to deliver the best value for council tax payers and business ratepayers. We will strengthen the local government standards system to support councils to deliver the high standards that they strive for. We welcome views on proposals to better support local government to uphold the highest standards of conduct and sanction misconduct whenever and wherever it occurs as part of our standards consultation. These steps are a crucial part of our plans for a stronger local government, as set out in the “English Devolution White Paper” this week.

Together, these reforms will begin to stabilise local government finances and ensure that all councils are fit, legal and decent, so they can better deliver for their residents. We will build on the significant steps we are already taking, laying the groundwork for children’s social care reform and increasing funding for homelessness and SEND services next year. We are giving councils more say over how they run local bus services, guaranteeing the future of vital reforms to our waste and recycling system, filling potholes, and bringing planning fees up to cost recovery. The hard work has already begun, and today we set out our detailed funding proposals for 2025-26 and our plan for the years ahead.

Provisional local government finance settlement 2025-26

The autumn Budget announced over £4 billion in additional funding for local government services, of which £1.3 billion would go through the 2025-26 local government finance settlement. We recognise the challenges that local authorities are facing as demand increases for critical services. Today we are announcing over £700 million of additional grant, which increases the total additional grant funding that will be made available to local councils in England through the settlement to over £2 billion. The over £700 million increase in funding announced today includes a £200 million increase to the social care grant, taking the grant’s total increase from 2024-25 to £880 million. It also includes £515 million of further funding, which will be made available at the final settlement to support councils with the increase in employer national insurance contributions.

The provisional settlement for 2025-26 therefore makes available £69 billion for local government, which is a 6% cash-terms increase and a 3.5% real-terms increase in councils’ core spending power on 2024-25. The final settlement will increase further, to incorporate the £515 million of funding announced for national insurance contributions.

Grant decisions for 2025-26

The proposals we announced on 28 November—a new £600 million recovery grant, a new children’s social care prevention grant, additional funding for social care, and repurposing the existing rural services delivery grant and the services grant—lay the foundations for fundamental reform by allocating new funding through improved formulas in 2025-26 and investing in priority services.

Social care

We will make available up to £3.7 billion extra funding for social care authorities through the settlement next year. In total, local government will receive over £10 billion in grant funding for social care, including: £1.05 billion in the market sustainability and improvement fund; £2.6 billion via the local authority better care grant; and £5.9 billion via the social care grant.

We can also today confirm that the new children’s social care prevention grant will be uplifted at the final settlement to £263 million. Taken together with the new children and families grant, the Government are doubling settlement investment in preventative services within children’s social care, to over half a billion in 2025-26, laying the groundwork for fundamental reform of children’s social care next year.

National insurance contributions (NICs)

In recognition of the decision to increase employer NICs, we can today confirm that the Government will provide £515 million to English local councils, including mayoral combined authorities and fire and rescue authorities, allocated based on an assessment of each council’s share of relevant net service expenditure. We have published a methodology note today to explain how this funding will be distributed across local authorities. Individual allocations will be published at the final settlement early next year.

Council tax

It is for local authorities to decide at what level they set their council tax. However, the Government are committed to keeping taxes on working people as low as possible. This settlement maintains the previous Government’s policy—as set out in the March 2024 Office for Budget Responsibility forecast—of setting a 5% council tax referendum principle, made up of a 3% core principle and the 2% principle for the adult social care precept. Voters will have the final say over excessive increases above this threshold.

The Government are committed to improving the presentation and transparency of council tax bills and will therefore require local authorities to adjust the presentation of the adult social care precept on council tax bills from 2025-26. This will simplify bills and provide clarity on council tax levels set by the local authorities. The Government will publish a consultation in 2025 to consider other options to improve transparency of council tax billing and support taxpayers to manage their household finances with a default option to pay over 12 months, as with most other household bills.

Requests for exceptional financial support

The Government have a framework to support councils in financial difficulty. This will be a collaborative and supportive process, and we have already confirmed that we will not replicate previous conditions that made borrowing more expensive. Similar to the approach taken by the previous Government, we will consider requests for bespoke referendum principles from councils seeking exceptional financial support. But this Government will put taxpayers and the impact on working people at the forefront of our decisions. Any requests from councils will be considered on a case-by-case basis, and the Government expect any additional increases to be agreed only in exceptional circumstances, not as a punishment where councils have failed. We will look carefully at councils’ specific circumstances—for example, their existing levels of council tax relative to the average and the strength of plans to protect vulnerable people. The Ministry of Housing, Communities and Local Government continues to offer any council a discussion, in confidence, about its ability to manage its budget.

Levy account

Every authority in England will receive a share of the accumulated surplus currently held in the business rates levy account. We can confirm that £100 million will be returned to the sector on a one-off basis, distributed in line with relevant legislation. Individual allocations of this funding will be published at the final settlement early next year.

Fixing the foundations: consultation on local authority funding reform

From 2026-27, the Government will fundamentally improve the way we fund councils, based on a new assessment of need and resources. These reforms will build on the framework set out in the previous Government’s abandoned review of relative needs and resources (originally, the fair funding review).

We will reset the business rates retention system, as was intended when the previous Government established the system. We will move gradually towards an updated system and will invite views on possible transitional arrangements to determine how local authorities reach their new funding allocations. Some local authorities work collaboratively with mayoral combined authorities in their area to ensure that extra business rates income is directed to local growth priorities across the wider region. In recognition of this, and as part of the Government’s reform of funding for local government, we will consider how the business rates retention system could better and more consistently support strategic authorities to drive growth. The Government will also reduce the number of funding pots to give councils more flexibility to focus on priority outcomes agreed with Government.

Today’s consultation is on objectives and principles. The consultation will give councils, sector organisations and the public the opportunity to contribute to the Government’s proposals. We will consider all representations to develop our understanding of the drivers of need, including the impact of rurality. This reform is about spending taxpayers’ money as efficiently as possible, but it is also about the impact it will have on real people’s lives and local authorities’ ability to deliver for their citizens.

Conclusion

The consultation on the provisional local government finance settlement 2025-26 will be open for four weeks, closing on 15 January 2025. The consultation on local authority funding reform will be open for eight weeks, closing 12 February 2025. We welcome views from the sector and beyond on each of these consultations.

This written ministerial statement covers England only.

[HCWS342]

English Devolution

Jim McMahon Excerpts

Monday 16th December 2024 Written Statements

[The Minister for Local Government and English Devolution (Jim McMahon)]

Today, I am pleased to announce that the Government have laid the English Devolution White Paper.

The No. 1 mission of this Government is to relight the fire of our economy and ignite growth in every region. But we have an economy that hoards potential and a politics that hoards power—England is one of the most centralised developed countries, with too many decisions affecting too many people made by too few.

To truly get growth in every corner of the country and raise living standards, as set out in the Government’s ambitious plan for change, we must rewire England and end the hoarding in Whitehall by devolving power and money from central Government to those with skin in the game.

That means empowering mayors to drive growth and ending the patchwork approach to devolution. But it also means rebuilding and reforming local government as the foundation for devolution, a reset in the relationship between central and local government, and giving communities stronger tools to shape the future of their local areas.

To do this, we will bring forward a landmark English devolution Bill when parliamentary time allows. In advance of the Bill, we have today laid the English Devolution White Paper.

Deepening and widening devolution in England

At its core, the White Paper sets out how the Government will strengthen and widen the mayoral model of devolution across England. Mayors are uniquely placed to drive growth. They can use their mandate for change to take the difficult decisions needed to drive growth; their standing and soft power to convene local partners to tackle shared problems; and their platform to tackle the obstacles to growth that need a regional approach.

To equip mayors with the tools they need to deliver, we will:

Provide unprecedented powers and budgets for mayors, via our enhanced devolution framework. This will include:

A clear and transparent route for mayors to access integrated funding settlements over time. Starting with Greater Manchester, the West Midlands, South Yorkshire, West Yorkshire, Liverpool City Region, and the North East, this is a consolidated budget across housing, regeneration, local growth, local transport, skills, retrofit, and employment support.

New powers over strategic planning and control of grant funding for regeneration and housing delivery, putting our regions at the centre of the drive to build 1.5 million homes in this Parliament.

Devolution of non-apprenticeship adult skills functions and supported employment funding to mayors, as well as a substantive role in future employment support that is additional to core Jobcentre Plus provision. Mayors will take on joint ownership of the local skills improvement plan model and will have a crucial role in ensuring there are clear pathways of progression from education into both further and higher education and local employment opportunities.

A statutory role for mayors in governing, managing, planning, and developing the rail network, with an additional right for the most established mayors to request devolution of services, stations and infrastructure.

A strengthened role for mayors in relation to business support, boosting exports and attracting international investment.

Moving mayoral strategic authorities to simple majority voting, including the mayor’s vote, wherever possible, because unanimity is not in the best interests of getting houses built or growing the local economy.

Reform and join up public services, to help services deliver for citizens and reduce the number of politicians. One of the simplest and most effective means to do this is bottom up, through place. So the Government will: transfer police and crime commissioner (PCC) and fire and rescue authority (FRA) responsibilities to mayors where boundaries align; explore the possibility of a single mayor taking on PCC and FRA responsibilities across two or more authorities where this would result in coterminous boundaries; establish an expectation that mayors are appointed to integrated care partnerships and are considered for the role of chair or co-chair; and announce a long-term ambition to align public service boundaries, including jobcentres, police, probation, fire, health services, and strategic authorities. Through these measures, strategic authorities will be positioned as convenors on public service reform, working in partnership with local authorities.

Hardwire devolution into Government, because, for too long, the priorities of places have been ignored. New forums, like the Prime Minister’s Council of the Nations and Regions, and statutory local growth plans, which dovetail with the Government’s national industrial strategy, will hardwire local areas into the way the UK Government operate, enabling every corner of the country to play its part in delivering the Government’s plan for change.

Establish “devolution by default”. Devolution in England has been ad hoc and inconsistent, with it being too unclear what powers places can access, when and how. The Government will legislate to set out which powers go to which type of authority. The most far-reaching and flexible powers will be for areas with mayors, because they provide the most visible and accountable form of local leadership. This is the floor of our ambition, not the ceiling, so we will enable our most mature institutions to request and pilot new functions to drive innovation.

As we widen devolution, our goal is simple: universal coverage of strategic authorities in England. These should be larger than individual councils, covering wider areas where people live and work, to utilise the benefits of economies of scale. Many places already have combined authorities that serve this role.

The Government issued an invitation to places without devolution to submit proposals in July. We have had constructive conversations with a range of areas, including Cheshire and Warrington, Norfolk and Suffolk and others, about how devolution could support their ambitions.

The Government will shortly set out their priority programme for devolution—which will be for areas that are willing to progress devolution to an accelerated timescale, and to plan for inaugural mayoral elections in May 2026. The Government will continue to develop proposals for new strategic authorities collaboratively and in partnership with local areas. However, to ensure that everyone in England can benefit from devolution and ensure the effective running of public services, the Government will legislate for a ministerial directive, allowing the creation of strategic authorities where absolutely necessary and, after due time has been allowed, local leaders have not been able to agree. This goes hand-in-glove with our partnership approach to local government reorganisation. Taken together, this will mean fewer politicians who are more able to focus on delivering for residents.

Delivering devolution at every scale

Everyone—from regional mayors leading strategic economic policy, to frontline councillors convening their communities—needs the tools and trust to deliver change. That is why the White Paper is a vision for putting power in the right places and repairing the foundations of local government.

Councils are the foundation of our state—critical to driving growth, delivering and reforming the local public services people rely on, and to our democratic system. But local government has not been empowered to live up to its potential and people have suffered as a result. We will rebuild local government after 14 years of mismanagement and decline, so that it is fit, legal and decent. This means fairer funding and multi-year financial settlements, as we committed to in the local government finance policy statement in November. The initial consultation on the principles of this funding reform will be launched later this week. The public being able to hold councils to account for decisions means ending micromanagement from central Government—so we will reform the use of wasteful competitive and ringfenced funding pots and rationalise funding for service delivery into the local government finance settlement wherever possible; streamline and rationalise reporting requirements; and review requirements for local authorities to seek Secretary of State consents for the use of their powers.

We will establish a genuine partnership between central and local government, recognising the vital role of local councillors as frontline community convenors, and executive members and leaders as partners in delivering the Government’s missions and plan for change. This includes delivering 1.5 million homes, with upper tier local authorities coming together to deliver strategic planning where there is not a strategic authority in place, underpinned through provisions in the forthcoming planning and infrastructure Bill.

And, because unitary councils can lead to better outcomes for residents, save significant money which can be reinvested in public services, and improve accountability with fewer politicians who are more able to focus on delivering for residents, we will facilitate an ambitious programme of local government reorganisation. This programme will cover two-tier areas and unitary councils where there is evidence of failure or where their size or boundaries may be hindering their ability to deliver sustainable and high-quality public services. Reorganisation should not delay devolution, and we will take a phased approach to delivery, including prioritising areas where reorganisation can unlock devolution.

Too many of our towns, villages and neighbourhoods have been left behind by economic change and have been let down by struggling public services. We will empower communities with new rights and levers to drive change and regenerate their neighbourhoods, and protect cherished community assets, introducing a new community “right to buy” for assets of community value. We have also retained the long-term plan for towns and will reform it into a new regeneration programme. We will enhance local authorities’ powers, enabling them to address the challenges facing their areas. This will include strengthening councils’ ability to take over the management of vacant residential properties and to introduce large selective licensing schemes to improve conditions in the private rented sector, without requiring Secretary of State approval.

Upgrading the systems

Finally, we will secure devolution for the long term, strengthening accountability and building capacity. We will deliver improvements to the accountability system for devolution, including an outcomes framework for integrated funding settlements, so it remains fit for purpose as we devolve more powers and funding, and improve external scrutiny of local public spending, such as reforms to the local audit system and local government standards and oversight. To build capacity at all levels, we will ensure the right people are available for the job, seconding out from central Government if needed, while ensuring mayors are focused on their role and can empower their team to deliver.

Next steps

I have engaged closely with England’s regional mayors, via our new Mayoral Council, and local authorities, via our new Leaders Council, and will continue to do so as we roll out this ambitious programme. When parliamentary time allows, we will bring forward the English devolution Bill, which will help us deliver on the vision set out in the White Paper and on our commitment to empower communities to take back control from Westminster, so we can work in partnership to drive growth and ensure people across the whole country benefit.

[HCWS316]

English Devolution

Jim McMahon Excerpts

Monday 16th December 2024 Commons Chamber

[The Minister for Local Government and English Devolution (Jim McMahon)]

With permission, I would like to make a statement on the publication of the Government’s English devolution White Paper.

This Government were elected on the promise of change, and we are determined to transform our economy and our country through a decade of reform and national renewal that reverses the chaos and decline that we inherited. We will rebuild Britain from the ground up, so that it works for working people, through a mission-led plan for change that unlocks growth and raises living standards in every region. We will deliver new homes, jobs and opportunities for all by matching investment with reform to improve local services, and to maximise the impact of every penny we spend.

The British people deserve an economy that works for the whole country, and to have control over the things that matter to them. That is why we are moving power out of Westminster and putting it back into the hands of those who know their area best. The White Paper that we have published today sets out the means through which we want to achieve that, backed up by our landmark English devolution Bill, which will finally redress the imbalance of power between this place and communities up and down the country.

This change cannot be delivered soon enough, because for all the promises of levelling up, after 14 years, our nations remain economically divided, with living standards in many parts of the country stagnating. We have an economy that hoards potential and a politics that hoards power. As a former councillor and council leader, I have seen the immediate and tangible difference that local leadership can make. However, I also recognise the frustration that local leaders face in delivering the change that their areas need. In fact, it mirrors the frustration that local people feel when they cannot effect change in their neighbourhood or on their high street. That hits at the heart of what it means to live a decent life. Pride of place and security are rights too often denied in the places that need them the most. This Government are determined to end the top-down approach to decision making in this country, and to replace it with a principle of partnership.

The last Labour Government began the process of change by creating the London Mayor, the Scottish Parliament, the Welsh Senedd and the Northern Ireland Assembly. I saw the transformational impact of empowered local leadership in Greater Manchester when in 2014, a decade ago, I was one of the local council leaders who worked in co-operation to agree the first English devolution agreement outside London—an agreement that created the combined authority, which has delivered genuine change under the leadership of an elected Mayor, working hand in glove with local leaders.

Crucially, none of the now 12-strong mayors would claim that they act alone. Whether they are attracting investment in clean carbon and renewable energy, growing digital and creative industries, bringing buses back under public control, or tackling violence against women and girls, all would point to solid local partnerships and the importance of local government in delivering change, but the truth in England is that the process of devolution remains unfinished. Today, we are introducing to the House the measures to finally get the job done.

At its core, this White Paper sets out how the Government will strengthen and widen the mayoral model of devolution across England, shifting power, decision making and money away from Westminster in a completely new way of governing and driving growth. We are empowering more Mayors by introducing integrated funding settlements, and by giving them a statutory role in the rail network, and greater control over strategic planning, housing funding and skills training, so that they can deliver change that local people can see and benefit from. Ultimately, our goal is mayoral devolution that means that powers can be used to shape local labour markets, integrated transport systems, clusters of businesses, and housing development. That is the sort of strategic decision-making that is not possible over a smaller geographic area. By creating strategic authorities—a new tier of local government—we will give our cities and regions a bigger voice in getting the resources and support that they need.

The Government will shortly set out their devolution priority programme for areas that stand ready to progress devolution on an accelerated timescale, and a plan for inaugural mayoral elections to take place in May 2026. Each of those areas will have an elected mayor sitting on the Council of the Nations and Regions. We will work with those areas that are already in discussions with the Government to confirm their position. To those areas that are ready to move at pace, we say: come forward now. Be part of this movement. Be part of this moment.

We understand that devolution is a journey, and that some areas will need time to decide what course to follow. We want to walk alongside all areas—areas defined locally, not from those at the centre with a map—as they take the first step to realising the potential of devolution, for instance through a foundation agreement to unlock new powers. Our ambition is clear; we will legislate for a new power of ministerial directive that allows the Government to create strategic authorities where absolutely necessary, if local agreement has not been possible, to achieve full coverage of devolution across England. We will deliver a new constitutional settlement for England that makes devolution the default setting, with an ambitious devolution framework secured in law, guaranteeing powers for each level of devolution. All that will be underpinned by improvements to accountability, including an outcomes framework for integrated settlements, so that the system remains fit for purpose as we devolve more powers and funding.

None of this reform can be achieved without strong local government. Councils are the bedrock of our state. They are critical to driving growth and delivering local public services that people can rely on, but they have been neglected for too long. That is why we are establishing a proper partnership with local leaders through multi-year funding settlements, and moving away from farcical bidding wars for limited ring-fenced funding pots. We will give councils the respect and powers that they deserve and need to deliver the missions and the plan for change, so that change is keenly felt in every community. We said that we would reset the relationship between central and local government, and we meant it. We will give councils the certainty and stability that they need to plan ahead and prioritise their budgets, and to tackle local issues through public sector reform and prevention, rather than through more expensive crisis management, for which taxpayers are paying more and more, often for worsening outcomes. We have to tackle that head-on.

It is important that councils be the right size and shape to serve the people they represent, with simpler structures that people can better understand. Through our bold programme of unitarisation, as announced by my right hon. Friend the Chancellor of the Exchequer in the Budget, we will ensure that local government reorganisation and devolution can be delivered in tandem as soon as possible. We look forward to areas coming forward with their own proposals. This statement gives the clear direction that local governments have been asked for, and my door is always open for discussions with colleagues about how that will look and feel in their area. Although I recognise that this will be a challenging process for some, for many there is growing agreement that the time has come for change.

I am under no illusion about the scale of the task that we face in delivering more power into the hands of local leaders, but we are committed to resetting the relationship with local and regional government, and to working with local leaders to deliver the change that the country voted for; that is what the electorate will judge this Government on. Placed alongside the work that we are progressing on fixing the broken audit system, rebuilding the standards regime, and bringing forward plans for community power, this plan shows that the Government are determined to get our house in order and ensure a top-to-bottom redistribution of power in England, as we reset our economy, restore local government, and rebuild our country from the ground up, so that it works, finally, for working people. That is what it means to take back control, and that is what we will deliver. I commend this statement to the House.

[Mr Speaker]

I call the shadow Minister.

--- Later in debate ---

[Jim McMahon]

I will come to some of the questions raised, but let nobody in the Chamber take lessons and lectures from the Conservatives when it comes to the perilous state that local government has been left in. Let us talk about the councils that were going bust left, right and centre on their watch. Let us talk about the fiscal discipline on 1,000-audit backlogs. What does that mean? It means £100 billion of public money that they could not account for, which held up the signing off of the national accounts. That was their legacy, and they talk about being custodians of public money—they did not even know where the money was.

What about the crisis that was building up in adult and children’s social care and in homelessness? At a time when we should have been thinking about prevention and reform and getting ahead of the problem, essentially the previous Government were making matters worse, not better. When Conservative Members talk about their legacy and being on the side of councillors, we should ask which Government it was that eroded the standards regime—its teeth were put completely to one side—leaving councillors open to abuse and intimidation and turning council chambers into hostile, toxic environments. Which Government was it that made councillors publish their home addresses when they were facing death threats?

We are doing the work now to repair the foundations of local government, giving it the funding that is needed. After a decade of year-by-year funding, we have given local government a multi-year financial settlement so that it can get its house in order as part of the rebuilding work. That is what is needed now: grown-up politics, a plan to fix the country and a plan to put local government back on its feet. But just doing that is not enough; we have to break the centralising system.

If a local authority wanted £1 million for a local project, the previous Government made them compete with their neighbouring council for a limited supply of money. The bidding wars that took place wasted millions of pounds of public money, and in the end they did not deliver on their core promise of levelling up. That was the agenda, and it has got to change. We have to change that cap-in-hand, parent-child relationship where power is hoarded at the centre.

The people queuing up to have conversations about reforming public services and devolving powers to mayoral combined authorities may not be Conservative Front Benchers, but they are Conservative council leaders who recognise that they finally have a Government on their side, willing to work in partnership to make the changes where the previous Government failed.

[Madam Deputy Speaker (Judith Cummins)]

I call the Chair of the Housing, Communities and Local Government Committee.

[Florence Eshalomi (Vauxhall and Camberwell Green) (Lab/Co-op)]

I thank the Minister for the statement. It is about how we bring local leaders back to the agenda and back to the central aims that they have been complaining about over the last 14 years. It is important that any devolution reforms build trust among local people, who rely on vital services from housing and planning to social care; the Minister must keep that in mind as he is going through the reforms.

Ultimately, some councils may fear that residents’ voices in smaller district areas will be lost if they are absorbed into larger unitary authorities. Will the Minister outline how he will ensure that residents do not feel disenfranchised by losing representation in their community? Will he assure the House that, should residents choose not to adopt a mayoral model, they will not be disadvantaged?

We know that our frontline services are at breaking point, as the Minister outlined, and many will welcome the multi-year settlement, but we do not want to see adult social care and temporary accommodation—all those areas—becoming stuck between a disbanding district authority and a nebulous unitary authority. Will the Minister assure the House that there will be proper accountability during the reorganisation and that we will not see local residents and councillors left in limbo?

[Jim McMahon]

I thank the Chair of the Select Committee for that very important point about how we maintain public trust and confidence in a period of change. First, local government representations to Government will be self-organised within counties, and we will receive the recommendations and requests that come forward. We will write to all 21 areas in scope to invite them to make representations to be part of the first wave priority programme. From the conversations that we have had, we expect a significant number of local authorities to want to be part of that reorganisation. But to be clear, that is not something that we are imposing. We are writing out and local areas are self-organising, because they understand that reform and modernisation are central.

When it comes to not losing a local voice, the White Paper makes it very clear that the devolution offer is not just about creating new structures, and it is certainly not about creating new politicians. This has to be a genuine shift of power. There is a big section on community power, because a lot of people—and this may even transcend the previous Government—do not feel power in the places where they live. Quite often they feel that things are done to them and, when they see the decline of high streets and town centres, they feel that the change is going one way, and it is not good. The paper is about rebuilding local community power. Our expectation in the White Paper is clear that, regardless of the size of local authority, every council—including existing unitaries—will work out a way of getting to those local communities at neighbourhood level, and reflect in a democratic way and a public service way how best to give local people a voice.

[Madam Deputy Speaker]

I call the Liberal Democrat spokesperson.

[Madam Deputy Speaker (Judith Cummins)]

Before I call the Minister, I remind Members that time is at a premium, and I want to be able to get everybody in.

[Jim McMahon]

I thank the Liberal Democrat spokesperson for her question, and for her service as an elected council member for a period. I understand that there will be concerns about the move to larger unitaries, but the fact is that there is a two-tier premium that the taxpayer is paying. At a time when resources are limited, we have a responsibility to take money from councils’ overhead costs in the back office and bring them to the frontline to give people good neighbourhood services. I suspect that if people were asked, “Would you prefer the existing two-tier system or more money being directed at local public services?”, most would want the money to go into local public services. However, there is a balance here, and it is for local areas to find it.

We are very clear in the White Paper that we want to move away from councillors being perceived as back-bench. We want to reform them, essentially, as frontline councillors —as the conveners of a community, with greater power and influence and the ability to get things done.

On social care, an additional £4 billion was provided in the Budget, with the provisional settlement to be announced this week. Of that amount, £600 million is for a recovery grant to go to areas with high deprivation but low tax bases, to ensure that we rebalance fairness in the system.

[Cat Smith (Lancaster and Wyre) (Lab)]

Although the Minister said in his statement that the proposal was the end of a top-down approach from central Government, to many of my constituents it looks like a one-size-fits-all model that works for Greater Manchester, which he represents quite ably, but does not necessarily work for the rural English counties. What assurances can the Minister give my constituents—and me, frankly—that this approach will not be imposed on local areas against their will? How will he measure consent from a local area that this is the approach they want?

[Jim McMahon]

I thank my hon. Friend for her question, and for securing a Westminster Hall debate on this very issue. The Government do not accept the one-size-fits-all argument any more than an argument that councillors work in some areas but not others, and that Members of Parliament work in some areas but not others. In the end, when given the powers and resources, mayors can achieve change in partnership with local leaders.

We are not creating super-councils. We are creating a strategic authority that will give power from this place downwards, giving councillors far more power. On how we will do it, I can say that in Lancashire, in our drive to widen devolution across the country, the principle is for foundation authorities; of course, Lancashire has already agreed to a level 2, which, in the White Paper, would be the equivalent of a foundation authority. In that sense, it already has devolution in place.

[Sir Edward Leigh (Gainsborough) (Con)]

The Government say that they want to end the top-down approach. How does that square with a district council such as West Lindsey in Lincolnshire being denied any say in massive solar farms or wind turbines? Will the Minister do me a favour and confirm that his aim is to pass more power back to district councils? Indeed, will he promise that he will not unilaterally abolish them just because we have a new mayor for Lincolnshire?

[Jim McMahon]

It would be a bit rude to diminish the powers of the Mayor of Greater Lincolnshire before they are in place, especially as I will move the order enabling the election to happen, and we want them to be a success. We could have taken a different view—it was a legacy agreement that was carried over from the general election—but I recognise genuinely that the leaders there, who are leaders of different parties from my own, worked in good faith to reach an agreement with the previous Government that we felt needed to be honoured. That needs to be the tone of all such conversations. We need to take party politics out of the conversation, which can be difficult to do in this place. Those are not the conversations that I have with council leaders and councillors across the country, who genuinely want to put party politics to one side and to work in the interests of their local community. On the question of power over local planning decisions, if local councils want power, they must have a plan.

[Mrs Emma Lewell-Buck (South Shields) (Lab)]

Decisions taken in this place are subject to rigorous scrutiny and accountability, but recent history in several areas shows that that is not always the case with local decision making—not all councillors and mayors are paragons of virtue. As we dissolve more powers, can my hon. Friend explain what levels of scrutiny and accountability will be built into his plans?

[Jim McMahon]

It is a very important point, and we were mindful of that concern because devolution in England has been developed by deal, rather than with a clear framework from the outset, so there are natural gaps. I do not decry, by the way, the progress made previously in filling in the map of the midlands and the north of England, but we need to reconcile that now.

If we give more powers and resources downwards, we need to ensure that the checks and balances are robust. There is a lot that we need to do. There are recommendations in the White Paper on the principles of a local public accounts committee, for example, so that public spending can be brought into scope. We are also looking at oversight for the bodies that strategic authorities establish, such as trading companies or joint ventures, to see whether they should be in scope of best value. We are also looking at checks and balances for the officer structure and whether to bring in an accountable officer structure, as in a local authority, to ensure a clear difference between the political and operational leaderships and the powers that each has.

[Mr Gagan Mohindra (South West Hertfordshire) (Con)]

I welcome the Minister to his place; this is the first opportunity I have had to do so. As the Department will be aware, both Dacorum borough council and Three Rivers district council in my constituency do not have a local plan in place. They are both controlled by the Liberal Democrats. Will the Minister confirm what would happen in the case of his proposed plans? Separate to that, we have local county elections next May. What are his intentions for them? Do they still go ahead? There is a lot of uncertainty. In 2026, how many mayoral elections does he anticipate?

[Jim McMahon]

On local plans, if any areas at this point have failed to get a local plan in place, they are leaving the door open for development to take place without any checks and balances, and in a way that really does take away local power. We are trying to reconcile that and get a balance. I hear quite often about the housing targets that have been set—the 1.5 million new homes. I should say, by the way, that there are a lot of good skilled working-class jobs that go with that 1.5 million new homes. There are 150,000 kids in temporary accommodation who need a home. There are 500 kids in hotels in my constituency who deserve a secure, affordable place to live. There is a bigger crisis here, which is why local plans are so important. Where they are not in place, we will have to look at strategic plans in those areas. We are out to consultation on a number of those points.

On county elections, the letter will go out today to county councils inviting them to make a submission in January. Subject to that submission being robust, it can be part of a priority programme. We will do what the previous Government did and accept the view that if a local authority will not exist in the near future, it makes no sense to have an election to it. However, we will very soon after want to have an election for the shadow authority that will follow, so further detail will follow on that.

[Oliver Ryan (Burnley) (Lab/Co-op)]

I thank the Minister for his White Paper. At the back of it, there are five pages of powers that are not currently enjoyed by Lancashire, as a foundation authority. Will he agree to work with partners in Lancashire to ensure that we can get a deal done and over the line for a mayoral and a reorganisation package? Lancashire’s time is now and, in his words, can we grasp this moment and this movement?

[Jim McMahon]

Well, I am glad somebody was listening! There are huge opportunities in Lancashire. If we think about the work that has been done to secure a mayoral combined authority in Hull and East Yorkshire, and if we think about the opportunities in Cumbria, Cheshire and Lancashire, that completes the map of the north. Our leaders there are already self-organising through the Great North project, chaired by Mayor Kim McGuinness, to lead from the front on inward investment. It would be a shame, given Lancashire’s economic success, particularly on energy and other issues, if it is not part of that agenda. On the organisation, I think most people in Lancashire accept that, after 20 years or more of talking about it, the time had probably come. But it is for local areas to come together and have a plan that is right for their place, and to make a submission to the Government. It is not for the Government to redraw the map of England and impose it on every community. But our ambition is clear and the direction is clear: we absolutely welcome areas making that submission and we want to work towards more mayoral combined authorities.

[Lewis Cocking (Broxbourne) (Con)]

I place on record my thanks to my two district councils, which I wholeheartedly support: Broxbourne and East Herts. Page 17 of the White Paper states that the Government want to create unitary councils of “500,000 or more”. What does “or more” mean? Does that mean I could end up with a “super council” for Hertfordshire covering 1.2 million people, which is not a proposal that I would support?

[Jim McMahon]

In some ways we have to give direction. What we heard during the consultation stage with local government—that includes, by the way, the County Councils Network and the District Councils’ Network—is that the more clarity on a framework that can be provided by central Government upfront, the better for local government to be able to organise. We are very clear that on an efficiency level—if the drive is for efficiency—the 500,000 is roughly the population needed to draw out those efficiencies. In the example that the hon. Gentleman gave, it would not be 1.2 million. It might be two or even three councils, because in areas in discussions about a mayoral combined authority, we have accepted—it is outlined in the White Paper—that there will need to be some flexibility in terms of scale and size of the local authorities that sit under it.

[Mr Toby Perkins (Chesterfield) (Lab)]

Derbyshire already has a mayor, but we have a two-tier authority. If we cannot get agreement on the size of the unitary authority, will Derbyshire and similar authorities still hold elections next May, and how will my hon. Friend break the impasse if those at county level want one Derbyshire and those in the districts want two or three?

[Jim McMahon]

The assumption is that elections in counties will take place as planned, unless authorities actively approach us to say that they want reorganisation discussions and have proposals that they can work up. In those circumstances, we will take the view that elections to an authority that will not exist should be postponed so that an election for a shadow authority can follow. On Derbyshire, we need to be careful: the Government’s role is to invite and to receive, not to draw the maps, which is for local authorities to do. As my role is quasi-judicial and I will need to take a view on potentially competing proposals, I cannot comment on what individual counties may or may not look like.

[Mr Lee Dillon (Newbury) (LD)]

Councils are clearly on their knees, and I welcome multi-year funding settlements and changes in the grant programme, but will the Minister confirm that the Government will support devolution so that not a penny of councils’ budgets is spent on it and they can focus on frontline services? In his statement, the Minister said that councils could

“take their time to decide on the course they wish to follow”,

but went on to say that the Government would

“legislate…to create strategic authorities”

where they felt that was necessary. How does the Minister square those two sentences?

[Jim McMahon]

This is about partnership, about tone and about how we can work together. Because there has been a fair amount of talk in the sector about reorganisation and devolution, even before the White Paper a number of authorities had approached the Government saying that they wanted to have a conversation about local government reorganisation and/or devolution. We have had to respond that we cannot have a hundred hares running all over the place without a transparent plan and timescale that can be understood so that people can make a judgment about whether this option is right for their area or not. What we will have is a proposal to double-run a devolution priority programme alongside a local government reorganisation, with a key point where those two pieces of work must come together for joint decision making. That will at least mean that every authority knows what stage it has reached, and can make a choice: is it at the right point in the process to opt in, or will it need more time?

The point about the backstop is very important. As I have said, there is no map that we are intending to impose anywhere. Let us suppose that within a region we have an agreement to compile every county bar one, and we reach the end of the current Parliament. In that event, I think it legitimate to say, “Well, there is nowhere else to go.” It is fairly self-explanatory that there will be a fundamental strategic authority in that area, and that is the type of process that we are considering. We are not considering redrawing the map of England and imposing this in one fell swoop. It is about partnership and working with local areas, and so far those conversations have been very fruitful.

[Andy MacNae (Rossendale and Darwen) (Lab)]

I hugely welcome the White Paper. For us who are in the frontline trying to deliver services to our residents under the dysfunctional two-tier system that exists in Lancashire, this is a breath of fresh air. It is exactly what we have been requesting for years. Does the Minister agree that now is the time for Lancashire leaders to put aside short-term personal and political considerations, not to wait for the Bill to be published, and to work with urgency in drawing up proposals for new local government structures that are focused on the needs of residents and, ultimately, bring the highest level of devolution to Lancashire?

[Jim McMahon]

I entirely understand that there are local tensions in Lancashire, to put it mildly, but my experience of council leaders in all parties and at county, district and unitary level has been positive. Even when there are differences, they are shared in a respectful way. I would not underestimate the progress of the level 2 agreement that we have in Lancashire, which will see a devolution of powers relating to, for instance, skills and compulsory purchase orders as a first step towards overall devolution. The agreement contains a commitment that by autumn next year a proposal for a mayoral combined authority will be submitted to the Government, with or without local government reorganisation. We have been very clear about our direction on local government reorganisation, and our expectation is that those in Lancashire and other places have heard about that direction and will act accordingly. In the end, times change. My son’s primary school in Oldham had the Lancashire education committee plaque on it; in Lancashire county hall, there is the Oldham plaque. Times change and boundaries change, but people and communities do not, and the Government who represent them have to be fit for purpose.

[Mr James Cleverly (Braintree) (Con)]

If devolution means anything, it means giving local leaders the right to do things differently. If a future mayor of Essex wants to compete with London by creating a less heavily regulated or less heavily taxed business environment, would that individual have the power to do so under the proposals put forward by the Government?

[Jim McMahon]

It is in the eye of the beholder. If the right hon. Gentleman wants to turn Essex into Monaco, I suspect that it will not happen. But if he is asking for genuine freedoms and flexibilities so that local leaders can make the right decisions to attract investment, assemble sites, invest in infrastructure, and remove barriers to planning and infrastructure, that is absolutely where we are going. On the issue of tax and fiscal devolution, we are very clear that the White Paper represents a moment in time; it is very much the start, not the end. What should be read in the White Paper is an ambition to provide certainty across Government and to make sure that the level of ambition is raised. When the right hon. Gentleman sees the schedule of devolution across the programme and the competencies—which are very important for economic development and regeneration—he will see that there is a lot of scope there.

[Matt Rodda (Reading Central) (Lab)]

I thank the Minister for his statement. I welcome the prospect of the further devolution of powers over transport, housing and other important economic matters. Can the Minister outline the greater scope for using those powers? In Berkshire, we would like to see a western rail link to Heathrow, which would dramatically improve connectivity between Reading, Slough and Heathrow airport. Unfortunately, many other strategic projects have been held up, such as a third bridge for Reading. Will he comment on the potential benefits of devolving these issues?

[Jim McMahon]

My hon. Friend makes a good point. I said that this is less about structures and politicians, and more about outcomes, and those are exactly the types of examples that we need to look towards. The real test for many people is, “If I’m standing at the bus stop on a miserable Monday, when it’s raining, does the bus turn up or not?” Having more control over local bus services, through franchising or even public ownership, is part of the offer on the table, but buses alone do not fix the transport system; we also need rail devolution. The White Paper points to an ambitious schedule of devolution when it comes to rail and multimodal transport, and particularly to single ticketing, because, in the end, even if we have co-ordination of transport, it needs to be affordable for people, and different modes of transport need to be linked when it comes to single ticketing. There are definitely opportunities on the transport agenda.

[Tim Farron (Westmorland and Lonsdale) (LD)]

The Minister will know that in Cumbria we are still going through the process of a reorganisation that happened just 18 months ago. For better or worse, all reorganisations are massively distracting and take people’s eyes off the ball. Does he understand why residents, businesses and everybody else in both parts of Cumbria—we now have two local authorities—are outraged at the thought that a mayoral model might be imposed on us? Is that not the opposite of devolution? Is it not right that local communities should be able to have the devolution that we want? We are up for all the devolution that the Minister will give us, but we do not see why we have to have a top-down mayoral model and be told that we have to have a reorganisation again, five minutes after the last one.

[Jim McMahon]

I pay tribute to leaders in Cumbria for the engagement that we have had with them; I recognise that they have just been through a local government reorganisation and that there has been a lot to settle in the area. They have embraced our conversations with great maturity, and those conversations have been fruitful, but we recognise that different places are at different points. Different places have different pressures that they need to reconcile, which is why we are looking at a priority programme for the areas that will soon be ready to go. We need to get the legislation and consultation in place and make the case to the public. We accept that some areas will need longer.

On mayors, I have been here long enough to see a number of Members stand up and protest against the idea of a mayor, only to pop up a bit later as the candidate for the same position, so I say to people in Cumbria: be careful what you wish for.

[Madam Deputy Speaker (Judith Cummins)]

I remind the House that we have around 40 minutes, and around 40 Members wish to speak, so please keep answers and questions succinct.

--- Later in debate ---

[Perran Moon (Camborne and Redruth) (Lab)]

I welcome the move to devolve to every corner of the United Kingdom, but in relation to the upcoming Cornish devolution discussions, what is the Minister’s vision of how the Government will put into practice the legal obligations to protect and support Cornish national minority status in the same way that minority status is protected for our Celtic cousins in Wales and Scotland?

[Jim McMahon]

I thank Members in Cornwall and the leaders in Cornwall for the discussions that we have had. I know that devolution is an issue that is strongly felt, and that identity in particular is an issue that is strongly felt. We recognise that we need to strike the right balance, so the White Paper will point to a population size that is optimal in our view—in terms of economic footprint, public service alignment and reconciling public service delivery boundaries—but we recognise that in Cornwall, as in Cumbria, we might have to take a more nuanced approach. I will be clear that our view is to have established powers related to integrated settlements and devolved powers of significance. That will come with a mayor, but of course Cornwall has agreed to a level 2 deal and in the current White Paper, that would be a foundation deal as a starter for that journey.

[Dame Harriett Baldwin (West Worcestershire) (Con)]

Whatever our views on the different flavours of local government, surely we in this House can all agree that good local services are delivered when there are excellent, hard-working local councillors who have been democratically elected. At the moment in counties up and down the land, county councillors are campaigning for re-election for four-year terms next May. The matter before us is an important decision for local people to make and it should be part of the discussions in the election campaign next year, so can the Minister take this opportunity to rule out any suggestion that he is cancelling any county council elections next year?

[Jim McMahon]

In all things I try to be direct, and I have been direct in saying that if those councils that come to the Government with a request for reorganisation meet the test and have a credible programme in place, the elections will likely not take place until the year after, because they will be postponed to elect the shadow authority that would replace the county and the districts. We are clear on that. To give the hon. Lady assurance, there will not be a mass cancelling of elections for the sake of it, in the hope and prayer that some councils might come forward for reorganisation. There has to be a balanced and proportionate approach, and that is what we intend to take.

[Gareth Snell (Stoke-on-Trent Central) (Lab/Co-op)]

Stoke-on-Trent is already a unitary authority, but it is surrounded on either side by a two-tier district system of Newcastle and Staffordshire Moorlands, who are our friendly neighbours and proud communities but fundamentally different places. Can the Minister set out what will happen to existing unitary authorities? Can he also say how, as part of this review, he will protect the identities of communities who look to a place rather than to a compass point and a county name? And if we are going to have new mayors with new powers, can he set out what the corresponding reduction of Ministers in this place will be to reflect the reduced number of services they will provide?

--- Later in debate ---

[Jim McMahon]

On the question of whether we will reduce the number of Ministers, I can easily answer that by saying that that is well above my pay grade, but I hope there will always be a need for a Local Government Minister to oversee, to hold people’s hands and to be a well-wisher. The identity question is really important, and any devolution or reorganisation has to get the balance right. The tests that will be applied are in the White Paper. This is about getting the balance right between ensuring: that the economic footprint, which is the real economy, is recognised; that, as much as possible, there is public service boundary alignment to services across policing, the health service and others; and that we capture identity as much as possible. There will be a trade-off in some cases, but it is for local areas to come forward with the right proposal for their area after due consideration.

[Layla Moran (Oxford West and Abingdon) (LD)]

Of the 42 councils across the country that have increased social homes, four are in Oxfordshire. South Oxfordshire district council has doubled the number of social homes it has delivered over the last 10 years. Meanwhile, Oxford city council next door has halved its number. There are district councils that are doing incredible work, so why should they face finding themselves lumped in with underperforming councils? Surely, rather than having a distracting reorganisation, proper devolution to those councils that are doing well is the way to deliver for local people.

[Jim McMahon]

There is nothing in the White Paper that is about decrying the work that has gone before. In fact, there is a great deal that celebrates the work done by local government, such as the community leadership provided by frontline councillors, council leaders and council executives on a range of issues. They are the builders of devolution, so this is not about something being done to them from the top; it is about local areas coming together and making a request to the Government for local government reorganisation and/or devolution. As a Government, we will work as partners in that development, but we fully appreciate that district councils across England are doing a very good job of delivering good public services, but there also has to be an acceptance that this is not the most efficient way of delivering public services; there are other ways.

[Chris Curtis (Milton Keynes North) (Lab)]

I thank the Minister for the ambition he has shown in his statement, particularly on how we can get local authorities to support the building of the 1.5 million homes that this country needs.

Before the White Paper’s publication, the Department saw expressions of interest from various areas. However, some of those initial submissions may no longer reflect the scale of ambition or the devolution options that we now know are available. Can the Minister reassure me that authorities with greater ambition, which are ready to act swiftly in line with the powers and vision outlined in the White Paper, will be given the opportunity to revise their proposals and to fast-track a mayoral model on geographies better suited to delivering results for their residents?

[Jim McMahon]

There were three types of programme on the transition to the new Government. The first were the legacy devolution agreements that were agreed under the previous Government but had not yet passed through Parliament, which we wanted to reconcile. The second were the areas that we wanted to target—by and large, areas in the north of England to complete the map of the north and to populate that area. The third was a write-around from the Deputy Prime Minister to get a real sense of where different areas might be on their approach to partnerships, to the type of scale and to the type of geography. We saw the expression of interest process very much as a temperature check, so the proposals that came forward are certainly not binding either on local areas or on the Government. We expect further proposals to come forward, including from the same areas.

[Sir Bernard Jenkin (Harwich and North Essex) (Con)]

What guarantee can the Minister give that there will be new money from the Treasury to fund the costs of any local government reorganisation in Essex, to avoid the costs of that reorganisation resulting in cuts to public services or increased council taxes?

[Jim McMahon]

That question was raised earlier, and I apologise for not addressing it. The Government will provide capacity to enable both devolution and local government reorganisation through discussions with local authorities. Some of that might be funding, and quite a lot might be support through workforce development. Last week, we launched the workforce development group —a joint project between MHCLG, other Government Departments and bodies such as the Local Government Association—to make sure that we are addressing the workforce issues. Even before the reorganisation, we know that many counties are struggling to recruit to jobs like adult social care and many districts are struggling to recruit to jobs like planning, so there is a bigger issue here that we are looking to address.

[Dave Robertson (Lichfield) (Lab)]

I draw the House’s attention to my entry in the Register of Members’ Financial Interests, which lists me as a member of Lichfield city council and Lichfield district council.

I want to touch on the future of parish and town councils, as the White Paper talks in two places about stronger engagement between the new authorities and parish councils. Can the Minister go further by saying how that will work, particularly given their importance in places like Staffordshire? Staffordshire has almost 1 million people, is 3% of the length of England, and has real centres of community and a lot of population centres that are not currently reflected in their district councils but are very much reflected in their town councils in places like Burntwood.

[Jim McMahon]

Again, we say in the White Paper—I also referenced this in my opening remarks—that it was a Labour Government who introduced quality status for parish councils to recognise that that tier of government has a very important role to play and can do far more if trusted and given the power to do so.

We see that town and parish councils have an important role to play but, in the end, that is notwithstanding reorganisation. Reorganisation will need to take place in many areas, and parish and town councils could or could not do more, but I would say that that is a slightly separate issue.

As to the proposal for individual areas to take account of issues like identity, belonging and the different units of government, we are happy to have those conversations on a one-to-one basis. I can assure the House that there will be ample opportunity to meet me and my fellow Ministers on a one-to-one basis, as well as for drop-in sessions, to make sure that matters that are not picked up on the Floor of the House can be picked up later.

[Manuela Perteghella (Stratford-on-Avon) (LD)]

I refer the House to my entry in the Register of Members’ Financial Interests as a district councillor. Real devolution means empowering local communities, not centralising power into regional super-unitary councils. Residents in my constituency of Stratford-on-Avon would be best represented by a south Warwickshire unitary council, rather than a remote Warwickshire-wide unitary council, which will have five different local plans. Does the Minister agree that a top-down minimum target population of half a million people risks dividing existing communities and forcing together communities with no shared identity?

[Jim McMahon]

That is a fair point. I am losing track of the number of MPs who are standing up to declare they are still councillors, although I recognise there is a transition—I went through it myself—and there may be an overlap between being a councillor and a Member of Parliament. On the detail of individual counties, it is for local areas to make a submission to Government, and for the Government to assess the proposals that come forward. The Government do not have a plan on a map for the hon. Lady’s county, but we expect that the county and the district will get together to work out a proposal that they can accept and submit to Government, which we can then review.

[Jayne Kirkham (Truro and Falmouth) (Lab/Co-op)]

Cornwall will welcome further devolution. We are a long way from London, but I want to build on the question about town councils. In places like Cornwall, cuts to unitary councils have meant town councils have already taken on a lot of responsibility, so how does the Minister see those town councils continuing in the future?

[Jim McMahon]

When Labour was last in government, we brought forward landmark legislation to create the Mayor of London, Parliaments in Scotland and Wales and the Assembly in Northern Ireland. The quality council status was introduced for parish and town councils, and powers on wellbeing and other matters were given to local government. The previous Labour Government recognised, just as this Government recognise, that devolution has to work from the top to the bottom and the right powers have to be in the right places. At a neighbourhood level, we see town and parish councils playing a critical role in devolution, and we look forward to further discussions with the sector.

[Simon Hoare (North Dorset) (Con)]

There is much to commend in the White Paper and, broadly, the Minister is to be congratulated. However, he knows as well as I do, as welcome as the multi-year settlement announcement is, it is predicated on an outdated and effectively broken funding system. I understand the Treasury is not keen to revisit that in any meaningful way, but may I urge him to consider a rural-proofing mechanism to the funding formula, to ensure that the additional costs of delivering local services in rural areas are recognised? Change is scary, but I do not recognise the picture painted by the hon. Member for Mid Dorset and North Poole (Vikki Slade). In Dorset, we became a unitary authority, and no sane person would ever want to go back to a two-tier system, but we benefited from the excellent skills of Paul Rowsell, who died earlier this year and is much missed. Will the Minister ensure there are expert teams within his Department to work alongside those councils that wish to make that important change, which will deliver savings and better services to local people?

[Jim McMahon]

I thank the hon. Gentleman, who is my predecessor, for his question and for the tone with which he dealt with us in opposition; I honour that in return. The fair funding review is absolutely critical. We are committed to a multi-year financial settlement, which is about giving security, but we all know there is no security if the money is insufficient to meet demand. The hon. Gentleman and the House have absolute assurance that all the cost factors, including the cost of rural service delivery, will be taken into account in a fair funding review.

[Mr Bayo Alaba (Southend East and Rochford) (Lab)]

In comparable countries, a city like Southend would generate £55 billion more across the country. Will the Minister explain what powers the English devolution Bill will give to mayors, so they can drive local growth and areas can fulfil their financial potential?

[Jim McMahon]

I remember when the Greater Manchester devolution deal was signed in 2014. Its principles were to reform public services, so we could focus on prevention rather than crisis management, which is more expensive and has worse outcomes, and grow the local tax base, because the area would become more productive through investment. I will be honest and say that we did not see the investment in prevention reform, so growth was stunted. However, even in that context, growth in Greater Manchester has outperformed that of other areas, in large part because of the devolution agreement and the leadership and co-ordination involved. Even by independent assessments, allowing our regions to realise their full potential would be worth between £30 billion and £50 billion to the economy that is not currently being realised, so there is an alternative and we have to grasp it.

[James McMurdock (South Basildon and East Thurrock) (Reform)]

Yesterday, a former Labour deputy leader referred to my party as a “threat to democracy”. I am sure that that was a cute turn of phrase for television, but given that the framework that the Minister has laid out allows elections next year to be gamed so easily, is the real threat not potentially the Labour party?

[Jim McMahon]

I would not characterise the hon. Gentleman’s party as a threat to democracy, but it might be a threat to sanity. We are all tested on a too-regular basis by fairly ridiculous statements that try to drive a wedge and divide people instead of bringing them together. One thing about devolution is that, regardless of party politics, across Labour, the Liberal Democrats and the Conservatives what we have seen in local areas is that when it comes to people, places and putting communities first, party politics are put to one side. I extend that invitation to the Reform party, too.

[Jim Dickson (Dartford) (Lab)]

It is instructive to hear a former local government Minister on the Opposition Benches, the hon. Member for North Dorset (Simon Hoare), describe the current system as “broken”. That is probably why we need the White Paper. My constituents have grown weary and frustrated at non-delivery by various tiers of local government in Kent, particularly when it comes to failures to provide special educational needs and disabilities support for pupils, and poor bus services compared with neighbouring ones in London. What hope for better delivery across all services—schools, social care, health, transport and roads—might we have from the White Paper?

[Jim McMahon]

It was previously very difficult for the Government to have an honest conversation with local government about what an adequate level of public service provision should be in a given place, because they knew full well that they were not providing the resources to enable that to happen in a fair way across the country. When we fix the financial foundations of local government through the fair funding review and the multi-year settlement, and build rigour around it, we will move away from the hundreds, and in some cases thousands, of top-down metrics that central Government expect councils to report on. We will look to simplify the funding system to end unnecessary ringfences that act as shackles on local government, but there has to be governance, accountability and a very clear responsibility to deliver the outcomes that the Government want in return for those freedoms, flexibility and fair funding.

[Clive Jones (Wokingham) (LD)]

My constituents will be waiting to see how the Department’s plans for local government reorganisation affect Wokingham borough council. They will want to ensure that their voices are listened to if we are to be shuffled around, merged or abolished by Whitehall. Importantly, they will want to know whether the Government’s plans will hit their wallets. Can the Minister commit to ensuring that funding for any changes will come from his Department, not from council tax, which should instead be used to fund vital local services?

[Jim McMahon]

Only this week are we seeing a genuine redistribution of money in the local government system so that it goes to the areas that need it the most. For far too long, the funding formula did not recognise deprivation or that some tax bases are weaker at a local level than others. The £600 million recovery grant is intended to get to those areas. On value for money for public services, and getting them down to a neighbourhood level, as I said, there is a two-tier premium that is paid by local taxpayers to the tune of around £2 billion, which could be better used for local public services, and by central Government through the floor protections that we give to district councils, and that frankly could be used in better ways in areas of high deprivation and need.

[Alice Macdonald (Norwich North) (Lab/Co-op)]

I hope that Norfolk will be part of the devolution priority programme so that we can unlock the powers and funding that we need on areas from transport to housing. May I ask the Minister specifically about the role of key cities? Norwich is a key national and regional economic power, but it needs devolution to fully unlock its potential. It is vital that we have a key role and voice in the process of devolution and reorganisation. Can he assure us that that will be the case, and set out the process for cities in particular to do that?

[Jim McMahon]

Obviously, we inherited the plans for Norfolk and Suffolk from the previous Government. I will be clear that we could not progress with that deal because it would have seen directly elected council leaders assume the role of a mayor, but without the framework in place to support that, which we did not support. We have been working constructively with both counties to look at a mayoral combined authority over a bigger footprint, and we hope they will come forward as part of the programme. That is a matter for them. They may decide now is not the right time, but there is huge potential.

On devolution in Norwich and also Ipswich, it is important that reorganisation is strongly anchored in terms of place and the economy. Of course, in this case, Norwich would be central to that.

[Sir Desmond Swayne (New Forest West) (Con)]

What say will voters in the New Forest have if there are proposals to remove either their district council or their county council?

[Jim McMahon]

Local government reorganisation is a statutory process, so it requires local areas to produce plans, as does devolution. Both are required to go to public consultation to solicit views—that is part of the process. When the formal process starts, the Government’s role is to assess the proposals and the consultation as submitted. We do not take a view on geography and form until we make the final decision.

[Andrew Cooper (Mid Cheshire) (Lab)]

The biggest issues holding back economic growth in Mid Cheshire are long-term under-investment in our transport infrastructure and the lack of a joined-up skills agenda, working with businesses across local authority borders. That is not unique to my constituency. The reality is that, in 2010, east Germany’s economy overtook northern England’s, and that trend has accelerated over the past 14 years. What new powers will the English devolution Bill give strategic authorities to drive improvements in local transport and to take control of their sub-region’s skills agenda?

[Jim McMahon]

This was one of the reasons why we were so keen to complete the map of the north of England. Most would accept that strategic transport, certainly, crosses county boundaries. If we think about connectivity in the north of England, how Lancashire, Greater Manchester, the Liverpool city region, Cheshire, Cumbria and the rest are joined up, and then even into Yorkshire, requires co-ordination. We want mayors and strategic authorities to work together across that pan-region, so that even more powers can be devolved to address the type of issues that my hon. Friend talks about.

[Ben Obese-Jecty (Huntingdon) (Con)]

According to the White Paper, a constituency like mine will see Cambridgeshire county council and Huntingdonshire district council merged into a unitary council as the principal authority, under Cambridgeshire and Peterborough combined authority as the strategic authority. How will unitary councillors fulfil the roles of multiple district and county councillors in a part-time capacity, and what does it also mean for the forthcoming combined authority mayoral election in Cambridgeshire and Peterborough?

[Jim McMahon]

The forthcoming election for Cambridgeshire and Peterborough will go ahead as planned. There is no proposal to change the boundary of what is currently a combined authority that will move to being a strategic authority. Local government reorganisation where there is an existing mayoral combined authority, providing that it is coterminous in terms of the review it has undertaken, will not have an impact at all. All that happens is the membership of the combined authority will change to reflect the new council structures as they appear.

[Tom Hayes (Bournemouth East) (Lab)]

As a former councillor of 10 years who sought election to this place to give power back to communities, I am absolutely thrilled by this devolution White Paper, and I congratulate the Minister on bringing it forward. I have two points. On page 16, there is an ambition to make the mayor the chair of the integrated care partnership and also the police and crime commissioner, as in South Yorkshire. I commend that and would like to hear more about it. On page 94, there is a proposal for a right to buy community asset. Hengistbury Head outdoor centre in my constituency just found out that it will be a community benefit society with a lease for 99 years, but it has taken far too long to get to that place. I invite the Minister to come to Hengistbury Head outdoor centre—it may involve getting in a kayak—to find out more about what this right to buy could involve at the ground level. I would love to know more about the Government’s intent on the matter.

[Jim McMahon]

I know many Labour and Co-operative Members of Parliament have been campaigning hard on the extended community right to buy. That is about giving communities the power to take over those important community assets on their high streets and in their town centres in a meaningful way. The Minister for local growth, my hon. Friend the Member for Nottingham North and Kimberley (Alex Norris), is working hard on a communities White Paper, which will provide far more detail. In the end, it is not just about that community right to buy; it is about a genuine shift where people feel far more control, power and agency in the places where they live.

[Mr Mark Francois (Rayleigh and Wickford) (Con)]

Trying to create multiple unitary authorities in Essex will not work, will not have public support, will take the best part of a Parliament to implement and will not save money—in fact, quite the opposite—and there is a risk that local government will grind to a halt in the meantime. As for mayors, in 23 years of canvassing in my constituency, I have never once had a constituent say to me on the doorstep, “I want a mayor of Essex.” Indeed, looking up the road to London, the last thing on earth that we in Essex want is another Sadiq Khan.

[Jim McMahon]

I will put the right hon. Gentleman down as undecided.

[Amanda Martin (Portsmouth North) (Lab)]

I welcome the Minister’s ambitious announcement and the opportunities that devolution could bring the people of Pompey, and I thank him and his team for the time that they have given Members of this House and for his offer of an open door. Portsmouth is one of the most densely populated parts of the country, so alongside the commitment to desperately needed affordable housing, will the Minister commit to using the English devolution Bill to empower my communities with the right to buy beloved community assets, such as empty shops, pubs and much-needed community spaces, to ensure that cities such as mine, and the people in them, feel the pride of ownership once again?

[Jim McMahon]

That is a good point. When we talk about important community assets, we see from an economic point of view that it is far better for them to be used and productive, but in the end we also recognise that they are hugely important to community identity and pride. In a lot of working-class areas, including Oldham, Chadderton and Royton, which I represent, the local civic building, local pub and local church are not just buildings but part of people’s story, and people really care about them.

[Caroline Voaden (South Devon) (LD)]

Top-down reorganisation of a failing council such as Conservative-run Devon county council is a bit like shuffling the deck chairs on a sinking ship. We know that years of chronic underfunding have made it impossible for councils to fulfil their obligations, so I welcome the multi-year funding settlement. However, creating larger regional authorities does not devolve power; it shifts power and responsibility away from local communities to a distant, higher-tier authority that will feel remote to towns and parishes in places such as Devon. We must have the opportunity in May to pass our verdict on Conservative-run Devon county council, which has been failing our most vulnerable children for over a decade. Will the Minister assure me that those elections will go ahead as planned in 2025?

[Jim McMahon]

It would be rude to deny the good people of Devon a spat between the Conservatives and the Liberal Democrats. But in all seriousness, it is for local areas to decide whether they want to apply to the Government to be part of the reorganisation programme. If we receive a request from that area, we will administer it in a fair way, as we would any other.

[Steve Race (Exeter) (Lab)]

I welcome the huge opportunity in the White Paper for cities such as Exeter, which is also held back by Tory-run Devon county council—the upper-tier authority. Can the Minister confirm that devolution and reorganisation will work hand in hand to help Exeter, a key economic growth city, to retain, enhance and expand its historic self-governance, and to unleash its economic potential as an equal partner in a strategic authority?

[Jim McMahon]

Absolutely. One keenly felt problem with the previous devolution framework was that it did not have due regard for the role of district councils in primary cities, university cities and economic hubs. Reorganisation gives those places the ability to grow, become unitary authorities, and take their place in the new strategic authorities.

[John Glen (Salisbury) (Con)]

Fifteen years ago, just before I joined this House, we saw the reorganisation of Wiltshire county council into the unitary Wiltshire council, and the abolition of several district councils. It seems that another reform in the heart of Wessex will be the probable outcome of these proposals for Somerset, Dorset and Wiltshire. Can the Minister assure the people of Salisbury, who still have some difficulty accepting the abolition of Salisbury district council, that the proposed changes will be positive in terms of the combination of resources for strategic investment in transport and other such services?

[Jim McMahon]

In any local government reorganisation, there is always a fine balance between trying to create a cohesive new council and respecting the strong local identities that people feel—identities that are unique. When that is done right, the council can be confident in its own standing, because it knows that it is delivering outstanding services; when it is done wrong, it is trying to impose an identity on a place through the form of a council that does not reflect the local identity. For those of us in towns such as Oldham that went through the 1974 reorganisation, that is felt as keenly as in other areas, but that is not about the type of government; it is about culture and approach. When it is done well, it can work.

[Adam Jogee (Newcastle-under-Lyme) (Lab)]

I pay tribute to all the district councillors in the loyal and ancient borough of Newcastle-under-Lyme, including the Tories who tried and failed to defeat me—I will be nice to them. On page 10 of the White Paper, the Minister notes that:

“We must end the top-down micromanaging”.

I agree. Notwithstanding how much of this announcement was trailed in the press and on social media in recent days, can I press the Minister on the point raised by my neighbour, my hon. Friend the Member for Stoke-on-Trent Central (Gareth Snell)? The Minister has said that there will be trade-offs when it comes to local identities. Who will ultimately decide on those trade-offs, and when will people in the real world be able to have their say on these proposals?

[Jim McMahon]

People in the real world had their say at the ballot box, because devolution and taking power out of this place was a manifesto commitment that we are absolutely clear-eyed about delivering. The White Paper is about delivering that commitment. As for process and consultation, first, it is for local areas to determine what proposal they will submit to the Government—the Government do not have a proposal that we are submitting to local areas. Secondly, it would be ideal if local areas could get around a single proposal so that the Government’s only role is to receive it and say, “Thank you very much,” rather than choosing between alternative proposals from the same area.

[Alison Bennett (Mid Sussex) (LD)]

I thank the Minister for the time he made available to me at one of his surgery appointments recently and welcome the announcement of something that we discussed then: the ending of bidding for discrete funding pots, which was a trademark of the last Conservative Government. How will we ensure that these announcements do not impinge on the announcements his Department made last week? My hon. Friend the Member for Westmorland and Lonsdale (Tim Farron) eloquently set out the challenges of reorganisation in Cumbria. How are we going to make sure that those housing targets can be delivered during this period of uncertainty?

[Jim McMahon]

We are very mindful that there is a lot of change in the system quite early on. That is deliberate. We believe strongly that when the next general election comes, people will make judgments based on whether they feel better in their own financial security—whether they have money in their pocket and feel like they are getting on in life—and feel secure in the place where they live. Local public services are part of that. As such, we have made a deliberate decision to make the necessary structural changes early on in the Parliament, through the White Paper and other measures, so that we can get them out of the way and people can really see the benefits towards the end of the Parliament.

[John Slinger (Rugby) (Lab)]

I declare an interest as a member of Rugby borough council. Page 16 of the White Paper speaks about

“Reforming and joining up public services”,

and says that,

“Over the long term, the government is announcing an ambition to align public service boundaries”.

Will my hon. Friend expand on how these reforms can enhance people’s ability to hold public service leaders to account through their elected representatives, and to exercise greater democratic control over such services?

[Jim McMahon]

We talk quite a lot about how sufficient funding was not provided over a decade of underfunding, but that does not mean there were not growing costs in the system. We have found that in the end, local government is where all the demand presents itself—whether it likes it or not—when there is failure in other parts of the system, whether that is the failure of developers to build enough properties, the NHS not quite being able to co-ordinate with community services, or the private sector exploiting its audience and charging eye-watering sums, such as in children’s services. We have to redesign local public services around people, place and communities, and public sector reform and prevention are part of that. The alignment of public service boundaries is critical; if people do not have democratic control and oversight over things such as integrated care boards or police and crime commissioners, aligned to strategic authorities, we will not make the progress that we need to make.

[Tom Tugendhat (Tonbridge) (Con)]

I welcome the intention to reorganise local government that the Government have set out. Clearly, this has been in play for a while, but the Minister will know that the independent and sovereign kingdom of Kent has had an identity of its own for about 2,000 years. The exact borders of that identity are open to some debate even today—quite extraordinarily, but they are. Will he please tell us what priorities he will use in the devolution priority plan? Will he be championing size—the 500,000-plus—the transport infrastructure or the historical affiliations? How is he going to understand this, and how will he prioritise for the priority plan?

--- Later in debate ---

[Jim McMahon]

I think the right hon. Member has outlined exactly the balance we are trying to get. One priority is about size for efficiency through both devolution to strategic authorities and local government reorganisation, if that follows in the same area. The second is about how the real economy is functioning, because in the end this is about growth and making sure that a functioning economy can be identified and can grow. Those will, of course, be mixed in with identity to make sure that it works. It follows, I think, that in most places the historic counties will be the building blocks for that, but I know that some boundaries are quite hotly contested, as we have seen in Cumbria. However, we are not going back 2,000 years.

[Noah Law (St Austell and Newquay) (Lab)]

Parts of Britain such as Cornwall that have national minority status have been working towards devolution for decades, if not centuries. Given that the Minister has outlined a certain pace and ambition in this White Paper, will he work with Cornwall council, town and parish councils, and ourselves to ensure that that pace and ambition are delivered on and secure Cornwall its rightful place on the Council of the Nations and Regions in due course?

[Jim McMahon]

There have been a number of competing proposals. I do not believe in elephants in the room, but one was an explicit proposal to have a Devon and Cornwall combined authority with a mayor. It was by and large proposed by Devon, but it was met with what I would describe as quite animated resistance from Cornwall for different reasons. It is not our intention—and, frankly, there are not enough hours in the day—to keep getting involved in local disputes about boundaries and identity. What we want, and this is genuine, is for the local area to self-organise, come up with a proposal that is right for the area, and make that proposal to the Government so that we can work in partnership and deliver the outcome of getting powers out of this place and into places such as Cornwall.

[Ellie Chowns (North Herefordshire) (Green)]

I welcome the elements of this White Paper that are about devolution, but we have to recognise that some elements are about concentration. The Minister has talked about the two-tier premium, but the reality is that his proposals mean that in some places a local tier will be replaced by a more distant mayoral tier. Does he recognise that this risks creating a bit of a democratic deficit? Surely, we should be trying to keep the “local” in local government as much as possible. Given that average turnout in the last lot of mayoral elections last year averaged 30%, what will he do to address the risk of democratic deficit? In particular, will he introduce a fair and proportional system for local elections?

[Jim McMahon]

The truth is that these strategic authorities are about taking power from this place and moving it down to communities. Every Minister gets hundreds of sign-offs every single day, but as Conservative Members will remember, they include Ministers having to sign off whether cyclists can pass through a local park because the parish council has to apply to central Government for permission. That is part of the centralising nature of the state that we have to change.

[Luke Myer (Middlesbrough South and East Cleveland) (Lab)]

I welcome the statement and the White Paper. Centralisation is part of the reason why we are one of the most regionally unequal advanced economies, as IPPR North has set out, but it is important that these strategic authorities are run well. What steps will the Minister take to ensure that they are funded fairly, and what assurances can he give that strategic authorities must demonstrate responsible stewardship of the public finances?

[Jim McMahon]

That is why there is a proposal in the paper to regularise the mayoral precept process. Where combined authorities exist and do not apply a precept, it is not that mayors and combined authorities do not cost money—of course they do—but that local authorities pay for them through a levy or a contribution outside the precept system. Our view is that, for transparency, accountability and political accountability, when mayors and combined authorities or strategic authorities are spending money, the public have a right to see that identified in their council tax, and they can make a judgment about whether that money is being spent wisely.

[Dame Karen Bradley (Staffordshire Moorlands) (Con)]

The residents of Staffordshire Moorlands do not want to be subsumed into Stoke-on-Trent. Can the Minister guarantee that they will not be forced into a devolution deal against their will, and that decisions that matter to them will continue to be taken in the Moorlands and not in Stoke-on-Trent?

[Jim McMahon]

I do not want to get myself into neighbourhood disputes—there are not enough hours in the day. I hope that it will be clear from reading the White Paper that this is not a forcing together, but a genuine distribution of power from a centralising state to communities where it really matters. My hope is that local disputes, some of which I am sure are well rehearsed and go back a long time, are put to one side. In the end, the prize is the greater good, which is for the benefit of all.

[Peter Swallow (Bracknell) (Lab)]

I welcome the Minister’s recognition that unitary authorities deliver for residents. Bracknell Forest council is an example of a unitary authority promoting a strong sense of place and delivering economic growth. Although it is small, it is mighty. Will my hon. Friend agree to work with Bracknell Forest council to develop a plan that works for Bracknell?

[Jim McMahon]

We are absolutely committed to working in partnership, giving capacity and time to ensure that those local nuances are reflected in whatever follows.

[Martin Vickers (Brigg and Immingham) (Con)]

The Minister has just concluded the Greater Lincolnshire devolution deal, which I welcome and support. As he will know, there were two unitary authorities in the north of the county and the rest is a two-tier system. Do the Government expect that two-tier area to come forward with proposals for unitary authorities? If so, may I remind him that the sparsity factor plays with Lincolnshire, and the target of 500,000 is far too high. Prior to 1974 there were three county councils to cover the whole county.

[Jim McMahon]

We do not have a proposal for reorganisation for Greater Lincolnshire, but that is not to say that conversations are not taking place locally about making a representation to Government. When that letter goes out later today, we expect areas that are currently not on our list will come forward on that basis. In the end, it is for local areas to determine what submission they want to make, but in terms of sparsity and having an anchor that makes sense, I completely understand the hon. Gentleman’s point.

Local Government Best Value

Jim McMahon Excerpts

Thursday 12th December 2024 Written Statements

[The Minister for Local Government and English Devolution (Jim McMahon)]

All hon. Members will recognise the importance of having well-functioning local councils which provide essential statutory services local residents rely upon. The Government will continue to work directly with a small number of councils in difficulty, and this should be done in a way that is not punitive and is based on genuine partnership to secure improvements. Today, I would like to update the House on the statutory interventions in Croydon and Nottingham.

Croydon

In February 2021, the previous Government intervened in Croydon following serious financial and governance concerns raised in the non-statutory review of the council and two reports in the public interest from external auditors. A non-statutory improvement and assurance panel was appointed in February 2021. The intervention was then escalated in July 2023 through the issuing of directions which strengthened the remit of the panel by moving it to a statutory footing. The panel continues to be led by Tony McArdle OBE and consists of experts in finance, commercial, adult social care, housing and children’s services.

I will today publish the latest report from the panel, received in April this year, alongside its subsequent letter received on 15 November. Overall, there have been significant developments in the council’s progress towards reform and recovery, particularly improved governance, leadership and service delivery.

Despite this progress, the council remains one of the most financially distressed in the country. The council’s general fund debt sits at £1.3 billion and it relies on the allocation of exceptional financial support (EFS) through in-principle capitalisation directions to balance its budget. The council has produced a transformation plan and a medium-term financial strategy (MTFS) to attempt to reduce its large deficit and debt to a more manageable level. I recognise that there is further work to be done to restore the council to long-term financial sustainability and that this should be a priority area of action for the council moving forward.

I have asked the panel to provide a further update on the intervention’s progress in April 2025, with particular attention to the council’s budget-setting process and delivery of its transformation plan, in which it aims to become the most cost-efficient authority in London. I will continue to work closely with the council as it seeks to address its financial challenges and sustain the strong working relationship both the panel and council have built with the Ministry. I will continue to monitor progress over the coming months and keep the House informed of developments.

Nottingham

As the House will be aware, the Ministry’s involvement began with a non-statutory improvement and assurance board in January 2021 following serious governance and risk management issues associated with the council’s now closed private energy company, Robin Hood Energy. The council also identified unlawful practices associated with its housing revenue account in December 2021 and issued a section 114 notice shortly afterwards.

The board was escalated to a statutory footing in December 2022. Serious issues remained with finances, governance and culture—including the council’s second section 114 notice in November 2023—and progress was felt to be too slow.

On 22 February 2024, the former Secretary of State, the right hon. Michael Gove, announced that directions had been issued to implement a commissioner-led intervention package. These required the commissioners to report to the Secretary of State at six-monthly intervals, and the first report was received on 22 August 2024, which I will publish today.

This report makes clear that progress has been made: council officers and members have been working constructively with commissioners to map out a path to recovery, and have a strategy in place to reach a more sustainable position and better deliver services to their residents. It is clear that significant challenges remain— including the ongoing budget gap, need for service modernisation and culture change across the organisation —and I look forward to hearing more about the council’s progress in the next report, which I have requested in March 2025.

Conclusion

The Government will play their part by repairing the foundations of the sector overall, with the settlement this month being the start of that programme. This will include an immediate funding injection worth over £4 billion, including a £600 million recovery grant, which will be distributed to places with greater need and demand for services (we have used deprivation as a proxy for this), and which are least able to fund their own services locally. It also includes a £680 million uplift to the social care grant for adult and children’s services, a new children’s social care prevention grant, worth £250 million, which will lay the groundwork for children’s social care reform and an additional £44 million of new funding to pilot a kinship allowance and create hundreds of new foster placements. To fix the broken care market, the Government are also bringing forward legislation to crack down on the profiteering from our most vulnerable children and plans include a financial oversight regime, enhanced Ofsted powers and powers to cap profits if excessive profit making continues.

Moving forward we will hardwire stability and security into the system with multi-year settlements and fewer restrictive grants. This will allow councils to focus spending on local priorities, and we will set out and measure progress on the key services and outcomes we expect local government to deliver.

These measures as a whole go hand in hand with the work to make every council fit, legal and decent with a rebuilt system of accountability and oversight. We will repair the early warning system, deal with the audit backlog, and focus on raising standards in local government will help support the overall resilience of the sector in the long term.

The road to financial recovery in Croydon and Nottingham must be met with the seriousness it deserves, and I am pleased to see a clear commitment to move to new operating models. Because of the scale of the challenges, it is self-evident that there will still be difficult decisions to come. It is essential that in making these decisions there is a clear strategy for the form respective councils will take as their new operating model, and that prevention and reform of local public services is central to it.

The Government are committed to work in genuine partnership with councils under intervention to support their reset, reform and recovery, making sure residents have what they need from their local council, including confidence in its governance, financial management and service delivery. I will continue to monitor progress over the coming months and ensure these councils get the support they need to secure sustainable continuous improvement.

I will deposit in the Library of the House copies of the documents I have referred to, which are also being published on gov.uk today.

[HCWS307]

Non-Domestic Rating (Multipliers and Private Schools) Bill (Third sitting)

Jim McMahon Excerpts

Committee stage
Thursday 12th December 2024 Public Bill Committees

[David Simmonds]

It is a pleasure, as always, to serve under your chairmanship, Dame Siobhain. We have tabled a number of amendments to this legislation, but I want to be clear from the outset that we are not proposing to press them to a vote. We hope to have a response from the Minister; in many cases, that will follow up on the evidence that we heard in yesterday’s evidence sessions.

The purpose of amendment 13 is to introduce an element of discretion for billing authorities in the application of the higher multiplier; the significance of local flexibility and discretion in that was highlighted in yesterday’s oral evidence and in written evidence to the Committee. The amendment would ensure that a billing authority, which is the local authority for the area, has discretion to apply a different figure, where the authority considers that it would benefit the local economy or its residents by doing so. That flexibility has been reflected in the business rate system that has been in operation in England since the 1990s.

As we heard yesterday in evidence, the impact of the Bill is considered by most sectors and by most of the witnesses to be moderate. Therefore, the level of flexibility in the Bill does not allow for a hugely different figure from one type of business rate payer to another. However, local authorities are sometimes keen, for example, to support a local business for the purposes of sustaining employment for a period of time or because the local authority believes that the business provides an important local facility. In such an instance, the local authority may see it to be in the interests of local taxpayers to vary the application of the higher multiplier.

[The Minister for Local Government and English Devolution (Jim McMahon)]

Amendment 13 seeks to give local authorities discretion over where the higher multiplier enabled by the Bill should apply. In England, there are currently two non-domestic rating multipliers: the non-domestic rating multiplier for properties with a rateable value of £51,000 and above, and the small business non-domestic rating multiplier for lower value properties. The Bill will enable the Treasury, through regulations, to introduce permanently lower multipliers for qualifying retail, hospitality and leisure properties, and to fund this by introducing higher multipliers for properties with a rateable value of £500,000 or more.

Narrowing the scope of the higher multiplier would inevitably reduce the funding available to support the lower rates for qualifying retail, hospitality and leisure properties. Ratepayers in England may, however, be eligible for a range of different reliefs from business rates. Some reliefs are mandatory and provided for in legislation, whereas others are given at the discretion of the billing authority.

The Bill will not affect the very wide powers local authorities have to award this discretionary rate relief, as set out in section 47 of the Local Government Finance Act 1988. Those powers already allow local authorities to devise and deliver their own relief schemes without the intervention of central Government, where the authority is satisfied that that would be in the interest of its council tax payers. Once the Bill has come into force, local authorities will be able to use their discretionary powers to provide relief, should they so choose, to offset any impact of the new, higher multiplier. I hope that gives enough assurance to the shadow Minister to withdraw his amendment. Local authorities will still have the powers they have always had, with the flexibility to respond to local concern.

Clause 1 adds into the business rate system new additional multipliers, or tax rates. Currently, there are two multipliers, as I set out before: the non-domestic rating multiplier and the small business non-domestic rating multiplier. The legislation for those is found in part A1 of schedule 7 to the Local Government Finance Act 1988. Clause 1 adds a new chapter 3A to part A1 for the new additional multipliers.

As set out by the Exchequer Secretary on Second Reading last month, the introduction of the new additional multipliers that this clause enables is the Government’s first step towards creating a fairer business rate system. The intention of these new multipliers is to first, once set at autumn Budget 2025, provide a permanent tax cut to qualifying retail, hospitality and leisure businesses, ending the uncertainty of annual retail, hospitality and leisure relief. Secondly, it will ensure that the tax cut is funded sustainably through the introduction of higher multipliers levied on the most valuable properties. The new chapter 3A gives the Treasury new powers to set these additional multipliers.

I understand the concerns of hon. Members that we are providing for new taxation through powers in a Bill, but we face a challenge in business rates in setting the multipliers, because demand notices are issued by individual local authorities, and these must be ready to go out several weeks before the start of the financial year. We must confirm and give notice of the multipliers to local authorities before they prepare those demand notices, and that simply does not allow time for us to return to Parliament with a Bill each time we want to change the multipliers.

In recognition of hon. Members’ concerns about providing new taxation through powers in a Bill, clause 1 includes some important safeguards over the use of the powers. First, paragraph A6A(1)(a) of the new chapter 3A ensures that the Treasury cannot set a multiplier that is more than 0.1 higher than the non-domestic rating multiplier. We often, in practice, refer to multipliers as being so many pence in the pound. For example, the current non-domestic rating multiplier is 54.6 pence in the pound. In those terms, this clause ensures that the multiplier cannot be more than 10p higher than the non-domestic rating multiplier.

Secondly, paragraph A6A(1)(b) of the new chapter 3A ensures, in a similar way, that the Treasury cannot set the lower multipliers more than 0.2—20p in the pound—below the small business non-domestic rating multiplier. Thirdly, clause 1(5) ensures that where the Treasury is using those powers to set a higher multiplier, it will need to bring a statutory instrument before the House of Commons in draft for approval before that multiplier can be confirmed. To be clear, those values are the maximum parameters at which the new additional multipliers may be set. They do not represent the changes that the Government intend to implement. The parameters are guardrails that offer sensible limits with proportionate flexibility.

The decision on the level at which the new multipliers will be set will be taken at the autumn Budget 2025, factoring in the impacts of the 2026 revaluation on the tax base, as well as the broader economic and fiscal context. The clause also ensures, in new paragraph A6A(2)(a), that the Treasury cannot set more than two lower multipliers. That reflects our intention to have two multipliers for retail, hospitality and leisure: one for properties below £51,000 rateable value, and one for properties between £51,000 and less than £500,000. However, the new paragraph A6A(2)(b) ensures that we can still make adjustments to those two new multipliers if the hereditament is unoccupied or on the central rating list—although our current intention is for the same multipliers to apply across all occupied, unoccupied and central list properties.

Finally, clause 1(4) ensures that the existing arrangements in chapter 4 of part 1A of schedule 7, which concern the making and giving of notices of the multipliers, will also apply to the new multipliers. It will ensure, for example, that we must give notice of the multipliers as soon as reasonably practicable after they have been calculated, and that they are rounded to three decimal places.

[David Simmonds]

The Minister and I had the joy of parallel careers in local government for many years. I cannot imagine he spent a great deal of that time looking forward to the opportunity to explain non-domestic business rate multipliers in a Bill Committee. However, as he acknowledged, it is important to ensure that there is a sufficient degree of local scrutiny and flexibility so that those local authorities that are billing authorities are able to exercise their discretion in order to support their local economy. I am grateful to the Minister for outlining the Government’s intentions in that respect. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 ordered to stand part of the Bill.

Clause 2

Special authority multipliers

Question proposed, That the clause stand part of the Bill.

[Jim McMahon]

Clause 2 concerns additional multipliers in special authorities. The meaning of a special authority is already defined in section 144(6) of the Local Government Finance Act 1988 as one which on 1 April 1986 had a population of less than 10,000 and a total rateable value per population number of more than £10,000. The City of London Corporation is the only authority that meets that test. The City of London has powers to set its own non-domestic rating multipliers. For example, for the current year the non-domestic rating multiplier in the City of London is 56.4p, compared to the same multiplier in the rest of England of 54.6p. Those existing powers are in part 2 of schedule 7 of the 1988 Act.

Clause 2 inserts new paragraph 9B into part 2 of schedule 7, giving the Treasury powers to make provision for the additional multipliers in the City of London. The Treasury may only do that where it has exercised those equivalent powers in clause 1 for the rest of England. The unique powers of The City of London reflect its special circumstances, notably its very small resident population. The clause reflects the Government’s intention for the new multipliers to apply across England. In clause 2, we have replicated the same safeguards for setting the additional multipliers as apply in clause 1.

Proposed new paragraph 9B(1)(a)(i) of schedule 7 to the Local Government Finance Act 1988 will ensure the higher multipliers in the City of London cannot be more than 0.1, or 10p in the pound, higher than the City’s non-domestic rating multiplier, and proposed new paragraph 9B(1)(a)(ii) will ensure the lower multipliers in the City of London cannot be more than 0.2, or 20p in the pound, lower than the City’s small business non-domestic rating multiplier.

--- Later in debate ---

[David Simmonds]

I have no objection to these measures. Could the Minister confirm, in writing if that is more convenient, that there has been a degree of consultation with the corporation to establish what, if any, impact it would expect on its budget?

[Jim McMahon]

I can confirm in writing the exact consultation that has taken place. Conversations will certainly take place. I return to the point that, if we do not take these measures to include the City of London, there will be many high-value properties that we can use to support retail, hospitality and leisure in the rest of England to which these measures would not be applied. It is an important measure. I will certainly confirm in writing via my officials the consultation that has taken place.

Question put and agreed to.

Clause 2 accordingly ordered to stand part of the Bill.

Clause 3

Application of multipliers

[David Simmonds]

I beg to move amendment 14, in clause 3, page 3, line 25, after “more,” insert—

“and is not a retail premises which is open to customers for more than 18 hours a day”.

This amendment would exempt retail premises which are open to customers for more than 18 hours a day from having the higher multiplier used to calculate their non-domestic rates. It is linked to Amendments 15 and 16.

[David Simmonds]

This group revolves around amendments 14, 17 and 20 and includes consequential amendments on relevant language in further paragraphs. They aim to address an issue that has been raised extensively in public evidence sessions, written evidence submitted to the Committee and the wider debate about measures in the Bill. That is, the circumstances of certain types of businesses, for example those that are unusual in that they are open for very long hours because they may be the only retailer in a location and are therefore of particular significance to that community, or those that are host to a post office. We all hear examples of local post offices co-locating with shops. We are very keen to ensure that those businesses are sustainable for the wider benefit of that community and access, particularly for vulnerable residents, to those services is maintained.

Progress has been made in developing banking hubs, often in premises that are co-located, sometimes with post offices. We know that has been important in ensuring access to cash in communities where it might otherwise be lost, as well as access to more general banking services, for both small businesses and vulnerable residents. These types of business can be absolutely critical, especially in rural locations, but sometimes also in suburban areas where elderly residents in particular may struggle to access those types of shops and services if we do not ensure their continued support.

The purpose of the amendments is to introduce specific exemptions or provisions to ensure that the measures are enacted in a way that continues to support retailers with long opening hours that provide services that might otherwise not be available, access to a post office or access to a banking hub.

[Jim McMahon]

Amendments 14 to 25, tabled by the shadow Minister, would exclude certain properties from the higher multiplier. Properties that are open to customers for more than 18 hours a day, properties that are shared with a post office and properties that are shared with a banking hub would be excluded from the higher multiplier.

These are very important sectors. The Post Office delivers essential services that are hugely valuable to both individuals and small or medium-sized enterprises in urban and rural areas across the country. Those services include mail, parcels, cash, basic banking, utility bill payments and Government and public services. That is why post offices are eligible for the existing retail, hospitality and leisure relief, which gives eligible retail, hospitality and leisure properties 40% relief on their business rates bills, up to a cash cap of £110,000 per person, in the 2024-25 financial year.

With regard to banking hubs, the Government understand the importance of face-to-face banking to communities and high streets, and we are committed to championing sufficient access across the country as a priority. That is why the Government are working closely with banks to roll out 350 banking hubs across the UK. The UK banking sector has committed to deliver those hubs by the end of the Parliament. Over 90 banking hubs are open to the public, and the Government continue to work closely with high street banks to ensure communities and local businesses have access to the banking services they need.

To provide certainty and permanent support for the retail sector and the high street, through the Bill we are introducing permanently lower tax rates for retail, hospitality and leisure properties with a rateable value under £500,000. The existing RHL relief has been repeatedly extended year on year as a temporary stopgap, creating cliff edges for businesses and significant financial pressures. The Government are currently developing with the sector the definition of “qualifying RHL properties”, which will be introduced through secondary legislation in 2025. The sector definitions will broadly follow those already defined in the current retail, hospitality and leisure relief system.

To ensure that this tax cut is sustainably funded, we intend also to introduce a higher rate on the most valuable properties—those with a rateable values of more than £500,000. To be clear, that only applies to the highest value properties, and less than 1% of all non-domestic properties across England. I understand that the hon. Member for Ruislip, Northwood and Pinner wants to exclude some properties from the higher charge. However, the Government want to take a fair approach, which is why we intend to ask all properties with rateable values of £500,000 and above to contribute more to support the high street. The Government do not intend to exclude any properties with a higher value, applying the approach in the fairest possible way.

There are practical implications that make it difficult to apply different multipliers to retailers based on their opening hours. Local authorities require certainty about which multiplier will be applied to which property ahead of the billing year. That cannot be determined based on opening hours, which businesses can rightly change at their own discretion, subject to legal requirements. For the reasons I have set out, the Government cannot accept the amendment, which would carve out certain premises from the higher tax rate. However, I hope the Committee is reassured of the Government’s commitment to post offices, banking hubs and the retail sector.

[David Simmonds]

I am grateful to the Minister for talking us through the complex set of reliefs that are available. It is an issue that colleagues who represent rural areas have been concerned about, because there are often multi-use sites in those areas—a petrol station and a post office, or a banking hub and a small supermarket. Those are potentially larger premises that are critical to the operation of the local community. I am grateful that the Minister has set out how existing reliefs may operate. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

--- Later in debate ---

[Martin Wrigley]

We have tabled this amendment to explore the possibility of including manufacturing businesses. Manufacturing is important, and we know that it is struggling. By adding manufacturing businesses, we might be able to help them in the same way as we intend to help hospitality, retail and leisure. Manufacturing is a vital area that we have lost too much of in the past however many years. This relief would be a small help to enable manufacturing businesses to recover. That is why we would like to add the category of manufacturing to the provision.

[Jim McMahon]

Amendments 1 to 6 deal with eligibility for the new lower multipliers. Under the amendments qualifying manufacturing properties would be eligible for the two new lower multipliers the Bill introduces for qualifying retail, hospitality and leisure properties from 2026-27.

Let me start by highlighting that the Government recognise the importance of the manufacturing sector, and we have identified advanced manufacturing as one of the eight growth-driving sectors as part of our industrial strategy, recognising the contribution it makes to our economy. However, the provisions in the Bill are about delivering our manifesto pledge to protect the high street. To that end, we aim to introduce permanently lower tax rates for retail, hospitality and leisure properties from 2026-27. To ensure that this tax cut is sustainably funded, we intend also to introduce a higher rate on the most valuable properties—those with rateable values of £500,000 and above. As I said before, this represents just 1% of the ratings system; the context is important here.

The measures in the Bill will provide certainty and support for RHL businesses, which are the backbone of the high street. The existing RHL relief has been repeatedly extended year on year as a temporary stopgap. It has created a cliff edge for businesses, and those sectors have repeatedly demanded clarity and certainty. We have been clear that the eligibility for the new lower RHL multipliers will broadly follow those already defined in the current retail, hospitality and leisure relief system. On Second Reading, the hon. Member for Mid Dorset and North Poole spoke about her experience of owning a café and the need for Government support for such businesses. That is precisely why we are enabling the introduction of these new multipliers for those types of property through the Bill.

The amendments in the hon. Lady’s name would expand the scope of this support to include manufacturing properties, but that does not match our intended goal of supporting the high street in a targeted way through the Bill. Against the current fiscal backdrop, extending eligibility to other sectors may dilute the support that the Government can offer to retail, hospitality and leisure properties. It may even require a higher rate on properties with rateable values of £500,000 or more to fund the new lower multipliers sustainably.

I reiterate that the Government are committed to supporting the manufacturing sector. At the Budget, the Government announced £975 million for the aerospace sector over five years, over £2 billion for the automotive sector over the same period, and £520 million for a new life sciences innovative manufacturing fund. For the reasons I have outlined, we cannot accept the amendments, but I hope that the Committee is assured of the Government’s continued commitment to the manufacturing sector.

[Martin Wrigley]

I am a little reassured by the Government’s intentions to support the manufacturing industry and look forward to their efforts to do so. I am certainly reassured by the support for the high street, which is very important to all. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

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[Jim McMahon]

For this grouping, I will first speak to clause 3, then return, after other contributions, to amendment 10 and new clauses 2 and 4.

We have previously discussed clause 1, which allows the Treasury to introduce new additional multipliers. Clause 3 deals with how we will determine which properties those multipliers should apply to. The clause is split into three main parts, dealing with occupied hereditaments in subsection (2), unoccupied hereditaments in subsection (3), and hereditaments on the central list in subsection (4). Properties on the central list are typically utility networks spanning many local authority areas, such as gas, electricity and water networks. Each of those subsections is essentially identical, so, to save the Committee from much repetition, I will explain the provisions on occupied hereditaments in clause 3(2) only.

The most important part of subsection (2) is the small amendment made by paragraph (a) to existing powers in the Local Government Finance Act 1988. Under those powers, the Treasury already has the ability to determine in regulations which multiplier applies to which property. Those powers, in respect of occupied properties, are in paragraphs 10(9) and 10(10) of schedule 42A to the 1988 Act. Clause 3(2)(a) amends that part of the 1988 Act to extend those powers to cover all the additional multipliers. This means that the Treasury will be able to determine, by regulations, which properties pay on which multiplier. Actually, Dame Siobhain, may I just correct the record? I think that I referred to “schedule 42A”, but it is actually schedule 4ZA.

As in clause 1, we have included in clause 3 safeguards on to how the Treasury may use these powers. First, clause 3(2)(b) amends paragraph 10 of schedule 4ZA to ensure, through proposed new sub-paragraph (9B)(b), that the Treasury cannot apply the higher multipliers to any hereditaments with a rateable value of less than £500,000. This will ensure, based on the current rating list, that 99% of hereditaments are unaffected by the higher multiplier.

Secondly, proposed new sub-paragraph (9B)(c) will ensure that the Treasury, when setting new lower multipliers, can apply them only to qualifying retail, hospitality and leisure hereditaments. The precise meaning of qualifying RHL properties will be set out in regulations, but we have been clear that we intend to broadly follow the existing definition that applies to the current relief scheme for those sectors.

Thirdly, the Treasury, when using the existing powers to determine who pays on which multiplier, will need to bring that statutory instrument in draft to both Houses of Parliament for approval before that can be confirmed. This requirement is not on the face of the Bill because the powers already exist, but if hon. Members wish to be reassured on this point, it can be found in section 143(7B) of the Local Government Finance Act 1988.

The power to define qualifying RHL properties—in proposed new paragraph 10(9C) of schedule 4ZA to the 1998 Act—follows the negative resolution procedure, given that this power only allows us to reduce the rates for certain ratepayers.

Finally on clause 3, the existing powers for determining the application of the multiplier allows the Treasury to do that by reference to a list of factors found in paragraph 10(10) of schedule 4ZA to the 1988 Act. This is a non-exhaustive list that includes factors such as its rateable value, its location or its use.

For the introduction of the lower multipliers in 2026, we intend to replicate the process and the broad eligibility in the current RHL relief. As with the current system, local authorities will determine eligibility, but rather than that being against guidance, we will lay down criteria in regulations. Clause 3(2)(c) gives the Treasury the scope also to determine the application of the multipliers by reference to the description that the Valuation Office Agency will put in the rating list.

As I have said, the remaining parts of clause 3 make the same provisions that I have described, but in relation to unoccupied properties and those on the central rating list. It is usual for powers applying multipliers across occupied, unoccupied and central rating list properties to align.

[David Simmonds]

I will speak to amendment 10 and new clauses 2 and 4, which stand in my name. They are designed to address concerns raised in evidence which there was some debate about yesterday: the objective of setting out, as far as we can in advance, the impact these measures would have on affected businesses; providing for a review and scrutiny process to follow up to confirm that the assessment had been correct or otherwise; and seeing what lessons can be learned from it. I appreciate that the Government are very keen to press ahead on this and will be reluctant to accept amendments that have that effect.

None the less, I am sure Members will recognise that when making decisions it is important to have a sense of what the impact is likely to be, in particular when we know that the impact of some of the measures will affect businesses that may be marginal. In many communities the loss of a large supermarket or warehouse or logistics centre that may be affected will have a major impact on the availability of services and local employment. That is the thinking behind bringing these measures forward. With your leave, Dame Siobhan, I will move them for debate.

[The Chair]

With this it will be convenient to discuss new clause 1—Review of impact on businesses, high streets and economic growth—

“(1) The Secretary of State must review the impact of sections 1 to 4 of this Act on—

(a) businesses,

(b) high streets, and

(c) economic growth.

(2) The review must consider—

(a) the impact on different types of business, including small businesses,

(b) the impact on businesses operating mainly or solely on high streets,

(c) whether the provisions have had a measurable impact on economic growth, and if so what that impact has been.

(3) The Secretary of State must lay a report of the review before Parliament within six months of those sections coming into effect.”

This new clause would require a review of the impact of clauses 1 to 4 of the Act on businesses (including small businesses), high streets and economic growth.

[Jim McMahon]

Chair, can I just confirm that we are discussing amendment 10 and new clauses 2 and 4? Or have we moved on to clause 4?

[The Chair]

If you wished to speak to those amendments, it should have been in the previous debate.

[Jim McMahon]

I thought I was going to come back at the end of that debate, but it is fine.

[David Simmonds]

On a point of order, Dame Siobhan, having moved those amendments, I did indicate that subsequent to the debate I would be minded to withdraw them. I have moved them, but I am not aware that we have made a decision on withdrawal.

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[The Chair]

We are now discussing clause 4 stand part and new clause 1.

[Jim McMahon]

New clause 1 would require the Secretary of State to review and report on the impact of the introduction of new multipliers. Let me first set out that I understand full well why the hon. Member for Ruislip, Northwood and Pinner has been pressing this point, and I agree with it in principle. Chair, can I just check that I am speaking to the right provisions?

[The Chair]

We are having a combined debate on clause 4 stand part and new clause 1.

[Jim McMahon]

I will speak to both now. Clause 4 makes two small consequential amendments to the existing legislation to reflect the addition of the new multipliers. There are other amendments we will need to make to regulations to reflect the changes in the Bill, but we will do that using existing powers once the Bill has passed. We have not taken any further powers to make consequential changes.

As hon. Members will know, the Bill provides the basis for how the two new retail multipliers and the higher multiplier will be set. In doing so we are deliberately constraining the maximum levels of the new tax rates by reference to the existing business rate multipliers. Those guard rails prescribed in the legislation provide that the basis for how the new rates will be set will be at the next Budget. For the two retail, hospitality and leisure multipliers, the Bill ensures that the rate may not be more than 20p in the pound lower than the small business rate multiplier. For the higher multiplier, it cannot be more than 10p above the standard multiplier.

I have outlined how the new multipliers will be set at the next Budget, but I trust that hon. Members will also be reassured that when the new multipliers are set, the Treasury intends to publish analysis of the effects of the new multiplier arrangements, taking into account the effects of other changes in the 2026 Budget. The impact assessment that has been referred to in this debate and in the evidence session will be picked up later on in the process. That work will not stop with the next revaluation. As with all taxes, the Government will keep the policy and its effects under review. It is therefore not necessary to impose that requirement in legislation.

With that explanation of the Bill provisions, the process for setting the tax rates, and HMT’s intention to provide analysis of the effects of the new multiplier arrangements, I hope I have provided the necessary assurances for new clause 1 to be withdrawn.

[Martin Wrigley]

I rise to speak to new clause 1. I thank the Minister for his words. It is, as we are discovering, an incredibly complex and arcane way of creating taxes that will have an impact on many high street businesses. While the Treasury analysis will tell us how the multipliers have hit, and the numbers that are done from a taxation point of view, it will not answer whether the Bill has achieved what it set out to do, which is to provide the necessary relief.

New clause 1 looks more at the impact on the businesses and whether the provisions had a measurable impact on economic growth. That is not the same as an analysis from the Treasury of the changes in the bills that are being presented to people; it is looking at the effect and impact, to see whether the Bill is achieving the desired outcome. That is why we would like to see the measurement included.

As an engineer and a scientist, I believe in a feedback mechanism: something that measures what has been achieved against what has been required. We believe that was missing in the Bill, and we would like to see it, which is why we have asked for new clause 1 to be considered. The work is there and will be beneficial to one and all. I do not see it as a significant barrier to the Bill progressing, but as a positive feedback mechanism that will enable us to determine the effectiveness of the support on the desired areas and businesses, including high streets, which are so important.

Question put and agreed to.

Clause 4 accordingly ordered to stand part of the Bill.

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[David Simmonds]

I beg to move amendment 26, in clause 5, page 5, line 37, leave out from “persons” to the end of line 38 and insert

“who have special educational needs.

(5A) In subsection (5) ‘special educational needs’ has the same meaning as in section 20 (when a child or young person has special educational needs) of the Children and Families Act 2014.”

This amendment would mean that a school that is wholly or mainly concerned with providing education to persons with special educational needs would not be a private school for the purposes of the Act, and as a result would retain charitable relief from non-domestic rates.

We are moving on to a different area. This amendment is designed to address concerns raised in evidence, and by many across the House in debates, about the impact on children with special educational needs and disabilities. We recognise that the Government have introduced measures to address some of those concerns, but there have been many changes to the SEND system over the years. In particular, the provision about wholly or mainly providing education to children who are in receipt of an education, health and care plan specifically addresses those at the most significant end of special educational needs and disabilities.

The previous Labour Government introduced a system, in the days of statementing, that included measures called school action and school action plus. If a child had a form of special educational needs that was not so severe that they required the statementing process, but needed additional resources in the classroom, that classification triggered additional resources for the school. In the 2014 reforms, that was morphed into SEN support. Beneath the education, health and care plan, for the most significant levels of need, there is an SEN support set-up whereby local authorities direct additional funding towards schools because children are classified at those levels.

One of our concerns is that some children who have found their way to an independent school—for example, because it has a reputation for providing a good level of support to children with SEN—have not been through a process whereby they have been formally categorised. Gesher in my constituency is an independent special educational needs and disability school that charges fees. A proportion of its students are there because their parents have made the choice, and have not been through a local authority process. Others are there because they have an education, health and care plan and it is the named school paid for by the local authority. All children attending that school have some form of special educational need or disability and are therefore attending private school.

The rationale behind this amendment is that we do not want independent schools that provide education to large numbers of children with SEND but are below the education, health and care plan threshold to be put in a very difficult financial position. Potentially, the Government do not intend to go down that route. Most of us are aware that the extent of SEND provision in the independent sector is very large. Indeed, the amount of money that local authorities have to pay in fees to place significant numbers of children in sometimes very specialist provision is a major concern to them. We also hear from constituents who have identified that a moderate level of special educational needs may be met in the independent sector without the child’s having gone through the process of an education, health and care plan.

We are seeking to ensure that schools that educate children with special educational needs, in a broader sense, are not missed. For those reasons, I commend the amendment to the Committee. I am sure the Minister will have more comments to make, further to what he said in the evidence sessions.

[Jim McMahon]

Amendment 26 would result in the exemption of fee-paying schools from the measure if they wholly or mainly cater to pupils with special educational needs, whether or not those pupils also have an education, health and care plan, as defined in section 20 of the Children and Families Act 2014.

The Government are aware of the concerns raised about pupils with special educational needs in private schools that may lose their charitable relief because they are not wholly or mainly composed of pupils with EHCPs. We have carefully considered our approach to minimise the impact on pupils with the most acute needs. The Bill provides that schools that are charities that wholly or mainly provide education for pupils with EHCPs will remain eligible for charitable rates relief. For business rates, “wholly or mainly” generally means more than 50%. In practice, that will ensure that most special schools are not affected by the measure. We expect any special schools losing charitable rates relief to be the exception; the number may even be in the single figures.

Private schools that benefit from the existing rates exemption for properties that are wholly used for the training or welfare of disabled people will continue to do so. Most children with EHCPs already have their needs met in mainstream, state-funded schools. If an EHCP assessment concludes that a child can be supported only in a private school, the local authority funds that child’s place. Any changes to fees as a result of this measure will not impact on the parents or families of those pupils.

In private schools, just 5.7% of pupils have an EHCP, and they are predominantly in private special schools. Some 97% of pupils with an EHCP in private schools already have their place funded by a local authority. Where an EHCP has not named a private school in its assessment of the child, the parent or carers may choose to place the child in a private school. That is a choice made by the parent, and does not detract from an assessment that a pupil’s needs can be catered for in a mainstream, state-funded school. There may be instances where a child’s parent disagrees with the local authority’s assessment that their child’s needs can be met in the state sector, and the EHCP system is the most appropriate channel for resolving such disagreements. Amendment 26, which would amend the basis on which fee-paying schools can retain charitable rates relief, would undermine the Government’s intention of removing tax breaks from private schools in order to raise funds to support the more than 90% of pupils who attend state schools.

The approach chosen in the Bill is targeted to ensure that the impact on pupils with the most acute needs is limited. That is ensured by exempting schools that wholly or mainly cater to pupils with EHCPs from the measure. As the Committee will know, the majority of children in England who have special educational needs, with or without an EHCP, already have their needs catered for in the state-funded sector. The Government support local authorities to ensure that every local area has sufficient places for all children of compulsory school age who need one, and work to provide additional appropriate support for pupils with SEN requirements at state-funded schools.

--- Later in debate ---

[David Simmonds]

I beg to move amendment 7, in clause 5, page 5, line 38, at end insert

“, or

(b) a local authority makes a determination that they wish to apply discretion to the application of rate relief for the institution within the meaning of section 47 (Discretionary relief) of the Local Government Finance Act 1988.”

This amendment would provide that a school is not a private school for the purposes of exempting it from charitable rate relief if a determination is made to that effect by the billing authority.

The amendment is on a related subject to one that we have already debated, so I will not speak about it at great length. We are very much aware that the independent sector is critical to our catering for special education needs and disability. Its coverage across the UK is variable, especially when it comes to provision for children with very significant special needs that a wide range of SEND provision cannot easily address. A local authority that hosts a small school providing for a very small number of children may wish to exercise discretion.

There are charities of many types that are service providers that charge people fees for the provision of such services. That can include anything from adoption placement to fostering and safeguarding in the children’s sector. A large variety of charities charge to provide services such as home care, and care for adults with disabilities. The point was made yesterday in evidence that there is a risk of creating a two-tier charity sector; a school that charges for providing for children with significant needs might not be considered a charity for the purposes of business rates relief, whereas a charity providing, for a fee, residential care for adults with a learning disability would be eligible for relief. That remains a concern for Opposition Members. We need to make sure that we sustain our network of provision—particularly provision at the complex end of need—in the UK. I look forward to hearing what the Minister has to say on the amendment.

[Jim McMahon]

Amendment 7 seeks to preserve the discretion of local authorities to award relief to private schools. Currently, any charity that uses its property wholly or mainly for charitable purposes is entitled to a mandatory 80% relief. The local authority must award that 80% relief when the conditions are met. The Bill will remove private schools’ entitlement to that mandatory 80% relief. However, it will not disturb the very wide power that local authorities have to award discretionary rate relief above and beyond that.

That power is found in section 47 of the Local Government Finance Act 1988. It already allows local authorities to top up the mandatory 80% charity relief with a further 20% discretionary relief. When the Bill is in force, local authorities can still use section 47 to grant discretionary relief to private schools, if they wish. They can grant relief of 80%, or any other level of relief that they consider to be appropriate. That is a matter for local discretion, and for local authorities to decide. With the assurance that that will still be in place, I hope that the hon. Gentleman will be content to withdraw his amendment.

[David Simmonds]

I am pleased to hear the Minister once again championing the value of local discretion in decision making; I think we mutually acknowledge that it is incredibly important. I am aware that concern remains, particularly in the SEND sector and especially for residential special schools, about how the change will play out. Local authorities may face a Hobson’s choice between being expected to raise a certain amount of revenue by applying the maximum possible business rate to a setting, and doing what they need to do to support the needs and interests of children in their community—and of schools that may be the only centre nationally that can provide for very special needs. However, again, I recognise that the Government have the numbers, so with the leave of the Committee, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

--- Later in debate ---

While this is a small measure, and we recognise, as the Minister set out yesterday, that the impact of the relief will not always be significant, for many individual schools, particularly those that may charge lower fees than the prevailing funding rate for local authority schools—as is particularly common for Muslim faith schools in several cities across the UK—asking them to pay what could be a significant hike in business rates seems a particularly significant imposition. That is particularly true if they are financially marginal, although we recognise that they are not for-profit institutions. It may drive that provision out of existence in a given area where mums and dads really want it and need to access it. Preventing that is the aim of the amendment, which I have moved for the purpose of debate.

[Jim McMahon]

Amendment 8 would require a private faith school to maintain its eligibility for charitable relief if there is no maintained or academy school of the same faith within the statutory walking distance, as set out in the Education Act 1996. The amendment would also provide that schools with a currently undefined special character be exempted from the Bill measure when defined in regulations. The Government value parental choice and recognise that some parents want their children to be educated in schools of a particular faith, but all children of compulsory school age are entitled to a state-funded school place if they need one. State education is suitable for children of all faiths, and all schools are required to follow the Equality Act 2010, which means fostering and promoting an environment that encourages respect and tolerance of children and families of all faiths and none.

We have already made provision to ensure that private schools “wholly or mainly” concerned with providing full-time education to pupils with an education, health and care plan remain eligible for business rate relief. The Government are not considering any further exemptions to the policy, so there is no need to give the Secretary of State the power to establish and define new designations of school character to then exempt schools of that character from the measure in future, as the amendment would provide for.

The Government have listened carefully to arguments on this matter, and have decided that a carve-out for faith schools or similar schools cannot be justified. It is the Government’s position that state-funded education is suitable for all children of compulsory school age. For that reason, we are unable to accept the amendment.

[David Simmonds]

I need to be clear that I am not here to act as an advocate for faith education; I am not personally a fan of it. I recognise the Minister’s point, but we need to acknowledge that many Members on both sides of the House, and many of our constituents, believe very strongly that they should be able to access a school of a particular character.

There will be some children in the state sector who may be able to access, for example, a specialist sports academy with particular facilities to develop and nurture their talent, but such a school may not be available in all parts of the country. An independent school may be the only one able to foster and nurture that talent, and we would not wish to see any measures taken that would deprive anybody of that opportunity. Once again, however, I recognise that the Government have the numbers, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[David Simmonds]

I beg to move amendment 9, in clause 5, page 5, line 38, at end insert—

“(5A) Where a private school offers nursery provision, that school must be considered to be comprised of two separate hereditaments, one of which would be a nursery school.”

The question of hereditaments is certainly not one that I remember from English classes when I was at school, but it is quite significant in the context of business rates. The way in which business rate legislation operates is that it designates a given property, which clearly makes it easier to tax, because the ownership or possession of a property is very hard to move or disguise.

In respect of schools where, for example, there is a nursery on site as part of the overall premises that are considered to be the hereditament for the purposes of business rate legislation, the Opposition are concerned that such premises that would be exempt from business rates or eligible for relief if they were physically separate from the school to which they are connected will not be eligible for that relief because they are on the same site. We know that the Government are very keen, as we were in government, to see an expansion of access to high-quality childcare, a very large proportion of which is in the private sector. The Government—commendably, in my view—have set out a policy of expecting maintained state schools that have nurseries on site to significantly increase the childcare offer to support local parents, which is a very good thing.

In many locations, a nursery connected to a private school may be chosen by parents using tax-free childcare, and there are measures in legislation to support all parents, but primarily lower-income parents, to access that provision. If business rates apply to such premises, however, that would load an extra cost on to them because they are, in effect, co-located and part of a single hereditament.

The purpose of the amendment is to separate those premises out. Where there are premises on a site that become subject to business rates as a result of the Bill, but would not otherwise be subject to them because of their purpose, use and location, they should be considered as separate institutions, so we do not apply the measures to those institutions that we seek through other parts of legislation to support and encourage.

[Jim McMahon]

I am grateful to the hon. Member for tabling the amendment. It may assist the Committee if I briefly explain how the Bill will apply to nurseries and nursery classes within the setting of private schools.

The Bill will ensure that nursery schools, where they have their own hereditament and therefore their own rates bill, will be excluded from the provisions and, where they are charities, will retain their charitable rate relief. That is the effect of proposed new sub-paragraph (4)(a)(iii) to schedule 4ZA of the Local Government Finance Act 1988, at line 23 of page 5, in clause 5.

A nursery school is likely to have its own hereditament and therefore its own rates bill when it is run and occupied by a separate body from the private school. An example would be where a separate charity from the private school runs the nursery. A nursery school may also have its own hereditament if it has its own dedicated buildings site that is located away from the rest of the school. Where the same charity runs the private school with some nursery provision, however, and does so from the same site, it is likely to have one hereditament and one rates bill.

I want to make it clear that private schools that include some nursery classes in the way I have described will still be considered as private schools and will lose their relief entirely. The Government have decided that where private schools that mainly provide education for pupils of compulsory school age also have nursery classes within the school, the presence of a minority of nursery-age children should not remove the whole school from the business rate measure. That approach best ensures consistency with the underlying policy intent.

For that reason, we are unable to accept the amendment. It would not be appropriate to attempt, as the amendment would do, to create new artificial hereditaments for nursery classes at private schools merely to preserve some of the charity relief for that private school. I hope the Committee will recognise the steps we have taken to protect nurseries with their own hereditaments, and it will, of course, continue to be the case that nurseries that are run and occupied by separate charities with their own hereditaments will continue to receive relief.

[David Simmonds]

Once again, I recognise that the Government have the numbers to do as they wish, but I am concerned by what the Minister has outlined. This is not simply an amendment about nursery schools, which are a specific thing. It is about nurseries, which provide childcare. For younger children we have the early years foundation stage, which is not compulsory but is provided and followed by the vast majority of childcare settings, and which aims to ensure a level of educational progression that can be measured from the very youngest children to those who are ready to start school. That is provided in a different way from what is provided by nursery schools, which are specific institutions of which there are several hundred in the country.

In London constituencies such as the one that I represent, it is quite common to find nursery providers that are run as part of private school institutions in the same location, but that are used by parents who have no intention of sending their child on to that private school. Because the fees charged are in line with the local childcare market, and those fees are significantly supported by measures such as tax-free childcare, those nurseries are an affordable means of securing good-quality childcare. Those children will go on to a range of local provision.

I remain concerned about the Bill insisting that a nursery located on a premises shared by a private school within the scope of these measures should be subject to a significantly higher rates bill than if it were located in a physically separate building just down the road. I suspect that that will remain an issue of contention during the passage of the Bill. Clearly, although an impact assessment or a review will not be specifically proposed in the legislation, there will be an opportunity to see its impact in due course. For those reasons, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

[Jim McMahon]

Clause 5 removes charitable rate relief from private schools. Under the current law, all charities are entitled to 80% charitable relief on any properties that they occupy and use wholly or mainly for charitable purposes. That rule is found in paragraph 2 of schedule 4ZA to the Local Government Finance Act 1988, and clause 5(2) amends it to exclude private schools from that rule. Proposed new sub-paragraph (3) removes from charitable relief hereditaments wholly or mainly used to carry on a private school. That will ensure that ancillary and support buildings, such as offices, will also lose their relief—for example, classrooms and sports fields wholly or mainly used for the purposes of a private school.

The policy to remove the eligibility of private schools that are charities from charitable rate relief is a tough but necessary decision that will secure additional funding to help to deliver the Government’s commitment to education and to young people.

[Mr Mark Sewards (Leeds South West and Morley) (Lab)]

It is a pleasure to serve under your chairship, Dame Siobhain. Yesterday, we heard plenty of evidence from lots of witnesses, specifically about private schools. We also heard from Professor Francis Green, who stated that the measure would have a negligible impact on private schools. At the same time, as the Minister stated, it will raise much-needed funds to support the policies that we promised in the build-up to the general election. Does he agree that although this is a tough choice, since the Bill’s impact on private schools is relatively negligible, it is a necessary measure to raise the funds that we need to deliver our policies?

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[Jim McMahon]

That is an important point. There is political intent behind this measure: to deliver on the manifesto commitment. At a time when, let us be honest, trust in politics is tested, delivering on an election manifesto is important. More than that, the vast majority of young people attend state schools.

In every community across the country over the past decade, all of us have seen the impact of reduced support, with many schools struggling. In some cases, that has created demand for private schools, because parents with children who have SEND or other conditions, who do not believe that their needs are being met by the state sector, feel that they have no choice but to look to the private sector. We are determined to rebuild the state sector so that every parent can have confidence that children who need additional support will get it in a mainstream setting.

--- Later in debate ---

[David Simmonds]

I will be brief, because we touched on this matter in the evidence sessions yesterday. The amendment and new clause both seek to ensure that the measures contained in the Bill have a review mechanism and impact assessments. The Minister said earlier that he was minded to proceed, regardless of the outcome, but there will no doubt be an opportunity for Parliament to scrutinise the impacts in due course. It is my intention, subject to the Minister’s response, to withdraw the amendment and new clause.

[Jim McMahon]

Clause 6 provides for when the provisions in the Bill will commence. The provisions in clauses 1 to 4 provide for the new additional multipliers to take effect from 1 April 2026. As hon. Members will have heard, the Chancellor will set out the new multipliers at the Budget in autumn 2025, and those multipliers will take effect from 1 April 2026. Clause 5, which removes charitable relief from private schools, will take effect from 1 April 2025.

As hon. Members will be aware, this Government are determined to fulfil the aspiration of every parent to get the best possible education for their child. It is right that, in pursuing that aim, we focus on the more than 90% of school-age children who attend state schools. The clause will raise approximately £140 million per year by 2029-30. By introducing the clause and the policy to apply VAT to private school fees, the Government will raise around £1.8 billion by 2029-30, which will help to deliver our commitments to education and young people.

Ahead of 1 April 2025, my Department will work with local government to explain the Bill’s provisions so that private schools that should not receive relief can be identified. As we have shown in the impact note published alongside the Bill, we expect around 1,000 private schools across England to be affected by the measures, so we are confident that the relief can be removed from 1 April 2025.

[David Simmonds]

I am sure that most mums and dads will be glad that excellent education is already available in England’s schools, given the transformation that has taken place in standards. However, we are here to concentrate on finances. For that reason, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 6 ordered to stand part of the Bill.

Clause 7

Short title

Question proposed, That the clause stand part of the Bill.

[Jim McMahon]

Clause 7 merely states the short title of the Bill.

Question put and agreed to.

Clause 7 accordingly ordered to stand part of the Bill.

New Clause 1

Review of impact on businesses, high streets and economic growth

“(1) The Secretary of State must review the impact of sections 1 to 4 of this Act on—

(a) businesses,

(b) high streets, and

(c) economic growth.

(2) The review must consider—

(a) the impact on different types of business, including small businesses,

(b) the impact on businesses operating mainly or solely on high streets,

(c) whether the provisions have had a measurable impact on economic growth, and if so what that impact has been.

(3) The Secretary of State must lay a report of the review before Parliament within six months of those sections coming into effect.”—(Martin Wrigley.)

This new clause would require a review of the impact of clauses 1 to 4 of the Act on businesses (including small businesses), high streets and economic growth.

Brought up, and read the First time.

Question put, That the clause be read a Second time.

Question accordingly negatived.

New Clause 5

Local retention of additional receipts

“(1) The Local Government Finance Act 1988 is amended as follows.

(2) In Schedule 7B (Local Retention of Non-Domestic Rates), after subsection (4) insert—

‘(4A) In the case of any billing authority to which 100% local retention does not apply, as far as practicable, the local and central shares are set so that any additional receipts arising from changes made to this Act by the Non-Domestic Rating (Multipliers and Private Schools) Act 2024 are locally retained.’”—(David Simmonds.)

This new clause would provide that local authorities could retain any additional funds raised by the provisions of the Bill.

Brought up, and read the First time.

[David Simmonds]

I beg to move, That the clause be read a Second time.

You will be relieved, Dame Siobhain, to hear that these are the last of the amendments and new clauses that I will move for debate.

The purpose of the new clause is to bring in a measure to support the local retention of additional receipts that come from the measures in the Bill. We know that we have been on a journey with local government finance over many years to ensure a greater degree of local retention of business rate proceeds, something that has had cross-party support. It has been done for a variety of reasons, and partly to encourage local authorities to promote growth in their local business community by growing their business rate base and retaining a greater share of the proceeds.

On this specific Bill, the aim is to ensure that the additional revenue derived from the measures is retained by the billing authority, rather than going to another pool elsewhere. The rationale for that is manifold. In respect of the additional proceeds that may come from private schools that are subject to the measures, we know that local authorities may find it challenging, particularly given the timing of the introduction of this legislation, to ensure that there is a place available for any child who is displaced from the independent sector into the state sector—particularly so if that child has significant special educational needs or disabilities. Therefore, ensuring that those resources are retained locally will give some additional element of resource to local authorities seeking to meet that challenge.

We know that one particular dynamic is that the areas where the private schools are fullest are often also the areas where the state schools are fullest; although there is overall a declining population of children in our state schools in England as a whole—I know that my own constituency and local boroughs are a particular example of that, having seen a very large drop and a significant vacancy rate—that is not the case at all phases of education or in all year groups. Therefore, there is already a significant challenge for those parents who have to seek an alternative place for their child, where the retention of the resource locally would give some additional support.

Further, in respect of the additional revenue that may be raised from a variety of different types of businesses, the retention of that support locally would further enable the local authority to use that money to support its local economy, for example to invest in measures to support employment or the development of new businesses. That would be in line with the agenda being set out by the Government, who wish to see growth as a major priority, and it would create a direct link between the local decisions of the billing authority and the financial outcomes that would follow. For all those reasons, I commend the new clause to the Committee.

[Jim McMahon]

I thank the hon. Gentleman for tabling his new clause. As we have explained, where, as a result of the introduction of additional multipliers from 2026-27, local authorities collect additional business rate income, new clause 5 would allow them to keep that income in its entirety. It would do so by requiring the Government to alter the percentage share of business rates to be retained by local government and the share to be sent to central Government.

In practice, of course, any additional income from the new multipliers introduced by clauses 1 to 4 will vary from local authority to local authority and change from year to year. Those local authorities with fewer large properties may well collect less income as a result of the new multipliers and will therefore be worse off as a result of this amendment. Furthermore, accurate data on that will not be available until some time after the end of the year, whereas the central and local percentage shares need to be set before the start of the year. In practice, we do not think this new clause would effectively achieve the intended outcome. Instead, the Government will work to ensure, as far as is practicable, that local government income from business rates is unaffected by the introduction of new multipliers. That will result in a much fairer and more stable outcome for local government than the one suggested by the new clause.

More generally, the Government have announced their commitment to reform the way in which local government is funded, to return the sector to a sustainable position. That includes the already announced reset to the business rate retention system, as intended when the previous Government established the system. We will use the reset to restore the balance between aligning funding with need and rewarding business rate growth, and we will work in partnership with local government to ensure that the new local government finance system takes into account the impact of the new multipliers on the business rates collected by local government.

I hope I have given the Committee some assurances about how local government income will be protected from the changes in the Bill. In the light of that, I hope that the hon. Gentleman will feel able to withdraw the new clause.

[David Simmonds]

I know that the Minister is a localist at heart and will generally support measures that increase autonomy and decision making at local level. I recognise that the Government have the numbers to reject the measure. I think the point that it is hard to model the outcome was addressed in previous amendments that the Government chose not to accept, and undertaking a forward-looking impact assessment would enable us to understand better the impact of some of the measures. Given the Minister’s observations and the numbers in Committee, however, I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

Question put, That the Chair do report the Bill to the House.

[The Chair]

I understand that at this point, you all have to be nice to each other. Does anybody want to do that, or are you ready to get on with it?

[Jim McMahon]

Do you mean to say some words?

[The Chair]

Yes.

[Jim McMahon]

I thought you meant generally.

[The Chair]

You can be as general or specific as you like.

[Jim McMahon]

I was going to go on an errand to Tesco to buy some mince pies. This process has been a very useful one. The time that both Opposition parties have given to the preparation of the amendments has really helped the scrutiny of the Bill. That has helped the Government to ensure that the Bill does what is intended, and to provide safeguards to ensure that it does nothing unintended. We have set out our position on the Bill clearly. The spirit in which the Opposition have approached the amendments, by withdrawing them and not pressing them to a vote, and the constructive nature of our exchanges today are to the credit of the Committee.

[David Simmonds]

As always, it has been a pleasure to serve with you in the Chair, Dame Siobhain. In that Christmas spirit, I thank the Minister for his constructive engagement. It is characteristic of several of the Ministers in the Department, and it has been enormously helpful. I put on record my thanks to the Whips; I appreciate that the scheduling of this relatively short piece of legislation meant that it could have taken up a great deal of time. We have recognised the point, which was made impactfully yesterday, that its overall impact is limited and moderate, so we have sought to approach it in the light of that.

We may have a fairly significant disagreement with the Government about the intent behind the Bill, in the way that it approaches both local government funding and the situation with independent schooling, but we have to recognise the numbers. I thank the Minister and his colleagues very much for the way in which they have addressed this.

Non-Domestic Rating (Multipliers and Private Schools) Bill (First sitting)

Jim McMahon Excerpts

Committee stage
Wednesday 11th December 2024 Public Bill Committees

[The Minister for Local Government and English Devolution (Jim McMahon)]

Q Thank you, Mr Watson, for taking the time to be here and for the insight you have provided on that first question. I am interested in the point about the number of multipliers. If I understand you correctly, there is a risk that the more multipliers you provide, the more confusion there might be in the system. However, the counter-argument—this is certainty our position—is that the business rate system is a blunt tool almost by design, and that by creating this different approach, we can better target the support that we provide not only for retail, hospitality and leisure, but for the large footprint occupiers, warehouses and distributors, where we create that pool of funding. I am interested to get an insight into how you and your members would see that balance being struck in the right way.

Gary Watson: As a professional body, we sometimes have quite diverse views, because we have those working in local government, for example, and then we have those working in the private sector, and they can have some quite different views sometimes. Standing back and looking at what our preference would have been, before we saw the Bill, the whole relief system is very complicated at the moment. The reliefs do not interact with each other, and it is confusing for the ratepayer and perhaps for the local authority. We could have looked at the reliefs as a whole and started again. What we have are the multipliers, and that is what we have to work with. If we had the choice at the beginning, we might have looked at some more targeted form of mandatory relief, but we are where we are.

The important thing is that we will make it work, and I think the Bill gives the Government the flexibility to change. What you found with the pandemic, for example, was that the property tax system, to some extent, came to the fore, because it allowed Government very quickly to not only get money out of the door but target it to certain types of business.

The key issue will be that, assuming the Bill gets Royal Assent, the secondary legislation has to be very clear on the types of business that the Government want to support with the different multipliers, and perhaps the exclusions that they want to consider. That also allows the Bill to be flexible, so it is not as if that is all you have to work from. By keeping it in secondary legislation, things will change. Importantly, we have found over the last 10 years that, because it is all under section 47 of the Local Government Finance Act 1988, it allows Government to bring things in really quickly whether or not there is any new Bill. There is no delay, and local government can get that money and support out of the door really quickly. It also allows local government to plan on the financial side as well.

[Jim McMahon]

Q On that point, is that not why this measure is so important? If we think about the types of shocks that many businesses face, the pandemic was exceptional but also profound. Having that flexibility to move quickly and adapt was very important to the system.

With the current system, aside from it being temporary, short-lived and a cliff edge, the business did not know whether it was going to continue, and if it was going to continue, in what guise. It also had the impact of capping the amount of relief that could be given to any business at £110,000.

How do you and your members perceive the high street? From the Oldham perspective, when I look at the high street, national retailers such as Boots and Specsavers are actually the foundation of many high streets alongside local independent retailers, but previously they were locked out of the temporary scheme. It would be interesting to get your views on that.

Gary Watson: In terms of the high street, the companies that you named are there and they are often the draw, which is a benefit to the smaller ones. When we lose some of the more well-known retailers on the high street, those properties do not stay empty too long—certainly the smaller ones—because people move in very quickly. Sorry, I did not get the other part of the question.

[Jim McMahon]

Q The first part of the question was more about how agile the system can be. Providing for secondary legislation as part of this Bill is about having that agility and being able to move to recognise any shocks in the system to ensure that, if there is a hit to the local economy, or the high street in particular, the system can move quickly enough at the right point to save it.

Gary Watson: That is one of the criticisms of the rating system. Outside of section 47, it was not flexible and could not adapt very quickly. I think it has to be a good thing to have that flexibility both in the multipliers, including the higher one and the lower one, and in how it allows you to direct the particular relief. It is good for the rating system, including those who pay the rates and local government.

[Vikki Slade (Mid Dorset and North Poole) (LD)]

Q I would like to touch on that further. The Bill will give the Treasury the power to apply those additional multipliers. Do you feel that should be a local decision? You have hit the nail on the head; the way business rates work can be impacted by a local situation, such as a retailer going out of business or there being very high rents. Do you think that the Bill gives local areas the ability to think about how they might need to apply different multipliers? Would you like to see more regional or local implications, rather than it all coming through the Treasury?

Gary Watson: I go back a long time in business rates; I was working in rating up until 1990 when it was very much the local authority that set the rate and collected the rate. That was one of the reasons why they went to a national non-domestic rate in 1990. I think the councils have a key role to play. That is why I am keen for the relief system to give local authorities an element of discretion so that they can direct reliefs to certain types of rate plan. That goes for not just the high street but the wider picture.

In terms of ensuring an element of consistency, it was interesting that when the reliefs were coming in during the pandemic, there were a lot of local authorities turning around and saying, “Can’t you just tell us what it is?” Then central Government were saying, “You wanted the discretions and now you want it controlled. You can’t have it both ways,” so I think it is a balance. It raises so much money: all the strengths of a property tax are there for both central Government and local government, and for the ratepayer as well. It is about getting that balance.

Controlling the central rate is right, but making sure that councils have an element of discretion, whether through variance in the multiplier or a particular relief, is something to be considered. But again you have to be careful, because local government is different in lots of different areas. There are different challenges in lots of local authorities, and you are sometimes trying to have a rating system that fits every part of the country. That is why you need that flexibility there.

--- Later in debate ---

[David Simmonds]

Q You mentioned that the Bill would have a positive impact on the vast majority of your stores. Can you just walk us through how you have reached that calculation, particularly with reference to the different types of environments in which those stores are located and the different footprints they will have?

Paul Gerrard: We have about 2,750 properties, of which about 220 are not classed as retail, hospitality or leisure. Those will be depots, our funeral business, care homes, our headquarters and so on. We have about 2,500 stores, and of those about 62% have a rateable value of less than £51,000, and just over one third have a rateable value of between £51,000 and £500,000. They will go into what we are assuming will be the two lower multipliers. We do not know what the levels will be below the standard multiplier but, taking the industry’s working assumptions of 10p and 20p, that will have a significant impact.

The properties we have outside that group, which are either non-retail, hospitality and leisure or are bigger than £500,000, make up 20% of our rates bill. They will not benefit—in fact, we would expect the rates bill for the big properties to go up—so there is a bit of a balance, but for us overall, it will significantly support our stores. In addition to our 2,500 stores, the Co-op also wholesales to another 5,000 or 6,000 independent stores. I have talked to colleagues in those businesses and, again, this new structure of rates will significantly support those independent small stores as well.

[Jim McMahon]

Q For the record, I refer to my entry in the Register of Members’ Financial Interests. Mr Gerrard, many of the stores that you operate are not on the high street or in town and city centres; they are often the last remaining store on the estate in a community. How do you think this Bill might contribute to making those more viable? During the pandemic, when children were being educated from home and given vouchers to get meals during the day, we found that there were significant retail deserts in large parts of the country where that immediate meal was not available, bar the local convenience store on the estate or in the local neighbourhood. From that perspective, beyond the high street and town centres, what impact do you think these measures might have?

Paul Gerrard: You are absolutely right; many of our stores are on high streets, but a lot are just local stores that will be the corner shop on a street. The rates bill is significant—as I said, it is one of the top three costs that we have, alongside our people. As you know the Co-op has always paid the Living Wage Foundation’s real living wage, because we think that is the right thing to do, and that is for every colleague, regardless of age or employment status. The other top cost is rent, and then the third one is rates.

I do not think we close stores because of rates, but the current rate system makes it really difficult for some stores to be viable. If we then add to that issues around crime—I have given evidence in this place before on that—there are a lot of costs hitting us. The proposals here are particularly important for those small stores. I think about two thirds of our stores are underneath a £51,000 rateable value, and that rates bill will have a significant impact on the viability and profitability of those stores. You are right that, during the pandemic, when we were all told to stay at home to keep safe, my colleagues and shop workers throughout small stores went in and made sure that the shops were open so that people could get food and water to live.

As I said before, I think we saw in technicolour how important small stores are. The retail sector is multichannel and there are lots of different parts to it, and those different parts play different roles and have different impacts. Small stores are the beating heart of communities. We have done some work, which we are just refreshing, that says that, if you have vibrant high streets, you have better mental health. You have a whole range of better outcomes, and those small stores are at the heart of it.

[Jim McMahon]

Q Leading on from that, one of the other measures in the proposals would remove the current cap on the temporary relief so that multiple operators, including national operators such as the Co-op and others, will benefit more from this scheme. I am interested in your view, because you will no doubt have a view on the tax system in the round and the impact it has on the business overall. Is it recognised that there is an attempt being made here to make sure that those national retailers are as important to the high street and communities as independent retailers, and actually it is the ecosystem overall that makes a place thrive?

Paul Gerrard: I think it is very welcome. We are a national business of little shops; we have 2,500 little shops all around the country, and those little shops bring different economies of scale from, say, a big box in a huge retail park on the outskirts of town. This is very much looking at the kind of shop, rather than the kind of business, and I think that is important. As I said, we wholesale to 5,000 independent stores, and we see this all the time. It is about the nature of the shop, where it is and the impact it has on communities, not just commercially, but socially. A few years ago, we ran a campaign with the British Red Cross on loneliness, and our colleagues would tell me that very often, for the most vulnerable people in societies, the only people they would speak to were in the local shop, such as my colleagues in the Co-op or staff in a Nisa or a Sainsbury’s Local. They are really important as a kind of shop, and that is what I think this Bill recognises.

--- Later in debate ---

[David Simmonds]

Q May I ask specifically what your view is on small business rate relief?

Edward Woodall: Small business rate relief is incredibly important for our membership as it helps the very smallest businesses to get relief. It also has some very specific features. It is automatically applied, and there are tapers between £12,000 and £15,000 rateable value. It really supports the very smallest businesses in our sector, which trade in rural locations and often serve isolated communities. We are very keen that, with any change in business rates legislation, we get some reassurances that there is a strong commitment to retaining small business rate relief. As much as the multipliers are very helpful to businesses at the larger end of our membership, it is really important that we protect that small bit. The small business rate relief is a great mechanism for doing that.

We have lots of suggestions about how we might improve small business rate relief in the future, to make it work better for more retailers. With the upcoming revaluation, we are likely to see higher retail prices and, as a result, the thresholds need to index up with that higher cost, otherwise businesses are going to start to slip out of the small business rate relief support. Certainly, as much as we welcome this Bill, we would like to hear more about what we can do to improve small business rate relief, to help the smallest businesses in isolated locations.

[Jim McMahon]

Q Thank you for giving time to give evidence today, Mr Woodall. You explained the nature of your members and the fact that their businesses are very much anchors of the community. They are the place that provides the food, but also, in many places, they provide access to finance, post office facilities, postal services and so on. How many of your members do you assess will benefit from the measures, given that the relief is targeted at retail, hospitality and leisure businesses of the scale you talk about?

Edward Woodall: Very much the majority of the membership. The breakdown of the membership is that about 71% are independently operated across the convenience sector, and the other third are operated by multiple retailers—they might be a Co-operative, a Sainsbury’s Local or a Tesco Express. The large majority of those premises will sit under the £51,000 rateable value or still use the standard multiplier. Of course, when you take into account hospitality and leisure, we understand that that will be lower as well. So overall, most convenience retailers, as small format retailers trading from spaces under 280 square metres in secondary locations, will benefit from the lower multiplier.

[Jim McMahon]

Q On the point that you made about the potential to improve the system more generally, clearly we want this to be a measure that supports the fabric of community. In the end, these are retail businesses, but they are often the places that bind communities together. That is very much the way that we as a Government perceive them, and perceive the value of our high streets and our precincts in our villages and towns. From your perspective, what measures could be taken to really target the measure to ensure the support is given where it is needed?

Edward Woodall: On the multipliers, we will have to see if the rate of the multipliers is going to have an impact overall. I gave some examples of where you set the multipliers determining how much businesses can invest. What is described in the Bill is well targeted for retail, hospitality and leisure, to support the areas my members trade in and the types of businesses that the communities want in those locations. If we look at our polling about the most desired services on local parades, convenience stores, post offices and pharmacies come top, and all of those trade out of similar premises. Hopefully, it will help our sector, but it will also help the other businesses that trade in those locations as well to continue to deliver those services too.

[Vikki Slade]

Q Thank you very much for coming in to give evidence. On the timing, we know that retail, hospitality and leisure relief will reduce to 40% in April, but these measures will not come in until the April after that. Do you have any concerns about the impact on convenience stores during that year, before we know what will be happening the following year?

Edward Woodall: If you talk to convenience retailers now about business rates, what is in the front of their minds is the reduction in retail, hospitality and leisure relief, which has gone down from 75% to 40% from April next year. That is a big hit, among a cumulative burden of other measures that were announced in the Budget. That is concerning for them. They talk to us a lot about that, as part of the overall Budget package being challenging—and it was a big challenge, with £660 million costs for the sector.

That said, we knew that the retail, hospitality and leisure relief was introduced as a temporary measure during the covid pandemic, so we welcome the fact that it has not disappeared completely but has been tapered. We also welcome the principle that is set out in the Bill that we are giving a bit more permanency to support for retail, hospitality and leisure businesses on the high street in the future. There has been a cycle of changes in the policy over time, so hopefully this will give us a bit more of a stable footing to understand that. That does not just help us; it helps the other businesses from the retail industry that are thinking about investing in those locations too, but also those from hospitality and leisure.

--- Later in debate ---

[David Simmonds]

Q We have heard some evidence on appeals and the decisions that will arise from this. Clearly, there is a degree of uncertainty because, if we do not yet know what the multipliers are, businesses cannot plan for that. Do you have a view about whether the current system is fit for purpose to address what may arise? If not, what measures would you like to see to make it work better?

Tom Ironside: On the existing system and its fitness, or its ability to actually handle what may arise, I think there are long-standing concerns about the ability of the appeals system to respond effectively, with long backlogs and people reporting that they exit one revaluation not having resolved issues from the previous ones. There are real long-standing issues that need to be tackled.

Inevitably, if you look at the approach that is being taken, the introduction of a new threshold will create additional tension for companies that sit just above that threshold, and that is likely to increase the number of appeals. It may also have an impact on investment decisions as you get close to the threshold, because there is a marginal tax rate impact, which could be very significant if you move from being in receipt of a discount for retail property through to seeing an upward multiplier under the existing proposal.

[Jim McMahon]

Q Thank you for attending the evidence session, and for the written evidence that you have provided by way of preparation for the meeting. I think there is an acceptance in the evidence that you have given that any business rate system ends up having to draw the line somewhere; it is the nature of the multipliers and of the value that you apply. It stands a fact that, when it comes to most of your members, despite the 4,000 that you say will be above the £500,000 threshold, 772,000 are below the threshold. Therefore, it stands the case that the vast majority of your members will be the beneficiaries of the measures taken here.

Also, although it can be portrayed—and has been during this evidence session—that the relief is being decreased from 70% to 40%, the truth is that the temporary relief over covid was due to come to an end. That was a cliff edge, but this measure provides a permanent relief in legislation, which gives certainty over the long term. It would be interesting to know the views of your members on that.

Helen Dickinson: I just heard the end of the previous session. Obviously we have got to get to the point of implementation, but once we are there the long-term certainty is going to be really important. I completely understand the context in which the covid support was given and how valuable that was. Painful as it may be for many businesses when transitioning from a higher discount to whatever the new system might be, longer-term certainty outweighs that because we will not be limping from year to year waiting to see what that might look like.

In the context of your point about the proportion of businesses and shops that would benefit from the proposals as they stand, I completely agree that the 4,000 shops I mentioned is less than 5% of the total number of shops. Where it becomes much more difficult is that, if you look at that small proportion of shops, it is about a third of the rateable value of all shops.

If you think about it within a retail context, what we are effectively doing is penalising some shops to support other shops. In the competitive landscape of retail, where businesses are competing for consumer business day in, day out, it is distortive to competition. We completely agree that you have to draw a line somewhere, but we think the line should sit outside retail and hospitality, rather than being drawn within retail—and hospitality, she says, with her retail hat on. Does that answer your question?

[Jim McMahon]

Q It does, a bit, but I am not entirely sure it hits at the facts, to be blunt about it. It is not the case, from the evidence, that properties above £500,000 are essentially cross-subsidising those below £500,000. Those above £500,000 are only 7.5% of the total rateable value in the whole system. It is not the case that we are seeing that transfer.

Is it not also the case that many of your members who will occupy premises above the £500,000 will be the larger footprint occupiers, such as supermarkets and big department stores? If we were to move the centre of the cross-subsidy entirely over to warehousing and distribution, they would pay it on the back-end anyway, because Tesco, Sainsbury’s and the rest have huge warehousing and distribution models in their business.

Helen Dickinson: I am trying to think of the best way to answer that without going into too many details and numbers. Again, I agree that with the cross-subsidy we are not talking about going from one to the other within retail. If you look within retail, the rateable value of all of the small and medium-sized retail properties is about £9.2 billion, and there is an additional £4.6 billion of larger properties. Taken together, that is about £13.8 billion, with one third large and two thirds small. As you say, there are many other properties that sit outside retail, including warehouses and distribution centres, but also offices. In fact, I think the biggest chunk of that is offices. We are not just talking about things that will impact retail, like warehouses, coming into the other side of the equation; we are talking about all those other sectors as well.

Going back to what I said at the beginning, if the objective of this is to stimulate local investment in communities—that has to be the goal, because we all, as consumers and customers, want to see our high streets and town centres flourishing and vibrant with a diversity of offer—then we have to be able to find a way for that funding to come from right across the spectrum of properties, whether it is offices, distribution centres or whatever else sits outside. The modelling we have done shows that that is possible within the context of the framework you have laid out.

Tom Ironside: Just to be clear, are we talking about the exemption of shops above £500,000, not the exemption of other sorts of properties?

[Jim McMahon]

Let me make a point of clarity for the record. The 7.5% of total rateable value of the overall business rate tax take was just for retail, hospitality and leisure. It does not take into account offices or warehouses. I thought it was important that we set the context correctly in framing the conversation.

Tom Ironside: We can provide you with clarity on the figures, which we can lay out in a subsequent note, if that is helpful.

[Jim McMahon]

That would be very helpful.

[Vikki Slade]

Q You talked a lot about the retail properties over £500,000, but there is also a cliff edge at £51,000. The Fantastic Things Emporium in Bournemouth is a brilliant treasure trove of lots of microbusinesses that would otherwise not have the ability to be on the high street. Is £51,000 the right level? Should the level exist at all?

Helen Dickinson: I will start and then hand over. Tom highlighted earlier that whenever you have a threshold of some description, there will be a cliff edge risk. I know it is a goal of the current Government, as it was of the previous Government, to ensure that small and microbusinesses get the support they need to be able to grow. There is recognition right across retail that there is a case for a higher discount for really small businesses as they begin to grow and a next-level discount, for want of a better description, for those above that. The threshold risk is there, but the improvements proposed in the discussion paper, which are not necessarily in the Bill, about transparency from the Valuation Office Agency on data and the processes it goes through should at least give a greater ability to get through the appeals process and give people more clarity and certainty. That will hopefully avoid at least some of the consequences of those thresholds.

That is a long-winded way of saying that there is recognition that there needs to be a greater discount for really small and microbusinesses. You have to set a level at some point. Is £51,000 exactly the right figure? Whether it is £51,000 or £500,000, it is important that it indexes with inflation, because otherwise it will get eroded over time. Whether that needs to be in the scope of the Bill is part of the way to address your question. I do not know if that helps. Tom, do you want to add anything?

Tom Ironside: On that final point, in 2001 there was around £40 billion of rateable value on the list. Now we have about £70 billion of rateable value on the list. It is inevitable that if you do not have some sort of uprating mechanism—we have identified the £500,000 threshold, but I suspect that you could make an equal case for the £51,000 one—you erode the benefit and purpose of what is being set out. We feel quite strongly on that front.

--- Later in debate ---

[David Simmonds]

Q Could you share with us an assessment—your view—of the impact that measures in the Bill will have on the affected sectors?

Stuart Adam: There are two sections in the Bill, obviously: one about multipliers and one about private schools. We should probably separate those as they are very different issues.

In terms of the changes in multipliers, this gets widely misunderstood. What gets left out of the equation is essentially the economics, and specifically what the consequences will be for rents. Basically, business rates are not what is killing the high streets, and changes to business rates are not what will save it. As a rough first pass—and we can nuance this quite a lot—when business rates go up or down, rents tend to go down or up almost pound for pound in the long run, which means that business rates do not have a big impact on the cost of premises. That is much more about the supply of property.

There are several nuances to that. One is that to some extent business rates affect the supply of property and that will feed through into rents and affordability. You can think about the effects that this would have on the incentive to build bigger or smaller properties, or properties focused on retail, leisure and hospitality versus other sectors; or the incentives to use properties in one sector versus another; or indeed whether properties are used for commercial purposes or housing, and so on. There will be some effect from those things, and that will affect affordability as a knock-on consequence. That is clearly longer term and second order, and things like the planning regime are much more important.

If you take the supply of properties as given, to that extent, changes in business rates get offset by changes in rent. For example, in the case of the rise in business rates for properties with a rateable value of more than £500,000, I would expect rents to fall by a similar amount over the long term. Again, “over the long term” is a caveat. That is therefore a one-off hit to the owners of the land rather than to the occupiers of the property.

With reduced multipliers for retail, leisure and hospitality, the position is a bit more complicated because it depends on the extent to which there can be shifts of use in properties between different purposes. If properties used for retail, leisure and hospitality are stuck for that purpose and cannot be used for anything else, the same applies, but if shops can be converted into offices and vice versa, the situation is more complicated. We expect that, overall, the reduced multipliers would lead to an increase in rents, but a smaller increase in rents for all properties. Retail, leisure and hospitality would therefore become more affordable, but only to the extent that offices, factories and so on become less affordable. It would still wash out overall in terms of rents, and the beneficiaries would be the landlords rather than the businesses occupying and using them, but there can still be a shift between retail, leisure and hospitality and other sectors of the economy.

[Jim McMahon]

Q Thank you for coming to give evidence today, Mr Adam. I absolutely accept what you said—you are far more qualified than me on these matters, and I will not try to test some of it. However, I can say from my experience in Oldham that businesses are asking for respite and that they have found things very difficult. Although covid has been and gone, the operating environment before covid was difficult for many high streets and town centres, particularly for retail, hospitality and leisure. In some places, particularly where the economy is vibrant and there is high demand for premises, there might be a shift from business rates to rent as the system is moved round, but in most places, where there is not that high demand and there are lots of vacant units, it is about making the activity more affordable so that people can operate and keep their heads above water, and there probably will not be the shift that you talked about.

Stuart Adam: I disagree. I think there still would be that shift over the longer term. Again, these things take time as rental contracts adjust as new tenants are found for premises. The theory is reasonably clear and the evidence that we have, which is fairly thin, supports it pretty much completely. I emphasise that in the short run we would absolutely expect respite for retail, hospitality and leisure sectors at the moment, until there is time for rents to adjust. One thing to bear in mind is that we have had more generous reliefs for retail, hospitality and leisure in recent years, and some rents have been renegotiated during that period. It is also possible that if people, firms and the market expect reliefs that are more like 75% to continue, rents may have gone up, and the fact that the relief is less generous than what it replaces means that they will be worse off in the short run than if the reliefs had never been introduced. Obviously, they are still better off than they would be if the relief were removed completely. My expectation is still that that will be reflected in rents over time.

[Jim McMahon]

Q I accept that up to a point, but the temporary relief that the previous Government brought in to cover the impact of covid on the high street and retail, hospitality and leisure was introduced at a time when the sector was decimated and the country and the economy changed beyond recognition, in a way that none of us had experienced. That is not the world today, but the operating environment is still very difficult. Have you made an assessment of the impact of the previous temporary relief coming to an end in the form of a cliff edge? It was just going to stop and there was no provision for it to continue in any form in the Budget or the overall forecast. What impact would that have had on the high street?

Stuart Adam: The short answer is that we have not, and I am not aware of any good empirical study of what that was likely to do. It is slightly interesting and strange the way it evolved, because of course it was introduced as a relief in desperate times during covid. But as covid was coming to an end, it was made more generous rather than less. It moved up from 50% to 75%, if I remember rightly, at that point. Again, I am absolutely not disputing in any way that it did provide and does provide much needed respite, particularly at times of crisis, but as a long-term permanent thing I do not think the effects are the same.

One thing I completely welcome is that whatever you want to do with this—setting it up as a clear, long-term part of the system rather than having year-to-year uncertainty as to what the number will be and whether it will continue and so on—and whatever decision you make, making it a permanent part of the system is a very good thing.

[Vikki Slade]

Q In Northern Ireland, there is a single regional rate and then a local levy. Do you have views about whether there should be any local influence in terms of these determinants reflecting higher rents, particularly in the south-east or south-west, that put lots of businesses above the £51,000 threshold?

Stuart Adam: There are a number of questions. One is how far the rates should be set locally versus centrally. Obviously there was a history there of them being centralised in 1990. There is a question as to how much localism you want. If you are going to have local taxes, property taxes are a pretty good choice—housing more so than business property taxes. But if you wanted to localise more taxes, business rates would not be a bad choice. There might be things you can do along the lines that we have seen already about, for example, having a ballot of local businesses as a requirement and that kind of thing. There is a case for whether it should be local or central—I do not have a strong view either way.

There is a question as to how far the revenues should be redistributed across the country and whether areas that get more business rates revenue should have more funding as a result. That, again, comes into a broader question about the local government finance system. It is not obvious that just happening to have more high value businesses in an area is a good reason for that area to get more revenue. I think there is a better argument for things such as business rates retention, where you want to give local authorities some incentives, some reward, for having more businesses, encouraging them and generating local economic growth and so on.

There is then a question about whether, even if it is set centrally, the rates and thresholds of business rates should be different across the country. It is not obvious to me that there is a good argument for that, but it is not obvious to me that there is a good argument for it being different across different sizes of business or sectors, either. I would not rule out that you could make a case for it. In those other cases in terms of smaller businesses and retail, hospitality and leisure, you can make a case for it. I am not saying that you should never have any variation, but I would want to hear that argument made clearly. In terms of variation across areas, I do not think I have heard that argument made.

[Jayne Kirkham]

Q I am from Cornwall, where we have full business rates retention, so that puts a slightly different spin on it. Given that that varies across the country, maybe you could mention that. You talked about high street rents going up or down. I come from a place where there are lots of seaside towns and limited space by the water. A lot of our properties are owned by faceless corporations or insurance funds, so the rents are not remotely responsive. They have stayed high for a long time because they are seen as an asset on a balance sheet. We have struggled very much with that. For some places—maybe you would disagree—the business rates are even more important because the rents either take a very long time to have an impact or we are just left with empty properties for a very long time. Would you agree?

Stuart Adam: I think I would disagree. Actually, it is possibly even more true in the cases where properties are owned by big, faceless corporations, because clearly they will want to set the highest rent they can get away with, but the amount of rent they can get away with will depend on the demand for that property, and the demand for the property depends on the level of business rates and rent attached to it.

You would expect rents to adjust in the long run. How long “the long run” is is an interesting question. There is some evidence that it starts to happen in a relatively short period—something like three or four years—but the evidence on that is not great. The rent adjustment probably happens more quickly than it would have 20 or 30 years ago, because commercial rent contracts have become shorter and there is more use of things like commercial voluntary arrangements, which allow rents to adjust more quickly. It can take a fair number of years before rents are renegotiated, contracts come to an end and so on, but I would still very much expect it to happen.

[Jim McMahon]

Q Is part of the tension not that the question described a broken market, but that response describes a functioning market? Is the real issue that many institutional investors would sooner have an empty property with a notional rent attached to it, even if the rent is never achieved, than accept a tenant for a lower rent that would have an impact on their overall balance sheet? Is there not a tension there?

Stuart Adam: Yes, I think that is right. There is an interesting question as to why so many properties are left empty for so long, when it would seem to be in the landlord’s interest to have anyone in there paying them something, rather than no one in there paying them anything. There are certainly aspects in which the market does not function well, but on the whole it still looks to me like a market where, basically, prices are determined by supply and demand, and such evidence as we have seems to support that.

[Patrick Spencer]

Q On this remarkable relationship between taxes and rent, are you saying that there is a uniform relationship across geographies, locations and shop types? There is a big difference between Oxford Street and a town high street; are you saying that the behaviour of rents and taxes does not vary across those situations?

Stuart Adam: Broadly speaking, yes. The rule of thumb that, in the long run, rent will change with rates almost pound for pound will apply across different types of property and location. There is a difference where the tax on the premises is not fixed, for example where it depends on what the premises is used for: I do not think it is the case that reliefs for particular sectors get reflected pound for pound, because the use of the property may vary.

Non-Domestic Rating (Multipliers and Private Schools) Bill (Second sitting)

Jim McMahon Excerpts

Committee stage
Wednesday 11th December 2024 Public Bill Committees

[David Simmonds]

Q Thank you very much. There has been an extensive debate about VAT, although that is outside of the scope of this Bill. We have spent a good deal of time debating the impact on special educational needs schools, a significant proportion of which are in the private sector. Some are paid for directly through fees charged to parents; some are paid for through education, health and care plans supplied by local authorities. Do you have a view about how the measures in the Bill will impact special educational needs provision?

Dr James: I have every sympathy with the families of children who have a variety of special needs, and I do not want to see them suffer in any way, but I want to address one of the points that private schools make, which is that the parents are virtuous and self-sacrificing because they pay again for education and thereby relieve the state of a burden.

In this country, unlike countries in the eurozone, we have a sovereign Bank of England, which creates the pound sterling. It is not revenue constrained, even though the Government usually tend to behave as if it were by convention. There are real economic factors that restrict the amount that it is wise for the Bank of England to produce, or to allow the Government to spend into circulation, but the availability of money is not a limiting factor. There is therefore no inherent reason why the state cannot provide education for children with special educational needs; it is just that various Governments of various complexions have chosen not to do so.

The question is always about the transition, because whatever we do, things are not going to change overnight. You do not want to disadvantage pupils who are currently in the system or will shortly go into the system, but there are workarounds. I do not know whether you remember this, but the parent of a child with special needs was going to be one of the people put forward to front a judicial review to challenge this proposal, and she pulled out when significant funding was found, so there are workarounds if the will is there. In the longer term, there is no inherent reason why it has to be done by the private sector.

[The Minister for Local Government and English Devolution (Jim McMahon)]

Q Thank you, Dr James, for taking the time to give evidence today. We are particularly interested in the evidence you have amassed on the impact of this proposal. Where should the Government focus in mitigating the impact during the course of the process? To take what I think I have heard, the evidence you have provided is that, as a starting principle, the Government do not need to go here because there are plenty of other options, but the fact is that we have chosen to go here. What we are trying to get from the evidence sessions is that, within the decision that has been taken—

Dr James: I am sorry; I am having a bit of difficulty hearing what you are saying distinctly.

[Jim McMahon]

I think that rather than hearing a case from the evidence sessions that asserts that this does not need to happen, which we have just spent five minutes doing, it would be helpful to get a sense from you, given that the decision has been made to do this, of your assessment of the impact and the mitigations you would propose, within the scope of what is being proposed, to counter that.

Dr James: For schools providing for special educational needs, you can always amend the Bill to exempt certain types of school, or certain situations with certain pupils. There is a bigger question of social justice: it is well known that the alumni of private schools are disproportionately represented in all sorts of professions, including Parliament. I have a quote here from a paper that that says that parents know that what they are paying for is lifelong membership of an exclusive and superior club. Talk about saying the quiet bit out loud! We can provide scholarships and exemptions for special educational needs, but—

[Jim McMahon]

Q But those are provided for in the scope of the proposed legislation. Schools that have more than half of their intake of children in that situation would be exempt—for those in receipt of a local authority EHCP.

Dr James: That indicates how far there is a problem with this and how far this is being used as a stalking horse to try to frustrate the bigger objective of reducing social inequalities.

[Jim McMahon]

Q If it is a stalking horse, it is a fairly mild one. The impact, even if every pound was passed on per pupil, is just over £300 a year—less than £1 a day.

Dr James: I am sorry; I am having difficulty hearing what you are saying.

[Jim McMahon]

These are evidence sessions where we try to glean insights that we have not previously had to inform the Bill and any potential changes. But I am struggling to get from the evidence so far a real sense of the impact. If there is a pound for pound impact with this measure—the business rate treatment for private schools—it amounts to, on average, just over £300 per pupil if it is passed on in its entirety, which is less than £1 a day. On that basis, what assessment has been made on the impact of that from your perspective?

Dr James: I have not actually looked at the impact of this particular measure in detail. I have looked at the impact of the taxation in general, but—

[Jim McMahon]

Q But not on this measure. I am happy to conclude my remarks.

[The Chair]

If we speak closer to the mike, it will pick us up—the witness is not hearing.

--- Later in debate ---

[David Simmonds]

Q May I follow up with a further question, specifically on pubs and hotels? We are aware that the nature of those premises often does not lend them to easy conversion into another business use, unlike a lot of retail shops, for example, which could change between offices and use by different kinds of businesses. Mr Alton, you highlighted sustainability as a concern, given that the Bill, although it embeds it permanently, represents an increase in the business rates cost. What further steps would you like to see taken to help to ensure that sustainability, particularly of hotel and pub premises, is supported through the system?

Steve Alton: Building on that point from a pub perspective, it is about rebalancing taxation overall for pubs, and making it fair. We have always consulted with Ministers and officials across Government on solutions. Our members will always argue for VAT to be reduced on pub sales, because they saw that support in the pandemic and it was an instant injection of cash into their business. It was not about profiteering. Kate alluded to the fact that a pub is a low-margin business. It needs to be profitable because pubs need to continue to evolve the model and invest in what they are doing. We all want to go to great pubs, which do exist. Some of them, despite all these challenges, are doing very well, but they are the outliers. It is the mid-pack operators, who have been doing this for decades and have had long-term viable businesses, who now, frankly, face some very tough decisions.

We are incredibly concerned. At the moment, pubs are all busy looking after customers, which is great; you will see pubs at their best. In January, when it gets quiet and they reconcile the numbers, and there is a head-over-heart moment, I fear that we will lose a lot. If it is one in four, that could mean that we lose up to 15,000 pubs. They will not recover, because they will get boarded up. You see them in all the communities that you represent. They do not come back. When that happens, you have a whole rack of associated issues involving social deprivation and disorder. We work closely as an industry with schemes such as Best Bar None, which is all about creating safe spaces for socialising and, through that, seize the positive impact of hospitality—increased footfall, lower crime, lower social disorder and people feeling safe, because people are out and about in those communities and high streets. That is absolutely key.

Kate Nicholls: Some elements are there. This is a really welcome first step, but the pledge is for root-and-branch reform of business rates, and that is what high street businesses have been calling out for, for 20 years, really. I think that there is need for further reform of the system—you asked particularly about the business rate system—where support could be provided.

Three key elements are included within the wider package of reforms in the consultation paper that was published with the Budget. First, we in the hospitality sector often get penalised for investing in our premises. That delivers higher turnover, but then you get taxed—it is a tax on success and it happens frequently. The suggestion is for a longer period after a significant investment is made before the Valuation Office Agency can come to do a revaluation and look at taking an additional chunk in business rates. That would be incredibly welcome. We suggest that that should be at least as long as the first revaluation period post an investment being made, so that you do not get that significant change.

The second element is the interrelation between business rates and other tax factors for investment in the premises. Again, that is about the penalisation. At the moment, that is around capital allowances, but capital allowances do not extend to leased property. Only about a third of the products that are invested in when upgrading a pub or hotel are capable of being covered by capital allowances. As Steve said eloquently, you only pay corporation tax when you make a profit, and if you are not making a profit, capital allowances do not really help you. We need to look at other ways—perhaps research and development tax credits or discounts off the business rates for investment in green technology, but things that help to incentivise rather than penalise people for making an investment in their premises.

The third element is not in the scope of the consultation, but it does need to be taken forward. There is a very delicate balance between rent and rates, and they are supposed to be self-correcting. In our sector they are not, because rental and lease periods are long, and there are upward-only rent review clauses in most high street and city centre premises. That means that your rent and rates bills cannot reset themselves when there are changes in the market, in the same way as with retail in the high street. There was an outstanding consultation on commercial leases, which was looking at a ban on upward-only rent review clauses. It would be significantly helpful if the Department took that forward separately, as part of a high street strategy.

[Jim McMahon]

Q Thank you for giving evidence, and for the insight that you provided, which I thought was very comprehensive and gave a good insight into the industry. We all accept just how important pubs are, not just to the economy, but to our communities. In many places, they are where communities come together, where families meet and where memories are made. In many working-class communities, they are also buildings of note—of interest—that add character. All that is taken, and the work that your members do is appreciated. The Government are trying to give certainty in the system and to say that it is not good enough that, year on year, you do not know what is coming down the line. We want you to be able to plan ahead. We want you to know the Government will stand with you.

There will always be limitations on just how far any Government action can go, but we believe that this is a comprehensive package that gets the right balance between the online retailers and large distribution warehouses, and those on the street and in communities. On the quite stark warning that was issued about the potential for one in four pubs—15,000, potentially—to close, how would that compare with the past 10 years, say, so that we can put it into the context of the number of pubs that have closed in that period?

Steve Alton: It would be a huge acceleration. The smoking ban was a huge intervention that drove habits and change. In essence, our operators would accept now that it had a silver lining, in a sense, because they had to modernise and make pubs far more open and accessible to all, but this would be an acceleration in the magnitude of failure. We are currently losing about 50 a month. You have seen that in the figures and in the insolvency numbers. You will also see that in your local communities. It is clearly a significant acceleration if you annualise that rate. It will be a cliff edge. Certainty is important.

I will give you an example of—Kate is spot-on about this—penalising success. There is a great operator who runs a brilliant bar in the centre of Manchester. He has tripled his turnover in the past few years from £350,000 to £1 million. He employs 30 people, including a lot of part-time staff and students. He has seen business rates rise in line with that, and that has not given him a breathing space. He currently makes about £60,000 to the bottom line on a £1 million-turnover business. The Budget change will wipe all that out. People will come to a decision about whether running a pub is the right thing to be doing. As you articulated, many of our operators have a social purpose. They want to be in their communities, adding value. For them, it is not an overt commercial play. If it were, the head-over-heart decision would already have driven some of them out. They just need certainty and a little bit of hope.

We are encouraged by the direction of travel. Having the two multipliers specifically for hospitality is fantastic. I encourage applying the maximum in the Bill because it is needed now. We have got a revaluation coming up. As Kate intimated, it probably will not reflect the reality of rents because it will not take into account what happened in the Budget, how that drives the market and the pretty rapid impact that will have. By the time the revaluation comes round, it will not reflect that. There is a consideration about the underlying multiplier, from which the 20p is applied, being dropped, and that being kept under continuous review.

We do not want to penalise operators who invest money and put their heart and soul into these businesses. They want to do many things and they can do them very quickly. One of our platforms is the Sustainability Champion award. We write to all you guys about it—hopefully you will have had some letters from our organisation—applauding the efforts of operators in your localities. They do amazing things rapidly, but some of that is capital restricted. They want to move to fully electric kitchens, and they want self-generation systems and recharging points in their car parks. Some have made that leap, but they are the outliers who can afford to do it. Access to capital is a huge issue in our marketplace. A mid-tier operator cannot get it right now. Banks are just saying no. If we look at the profit and loss, we can perhaps understand why they are saying that, but it creates a negative corkscrew.

We see the direction of travel positively, but I implore the Committee to apply the maximum on the two lower thresholds and keep the overriding multiplier firmly in your sights and make sure it goes down. We want to reduce the tax our pubs pay, not because the money will go into their bank accounts but because it will unlock investment and surety. On tenure, you will know publicans who have been there for 10 or 20 years—they want to commit to those ventures long term. It is not a short-term money-making exercise. It is far more purposeful than that.

Kate Nicholls: May I answer your question about the number of closures most recently? Last year, there were 3,000 closures in total across hospitality as a whole. Since covid, there has been a reduction of about 20% in neighbourhood independent restaurants and 30% in neighbourhood independent nightclubs and late-night music venues. Closures are not just a pub issue. It is hitting across the board. It has also hit a large number of guest houses, bed and breakfasts and independent hotels.

One driver is investment in openings. Unfortunately, a small number of closures will happen every year. It is a devastating human tragedy for those involved, but business failures happen. What drives the numbers is the lack of new openings and investment coming through to reopen premises and get businesses moving again. Business rates are a significant factor in that. I have so many discussions with people about investment in the sector, whether that is foreign direct investment, major private equity or small-scale bank investment. Corporation tax never comes up. Business rates are always an inhibiting factor for investment, so this is really significant.

I echo Steve’s point about the importance of using the maximum for the two rates—the standard rate and the lower rate. There is often a misapprehension that the lower rate is small business and the standard rate is large business. That is not the case. We have many independent, single-site businesses that will be in the upper rate. Applying the 20p discount to both is therefore important. About 30% of hospitality businesses that pay business rates are in the standard multiplier tier, and they account for 60% of employment and 60% turnover.

Let us not kid ourselves, either, that the super-rate charged at £500,000-plus will not have an impact. A small but significant number of hospitality venues are caught within that multiplier. I am not sure that that was always intended, given that—as you rightly say, Minister—it was designed to capture online businesses, so we could look again at some of those higher rates. The Bill gives scope for different businesses to be treated differently in that £500,000-plus tier, and we urge you to make use of that, as well as of the maximum 20p discounts below.

[Jim McMahon]

Q This part of the sector is unique in that turnover is so closely aligned to rateable value in a way that is different from other parts of the system. We accept that. You will know about this from your members, and I hear it all the time as a constituency MP—I have large family brewery, JW Lees, that operates heavily in my constituency, and it is very good—but when margins are tight, how much of that is down to a number of factors that are outside the Government’s control, not least rent? We heard earlier from the Institute for Fiscal Studies, whose evidence indicated that there is a market adjustment: on one side there may well be a rate increase or decrease, but on the other side the rent will move accordingly. I accept that that is outside the scope of the Bill, but it would be helpful to get your assessment of the marketplace, the rent levels that are applied to these businesses and how much those impact viability—well beyond business rates.

Kate Nicholls: We have done an annual benchmarking survey across the hospitality sector as a whole over the past 15 years. We look at the common site operating costs. In the past 15 years, business rates across hospitality as a whole have gone from around 4% to 5% of turnover towards 7% to 8%, so they are creeping up. That is important. They are a relatively small cost—by far and away the biggest is labour costs, which are the engine of our business—but they are creeping up. The issue is that business rates are a fixed cost: you have to be able to cover them before you can open your doors; if you cannot, you are not a going concern.

Rent depends on the part of the sector. Across the sector as a whole, it is on average around 11% of turnover, but it is lower than that in the leased and tenanted pub estate. That will largely be part of the regulated estate and covered by the pubs code. There, you have a ban on upward-only rent reviews, and therefore you can get the adjustment that we were talking about. In the rest of the sector, where you need to have long leases to get the refit costs, you do not; rents may change in the market, but they only go one way once you are in. That area needs to be looked at as part of the Department’s ongoing review of commercial leasing and the high street strategy.

[Jim McMahon]

Q As a quick supplementary, what is your assessment of the number of your members that will benefit from the measures being taken?

Kate Nicholls: The overwhelming majority of my members will benefit from the measures being taken, if they are taken to the maximum, but I reiterate exactly what Steve said: in the current circumstances, it needs to be 20p. It cannot be “up to”; it needs to be 20p for both tiers. A number of hospitality businesses across the UK—about 700—fall into the super-rate. That might sound like a very small number, but it is a large proportion when it comes to employment: those businesses account for about 7% of employment. That will be particularly impactful. Those will tend to be larger hotels, pubs, bars and restaurants, either in city centres—around 400 of them are in London—or in coastal communities, where we have our large hotels. Those will be very large premises.

You asked about margins. Over the period since covid, margins in the sector have eroded by 40%, and many of our businesses are now operating at a net profit margin of between 4% and 6%. In Cornwall, Devon and deprived coastal areas, the big hotels will be the biggest employers by far: 20% of employment in those coastal areas is in the hospitality and tourism sector. If we hit those businesses and apply a super-rate at £500,000-plus, that will have a material impact on them, particularly when combined with the NICs increase.

My final point on those 700 businesses is that we are going through the revaluation process at the moment, and we estimate that there are a further 300 in the band of £400,000 to £500,000 rateable value. Given that the revaluation is looking at 100% to 200% increases in their rateable value as covid support falls away, you could bring a further 300 business premises into that super-rate.

As we read the Bill, there will be different rates above £500,000 for different types of premises. We urge you to keep that at zero for hospitality businesses, if you choose not to exempt them totally. There are two options: you can exempt them on the face of the Bill or you can apply a zero rate so they just pay the standard rate. Otherwise, you will further exacerbate closures across the big hospitality businesses in city centres and coastal tourism communities.

Steve Alton: From a pubs perspective, a small number of those it will affect are subject to the small business rate relief, and we are obviously keen for that to stay in place, because they are small, essential community pubs. It will have a material impact.

I also ask the Committee to look at the real impact numbers that the proposal will generate. It comes down to our objective of getting fairer taxation and a reduction in what those businesses pay. The maximum application—the 20p—is key, but you should also look at the multiplier alongside the revaluation. If that rises, which is highly likely, we need to think about the overall impact, and ultimately what the bill will be. We have a profitability issue right now. To come back to the Minister’s comment, rates are part of an unfair tax burden that we need to equalise.

[Jim McMahon]

That was not my point. I did not use those words.

Steve Alton: But having that assurance is a key part of it. Uncertainty has been impactful on business rates. It has stopped small operators from taking another site. If they take another site, you are talking about £300,000 to £400,000 of capital investment to build a new team of 40 employees, and there is a compound impact on the supply chain locally. A lot of people have held a station and have the ability to do it, but it is just not viable with the business rates bill as it is now. You could unlock some significant investment and growth, and, as we have shown previously, you could do so rapidly.

[David Simmonds]

Q I want to ask about the impact of the multiplier and the discretion around it. One of the things that we are all well aware of is that local authorities, in particular, are very big customers of hotels. They are particularly in search of temporary accommodation, which is especially significant at this time of year. There is often a strong incentive to make sure there is a sustainable hotel sector in a given location to provide for that emergency housing need, as well as for other, wider purposes, such as supporting tourism.

Is it your view that there should be discretion on the part of the billing authority so that if they need a sustainable hotel sector in order to meet temporary emergency housing need, or to accommodate significant numbers of refugees arriving, pending onward placement elsewhere, they are able to negotiate? If those businesses go to the wall because of a lack of profit margin, the taxpayer will have to be billed significantly more because those people will have to be placed in accommodation at a higher cost elsewhere.

Kate Nicholls: May I just say that the overwhelming majority of hotels are used by visitors for leisure and business purposes? Our hotel sector is a vital component of our tourism industry and is our second-largest service export earner, in the form of tourism. That is just to put your question in context.

As I understand it, local authorities will have discretionary powers to apply additional relief to those premises, but not to change the multiplier, which is set nationally. It is important that that is retained so that there is a national multiplier. You get distortions if you have different rates. There is discretion if a local authority wants to support a particular business—if it is impacted by flooding, for example, or the authority wants to maintain the provision of a service. The local authority can apply additional discretionary relief over and above the nationally mandated relief. That obviously comes out of its own funding. That is a better way of doing it than changing the multiplier. There is a question about whether local authorities should retain an element of the business rates so they have the discretion to fund, but that is a bigger discussion and is not within the scope of the Bill.

--- Later in debate ---

[The Chair]

Order. The Minister may have been just about to say this, but we have only five minutes left, at least two more Members wish to ask a question, and this is steering a little out of the scope of the specific contents of the Bill.

[Jim McMahon]

It is almost the opposite, really. Given the context that has been outlined, this is the respite that the industry has been calling for. If we can keep to the scope of the Bill, and what it provides for, that would be helpful.

[Jayne Kirkham]

Q I have a quick question. I am glad you are here, Mr Lord, because we were talking about the super tax and the £500,000 limit. I am from Cornwall, so I completely understand what you said about large hotels. Will other parts of the leisure sector, such as theme parks, the night time economy, music venues and theatres, be impacted by the super-rate?

Sacha Lord: Nightclubs will certainly be impacted. Obviously, a nightclub is a much larger space than a pub, so sadly they will suffer under this legislation.

--- Later in debate ---

[David Simmonds]

Q To pursue that technical point, under the SEND system in the state sector, as well as the statement—now, the educational, health and care plan—you traditionally had structures such as school action and school action plus. A child whose identified needs were not sufficient to trigger the issuing of an EHCP, but did require additional resource, would get it provided through their state school. Is there a case for saying that any child who might not have a statement, but who would have qualified for school action or school action plus, should also fall within the scope of the exemption?

Simon Nathan: We recognise that there has to be some sort of boundary, and obviously it would not be possible to draw up an exemption based on a tax on property that exempted every pupil with SEN. Our suggestion is that schools where more than 50% of pupils get SEN support would benefit from that exemption. We looked at the numbers, and that would bring in perhaps an extra 100 schools and an extra 4,500 pupils. Clearly, if you are a pupil in a school that has more than 50% SEN, you are going to have a certain level of need, and perhaps the needs cannot always be catered for in a mainstream school.

[Jim McMahon]

Q Thank you for the evidence you have given, and for making the time to come to this evidence session, which is our opportunity to get an insight into the nuances and how things feel on the ground. We talk about private schools and the independent sector, but the truth is that those terms represent a broad spread of different types of schools in terms of their make-ups, pupil numbers, financial models and so on. It would be helpful to get a snapshot of the variety of schools in the system, including by perhaps comparing and contrasting a couple of different schools, and then I will follow up.

Barnaby Lenon: We have a huge range of types of school. At one end, there are quite expensive boarding schools. Their fees are often quoted, but it is very expensive to run a boarding school. They are not typical, because the average independent school in our sector has 280 pupils—so it is pretty small—and half are smaller than that. I have been a governor of schools with 120 pupils, but the special needs schools we are talking about often have 50 pupils. There are plenty of faith schools, about which Simon will talk in a moment, that also have very small numbers, yet are quite important in their particular faith community.

The average fee for a day school is about £18,000, but half are less than that, and there are some with incredibly small fees—just a couple of thousand a year, which is less than would normally be spent on a pupil in a state school. There is a massive range in terms of fee and size of school. We are particularly concerned about the low-cost and small schools, because those are the most vulnerable. They are already closing. Through our surveys, they have told us that they are going to close if the situation continues as, so far as one can see, it is going to continue.

Simon Nathan: As Barnaby said, there is a range: 1,000 schools, or 40% of the schools in our sector, have fewer than 100 pupils, so they are not always very big schools.

To touch briefly on faith schools, 20,000 children attend Muslim faith schools in our sector, and those schools charge an average of £3,000 per year in fees. There are Orthodox Jewish Haredi schools in our sector—65 schools that educate 20,000 children. On average, those schools ask for about £100 a week or less, and those schools are modelled in such a way that if a family comes in that cannot afford the fees, the school will accept them anyway. It is the community that steps in and fundraises to make up that financial difference.

To give an example, those types of Orthodox Jewish Haredi schools run on a low-fee model, and quite a lot of them are in London where there are high property prices. As Haredi Jewish families tend to have more children on average, a lot of those schools will have pupil numbers of around 800, so they will be in quite large buildings and will have quite large rates bills when this change comes into effect. I have spoken to representatives of those communities who are extremely concerned by the impact that this will have. They use a low-fee model, so they do not get huge amounts of money in fees, but the rates bill could be tens of thousands of pounds, if not more. The only way that those schools can bridge that gap is through fundraising from the synagogues in the community. If that money cannot come forward, those schools just do not have the money to pay the bill, so they are very concerned.

[Jim McMahon]

Q There is a variety of different schools with different specialisms, particularly those special needs schools. Clearly, we have made provisions to ensure that those with more than 50% of pupils in receipt of an EHCP are exempt from this, so they are out of scope. In the end, do you think that many parents feel the need to go to the independent sector because they do not feel that the mainstream provision is adequate? On that basis, is that a reflection that the Government’s priority of rebuilding that mainstream provision, including the significant investment of £1 billion this year, is essentially about fixing the system so that parents have genuine choice, and do not feel that they have to go to the independent sector?

The second point I would make is about the quantum if it was followed through. There will be an assumption that, as a business, schools will look to absorb as much of the additional pressures as possible—I will be honest—in the way that state schools have had to over the last decade. These are the choices that every business has to make to try to make the numbers work at the end of the day. Even if every pound was passed on with these measures, by our assessment, it is about £300 per pupil per year, which clearly is less than a pound a day. I understand that you have given a wider context, but within the scope of the Bill, what assessment has been made of the impact of that average of £300 per pupil per year—if it was passed on in its entirety—on people potentially leaving the sector? Also, what headroom might schools have to absorb it within existing budgets?

Simon Nathan: I think your first point was about SEN. I want to say at the outset that we support increased investment in SEN in state schools, and we support a well-funded state sector. At the moment, the situation in which many parents find themselves is that, to cater for the specific needs of their child, they find that they have to go to an independent school to have that need met, and that is the choice currently open to them. I said that, at the moment, we see our sector as providing that additional capacity to support state SEN services, and it is over 100,000 children. Our sector will be there to pick up that need, and often those who come to independent schools have more complex needs, but we wholeheartedly support more investment in state SEN.

David Woodgate: I think the £308 per pupil translates into about £147,000 per school for the business rate relief alone. Our schools have been working very hard to manage their cost bases. Since covid, a lot of our schools dropped their fees by up to 50%, they provided hardship funding, and they educated and looked after children of key workers with no state support. Since then, we have been rebuilding. But I think the sector acknowledges that it cannot just keep putting this on to fees. Many of the parents who choose our education are aspirational parents—two-income families, with the second income going very much on providing independent education—so you cannot load the fees.

It is about looking at the cost base. Costs are being cut back to the bone, and subjects are being dropped. Inevitably, this will result now in redundancies. I was speaking to a school just yesterday that said that the impact of NI and the business rate relief is over £500,000 a year. They will be making eight teachers redundant over the next two terms. That is indicative of what a lot of schools will have to do, which in turn impacts on all the other things a school offers.

[Jim McMahon]

Q What I was trying to get to more was—to say “evidence” would be pushing it too far—the assessment that has been made of the impact. We hear language like, “Our parents are aspirational,” but all parents, by and large, are aspirational, regardless of the school their children go to. I am aspirational, and my son goes to a state school; that does not mean I am a lesser parent.

But I do not want the conversation to be about that; I want it to be about making sure that we fully appreciate the Bill’s impact. A lot has been made of the potential displacement of pupils from the private and independent sector into the state sector. It would be helpful to get your assessment of that. Our assessment, based on May 2023 data, says that, in terms of the capacity to receive children, there are around 1 million unfilled vacancies in primary and secondary schools in the state sector. Of that 1 million, how many could come in from the private sector as a result of this measure?

Simon Nathan: We did a pupil numbers survey this September that asked schools what their pupil numbers were in September 2024, compared to September 2023. That showed that pupil numbers were already down by 10,000. If you translated that into the additional costs to the state sector, it would cost the state sector around £80 million to educate those 10,000 pupils.

[Jim McMahon]

Q It is important to say, though, that the 1 million vacancies I referred to are in existing schools. So the teachers are in the classrooms, and the buildings are there. These are vacancies in the existing school system.

Simon Nathan: I appreciate that. The point I was making was that some of the money that would be raised to support greater investment in state education will get eaten up by pupils moving over.

In terms of hotspots, it would depend very much on the part of the country—obviously, our schools are predominantly in the south and in certain parts of London, in particular. We fully appreciate that, on a macro level, there is a certain level of vacancy, but our concern is that there will be particular parts of the country where there might be more hotspots.

[Vikki Slade (Mid Dorset and North Poole) (LD)]

Q I am conscious of trying to keep to the Bill, because I am worried that a lot of your comments are really about the state of the independent sector more widely. As has been suggested, the Bill will make a relatively minor change, although I understand that it comes on the back of other things. What thought has been given to how the independent sector might mitigate what is effectively a change to a property tax by rationalising the amount of property it uses? An awful lot of independent schools have an awful lot of land and property, and they could perhaps mitigate the impact by doing that. Has any thought been given to rethinking how you use property?

Barnaby Lenon: Before I ask David to answer that, can I just say that there are not a lot of independent schools that have a lot of property. There are a small number that definitely have a lot of property, but if you had visited as many independent schools as I have, you would see that a lot of them are in converted houses, with no other property. Many, many of our schools have far less property than a normal state primary school would have. Nevertheless, your point is taken.

--- Later in debate ---

[David Simmonds]

Q As you mentioned, many things going on in the system at the moment have an impact. Clearly, that level of investor confidence is crucial if high streets and the business environment generally are to remain vibrant. What is your view of the impact of the measures in the Bill on investor confidence? Are there any particular points that will either boost that level of confidence or tend to dampen it down?

Rachel Kelly: One positive, which we have heard from other people today, is that having stability, certainty and predictability around tax is important to occupiers and investors alike. Recognising the benefits of those temporary retail and hospitality reliefs to such businesses, and making them permanent, is a good thing, but Government could go a lot further. At the moment, we have a tax system where the tax rate fluctuates at every valuation, so, depending on the relative change in property values, the tax rate will change at each evaluation, and it goes up by inflation every year. That is unlike any other business tax rate. Therefore, if the Government really want to provide certainty, stability and predictability, which is good for business and good for investors, probably the best thing they could do would be to fix the tax rate so that businesses know, year on year, that really the only thing that will change their tax bill is whether their property has gone up or down in value.

Then I would reiterate my other point: we have a property tax burden in the UK that is more than double the OECD average. We are pretty much at the top in terms of the tax we levy on property in the UK. That, in and of itself, is not very competitive.

Similarly, I would come back to the point around more frequent revaluations. If you have a responsive tax system that reflects those property values more quickly, you are more able to support those businesses or sectors that are struggling more quickly, because their valuations will reflect that more quickly. That is actually better for the Exchequer as well because, as different sectors grow and improve, the Exchequer can generate revenues from those sectors more quickly.

[Jim McMahon]

Q Thank you for coming to give evidence. One thing that we are particularly interested in is ensuring that, within the scope of the Bill—the measures that are being taken, particularly on the multipliers and the reliefs—we understand the impact on the ground in our town and cities, and in the wider economy.

We have heard from other witnesses today about the relationship between business rates and rent levels, and in the end that is a self-correcting system when it works well. It would be useful to get your insight, from your perspective and from the industry’s, about what headroom exists, certainly for institutional landlords. There are a number of us, I think, who reflect on our own local economies and see very high rent levels being quoted for properties that have been empty for many years and have no prospects of getting tenants anytime soon. It would be helpful for us to get a feel of how the system is working as an industry.

Rachel Kelly: Sure. I did listen in to the sessions this morning, so I heard some of the discussion around the relationship between rent and rates. I will try to pick up and respond to a few of those points. There clearly is a relationship between rent and rates but, as one witness said this morning, the evidence is very thin. We conducted some research about a decade ago that showed that there was a relationship between rent and rates, but that relationship was not as strong in certain asset classes and in certain geographies, and it certainly is not as strong in retail.

We know that, for many of our high streets, where you might have 20% vacancy rates, ultimately the occupiers have much more negotiating power in those environments. So, actually, until the significant supply-demand imbalance rectifies on those high streets, we would expect the benefits of a business rate discount to predominantly fall to the occupiers. That is until such time as that supply-demand imbalance—or the vacancy rate—improves, at which point, arguably, the policy might have worked.

To the point around empty properties with artificially high rents, we represent long-term investors in property—institutional investors in property—and a lot of our investors in property are our pension funds, our insurance companies and so on. They want long-term income returns for their pension holders, unit-holders and ultimate investors, and the only rational decision for an investor is to try to seek those rental-income returns.

Perhaps, at the margins, people do keep their properties empty, but it seems wholly irrational. If I was an investor or a pension fund holder, I would not want somebody managing those assets to be keeping properties empty and not generating rental income from them. I do not think it is a pervasive issue; all I can say is that it is not something we see in our members.

[Jim McMahon]

Q These measures are very deliberately targeted at those smaller properties in retail, hospitality and leisure that are generally the backbone of our high streets and town centres. Your institutional members, who are investors in those places, must also reflect on the fact that many of those places are really struggling. Where they may be a landlord and the demand just is not there, it will be, by and large, because the business does not believe it can keep its head above water, notwithstanding the rent levels. Do you and your association think that a stable system that has a permanent relief—one that takes away the cliff edge and temporary support, which has been there since covid, to give long-term support—will be good not only for communities but for investors, who will be able to fill those vacant units?

Rachel Kelly: I think having more predictability and certainty around the tax bill is important for both occupiers and investors, which goes to my point that the best thing you could do is go further and fix the tax rate. But yes, the greater predictability and stability is good for investors and occupiers alike. Does that answer your question?

[Jim McMahon]

Q It was more about a recognition from industry that, for the institutional investors in property, the Government are going a long way to bake a permanent relief into the system, rather than year-on-year reliefs. That relief can help to fill those units that investors maybe really struggle to let because, whatever the rent levels, they are just not commercially viable for the end user, and these measures will help in that end.

Rachel Kelly: I think they will go some way to helping. If the ultimate goal of the Bill is to support high streets, there are probably areas where we would suggest that it is not as targeted as it could be. If you think of a really thriving high street in your area, retail and leisure will form a large part of it. However, a thriving high street also has offices and other businesses that provide footfall to those retail units. It has big anchor stores that might not benefit from this smaller relief but provide really important footfall for the other retail and leisure occupiers. It has car parks that are really vital to bring in customer bases for those high streets. It often has lots of asset classes, such as GP surgeries, libraries and some forms of education—you get my point. A thriving high street has a huge mix of different businesses all supporting each other. It is a really important—and maybe fragile—ecosystem. Yes, this measure will support some of those units, such as the smaller retail and leisure ones, but I am not sure whether that is enough to support the whole high street ecosystem.

[Vikki Slade]

Q I completely accept the point that a lot of the talk around the Bill is about high streets, because of the particular references to retail, hospitality and leisure. But it is a Bill that affects non-domestic rates and multipliers for businesses. Do you have any thoughts or comments on the fact that there is no reference to manufacturing and how we support manufacturing businesses? Do you think that should be included within the Bill?

Rachel Kelly: Whether that can be included in the Bill, I do not know. But yes, the issue of an uncompetitive property tax system is relevant for lots of industries, and manufacturing is the one that you raised. Ultimately, that comes back to the higher rate of tax across the board. If you are alluding to the higher tax rate for the rateable values above £500,000—yes, it strikes me as an arbitrary threshold, and it will capture lots of different businesses and sectors. Maybe there will be some adverse consequences of that, which might be counter to the policy aims, but I am not sure.

It is a tricky one to balance. Ultimately, if this relief for retail, hospitality and leisure will be funded within the business rate system, our instinct is that it would be better to fund that across as broad a spectrum of the economy as possible, rather than narrow down that tax base even further. For context, the proportion of properties with a rateable value above £500,000 is 1% of commercial property in the UK. If we condense that down even further, it is a very narrow tax base to fund these other changes, so I am not sure that is sustainable. I am not sure we can address the issue of competitiveness for other sectors without addressing the elephant in the room, which is the huge tax rate that we have for everyone else—55%, or 50% for smaller businesses. They are very high tax rates compared with any other business tax.

--- Later in debate ---

[David Simmonds]

Q “Marginal” is a helpful description, because we know that this is a very specific, narrow Bill. Clearly it is part of a bigger context. We know that marginal impacts can be felt more strongly in certain contexts than in others, especially if a business or institution is closer to the edge financially than an equivalent counterpart in another location. King’s in Canterbury may be extremely well padded in terms of its margins, but that will not necessarily be the case everywhere. On the educational impact that may follow from the overall changes, would the measure reduce the impact on provision or the ability of some affected schools to make their facilities available to other schools in a local area? Do you have any view about that?

Professor Green: I do not think it will have a great deal of effect. I offer you a small piece of evidence for that, which is the case of Scotland, which took an equivalent measure to this two and a half years ago. There was much protest beforehand from the sector that this would reduce not only the numbers attending the schools but schools’ ability to finance bursaries, which make a small difference, as you know, to making the schools a little bit less exclusive. The evidence to date, however, shows no noticeable difference whatever. It is perhaps too soon to tell, but we have seen no collapse or catastrophes as was predicted beforehand. That is one small piece of evidence that I offer you. I really do not think that it will make a great deal of difference.

[Jim McMahon]

Q Thank you for taking the time to give evidence and for your direct and matter-of-fact responses, which in a debate that can be emotive is very welcome to an evidence Committee. The Government want to ensure that, in seeing the legislation through, we fully take into account the likely impact on the school system and on the individual pupils and parents, but the fact is that most schools will seek to absorb this, as they would any other operating cost. It would be helpful to understand, if you have made an assessment, the likely displacement of pupils from the independent sector to the state sector as a result of this measure.

Professor Green: I have made no direct assessment of this particular measure, but I have made estimates using econometric studies of the impact of the imposition of VAT—which is not under discussion today, but, in terms of the magnitude of the sums involved, this measure involves much less. The best estimates of the econometric studies suggest that somewhere between 10,000 and 30,000 children might, over the course of time, be switched away from the private sector. If we take that, let us say about one tenth, in terms of the sums, you can see that the figure is relatively small.

I will admit to a certain degree of uncertainty in those estimates. We do not know enough to be precise, but I would be prepared to put my money on it that it will not be a vast number. Probably it could not be tested, because with the small changes that occur, it will be difficult to say, “That is because of this,” rather than because of the many other changes that happen—the circumstances of the particular market.

[Jim McMahon]

Q My next point is about the accommodation that we have sought to make for SEND pupils, in particular for those schools with a majority of pupils in that category. We recognise that that is an important part of the school system overall. Many councils contract to such schools to ensure that children who need the support get that provision. What is your assessment of the impact of the measures in the Bill on that particular cohort of children? Do you need to separate—in my view, you do—the overall impact across the sector from that on the children who are most in need of specialist support? Under the proposed measures, we seek to give them protection.

Professor Green: I understand that private schools that mainly or wholly provide for children who have had an assessment are excluded from this. They will continue to receive relief, as before. There may be some children who are not quite over the threshold for an EHC assessment—I do not think that a large number will be affected, but it is hard to tell exactly how many. I do not expect a large impact.

Oral Answers to Questions

Jim McMahon Excerpts

Monday 2nd December 2024 Commons Chamber

[Sir Ashley Fox (Bridgwater) (Con)]

4. What discussions she has had with local government representatives on potential future devolution agreements in Somerset.

[The Minister for Local Government and English Devolution (Jim McMahon)]

In July, the Deputy Prime Minister invited places without a devolution agreement, including Somerset, to come forward with proposals for their area, in order to gauge the approaches and forms being considered across the country. We welcome Somerset’s support for this initiative, and look forward to hearing its views on the imminent White Paper on English devolution, which will be released shortly.

[Sir Ashley Fox]

My constituents have had to endure the Liberal Democrats presiding over the transition from two levels of council, which worked—they balanced their books—to a unitary council that is on the brink of bankruptcy. Can the Minister assure the House that no new council reforms will be forced on unwilling areas, and that local opinion will be at the forefront of his decision?

[Jim McMahon]

I think we have all had to endure Liberal Democrats, so I can reflect on that. We are in constant dialogue with local councils on our twin-pronged approach. One prong is devolution and making sure that we push power out of this place and into local communities. The other is reorganisation in cases where councils recognise that it delivers more effective and efficient local government. The Department is keen to hear the conversations that local areas are having on that.

[Mr Speaker]

We now come to the Liberal Democrat spokesperson.

[Vikki Slade (Mid Dorset and North Poole) (LD)]

I hope that you will endure us, Mr Speaker. Dorset council, which covers half my constituency, has agreed to work with Somerset and Wiltshire—all unitary councils—on a devolution arrangement, but residents are already raising concerns that top-down reorganisation will take decisions further away from their homes and communities. They are worried about what a mayoral combined authority might do to them. What assurances can the Minister give that the town and parish councils, on which residents rely so heavily, will not be expected to keep unitary councils afloat, and that my residents will not see back-door council tax rises as a result of the changes?

[Jim McMahon]

Central Government have said to local government that we want to reset the relationship and work as partners in power, and it is not unreasonable to expect that councils will do the same at a local level and will work together in partnership. We see that across the country: local councils work in partnership with their parish and town councils in the interests of their community. Whether or not reorganisation takes place, we expect that to continue.

[Chris Webb (Blackpool South) (Lab)]

7. What steps her Department is taking to support councils in reducing homelessness.

--- Later in debate ---

[Emma Foody (Cramlington and Killingworth) (Lab/Co-op)]

12. What steps she is taking to further devolve powers to local communities.

[The Minister for Local Government and English Devolution (Jim McMahon)]

The English devolution White Paper, due by the end of the year, sets out how we will transfer power from Westminster to people who know their areas best. The White Paper will also announce measures that will give local places and communities greater control over shaping their area.

[Emma Foody]

Libraries, pubs, football, community centres—these are the things that make up a community, but in so many places they have vanished over the last 14 years. I am delighted to hear plans of a community right to buy. What work are the Government doing to ensure that local authorities and community groups have the guidance and expertise needed to utilise this powerful new right once it is realised?

[Jim McMahon]

In there is the point about devolution and localism: structures matter and the framework matters, but in the end it is about getting the power out to the communities who have skin in the game. That is why we want to ensure that the community right to buy provides an effective means for communities across the country to take ownership of assets that are important to them. We are considering what further support and guidance we will provide to communities and local authorities to support them in this measure, and I know that the Minister for local growth, my hon. Friend the Member for Nottingham North and Kimberley (Alex Norris), is fully engaged in this endeavour.

[Lisa Smart (Hazel Grove) (LD)]

Many of my constituents would welcome further powers being devolved to their local communities. They are as keen as mustard to see the right homes in the right places, particularly social housing, but one of the things stopping social housing being delivered is the viability calculations that are undertaken by developers, who use them to say that only expensive houses can be built. Are the Government looking at reviewing the use of viability calculations?

[Jim McMahon]

That is some way from community ownership, but the devolution White Paper is one of a number of measures that we are taking and it will have a clear community strand. This does not sit in isolation, however; it is part of the wider reforms that are taking place to ensure that communities, local authorities and Government work in partnership.

[Naushabah Khan (Gillingham and Rainham) (Lab)]

14. What steps her Department is taking to support community ownership of local assets.

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[Noah Law (St Austell and Newquay) (Lab)]

T2. Given that the mayoral council and leaders’ councils are being contemplated as part of the English devolution Bill, what steps is the Deputy Prime Minister taking to ensure that Cornwall’s voice is heard in Westminster, after being subsumed for far too long?

[The Minister for Local Government and English Devolution (Jim McMahon)]

It was a pleasure to meet my hon. Friend and colleagues to talk about devolution in Cornwall. He will know that we have agreed to a non-mayoral devolution deal for Cornwall as a first step. We recognise the distinct culture, history and identity of the Cornish people. This important step will allow us to unlock deeper devolution in Cornwall and, in time, we hope it will allow Cornwall to take its seat at the Council of the Nations and Regions.

[Mr Speaker]

I call the Liberal Democrat spokesperson.

--- Later in debate ---

[Steve Race (Exeter) (Lab)]

T4. The Government are consulting on the future of pan-regional partnerships such as our own Great South-West, which covers Cornwall, Devon, Somerset and Dorset. Businesses I speak to value the ability of our regions to speak with one voice on economic issues to Government and to investors, which are important for our region. Would the Minister meet me and businesses to discuss the future of PRPs?

[Jim McMahon]

I thank my hon. Friend for taking the time to meet me to talk about devolution and growth in that region. We are absolutely committed to ensuring that growth is felt in every part of the country, and that requires partnership from central Government, local government and the business community. I would be more than happy to meet him to talk about how we can do that going forward.

--- Later in debate ---

[Tristan Osborne (Chatham and Aylesford) (Lab)]

T7. After 14 years of cuts to local government, we see the consequences across council areas, including to my council of Medway, which suffered a 91% cut in direct support grants, coupled with a financial inheritance that according to the Chartered Institute of Public Finance and Accountancy was “grave”. Will the Minister agree to meet me and Medway council colleagues and finance officers to discuss the support available after 14 years of austerity cuts by the Conservatives?

[Jim McMahon]

We are working constructively with Medway council as part of our framework to support councils in the most difficulty. This Government are clear that the process will be collaborative and supportive and, on that basis, we are more than happy to meet to discuss it further.

[Kit Malthouse (North West Hampshire) (Con)]

Councils up and down the land, but particularly in the south-east of England, are frustrated by the high levels of undeveloped consents. It is perfectly possible that the Secretary of State will find that, come the next election, her target has been consented but is nowhere near built. Will she consider allowing councils to have a 10-year housing supply number that includes undeveloped consents, so that when the number is reached, developers have no choice but to build?

--- Later in debate ---

[John Glen (Salisbury) (Con)]

If Wiltshire embraces the opportunity to join Dorset and Somerset in an elected mayoral authority, will there be local elections all-out in Wiltshire next spring?

[Jim McMahon]

I thank the right hon. Gentleman for his question on devolution. We are absolutely ready to talk to any areas that are keen to take on devolution, particularly a mayoral combined authority. Any decisions on whether elections do or do not take place will be part of future consideration.

[Mr Speaker]

I call the Chair of the Housing, Communities and Local Government Committee.

--- Later in debate ---

[Samantha Niblett (South Derbyshire) (Lab)]

I am delighted that the Government’s Mayoral Council is handing back powers to local communities. We are already seeing the impact of that. Claire Ward, the Mayor of the east midlands, attended the first meeting in October. She is leading the way: the east midlands is one of the youth trailblazer regions granted £5 million of Government funding to help young people into work or training. What work are Ministers doing to give those who contribute to our country a say in how it is governed?

[Jim McMahon]

The forthcoming English devolution White Paper will set out clearly our top-to-bottom redistribution of power, and how we include and engage people at a local level to ensure that they can actively participate in the development of their areas.

[Martin Vickers (Brigg and Immingham) (Con)]

There is growing concern among constituents that planning decisions are being swept aside because of the Government’s new planning reforms. What assurance can the Minister give that there will be meaningful engagement between constituents and their local planning authority, and that decisions will be respected?

[Peter Lamb (Crawley) (Lab)]

In five years, the cost of West Sussex county council’s Oracle upgrade has risen from £2.6 million to £28 million. Is that the kind of contract mismanagement that the Office for Local Government can look into?

[Jim McMahon]

We are currently in the process of reviewing oversight, accountability, and checks and balances to make sure that they are in place and fit for purpose, and that the early warning system works. More detail on that will follow in the English devolution White Paper before Christmas.

Local Government Finance

Jim McMahon Excerpts

Thursday 28th November 2024 Written Statements

[The Minister for Local Government and English Devolution (Jim McMahon)]

Today, the Government have published details of the local government finance settlement for the next year for councils across England, and our wider ambitions for the sector over the course of this Parliament.

Councillors, officers and frontline staff are due our respect and appreciation for the work they have done to keep services going through very difficult times. This Government are under no illusion about the scale of the issues facing local government. We know that the demand for, and cost of, services has increased significantly— and that this has made the job for councils in recent years much harder. After a decade of cuts and fiscal mismanagement inflicted by the last Government, compounded by spiralling inflation and a failure to grow our economy, councils of all political stripes are in crisis. Our fiscal inheritance means that there will be tough choices on all sides to get us back on the path to recovery, and it will take time.

We are taking immediate action to address these challenges. The autumn Budget announced over £4 billion in additional funding for local government services, £1.3 billion of which will go through the local government finance settlement. Outside the settlement, the Government have also announced additional funding to support local government across a range of priorities, including special educational needs and disabilities and homelessness services, a guarantee for income from the extended producer responsibility for packaging scheme, as well as funding for local roads maintenance.

However, fixing the foundations of local government requires a programme of reform over the course of this Parliament. After years of delays, we will update the local government finance system. The current funding system is fundamentally broken, wasting taxpayers’ money and starving authorities of the funding needed to provide the services we all rely on. The previous Government agreed with us on the need to reform the system, proposing a similar approach in its fair funding review, but where they were unable to, we will finish the job by consulting on and implementing an up-to-date assessment of needs and resources, starting in 2026-27. This will be the first multi-year funding settlement in 10 years.

Reform of local public services, so that they focus on prevention, is also critical if we are to end the cycle of system failure and cost escalation. We will reform services that have for too long been overlooked by the previous Government to improve outcomes for the most vulnerable residents who rely on them—particularly children’s social care, homelessness and rough sleeping, special educational needs and disabilities, and adult social care services.

We will reset the relationship with local government, working as equal partners to ensure that the sector delivers continuous improvement for its communities, operates at the highest standards of probity, and provides value for money, all while giving the sector greater autonomy, certainty and flexibility. We will rebuild the system of accountability and oversight in local government, including through an overhaul of local audit, scrutiny and standards, and will consult on strengthening the standards and conduct framework for local authorities in England.

Our upcoming English devolution White Paper will set out plans for a new governing settlement for England. This includes our landmark programme of devolution and reorganisation, which will give local leaders with skin in the game powers to generate new jobs, skills and, ultimately, the growth that our public services rely on, and to create more efficient and accountable local authority structures, moving towards suitably sized unitary councils.

There is no magic wand. It will be a long, hard slog, working with councils, to rebuild from the ground up, in order to deliver the services that taxpayers need and deserve. Together, this year’s settlement and our programme of reform mark the first steps towards stabilising and rebuilding local Government.

Local Government Finance Settlement 2025-26

This year’s settlement will begin to put us on the right course, spending taxpayers’ money efficiently, and ensuring that funding goes to the places that need it most. The autumn Budget announced over £4 billion in additional funding for local government services, £1.3 billion of which will go through the settlement. Overall, the provisional settlement will ensure that local government receives a real-terms increase in core spending power of around 3.2%.

In addition, the Government announced at the autumn Budget that they will guarantee that local authorities in England will receive at least £1.1 billion in total from the extended producer responsibility for packaging scheme in 2025-26.

In 2025-26, the settlement will target additional funding at the places that need it most. We will deliver additional funding for a number of priorities, including an additional £680 million via the social care grant; a new children’s social care prevention grant, worth £250 million; and a new recovery grant, worth £600 million, for places with greater need and demand for services (we have used deprivation as a proxy for this) and less ability to raise income locally. This tackles head-on the combination of rocketing demand, low tax bases that restrict the ability of local areas to raise income locally, and weakened resilience in many of these councils after substantial central Government funding cuts during the 2010s. Alongside this, our commitment can be judged against a guarantee that no local authority will see a reduction in their core spending power in 2025-26, after taking account of any increase in council tax levels. This will provide the protections required for all authorities, including district councils, to sustain their services. Taking into account both money allocated to councils through the settlement and the pEPR guarantee, every planning and social care council will have more to spend on services in 2025-26 than in 2024-25; and for almost all authorities we expect this to be an increase in real terms.

The Government are clear in their commitment to tackling the issues that matter most to rural communities. We are focusing on the services that people rely on, such as social care, where pressures have grown across the country in recent years. This will deliver for rural areas, just as it will for the whole country. In this context, funding from the rural services delivery grant will be repurposed, through improved methods for targeting areas with greater need and demand for services, while we invest in the priority services that people care about, such as adult and children’s social care. The Government believe that the rural services delivery grant is outdated and does not properly assess rural need. A large share of predominantly rural councils receive nothing from the rural services delivery grant. Put simply, it does not do as it claims. This is clearly not right, and the Government are keen to hear from councils about how best to consider both the impact of rurality on the costs of service delivery, and demand, as part of our longer-term consultations on local authority funding reform.

Further support for local government

The Government are under no illusions about the scale of the issues facing local government, and this settlement will begin to address the pressures that councils are under. We recognise, however, that we may see some continued instability as we adjust to the new system. Any council concerned about its financial position or its ability to set or maintain a balanced budget should contact the Ministry of Housing, Communities and Local Government. The Government have a framework in place to support councils in the most difficult positions. We will not seek to replicate conditions that made borrowing more expensive. Where a council in need of exceptional financial support views additional council tax increases as critical to maintaining their financial sustainability, the Government will continue to consider requests for bespoke referendum principles. In considering requests, the Government will take account of councils’ specific circumstances, including the potential impact on local taxpayers.

The Government have committed to providing support to Departments and other public sector employers for additional employer national insurance contribution costs. This applies to those directly employed by local government. More information will be provided at the provisional settlement.

Supporting households

Many households are still feeling the impact of the prolonged cost of living crisis, and the Government are committed to protecting local taxpayers from excessive council tax increases. The previous Government, and the Office for Budget Responsibility in March 2024, both assumed core council tax and adult social care precept referendum principles of 3% and 2% respectively. The Government are now formally confirming that they will maintain the proposed core (3%) and adult social care precept (2%) referendum principles for next year. These strike the balance between protecting taxpayers and providing funding for local authorities.

We are ensuring that households receive the support that they need from programmes outside the settlement. The autumn Budget confirmed the extension of the household support fund for a further year, from 1 April 2025 until 31 March 2026. This will ensure that low-income households can continue to access support towards the cost of essentials, such as food, energy and water. Funding of £742 million will be provided to enable the HSF extension in England, plus additional funding for the devolved Governments through the Barnett formula, to be spent at their discretion, as usual.

Proposals in the policy statement for the 2025-26 settlement will be subject to the usual consultation process at the provisional local government finance settlement in December 2024.

This written ministerial statement covers England only. The policy statement will be deposited in the Libraries of both Houses, and has been published on gov.uk: https://www.gov.uk/government/publications/local-government-finance-policy-statement-2025-to-2026

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