Local Government Finance Bill
Debate between John Healey and Mark Field
John Healey
I rise to speak to new clauses 1 and 11, and amendments 62 and 63.
My purpose with new clause 1 is to encourage the Minister to confirm, on behalf of the Government, that the necessary powers exist in legislation to make tax increment financing work in future, and also to confirm Ministers’ intent and commitment to using those powers. The case for TIFs—tax increment financing schemes—is unarguable. I myself have been arguing it for a number of years, first in the Treasury and then in the Department for Communities and Local Government. There are local government regulations in Scotland to allow six TIF pilots to go ahead. The use of TIFs is widespread in Canada and the US, particularly in areas where regeneration is required; indeed, only one state in the US—Arizona—does not have TIF legislation. TIFs build on the commitment that Labour made in government, in the Budget 2010, a commitment that was backed by a capital down payment of £120 million.
However, if the TIFs system is to work—that is, if local authorities are to borrow money for up-front infrastructure investment against the anticipated increase in business rate income as a result of the new infrastructure —there must above all be certainty for those long-term investments to be made. There needs to be certainty for a clear business plan and then an investment plan to be put in place; otherwise TIFs will not get off the ground and will not work. That certainty is required over a 20 to 30-year time scale, which is why it is needed in legislation. As the Centre for Cities said in response to the Government’s consultation:
“When the Government introduces Tax Increment Financing…it should be based on ‘Option 2’—a ringfenced TIF which is best suited for local investment finance within the proposed business rate retention system.”
That point was echoed by the British Property Federation, which said:
“Failing to ring-fence the income stream for that length of time”—
its submission referred to a 25 to 30-year period—
“would generally render the upfront investment unbankable, because the risks associated with it become too difficult to model, understand and price. TIF will only work with the sort of total ring-fencing proposed under Option 2”.
The Government made the commitment to ring-fencing, stating in the White Paper of October 2010:
“We will introduce new borrowing powers to enable authorities to carry out Tax Increment Financing”.
In response to the consultation, the Government also made a commitment to
“allow a limited number of Tax Increment Financing Projects to be exempted from any levy and reset for 25 years.”
That is the crucial commitment that I want to test against the content of the Bill before us. I expressed my concern about the freedom of the ring-fencing from any effects of reset to the Secretary of State on Second Reading on 10 January. He had no answer: either he did not know, or he did not want to say.
Let me therefore point the Minister to the source of my concern, which relates to paragraph 37(1)(d) of schedule 1 on page 32. This deals with the regulation-making powers of the Secretary of State, referring to regulations that can
“provide for that amount or that proportion to be disregarded for the purposes of calculations under any of the following provisions”—
in other words, regulation-making powers that can lead to the disregard of a proportion of business rates in specified areas, namely TIF areas, for particular payments that would otherwise be due. The provision goes on to identify payments to the central share, payments by billing to precepting local authorities, levy payments, safety net payments, payments on account and payments that follow from changes either to the local government finance report or to an amending report of a local government financing report. There is no power, however, to make regulations to exempt payments as a result of changes through a reset.
If I am mistaken, I would like the Minister to indicate where that power lies. If no such provision exists in the legislation, will he confirm that the Government will honour the commitment they made in their response to the consultation and will amend the Bill so that any payments resulting from a reset can be disregarded—and disregarded in full—for the purpose of the TIF areas? The Minister would be welcome to accept my new clause if he needs to do so.
Mark Field (Cities of London and Westminster) (Con)
The right hon. Gentleman has made admirably clear his concerns about the potential lack of commercial certainty. One of the advantages of going down the route of tax increment financing is that there would be ring fence over the 25 to 30-year period. Does he not see, however, that in very uncertain economic times, that is a very long period, so it might be unwise, where a major change required a major reset in a particular area, perhaps where new towns were being built, not to allow the Government a certain amount of leeway? Is that not more important than the exclusion of a reset from the ring fence?
John Healey
I would have thought the hon. Gentleman, who represents the Cities of London and Westminster, would recognise more than anyone else that for the sort of commercial investment required to get TIFs off the ground in circumscribed and specific areas, certainty is a premium. If the 25 or 30-year commitment required to make this work could be periodically completely set to one side in a reset process, I put it to him that the inherent risk created by that and the inherent lack of certainty entailed by it would undermine the ability to raise the finance necessary to get the TIFs off the ground.
As to the hon. Gentleman’s point about new towns, the regulations allow the disregard in the specified areas that are designated as TIF areas only. The disregard on business rate payments, a proportion of which would otherwise become payable by the local authority, would be allowed under various headings, but this would not apply to the reset. Fundamentally, that is the biggest upset factor of all, so the case for disregarding that is probably stronger than it is for the smaller-beer measures for which regulations can be designed to protect.
Mark Field
I accept what the right hon. Gentleman says and he is absolutely right about commercial certainty, which is of great importance to any would-be investor. Instead of the notion of absolute certainty embodied in new clause 1, would the right hon. Gentleman not be satisfied, particularly in view of the important effect of building a new town or a huge new industrial estate for which the notion of a reset would apply, by reassurances from the Minister that the Government do not intend to make the changes he has in mind? Would that not be better than going down the route of absolutely certainty, which provides little flexibility either to central or local government, for an incredibly long period of 25 or 30 years? We need go back only two and a half or three decades to recognise the great changes that have taken place in many of the industrial areas that we represent and to understand that absolute certainty of the sort that he—
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. [Interruption.] Order—the hon. Gentleman must not test my patience even more. Interventions are welcome, and I am prepared to give a little leeway, but the hon. Gentleman is almost making a speech.
Local Government Finance Bill
Debate between John Healey and Mark Field(12 years, 9 months ago)
Commons ChamberRead Full debate Read Hansard Text
John Healey
My hon. Friend makes a powerful point. It is certainly clear from how the cuts to local government have fallen in this Government’s first two years that certain areas, including his and mine, have borne a much greater burden than others.
The other part of the double whammy, to use my hon. Friend’s expression, is designed into the system, and it should give the Committee cause for concern. It is that the local distribution of the business rates is very uneven. For instance, Kensington and Chelsea has a much smaller population than Rotherham or Barnsley—I represent part of both those boroughs—but raises five times as much in business rates as Barnsley and three and a half times as much as Rotherham.
The opportunities to grow the business base are also uneven. I have looked back at the latest gross value added statistics published by the Office for National Statistics just before Christmas. Last year’s figures showed a difference of more than 3% between growth in London and that in Lincolnshire, Cornwall or Merseyside. In other words, it is clear that from year one the gap between affluent and less affluent areas will grow. The business rates base, and therefore income for councils, will grow faster in some areas than others, as it has in the past.
Even if there were the same rate of growth in all areas, the relative size of the business base income, which is higher for some councils than others, would mean a greater actual cash income for some councils. The top-up and tariff system that the Government are designing will reduce, but not remove, that disparity. If it did remove it, it would remove the incentive element that they want to build into the system.
Having been a local government Minister for two years, introduced the first ever three-year settlement for local government and altered the formula to better reflect needs and resources, I know that there are always winners and losers from any change. The whole House knows that. However, the councils that have a big business rates base, a strong council tax take and high levels of growth will be win-win-win councils, and those that do not will find that they are lose-lose-lose councils. That is the unfairness that is built into the design of the new system. It will increase divisions and tensions in our country.
Mark Field (Cities of London and Westminster) (Con)
Does the right hon. Gentleman not recognise that the current system also has a whole lot of disincentives for local authorities built into it? Over years gone by, it has disincentivised many local authorities. It is perhaps all too easy to make comparisons between relatively affluent central London authorities and those in relatively long-term impoverished areas of the north of England, but the scheme that is being put in place is intended to challenge those disincentives. Although I accept that elements of it will not provide as much transparency as many of us would like, it is at least a step in the right direction.
John Healey
The extent to which it is a step in the right direction remains to be seen. There is an element of its direction that is right, which is the desire to see greater incentives for local councils to support the growth of their business base, and greater rewards for doing so. How those incentives will work is weak and potentially perverse, but the principle is nevertheless in the right direction. The potential practical problems that we are beginning to tease out are part of the debate that we need to have.
John Healey
My hon. Friend is right. One of the strengths of this debate, as shown by contributions from all parts of the Committee, is exemplified by what he has just said. He has served as a councillor in north Kent and brings that experience and perspective to this debate. He now serves as the Member for Sefton Central, in the north-west of England, and also brings that perspective, reinforcing his point.
I want to draw the Minister’s attention to the future position of fire and rescue services. Can he provide me and other Members who are interested with details about his modelling and assessment of future revenue streams? Can he say how many and which fire authorities will be top-up authorities in future, and how many and which will be tariff authorities? There is concern among senior fire staff that if the incentive that this system is designed to deliver works as the Government say it will, the top priority for councils in the future will be those functions for which they are responsible that help to build business growth. However, those who serve in our fire and rescue services—services that do not directly contribute to economic and business growth—are concerned that a consequence of that will be that in future they will not get the priority for funding that the proper protection of their area may deserve because they do not contribute to business growth. Let me quote a chief fire officer who fears that that may—but not necessarily will—happen. He says:
“I am concerned that the proposed funding model could foster an antagonistic relationship between the fire authority and the local authorities if they begin to see us as a service which takes money from the business rates but does not actively participate in the business growth agenda.”
There is a strong case for fire and rescue services to be funded in future on the same basis as the police, with a very clear, consistent and comprehensive assessment of risk, need and resources built into the allocation of funding for fire services in England. What we start to see with the fire and rescue services, in common with the rest of local government, is concern about the uncertainty—what it means, what the funding is likely to be and how hard it makes it to plan sensibly for the future, particularly the ability to plan and manage within diminishing resources, which by and large is accepted. As another senior fire officer told me, stability is the most important factor. The Minister could do the Committee and many in local government a favour by giving a clear and strong reassurance this afternoon about the stability and predictability of the system in future.
I am conscious that there are a number of other amendments in the group and that other right hon. and hon. Members want to speak to them, so let me return to my starting-point of amendment 46. It is a probing amendment, but it contains a proposal that all revenue raised from what is a tax on businesses designed to pay for local services should provide funds for local government—not for national priorities or services around which the cloak of local government can be loosely thrown at their funding streams and categorised as local government. Post-2015, this will build in a real localising ratchet. Post-2015, when the business rates take is projected to be bigger than the sums distributed to local councils, it will mean that where central Government want to use funds to cover non-council services, they will have to transfer the responsibility and devolve the power and control for those services to local government in order to use the business rates revenue to help fund them. Thus my proposal will mean Ministers truly putting their money where their mouths are. It will mean putting into reverse the post-war centralisation of government that this country has seen, and it will mean making the localist rhetoric a reality.
Mark Field
I am not entirely convinced that we are debating quite as revolutionary a change in local government finance as the right hon. Member for Wentworth and Dearne (John Healey) would have us believe. As he rightly says, there has been periodic centralisation of local government finance in the post-war period; this Bill is a step, but only a relatively small step, in a different direction.
I am concerned that some provisions will not provide the overall transparency that all of us desire for local government finance. The worry, as we all know, is that council leaders across the country who get and understand the system will then work it to the benefit of their own local authorities, while neighbouring authorities with similar sets of needs will not reap the same benefits. I believe that has been the case since time immemorial, and I suspect it is a problem that exists in any political system. However much we try, it is difficult to discount the articulacy of those who understand and work a system. As I say, I am not as convinced or as concerned as the right hon. Member for Wentworth and Dearne. I hope he will forgive me if I focus my comments on issues that have come from the lobbying of one of the two local authorities in my constituency, and in so far as we work here, we all have a vested interest in this authority—Westminster city council.