Local Government Finance Bill

Lord Beamish Excerpts

Tuesday 10th January 2012 Commons Chamber

[The Secretary of State for Communities and Local Government (Mr Eric Pickles)]

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

It is a relief to be called after all that waiting, Madam Deputy Speaker.

The coalition agreement committed the Government to supporting sustainable growth and enterprise, balanced across the country. It also pledged the radical devolution of power and greater financial autonomy to local government. This Bill delivers on those promises. It aims to introduce much-needed reforms to make England’s local government finance system more effective at supporting local jobs, local firms and local enterprises. This is not just about redistributing a pot of cash differently; it is about providing the best possible chances to foster more growth, generate more cash and make a bigger pot.

The case for change is widely recognised. The OECD has called the English local government finance system one of the most centralised in the world. The Labour Government knew that, but failed to deliver on reform. There were Green Papers, White Papers, the “Balance of Funding” report, the Lyons inquiry and, if that was not enough, the Labour party manifesto at the last general election boldly pledged another commission on local government finance. What little reform was introduced, such as the so-called local authority business growth incentive scheme, was timid, inconsistent and ineffective. The only thing Labour managed to do was to double council tax and halve local services, such as bin collections—pay more and get less.

Where others have failed to deliver, however, the coalition is ready to act. Nowhere is the need for change more apparent than in relation to business rates. Currently, councils collect rates for local businesses, but they are no more than the agents for central Government. No sooner is the cash in than Whitehall whisks it away. Whitehall feeds the figures into a very complex formula. Each council waits with bated breath to see how much it will get back. The 160-page local government finance report requires a detailed knowledge of multiple regression to fathom it out.

The system creates a perverse regime of incentives. Councils that work hardest to boost local businesses do not see their efforts reflected in the state of their finances. In fact, local economies that become more successful can effectively see their central Government grant cut. The regime actively encouraged councils to talk down their area, to mask their success and to amplify their deprivation; it breeds a begging-bowl mentality and a race to the bottom. Surely, now more than ever, we should welcome growth and reward incentives.

There is some criticism that Labour failed to deliver on its election pledges. Well, we are here to help. In the Localism Act 2011, we introduced a general power of competence, implementing a pledge in the 1983 Labour party manifesto. However, we have now moved on to the 1997 Labour party manifesto, and we are moving towards the localisation of business rates. The Government believe that councils should have every possible incentive to encourage local business, support local jobs and create the conditions for the local economy to thrive.

The Bill paves the way to repatriating business rates. We want to give councils a greater proportion of the rates they raise locally. Every council that grows its business rate base can be sure that it will see an increase in its income, compared to the status quo. Putting in place the right incentives gives every council every possible reason to go for growth, which creates the potential to raise more cash overall to invest in local services and local community priorities. Of course, we have heard a few grumbles already.

[Mr Kevan Jones (North Durham) (Lab)]

I spent nearly 12 years in local government, and I accept that it is an important catalyst for encouraging local economic development, but it is not the only one. There is a huge disadvantage in all this for my constituents, compared, for example, with constituents in south-east England. Surely, in any consideration of local government finance, the disparities between the economies of such areas should be taken into account.

[Mr Pickles]

Frankly, I am amazed by that contribution, because Durham will be one of the big beneficiaries of the scheme. Had this system been in place, Durham would undoubtedly have more money in its coffers. I strongly urge the hon. Gentleman, for whom I have enormous respect and affection, to talk up Durham, because it will do very well under this scheme.

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[Mr Pickles]

I am happy to confirm that fact to my hon. Friend, because he raises an important point about local businesses needing a degree of certainty. Of course, the Secretary of State—the person holding my position—will set the multiplier and the sum.

There is something strange about all the objections, some of which we have heard already, in that they betray a lack of faith in the people whom we represent. No one area has a monopoly on the formula for growth. Economic success is not a southern phenomenon.

[Mr Kevan Jones]

Yes, it is.

[Mr Pickles]

I do not know whether colleagues were listening but I heard an Opposition Member say that economic success was a southern phenomenon. If that is what Opposition Members think, they should seriously consider whether they are doing their electorate a service.

If our reforms had been in place over the past five years—since the last revaluation cycle—places such as Liverpool, Doncaster, Durham and north and south Tyneside would have benefited, because their growth in business rates outstripped the national average.

Most of all, however, the grumblers have missed the key point. This is not simply about redistributing the proceeds of growth. If these reforms lead to every council working as hard as possible to help business to thrive, there is the potential to increase overall growth.

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[Hilary Benn]

Will the hon. Gentleman bear with me for a moment?

Under the Bill, the Secretary of State will determine the baseline for every local authority, including, in effect, what he thinks every council needs to spend. He will decide how much business rate income central Government will take and how much will be left with local authorities. He will be able to change the central share from year to year, and to specify the tariff or top-up payment for every local authority in England. He will also decide how much any council must pay him in levy in respect of disproportionate gains in business rate income—and he will decide what “disproportionate” means.

[Mr Kevan Jones]

Will my right hon. Friend give way?

[Hilary Benn]

Will my hon. Friend bear with me for a moment?

The Secretary of State will determine safety net payments, and decide how much of the remaining balance in the levy account may be distributed to one or more authorities. He will determine how much billing authorities must pay to major precepting bodies. He will designate pooling areas, and decide which groups of people must receive a council tax reduction. He will decide which classes of dwelling cannot be charged extra council tax, taking account of the characteristics and circumstances of any person liable—whatever that means. He will decide which areas are to be enterprise zones, and issue regulations to designate TIF areas. And in case all that is not enough, in clause 14(2) he gives himself a Henry VIII power that will allow him to amend, repeal or revoke any legislation he wants. That does not sound like localisation to me.

[Mr Kevan Jones]

I agree with my right hon. Friend about the centralisation of powers. The one power that is being given away to local authorities is the administration of council tax benefit, where local councils will have the invidious task of cutting council tax benefit to individuals. The Secretary of State is basically giving away the unpopular decisions, making sure that local people get the impression that local councils and not the Secretary of State are to blame for the cuts.

[Hilary Benn]

My hon. Friend is absolutely right, anticipating one or two points I intend to make later in my speech.

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[Eric Ollerenshaw (Lancaster and Fleetwood) (Con)]

At this stage of the debate we always try not to double up on what others have said, but the hon. Member for Sefton Central (Bill Esterson) said it would be fine if the present local government finance scheme had actually dealt with the differences between authorities. Many Opposition Members have talked about perverse incentives and about a lot of history, but let me explain some history.

I spent 17 years as a Conservative member of Hackney council, which the shadow Secretary of State referred to as one of Britain’s poorest boroughs. When I joined the council as a Conservative—as Members can imagine, there were not many Conservatives on Hackney council—it used to proclaim itself Britain’s poorest borough for a reason. There was almost a perverse incentive for it to do so. I am not saying that Labour councillors did not want to see the council and its tenants better off, but it was in their interests, given the funding regime, to exaggerate how badly off Hackney was. It meant that they could get more from the rate support grant.

That perverse incentive has continued. I shall give another example from those days and my early learning experiences in local government in the 1980s. I used to sit on the housing committee, and once while discussing housing benefits I made what I thought was a stirring speech on behalf of Hackney’s tenants when the Labour party wanted to increase rents by 6.8%. I was complimented afterwards on the standard of my speech. Members might not believe it but I was a new young councillor then. But I was told, “Actually Eric, it doesn’t matter. They’re all on benefits so we can just put up the rents.”

We are not saying—although I understand that the Opposition have tried to say it—that the change proposed by my right hon. Friend the Secretary of State is a massive revolution along the lines of the community charge, but, as other Government Members have said, it will mean that we can begin to provide councillors with a way of raising extra money by entering a bargaining system with business. The main thing that counts when encouraging business growth is a person’s ability to put their own money on the table. At the moment, though, there is little in the system to give councillors that ability. I believe that these reforms are the first step along that road.

Members have mentioned the north-side divide. I represent a part of the north, and my district councils are looking forward to these reforms. For example, Lancaster council can now envisage finally being able to raise money off its own bat, go into partnership with local businesses and perhaps open that third bridge.

[Mr Kevan Jones]

Does the hon. Gentleman realise that his council will also have to take responsibility for council tax benefit, which will come with a 10% cut, so that although it could end up raising money locally it might have to use that to subsidise council tax benefits?

[Eric Ollerenshaw]

From what I hear from my councils, that is not the prospect that they are looking forward to. Lancaster council wants finally to build a third bridge, for which Lancaster has been waiting years. Wyre district council has been waiting years to open a railway line to Fleetwood, where a railway line currently exists, and by borrowing through some of these schemes it could open up new development plans to business. It is looking forward to being able to close the north-south divide.

My support for the reforms is based on the need to achieve growth. Like many Government and Opposition Members, week after week I meet businesses in the north-west, particularly in my constituency, that have the potential to grow but just want a little extra support. That might mean doing up the road on the industrial estate or providing a bit of extra shedding so that they can meet their orders. With these changes, councils will finally have an interest in encouraging that business. [Interruption.] Opposition Members might scoff, but as was pointed out, in particular by my hon. Friends the Members for Ipswich (Ben Gummer) and for Milton Keynes South (Iain Stewart), the problem is that local councils, for good or ill, have divorced themselves—or have been divorced by the system—from any real interest in encouraging and supporting economic growth.

The best councils have wanted to encourage growth. I take my hat off to those such as the hon. Member for Lewisham East (Heidi Alexander), whom I have met before in relation to this matter, for all the work that they have done to encourage that growth, but the fact is, as we all recognise, that some councils and council officers have seen little benefit in going out there to support and encourage business because it has not directly affected their income. These changes will at least start to address that situation.

I shall finish on a point that I have raised elsewhere. I think—I might be wrong—that under paragraph 37 of schedule 1 the Secretary of State could allow new types of enterprise zones. Why are we not encouraging university campuses to have their own enterprise zones? I know that that would cause problems with Treasury mandarins and their calculations, but we seem to have missed a trick, because we are talking about something that could be the very basis for creating and developing new businesses, albeit not on such a large scale. Once those businesses got that extra bit of employment, they would have to move off by definition, because of the nature of university campuses. That would mean getting the turnover that we want and would deal with the criticism of the old enterprise zones—that businesses moved in from other areas and stayed there.

[Mr Kevan Jones (North Durham) (Lab)]

I am pleased to follow the hon. Member for Lancaster and Fleetwood (Eric Ollerenshaw), who is living in cloud cuckoo land if he thinks that this Bill will suddenly drop pennies from heaven on to his constituency and the north of England, to regenerate his and other areas. What we have before us today is an extension of this Government’s local government policy, which is about cutting local government finance, but giving the impression that the tough decisions that local councils are having to make are not the Government’s responsibility, but the responsibility of those very councils. Yesterday, for example, the council in Doncaster cut wages by 4%. The Government are saying, “Well, it’s your decision.” They are giving councils the baby and letting them decide how they slice it up.

I take exception to what Government Members have said about how local government is somehow not interested in regeneration. I spent 10 years on Newcastle city council, serving my final years as chair of the economic development committee. It was a council that put a hell of a lot of effort into regenerating both inner-city Newcastle and surrounding areas. Likewise, Durham, my current county council, is making a tremendous effort, and has done for several years, to try to encourage business into County Durham, but it has been hamstrung. Some of the things that the Government have done recently, such as abolishing the RDAs, have made it virtually impossible for the council to spend nearly £140 million of European regional development fund money. It is sitting there, ready for development, but because of the constraints put on the council by this Government, no one can access the money.

The point about the proposals on business rates is that, yes, local government can have an impact on regeneration; but it is a damn sight harder in County Durham, even with the tremendous efforts of local business and the county council to secure inward investment, than it is in Canary Wharf or other prosperous parts of south-east England. We are not dealing with a level playing field from day one; indeed, local councils are not even the only driver for getting inward investment. It is far easier for people to make investment decisions down here—we only have to look at the investment and the number of cranes going up in the east end of London now, in a recession, in hard times. We can only dream of that kind of investment in parts of the north-east. Every single inward investment decision that has been taken for the north-east has been hard fought for.

The idea is that this small change will somehow make a real difference, but it will not. We will end up with a two-stage Britain, where this measure will be good news for local councils in the south-east of England—I accept that certain parts of the south-east of England are depressed and deprived—because, frankly, they will not have to work very hard to get inward investment and an increase in business rates, whereas that will not be the case in more deprived areas. Over time, we will clearly see a disparity, which will lead to a two-speed Britain, with things made even harder by this Government, who have abolished things such as the RDA in north-east England.

[Steve Rotheram]

Does my hon. Friend agree that all this is the continuation of a policy, which was tried out in the ’80s by Thatcher and Howe, of managing the decline of northern cities, especially areas such as Liverpool?

[Mr Jones]

It is, exactly. Let us look at what this Government and this Secretary of State have done on local government. I take my hat off to him, because he is rewarding his friends and his councils in the Tory heartlands. The idea is that we can somehow just write off great cities such as Liverpool and Newcastle, or other north-east cities, as if it does not matter. Do the Government actually care? No, I do not think they do.

The Secretary of State said in response to my intervention that Durham would gain under the new proposal. I would like to see the figures showing how Durham will gain, because the county council has seen from its own figures—he is using 2011-12 as the baseline—that it will lose out. This is being rushed, and it will become clear, over time, that it is not the radical approach to local government reorganisation that some people suggest. It is in fact a way of ensuring that prosperous Conservative seats will benefit from the measures at the expense of some of the poorest communities in Britain.

I want to turn now to the scandalous situation relating to the localisation of council tax benefit. This measure comes with a 10% reduction from day one, and it will disproportionately affect constituencies such as mine, and more deprived areas with larger numbers of people in receipt of that benefit. Listening to the Secretary of State talking earlier, it sounded as though he thought that those people were the feckless poor. I must remind him that a lot of low-paid workers, who are working blooming hard every day of the week to keep a roof over their heads, rely on council tax benefit. Over a period of time, those people will get the impression that these decisions are nothing to do with the Secretary of State, and that it is the local council that decides how to divide the money up. This measure will have a disproportionate effect on those areas with a large number of people in receipt of council tax relief.

[Mr Pickles]

I am sure that the hon. Gentleman suggested only inadvertently that I was talking about the feckless poor and the like. May I respectfully remind him that I was quoting the Leader of the Opposition and the shadow Secretary of State for Work and Pensions? It is with them that he should take up this matter, not me. Do not put words into my mouth; those were their words.

[Mr Jones]

I was not putting words into the right hon. Gentleman’s mouth, but I have to say that he is continuing the mistaken idea that every person in receipt of council tax relief is unemployed and useless. They are not; they are hard-working, low-paid families—[Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. Those on the Government Front Bench need to come to order. I think that the Under-Secretary of State for Communities and Local Government, the hon. Member for Bromley and Chislehurst (Robert Neill) is getting carried away.

[Mr Jones]

The proposals are going to affect many low-paid families in my constituency and elsewhere in the north in particular. The idea is to encourage people into work, but this will act as a disincentive to people, hard working though they might be.

[Jim Shannon (Strangford) (DUP)]

Will the hon. Gentleman give way?

[Mr Jones]

Unfortunately I cannot, as I have very little time left.

Let us not be conned by the Secretary of State’s strategy. In the name of localism, he is pushing decisions down to local government, but cutting grants at the same time. He will then try to say to local people, “It’s nothing to do with me, guv. It’s your local council that is doing this.” That strategy was used by the Conservatives in Canada in the 1990s, and it is clear that this Government have learned from that play book and want to ensure that local people do not blame them but instead blame their local council, which will have been hamstrung by the grant cuts. It is about time that people saw through this bluster from the Secretary of State.