Local Government Finance (England)

Debate between Lord Beamish and Robert Neill

Wednesday 13th February 2013 Commons Chamber

[Robert Neill]

That is a good try but the hon. Gentleman must realise that we have a persistent inheritance of underperformance by Labour Governments, and there is an unwillingness—demonstrated by his intervention and many others—to move on with the serious issues about how we deliver the best services for local authorities.

For example, it was significant that the right hon. Member for Leeds Central made no mention of the fact that we have created other funding streams for local government through the new homes bonus. That scheme accounts for the increase in receipts in some councils. They are meeting the housing deficit that Labour left behind and we are rewarding them—of course, Opposition Members have no concept that a local authority should actually be rewarded for efficiency and enterprise. That is alien to their culture, hence the criticism. No mention was made of the fact that the localisation of business rates is the first significant move of devolution in fiscal terms—the Treasury is giving up and forgoing revenue in favour of local authorities—since the second world war. I hope that in due course as the economy grows, the local share of that business rate will increase from its current level of 50%. That is 50% more than was available under local discretion when the rates were effectively nationalised and redistributed, usually under an extremely opaque formula of which the hon. Member for North Durham (Mr Jones) was one of the advocates.

[Mr Kevan Jones]

I am surprised that the Prime Minister sacked the hon. Gentleman; he obviously hopes he is in line for some honour or future preferment. He mentioned the new homes bonus, but councils that will benefit most from that are those in areas of housing growth. That does not include parts of the north-east and elsewhere where, because of the Government’s incompetence, the housing market is not only flatlining but declining.

[Robert Neill]

I have a lot of time for the hon. Gentleman but he does not do himself justice by that intervention. He is in no position to criticise given that we inherited the lowest ever level of housing starts in peacetime thanks to his Government. I do not think that works. Given the area he represents, I am tempted to suggest that he might like to take on board a further note from the helpful Library research paper on assessments of funding:

“For shire districts and single tier authorities controlled by the main political parties, average start-up funding assessments and spending power per dwelling will be lower amongst Conservative controlled authorities and higher amongst Labour controlled authorities.”

If that is not recognising the reality and fairness, what is? Of course, a similar comparison could not be made with county councils because there were no Labour county councils to compare the figures with.

[Mr Jones]

What about Durham?

[Robert Neill]

Durham is in the unitaries. I was glad to hear recognition of local authorities as among the most efficient parts of the public sector. That may have something to do with the political control of the majority of local authorities. In reality, this settlement is not just about the important level of funding for this year and next year, but about setting a course that rewards local authorities that think outside the box.

An important point to make about that is that it is slightly depressing to hear, in a number of interventions from Opposition Members, the mantra, “We are worried about the cliff edge; we need to rebuild the base.” With respect—I say this from my experience, for what it is worth, in local government and from my period as a Minister—that is a profoundly misguided approach to adopt. The world of public service delivery is changing. Simply rebuilding the base on its old basis is not the answer. The base will never be as it was before, because the way we do things will never be as it was before. We are seeking to give local authorities the flexibility in their funding arrangements to find new ways of using their budgets, not simply saying, “Let’s get back to the old levels of money and the old way of doing things.” That was the mentality that got us into this mess in the first place. On the contrary, through the initiatives announced by my hon. Friend the Minister to reward efficiency much more—I hope we can look at what more we can do in future—we are giving local authorities an incentive to work together. It is not about how much local authorities get; it is about how they use it.

To give one example, I have mentioned in the past the London borough of Tower Hamlets—that well known local authority—which, among other things, manages to spend £1.2 million on eastend life, its information newspaper, which contains restaurant reviews, the football scores and other things that are entirely germane to local council services in its area. No doubt Opposition Members will say, “Oh, what’s £1.2 million here or there?”—that is not the sort of money they are interested in—but let us contrast that with my borough of Bromley, which has never run a municipal newspaper in its life, but which, when it needs to, simply takes out an advertising wraparound with the free sheet. I can tell hon. Members that Bromley has been done: it is appointing a shared director of public health, because part of the important ongoing work on public health funding—to which the right hon. Member for Leeds Central referred—is aligning it more closely with social services and adult social care funding. That is what Bromley is doing: it is working with a Labour council next door on joint procurement of IT services. Bromley is also looking at joint working on its legal and library services.

Those are the things that sensible councils across the country are and should be doing. To sneer at that and say, “Oh, this is just ‘50 ways to insult people’” indicates a mentality that I have not seen in public life since King Charles X of France was evicted from the Tuileries by the mob in the warm-up for “Les Misérables”. At the end of the day, they have not moved on and they have lost—

Local Government Finance Bill

Debate between Lord Beamish and Robert Neill

Tuesday 24th January 2012 Commons Chamber

[Robert Neill]

We will talk later about what is described as the central share, which is the proportion that may, as necessary, be retained by central Government. That is to ensure that at all times the settlement fits into the envelope of the control totals, but even so we have indicated that anything allocated under the central share will be returned to local government through other grants. Just as at present local authorities receive grants that are outside the formula grant scheme, so too can money be recycled to local government in the same way.

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

If the answer to the question put by the hon. Member for Poole (Mr Syms) is that, yes, the Government will retain that money, are they not, by that mechanism, substituting for central Government funding by making sure that local government pays for all grants that go to local authorities? That is not the case at the moment.

[Robert Neill]

On the first part of the hon. Gentleman’s proposition, the Government have never made any secret of the fact that there will be a central share; we have always indicated that it would be necessary for the system to operate within the control totals of the spending review. On the second part, the central share can be set and adjusted from time to time. We have made it clear that we intend to look, as we go forward, at the macro-economic situation, which will be reflected in the control totals, and the ability to seek to align more closely the responsibilities of local authorities with funding availability through the business rates. Put it this way: it would be a bit previous to come to a conclusion at this moment about what precisely would happen to any individual grant stream.

[Mr Jones]

Is the Minister saying that in future, grants that currently come from central Government taxation and revenue will be paid for by local government? That is basically shifting the burden to local businesses, rather than taking the money from the central taxpayers’ pot.

[Robert Neill]

The danger in the hon. Gentleman’s formulation is in assuming that that would shift all funding in that way, and that is not correct. What we have said is that we will have the option to make an adjustment to keep the grant within the control totals, and to ensure that money raised by business rates is returned to local government, in a way that is consistent with the scheme in the Local Government Finance Act 1988. That is not different, because as the hon. Gentleman, with his experience, will know, quite a number of funding streams are paid to local authorities, outside formula grant. I do not accept that it follows that all of them have to be added in. What we have said is that we will seek to align more closely the grants with the responsibilities.

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[Robert Neill]

First, it will depend on whether it was in a top-up or tariff scenario. Secondly, precisely because we are looking at two things, the normal arrangement will be that the calculation and the report are made annually. However, in the detail of the regulations there is provision, which we may not need to use, to consider in-year payment if something were to create some catastrophic loss that could not be made up. I am sure the hon. Lady will concede that these are precisely the details that we ought to be talking to local authority professionals about—particularly how best to achieve what we want.

[Mr Kevan Jones]

May I pick up on what the hon. Member for Mid Dorset and North Poole (Annette Brooke) said? In terms of an employer leaving an area—let me take the example that my right hon. Friend the Member for Knowsley (Mr Howarth) used and suppose that an employer left after the determination—will there be a mechanism by which the Secretary of State could compensate the authority for that loss in-year? If not, it will be very difficult for local authorities to set a legal budget.

[Robert Neill]

As I recall, when we get to paragraph 26 we are looking at that ability, but let me double-check the exact paragraph. One has to look both at this part and at the part that deals with the safety net. In paragraph 26 of the schedule, there are regulations that can be made about payments on account. We envisage circumstances in which the Secretary of State may make an in-year calculation in response to a request, and regulations can be drawn up to deal with that eventuality, which is a fair one. I hope that puts the hon. Gentleman’s mind at rest.

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[Mr Kevan Jones]

Clearly councils will be compensated if they have significant losses, but the hon. Member for Bradford East (Mr Ward) made the good point—although it is a rare occurrence—that in one year there could be a big draw-down of the central fund. What level of central contingency will have to be kept back to address any significant changes year on year?

[Robert Neill]

That is a degree of hypothesis that it is not realistic to deal with at this stage. If the hon. Gentleman looks at the detail of the regulations, he will see that the very fact that we are creating the ability to carry over year to year makes provision to deal with the point he makes.

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[Mr Jones]

I obviously do not want to draw your wrath, Mr Robertson, for going off the subject, but time and time again the Secretary of State talks about devolution and giving local government powers, and then he produces this centralising Bill and gives councils diktats week after week about what they should and should not be doing—whether they should have pot plants, or whether they should have weekly bin collections. The public will start to see through it. He cannot have it both ways. He cannot have a Bill that will centralise power and centralise the finance that local councils raise and at the same time tell councils what they can and cannot do, but that is his method. If the Government do not accept the amendment and accept need as the basis for payments, people will come to the conclusion that many of us have already come to—that they do not actually care about need.

[Robert Neill]

I will endeavour to confine myself to matters that are germane to the amendments, so I will be fairly brief despite the temptation to inquire what happened to Trotsky and Bakunin drives. I imagine they were probably airbrushed off the map in Durham at some point.

I am not sure whether hon. Members have quite followed how paragraph 28, relating to the distribution of any remaining balance in the levy account, will actually work. As I hope they will be aware, provision is made in the Bill for some or all of the remaining balance in the levy account to be returned to local authorities. It provides flexibility over the amount to be distributed and the basis of distribution, and we believe that it is wise and sensible to keep it that way. It will enable the distribution of the remaining balance to be carried out as is appropriate at a particular time. For example, it might be appropriate to distribute it to authorities on the basis of need, or if we assess that there is no such need, we might wish to return it to some of the levy authorities to make up for the taking of levy moneys that were not needed for disbursement. It would be wrong to preclude that possibility, which is provided for in the Bill.

[Robert Neill]

No, with respect, because first, there is flexibility to distribute all or part of the balance on that basis. Secondly, that flexibility is not unchecked, because the procedures in sub-paragraphs (2) and (3) require the Secretary of State to include both the amount to be distributed and the basis on which it is to happen in a local government finance report, which will be subject to the scrutiny of the House. Such a report is laid before the House and can be debated.

Finally, paragraph 18 tightly defines the debits that may be made from the levy account. The effect of that paragraph, taken together with the rest of the schedule, is that any money in the levy account can be used only to make safety net payments or to be returned to local authorities as part of the distribution of the remaining balance for the year. The idea that the Treasury can somehow snaffle it and keep it back from local government is simply not correct.

[Mr Kevan Jones]

But the Bill does not state the criterion by which the remaining balance will be distributed. The Secretary of State could therefore quite easily decide that he wished to distribute it in such a way as to save the Treasury money by substituting it for central Government spending. The Minister cannot get away from the fact that the Secretary of State will decide how the money is spent. It will be his decision alone.

[Robert Neill]

The distribution will be subject to scrutiny by the House in a local government finance report. It is correct that it will not be defined in primary legislation, just as the basis of the distribution of formula grant is not. That is decided by the Secretary of State, so in fact we are being utterly consistent with the system that was operated under the previous Government. We are being consistent, and the hon. Gentleman is being wholly inconsistent, not for the first time.

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[Mr Jones]

Indeed. I know that the Secretary of State will say, “We are giving you these local responsibilities”, but how are authorities going to plug the gap? It will be either by cutting services even more or by increasing domestic rates.

Another point on which we need clarification is the “exceptional circumstances” mentioned in the Bill. I should like to know what “exceptional circumstances” are. In what circumstances would the Secretary of State look at a reset during the 10-year period?

Local government needs certainty, and not just in providing services. For example, three-year budgets allowed councils to take decisions that led to efficiencies. If councils are not sure how much money there will be each year, that uncertainty will prevent them from making strategic decisions, savings and investments. That flexibility will be lost. The argument is that this is a localism Bill giving local councils a say, but as we have explained clearly, it actually gives more powers to the Secretary of State and Ministers to decide the future of local government. I should like to know from the Minister why 10 years was chosen for the reset.

Earlier, there were some comments about revaluation. When the Secretary of State was in opposition he argued vigorously against the revaluation of domestic rates. It is time to look at domestic rates, because in all our constituencies we see disparities between different properties. The revaluation process was rushed, which led to a record number of appeals. The Bill will give rise to a situation where the inequality set in domestic rates in the 1990s will be set in the business rate assessment too.

[Robert Neill]

I can tell my hon. Friend the Member for Mid Dorset and North Poole (Annette Brooke) that of course we shall consult fully before we finally set, through regulations, the figure for the reset. It is important to bear in mind that a key point of the legislation is to give a proper incentive for growth, and the longer the period between resets, the greater the incentive for growth for local authorities. The shorter the period between resets, the more the growth incentive is minimised.

I am sorry that the Opposition, having claimed to be in favour of localisation, seek to introduce amendments that would significantly undermine the growth incentive for local authorities. It is even more unfortunate that when they make their case, having accused us in rather patronising tones of not doing our homework, they clearly get their homework very wrong, as I shall shortly demonstrate.

New clause 5 would implement a system that triggered an annual reset. That would destroy any incentive in the process whatever, and negate the whole growth incentive. The Opposition say we should listen to the interests of local government. In the consultation responses that the hon. Member for Warrington North (Helen Jones) cited, 78% of respondents favoured fixed resets, so their amendment ignores that 78%. It is a pity they did not do their homework properly on that one.

Local Government Finance Bill

Debate between Lord Beamish and Robert Neill

Wednesday 18th January 2012 Commons Chamber

[Robert Neill]

The hon. Lady fails to grasp the basic principle underlying the Bill. The problem at present is that local authorities have no incentive to encourage growth. Instead, they potentially have a burden. They have no ability to grow the tax base.

[Mr Kevan Jones]

rose—

[Robert Neill]

I will give way again shortly.

Unfortunately, throughout this debate Opposition Members have articulated their old mindset. It is a mindset that does down local government, and I find that surprising given the experience some Opposition Members have of that. They do not seem to recognise that most local authorities want to advance their local economies even though they currently get no revenue benefit from doing so. We will make a key difference by giving them a tool to get such benefits.

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[Mr Kevan Jones]

rose—

[Robert Neill]

Before I give way to the hon. Gentleman, he might like to reflect on this. He has been very vocal about the Second Reading debate. I remind him of this passage, when my right hon. Friend the Secretary of State, following this very point, said:

“Economic success is not a southern phenomenon”,

and the hon. Gentleman intervened and said:

“Yes, it is.”—[Official Report, 10 January 2012; Vol. 538, c. 81.]

Would he like to explain that?

[Mr Jones]

The Minister does not quite understand. It is for me to ask him questions in interventions, not the other way round. He said that there were perverse incentives in local government. Can he name one council where that is the case? The hon. Member for Harrow East (Bob Blackman) could not.

[Robert Neill]

My hon. Friend specifically gave the example of his own council. The point that the hon. Gentleman and many other Opposition Members do not get is that the Bill is not just about dealing with the short-term issues of one-year funding settlements. It is about creating a system that certainly has an element of equalisation in it, because as we all know, all local government finance systems going back many years have always had a degree of equalisation. The hon. Member for Sheffield South East, the Chairman of the Select Committee—