Local Government Finance Bill

Lord Beecham Excerpts

Thursday 5th July 2012 Grand Committee

[Lord Shipley]

That would actually be a quicker way of proceeding.

I agree with the amendment moved by the noble Lord. The Localism Act was about devolving power and decentralising decision-making. This set of amendments makes it clear that there should be full consultation with local government before decisions are made. When decisions are made, that cannot just be about notifying those decisions but should clearly explain through consultation first but secondly explanation of the decision that has been made, particularly in a matter as complex as tariffs and top-ups. Thirdly, there has to be consultation on the detail not just on the general nature of things.

I hope that the Minister will take on board that feeling because the Localism Act has changed the balance of responsibility between central and local government. It would help enormously if it were not just left for the Secretary of State to have a set of powers whereby things can be announced but not actually explained.

[Lord Beecham]

My Lords, I entirely support the amendment moved by my noble friend and supported by my erstwhile colleague on Newcastle City Council and fellow vice-president of the Local Government Association. It clearly makes sense, and, as the noble Lord, Lord Shipley, said, it is clearly in the spirit of the Localism Act.

However, there is another aspect. The Government set much store on the proposals in relation to the business rate as part of an approach to incentivise and increase local investment by business, growing the local economy and all the rest of it. In that context, it would surely be sensible if, in addition to consulting local government perfectly properly on these topics, they also consulted business. That cannot be done at every local level by the Government and councils will no doubt continue to have discussions with their own local businesses. However, as I pointed out on our first Committee day when I quoted the London chambers report, some 53% of businesses believe that councils set the business rates now. So there is a certain amount of education to be done here. But at the national level, I would have thought it important for government to consult, particularly about that proportion of the business rate that is to be held centrally rather than devolved locally, because that clearly would be a matter of concern to the business community.

Without the necessity of moving anything formally, it would be helpful if the Minister could put on the record an intention that in any consultation about the business rate and the various elements, resets and proportions and so on, the Government will consult the business community as well as local government.

[Lord True]

My Lords, I apologise for leaving the Committee early last time. I had a meeting of my council to attend. I must also explain I am not a vice-president of the Local Government Association but I am in receipt of a very kindly letter from it inviting me to become one.

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For the sake of example, let us suppose that it takes between two and a half and three years to get the result of an appeal—for a valuation tribunal to pronounce on the matter. Assuming that it does not go beyond that appeal to a higher tribunal, the recalculation can start and might go back many years, as the noble Lord, Lord True, said. Having done all this tariff business, if I may call it that, how many bits of recalculation will be spread over this timescale, which extends backwards as well as into the future? I fail to understand how this can be made to work. My simple arithmetic—I do not regard myself as terribly numerate—suggests that there are too many variables to call the outcome. It has to be simplified.

[Lord Beecham]

My Lords, we are talking about a safety net, but it seems that both the number of holes in that net and their size are to be estimated. It is quite a difficult position. The formulation of the noble Lord, Lord Jenkin, seems much more rooted in objective fact and would give a degree of certainty. Should the Minister not take this matter back for another look?

[Baroness Hanham]

My Lords, I am happy to do that. The historic figures, which will be used across the country, will be used as the basis of what we have been talking about. We can try to bottom out the detailed calculations between now and Report. It is probably more helpful if I write to Members of the Committee so that they can see what they are. However, the rates system is not new; we have had a system of business rates for ages. At least some of it will not change at all. There have been rates and appeals for all that time. There is not a huge difference in the mechanism but the results may be slightly different. I will write to noble Lords about that as well; it will be a long letter.

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[The Earl of Lytton]

My Lords, that was what I was trying to say in terms of the Jubilee line, so I am sorry if I gave a false impression. These things are vitally important to leverage in that sort of level of finance. My only concerns are the times we live in. If one is dealing with a development appraisal in conventional valuation terms, the process contains a high number of price-sensitive variables, so much so that my professional body, the Royal Institution of Chartered Surveyors, does not really advise using that sort of development appraisal, or residual valuation, approach for producing what it calls a regulated purpose valuation because of the inherent number of price-sensitive variables. I do not want to pour cold water on things—I simply wanted to point out that TIF is a tremendously good idea but we must make sure that the circumstances are ones in which it can robustly survive.

[Lord Beecham]

My Lords, having spent some considerable time searching through the Bill to find where TIF was, I have to congratulate the noble Baroness on discovering it. It is a bit like Higgs boson. The physicist who discovered the Higgs boson will no doubt get the Nobel Prize for Physics. Perhaps we should nominate the noble Baroness for the Nobel Prize for political metaphysics.

[Lord Jenkin of Roding]

One might also congratulate the House of Lords Library on a very splendid section about TIF in its briefing pack for this Bill. It, too, had to say that TIF was not mentioned in the Bill at all. That point is enormously well made.

[Lord Beecham]

I reiterate my congratulations to the noble Baroness—and indeed the House of Lords Library.

The noble Baroness was rightly critical of some of the aspects of the public finance initiative with which she lived for around 20 years. I was with an LGA delegation on one of our rare visits to 10 Downing Street when we met the then Prime Minister, John Major, at the very beginning of this process. Of course, it has been adopted by successive Governments with considerable enthusiasm. But it always struck me that, whereas there was a good case for that kind of scheme where you could see a revenue stream, there was very little case where there was not a revenue stream. Schools and hospitals, for example, could not be allowed to close or fail, so there did not seem to be a chance of risk-classing in those sorts of cases, whereas on a more commercial basis it seemed quite appropriate. This, arguably, is a better version of PFI.

Of course, as the noble Baroness said, TIF derives from America, where they have other forms of municipal financing, such as bond issues. At some point we might want to look again at those as opposed to this particular scheme, which is analogous in some respects but tied more particularly to specific projects. There are certainly distinct advantages to this. I note the point that the noble Baroness, Lady Kramer, made about the relationship with enterprise zones. I hesitate to raise—for the fourth or fifth time—the question of enterprise zones and their relationship to various aspects of this Bill. I hope that I will have a reply to some of my previous questions, but I join the noble Baroness in asking about the relationship of enterprise zones to the TIF programme.

I am intrigued by Amendment 51, which seeks to avoid the trap of any such financing being regarded as part of what we used to call PSBR—now debt—and takes it off balance sheet. It seems such a simple solution that I wonder why it has not been adopted before, perhaps in relation to other matters. I hope that it stands up; it would be good if it did. If it does, I think we would be in a similar position to that of former Labour Ministers in 1931, when the incoming Government went off the gold standard and they said, “They didn’t tell us we could do that”. If this proves to be a viable mechanism, I hope that it will have a wider application, and indeed it might.

The noble Lord, Lord Best, referred to his special field of expertise, housing, and rightly pointed out that the schemes will not be available to support housing but will be available to support infrastructure. There are two aspects to that. First, there is surely another way of promoting housing construction. If the Bank of England is going to pump endless billions into the vaults of our esteemed banks, would it not be better to pump that money directly into housing construction? This would have precisely the same effects on the economy that the noble Baroness has alluded to: the net cost after you take off the savings to the benefits system—increased tax income from corporate tax and the like—would be less than the amount devoted. You would have assets on the balance sheet—this is not money for current expenditure—and that might be a way forward. I suppose that is not really within the province of the Local Government Finance Bill, but it raises the question of TIF and its use for infrastructure.

As I understand it, the Government have been looking for investment in infrastructure from pension funds and the like. I recall a recent report, although I cannot remember whether it was produced by the National Association of Pension Funds or the IFS, which indicated that there was little interest thus far in such funding from those sources, whereas this offers a clearer route to making rather more rapid progress, and I very much hope that it will be pursued.

Nevertheless, there are some potential flaws in the present proposals. In particular, the amount allocated— I think the noble Baroness said £160 million although I thought it was £150 million, but it is in that region—is pitiful, as she rightly said. I do not know whether yesterday’s “city deal” announcement dealt with this £150 million or £160 million—whatever the figure is—which I thought was to be allocated to the authorities involved in that city deal but, if so, however it is divided up, it is a very small amount indeed and will do very little. Even in a single authority, it would not do an enormous amount. Spread across eight authorities, it would do very little. I hope that this is seen as a first instalment and that the process will go on to much larger sums in future, and rapidly, if we are to see a real impact on the present situation in the economy.

TIF 1 also has its problems because, as the noble Lord, Lord Shipley, and the noble Baroness, Lady Donaghy, pointed out, the restrictions seem to be quite perverse. The timescale for repayment is particularly so because, if there are to be resets and so on, nobody is going to be taking on large sums that have to be repaid in a very short time, as the noble Lord, Lord Shipley, rightly said. Indeed, lenders may very well be reluctant to lend over those times. I entirely concur with the view expressed by the noble Lord, Lord Shipley, that it is ridiculous to have an absolute limit and for there to be a cap on expenditure in the first year. On the contrary, I would have thought the more the better to get the thing moving in the early stage.

We certainly approve of the concept and hope it can be made user-friendly, if I can put it that way, to lenders and authorities. These amendments certainly go some way to taking us in that direction. Again, the noble Lord, Lord Jenkin, is quite right. We cannot expect too much of the Minister in replying today, unless she has somehow received a blank cheque from the Treasury, which would be a first. I am sure she will report back the strength of feeling among people with considerable expertise in these matters, whether ministerial or professional, and we might see some improvement.

On Report, it would be helpful to have explicit reference to the scheme in the Bill. It has to be very clear what we are talking about and whether there are to be any changes in the scheme as adumbrated so far. It is clear that this is not going to be a panacea. It will not do everything, but it would be a welcome extra tool for local government, which is perfectly capable of using it effectively, as it has demonstrated for generations. It can and does play a significant part in regeneration, very often in partnership with the private sector. I very much look forward to the day when local authorities can get on with schemes under the aegis of TIF—however it eventually emerges from this Bill—and, perhaps, other measures.

I note that Scotland seems to have jumped the gun. That is interesting because presumably—certainly in the present state of affairs—what happens there would impinge upon the national UK debt. Sitting where the noble Lord, Lord Shipley, and I sit, just over the border, it would be extremely irritating if it were found that Scotland was able to do a great deal and we in the north-east were not. Of course, the same would go for many other parts of the country where there is huge need and demand for investment of this kind, and for the contribution that that could make to the economy.

I certainly commend these amendments, and I hope that the Government in one form or another can look sympathetically at them and address the very legitimate concerns that have been raised in order to make a good policy work effectively, which is what we must all seek.

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[Lord Warner]

It might just help the Committee to say that there are plenty of suggestions around, which the Government are well aware of, that enable you to implement the Dilnot proposals without any increase in public expenditure. What you are required to do, though, is reprioritise, which the Government are unwilling to do, as far as I can see. Starters for 10 would be not just the creative proposal of my noble friend but means-testing generous winter fuel payments, free TV licences and bus passes for people who are higher rate taxpayers. Plenty of proposals have been put forward for using inheritance tax to pay for that. All these proposals could be put into play if the Government were prepared to enter objectively into a discussion with the Labour Front Bench in the other place, with whom they are having so-called cross-party talks, but very little creativity seems to be coming from the government side.

[Lord Beecham]

My Lords, I am not empowered to commit the Labour Party to a particular policy stance on this, although I find some of the arguments and options advanced by my noble friends quite interesting. What I do know is that the Conservative Front Bench walked away from joint-party discussions two and a half years ago, have done nothing so far about Dilnot and, by all the auguries that we are hearing, do not propose to do very much about it. We will see in due course, if and when we get some proposals that may come before the Recess.

In what has been a long—perhaps inordinately long—municipal career, my most rewarding period was when I served as chairman of the social services committee of my council for four years in the 1970s. We managed to transform the provision of social services, at that time including children’s social services, since hived off—in my view, perhaps rather unfortunately —in a way that would now be impossible, given the financial situation. This is therefore a matter that is very close to my heart and, of course, to the hearts of many others.

It is disturbing that, as we have heard from my noble friend Lord Warner and the noble Lord, Lord Best, the financial situation is deteriorating really quite rapidly in the face of substantially rising demand, produced in part by demographic change, and in part by the advance of medicine and care. Younger people with physical and learning disabilities are living longer and elderly people are living longer, and we must be glad of that but, as we have heard, it imposes considerable pressures on services and budgets. We have heard some of the data on that this afternoon.

It is often assumed that we are talking largely about the older population. That is not the case because younger people with learning disabilities are growing fastest in terms of numbers and in terms of the costs that have to be met to care for them. The Local Government Association’s projections are that the percentage of expenditure on younger people will rise substantially—indeed, more than for the elderly. The cost of care for that particular group is expected to rise by 42% by the end of this decade. As the noble Lord, Lord Best, has pointed out, that ultimately could lead to virtually the entirety of local authority budgets being devoted to adult social care of all kinds. In any event, the LGA estimates that if current demand, which is likely to develop, were to be met in full, funding for all other services would drop in cash terms, assuming a level playing field, by 66% or 80% over that period, so we are talking about a very large potential gap. The consequences of some of the savings that have been referred to by my noble friend and the noble Lord, Lord Best, are rather worrying. The financial pressures on providers of residential care are causing considerable difficulties.