Local Government Finance Bill

Lord Best Excerpts

Tuesday 3rd July 2012 Grand Committee

[Lord Jenkin of Roding]

Surprise, surprise, but there we are. Discussing this with the Local Government Association, it seemed to me that there would be merit in building in some form of escalator. Amendment 12 in this group introduces a limit, as it were, to say that it cannot be less than the previous year. However, that only stops it going down. Amendments 21 and 22, in the names of my noble friends and me, seek to build in a regular process by which the centralised share falls and the localised share rises. I do not for one moment claim that this is the only way of achieving an escalator; obviously, there might be a whole range of different options to do that. With these amendments we are arguing for the principle that the local authorities should be able to look forward over the next few years to a steadily rising proportion, both to increase the incentive to encourage development and more jobs, and to give expression to the increased localism which the Government aim to champion.

Amendment 22 spells out our proposal. I have said that I do not think this is necessarily the only way of doing it, but the proposal is quite simple: one starts at 50%; two years later the central share declines to 45%; two years after that to 40%; and two years after that to 35%. This takes us only up to 2018, and of course one is hopefully looking further forward than that. The corresponding local shares would go from 50% to 55% two years later; then to 60%; and then up to 65%. Therefore, over the period up to 2018, we would move from 50:50 to 65:35. Perhaps we could write this, or something like it, into the Bill. I made it absolutely clear that there are a number of different options for doing this and this was the one that seemed to attract some support in the local authority world. Local authorities particularly want to see some legislative provision setting out that the 50:50 split is not to be permanent or long-term.

As I have made clear—and this is very different from what I said when I was Secretary of State for the Environment in charge of local authorities—I am a huge supporter of the principle of localism. The noble Lord, Lord McKenzie, and others have made the same point. However, I detect the hand of the Treasury in this wish to maintain a 50% share. There is a feeling that it does not want to let go. My noble friend Lord Brooke of Sutton Mandeville and I have both been Treasury Ministers—I was the Chief Secretary at the Treasury—and I recognise that temptation. It seems to me that we have a choice here. Are we really going to encourage an increase in localisation or are we going to maintain a strong central control with some modest shift in favour of localism?

In considering the Bill and this particular proposal for the division of the business rate retention scheme, I hope that the Government will be prepared to accept that their good faith and belief in the principle of localism and localisation would be demonstrated by writing something like this into the Bill. That is what we are looking for. It would give an enormous fillip to the encouragement of local government which would go the whole way back, and local government would come to be seen as a more important area of governance in this country.

There is no doubt that as, over the past 30 or 40 years, the public have seen local government decision-making increasingly being taken over by central government, there has been a great loss of public interest in and concern over lower and lower voting figures. It is to the huge credit of local councillors such as the noble Lord, Lord Smith of Leigh, and others who are here that they have kept the flag flying in these difficult times. We now have a change of direction and I think that this has given local government an enormous boost of encouragement. It can say, “We really do still count. We are still looked to as an important area of government and not just as an instrument of central government”.

To my mind, if we could build into the Bill some form of escalator so that over the next few years there could be seen to be a shift in the percentage from a 50:50 towards a 65:35 split, or whatever it might be in six or seven years’ time, that would send out a very important signal to local government that the national Government are on its side and that they want to make localism work and make it a greater reality. The advantage would be that it would increase local authorities’ incentive to encourage development and so achieve growth and jobs.

If that is not done, it will give the impression that the Government—the Treasury would carry the blame—are giving a higher priority to tight monetary control than to encouraging growth. There has been a huge amount of argument about that over the past year or two but here is one way in which we can fight back on it. I hope that we will be able to persuade my noble friend on this. She will no doubt wish to discuss it not only with her colleagues in the DCLG but with Treasury Ministers—I know that they have a lot of other things on their plate at the moment—to see whether we can do something along these lines. It would be a hugely important signal to send out and a great encouragement to local authorities, as I hope that noble Lords will agree.

[Lord Best]

My Lords, I would like to speak to Amendment 16, which comes before the amendments in the name of the noble Lord, Lord Jenkin. I declare my interest as president of the Local Government Association. I express thanks to my various vice-presidents, particularly to the noble Lord, Lord Jenkin, for an exposition in very eloquent terms on the point covered by my rather cruder Amendment 16.

The LGA, representing district, metropolitan and county councils of all political hues, as the noble Lord has said, has expressed disquiet that there is to be a division of the business rates that retain so much central control, despite the positive rhetoric of localism. The LGA recognises that central government wants to keep a firm hand on local government finances during the period of deficit reduction covered by the current spending review, not least to impress the international financial markets that deficit reduction is being taken very seriously. The measures in the Bill are likely to last well beyond that deficit reduction timescale and local government at large is keen to ensure that the retention by central government of 50% of all business rates revenues, and indeed 50% of any business rate growth, shall not be maintained after its purpose has been fulfilled.

This amendment calls for central government to discontinue its retention of a share in local government business rates revenue after 2014-15; that is, after the last financial year in the current spending review period. I recognise that the Government may well be keen to extend the period a little longer because their deficit reduction objectives are likely to go on beyond 2015. However, the LGA, London Councils and others representing local government all agree that that top-slicing of business rates revenues by central government needs some clear end date. The 50% top-slicing greatly restrains the ability of local government to benefit fully from its support for any business rate growth and undermines the localism agenda of devolving powers away from the Secretary of State to local government.

In responding, perhaps the Minister could address one aspect of this concept of a central share of all business rates. I know that the Government have stated their intention to return the revenues that they receive through this arrangement to local government. That certainly sounds as though the Government’s intentions are not to redirect resources away from local spending, but it is unclear how the funding received by the Government will be returned to local authorities and what conditions are likely to be attached to it. Clarification on just how that somewhat circular movement of finance will operate would be much appreciated. The underlying point of the amendment is to draw out the Government’s view on just how long this central government control over half the business rates should last. I entirely support the comments on that from the noble Lord, Lord Jenkin.

[Lord Tope]

My Lords, my noble friends and I have added our names to Amendments 12, 16, 17, 21 and 22, which have been very ably spoken to by the noble Lords, Lord Jenkin and Lord Best. I shall not repeat all that they said; suffice it to say that I agree with everything that they said. The noble Lord, Lord Jenkin, made some mention of the disappointment in local government when the 50:50 split was announced. That was profound perhaps because local government was expecting more, given the rhetoric from the Government when the so-called repatriation of the business rate was first announced, something for which all parties in local government have strived ever since my noble friend Lord Jenkin nationalised it some years ago. So there was an expectation. He has repented many times since then—and blessed is the sinner.

--- Later in debate ---

Moved by

[Lord Best]

15: Schedule 1, page 21, line 18, at end insert—
“(2) In Schedule 8 to the LGFA 1988, after paragraph 5(7) insert—
“( ) Appropriate rateable values will exclude a percentage of any increase in total rateable value of all appropriate hereditaments within the billing authority area as laid down by the Secretary of State in regulations.
( ) In setting the percentage, the Secretary of State must take into account the indexed rate of increases in rateable value of all hereditaments of all billing authority areas.””

[Lord Best]

My Lords, if the wording of Amendment 15 is pretty incomprehensible to most of your Lordships, I assure the Committee that I, too, found it extremely hard to follow. Indeed, officials at the DCLG have suggested that it should refer to Schedule 7 to the Local Government Finance Act 1988 and not Schedule 8, and they may well be right. However, I am anxious not to get bogged down in the incredibly complex intricacies of the Bill’s wording. Instead, I hope that this amendment will open up the debate on one important issue within the Bill.

The point of disagreement that the amendment addresses relates not to any difference on policy but to a divergence on the best way of implementing that policy. It is a difference between the clever people inside central government departments who devised the Bill’s clauses and the clever people inside local government who spot practical deficiencies therein. With this amendment, I think that all concerned are in agreement on the policy objective: that new arrangements should enhance incentives to local government to be more business-friendly and to increase the commercial viability and the wealth generation of the areas they serve. However, those drafting the Bill may not have chosen a route in this so-called fiendishly complex mechanism that achieves the desired goal in at least one important respect.

The problem is that the legislation would see councils rewarded from an increase in business rates that follows from physical growth in the authority’s tax base—that is, an increase in rateable floor space—but not from increases in the rateable value of existing properties. That means that there is an incentive for councils to go for the building of new offices or for larger-scale, out-of-town developments, but there are no incentives for councils to enhance the rateable value of existing buildings—for example, by spending money on the public realm, transport and community safety, attracting more businesses and more customers and users of services to the area. In heavily developed city locations, there may be few opportunities for creating lots of new buildings, leaving aside the kind of intensification that buildings such as the Shard can create. However, councils can be hugely important in improving the environment and the quality of an area, which leads to greater attractiveness to businesses and thence to higher business rates.

As I read the briefings, I am left with the thought that excluding business rate growth that comes from rental price increases at revaluation is simply an omission in the Bill. All of us would want to encourage councils to pursue economic growth policies that attract new businesses that result in such rises in rental values. Clearly, it can take a lot more effort on the part of a council to organise the upgrading of the business district, spending money on green spaces, on transport links, on improving appearance and on enhancing safety and security than simply granting planning consent for an edge-of-town, traffic-generating, environmentally unfriendly shopping centre; yet the former would provide no benefit to the local authority in terms of a share of the uplift in business rates while the Bill incentivises the latter.

I have had a look at several reports that have been sent to me, starting with a useful one from the Centre for Cities think tank, which was published in February. It makes the case for rewarding revaluation of growth because in some areas physical growth is just not where the focus should be if the end goal is growth and jobs. It identifies two types of area in particular—high-density restricted supply areas such as Westminster or Camden and slower growth or right-sizing areas such as Preston and Chatham. It also includes data demonstrating that, in 2007-08, 50% of authorities saw a reduction in rateable floor space, which the authors put down to a reduction in manufacturing, factories and so forth.

London Councils produced a report last year that included a graph detailing the physical expansion and decline of local authorities’ business rate tax base. The overall position for London was a net loss of properties. Some 14 out of 33 London boroughs actually saw an average decline during the period and, of those that achieved reasonable physical growth, the effects of the Westfield development in Shepherd’s Bush and terminal 5 opening at Heathrow had a large positive effect on the two boroughs concerned: Hammersmith and Fulham and Hillingdon respectively.

Then there was a report from the London Chamber of Commerce called Driving Local Growth, which detailed the results of a survey it carried out asking London businesses for the most important areas for prioritisation by local authorities. Interestingly, the result was not that businesses were keenest on planning considerations being improved but that infrastructure was top of their list, improving community safety and the public realm. Those were registered as most important by local businesses.

I know that this is a somewhat London-centric case, but many other towns and cities will also be seeing little physical growth in business premises but real opportunities to make what already exists more profitable for their areas. A system that incentivises councils only to promote physical growth seems to miss the point and is certainly not an environmentally sustainable approach.

It would be helpful if the Minister could take this away and satisfy herself that the Bill has not unwittingly erred in this regard and that an amendment along these lines would not be in everyone’s interest. I note that prior to the last general election the Conservative Party published a report about the business increase bonus, calling for the measures that would incentivise councils to promote economic growth and support businesses by ensuring that authorities directly benefit from enhancing local commercial environments. If the amendment that I propose is defective in that regard, other amendments are proposed by those with a deep understanding of these matters from within local government. I hope that the Minister will accept in principle that this issue is worth pursuing.

--- Later in debate ---

[Baroness Hanham]

I did have to look over my shoulder for that one and I am told that it is an improvement against physical growth, but I will write a bit further to the noble Baroness.

[Lord Best]

My Lords, I am grateful to the noble Lords who supported this difficult but fundamentally important amendment. I thank the noble Lord, Lord Palmer, and the noble Earl, Lord Lytton. Perhaps I might respond briefly to the noble Lord, Lord Beecham, by saying that the objections he raises—first, that some places would get a windfall and might not deserve it and, secondly, that some places will see a fall in rental values and therefore of rateable values and income—did not strike me as undermining the case here. Major infrastructure projects require people to buy into them; to accept that Crossrail will come through town, or whatever the big issue is. It helps if there is some financial return to that area for the inconvenience that can elapse, perhaps for several years, when major infrastructure projects come through. However, this amendment is not of course specifically addressing that but addressing the upgrading of a particular part of town by the efforts of the local authority. That is the principal objective.

In relation to the noble Lord’s second point, that some areas may see a fall in values—that factories may close and nothing may happen—this amendment is intended to provide local authorities with a greater incentive to prevent that and to do something about it. If the council makes the area much better for customers to come to and for offices to recruit staff to work there, and if it does some good for the area, that is surely good for the local economy and can revive and regenerate a place. However, if councils have absolutely no incentive to spend that money in times of difficult resource allocation for them, it would seem most unlikely that local authorities would put their backs into trying to drive some business improvement and growth in those places. It strikes me that this amendment still has some heart to it. The technicalities have completely escaped me along the way and I would be very grateful if I could take up the Minister’s offer to explore whether or not her response was helpful.

[Lord Beecham]

Perhaps the Minister would also like to consider that question. I come back to the point that the noble Lord, Lord Best, has just made. I have a fair amount of experience in this area of regeneration. When I was leader of my city council, we had two quite different propositions. The first was, initially, to start developing along the riverside in Newcastle and to take advantage of the then Conservative Government’s enterprise zone. It was developed as a business park and we helped an engineering company, Michell Bearings, to move into a new factory. That factory was modern and all the rest of it but, 20-odd years later, it has closed. There is nothing much we can do to get it reopened. It is in an enterprise zone and has that attraction, for what it is worth. It is close to a bypass, which we would like the Highways Agency to do something about but cannot.

Against that, when we were faced with another aspect of enterprise zones, the development of an out-of-town shopping centre, we worked very closely with local business to promote the existing shopping core in Newcastle, just as other authorities did when faced with similar problems. That is one case where we can and did do something by responding to a downward pressure on business. In the other case of the closure of that factory, and indeed of another which we had always supported in another part of town, there is very little we can do. That, it seems, is the dilemma: we could find by accident or design that a substantial benefit is going to areas which have contributed nothing in the way of policy at all, let alone investment, towards the creation of value which they will get not just in the form of a 50% share of the rates that accrue but as the full amount. That is the point. Subject to the tariffs and all the rest of it, there is to be a retention, is there not, of the growth in business rate and not just the core rate. That could be quite accidental, and the product of other people’s decisions to which the local authority may have made no contribution at all. The consequence in the system as a whole is that it could widen disadvantage between one area and another. That is the point that we need to explore further. I have said enough and I leave it at that.

--- Later in debate ---

[The Earl of Lytton]

My Lords, I am thinking about the current process of recording hereditaments, as they are known, in the local rating lists. I call to mind that as a result of the riots last year, one or more commercial premises were totally destroyed. As I understand it, there is a vacant site awaiting redevelopment that is described as a shop and premises, and it is in the list at £1. The Prime Minister had in fact said in the wake of the riots that properties with damage would be taken out of assessment altogether. Now, there is a little wrinkle here. If a site remains in the assessment, effectively as a cleared site, but is still called a shop and premises or a department store and premises, or whatever it was, at a £1 rateable value then it is still in the list. When it comes back into the list again as a refurbished property, it will be at whatever the level is of the new premises. If it was a redevelopment process—not riot damage or anything like that—in which the local authority was a key player, the question is whether it stands to be disenfranchised because the hereditament has not been taken out of the list altogether and is not therefore really a new entry in the list. It is a revaluation of an existing one.

This might be looking for trouble where there is none, but I want to be very careful. As I made clear both in the debate on the Queen’s Speech and at Second Reading of this Bill, there are a number of little wrinkles creeping in because of the way in which Treasury policy now appears to influence the work of the Valuation Office Agency in handling the entries in the valuation list. I want to be absolutely sure that by dint of this business of not taking things out of assessment when in fact they probably should be, we are not going to find that we have disenfranchised the authority from that gain in rateable value, which is undoubtedly the work of its own hands.

[Lord Best]

My Lords, I think I should withdraw this before we get any deeper.

[Lord Brooke of Sutton Mandeville]

I realise that the noble Lord is about to ask permission to withdraw his amendment, but I could see that the Minister and her counsellors were engaged in conversation. If I just add a couple of sentences, it might enable the Minister to conclude her conversation, though I am not in any sense imposing on her.

If this is the last opportunity to give advice to the noble Lord, Lord Best, before his private conversation with the Minister, let me say something in the context of Crossrail, which has been used as an example and which had major constituency implications for me. On Crossrail mark 1, there was massive residential blight involved, about which I am happy to talk to the noble Lord, Lord Best. In the case of Crossrail mark 2, the Corporation of London was deeply involved in the terms that actually enabled the project to take place at all.

--- Later in debate ---

[Baroness Hanham]

My Lords, the noble Lord, Lord Brooke, gave me an opportunity to respond, which I am not going to take.

[Lord Best]

In that case, I am delighted to beg leave to withdraw the amendment.

Amendment 15 withdrawn.