Local Government Finance Bill

Lord Brooke of Sutton Mandeville Excerpts

Tuesday 3rd July 2012 Grand Committee

[Baroness Eaton]

My Lords, a key concern of many local authorities, even within the new system, comes from those who are heavily dependent on government funding, the top-up grant or RSG. They are concerned with how that grant will be distributed, what factors are in the formula and whether a damping mechanism will still be retained.

When baseline rates are being calculated, the percentage share will be based on a historic average going back five years, which should help local authorities whose business rates have struggled to keep pace with the RPI. The lower the baseline rate position, the higher the top-up to which the authority will be entitled. There is potentially a small danger that there could be a significant change in an authority’s business rate’s tax base between setting the local share baseline and commencement of the scheme. Has the department recognised that and is it likely to make any allowances for it happening?

Another area of concern is that if only marginal changes are made to the current formula grant distribution model, the formula will not adequately reflect the needs placed on some local authorities, particularly for looked-after children—that is just one example—and local authorities that see a sudden increase in primary school numbers. Those are our concerns. The new RSG gives the Government scope to reduce local authority spending without having to reset top-ups and tariffs. How this reduction will be distributed is not known. For authorities where the RSG element is by far the most important element in their income, not knowing how that mechanism works makes forecasting very difficult indeed.

We have not mentioned what has been referred to on a number of occasions: the suggestion that local authorities should be interested in pooling. In principle, the pros and cons of the impact of pooling can easily be seen. It sounds a very good idea, and it is not hard to judge whether it is going to be good or bad, but if we do not have a mechanism by which to know what the outcomes will be for individual authorities within that pooling, it is very difficult not to have just a clubbing together. If you have more than that, administration and governance matters are going to be of concern because there will be a possibility of risk and reward, and that needs to be ascertained. It sounds a very good idea that we meet as a club to pool things, but the effect will be different on different authorities within that pool, and I would like the Minister to say how the Government think that will work.

[Lord Brooke of Sutton Mandeville]

My Lords, I am not a vice-president of the Local Government Association.

[Baroness Eaton]

My Lords, I am. I apologise.

[Lord Brooke of Sutton Mandeville]

It is more important that I made the remark that I made a moment ago. I am not rising to move an amendment, and I think I can give the Minister an assurance that I shall stick to that resolution about not moving amendments. I am grateful to my noble friend Lord Jenkin of Roding for reminding me that I was once a Treasury Minister, although for a reason he may not have expected by his reverence—reference.

[Baroness Eaton]

He is very reverent.

[Lord Brooke of Sutton Mandeville]

I will accept the reverence. My noble kinsman was, like my noble friend, Chief Secretary to the Treasury. In fact, he was the first, so he was allowed by Harold Macmillan to invent the title. In those days, the UGC of semi-beloved memory was a Treasury function for which my noble kinsman was responsible. Two decades later, I became Higher Education Minister. When I entered office, the hand of the Treasury was still in evidence in relation to higher education institutions, particularly in relation to the disposal of assets. If a higher education institution disposed of an asset, it had to hand back to the Treasury the entire financial fruit of its decision to so dispose. I was Higher Education Minister for two and a half years. About halfway through that period I persuaded the Treasury that its policy was not conducive to higher education institutions disposing of assets and it allowed higher education institutions to retain 50% of the assets they sold—a percentage that is germane to today’s debate. Before I left office the Treasury had come round—although it did not execute it until just after I left office—to letting higher education institutions have the whole lot. I say this simply to encourage not only the rest of the Grand Committee but even conceivably the Minister that it may be possible that concessions may be made at some stage in the future.

[The Earl of Lytton]

My Lords, I apologise to the Minister. I would like to follow the point raised by the noble Lord, Lord Jenkin of Roding. Not being a financial expert, but with my experience of the local government finance system, I liken this to that time-honoured competition that used to appear in some newspapers, the spot-the-ball competition, which I am afraid rather dates me. I refer to where the money goes and all these labyrinthine methods of checks, balances, benefits, credits and grants for this, that and the other.

However, I would like to concentrate on the question of the 50% share of the business rates under the business rate retention scheme. I say that as a veteran of development schemes of one sort or another by virtue of my profession. By the time there has been a redistribution to various other precepting bodies, a 50% take of the business rate is hugely unlikely to be any real incentive to a billing authority in terms of encouraging the growth in the tax base. Ultimately, it is the growth in the tax base that is the key to this. Unless the rate of tax per property band or per square foot of business space goes up, with all the consequences in terms of public opinion that that might involve, we have to grow the base. The other thing that will come up later is the question of making the system fundamentally more efficient, on which I have various amendments later on.

The development process represents a great number of hazards in terms of the finance of organising it and, particularly until recently, the growth of the front-loading of all manner of planning applications with a plethora of things related to sustainability and compliance with planning. Local electorates, furthermore, bearing in mind that they tend to be council taxpayers, often view large-scale development, particularly commercial development, in a negative light. So there is a downside to the whole process. A series of political risks has to be underwritten by this, and that requires a careful balance of what the yield will be before one can expect a billing authority to embark on this road with regard to so little a sum as 50%. That has to be reviewed, particularly because I understand that 50% would also apply to new space that comes on stream, so there will be no gain there either unless you happen to be in a son-of-enterprise-zone area, in which case a different set of rules will happen.

One particular question was put to me by the chief executive of the Institute of Revenues Rating and Valuation, a body of which I am a member. I am not expecting an answer to this, but it is worth pointing out at this juncture. The current council tax benefit scheme is financed by the Department for Work and Pensions by way of the subsidy paid to the billing authority. The current amount that I have been given for England is £4.3 billion. That might be for England and Wales and if I have not got the sums quite right, I apologise to the Grand Committee.

Under the new local support for council tax—the LSCT scheme set out in the Bill—the grant for this new scheme is to be paid out of the central share of business rates and the amount is to be the same £4.3 billion less 10%, because we know that the whole process will be scaled back by that amount. If one is doing a spot-the-ball competition, the question is whether and, if so, how will the Department for Work and Pensions reimburse the Department for Communities and Local Government the £4.3 billion—minus the 10% of course—which is being financed by the business rate? I should say straightaway that I do not expect an immediate answer from the Minister.

--- Later in debate ---

[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.