Local Government Finance Bill

Lord Jenkin of Roding Excerpts

Tuesday 12th June 2012 Lords Chamber

[Lord Jenkin of Roding]

My Lords, I hope that my noble friend on the Front Bench will listen carefully to what the noble Earl has said. He speaks with great authority on these matters and probably knows more about aspects of rating than anyone else in the House. He was very modest about his own knowledge but he was quite wrong: he is in fact extremely knowledgeable and we need to listen to him.

I, too, declare my interests: I am a joint president of London Councils and, like many other noble Lords, a vice-president of the Local Government Association. I offer a warm welcome to the main objectives of the Bill. The retention of local business rates is intended to and will, to some extent, provide an incentive to encourage development, and therefore provide increased employment and increased yield of rates. Another aspect, which has not been mentioned, is that it will, or should, help to build relationships with the business community in its area. It has certainly been so looked at by the London Chamber of Commerce, with which I have been in touch, and it has raised one or two points to which I may return in Committee. However, that is certainly one of the objectives.

I support the localisation of council tax reliefs although, as my noble friend Lord Tope has said, it is not supported by all the local government associations. In particular, it is not supported by London Councils, of which, as I said a moment ago, I am one of the joint presidents. I accept the argument that local authorities should know better than central government the people who need support and the best way of supporting them in the context of the local situation. It cannot be right to operate a one-size-fits-all policy. When there are great variations right across the country, a single system does not make sense. However, the broad objective of returning to local authorities some responsibility for this is something I support.

My noble friend mentioned tax increment financing, which should improve the basis on which local authorities can raise money to finance infrastructure investment. It has been asked for for a long time and I welcome its proposed introduction.

However, I must go on to confess to a good deal of disappointment and a few real concerns. Perhaps I may take these three elements in turn. On the question of the retention of local business rates, I should start by saying that I was the Secretary of State who, in the phrase used by my noble friend, nationalised the business rates. I did so for a very pertinent reason: businesses were expected to pay, but they had no votes. There was huge indignation right across the country and it was seen as unfair. But, of course, it is now central government which sets the rates, but that does not mean that it has to keep the proceeds. The point has already been made by the noble Lord, Lord McKenzie, that it is disappointing that the Government still intend to keep 50% of the proceeds. I think that that is far too high a proportion. It means that the Government have to retain a large measure of central control and influence, whereas the whole process of localisation is intended to reinforce local accountability. There is clearly a conflict here. Ministers will not be surprised to hear some of the same arguments they had to listen to from me and others on the Localism Bill as it was going through, but happily on that occasion we did secure some quite significant changes. I hope that we may be able to do so here.

Perhaps the main argument about retaining 50% is that it substantially weakens the incentive to encourage local development. There is no question about that. Anyone would say that that 50% must be less than 100% or something in between. The Government have themselves published figures that in effect admit this in their paper, Business Rates Retention Scheme: The Economic Benefits of Local Business Rates Retention. I am not going to weary the House by quoting the figures, but the fact is that the Government’s own departmental analysis states that the incentive for councils would be greater if there were no central share. The paper sets out a very complicated economic analysis based on a number of assumptions and other work. The middle case of the scenarios predicts that given a 50% local share and a seven-year reset period, which has already been referred to, an additional £10.1 billion of GDP could be created. That is not to be sniffed at, but in the lowest case scenario it would be only £1.7 billion of GDP created over seven years. The best case would be a great deal higher, at nearly £20 billion. The size of the incentive is very much related to the proportion of the business rates that are to be retained centrally. The Government justify opting for the central share of 50% on the basis of the cost whereas the local authorities argue that the Government are putting,

“controlling local authorities’ funding above the objective of promoting economic growth”.

That is something which this House should challenge and it is an issue that we will want to explore in Committee.

The noble Lord, Lord McKenzie, referred to the system as being “fiendishly complex”. I also have that phrase in my notes since it is London Councils’ own analysis. But it is worse than that because so much still needs to be announced and published. Many vital factors still have to be decided. For example, the long list of current grants that are to be rolled into the system is a very welcome simplification, but it is not at all clear whether central or local government is going to pay for that. The Government say that further details are going to be consulted on in the summer. The precise definition of business rates income is again to be the subject of a summer consultation. It is quite difficult for the House to consider this complex legislation with these sorts of things still to be announced. The operation of the levy and the safety nets provisions have also been mentioned by a number of noble Lords. Many of the parameters there are still to be decided and will be the result of a consultation “in the autumn”.

Of course, it is a sensible aim to have all these complications to prevent cliff edges and perverse incentives but the effect is to expose local authorities to a degree of volatility in their income that will make it extremely difficult in the early years for finance officers to draw up anything like a clear, firm budget. I have to say to my noble friend that that is one of the major anxieties that the local authorities have about this. It is a good idea, but in practice it is going to be extremely difficult.

The main worry with the localisation of council tax reliefs is that, as the noble Lord, Lord McKenzie, said, it is being combined with a 10% cut in council tax support but also with a very long list of mandatory reliefs that have to be carried over. To say that local authorities have a great deal of discretion over how the system of council tax reliefs should be operated is something of an exaggeration. It does mean that the element over which they still have consideration may experience very substantial burdens and effects because so much of it is being prescriptively insisted on by central government. If you are going to have local reliefs for council tax, surely it is important to give local authorities the maximum degree of flexibility as to how this is going to be done, especially if it is being combined with a 10% cut in the funding of the whole benefit. If it goes through unchallenged, some people will be very hard hit and there may even be further cuts in front-line services.

The second main worry, which has already been mentioned, is that this is all being introduced at the same time as the reforms under the Welfare Reform Act and the universal credit. I have to say that I did not take a full part in the proceedings on that Bill but there are many who did. These reforms are complicated enough and are giving rise to a very considerable worry as to how local authorities, particularly their IT systems, are going to be able to cope. I am grateful to my noble friend for having met me the other day to discuss some of these things. It is here that there is the greatest danger of a serious breakdown unless something is done to ease the problem. It may be a question of timetabling. It may be sensible to delay the phasing-in of this so that the local authorities can deal with these things rather more effectively.

Finally, there is TIF, as my noble friend Lord Tope called it. Huge hopes were aroused when the Deputy Prime Minister made an announcement as long ago as September 2010 that TIF would be introduced, to the great advantage of local authorities. The Core Cities Group had campaigned for this for a long time and warmly welcomed the announcement. However, the high hopes that the Deputy Prime Minister aroused at the time are clearly not going to be delivered in the way in which people were led to believe. I cannot possibly go into the details today. I have, however, discussed this with officials in London Councils. One very senior official said to me:

“We’ve largely given up on TIF, it’s a theory with lots of potential but the government is so tightly constraining it that it’s difficult to see that it will make much difference on the ground”.

He went on to spell out why. I am afraid that that is a harsh criticism, but it is one with which I have some sympathy.

I end with two queries, again to reinforce my question as to the timetable for taking this Bill through. We were originally told that it would be committed to a Committee of the Whole House, with a few long sittings, going up to 10 pm or later, in which we could have got through it; now we are told that the Committee stage will take place in the Moses Room—and, of course, the House rejected the idea of much longer sittings there. What is going to be the timetable? I have heard it said with some authority that the Bill is unlikely to end its Committee stage in this House until the Summer Recess. Is that what the Government are aiming at? If so, it strengthens the case for an extension of the timetable.

I ask my final question with some feeling. The Government have made it clear that they do not think that Mr Speaker will regard any part of what we are likely to put in as subject to financial privilege. I look back at the Planning Bill, or Planning Act as it is now, and the local infrastructure levy proposals. We had to put it through in statute and then the other place decided that we could not have anything whatever to do with the regulations. Is there any risk of that happening with the regulations which flow from this Bill? Will we be told by the other place that we can have no role in the regulations? We need to have an answer to that.

I am sorry if I have appeared a little critical, but I have looked at the scheme from the angle of the local authorities which will have to operate it. I must tell my noble friend that many of them are very worried.