Local Government Finance Bill

Lord Palmer of Childs Hill Excerpts

Tuesday 12th June 2012 Lords Chamber

[Lord Palmer of Childs Hill]

My Lords, I must also declare my interest as a serving councillor in the London Borough of Barnet, and currently as chairman of its audit committee.

The principle of the changes to business rates is to incentivise economic growth and to enable local authorities to benefit financially from such growth. As such, this aspect of the Bill must be welcomed, and I agree with this laudable aim. My problem is that I am concerned whether the Bill as drafted achieves that aim.

Central to the business rate retention is the real potential for it to be hugely and unnecessarily complicated, as some other noble Lords have mentioned. Councils will not simply retain the business rate income; it will be part of a complicated system where some elements will be retained, some will be paid to the Government and some will be used to fund councils that raise lower business rate yields. I hope that the Minister will say how the proposals can be simplified and what protection there will be against significant top-slicing of business rates by central government. After the current review period, in 2014-15 and beyond, it would be encouraging if the part taken by central government were progressively reduced from the starting rate of 50%. In fact, I would prefer that we did not start at 50%; as my noble friend Lord Jenkin mentioned, the Government must aim to reduce that, at least progressively.

The aim must be to financially encourage local authorities to increase their income from business rates by the expansion of business in the local area. That extra income can then be used for the encouragement of enterprise and jobs in the private sector. As drafted, the amounts available locally will be based on the increase in the physical number of new buildings, whereas any increase in existing commercial property valuations, which we have heard a lot about, will not be available to the local authority in terms of increased business rate income. If a local authority so increases the valuations of commercial property by the way in which it improves the desirability of trading in that local authority or borough, the local authority receives no financial recognition for its success in contributing to the increase in the valuation of those buildings.

The Bill, though welcome, tries to do too much by the overinvolvement of central government in taking a large slice of this new income, and the perceived need to share the additional revenue among less fortunate councils. The noble Lord, Lord Smith, talked about how the effect of the Bill was disproportionate in various parts of the country, but the fact is that business is disproportionate. The Government’s idea is to incentivise business—get more business, and you will benefit. The trouble is that by spreading out the benefit, you are reducing the incentive to those local authorities that can so do.

The proposals for council tax localisation come, as many noble Lords have said, with a 10% cut in the budget, which creates a significant funding issue. For the London Borough of Barnet, which is of course the one I know most about as I am still a councillor there, this means at least £3 million per annum. The figure of 10% is based on the historical amount of benefit for last year—in other words, at a given date—and it is very likely that, with local caseload growth, in real terms the 10% will be more like 15% of the historical figure. Local authorities will be substantially at risk for future caseload growth in benefits.

Like other councils, Barnet is required to pull together a local scheme that can pass some or all of this cut on to benefit recipients. One of the major concerns that noble Lords have mentioned is the timescale available to implement a local scheme, consult on it and then work with system providers to make the changes in the IT systems so that bills can be prepared and sent out, which is a practical necessity. I disagree with the noble Lord, Lord McKenzie, about the councils and local authorities that are not able to get a scheme together and have one imposed upon them. To my mind, it is imperative that every local authority gets a scheme, although the difficulty is how to send the bills out in the time available—it may be early 2013.

We then come to the thorny issue of which of the current council tax discounts can be changed in order to recover all or part of the 10%. The reforms will hit those in receipt of benefits, often—in fact, mostly—poorer people, whereas there is no scope to review, even if I wanted to, single-person discounts. Could local authorities be allowed some discretion to remove this discount in some way from affluent single occupiers? Why should they get a discount?

There will still be the sizeable anomaly where a house full of students attracts full council tax relief. However, no one will want to hit students further than they have already been hit by changes in university funding. What is the Government’s thinking on this? It seems that whereas home owners and home renters will pay council tax, landlords with a house full of paying students will continue to be free of any council tax liability. Although I am not advocating that students should pay, there could arise a gaping dodge—a gaping avoidance scheme—by which people put a student into an otherwise empty property so that no council tax is payable for that property. Councils will need to concentrate on reviewing discounts for empty properties and second homes.

Many local authorities will say that there is a problem with the proposal to give local authorities the ability to abolish or partially abolish the empty property exemption. The fact that a property is vacant could be due to a delay in the sale of the property; to a gap between tenants occupying an unfurnished let; to new owners having to do remedial works before moving in; to tenants moving out to sheltered accommodation; or to the fact that although the former tenants still have the lease, they have moved elsewhere possibly because of work commitments. In my view, taxing empty properties and removing the discount from second homes will not only produce revenue but bring empty properties back into use and free up second homes. I hope that local authorities will take the opportunities in the Bill so to do.

One city in the south, with a population of 207,000, reckons that if the empty property exemption were completely removed it could produce as much as £1,161,000. In my own borough it could raise about £1 million—although I think that the treasurers are, as usual, being cautious—whereas the 10% gap, the 10% reduction in benefits, will amount to about £3 million at current values, and that will go up as time goes on.

There is a great fear that the benefits case load will increase substantially because of the number of people unemployed. A significant number of pensioners who currently do not claim council tax benefits, although they could, will also be more likely to accept relief in the form of a “discount”—which is what it will now be —than as a “benefit”. In other words, do the Government —my Government—accept that there will be a substantial increase in the take-up of the pensioners’ discount because discount is not as bad a word as benefit?

My overriding concern about the localisation of council tax support, which I hope the Minister will address, and which my noble friend Lord Tope mentioned, is whether council tax support should not be incorporated within universal credit, with a system of direct payment to local authorities. The Bill is trying to do too much. Its provisions are laudable and necessary, but if the money which local authorities receive from ending the exemptions for empty properties or second homes is not sufficient, as it almost certainly will not be, then it will have to come from somewhere else in order to fund the 10% reduction. Where will it come from? You have two choices. It can either come from reducing benefits for poorer people lower on the ladder—those who are least able to afford it will receive less council tax benefit from the local authority, because the council will have to make up the difference—or the council will have to close more libraries, leave more holes in the road and so on so that it can reduce council expenditure. Localisation is great, but when it puts this sort of duty on to local authorities it creates a financial problem that is difficult to deal with whether you are in Wigan or the London Borough of Barnet.