Local Government Finance Bill

Lord Palmer of Childs Hill Excerpts

Thursday 5th July 2012 Grand Committee

[Lord Jenkin of Roding]

My Lords, this group includes Amendment 46 in my name, to which I am delighted to see the noble Lord, Lord McKenzie, has added his name. We come to this in a splendid example of a total coalition, if I may put it like that to my noble friend the Minister.

I will say a word about a special point that affects the City of London in a moment, but the point about Amendment 46 is that it is asking that volatility in local authority income due to rating appeals is formally recognised and “fully compensated”. The justice of this is self-evident. Under the current proposals for business rate retention, local authorities will be unable to benefit from business rate yield growth due to rental increases after revaluation. However, when it comes to reductions, local authorities are expected to manage and absorb funding volatility caused by rating appeals after revaluation, subject to the provisions of the safety net. Of course, volatility in funding will fall entirely on the local authority.

Just as with other matters of this kind, it is not within the control of local authorities because the rating revaluations are all done by the Valuation Office Agency, which is outwith local authority control, and yet the Bill is providing that local authorities must bear the risk. This seems unbalanced and unfair. If it is right one way, it must surely have the converse effect of being right the other way. I should be grateful to hear my noble friend’s answer to that.

Under the current proposals there is what London Councils describes as asymmetry—a view that I entirely endorse. It seems to me that they are wholly asymmetrical and that, in these circumstances, there must be some form of indemnity from the Government against significant VOA errors. Without this, local authorities will simply have to bear the whole risk, which could be quite substantial.

I give notice that the City corporation has raised with me a separate point on which it may wish somebody to table an amendment on Report. It is a slightly different point but it comes up under the same general issue. It is technically distinct from our proposal, which I have just described under Amendment 46; nevertheless, it seems to be in some way similar. Our Amendment 46 deals with appeals founded on some error by the VOA. The City’s difficulty concerns appeals or alterations founded on a subsequent change of circumstances—namely, for instance, a movement in the local property market that produces an oversupply of commercial property. They have had experience of this in the City. Of course, it does not affect just one office or one set of business premises; it affects them all at much the same time. Therefore, it could have quite a serious impact on the City and on other areas where there are high concentrations of high-yield commercial property.

Even after the dispute has been resolved, the refunds can be backdated for several years, which means that the local authority has to wait for them. Here again the argument should be that local authorities should not be exposed to this kind of risk, because the Government have already accepted that they are not to be exposed to bearing the risk of general movements in the local property market. If it is right there, why is the same argument not applied to movements due to appeals from the valuation office? I understand that it would be appropriate to raise a separate amendment if one was going to try to incorporate something in the Bill, so at this point I am just giving notice of this issue to my noble friend. However, I think that there is a point on which she may wish to comment—she probably knows about this—as well as on what I would call the enlarged coalition proposal under Amendment 46 that the volatility of the ordinary valuation process should be borne by the Government and not by local authorities.

[Lord Palmer of Childs Hill]

I rise to make the coalition complete and show that it is indeed a multi-coalition point. My name appears on this amendment, as does that of my noble friend Lord Tope. Most of what I wanted to say has been covered by my noble friend Lord Jenkin. I just emphasise that the Valuation Office Agency is another separate body and that it will make decisions on appeals. It will decide whether there is any liability but local authorities will have to pick up the pieces. It seems that there is central government on one side and local authorities on the other. To my shame, I am not sure whether the Valuation Office Agency is still a part of HMRC but it certainly was as a valuation office. Local authorities will be caught between a rock and a hard place because things will happen that neither government nor local authorities will be involved with, and local authorities will then just pick up any compensation that might be needed. Although my noble friend Lord Jenkin widened it in many ways, so far as I can see, all the amendment is seeking is to ensure that losses due to appeals are fully compensated from the safety net. We believe that this would be fair and equitable for local authorities.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, I have added my name to Amendments 47 and 48 and wholeheartedly support the proposition that has been argued by the noble Lord, Lord Jenkin. There is nothing more to say on that matter.

The noble Lord, Lord Beecham, and I also have Amendment 49 in this group, which is a bit of a failsafe proposal. It says:

“Should any part of a balance on a levy account for any year remain undistributed after 3 years from the end of that year, the Secretary of State shall report to Parliament on the reasons therefore”.

If it is accumulating over that period, there is real cause for concern. This is an added protection and certainly does not displace the propositions in the earlier two amendments.

[Lord Palmer of Childs Hill]

My Lords, the noble Lord, Lord Jenkin, has covered most of this but I wish to add a few words on Amendment 47. This ensures that the Secretary of State must consult on whether the remaining balance on the levy account is redistributed to local government or rolled over to the following year. I really feel that this amendment is trying to prevent this legislation from resembling the National Lottery, where if someone does not win a prize it is rolled over to the next round. Here, instead of there being a balance that is distributed to the people whence it came, we are suggesting that it is rolled over to the next lot of recipients in some lottery-type arrangement. All this amendment is trying to do is to limit the levy to the period to which it relates and to those who have contributed to the levy within that period.

[Baroness Hanham]

My Lords, we are in danger of amending the amended. These clauses were amended in the other place as a result of some of the concerns there. These amendments would reverse changes to the way that the Government distributes surplus levy income that were made in the other place. I recognise the noble Lord’s intentions in tabling these amendments—indeed they reflect much of the Government’s proposed process for distributing the levy surplus when we first introduced the Bill in the other place. However, as the Bill was amended to meet concerns raised there, I cannot accept these amendments. We have said that any surplus levy income that is not needed to fund the safety net will be distributed back to local authorities. We will not simply hold larger and larger surpluses.

Amendments 47 and 48 propose that the Secretary of State should consult with relevant authorities in advance of determining how much levy surplus should be distributed back to local authorities and set out the basis of distribution of levy surplus in the annual local government finance report. Although I sympathise with the intentions behind these amendments, setting out the distribution of any levy surplus through the local government finance report rather than through regulations is not the best approach. In fact, there are unintended consequences of this approach, in particular for the timings of payments to distribute the levy surplus.

When the Bill was discussed in Committee in the other place, concern was raised that the proposed process for distributing surplus levy was a bit long-winded. Setting out the basis of distribution through the local government finance report would mean that even when the Government had taken a decision to distribute some or all of any surplus back to local government, authorities would have to wait six months to a year before they saw the money. As a result of that, the Government agreed to look into speeding up the distribution and therefore amended the Bill—which is how it stands now—so that the process for distributing levy surplus, and the basis of that distribution, could be set out in regulations, ensuring that the payments can be made immediately after the decision to make them is taken.

Furthermore, to provide appropriate parliamentary oversight, the Government ensured the regulations would be subject to the affirmative procedure and hence subject to the approval of both Houses of Parliament. Regulations will need to be in place well in advance of any levy surplus being distributed, so authorities will have the certainty that the noble Lord is seeking. Once the regulations are in place, they will have this certainty each and every year until and unless they are revoked.

Amendment 49 requires the Secretary of State to report to Parliament the reasons why any remaining balance of the levy account has not been redistributed within three years. Again, although I recognise the intention behind this amendment, I do not believe it to be necessary. I reiterate that it has always been the Government’s default position not to hold back excessive amounts of surplus levy. The levy account will also operate with a high degree of transparency—the payments made both to and from this account will be easy to identify, as will the overall balance. Furthermore, the Comptroller and Auditor-General will report on the account and lay this report before Parliament in the same way as he currently does in the report entitled Pooling of Non-Domestic Rates and Redistribution to Local Authorities in England. This will provide Parliament with adequate opportunity to raise the issue of the levy balance, if required, through the normal processes.

On the basis of these arguments and the fact that this has already been amended, I hope that noble Lords will not press their amendments.