Local Government Finance Bill

Lord Pickles Excerpts

Tuesday 10th January 2012 Commons Chamber

[The Secretary of State for Communities and Local Government (Mr Eric Pickles)]

I beg to move, That the Bill be now read a Second time.

It is a relief to be called after all that waiting, Madam Deputy Speaker.

The coalition agreement committed the Government to supporting sustainable growth and enterprise, balanced across the country. It also pledged the radical devolution of power and greater financial autonomy to local government. This Bill delivers on those promises. It aims to introduce much-needed reforms to make England’s local government finance system more effective at supporting local jobs, local firms and local enterprises. This is not just about redistributing a pot of cash differently; it is about providing the best possible chances to foster more growth, generate more cash and make a bigger pot.

The case for change is widely recognised. The OECD has called the English local government finance system one of the most centralised in the world. The Labour Government knew that, but failed to deliver on reform. There were Green Papers, White Papers, the “Balance of Funding” report, the Lyons inquiry and, if that was not enough, the Labour party manifesto at the last general election boldly pledged another commission on local government finance. What little reform was introduced, such as the so-called local authority business growth incentive scheme, was timid, inconsistent and ineffective. The only thing Labour managed to do was to double council tax and halve local services, such as bin collections—pay more and get less.

Where others have failed to deliver, however, the coalition is ready to act. Nowhere is the need for change more apparent than in relation to business rates. Currently, councils collect rates for local businesses, but they are no more than the agents for central Government. No sooner is the cash in than Whitehall whisks it away. Whitehall feeds the figures into a very complex formula. Each council waits with bated breath to see how much it will get back. The 160-page local government finance report requires a detailed knowledge of multiple regression to fathom it out.

The system creates a perverse regime of incentives. Councils that work hardest to boost local businesses do not see their efforts reflected in the state of their finances. In fact, local economies that become more successful can effectively see their central Government grant cut. The regime actively encouraged councils to talk down their area, to mask their success and to amplify their deprivation; it breeds a begging-bowl mentality and a race to the bottom. Surely, now more than ever, we should welcome growth and reward incentives.

There is some criticism that Labour failed to deliver on its election pledges. Well, we are here to help. In the Localism Act 2011, we introduced a general power of competence, implementing a pledge in the 1983 Labour party manifesto. However, we have now moved on to the 1997 Labour party manifesto, and we are moving towards the localisation of business rates. The Government believe that councils should have every possible incentive to encourage local business, support local jobs and create the conditions for the local economy to thrive.

The Bill paves the way to repatriating business rates. We want to give councils a greater proportion of the rates they raise locally. Every council that grows its business rate base can be sure that it will see an increase in its income, compared to the status quo. Putting in place the right incentives gives every council every possible reason to go for growth, which creates the potential to raise more cash overall to invest in local services and local community priorities. Of course, we have heard a few grumbles already.

[Mr Kevan Jones (North Durham) (Lab)]

I spent nearly 12 years in local government, and I accept that it is an important catalyst for encouraging local economic development, but it is not the only one. There is a huge disadvantage in all this for my constituents, compared, for example, with constituents in south-east England. Surely, in any consideration of local government finance, the disparities between the economies of such areas should be taken into account.

[Mr Pickles]

Frankly, I am amazed by that contribution, because Durham will be one of the big beneficiaries of the scheme. Had this system been in place, Durham would undoubtedly have more money in its coffers. I strongly urge the hon. Gentleman, for whom I have enormous respect and affection, to talk up Durham, because it will do very well under this scheme.

[Helen Goodman (Bishop Auckland) (Lab)]

I am afraid the Secretary of State’s view is not shared by Durham county council, which believes it will lose £100 million, in contrast to the City of London, which we all understand will see its business rate take increase 140%.

[Mr Pickles]

The hon. Lady needs to look at the facts. Durham will be a beneficiary. The level of support it will get in terms of top-up—in terms of its actual growth —will increase, and that will give the people of Durham considerable respect and pride.

Let us just deal with some of these grumbles. Some are worried that the reforms might lead to polarisation and that deprived areas might fall behind. I can entirely understand—we have seen examples of this today—that people are reluctant to see change. It is always hard to let go of a security blanket, but we have been clear that we will ensure the hardwiring of safeguards for the most vulnerable in these reforms. Protections, including a system of tariffs and top-ups, will ensure that councils that start from a low business rate can still meet people’s needs. We will have a levy on authorities that see a disproportionate benefit, with a safety net for authorities that see their business rates fall significantly.

[Mark Field (Cities of London and Westminster) (Con)]

I very much welcome the principle of allowing local authorities to retain a proportion of their business rate. That is a very positive move. My right hon. Friend has made the case that he is being rather pragmatic, but perhaps he will go into a little detail about two areas where I am concerned he is perhaps being overly pragmatic: growth for inflationary reasons and growth where there has been a revaluation. As he knows, there has been significant revaluation in recent years, so why cannot some of that revaluation, where a substantial part has been in a particular local authority area, be used as an element of growth for the purposes of the business rate adjustment that is being brought into play?

--- Later in debate ---

[Mr Pickles]

Of course, in that process of revaluation, we would seek to adjust the multiplier so that it had a neutral effect on the amount. What we are talking about is ensuring that, between periods of revaluation, an authority that grows above the national average can actually bank that. However, some authorities will clearly get a disproportionately large increase, and we have a levy, through which we seek to take that sum away and to apply it to the safety net.

[Alok Sharma (Reading West) (Con)]

I welcome these reforms, which will incentivise local authorities and local government to encourage growth, but will the Secretary of State confirm that they will not allow some local authorities to raise business rates on already struggling businesses?

[Mr Pickles]

I am happy to confirm that fact to my hon. Friend, because he raises an important point about local businesses needing a degree of certainty. Of course, the Secretary of State—the person holding my position—will set the multiplier and the sum.

There is something strange about all the objections, some of which we have heard already, in that they betray a lack of faith in the people whom we represent. No one area has a monopoly on the formula for growth. Economic success is not a southern phenomenon.

[Mr Kevan Jones]

Yes, it is.

[Mr Pickles]

I do not know whether colleagues were listening but I heard an Opposition Member say that economic success was a southern phenomenon. If that is what Opposition Members think, they should seriously consider whether they are doing their electorate a service.

If our reforms had been in place over the past five years—since the last revaluation cycle—places such as Liverpool, Doncaster, Durham and north and south Tyneside would have benefited, because their growth in business rates outstripped the national average.

Most of all, however, the grumblers have missed the key point. This is not simply about redistributing the proceeds of growth. If these reforms lead to every council working as hard as possible to help business to thrive, there is the potential to increase overall growth.

[Jim Fitzpatrick (Poplar and Limehouse) (Lab)]

As part of the south-east phenomenon—the area that I represent covers Canary Wharf and the London borough of Tower Hamlets—my constituency would naturally, I assume, be a winner from these reforms. Has the Secretary of State seen the briefing issued today by London Councils to London MPs? It welcomes the retention of part of the business rate but then states:

“However, the Bill as drafted creates a fiendishly complex system in which the level of the business rate incentive is uncertain and unpredictable”.

Will he respond to that concern from London Councils?

[Mr Pickles]

Yes, of course. The idea is to give the maximum incentive to councils. That is how the system is being devised. However, it is much simpler than the existing system, which is just about impenetrable. Indeed, London Councils considered that point some time ago when it described the four—[Interruption.] Ah, I have it in front of me. How very helpful! This is marvellous. Bob always comes up trumps. This quote comes from the London Councils’ report, “Four Block Muddle”:

“The current formula grant system…lacks transparency and is inherently unstable and unpredictable, generating fluctuations in grant allocation that defy logic… Even finance experts, let alone members of the public, struggle to understand the working of this complex system.”

So here we are introducing a much better system, and, to coin a phrase, I would have expected local councils to rejoice, rejoice, rejoice.

[Mr Nick Raynsford (Greenwich and Woolwich) (Lab)]

rose—

[Mr Pickles]

I give way to the right hon. Gentleman, the architect of our present system.

[Mr Raynsford]

I am grateful to the Secretary of State but I have to say that many other people besides me were architects of the existing system. However, given that doubts are being expressed by many local authorities about whether the provisions in the Bill will achieve the objectives that the Secretary of State has set out, will he, in words of one syllable and in plain English, explain the provisions in the first seven clauses of the Bill, which to most people are absolutely incomprehensible gobbledegook?

[Mr Pickles]

I feel a little stung because I have always been most helpful to the right hon. Gentleman.

Clause 1 deals with the local retention of the non-business rate and provides for the framework of the rate retention scheme in England by inserting a new schedule 7B into the Local Government Finance Act 1988. Clause 2, on the revenue support grant, gives effect to schedule 2, dealing with the amendment of provisions about revenue support grant in England. Clause 3, on additional grant, amends the 1988 Act to remove the provision for the Secretary of State to pay additional grant to local authorities in England. It also makes consequential amendments to the Local Government Finance Act 1992 and the Greater London Authority Act 1999. Clause 4, on the local government grant, amends section 100 of the 1999 Act so that from 1 April 2013 the Secretary of State may pay a general grant to the Greater London authority for a financial year but will not be required to do so. I think that that covers the point, although we could go through the entire Bill—there are only 16 clauses.

[Bob Blackman (Harrow East) (Con)]

I thank my right hon. Friend for giving way on this key issue. One of the key concerns for people raising additional business rates in the future will be that they gain from the benefit of that growth. I welcome that proposal. However, there is another problem. Will he confirm that if a major employer or site of employment closes down within the first two years of operation, the local authority will not lose the business rate income?

[Mr Pickles]

My hon. Friend raises an important point about the very nature of business rates. There is a high degree of buoyancy within the system and there can be sudden movements, particularly where firms move out and following claims for revaluation, which is why we have built into the system adjustments to iron out those things. We have suggested to local authorities— but it will be entirely a matter for them—that they pool their resources in order to get over those fluctuations.

I shall move from the incentive effect to another aspect of the Bill: the introduction of tax increment finance. This was recommended in the 2006 Barker report and promised in the 2009 pre-Budget report but never delivered by Labour. For the first time, councils will have the ability to borrow safely and sustainably against the anticipated increase in business rates. That will give them a new means by which to fund infrastructure, attract investors and secure jobs for local people.

We are determined that the transition to the new system should be effective, fair and workable. Over the summer, we consulted widely, and we heard loud and clear that small firms, charities and voluntary groups, which play such an important role in local life, should not face adverse changes to their bills. Local firms can rest assured that this is not a means of increasing their bills by stealth; rather it is a measure to help local businesses. The Bill also proposes a replacement for council tax benefit.

[John Healey (Wentworth and Dearne) (Lab)]

I am grateful to the Secretary of State for giving way on the point about tax increment financing schemes, of which I have been a strong supporter from the outset. Will he confirm that the area and rate take in the TIFs area will be ring-fenced and protected from levies and any reset? Without that confirmation, there will not be the confidence and certainty about the revenue stream necessary to allow the borrowing to take place for the up-front investment.

[Mr Pickles]

The right hon. Gentleman makes an important point. He will know, because he has taken an interest, that we are offering two types of TIF. TIF 1 will be subject to the levy and the top-up, but TIF 2 would not be subject to either, so it would be possible to borrow over a longer period than the reset.

[John Healey]

rose—

[Mr Pickles]

Before the right hon. Gentleman responds, I would like to add something else. I can see that we are going to have one of these really interesting discussions—we might even get on to hereditaments in a little while. Because TIF 2 would affect the levy pot, as well as the level of public borrowing, we will clearly need a degree of Treasury co-operation, but authorities can proceed with TIF 1 straight away.

[John Healey]

I wish the Secretary of State good luck in seeking that Treasury co-operation. He will understand that the time horizon for TIFs stretches beyond one decade, and sometimes beyond two. He said that TIF 2 would be ring-fenced and protected from the levy; can he also say whether it will be ring-fenced and protected from any reset?

[Mr Pickles]

The whole point about TIF 2 is that it goes beyond a reset. That is why there needs to be a degree of co-operation from Treasury colleagues. The period for TIF 1, of course, is potentially 10 years. We will encourage local authorities to work together on TIFs and pool their resources—I think I recall the right hon. Gentleman speaking about this some time ago—which will be enormously liberating for them.

The Bill also sets out a replacement for council tax benefit, which is essential in supporting those who, through no fault of their own, struggle to pay their council tax bills. However, rather than having a national, one-size-fits-all scheme, designed and directed by Whitehall, we propose that councils themselves should set up council tax support at the local level. We will give them the flexibility to design schemes that reflect local priorities. Tailor-made approaches will also be essential to making the 10% saving, which is an important component of the plan for reducing the deficit inherited from Labour. Some councils are already considering how they might exercise the new powers and discretions. Westminster city council, for example, is looking into the idea of social contracts, such as linking council tax benefit with obeying the law, actively seeking employment and undertaking voluntary work. That is fundamentally no different from councils such as Manchester and Newham, which are seeking to prioritise individuals in work for council house waiting lists, ending the “something for nothing” culture while providing a safety net for the vulnerable. I believe that benefits should provide the right incentive to get people back to work and to reward social responsibility.

[Mr Clive Betts (Sheffield South East) (Lab)]

The reality, surely, is that on day one councils will receive what they are currently paying out in council tax benefit, minus 10%. They will have no choice about where that 10% comes from, because pensioners will be protected—we might support that—as will people in work, because councils have to observe the 65% tapers under the universal credit. In the end, therefore, the totality of those cuts will fall on the unemployed of working age, leading to probably up to 20% to 30% of their benefit being withdrawn. If unemployment goes up and more people claim council tax benefit, that will mean either money drawn from other services to fund it or further cuts for those on council tax benefit who are unemployed.

[Mr Pickles]

The hon. Gentleman makes a reasonable point, but I would put it this way:

“Beveridge would have wanted determined action from government to get communities working once again, not least to bring down that benefits bill to help pay…the national debt…He would have wanted reform that was tough-minded, and asked everyone to work hard to find a job.”

That seems a very reasonable way to express it; indeed, those are the very words of the shadow Secretary of State for Communities and Local Government, in his article in The Guardian last week. I am pleased that that approach was also endorsed by the Leader of the Opposition on the “Today” programme this morning, so frankly, I am not entirely sure that I understand the points being made by Opposition hon. Ladies and Gentlemen.

[Mark Field]

I very much support the idea of innovation and flair, and allowing for inventiveness, which will certainly apply positively to Westminster city council and all who live in the area. However, my right hon. Friend will be aware that, in the case of some local authorities that try to adopt the new powers, the scheme will perhaps work somewhat less well. Will there be any residual power in the hands of the Department or the Secretary of State to intervene where such local authorities fail to provide the lead that we would all wish for?

[Mr Pickles]

Local authorities are statutorily obliged to deliver a scheme, and that scheme needs to be approved, but we need to have confidence in them. We are talking about a substantial and significant effect of localism. We took the decision to give more powers to local authorities, and we need to be able to trust them.

However, hon. Ladies and Gentlemen opposite have been saying that their leader did not say those words. I happen to have a transcript from the “Today” programme. He was asked a question about welfare, and this is what the right hon. Gentleman said: there do need to be “big changes”, with a

“greater sense of responsibility in the system...Anybody who can work should work”.

We have to

“have sanctions in our system…I…see…a minority…of people on benefits”

who have been given a

“false sense of security…The Beveridge system was about saying people should be rewarded…for contributions.”

The right hon. Gentleman said that there should always be a safety net, and that

“In housing…need matters, but…you should also be rewarded with extra points…if you…work or volunteer,”

saying that some

“councils…are starting to do this…I am not against a cap”

on benefits. My word, how out of touch hon. Ladies and Gentlemen opposite are with what their leader is saying!

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

Will the Secretary of State give way?

[Mr Pickles]

In a moment.

Part of the Opposition now concedes that the housing benefit bill is too big and needs reform. I hope that they would accept that the sister benefit—council tax benefit—should also be reformed. The reform must take place to help reduce the budget deficit. As the shadow Secretary of State for Defence conceded last week, a credible Opposition should reject “shallow and temporary” populism and accept the need for spending reductions. I am very sorry that Labour Members seem to have rejected that advice and that of their leader, given so recently.

We should all agree that reforms must also offer proper protection for vulnerable groups who cannot return to work. We will therefore be putting in place special safeguards for low-income pensioners, who will continue to be eligible for support. As championed by the Royal British Legion, this Bill will make council tax support a rebate—a discount—rather than a benefit. The previous Government changed the law to rename council tax benefit, but never enacted their own provisions. The Bill also allows changes in council tax to help reduce bills for hard-working families and pensioners. Homes left empty for the long term can be a blight on a neighbourhood. It is immensely frustrating for people who desperately need housing to see houses sitting idle, and for communities to have to tolerate the eyesore and crime that such houses cause. Currently, even when houses have been left empty for many months, councils can charge no more than the normal rate of council tax. We propose that councils should have the option of charging a higher rate of council tax when homes have been empty for more than two years. That will provide a stronger incentive for the owners to bring such homes back into use and end empty property blight.

Alongside the Bill, we have consulted on other proposed changes to council tax—changes that do not require primary legislation. They include reforms to council tax on second homes. Currently, councils are obliged to charge a reduced rate on second homes, of between 10% to 50%. We propose to allow authorities to remove this special tax break completely, treating everyone equally and fairly. Taken together, those flexibilities on council tax have the potential to reduce families’ council tax bills by £20 a year.

Some have asked whether it is time to review other discounts and exemptions. The Intergenerational Foundation, endorsed by the shadow Minister for London, called for an end to the single-person discount, which would tax the elderly out of their homes. We have looked at the case for ending the single-person discount, and we have rejected it. This Government have no intention of imposing a new stealth tax on 8 million single persons; nor will we increase the tax on hard-working people who pay their taxes, who save and who invest in their homes.

The Bill stands alongside the action that this Government have taken to make local finance fairer and more effective, including the two-year freeze on council tax, the cancellation of any council tax revaluation, the abolition of the new bin taxes, and the introduction of new rights for residents to veto excessive council tax rises. The measures that we are introducing today will build on those improvements. After years of indecision and inaction by Labour, these measures represent a positive and practical step forward. The Bill will help to create the right conditions for growth, reward councils that boost the economy, and make local government finance more effective and fairer for all. I commend it to the House.

--- Later in debate ---

[Mr Jones]

It is, exactly. Let us look at what this Government and this Secretary of State have done on local government. I take my hat off to him, because he is rewarding his friends and his councils in the Tory heartlands. The idea is that we can somehow just write off great cities such as Liverpool and Newcastle, or other north-east cities, as if it does not matter. Do the Government actually care? No, I do not think they do.

The Secretary of State said in response to my intervention that Durham would gain under the new proposal. I would like to see the figures showing how Durham will gain, because the county council has seen from its own figures—he is using 2011-12 as the baseline—that it will lose out. This is being rushed, and it will become clear, over time, that it is not the radical approach to local government reorganisation that some people suggest. It is in fact a way of ensuring that prosperous Conservative seats will benefit from the measures at the expense of some of the poorest communities in Britain.

I want to turn now to the scandalous situation relating to the localisation of council tax benefit. This measure comes with a 10% reduction from day one, and it will disproportionately affect constituencies such as mine, and more deprived areas with larger numbers of people in receipt of that benefit. Listening to the Secretary of State talking earlier, it sounded as though he thought that those people were the feckless poor. I must remind him that a lot of low-paid workers, who are working blooming hard every day of the week to keep a roof over their heads, rely on council tax benefit. Over a period of time, those people will get the impression that these decisions are nothing to do with the Secretary of State, and that it is the local council that decides how to divide the money up. This measure will have a disproportionate effect on those areas with a large number of people in receipt of council tax relief.

[Mr Pickles]

I am sure that the hon. Gentleman suggested only inadvertently that I was talking about the feckless poor and the like. May I respectfully remind him that I was quoting the Leader of the Opposition and the shadow Secretary of State for Work and Pensions? It is with them that he should take up this matter, not me. Do not put words into my mouth; those were their words.

[Mr Jones]

I was not putting words into the right hon. Gentleman’s mouth, but I have to say that he is continuing the mistaken idea that every person in receipt of council tax relief is unemployed and useless. They are not; they are hard-working, low-paid families—[Interruption.]