Local Government Finance Bill

Lord Shipley Excerpts

Wednesday 10th October 2012 Lords Chamber

[Lord McKenzie of Luton]

My Lords, this is a partial rerun of an amendment from Committee, because a significant issue remains in our minds, which is lacking in clarity. This is the use of the central share and the principles that will determine how it is to be applied on an ongoing basis. We understand and accept that the central share for 2013-14 and 2014-15 will be used for revenue support grant and that, for the first of those two years at least, the central share is likely to be insufficient to meet the full RSG amount and that it will need to be topped up. The RSG, as I understand it, is the spending control total minus whatever the local share is. The approach to the revenue support grant is one that we would recognise, have come to love and of course completely understand. It is not only an issue of the quantum of the central share but the basis on which it is to be paid.

Given that the revenue support grant becomes discretionary under the scheme, there would appear to be no criteria governing the distribution of the central share and nothing to say that it has to reflect the needs and resources of local authorities, which is what this amendment requires. The statement of intent issued in June this year by the Government makes clear that the central share will be used by central government, in its entirety, to fund the local government sector. Presumably that means that amounts currently met from any departmental dell can be met from the central share; for example, the dedicated schools grant. Is that the case and is that the intent? It is not a question of new money going to local government from the central share, which itself is money that is raised by local government.

We are close to signing off this legislation, which is why we seek as much information as possible at this stage on this issue in particular. This is particularly because of the Government’s stated intent that they do not wish to see a resetting of the system, at least until 2020, subject to the debate that we have just had. That is notwithstanding of course that we remain in the dark about how the central share is to be used other than that it is to be used for the purposes of local government in England. The fear is that, with further cuts in the offing, the revenue support grant will be diminished, so that the balance of the central share will increasingly be deployed on some other basis, whatever it is called. In particular, the concern is that the revenues raised by local government will increasingly be used to displace spending that is, and has previously been, met directly by central government. Although some of the funding from the central share, at least in the early years when payable by revenue support grant, will reflect the relative needs and resources of local authorities, there is no assurance that this will continue to be the position in the future, except to the extent of tariffs and top-ups going forward.

This amendment simply lays down the requirement that the use of the central share must be on a basis that reflects the needs and resources of local government. It is an opportunity for the Government to let us know now the basis and principles that they wish to see govern the application of this amount—what will determine which elements of government spending will be diverted through the central share, and presumably the local government finance report process, and what will be dealt with as now. I beg to move.

[Lord Shipley]

My Lords, I feel that this amendment is actually extremely important. I draw the Minister’s attention to a report by the Institute for Fiscal Studies, which has confirmed that councils in the north of England are having to cut spending at almost three times the rate of councils in the south. In absolute terms of course, many councils in the north receive more revenue support per head than councils in the south, and will go on doing so, but then their needs in many places are also greater. The principles of resource equalisation continue to matter greatly, if we are to meet need fairly across the country.

This problem of deeper cuts in the north would have occurred had a Labour Government been elected in 2010, not least because Labour had plans to dismantle working neighbourhoods funding, worth several million pounds a year to many councils. However, I support the aim behind Amendment 7, because it maintains the principle of allocating spending against need and against the availability of resources, which I fear is increasingly in danger of being lost sight of, given recent settlements.

I hope that the Minister will be able to accept the amendment, or at least indicate agreement to its spirit: to ensure that resource distribution reflects the principles of need and equalisation. If the Government do not give that commitment, it implies that they are no longer in favour of resource equalisation.

[Baroness Hanham]

My Lords, I thank both noble Lords for their contributions. I appreciate that the use of the central share is of concern and interest, particularly once we get through the next couple of years. Amendment 7 would ensure that the central share money would always be distributed on the basis of need. We have said that the central share money will always be returned to local government. The basis of the central share going to the Government is that it will then be used for local government. The question of need and special grants will be covered by the central share. That is basically what the central share will do. I cannot at the moment give the absolutely unqualified assurance that both noble Lords, Lord Shipley and Lord McKenzie, asked for on resource need equalisation. I am pretty sure that that is correct, but I will come back to them if there is any change to that.

I also confirm that the amount of revenue support grant in the system will reflect future spending reviews, so the Government’s view of the funding will be available to local government in advance. I hope that with that rather short explanation the noble Lord will withdraw his amendment.

--- Later in debate ---

The amendment would keep the status quo. If, however, the Minister has something more fitting up her sleeve, I am sure that everybody would be delighted. Certainly, I still hold out some hope that the Minister might be prepared to continue to discuss this very important matter.

[Lord Shipley]

My Lords, I declare my interest as a vice-president of the Local Government Association. I agree with my noble friend Lord Jenkin about the share of the business rates. If the central share continues at 50%, there is a disincentive to local growth by local authorities. The series of amendments tabled by my noble friend, in favour of an escalator, would result in local growth being driven more strongly. His amendment should therefore be supported.

I will concentrate on Amendment 37A. It is an extremely important amendment, the implications of which were discussed in Committee; I had thought at that time that they would have been resolved by now. I have been a strong supporter of the concept of the big society. There is enormous value in promoting volunteerism, trusts and social enterprise. I have been encouraged by the positive approach of the Government to this. However, we have to assist and encourage volunteers and not put barriers in their way, so I am genuinely puzzled by what is still contained in this Bill when these problems were indentified in Committee. Sports and leisure trusts, as we have heard, the Association of Independent Museums and Social Enterprise UK have all pointed out that the incentives to keep such public services in-house, in local authorities, or else to privatise them, will become more pronounced as a consequence of the Bill. Discussions over the summer seem not to have solved the problem. The amendment does.

Under the Bill, there will be serious consequences for expanding trusts, for the creation of new charitable trusts and for the outsourcing of running council buildings which might be better run locally by a charitable trust structure. This is because the incentives to create trusts and mutuals will be reduced and local authorities will have less incentive to grant discretionary business rate relief.

On charities and charitable trusts, councils will be compensated for only 50% of the cost of a new or additional charitable concession on business rates. Currently, all of the mandatory cost—that is, 80% of the total business rate and 25% of the discretionary cost—has been met by central government. In future, that central contribution will drop to 50% and local authorities will have to meet the other 50%. Yet local authorities retaining services and facilities in-house will pay only 50% of the business rate cost because they will split the business rate income 50/50 with the Government. Previously, local authorities have paid 100%, all of which has gone to the national pool.

The incentive for councils to create their own trusts will be reduced. Such new trusts will have to meet additional business rate costs that keeping provision in house would not. Similarly, local authorities that outsource the operation of facilities and services to a private contractor will keep 50% of the business rate that these companies pay; previously, of course, 100% of these payments went to the national pool. There is therefore in this Bill a financial incentive to privatisation.

Trusts can involve significant transfer of buildings and facilities, and unfunded additional costs need to be avoided if more charitable trusts are to be encouraged. We really must give them the means to do the job. The solution is for the costs of mandatory and discretionary concessions to be met by the central share of the business rate revenues where there is an additional net cost to a local authority. Such a decision would remove barriers to trusts being formed.

I hope that the Minister will take on board these concerns and prevent significant additional costs arising for local authorities if they wish to transfer facilities and services to trusts. The proposal is of course revenue-neutral overall and I hope that we can secure all-party agreement to a different way of proceeding prior to Third Reading.

[Baroness Eaton]

My Lords, first, I must declare an interest as an elected member of Bradford Metropolitan District Council. Along with many Members of your Lordships’ House, I am also a vice-president of the Local Government Association. The amendment in the name of my noble friend Lord Jenkin is an extremely valuable contribution to the consideration of this Bill and I am very happy to support it. I should make it clear that I support the localisation of the business rate and congratulate Ministers on having pushed this policy through against much resistance. I campaigned for this change as chairman of the Local Government Association and I am pleased to see it becoming a reality.

However, today we are addressing a typical problem faced by a Government who are trying to get ideas from the drawing board of policy into the workshop of implementation when there are so many eager Civil Service helping hands to pass through on the journey. The amendment forces us to face up to a basic difficulty with the Government’s decision to set the central share of business rates at 50%. It is a problem we can even put a figure on thanks to the Government’s own evidence. As we have heard, we have a £10 billion problem.

My noble friend Lord Jenkin explained fully, competently and clearly the Government’s analysis of the scheme and the economic value of localising the business rate. I am sure that the Minister will explain what in this case trumps growth. But we have a few indications from the Government already about their reasons for setting the central share at 50%. For example, the Treasury is explicit that it will use the central share mechanism in order to continue to impose control over how much councils can spend, even though that spending is self-evidently funding itself without any impact on the national taxpayer or the deficit. This control has nothing to do with the Government’s deficit reduction plans, which are entirely necessary and correct. The expenditure and the local revenue balance out without any impact on borrowing. As I see it, it is control of the amount of spending for control’s sake alone.

With such a large central share the opportunities will be legion over coming years for the Treasury to try to share responsibility for programmes which are currently funded by the Exchequer into the ambit of the central share, to which the noble Lord, Lord McKenzie, has already referred. That would go beyond mere control into a zone where local ratepayers are being asked to shoulder burdens that previously would have been funded by national taxes. Perhaps I am being cynical but I feel that this would give me great concern.

The local share escalator proposed by my noble friend Lord Jenkin is a very elegant solution to resolving this problem over time. It would recall the Government to their localist and growth-focused principles, and bring the Bill closer to its advertised purpose. I am very happy to support it.