Local Government Finance Bill

Lord Smith of Leigh Excerpts

Tuesday 12th June 2012 Lords Chamber

[Lord Smith of Leigh]

My Lords, I declare my interests: I am leader of Wigan Council and chairman of the Greater Manchester Combined Authority. I am also a vice-president of the LGA and the vice-chairman of SIGOMA—I shall not explain what that is, but it is concerned with local government finance.

It is 30 years since I took my first significant role in local government as a chairman of finance. I have remained over that period one of the small, select band of people who are interested in local government finance. In those 30 years, there was one exceptional moment when local government finance became a major topic of interest, which of course was the period of the poll tax. Given that it was so significant a change, I offered to do a road show around the different areas of my authority and found myself invited to a number of clubs of an evening. The clubs were always packed. They wanted an explanation and were not very happy with what they heard. I later heard that I was being organised in this, because it was very good on a quiet Wednesday night to get the poll tax road show in place and fill a club up. I remind Members that the poll tax ended because of the riots. That is a lesson for us to learn about local government finance: it may seem pretty boring to the Secretary of State, but if we get it wrong it can have serious consequences.

I am a localist, so I should want to welcome localisation of business rates and the council tax support system, but, unfortunately, I feel that this Bill is fundamentally flawed. It is not built on a firm, fair foundation, and it lacks the necessary consensual approach for it to be long-lasting. The financial basis of the measure, as my noble friend Lord McKenzie indicated, is unfair in two ways. First, it is based on the highly partisan 2012-13 settlement, with the wide variation in support that local authorities gained in it; and, secondly, it continues to dampen down about £380 million-worth of cuts. People understand that there are needs in authorities such as mine, but they have been dampened in this settlement and the cuts will be locked in for a further seven years. The basic building block of the Bill is uneven and its whole structure must therefore be insecure and unsafe.

I do not oppose the idea of setting business rates as an incentive to increase growth; in fact, one of the authorities in the Greater Manchester Combined Authority is talking to the Government about TIF. I am concerned that, however good a local authority is in attracting new businesses to its area, that will be marginal compared to the overall economic impact across the country. Looking back over the decade of 2000 to 2010, GVA growth across England was just over 50%, but that masked a wide regional variation. London grew by 65%. All of the south grew more than the England average; all of the north grew significantly less. Are we going to change the history of the imbalanced nature of the UK economy? Are we to assume that this change to business tax will do that? There will be a geographical bias to the implications of this tax.

Further, the ability of local authorities to raise revenue through business rates is unequal. In Kensington and Chelsea, as the Minister is probably aware, 1% growth would raise £22 million, but my authority area would have to grow by 3% to raise £22 million. Even that comparison is unfair, because, in terms of population, Wigan is bigger than Kensington and Chelsea. Therefore, if we take it on a per capita basis, Wigan would have to grow at five times the rate of Kensington and Chelsea to gain the same value for each of its residents. I do not think that that is fair. The Bill is institutionalising unfairness across local authorities.

The transfer of council tax support will further exacerbate financial problems for areas with more claimants, which will tend to be the areas with more dependents in the population. Members have talked about the passporting of the 10% cut, but what can be cut if we are allowing pensioners not to have their income cut? In Wigan, 50% of council tax benefit recipients are pensioners; therefore they will not be touched. Those with children will not be touched. That leaves a smaller base on which to achieve that 10%, so the cuts could effectively be well above 20%.

If we are honest, we know that the take-up of council tax benefit in the past was estimated at 70% of those eligible, with up to 40% of pensioners not claiming entitlement to that benefit. The value of that could be as much as £2.4 billion. Local authorities will probably be more effective at running the system than the present one, so there could be an increase in the number of people coming forward to claim benefits—support—to which they are entitled. If the estimates are right and 40% of pensioners are not claiming, that could be significant.

As many Members of your Lordships’ House have said, the effect of that in the risk to local authorities is enormous. For some local authorities, the impact is large. For Liverpool, for example, 32% of the council tax receipts currently come from benefits. That is the biggest proportion in England. The cut for Liverpool will be £6.1 million. We are relieved to know that in the City of London, only 4.8% of council tax comes from benefits, so the cut will be £27,000.

Authorities such as mine are already thinking about the future: how will we implement such draconian cuts in services? Frankly, it cannot be done without significant effects on the most vulnerable people in our society. Single people and families without children will bear the brunt of these cuts, in addition to the reduction they will have under the welfare changes.

Perhaps your Lordships can imagine this scenario. We have recently dealt with what became the Health and Social Care Act in this House, which would introduce competition between hospitals so that it could well be conceivable that a local hospital closes. For a local authority, not only would it have the loss of the services of that hospital but have a significant loss in business rate because hospitals are usually large owners of land and would be paying a significant amount. Yet it may not add up to 7.5% of the total and therefore will not come under the safety net. At the same time, hospitals are large employers of people and the number coming forward who would be entitled to council tax benefit would therefore be increased significantly. The secondary impact of changed spending patterns and a loss of spending would have further impact on the local economy. It could be a perfect financial storm for local authorities so, as many noble Lords said, treasurers are getting really nervous about all of this. I know that they, being worried about what might happen, are going to recommend that we increase the amount we keep in reserve.

I want to be consistent because in every opportunity that I have had to discuss local finance in my years in this House, I have never not taken the opportunity to talk about council tax—the noble Earl did that—and why we do not revalue it. Council tax is based on a system of values made in 1991 and, with all due deference to the noble Earl’s profession, I do not think it was done in too serious a way. From what we understood, the then Secretary of State sent estate agents around in vehicles to size up a street and say, “Band A”, “Band C” or whatever it was. This has been continuing forward, so that if a house is built in 2012 somebody has to say what its value would have been in 1991. A house might these days have wi-fi connectivity, thermal insulation, solar panels and integrated electrical equipment. How on earth is that to be done on a scientific basis—again, with due deference to the noble Earl—when it is not science but alchemy? We are just making a guess at what is going on.

The price of properties has increased fourfold since 1991 but those rises are not consistent across the country. We ought to reflect that in the actual valuations to make them understandable to people. When an ordinary person comes to me and asks, “Why is my council tax in this band?”, and you have to explain the system, they just find it incomprehensible. We should not be frightened of the media. If a revaluation increased the worth of a house by four times, it will not mean a fourfold increase in the council tax at all. We ought to start thinking how we are going to do that and moving forward to make the council tax a proper tax rather than something that was introduced hurriedly, to get rid of the poll tax, and now lacks a lot of credibility.

I share a lot of the sentiments, which again were expressed by noble Lords, about the timescale here. My reading of the whole House’s discussions in another place was that they were not what I would call serious scrutiny of this Bill, so this House has a job of work to do if it is going to get anywhere near making this acceptable legislation. That should be our prime aim. We should not try and meet a timetable that gets it imposed and able to be introduced by March or April of next year. We ought to be doing it properly and wisely, and doing the thing that this House does best.