Local Government Finance Bill

Lord Tope Excerpts

Tuesday 12th June 2012 Lords Chamber

[Lord Tope]

My Lords, I thank the Minister also, not only for the full and careful way in which she explained the Bill’s provisions but for reminding us of the extensive consultation that took place before the Bill was produced and the papers that have thus far been produced through the process. I am a little surprised to hear the noble Lord, Lord McKenzie, describe the process as “rushed”. The Bill was, I believe, actually introduced in the other place before Christmas and had its Committee stage in January. It seems to me to have been a very slow process until now, when it is perhaps about to speed up rather dramatically. Like the noble Lord, Lord McKenzie, I look forward to a Committee stage when we will be considering—I am sure in the constructive way in which we always do—the many issues to which he rightly alluded. I do not wholly share the language he used but the issues are real and proper, and I hope that we will work constructively to try to produce the best solutions that we can.

As always, I should start by declaring my interest as a serving councillor in the London Borough of Sutton. Indeed, I was the leader of that council when the business rate was nationalised. Since then, successive opposition parties have pledged to repatriate it to local authorities, and successive Governments have failed to make any move to do so. I therefore very much welcome these first steps by the coalition Government towards returning the business rate to local authorities. However, they are first steps and, as usual, they are cautious and tentative with still too much central control retained. True localism would be returning the right to local authorities to set the business rate, but I recognise that that would be more of a great leap than a first step. It is not going to happen, at least for the time being.

It was always going to be a challenge to design a business rate retention scheme with the right balance between just and fair equalisation between local authorities and providing strong enough incentives for local authorities genuinely to drive for, and benefit from, economic growth in their local areas. I am not convinced that the scheme as currently proposed has yet got that balance quite right or that the incentives are yet as good and as strong as they should be. As the noble Lord, Lord McKenzie, has signalled, I am sure that we will spend much time in the remaining stages of the Bill considering that issue—not least the proposed reset and, in particular, the proportion that is intended to be retained by central government. These are important issues that have a fundamental effect on the success or otherwise of the good intentions of the Bill. I am sure that we will continue to do this in a constructive manner, as we did last year during the Localism Bill, with the Minister listening to as well as hearing what is being said.

I turn now to the provisions in the Bill for tax increment financing; I hope that we will all refer to it as TIF, which is a lot easier to say. My noble friend Lady Kramer is very knowledgeable on this subject and is taking a keen interest. Unfortunately, other unavoidable commitments prevent her taking part in this debate, although she expects to be able to do so in the remaining stages. However, I think that I can reflect her views accurately. As your Lordships will know, the Bill takes a significant step forward in creating the framework for tax increment financing—a mechanism that allows the financing of infrastructure and regeneration by capturing future value. The Bill is so shy of admitting this that the words “tax increment financing” do not appear in the Bill, but ironically, rather than it being an idea imported from abroad, TIF has its origins in the great cities of the UK and financed much of the infrastructure that made them the powerhouses of their day. We need that same economic drive again.

The Bill anticipates two kinds of TIF. TIF 1 is hampered by the reset period of the business rate to the extent that it will function more as a minor expansion of prudential borrowing. It will certainly not permit transformational schemes. TIF 2 can be ring-fenced against resets in the business rate but is to be rolled out with a national cap of only £160 million, which will not buy much across the country as a whole. The Treasury is also counting TIF borrowing as an immediate cost against the public finances, unlike enterprise zone financing, despite both using the same financing mechanism, so TIF 2 is ending up as a cash-limited competition between core cities. Surely government should consider schemes with each city based on the merits of the case. In Committee, we must flesh out these issues. Both the localism agenda and the growth agenda require that we make the most of TIFs, not the least.

I turn now to what is undoubtedly the most contentious part of the Bill—the proposals for the localisation of council tax support, on which I am sure we shall hear much more today. Views within local government about this have been divided. Initially it was welcomed—at least, in principle—by the Local Government Association but it has always been strongly opposed by London Councils, representing the 32 London boroughs and the City, which felt, as I did personally, that it would have been much better with universal credit. However, it is clear that that is not going to happen and, as the realities of the proposed scheme have become clearer, there has been a coming together with common concerns shared by all who will have responsibility for implementing and operating the council tax support scheme.

Those concerns are, in the main, twofold: the implementation timetable and, much more importantly in the longer term, the effect it will have on many of the poorer members of our communities. This so-called “localisation” comes with a 10 per cent cut in funding from central government and a central government directive to exempt pensioners and the most vulnerable, who together make up three-quarters of claimants. Inevitably, therefore, the full brunt of this funding cut must fall on the remainder of those currently in receipt of council tax support, sometimes referred to as the “working poor”.

Many councils will be able to mitigate this wholly or largely by the very welcome greater freedoms being given in the use of the various council tax discounts, and I hope that all authorities will take whatever advantage they responsibly can of the discounts that become available. However, the higher the proportion of pensioners in a local authority area, the greater the effect. My own authority is one of those where there is a negative effect, even with the maximum possible use of discounts, but I must say that I am very pleased not to be the leader of a rural district council in the south of England, where the effects will be very serious indeed.

We all accept, to a greater or lesser extent, the need for deficit reduction and the fact that this must mean difficult cuts in public expenditure. It is, sadly, inevitable that these cuts will be felt hardest by those most dependent on public funding. However, what work has been done or is being done to determine the cumulative effect on the poorer members of our society of the cuts imposed not only directly by central government but by local government and the many other publicly funded agencies? Government in our country still works so much in silos that I fear that nobody has any real idea of the cumulative impact that the range of different and separate budget cuts, and other changes, at national and local level will have on poorer people, especially as many of these cuts are not yet fully implemented. I can well understand why a Government who have to make these difficult but necessary decisions may prefer not to know but I do think that we need to know—and to know soon before it is too late.

The other concern that I mentioned is the timetable, and the noble Lord, Lord McKenzie, also alluded to it. From the outset, the timetable for implementation next April has been seen as “challenging”. Initially that concern focused on the need to have new software up and working by then, but I gather there is now more confidence that that can be achieved, although the software suppliers would still like to see the full regulations. When she replies, can the Minister say when those drafts will be available?

However, for me the far greater challenge has always been the need for each local authority to publish its proposed council tax support scheme by the end of January. Before they do that, they must have full and effective consultation, not least on their equalities impact assessment. There is now even more nervousness among local authorities about this, given that all those who lost in court on proposed library closures did so because their equalities impact assessments were held to be inadequate. That nervousness was there when it was expected—rightly or not—that this Bill would be enacted by the end of July, with the necessary regulations following shortly thereafter. Only in the past few weeks has it become clear that this Bill will not be enacted before the end of October/early November at best. The deadline of January seems even more fraught with difficulty and danger. I hope, therefore, that the Minister will say something helpful in her reply about the timetable, both for the further consideration of the Bill and for its implementation.

The Secretary of State for Communities and Local Government has been quoted as saying that the Local Government Finance Bill is not as interesting as it sounds. A couple of weeks ago, the leader of a Conservative-run London borough council told some of us that he thought it was the most far reaching local government legislation in his 16 years as a councillor. Probably the truth is somewhere in between. Just as with the Localism Bill last year, this Bill arrives in your Lordships’ House still in need of some improvement and with questions still to be answered. However, just as with the Localism Bill last year, I am sure that it will leave this House, whenever it does, in a much improved condition, and I look forward to achieving that in the same constructive way with the help of those on all sides of the House.