Local Government Finance Bill

Lord Tope Excerpts

Tuesday 3rd July 2012 Grand Committee

[Lord Jenkin of Roding]

My Lords, before my noble friend replies to the debate, I should like to add a word. The noble Lord, Lord McKenzie, quoted a passage from London Councils’ briefing, which we have all received. I and my noble friends have tabled a number of amendments—to which we will come later and to some of which the noble Lord has added his name—which recommend a marked change in the structure of this division of the business rate. London Councils—I should declare an interest as one of its presidents—has indicated to me that on balance, with regard to this part of the Bill dealing with the business rate retention scheme, it would be a little upset if the date were postponed.

A lot of work is being done on this by London Councils and there has been a good deal of discussion about the pooling arrangements that may be appropriate. Although it is not put as a very firm and immutable point of policy, its view is that 2013 for this part of the Bill is right, and I think it would regret it if the date were changed. I draw a very clear distinction between this and the later part of the Bill dealing with the council tax, where there is still an enormous amount of anxiety that councils will simply not be ready with their own local schemes. However, we shall come to that later. I think that I should let the Committee and my noble friend on the Front Bench know that on balance London Councils would regret a postponement of Part 1.

[Lord Tope]

My Lords, I suppose that I, too, should begin by declaring an interest. I am simply a councillor in the London Borough of Sutton. I am not a vice-president of anything, or at least not yet—I see that the noble Lord, Lord Beecham, is disappointed with that declaration.

I listened to the noble Lords opposite making the case, with which I am sure many in local government would have some sympathy. I think that all of us, on both sides, would wish to be a little further ahead than has proved possible. However, I suspect that as we will say time and again with this Bill, we are where we are now and we have to consider the question of postponement. My noble friend Lord Jenkin is right to draw a distinction between postponement of the business rate retention proposals and a possible postponement in implementing the localisation of council tax support, to which we will come later. There will be many in local government who have sympathy with what has been said on the other side of the Committee and perhaps more so when we get to council tax support.

As a councillor, I have thought quite hard about this in respect of my own authority and more generally. I do not support postponement. I would rather we were not where we are. Until relatively recently, it was expected that this Bill would be enacted by the end of this month but clearly that will not happen until much later. I hope that, in reply, the Minister will be able to give us a clear and firm commitment that by Report stage, in October, all that is required to be published will have been published, albeit in draft form. I take the point that until the Bill is enacted, it cannot be in an absolutely final form. However, if local authorities know all that they need to know by October at the latest, and I hope a little before that, and if the Minister is able to give a reassurance, I believe that most local authorities will share my view on business rate retention that we are so far down the road and there is so much expectation that this will happen—there has been so much wish that it should happen and we shall come to that later—that postponement now would not be welcome, particularly to me. I hope, with some confidence, that the Minister will resist these amendments.

[Lord Beecham]

My Lords, my noble friend Lord McKenzie alluded to some of the difficulties that surround next year’s council budgets, to which these amendments refer. In particular, he mentioned reserves and the uncertainty about the timetable, as well as general uncertainties that are leading councillors to take a more conservative view about the level of reserves that should be held. I declare an interest as a member of Newcastle City Council and as a vice-president of the Local Government Association, a position that I hope to share with the noble Lord, Lord Tope, as soon as possible. The president is here, so perhaps he can take that message back to the association.

In my council, we have been accustomed to running on a very modest level of reserves. The treasurer is concerned about the degree of uncertainties not only because of legislation and the general financial situation but also because of the growing number of outstanding valuation appeals in the commercial sector. Of course, that goes very much to the heart of what the business rate will deliver. It seems that these appeals are growing in number. The noble Earl, Lord Lytton, mentioned to me recently that they are taking about two years to be settled. I am not suggesting that the programme be held for two years, but it is an indication of the growing levels of uncertainty about what might ultimately be the yield, let alone about how the Government would handle the business rate when it is collected. In addition to that, a new category effectively of precepting authorities will arise in November when a handful of electors up and down the country will choose their police commissioners, who will have responsibility for 11% of the council tax. Clearly, that will relate to the business rate income. That is another element of uncertainty. In my submission, all this suggests that it would be sensible to ensure that the legislation is firmly in place, is absolutely clear and takes into account these other factors.

I suspect that we shall be debating at some length, as the noble Lord, Lord Jenkin, has pointed out, the position arising in relation to council tax benefits or council tax support, as it will be known, and the new systems that will apply. I would have thought that it would make more sense to take those together against the background to which I have referred, a background that the Secretary of State apparently referred to at the LGA conference last week, when he made what he described as a jocular reference to tackling councils’ reserves. By the word “tackling”, I take it that he means requiring that they should be used. Against the kind of uncertainties that we are talking about, such an approach would surely be highly risky and damaging.

I do not know whether the Minister is aware of quite what the Secretary of State said; if she is not, I would not ask her to respond at this point. However, I would be grateful if the situation could be clarified, perhaps by a letter to Members of the Committee—and perhaps wider than that, because it will also send a shiver up many a treasurer’s spine, on top of all the other uncertainties that we have. We will certainly be pressing hard for a deferment of the council tax benefit side, as it seems sensible for the system to change at the same time and not in parts, particularly given the other uncertainties that I have mentioned in relation to the amendments before us.

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[Lord Palmer of Childs Hill]

While the Minister is on that subject, perhaps I may ask a question, although, first, I should have declared my interest as a councillor in the London Borough of Barnet. I apologise.

[Lord Tope]

Another vice-president?

[Lord Palmer of Childs Hill]

No, I am not a vice-president of anything. In addition to the comments that I and the noble Lord, Lord Beecham, made about reserves—specific and non-specific—one also needs to take into account the restrictions imposed on local authorities by external auditors. External auditors used to come under the Audit Commission but now they are a stand-alone operation. They require a certain level of reserves on the balance sheet, and it would be difficult if central government were to impose requirements on those reserves. External auditors say that you have to have £5 million, £10 million or £15 million in reserves to make everyone feel comfortable, but I have always said when making speeches that I think they make people feel too comfortable. However, that is what the auditors say and they will qualify your accounts if you do not do that.

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[Lord Best]

My Lords, I would like to speak to Amendment 16, which comes before the amendments in the name of the noble Lord, Lord Jenkin. I declare my interest as president of the Local Government Association. I express thanks to my various vice-presidents, particularly to the noble Lord, Lord Jenkin, for an exposition in very eloquent terms on the point covered by my rather cruder Amendment 16.

The LGA, representing district, metropolitan and county councils of all political hues, as the noble Lord has said, has expressed disquiet that there is to be a division of the business rates that retain so much central control, despite the positive rhetoric of localism. The LGA recognises that central government wants to keep a firm hand on local government finances during the period of deficit reduction covered by the current spending review, not least to impress the international financial markets that deficit reduction is being taken very seriously. The measures in the Bill are likely to last well beyond that deficit reduction timescale and local government at large is keen to ensure that the retention by central government of 50% of all business rates revenues, and indeed 50% of any business rate growth, shall not be maintained after its purpose has been fulfilled.

This amendment calls for central government to discontinue its retention of a share in local government business rates revenue after 2014-15; that is, after the last financial year in the current spending review period. I recognise that the Government may well be keen to extend the period a little longer because their deficit reduction objectives are likely to go on beyond 2015. However, the LGA, London Councils and others representing local government all agree that that top-slicing of business rates revenues by central government needs some clear end date. The 50% top-slicing greatly restrains the ability of local government to benefit fully from its support for any business rate growth and undermines the localism agenda of devolving powers away from the Secretary of State to local government.

In responding, perhaps the Minister could address one aspect of this concept of a central share of all business rates. I know that the Government have stated their intention to return the revenues that they receive through this arrangement to local government. That certainly sounds as though the Government’s intentions are not to redirect resources away from local spending, but it is unclear how the funding received by the Government will be returned to local authorities and what conditions are likely to be attached to it. Clarification on just how that somewhat circular movement of finance will operate would be much appreciated. The underlying point of the amendment is to draw out the Government’s view on just how long this central government control over half the business rates should last. I entirely support the comments on that from the noble Lord, Lord Jenkin.

[Lord Tope]

My Lords, my noble friends and I have added our names to Amendments 12, 16, 17, 21 and 22, which have been very ably spoken to by the noble Lords, Lord Jenkin and Lord Best. I shall not repeat all that they said; suffice it to say that I agree with everything that they said. The noble Lord, Lord Jenkin, made some mention of the disappointment in local government when the 50:50 split was announced. That was profound perhaps because local government was expecting more, given the rhetoric from the Government when the so-called repatriation of the business rate was first announced, something for which all parties in local government have strived ever since my noble friend Lord Jenkin nationalised it some years ago. So there was an expectation. He has repented many times since then—and blessed is the sinner.

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[Lord Greaves]

There are one or two brief things that I would like to say. I apologise to noble Lords for not being present at Second Reading, when I was enjoying myself in France. I declare an interest in that I am a member of a district council in Pendle, in Lancashire, and a member of its executive. I am also vice-president of the Local Government Association. Why my noble friend is not is a mystery.

[Lord Tope]

I was sacked a few years ago.

[Lord Greaves]

The noble Lord was sacked. I think further investigations are required, and we will report back.

I was moved to speak by listening to my noble friend Lady Eaton. I support a great deal of what she said, which was in emphasis a little different from some of the contributions made by other noble Lords. In principle, these amendments are right: 50% is a remarkably low figure to be retained by local government, and certainly not what was expected when the scheme was first announced to the world. However, I want to bring noble Lords down to earth with regard to some local authorities. Retention locally of the business rate will not be a financial bonanza for those local authorities at 50% or at any other higher percentage. Many authorities, as my noble friend said, will continue to need to rely on the rate support grant, if it continues to be called that, because they will have great difficulty not only in finding ways in which to expand their tax base by increasing their business rate but also maintaining them at the present level. This is a fact of life, and the localisation of business rates in these areas, including my own region of east and Pennine Lancashire, does not have the rosy glow around it as it does in areas that will find it easier to grow a commercial base. That is not to say that people will not try to do it, but in areas such as my own it will be a matter of trying to hang on to what is there at the moment.

I give an example. A small district might have two or three large mills or factories contributing quite a high proportion of the business rate. It only requires one or two of those to close down and the position will be fairly catastrophic. It is not the same in every kind of area and whatever kind of system we have in future will have to retain a substantial element of redistribution at least for those authorities. I do not know what proportion of authorities that is, but I have heard my honourable friend Andrew Stunell tell me that about 20% will be substantially reliant in future on continued redistribution elements of the grant. I do not know whether the Minister has an idea or can enlighten us after this Committee.

The second thing that causes a certain amount of alarm is the 50%. It is really the argument about what happens to the money that is centrally controlled. How far will this kind of area, which tends to be the old, declining, industrial area—although not all as some are coastal towns that have fallen on bad times, and so on—rely on the traditional kind of government grants, particularly capital grants, for regeneration? We discussed this issue in your Lordships’ House last week in a debate launched by the noble Lord, Lord Mawson.

The noble Lord, Lord McKenzie, and I were making similar points that parts of the country are missing out on the grants that are now available, compared with the past. That is partly as a result of the reduction in funding for capital schemes and the fact, for example, that the regional growth fund is cumulatively less than the regional development agencies used to have available to disperse. It is partly because there is a tendency now to go for growth and to go for the places where growth is easiest and perhaps to go more to the south-east, the Greater London area, the big cities, the city regions and metropolitan areas. There are very exciting and worthy schemes for authorities to work together for economic growth and development in areas such as Greater Manchester. Those places that do not naturally fit into the big city regions risk missing out. I am talking about my own area in Pennine Lancashire, but there are others as well, in the north-east, in west Cumbria, and elsewhere around the country. Our concern is about how much the less fashionable and less sexy areas, or the areas which find growth more difficult and where the return on investment may be less as a percentage, are going to miss out on this 50% redistribution. There are huge questions there.

I ask the Minister whether the Government have an assessment at this stage of how much of this central fund is expected to be used for different purposes. How much of it is expected to be used for council tax issues which the noble Earl, Lord Lytton, was talking about? How much is expected to go on administration? How much is expected to go on straightforward redistribution to the sort of areas I am talking about? How much will go to traditional funds and schemes for capital investment and development around the country? How much will go on regeneration? How the Government will use this money is not clear to me at all. I can see in total the kinds of things it is going to used on, but I do not really know whether they have an estimate of how much is likely to be used for the different elements. I would find it extremely interesting and useful to have that information, if the Government have worked it out.