Local Government Finance Bill

Lord Whitty Excerpts

Tuesday 12th June 2012 Lords Chamber

[Lord Whitty]

My Lords, like almost everyone else, I had better declare that I am a vice-president of the LGA; I am also a vice-president of the Trading Standards Institute. However, my experience of local authority finance is much less than that of a lot of people who have spoken in this debate. I shall use most of my time to make a basic strategic point, which was referred to, among other things, by my noble friend Lady Donaghy.

The Minister, in her usual convincing and efficient way, presented this as a rather limited and technical Bill—important but nevertheless relatively straightforward. However, it is being introduced in a period of seismic change in local government: what the Government expect of local government and what the public expect of local government. We have a basic contradiction here. On the one hand, we have had serious cuts in finance from the centre to local government in both the general rate support grant and support for particular activities such as affordable housing. We also have a council tax reduction programme in the Bill. We have also had a clear determination to cut staff numbers, to reduce the staff pay bill and to impose other burdens on local authority staffing which have seriously affected morale in many parts of the country in the local government service.

We have also had a determination in other parts of the policy field to take away traditional functions of local authorities. I think particularly of education, where the role of the local education authority has been greatly reduced and the aim is to reduce it further by making most schools academies reporting to a central department. We have had reductions under the red tape agenda in the regulatory role of local authorities in relation to health and safety and environmental health.

On the other hand, we have had significant increases in the duties on local authorities. That is partly in pursuit of the localism and decentralisation agenda, partly as a result of the abolition of regional structures in England and partly as a result of other pieces of legislation. For example, the NHS Act places more duties on local authorities, particularly in relation to adult social care, as my noble friend Lord Warner said, on top of significant demographic pressures on that front. We have had other examples, as in the decentralisation of the OFT’s responsibilities in the consumer field down to local trading standards teams—all without additional resources. The Minister’s justification for the business rate changes in this Bill also implies a significant additional, or at least growing, responsibility on local government in relation to economic development.

We thus have a basic contradiction in the Government’s approach to local government. On the one hand, in line with their “smaller government” rhetoric, we have the diminution of the local state and its resources and, on the other hand, in line with decentralisation and localism we are placing the local state—local government —as the driver of some of the strategies which the Government hold dear. That is in relation to issues which have previously been more centralised, although they were in some cases regionalised. We now have local government, with diminished powers and resources, nevertheless being designated as responsible for the prosperity, well-being, planning and the environmental side of their localities. We also have ever more complex interventions, as other speakers in this debate have underlined, placing ever more complex requirements in the financial area.

I will fully accept, before the Minister makes the point, that this contradiction is not unique to this Administration. However, it has become much more acute, partly because of the large-scale reduction in resources—both those already seen and, more importantly, those impending—but also, if I may trespass on private territory, because this Government have an internal contradiction themselves. That contradiction is not only between the coalition partners but to some extent between the metropolitan leadership of the Conservative Party and the Conservative councillors in the country, who have a different view of local authorities.

I come from a different tradition entirely. I make no bones about it; I am an unashamed statist. However, I have always recognised that the nature of the state in Britain—in this particular context, in England—is hugely overcentralised. Compared with almost every other western democracy, the level of powers, resources and political importance of local government in England is much, much less. I had hoped that, at least on the resources point, this Government’s first Local Government Finance Bill would begin to turn that round because, to that extent at least, I agreed with some of their provisions in the Localism Bill. On the financial side, for example, I agreed with their reforms to the housing revenue account. In this Bill, I agree with the rhetoric surrounding the decentralisation of the business rates, but when one looks at its details it is only rhetoric.

The Bill is not all that clear—it is not all that clear in Schedule 1—but in reality the Secretary of State has huge powers to determine what exactly each authority will in practice get out of the business rate. Apart from the 50% cream-off, we do not know how that will be distributed. I would hope that the Minister could at least give us an assurance that before we complete the passage of this Bill, we will have an indication, in outline and in principle, of what kind of redistribution the Government have in mind for the 50% of the business rate that is to be rechannelled through the centre.

In reality, the position is that local authorities will not know how much they will get from the business rate. That is surely completely non-conducive to the alleged aim of this: to allow local authorities to stimulate local business and prosperity. Unless they know what kind of income they are going to get over a relatively long period, that kind of economic planning role will not be achievable. We have a Bill here which is probably going to be an example of the tensions within this Government and within any central government’s approach to local authorities. Yet the tensions are becoming more acute and the local authorities are going to find it much more difficult to deliver that.

I have three further points to make, one of which is in the Bill and I support, one of which is in the Bill and I oppose, and one of which is not in the Bill. I support the measures relating to the powers to tax empty homes and, to some extent, second homes. They are sensible and, apart from being a revenue-raiser to a limited degree, may actually be able to contribute to the housing role of local authorities. Like other noble Lords, though, I am strongly opposed to the localisation of council tax benefit. Because others have already made them, I will not go over the arguments that the burden of this change, particularly in the timescale proposed, will fall primarily on the working poor and the young unemployed, but the timescale will be impossible logistically if we insist on a start date of 2013.

My view is that housing benefit and council tax benefit should be dealt with in the same place and in the same way. Both are based on the same passport arrangements, relate to local costs and are administered and delivered locally. It could be argued that it would be sensible to decentralise both, but I argue that it would be better if both were dealt with in the present way and taken together into the universal credit system. What is entirely illogical is to treat them differently, and that is what the Bill provides for. Taking all those things into consideration, that I predict some chaos in local authority systems and some serious injustices for recipients of council tax benefit. Not only will local authorities and recipients be in trouble but central government will as well.

My final point is not in the Bill. It relates to housing, and I declare an additional interest as chair of Housing Voice, the campaign for affordable housing. Noble Lords will recognise that housing is in crisis in all forms of tenure and in pretty much all parts of England. The Localism Bill in effect put local authorities in the driving seat with regard to housing but never gave them the resources that they would need. I support the central role of local authorities in this arena, recognising that it will mean differential outcomes in different local authority jurisdictions. Housing markets are different, as are the needs of different populations, and it is right that a lot of those decisions should be taken locally. To be a strategic authority in this area, however, local authorities need resources whether they are going to build social housing themselves, help housing associations to do so, go into partnership with the private sector to build affordable homes in their area or help first-time buyers to purchase in their area. This role is not covered in the present rate support grant calculations; it is inhibited by the restrictions on local authorities being able to devise their own systems of local taxation, or even to make marginal changes to the council tax provisions in relation to banding and designation, and, above all, by the Treasury-imposed restrictions on borrowing.

Again, in most other European countries, local authority borrowing to build houses, or indeed other infrastructure, would not be set against central government limits, as even the rather pitiful level of TIF in this Bill will be, and I see no logical reason relating to economic management why that should be the case in this country. I am not arguing for the complete relaxation of credit and borrowing controls for local authorities but, unless they have more flexibility to raise their own finance from the market, neither they nor the private sector nor registered social landlords will be investing sufficiently in housing when, as we all know, there is a massive unmet demand and severe dysfunction in the housing market. I fear that we will not see that in the Bill, but I register with the Minister that at some point in this Administration we have to make some radical changes in the resources and powers available to local authorities in the housing sector. If she cannot be forthcoming on that in the course of the Bill, I hope that she will at least persuade her colleagues to bring something forward later in this Parliament.