Marcus Jones
Main Page: Marcus Jones (Conservative - Nuneaton) Local Government Finance Bill
Marcus Jones ExcerptsMonday 23rd January 2017
(7 years, 10 months ago)
Commons ChamberRead Full debate Local Government Finance Bill 2016-17 Read Hansard Text
The Parliamentary Under-Secretary of State for Communities and Local Government (Mr Marcus Jones)
I beg to move, That the Bill be now read a Second time.
This Government have made no secret of their ambition to build a growing, international economy that works for everyone. A global Britain, however, needs local foundations. It is not enough to have world-leading, FTSE 100 exporters; we need thriving high streets, strong independent retailers and local economies that match the exceptional growth that UK plc has experienced since 2010.
The people best placed to lead that drive for growth are, of course, our local councillors. They know their communities better than anyone; they know which strengths to build on and which challenges to address; and they hold many of the levers required to deliver change. Yet in my many meetings with councillors and council leaders, I am often told that local authorities lack meaningful incentives to grow their local economies. They tell me that the system is over-centralised, that residents see no connection between the level of local taxation and the level of services they receive and that the proceeds of local growth disappear into national coffers, forcing councils to go cap in hand to Whitehall asking for funding. That is not good enough. Local authorities, local businesses and local communities deserve a better deal, and this Bill will provide it.
The Bill delivers far-sighted, long overdue changes that radically reform the way we fund local government. It ends the main central Government grant altogether, and instead allows local authorities to retain locally raised taxes. It encourages local growth and it supports local businesses.
John Redwood (Wokingham) (Con)
Does the Minister agree that a council such as mine that actively promotes growth incurs huge bills for new roads, new schools, new surgeries and new other public facilities, which are not adequately reflected in the amount of money we are allowed to retain from the taxes we raise locally or in the support we get from the central Government?
Mr Jones
I absolutely understand that local government has been complaining for far too long that the incentive to create growth is not there, particularly because of things such as the levy, which was implemented in respect of the 50% business rate retention scheme. As my right hon. Friend will know, that levy is being scrapped by the Bill.
This is not a Bill that increases spending and puts a greater strain on local taxpayers. Rather, it offers a focused package of reform that will encourage and support local growth, while we continue to live within our means. I will start with the commitment made in October 2015 that by the end of the current Parliament local government would retain 100% of locally raised taxes. In implementing our reforms, we will move local authorities away from dependency on central Government grant and towards greater self-sufficiency. Let me take this opportunity to record my gratitude for the substantial contributions made by many in local government, and in businesses, to the development of the reforms. The Bill is a major milestone in the process, and establishes the legislative framework for the reformed system. It reflects the significant input that we have received to date, and our collaborative approach will continue as we determine the detail of the implementation of the new system.
A key part of the new system will be the introduction of stronger incentives for local authorities to increase their business rate income. That will build on the current system of 50% business rate retention. Under the reforms, which we aim to implement in 2019-20, local government will retain about an additional £12.5 billion in revenue. To ensure that the reforms are fiscally neutral, authorities’ grant will be replaced by locally raised taxes for existing responsibilities, or they will be given new responsibilities. Those matters will be subject to separate discussions, and will not be dealt with in the Bill. However, the Secretary of State announced last week that the devolution of attendance allowance funding was no longer being considered as part of the business rate reforms, and I am happy to confirm that today.
Mr Gareth Thomas (Harrow West) (Lab/Co-op)
In the consultation paper that they published last year, the Government, suggested that attendance allowance might be passed down to local government—I am glad that that is not happening—and that the £3 billion public health grant, and the better care fund that is so crucial to local authorities that face a social care funding crisis, would be axed as part of the fiscal quid pro quo applying to business rates devolution. Is that still the Minister’s intention?
Mr Jones
As the hon. Gentleman will know, the Bill does not deal with the principle of what additional matters will or will not be devolved to local government. Social care funding is an extremely important issue. It is this Government who have given local authorities the opportunity to spend up to an additional £900 million on social care in the next two years, on top of the additional package of £3.5 billion to which we have given councils access. In total, we have given them access to an additional £7.6 billion in the spending review period, which is dedicated solely to adult social care.
Steve McCabe (Birmingham, Selly Oak) (Lab)
Does the Minister accept that the Bill will significantly increase the rates demand on hospitals at a time when the health service is extremely hard pressed? For example, the rates demand on Queen Elizabeth hospital in Birmingham will rise to £7 million. If the Minister is willing to look at discretionary relief on public toilets, is he willing to look again at discretionary relief for hospitals?
Mr Jones
I am sure that, having perused the Bill, the hon. Gentleman will know that NHS hospitals do not feature in the increase to which he referred. I think he was referring to the 2017 business rate revaluation. That exercise has been undertaken by the Valuation Office Agency, which is independent of the Government. The Government have provided a package of transitional relief amounting to £3.6 billion, and NHS hospitals will be subject to the same transitional relief as other ratepayers whose business rate bill will increase as a result of the revaluation. As many Members will know, the revaluation was not designed to raise more or less business rate overall. It is a fiscally neutral exercise, which means that some business rate bills have increased and others have decreased as a result of the independent valuations made by the independent agency.
The Bill does not determine funding levels for individual councils. We continue to work with people throughout local government to deliver the fair funding review, which takes a wholesale look at councils’ relative needs and resources. We remain committed to implementing a new funding formula in time for the implementation of 100% business rates retention in 2019-20.
James Heappey (Wells) (Con)
Does the Minister agree that, although the devolution of business rates is extremely welcome, the funding gap between predominantly urban and predominantly rural authorities is already too wide? Does he agree that the review must ensure that that gap closes as soon as possible, and certainly does not widen?
Mr Jones
That, indeed, is why a rural services delivery grant was inserted into last year’s local government finance settlement, with its four-year deal. As my hon. Friend knows, this is not part of the Bill, but we are undertaking a fair funding review because local authorities in many parts of the country have apparently pointed out that the last proper needs assessment took place about 10 years ago, and that in many areas the demographic has changed completely in the intervening period. We are considering carefully how resources should be distributed across the system.
Bob Blackman (Harrow East) (Con)
My hon. Friend and I have recently shared many a happy hour debating homelessness reduction, but another issue now concerns me. Most local authorities have warmly welcomed the four-year funding settlement, but it is feared that the adjustments made to, for example, the new homes bonus have adjusted those figures. What consideration is my hon. Friend giving to adjustments to the overall four-year settlement to take account of the changes that the Department has made, which render some of these four-year settlements rather strange in comparison?
Mr Jones
As my hon. Friend says, we have spent many a happy hour debating the Homelessness Reduction Bill, which will return to the House for its Report stage on Friday. As one who is extremely savvy about these matters, as well as being a member of the Communities and Local Government Committee, he will know that the issue to which he has referred does not necessarily feature in this Bill, but does feature in the local government finance settlement, on which we have recently undertaken a consultation. We shall be responding to that consultation, and to points made by Members and local authorities throughout the country about the new homes bonus, one of which my hon. Friend has just managed to put on the record.
Richard Drax (South Dorset) (Con)
May I pick up on the point about the rural share? The 50% local share of additional business rates that are to be raised is fine in mainly urban areas, because there are more brownfield sites and areas to encourage businesses, but in seats like mine that are surrounded by every environmental designation from here to God knows where it is going to be far harder to raise this additional money, which of course local authorities desperately need.
Mr Jones
That is a valid point, and, like in the current system, going forward there will be redistribution; it will be one of the core principles within the system, because in setting up the system we must make sure there are not areas that fundamentally lose out just because they do not start from the same position as other areas in the amount of business rates collected. A number of hon. Friends have asked about rural areas and the fact that many of them are very dependent on very small businesses, many of which will be exempted from business rates completely by this Government’s £6.7 billion package on business rate relief. I can reassure my hon. Friend and other Members that the effect of the 2017 revaluation will be mitigated for local authorities, because the system will be reset to make sure areas do not lose out. Indeed, that will also be the case prior to the new 100% business rates retention system getting under way.
Mr Clive Betts (Sheffield South East) (Lab)
On the issue of redistribution, we currently have the needs assessment, and indeed the Government are going to conduct another review of needs before they start the new 100% business rates retention system. The House has information each year on the needs assessment within the local government financial settlement and, indeed, votes upon it. I understand, however, that in future we are not going to have that system; instead, we are going to have something called the principles of allocation statement, which is made and set for the rest of the period over which the system runs. The principles of allocation statement will not come to this House for approval, however. Why is the House being circumvented in this decision-making process?
Mr Jones
The hon. Gentleman is Chairman of the Select Committee and has a great deal of knowledge and commands a great deal of respect in the House on local government matters, but I say to him that we are now in a very different world from the one we were in only a few years ago, when local government collected the whole of the business rate incentive and gave it to the Government. In that sense, 80% of the spending of local government was distributed from central Government on the basis of the principles the hon. Gentleman mentions. Now we are moving to a system where by the end of this decade 100% of money within local government will be raised locally, and therefore Government will not year on year be redistributing the funding, which has been the case hitherto. The other point I would make, which has been well-recognised by local authorities in the last year on the basis that 97% of local authorities have signed up to a four-year deal, is that local authorities have asked for certainty of funding, which this system certainly will provide for them.
Dr Wollaston
I thank the Minister for giving way. He will know that the better care fund is an important redistribution mechanism, given the variable amounts that councils will be able to raise through the precept, which the Institute for Fiscal Studies estimates will raise £700 million over the next three years. Can the Minister give any encouragement on whether the better care fund will reflect the serious concerns around the problems with social care?
Mr Jones
I think my hon. Friend is referring to what we term the improved better care fund, which will go directly to local authorities. That funding has been brought forward as part of the spending review 2015. She will probably know that that funding effectively was obtained by changing the way in which the new homes bonus operates, and sharpening the incentive in relation to the way in which that system operates. As such, therefore, that additional money is not freed up quickly enough to do what she says. Although this year £105 million comes into the system, next year it will be £800 million and the year after that—the last year of the Parliament—it will be £1.5 billion. Alongside that, in this financial year we have also put an additional £240 million into the social care system as a dedicated social care grant, which again has been realised from additional savings made through the new homes bonus.
Mr Betts
I thank the hon. Gentleman for giving way a second time. I entirely accept his explanation in relation to the year-on-year arrangements, because there will not be a change every year in needs assessment as there currently is; that will be fixed for the period of a longer settlement. What is essential, however, is that right at the beginning of this new system, when the new needs assessment has been done and an allocation is agreed in the first principles of allocation statement, that comes back to this House so that we can take a view on it.
Mr Jones
As I said earlier, the hon. Gentleman commands a significant amount of respect in this House in regard to these matters, and, while he does not always realise it, there are Government Members who listen to the suggestions and concerns he raises, but I reiterate to him that we are moving into a different world, and that is why we have chosen to implement the system laid out in the Bill.
Mr Jim Cunningham (Coventry South) (Lab)
Given that the Minister is shifting the emphasis in terms of resources on to local government, how much does central Government expect to save as a result of this exercise?
Mr Jones
This situation is fiscally neutral. We expect the current expenditure of local government to be realised from the current local taxes that are raised locally, and there will be an additional £12.5 billion of spending that will also go to local authorities. As I said earlier, this Bill does not look at these items of expenditure—that is a separate principle—but we will certainly be looking to devolve additional responsibilities to local government, in discussion with local government and organisations such as the Local Government Association, which we expect to be fiscally neutral.
Mr Cunningham
The hon. Gentleman, whom I have a lot of respect for, must know that it is not really fiscally neutral, because central Government are saving money as a result of shifting the resources on to local government through the abolition of grants and so forth. Equally, he is asking local government to raise certain sums of money themselves, and we will surely reach a point where local government cannot sustain that. The important point is that central Government must be saving money—not necessarily his Department, but somewhere in the Treasury.
Mr Jones
As I said to the hon. Gentleman, an additional £12.5 billion will be going to local authorities. That will be on a fiscally neutral basis. I also point out that the whole principle on which this system is built is such that it will give local authorities the incentive to widen their business rates base and raise additional funding for providing local services as a result.
Several hon. Members rose—
Kevin Foster (Torbay) (Con)
The Minister will remember the time when we shared neighbouring councils. Does he agree that the biggest savings for the Treasury will be created by freeing and incentivising local authorities to create jobs and drive developments forward? This will allow local authorities to get people off benefits, into work and paying taxes. That will be the biggest financial benefit for the Government.
Mr Jones
As is often the case, my hon. Friend has hit the nail on the head. This is about raising local taxes that can be spent locally, but it is also about driving growth. The biggest win—and one of the most satisfying things for any of us in this House—is to see people moving into employment who were not previously working. What comes from this Bill will be a real driver for local growth.
Marcus Fysh (Yeovil) (Con)
Has the Minister looked at the Laffer curve? It is used in economics to indicate the position on the income tax collection spectrum of the optimum place to collect as much revenue as possible. We hear a lot about what this revenue can do for local government, but there is a limit on what businesses can bear, and some of the businesses in my towns are really struggling with business rates. What help can he give to local authorities to incentivise them to optimise business growth in order to optimise the collection of these taxes and the results for business at the same time?
Madam Deputy Speaker (Natascha Engel)
Order. Before I call the Minister again, I must point out that interventions are getting very long. Although we have plenty of time, it would be good if we could keep them a bit tighter. This would allow more people to take part in the debate. I call Marcus Fysh. [Laughter.]
Mr Marcus Jones
Thank you, Madam Deputy Speaker. Jones is a very popular name, although Marcus is perhaps less so. It is good to have a fellow Marcus in the House, and I am delighted by the point that he has raised. I do indeed recall the Laffer curve, albeit many years ago during my days of A-level economics. The Bill will set out a framework for local authorities to reduce the multiplier on the business rate and therefore reduce the tax rate. As he implied, that might well lead to businesses being attracted to a particular area, thereby creating additional revenue there.
Local authorities have made it clear that they want more stability and, as I mentioned to the Chairman of the Select Committee, they do not get that from the current system of annual discussions on local government funding. Councils have told us that they want longer-term arrangements, and 97% of English councils have signed up to our multi-year deal. The Bill will deliver that much-needed stability and certainty, amending the current local government finance settlement process and the related approach to the setting of council tax referendum principles. We will continue to protect local authorities from the impact of sudden reductions in income, and the Bill will provide a framework that will help councils to manage risk and ensure that they have better protection from the impact of successful appeals, so that they can focus on delivering the services that their residents and businesses need.
Kevin Hollinrake (Thirsk and Malton) (Con)
My hon. Friend talks about protecting local authorities from changes. I welcome his commitment to a fairer funding formula, but is he aware that nine of the 10 authorities with the highest spending power in the country are in London, yet nine of the 10 lowest council tax authorities are also in London? Does he agree that a fairer funding formula needs to take into account the cost drivers behind need in local areas and to be for local people, rather than simply taking into account what has gone before? Rather than being about regression, this needs to be about need and the cost of delivering the services.
Mr Jones
My hon. Friend is certainly correct in saying that we need to take a significant look at how funding is provided across the system of local government. As I have pointed out on a recurring basis, the principles for the fair funding formula do not feature in the Bill, but they are an important consideration and we are certainly taking the issues that he has raised into account in the work that we are doing alongside the Bill. We are taking soundings from local government.
The Bill also includes a range of measures to cut business rates for small businesses and local amenities so that local communities can thrive. We will take a power, following the commitment in the Budget last year, for the Treasury to set the indexation rate for the business rate multiplier. This will allow us to change the multiplier from the current rate of RPI to the significantly lower CPI measure. We will change the rural rate relief to ensure that small businesses in rural areas receive the same level of business rate reliefs as those in urban areas. This is not only fairer; it will also make a real difference to many employers across the country.
We will provide a new relief for five years for the installation of new optical fibre, fulfilling an announcement made in last year’s autumn statement. To make central Government more responsive to changing business circumstances, the Bill streamlines the administrative process of including premises on the central rating list. We will also be introducing charitable and unoccupied property relief for premises on the central list, bringing them into line with those on local lists. Much to the amusement of hon. Members when the subject came up in Communities and Local Government questions last week, we are also providing a new discretionary relief for public toilets. Councils will be able to maintain these important facilities without having to spend quite so many pennies. This Government are committed to providing the right conditions for growth. A key function of the Bill is to provide local government with strengthened incentives for growing their business rates income and encouraging local businesses to set up and grow.
Mr George Howarth (Knowsley) (Lab)
I wonder whether the Minister could clarify something for me. On the question of telecommunications infrastructure, the Bill states that the provisions will apply where
“the hereditament is wholly or mainly used for the purposes of facilitating the transmission of communications by any means involving the use of electrical or electromagnetic energy”.
My reading of that is that it confirms that the rate relief would be for the actual infrastructure used in telecommunications and that, for example, Virgin Media, which has a property in Kirkby in my constituency, would not be eligible for the rate relief under that provision. I hope I am wrong about that. Can the Minister advise me?
Mr Jones
I think that the right hon. Gentleman might be conflating the central list, and the hereditament or infrastructure, with the business rate relief, which is designed to incentivise providers to lay further networks of fibre-optic cables in the ground so that people can benefit from superfast fibre broadband across the country.
Under the current system, central Government put a levy on local growth. We have listened when councils have told us that this tax on success—this penalty for doing well—is a huge disincentive for local authorities. The Bill scraps the central Government levy for good. This means that local authorities will keep 100% of growth in business rate income between reset periods. That will be a real incentive to grow their local economies, and a great way to keep the proceeds of growth in their communities. We will also allow local authorities that set up pooling arrangements to designate specific areas where they want to boost growth. They will have the potential to keep all the growth and not lose it to the periodic reset and redistribution process.
Justin Tomlinson (North Swindon) (Con)
To unlock growth through the provision of considerable incentives, we need councillors with direct, relevant business experience. What more can be done to encourage busy businesspeople to put themselves forward for office?
Mr Jones
My hon. Friend, who is an entrepreneur, is absolutely right. This Bill and the measures being brought forward will attract entrepreneurial people to the role of councillor. Unlike in the past, when local business rates were collected locally and sent back to Government and then distributed across the country, the change will give local authorities a real incentive to be entrepreneurial and to attract the people that he and many of us want to see in local government.
Going even further, the Bill will provide real flexibility to local authorities. Councils can already provide business rates relief for parts of their area or particular sectors. As a result of the Bill, for the first time since the establishment of the business rate system, councils will be able to reduce the national business rate multiplier for their whole authority, helping them attract business and investment to their area. We are also supporting investment where it is needed to boost growth through infrastructure investment. The Bill will enable mayoral combined authorities and the Greater London Authority to raise a small supplement on business rates in full consultation with businesses to enable them to realise their areas’ growth ambitions. To recognise property owners’ wish to support the regeneration of their areas, the Bill will allow the establishment of new arrangements for property owner business improvement districts, That will enable property owner BIDs to be established across the country whether or not a business rates supplement is in force in that area, allowing a levy to be raised on those with a property interest.
Running a business is more than a full-time job. The working day does not end when the “Closed” sign goes up. There are huge and growing demands on anyone running a business of any size, and such entrepreneurs deserve to have the Government standing firmly behind them, not getting in their way. We will therefore take a power to make the business rate system more convenient, ensuring that every business can access e-billing, and we will provide guidance to ensure that bills look the same everywhere. If a business has premises in Rochdale and in Richmond, it should not have to wrestle with two completely different sets of paperwork. Finally, the Bill includes a paving measure that will help us to meet our commitment of offering joined-up access to tax bills, including business rates, by 2022. The measure will give Her Majesty’s Revenue and Customs the ability to carry out early design work and engagement to develop proposals for how that can be delivered.
For too long local government has been too dependent on the whims and largesse of Whitehall and Westminster. Now is the time to change that forever. Now is the time to help local leaders focus on growth. Now is the time to reduce the burden on local businesses. The Bill provides the framework to do all of that and more. It will realise once-in-a-generation reform that will revolutionise local government funding. I am delighted to commend the Bill to the House.
Mr Thomas
I have given that some thought. If the right hon. Gentleman is successful in getting on to the Bill Committee, I hope that we can debate such questions a bit more.
The Bill does not answer the many questions that local councils have about how business rate retention will work in practice. In particular, there is no clarity about what additional responsibilities councils will be allocated in return for 100% business rates retention.
The Government’s record on local government will give few people confidence that they are capable of addressing such concerns. Over the past seven years, this Government and their predecessor have taken an axe to local government spending. The people of England have been left paying more council tax for worse local public services. Last month’s local government settlement only brought more of the same: Ministers forcing councils to put up council tax and make more cuts to local services.
Mr Marcus Jones
What the hon. Gentleman is saying is interesting because council tax is 9% lower in real terms than it was in 2010. Does he accept that council tax doubled when Labour was in government? That is not a record to be proud of.