Local Government Finance Bill

Marcus Jones Excerpts

Tuesday 10th January 2012 Commons Chamber

[Hilary Benn]

First of all, if we are talking about centralisation, the hon. Gentleman needs to think about who nationalised business rates. It was his party. Who was it who abolished London-wide government and who made a mess of the poll tax? In all honesty, I say that making a change in haste in the wrong way is done at one’s peril. The warning of that is provided in the poll tax. If we look back at the debates when the poll tax was being argued for, we find Ministers arguing that this was the most wonderful thing. The people who have really made a mess of local government financing in this country are the Conservatives. Local government would much prefer to have the resources they had under the 13 years of the Labour Government than what they are experiencing under the current Government.

The point is this. It is not about whether we trust local councils or local communities. The question people looking at this Bill will be asking themselves—and, to judge by the consultation, they are—is whether they trust this Government and whether they trust this Secretary of State to use all these powers in a fair way. To judge by what has been done so far, there is not much room for confidence. We know that this Bill is being introduced at a time when local authorities are facing unprecedented cuts. Cuts do have to be made—[Interruption.] Well, I have said that on a number of occasions, but there is no excuse, no rationale and, so far, no justification for why these cuts are being applied in such an unfair way to communities.

As the House knows, one shocking statistic from SIGOMA—special interest group of municipal authorities —tells us everything we need to know about this Government’s idea of fairness. It is the fact that the 10% most deprived upper-tier authorities are facing a reduction in their spending power that is nearly four times greater than that faced by the 10% least deprived authorities.

Let us take just one example from figures produced by Newcastle city council. For every local authority, it looked at the cuts for 2010-11, 2011-12, 2012-13, transition and council tax freeze grant and the provisional new homes bonus allocations. The figures show that Basingstoke and Deane authority will see a cumulative gain of £6.30 per person, whereas Knowsley will see a cumulative loss of £227.35 per person. If that is not balancing the books on the backs of the poor, I do not know what is. What possible justification can there be for such unfairness? When I asked the right hon. Gentleman about it at Communities and Local Government questions recently, all he could do was bluster, so how can councils have any confidence that they are going to be treated fairly under the Bill, particularly for communities where there is a great deal of deprivation, communities with fewer opportunities for business rate growth and communities where a lot of people cannot find a job?

[Mr Marcus Jones (Nuneaton) (Con)]

The right hon. Gentleman extols the virtues and fairness that there seem to be have been in the local government finance regime during the period of the Labour Government. Can he explain, then, why the gap between rich and poor widened during those 13 years?

[Hilary Benn]

That is not true in relation to local authorities such as my authority. For example, the number of children in poverty across the country was reduced by 600,000, while this Government is in the process of increasing child poverty, as the hon. Gentleman knows, so I am not taking any lectures from him about how to tackle inequality and unfairness.

The truth is that councils are worried that under this Bill, as SIGOMA warns,

“the gap between more prosperous and less well-off authorities will widen as a result of the policy”.

Local Government Yorkshire and Humber fears that

“the Government’s proposals are...likely to favour urban over rural areas and retail development over manufacturing growth…we could easily lose out.”

Those are the concerns that the Secretary of State must address.

Let me deal with the second argument we have heard—that the changes will incentivise economic development. Here, I have a request for the Secretary of State. It would be really helpful if he could clear up the confusion he has created about the Government’s view on whether local authorities want to see economic growth in their areas.

I ask that because in paragraph 1.16 of his Department’s response to the consultation on business rate retention, it says:

“We know that local authorities are keen to grow their local economies.”

I agree with that, which is exactly what councils up and down the country want and seek. So can the right hon. Gentleman explain why the impact assessment published by his Department at the very same time on the very same day says the very opposite—that

“local authorities are generally reluctant to....promote economic growth”?

These are two completely contradictory statements—

“keen to grow their local economies”

in one document, and

“reluctant to promote economic growth”

in the other. They cannot both be true, so which one represents the Government’s view? I am happy to give way to the Secretary of State for him to explain. Well, there is no answer. It would be helpful if documents were read a bit more carefully before they were published.

On the question of incentives, I note that business rate localisation—the term that used to be used—has now become business rate retention. No doubt that is because it has become clear that the Government will take a proportion of business rate income in the form of the central share payment. In effect, it will allow the Government to top-slice such income and, as the Secretary of State has said, to control local government spending.

Before anyone on the Government Benches says that all that money will be returned to local government, the House needs to be aware that although that sounds good, the money is of course fungible across Government. Using that income from retained business rates to pay for other grants to local government will, in effect, create a saving for the Government because it will relieve the Treasury of having to find the money from elsewhere. So, in effect, we have set-aside by another name and in another form.

We do not yet know what size of share the Government intend to take either in the first year or in subsequent years. Nor has any promise been made—I did not hear it tonight—that the share will not change from year to year. It is, in the words of the Local Government Association, one of the many detailed points that “remain unresolved”. As this is, in the main, an enabling Bill, we will not see that detail until later.

Thirdly, I turn to the question of fairness. The Secretary of State is on record as saying:

“we will ensure that no one will be worse off when the new system is introduced than they would have been under the old system.”—[Official Report, 18 July 2011; Vol. 531, c. 663.]

That sounds reassuring, but it is only valid for twelve months. What about years 2, 3 and 5? Can the Secretary of State guarantee that no council will be worse off then as a result of the change he wants the House to bring in? These are really important assurances, for which councils are still looking. As the Secretary of State’s colleague Sir Merrick Cockell, chairman of the LGA, put it:

“Reform must…ensure that those areas that do not have the capacity to raise huge amounts of funding through business rates do not lose out.”

SIGOMA has asked why Ministers have decided not to restore resource equalisation to its 2010-11 cash level, which could have been used as a baseline for future grant allocation.

What guarantee has been given to councils that the tariff and top-up mechanism will produce a fair result, especially given the coalition’s track record? Why do the Government think—or, to be strictly accurate, have the “aspiration”—that resets should happen only every 10 years? We think that they should be more frequent, as do most of those who responded to the consultation.

What about the circumstances, which were mentioned earlier, in which councils lose a major employer, and hence business rate income? That is a very serious matter. How quickly will such councils be given help, how much help will they be given, and how long will it last?

What about the perverse incentives in the business rate system that encourage retail units and gyms more than manufacturing, and encourage warehouses employing few staff more than factories employing a large number of workers?

Then there is the levy mechanism. Last July the Secretary of State told the House:

“There will be no cap on the amount of business growth from which such councils can benefit. A council will be better off as a result of growth”. —[Official Report, 18 July 2011; Vol. 531, c. 663.]

Yet the Bill gives the Secretary of State power to decide how much of any growth in business rate income a council can keep. He alone will decide what constitutes a disproportionate benefit. That is the reverse of the localisation that he promised. The retention of business rates is clearly not all that it seems.

If the purpose of the levy is only to fund safety nets—and that is not clear—why does paragraph 28(1) of schedule 1 make it possible for only part of any surplus balance in the levy account to be given back to one or more local authorities? Does that mean that, in effect, a second top-slicing mechanism is being created by the back door?

All that makes it clear that no one can say at this stage what the incentive from keeping some business rate income growth will be. That is why London Councils said, in its briefing on the Bill,

“'the business rate incentive is uncertain and unpredictable”.

What is more, in some cases there could actually be a disincentive. Under the current system, if a council decides to engage in a big redevelopment and regeneration scheme in the centre of its town or city, such as rebuilding that centre, the loss of business rates for an extended period is not a problem, because it does not affect the resources that the council receives. Under the Bill, however, it could well be a problem. It may cause the council to conclude that it is not sure whether it wishes to proceed with the scheme, although the Bill is supposed to be all about encouraging growth.

Let me now deal with the other main part of the Bill, which concerns council tax benefit localisation. It constitutes a step backwards towards a time when different areas gave different help to people in need. The big question is this: why are the Government making this change, and why, if they are determined to do so, have they not linked it to universal credit, as was suggested by many people in the consultation? The fact that they have not done that will lead to a great deal of confusion.

Rent is one cost that people face in order to live somewhere, and council tax is another. In the first case there will continue to be a national scheme to provide help; in the other the national scheme is to be abolished, and councils will be left to decide what benefit should be provided. However, the Government intend to legislate to protect certain council tax payers, while at the same time imposing a 10% cut in the amount that goes to local government to meet the cost of paying the benefit. In areas where there is a lot of need—for different authorities have different needs and different circumstances —that will constitute an additional cut on top of the existing reduction in local authority resourcing of over 19% in the last two years.

Because the Bill will rightly give continuing protection to pensioners, it is inevitable that, unless councils try to reduce benefit for those who are out of work, people who work but are on low incomes will be hit the hardest. Indeed, that is what the Government’s own impact assessment says. The House of Commons Scrutiny Unit has made an estimate of the impact of the 10% cut with protection for pensioners which suggests that non-pensioners—people of working age, whether working or not—will face an average cut of 16% in their council tax benefit support. Of course, in areas where the number of pensioners is higher than average, the cuts facing everyone else will be even bigger.

The New Policy Institute, which has also looked into the effects of the cut, has found that five of the 10 hardest-hit local authorities are among the top 10 most deprived areas, according to the 2007 indices of multiple deprivation: Hackney, Newham, Liverpool, Islington and Knowsley. Meanwhile, according to the same indices, the two least affected areas, Hart and Wokingham, are also the two least deprived. Does that sound familiar? Of course it does. Once again, cuts are being imposed unfairly by the coalition Government. Moreover, the Government’s policy is completely incoherent. The Department for Work and Pensions says, “Hey! We want to make work pay!” but here is a policy that will end up doing the very opposite.

The Secretary of State has a completely inconsistent attitude when it comes to protecting people from council tax increases. When he announced the council tax freeze in March last year, he declared resoundingly:

“we are determined to protect hard-working families...This is about giving real and immediate help to families struggling with the daily cost of living.”

Yet here he is now, proposing a policy that will result in a significant increase in council tax bills for some people, particularly those who work and try to do the right thing, but are on low incomes. Those are the people who he said, less than a year ago, that he was determined to protect, but now he wants us to vote for a measure that could, in some instances, wipe out all the benefit of the council tax freeze. Furthermore, the cuts are being introduced at the very moment when more people are going to need help with their council tax bills. Why? Because unemployment is rising. Why do we know that? Because the Chancellor has told us so.

Costs could also rise because of increased take-up. What account have the Government taken of that—and what about higher unemployment? How are councils expected to cope with that? Given that they will possibly end up designing different schemes, there is a risk that people will decide to move from one council area to another because of the different levels of council tax benefit. And what about the collection costs? As the Conservatives learnt when they introduced the poll tax, when councils start trying to collect money from people who do not have a lot of money, they have a problem. People who are poor must make decisions about what bills to pay, and in what order. What assessment have the Government made of the practicality of collecting the money? What about all the other benefit changes that will affect the same group of people at exactly the same time? I hope that the Secretary of State realises that that when a lot of people discover that they are being hit with increases in their council tax—for that is what his Bill does—there will be a great many appeals. How much will that cost?

Finally, there is the timetable for the implementation of the change. The decision to implement it from April next year was widely criticised by respondents to the consultation, and the Select Committee on Communities and Local Government has called for a delay to allow councils time to put their schemes, software and administration in place.

We do not support this change, just as we do not support the Bill. It does not pass the tests of fairness, incentive, certainty, and helping councils to meet local need. It does nothing to deal with the unfair way in which the Government have imposed the largest cuts on the least well-off communities. The Secretary of State claims to be the great champion of localism, but he has presented the House with a Bill that gives him all the power to determine what happens, including the power to take and keep a top slice of business rates. No wonder the LGA said in its briefing for today’s debate:

“That is not a localising policy and goes against the Government’s stated commitment to localism.”

Say one thing and do another: that is the story of this coalition, and that is why the right thing to do is to reject this Bill.

--- Later in debate ---

[Mr Marcus Jones (Nuneaton) (Con)]

I give my broad support to the Bill and its Second Reading this evening. It will enable the start of the journey away from central control of council funding, and will give councils more autonomy both to raise local funding and to set spending on local community priorities, rather than the perceived priorities of Whitehall. Pursuing the latter over a number of years has created a perverse system whereby councils have constantly been looking to the next Whitehall initiative and the next Government grant. That system has let down some of our most deprived communities, as despite external and formula grants increasing in real terms for more than a decade from 1998 onwards, the gap between rich and poor actually widened during that period.

In the scramble to get funding into local authorities, those prescriptive grants would quite often not match the priorities of an area or, if they did, they would often overlap with the current authority provision because the grant criteria could not be tailored to local need. Services could often not be integrated, leading to very poor value for money and a continuous bolt-on of services, which councils then had to make very difficult decisions on, in terms of deciding whether to retain them or not, once the grant funding from Government expired. Pursuing the former and moving away from a central grants system will allow councils to make clearer long-term decisions based on the priorities of the communities that they serve.

I wholeheartedly welcome the mechanisms in place in the Bill to ensure that no council is worse off at the outset of the changes. That, together with a system of top-ups and tariffs, will ensure fairness. I also welcome the concept of the retention of future local business rates. I believe that that will make councils, particularly planning authorities, think far more carefully about creating a good mixture of commercial development and housing in their local plans. Many of my constituents feel that any plans for new housing must be matched by the creation of new employment to ensure that communities are sustainable and cohesive, and not just commuter belts for the larger conurbations, with poorly thought out, over-intensive housing developments.

It is also vital that the Government address the problem of empty dwellings, which the Bill does. As a Conservative I am a firm believer in a property-owning democracy and therefore the right of an individual to use a property in any way they wish within the rule of law, but I am acutely aware of the situation that we now face with huge numbers of long-term vacant properties—nearly 280,000 in England last year alone—and the councils covering my constituency have 1,100 such properties. With such a housing shortage, and with the proposal of new housing developments across the country, it is morally right that we try to correct the failure of the market in this case and get those long-term empty properties back into use. Therefore I welcome the Government’s move to allow councils to charge additional council tax where a property has been vacant for more than two years. That, together with the incentive to get existing properties back into use through the new homes bonus, will have a hugely positive effect on getting our properties back into use.

There are many more matters that I would like to speak about in some depth, but I will not do so on this occasion. I welcome the fact that the Bill will come before a Committee of the whole House rather than a Bill Committee, which will give Back-Bench Members an opportunity to raise their concerns about some of the minutiae of the Bill at that point.

The Bill aligns with the coalition agenda to move communities from a culture of dependency to one of greater-self reliance, but provides the safety net to bridge the gap where communities have the problems that make it difficult to achieve that self-reliance. I will therefore support the Bill this evening.