Marcus Jones
Main Page: Marcus Jones (Conservative - Nuneaton)Local Government Finance Bill (Sixth sitting)
Marcus Jones Excerpts(7 years, 9 months ago)
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Mr Thomas
I am grateful for your guidance, Sir David. I will leap forward and give one specific, tangible example of the concern that motivated me to table amendment 31. In 2015, Lancashire County Council commissioned a report by PricewaterhouseCoopers to look at the level of resources it needs to provide statutory services going forward. That report makes sobering reading. It forecast that even if the council achieved everything in its saving plans, it would have an in-year deficit of £148 million in 2020-21 and a cumulative deficit of £398 million.
The report identified several areas in which planned savings were at risk of slipping and not delivering the full range of savings, meaning that the forecast budget gap would be even greater. That example of Lancashire County Council and the independent work by PricewaterhouseCoopers on whether it could continue to fund its statutory services in the future surely cuts to the very heart of the case for amendment 31.
Given the scale of spending cuts that councils have experienced and the sheer number of councils in all parts of the country and of all colours that have outlined their views, councils are under huge pressure. I gently suggest that Ministers cannot continue to press ahead without a significant change in direction and recognition that a central part of the new 100% business rates retention scheme should surely involve putting local councils on a sustainable financial footing. That is the context in which I make the case for amendment 31.
If Ministers are not convinced by the example of Lancashire County Council, let me give the example of Nottingham City Council. Councillor Jon Collins gave evidence to the Committee and made clear the scale of the cost pressures affecting the council—£11.2 million of cost pressures, wage demographics, additional inflation and charges from providers. He talked about the extra funding and pressure on his budget and raised a comparison with a nearby local authority—Rutland. He noted that the spending challenges facing his authority in Nottingham were substantially less than those facing nearby Rutland.
Clearly, amendment 31 might help to persuade Ministers to iron out such difficulties if there was a proper assessment of need. That is the spirit in which I tabled amendment 31. I hope the Minister might now be willing to be more careful with the future of local authority finances. Amendment 31 would be a sensible additional safeguard.
The Parliamentary Under-Secretary of State for Communities and Local Government (Mr Marcus Jones)
It is a pleasure to serve under your chairmanship, Sir David. I thank Opposition Members for the amendment, which provides an opportunity to set out the Government’s position on the future sustainability of local government. Before turning to the amendment, I would like to take the opportunity to clarify that medium-term fiscal policy decisions in the United Kingdom are managed, as the hon. Gentleman knows, through spending reviews. The spending review in 2015, for example, set local government expenditure limits to 2019-20. The Government will continue to assess the funding of local government after the introduction of 100% retained business rates through spending reviews.
Mr Thomas
Given the concern about how tariffs and top-ups and distribution of resources will take place between local authorities, will the Minister give a bit more clarity on the criteria for the distribution of that homelessness funding? Will it be guided by the index of multiple deprivation? How will Ministers be guided in terms of the distribution of that finance?
Mr Jones
The hon. Gentleman raises a good question. As was made clear in Committee and, if I recall correctly, on Report of the Homelessness Reduction Bill, a clear commitment has been given by the Government to work with the local government sector, particularly the LGA, on how that funding will be distributed to reflect need. As the hon. Gentleman will know, the spending review process and a number of different processes will follow from the Bill. The Government also take the position that they will work with local authorities and their representative bodies to come to conclusions, particularly on the quantum of funding required and how it is distributed.
Amendment 31 would require the Secretary of State to assess whether each local authority has sufficient resources to provide statutory services in its area. Our concern with the amendment is that it replicates what is rightfully a matter for the Government to consider through a spending review. Furthermore—the hon. Gentleman alluded to this point—the fair funding review will consider the suitable distribution of funding across local government.
I hope I have reassured hon. Members that the Government will continue to consider the level of funding for local government. I therefore ask the hon. Gentleman to withdraw the amendment.
Mr Thomas
I listened carefully to the Minister and take his point about the fair funding review. I would gently suggest to him that that is discretionary, although it is a pivotal element to this particular measure and is one of the parts that will come sometime in the long-distant future to inform us how 100% business rates devolution will work in practice. What we do not know is whether there will be a fair funding review in future if there were to be another Conservative Government. We do not know whether there would be a spending review in future —they are entirely at the discretion of the Government.
Amendment 31 would lock into law the requirement to produce that assessment. In the context of such a radical transformation, to use the Minister’s words, of local government finance, the additional duty on the Secretary of State seems like a sensible precaution to put in place. Much as I would like to accept the assurances from the Minister, I fear that I cannot, and I intend to put amendment 31 to the vote.
Question put, That the amendment be made.
Mr Thomas
As you can see, Sir David, the hon. Gentleman is a passionate advocate for redistribution away from London. We have tried to convince him to get underneath the detail of the scale of need in London, but clearly we have been unsuccessful today. A little progress is needed. I have made the point that I wanted to make. I look forward to the Minister’s answer, and the response of my hon. Friend the Member for Oldham West and Royton.
Mr Jones
I thank the hon. Members for Harrow West and for Oldham West and Royton for the amendment, and for the opportunity to set out why we want to remove levy payments. As the hon. Members have explained, the amendment would retain the Government’s ability to make regulations requiring a levy. As we set out when we announced our intention to move to 100% rates retention, we do not believe that imposing a levy on growth is desirable; nor is it necessary for the purposes of funding the safety net. Through rates retention, we want to encourage and incentivise authorities to work with their businesses and communities to deliver economic growth. We want them to use their powers, through the planning system and more widely, to support development and create the conditions in which business can thrive. Where they do so, we want to allow authorities the benefit of all the growth in their business rates that will follow.
Rob Marris
We heard from my hon. Friend the Member for Harrow West that Maidenhead is paying a 50% levy. That suggests that it has done well in growing its business rates—good for it. Can the Minister tell us what places such as Maidenhead have done to grow their business rates base, so that other councils, such as mine, could learn lessons from Maidenhead?
Mr Jones
Certainly. There is good practice happening in local authorities, and I would always recommend the hon. Gentleman’s local authority taking a leaf out of the book of a good Conservative authority that is doing the right thing on growth.
The levy works as a tax on growth, taking up to 50% of any benefit that authorities may have seen. This certainly acts as a disincentive and, for that reason, we have said clearly that we want to remove the Government’s ability to set a levy. Nor do we believe that that the levy is necessary as a way of funding the safety net. To come back to the comments of the hon. Member for Oldham West and Royton, there are other, fairer ways of dealing with the safety net, the most obvious being to take a top-slice at the point at which we set up the scheme and use that to fund any safety net payments needed.
If there is no need for the levy, there is no need for the levy account. Indeed, if such an account was prepared, there would be nothing to report in it. In that sense, this matter is quite simple: we will abolish the levy, and therefore there is no need for the levy account. I hope that the hon. Gentleman will withdraw his amendment.
Jim McMahon
I thank Members who have contributed to the debate. I am left slightly worried that the Minister does not understand the levy mechanism and the function of local government group accounting.
The Department is required to produce group accounts for local government that show the balance of transfers between local authorities and the Department. Whatever mechanism is in place to provide payments to and fro requires an account to be set up, because if an account does not exist, it will not be included in the group accounts and will be off the books, which makes no sense. We could call it a different name, but the function of an account is that it sits somewhere and annually feeds into the group accounts, which give the Chancellor an overview of departmental spend, and that is fundamental to how we account for public money. We could call it a levy account or even the Jones account, for all local authorities care, provided there is an account to be drawn upon.
At the moment, the top-slice is funded by revenue support grant. It was £120 million; it went down to £50 million in 2015-16. The Minister did not say this, but I take it that if the money does not come from a top-slice of revenue support grant, it will come from the £12.5 billion of additional money through 100% business rates retention.
Jim McMahon
I find that contradictory. Either the burden will be on central Government, which means there will be a requirement to find the money from elsewhere in Government, or the money will come from existing budgets within local government, which means local government will take the burden.
Jim McMahon
I accept the point, but the Minister must accept that over the past two financial years, £170 million has been taken from revenue support grant top-slice. That money will need to be provided from somewhere, because at the moment there is a deficit in the levy account of something like £14 million. That shows more money is being drawn down from the account than is being added on top through revenue support grant top-slice or business rate levies from authorities that are exceeding their profiled business rates increases.
The Government cannot have it both ways. The money is either already within local government and is just being re-profiled, or it is coming from elsewhere within Government, in which case it will be a burden on other departmental budgets. We will come on to safety net payments later; this is simply the mechanism by which we make those payments. Either way, we will need group accounts. We have to account for the transfer of funds from one departmental account to local government. I do not intend to press the amendment to a vote; it was a probing one.
Jim McMahon
It does underline the concern. In the last financial year £112 million was drawn down from the scheme. That was in the context of local authorities still receiving revenue support grant on top of their council tax and business rate income. As we move towards the brave new world—there is a fine line between bravery and stupidity, but let us call it brave for now—whereby councils will be funded solely by council tax and the business rate base that they can generate, councils are even more vulnerable to shocks in the system where business leave and they are forced to deal with the consequences of that loss of income. Without the safety net system in place—
Mr Jones
The whole thrust of the hon. Gentleman’s argument is that the Government are going to get rid of safety net payments. Where has he got that idea from? Does he not think that the business rate retention pilots that are taking place in a number of areas are a good thing for the Government to work out that they have struck a balance to ensure that, when we roll out the full system, it is as right as it can be?
Jim McMahon
I take the Minister’s point entirely. It would be easier if we had a scheme that we could review and scrutinise and ask questions about, based on the scheme that was presented. In the absence of that, we are relying on the Minister sharing every now and again the fount of wisdom from the notes that are passed to him by his advisers, which is one way of doing government, I suppose. Another way of doing government is to consult, to speak to the sector and to understand what is coming back. We know a consultation has been conducted and we look forward to the results of that, but a consultation was also undertaken when the scheme was introduced in 2012. At that time, the Government reviewed the type of safety net that would be needed for it to be fair and balanced. At the time, the percentages that were considered were 7.5% to 10%. In the end, the Government erred on the side of caution and went for the 7.5% level. That was the result of that consultation. It was the result of an assessment of what type of safety net would be robust and provide certainty. So we have been there; we have done that. We have been through that process.
Jim McMahon
I am going to be charitable. Perhaps I am too soft for my own good. I feel a slight degree of charity towards the Minister given the fairly rough ride that he has had—a rough ride of his own making. I will not prolong that. Labour Members question whether the knowledge is there, even, for the Minister to understand the Bill, whether the diligence has been there to assess the impact that that has had, and whether the capacity is there to bring forward the type of information that would lead to a meaningful debate. I would be far more generous than that and say that perhaps today is just not the Minister’s day. However, we will be here again and we can review the information when it comes. I hope that we will have a better session, the Minister will feel far more empowered, better informed and on the front foot, and we as an Opposition will feel that we are able to hold the Government to account, which is why we are here. We are not here to have circular discussions that take hours and hours of parliamentary time. We are here to get to the root of what the Bill is intended to do and the impact of the Bill. By doing that, we make good laws—we know the impact and we know, collectively, that we are making the right decision, not a bad decision in the absence of that information.
We have heard that there will be some kind of safety net, although we do not know what the criteria or threshold will be. We are discussing the pilots that are taking place, but a number of pilot authorities have not been told what the safety net will be. We are expected, outside of those pilot authorities, to make an assessment—a leap of faith almost—that those pilot authorities will deliver the evidence base required, when they themselves do not know what the new settlement will be, and they are waiting for the Secretary of State to confirm that to them.
A lot of people in this place and in local government are waiting for some clarity. I am pleased that, during the exchanges, we have at least agreed a principle that a safety net is required. However, the real test is not words. The real test is the application of the legislation going through.
I hope that the Minister will answer this. The threshold is 7.5% below the base. Members will know from our amendments that we are suggesting a more favourable rate of 5%. The reason is that, as revenue support grant is being taken away, local authorities are more vulnerable to business rates and it feels as if that is the right balance to strike. I ask for a quick response from the Minister: what will the percentage be?
Mr Jones
It is a pleasure to follow the hon. Gentleman, who is giving me something of an education, or thinks he is giving me something of an education, on this issue, such a placid fellow that he is. I thank him for tabling this amendment and for giving me the opportunity to set out the Government’s approach to the safety net. He seemed to ignore most of the information that had come forward and was almost saying that the Government were not going to put in place a safety net. I agree with him that a safety net is an important element of the system and will certainly become more so—again, agreeing with his analysis—once we are relying on business rates for a larger proportion of councils’ income. Where I must disagree with him is that these amendments are the best way of ensuring that we have the most appropriate safety net in place for the new 100% system. These amendments would hardwire the current arrangements into the system by requiring the safety net to be measured against baseline funding levels. However, that is only one way in which we could construct the safety net under the legislation as drafted. There are others—using different baselines, for example, or providing for different percentage losses for different types of property. Until we have finished our work with the local government sector and put in place all the scheme’s design elements, it is too early to say what form the safety net should take.
Mr Thomas
That is the first bit of clarity about how the pilots are working—I was going to ask what the safety net was in context. I simply praise the Minister for giving just a tiny fraction of information about how the pilots are going to work. It would be nice to have the rest of the information before the end of the Committee.
Mr Jones
Such are his high standards, indeed.
Getting back to the real world, I add that amendment 34, by reversing the Bill’s removal of sub-paragraphs 25(2) and (5) of schedule 7B to the Local Government Finance Act 1988, would make it impossible to deliver changes for which local government has asked. The changes we want to make through the Bill mean that, in future, safety net payments need not be made at the end of a financial year. Instead, as with other payments under the scheme, they can be made at the beginning of the year, based on the estimates, and then reconciled at the end of the year once outturn figures are available.
Authorities asked us to make that change as soon as a legislative opportunity arose. The changes made by the Bill have no material effect on what authorities will receive in safety net payments; they simply change the way in which we account for them. I hope that resolves some of the concern of the hon. Member for Oldham West and Royton.
In conclusion, the amendments, if allowed to stand, would remove the flexibility that we and the local government sector need to design a safety net regime that is fit for the needs of 100% business rate retention. They would reverse a change that local government welcomes and for which it has long called. I hope that, with that explanation, the hon. Gentleman withdraws amendment 32 and does not move amendments 33 and 34.
Rob Marris
I know it is sometimes difficult for Chairs and I wanted to hear what the Minister said to know whether I wanted to speak.
The very helpful Library brief says on page 19:
“It is not yet clear what form, if any, the safety net would take under 100% retention of business rates.”
That was published almost three weeks ago on 19 January. It is singularly disappointing when the Minister comes before a Public Bill Committee of the House of Commons and says, “Oh, I cannot give you any information because the Government want the flexibility.” I understand why Governments want flexibility. When my party was in office, it always wanted flexibility. I kept saying, “I do not think you should have that flexibility in lots of cases.” To use the vernacular, the Minister and his Government ought to show a little more ankle. Otherwise, they are asking us to buy a pig in a poke, which I think is unacceptable in a parliamentary democracy.
We ought to have the information. What is the big rush? This is so that the Government can get the Bill through, with all its flexibility. The amendments would lessen that flexibility, which is why they are good amendments. The Minister has nothing to counterpose that with, except to say, “We’re talking about 97%, but we want the flexibility.” I am sure he wants the flexibility, but that kind of flexibility is not good for councils—not only Wolverhampton City Council, but councils around England—because of the uncertainty.
Rob Marris
In that case, the Minister should not have introduced the Bill at this stage or until he has got his ducks lined up.
Mr Jones
I thank the hon. Gentleman for tabling these amendments on the creation and revocation of a business rate pool.
The intention of the amendments seems twofold: to retain the requirement that each relevant authority must agree before the Secretary of State can designate a pool, and to require that a decision to revoke a pool should be approved by Parliament and subject to consultation with the relevant Select Committee. I will deal with each of those in turn.
As a principle, the Government believe that local authorities can achieve greater impact when working together, and that pools of authorities can benefit from working over wider areas to achieve economic growth. That is why we want to continue pooling arrangements under the new business rates retention system. Business rate pools enable the local authorities within them to be treated as a single entity for the purposes of the system, allowing them to co-ordinate their work and take a coherent set of decisions to help secure economic growth over a wider area. Paragraphs 26 and 27 of schedule 1 provide that the discretion to create, vary and revoke pools lies with the Secretary of State, with a new requirement for a statutory consultation with relevant local authorities on the creation and variation of a pool.
We are introducing those changes because, in the Government’s view, pooling has not worked under the current arrangements as well as it could. The current voluntary approach to pools can incentivise the wrong behaviours, leading to examples where pools across functional economic areas have excluded a single authority due to them being perceived as high risk. That undermines the objectives of pooling and potentially reduces the ability of pooling to secure co-operation and coherent decision making across a sensible economic area.
Amendment 47 would remove the provision enabling the Secretary of State to designate a pool at his discretion. That would, in effect, preserve the current arrangements whereby a pool can be designated only if every authority in the pool area has agreed to it. The risk of a single authority being excluded from sensible pooling arrangements would remain. Removing the requirement that all authorities must agree to being designated as a pool will enable the Secretary of State to ensure that pools are created across functional economic areas that maximise opportunities for growth.
We recognise the ongoing need to work with local authorities on sensible pooling arrangements and have introduced a statutory duty to consult with areas on their pooling arrangements. As I said at the outset, the ultimate decision will rest with the Secretary of State, helping to ensure that all authorities in a functional economic area will engage fully in those discussions.
Rob Marris
The Minister is saying in terms that the Government are going to introduce a centralising measure because sensible pooling has not always worked to date. I understand that concept. He knows what I am going to say. Could he produce some evidence that pooling arrangements hitherto have not worked properly in some areas? I know he is not saying that that is the case everywhere, but can he give us one example to elucidate why the Government think these centralising powers are necessary in what purports to be a localising Bill?
Mr Jones
I will in a moment.
Throughout our deliberations on the Bill, it is apparent that local authorities have asked for fairness within the system. The challenge is whether that fairness is apparent if a local authority is excluded from a pooling arrangement because surrounding local authorities do not want to include it. Clause 3, which the Committee will consider later, provides an additional tool to strengthen the role of pools to help secure economic growth, with rewards being shared across the pool.
Amendment 28 aims to ensure that Parliament has a role in revoking a business rates pool—paragraph 26 of schedule 1 enables the Secretary of State to revoke the designation of a business rates pool. Revoking a business rates pool is a technical matter, working with the authorities involved to consider how each one operates independently. The Government are concerned that requiring every decision about revocation of the business rates pool be taken through each House and made subject to consultation with the Communities and Local Government Committee would take up valuable parliamentary time. The current process for revoking a business rate pool does not require parliamentary approval or consultation with the Select Committee. The Government do not believe that change is needed.
David Mackintosh (Northampton South) (Con)
When I was a council leader, we changed our pooling arrangements. I can testify—and I am sure the Minister will agree—that that is very disruptive for local authorities, particularly when they are trying to plan. It is also disruptive for businesses.
Mr Jones
My hon. Friend makes the exact point I am trying to make—local authorities require certainty. The measures we have put in place over the last year or two on having a longer-term view of council budgets has helped. Within this system, we want multi-year arrangements for local authorities so they know where they are heading. In having more settled business rate pools that make sense in terms of functioning economic areas, we will seek to deliver that certainty and security for local authorities. By definition of what the hon. Member for Oldham West and Royton has said, local authorities need more security and certainty in the new system. Local authorities take on a greater risk challenge if funding is distributed by central Government to them, rather basing local government on locally collected taxes.
Overall, the changes to pooling arrangements will ensure effective business rate pools, with other tools to help drive economic growth. I therefore ask the hon. Member for Oldham West and Royton to withdraw his amendments and commend paragraphs 25 to 31 of schedule 1.
Jim McMahon
As I said earlier, we feel strongly about amendment 47. The Bill would fundamentally change the relationship between local government and the Secretary of State, which we do not believe is in the interests of democracy or localism.
I have the Minister’s response. There is some merit in having a system in place that provides a degree of certainty, but that could be provided, for instance, by a longer notice period—local authorities wishing to leave a pool could give two years’ notice rather than 12 months’ notice if required—which would at least give the degree of planning certainty required. It could well be tied to economic deals done through negotiations with the Government. For instance, if an economic deal lasted five or 10 years, there would be some sense in saying that, during that period, it should be tied to the business rate pool.
However, that is not on offer. What is on offer is: “Take or leave it. The Secretary of State knows best.” Areas will be forced to join the pool. The example given is of a local authority that wants to join a pool but is told that it cannot for whatever reason. I suspect that the number of such examples is very low. It is more likely that, when a local authority does not want to join for whatever reason is right for its community, the Secretary of State will force it to do so to make a wider pool balance out without having a requirement for central Government funds. I suspect that that is more what the measure is about. I am concerned that the balance of power is changing between national level and local level. Further powers are being given to the Secretary of State, and further mandating can be required, but there is less parliamentary scrutiny.
There is also an unhealthy rebalancing of relationships in some local areas. We talk about the Greater Manchester business rate pool as being one to look at, as a pilot—we are doing so very carefully. However, it would allow the Cheshire authorities to obtain 50% of growth before they returned to the pool. As I have said before, there might be an argument for that, given that it sits outside the city deal that has been agreed as part of the devolution deal, but it beggars belief that two authorities within Greater Manchester—Trafford and Stockport—have negotiated as part of that business rate pooling an agreement to keep a third of growth to themselves before it goes into the pool.
We believe that at a national level, we should agree a way of redistributing that it is the same for everybody, but instead there are deals within deals. Those who write the cheques always have the upper hand, and not those who are potentially the receivers. I do not believe that that is in the interests of the communities we are here to serve. I certainly do not believe that it is in the interests of an equal, balanced relationship at a local level. Although amendment 47 is not quite in the spirit of previous amendments we have voted on, I ask the Minister to support amendment 47 to maintain the balance of a healthy relationship.
Question put, That the amendment be made.
Mr Jones
We have spoken at length on proposed amendments to schedule 1. I do not want to take too much of the Committee’s time, but I would like to say a few words about specific parts of the schedule.
Schedule 1 amends section 7B of the Local Government Finance Act 1998. Those amendments are necessary to move from the current 50% business rates retention scheme to a system where local government retains 100% of business rates raised locally. I will take each section in turn.
Paragraphs 2 to 6 of schedule 1 make provision for central Government accounting for non-domestic rating income. Those paragraphs amend the Local Government Finance Act 1988 to update and simplify the central Government accounting requirements for the move to 100% business rates retention.
Rob Marris
I want to ask the Minister about one issue. Under paragraph 33(3) of schedule 1, the words
“calculations following local government finance report”
are substituted by
“determination of payments for a relevant year”.
I hope the Minister can reassure me, because that change rings a certain alarm bell. It removes the word “calculations”, which implies to me the use of evidence—a formula and so on—and substitutes the word “determination”, which I infer could be a somewhat opaque and non-transparent decision on financing, thereby moving us further away from an evidence-based, transparent system to a more flexible and less transparent system. I wonder whether the Minister could elucidate—if not today, at some later point.
Mr Jones
Thank you, Sir David, for allowing me to respond to the hon. Gentleman. As I mentioned in my quite lengthy speech, local government itself does not believe that the measures being introduced here will reduce transparency. That is certainly not our intention in making the change. I hope the hon. Gentleman is reassured by that.
Question put and agreed to.
Schedule 1 accordingly agreed to.
Clause 2
Loss payments
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
New clause 5—Appeals by public bodies—
‘Where public bodies appeal against the ratings value, no external agency may represent or make a financial gain from the appeal.’
This new clause would prevent money being taken away from the public purse through rating appeals.
New clause 6—Backdating of Appeals—
‘Any premises with a rateable value of £500,000 or more will be limited to 6 months backdating following any revaluation arising from an appeal.’
This would limit the duration of backdating in the event of revaluation following an appeal for premises with a value of £500,000 or more to six months.
Mr Jones
I am grateful that the new clauses were tabled, as it gives us an opportunity to consider the appeals system and the implications for local government. There is widespread agreement—this comes back to what my hon. Friend the Member for Waveney was just saying—that the current business rates appeals system needs reform. Too many appeals are held up for too long, and that means costs, delays and uncertainty for ratepayers and local authorities. That is why we have brought forward proposals to reform the system of appeals for ratepayers and local government from 1 April 2017.
From 1 April, the new “Check, challenge, appeal” system will reform the appeals process for ratepayers. The new three-stage process will be easier to navigate and will put the emphasis on early engagement and resolution by all parties. Under the new system, businesses will be more confident that their valuations are correct and that they are paying the right amount of business rates. That in turn will support local government by giving authorities greater certainty over their rates income.
We will ensure that local authorities have a role in the “Check, challenge, appeal” process by giving them the statutory right to provide evidence to the valuation officer. We also recognise, however, that we need to go further in respect of the financial implications of appeals for local government. That is why clause 2 creates a power to make loss payments to local authorities. That will allow us to move towards a system under which the risk of appeals is managed more centrally and shared across the sector. We will then be able to reimburse authorities when they suffer appeal losses due to revaluation errors. That reform has been requested by local government.
Nevertheless, we still have to strike a balance between the interests of local government and the need to maintain fairness for ratepayers. I do not believe the new clauses would correctly strike that balance. New clause 5 would prevent public bodies from using agents or representatives in their appeals. Public bodies are subject to the same rules on business rates as any other ratepayers, and I think it is right that, just as with any other ratepayer, they should have access to professional and expert advice. I think that was the point that my hon. Friend the Member for Waveney was making as a chartered surveyor with significant experience. However, I would expect any public body to be using only qualified and professional representatives, such as members of the Royal Institution of Chartered Surveyors or the Institute of Revenues Rating and Valuation. Members of those bodies must comply with a code of practice for their consultancy and ensure that proper standards are met.
New clause 6 would stop appeals having a retrospective effect of more than six months for large properties. That would clearly be unfair. Ratepayers whose appeals have taken longer to resolve—perhaps for reasons entirely outside of their control—would be penalised by the new clause. I assure the hon. Member for Oldham West and Royton that we do act to limit backdating in the system, where it is fair to do so. In 2016, we acted to stop new appeals being backdated to before 1 April 2015. From 1 April 2017, ratepayers will no longer be able to lodge appeals on the current rating list in most circumstances.
I assure hon. Members that, although we do not believe the new clauses are acceptable, we are taking steps to tackle problems with business rate appeals for both ratepayers and local authorities. I therefore ask the hon. Gentleman not to press the new clauses.
Rob Marris
Looking again at the helpful Library brief, it appears that the Government are dragging their feet again. As the hon. Member for Thirsk and Malton no doubt remembers, the Communities and Local Government Committee reported on this issue in June 2016 and found—I have to say I found this figure staggering—that 33% of the rateable value in Sheffield, 40% in the City of London and 34% in Westminster is under appeal. That is a huge amount. For 33% of the rateable value of the city of Sheffield, which I think is the fourth largest city in England, to be under appeal is extraordinary.
On 19 December last year, the Minister in the House of Lords said that the Government are looking at this again, but, as the Library brief pointed out on 19 January, although the Government are looking at the appeal system, it is not yet known how that it going to be done. Here we are seven months after a Select Committee report that highlighted that this is a big problem, and the Government are still faffing around and cannot make up their mind about what they are going to do and what they are going to propose.
I hope that the Minister will stand up and say that I have misunderstood and say, “There is clarity. We know where we are going and what regulations we are going to propose, so we are going to do what lots of Ministers do and publish draft statutory instruments before the conclusion of Committee stage so Members can see where we are going.” But I fear, going by the Minister’s past performance in this Committee, that he is not going to stand up and say that, and that we are going to have continued procrastination and a lack of clarity from the Government about where they want to go in the light of having their much-vaunted flexibility, which I think does a disservice to the Committee.
Jim McMahon
I will be quite brief on these amendments, because we have discussed these matters. Even for a local government geek such as myself, it has got to the point where it is a slight endurance trial.
However, we need to reiterate points about the balance of power and control, the relationship between central and local government, and the direction of travel from this Government. I will use this opportunity not to express my own views but to reflect back the views that were shared in our evidence sessions and that were expressed through evidence submitted later.
The London Councils group of local authorities has expressed concerned about the level of control the Secretary of State will have to revoke designations by removing the requirement that all local authorities in the pool agree to the revocation. The chief executive of the District Councils’ Network gave evidence. In its written submission, it said that it believes, as we do, that business rates pools should be determined locally and not by central Government.
This is not just about the Opposition making a point and taking a stand. We are doing that, of course, and we have had that conversation. We have had a vote on that basis. This is really to appeal to the Minister to listen to the concerns of London Councils, the LGA, the District Councils’ Network and many, many local authorities across the country that have expressed concern about the centralising nature of that designation provision and asked that it be reviewed.
Mr Jones
I am grateful for the opportunity to discuss the Government’s proposals to allow for local growth zones. The Government support the introduction of clause 3, which would insert into part 9 of schedule 7B to the Local Government Finance Act 1988 a power for the Secretary of State to allow local authorities within pools to designate an area or areas. Within these areas, local authorities will be able to retain a proportion of business rates income outside the rates retention system for a specified number of years.
The effect of local growth zones will be similar to that of enterprise zones, providing local areas with an additional tool that can be used to help to drive local growth. The difference here is that regulations made under new paragraph 38A, which will be inserted into the 1988 Act by clause 3, gives the responsibility to local authorities to set up and define the local growth zone, within the parameters agreed with the Secretary of State. The Government consider that pools of authorities are best placed to use the power by taking a shared view across a larger functional economic area about the best way to achieve growth for the benefit of all the authorities in the pool.
Rob Marris
I wish my hon. Friend good luck with this amendment. Essentially, amendment 20 asks the Government to collate evidence and act upon it. Given what we have heard in the Committee so far, I will be suitably and happily astounded if the Government accept the amendment and the concept that evidence is important.
Mr Jones
I thank the hon. Member for Harrow West for his explanation of the intention and effect of amendment 20, which would require a referendum principles report made by the Secretary of State to include conclusions from an assessment of needs as well as details of efficiency savings for local authority areas.
I appreciate the intention behind the amendment, but I do not agree that it would be appropriate to include the suggested information in a principles report. Council tax referendum principles exist for a very specific purpose: to protect council tax payers by defining an excessive increase, so that they can make a final direct decision. It is open to authorities to set large increases and put them to a local referendum if they feel they are necessary to support local services.
Jim McMahon
I wonder whether, in the spirit of an equal, balanced relationship, the Secretary of State would be inclined to grant a national referendum on the projected 25% council tax increase.
Mr Jones
As I have said many times in this Committee, in real terms council tax is currently 9% lower than it was in 2010. I do not intend to take any lectures from the hon. Gentleman, bearing in mind that council tax doubled between 1997 and 2010 when his party were in power. I am not too sure that I will be blown off course by that advice.
The referendum principles report is not intended to provide an analysis of local authority need, its success in achieving efficiencies or an account of any other matter. It is a technical instrument to set the parameters by which a referendum might be triggered. As Members will be aware, the Bill creates a new requirement to consult representatives of local government before principles are set. That will allow the sector to make representations about their circumstances and needs before the Secretary of State makes his or her final decisions, whatever the future holds. That will be more useful to local authorities than prescribing the content of a referendum principles report.
Mr Thomas
I made clear that this was a probing amendment. The Minister could have given some sense to local government that he understood the scale of funding difficulties it faces by 2020. He chose not to. He could have praised councils such as Harrow that have led the way in terms of a more efficient offer, but he chose not to. I do not intend to make a thing of it. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mr Thomas
Let me be brief, because we have had quite a trip around the issue of scrutiny of local government finance. Amendments 21 and 22 simply provide the House of Commons with the opportunity to scrutinise local authority finance. The Minister, as we know, does not want the scrutiny of a local government finance settlement, so perhaps he and Government Members might be willing to support the idea that new council tax excessive thresholds should have to be approved by the House of Commons. That is the spirit of the amendments.
Mr Jones
The amendments would require council tax referendum principles and alternative notional amount reports made by the Secretary of State to be approved by the House of Commons. I appreciate the hon. Gentleman’s wish to retain the current practice of requiring the reports to be laid for approval. However, I believe that it is not necessary in a new era where we seek to offer certainty and where there will no longer be a local government finance settlement handing out resources following the approval of the House.
Mr Jones
The clause aligns the process for setting council tax referendum principles with reforms to the wider local government finance system under schedule 1 to the Bill. It will enable the Government to offer local authorities far more certainty about their future financial position by setting referendum principles for multiple years.
Chapter 4ZA of the Local Government Finance Act 1992 allows the Secretary of State to determine a set of principles for each financial year, which local authorities in England must use to determine whether their council tax increase is excessive. Under existing legislation, the principles must be set out in a report and approved by the House of Commons by the time that it approves the annual local government finance report. Where no principles are set, the Secretary of State must lay a report before the House explaining why.
The Government defining an “excessive increase” has been part of the council tax system for decades. As I said to the hon. Member for Oldham West and Royton, council tax in real terms has been 9% lower than it was in 2010-11; it will still be lower in real terms in 2019-20, but only if Government continue to work with local authorities and maintain a referendum threshold, as we promised in our 2015 manifesto.
Local authorities must determine each year whether they have set an excessive increase as soon as reasonably practical after the principles have been approved. Where an authority’s functions or structure have changed, the Secretary of State may set an alternative notional amount to enable a like-for-like comparison to be made with the council tax set in the previous financial year. That must also be set out in a report and be approved by the House of Commons.
The clause amends sections 52ZB to 52ZE of the 1992 Act. The provisions introduced by clause 4(2) mean that when setting council tax for the first year to which the principles report applies, local authorities must determine whether it is excessive as soon as reasonably practicable after the report is made. In other years, they must make the determination as soon as reasonably practicable after they have made their council tax calculations.
Subsection (3) changes the processes of determining council tax referendum principles and alternative notional amounts. In particular, it allows the Secretary of State to set the principles over multiple years, providing councils, police and crime commissioners, fire authorities and the Greater London Authority with welcome clarity about their council tax income.
The Secretary of State is required by subsection (6) to finalise the principles before the beginning of the first financial year to which they apply. The provisions introduced by subsection (8) mean that he must also send a copy of that report to each billing and major precepting authority, and publish it in an appropriate format, to bring it to the attention of other authorities that may be affected. Separate reports may be made for different categories of authority for the same year.
Mr Thomas
Has the Minister been privy to any conversations within the Department for Communities and Local Government, or across Whitehall more generally, about Surrey County Council’s proposed 15% referendum, and what the Government might have said to the leader of Surrey County Council to persuade him not to go ahead with that referendum?
Mr Jones
That probably takes me slightly wider than the scope of the Bill. I think that the hon. Gentleman is presupposing the discussions that happened and the outcome of the situation. It is more likely that Mr Robert Evans had more of an effect, as he said was the case; perhaps he will be the next leader of Surrey County Council, although that is about as likely as the right hon. Member for Islington North (Jeremy Corbyn) becoming the next Prime Minister, which many of us believe is not very likely.
Moving on, clause 4(8) also allows referendum principles to be amended by making a further report to replace a previous one. That must be done prior to the start of the first financial year to which the new principles apply. Finally, subsection (13) means that authorities subject to a proposed alternative notional amount must be consulted and receive a copy of the final report, which must be made prior to the start of the financial year in which it will have effect.
In conclusion, this measure will enable Government to provide local authorities with greater certainty about their future council tax income, and complements other provisions in this Bill.
Question put and agreed to.
Clause 4 accordingly ordered to stand part of the Bill.
Clause 5
Power to specify indexation rate for non-domestic rating multipliers
Question proposed, That the clause stand part of the Bill.
Mr Thomas
In passing, I thank the Minister for his praise for the campaigning efforts of Robert Evans, and his support for Mr Evans’s re-election campaign.
I do not intend to encourage the Committee to object to the clause standing part of the Bill, but I want to mention some of the unintended consequences of the former Chancellor’s suggestion that in 2021, the retail prices index be replaced by the consumer prices index when it comes to uprating business rates. As we have said in earlier debates, that will potentially cost local councils some £370 million in 2020-21 alone. Ministers have given no indication of the cost in future years, but those outside Whitehall and this place who know their local authority finances have calculated that over 10 years, as a result of the decision, there could be a £3.3 billion windfall for the business community and a £3.3 billion loss to the people of England who want good services to be provided.
Mr Jones
The Government have committed to changing the indexation measure used in the calculation of business rates—currently the retail prices index—to bring it into line with the main measure of inflation, which is currently the consumer prices index. The clause therefore amends schedule 7 to the Local Government Finance Act 1988 and introduces a new power for the Treasury to alter through regulations the inflation measure used in the calculation of non-domestic rating multipliers. The measure was part of the £6.7 billion rates reduction package announced in the 2016 Budget. It represents a rate cut every year from 2020. It will be worth £370 million in 2020-21 alone, and the benefit will grow significantly thereafter. Those savings would help businesses to grow and support local economies.
To pick up on the point made by the hon. Member for Wolverhampton South West, the clause provides the flexibility to set the appropriate measure of inflation through regulations. However, any changes would be subject to House of Commons approval; I hope that gives him some reassurance. We are working with local authorities on the reforms to business rates to allow the sector to keep 100% of their rates. We will also consider how future changes to the indexation rate impact on the reforms, and we will respond to ensure that the financial sustainability of local government is not adversely affected.
Mr Jones
As I said to the Committee, we are certainly considering how future changes to the indexation rate will impact on the reforms that we are making. We have been clear that we will respond to ensure that the financial sustainability of local government is not adversely affected as a result of the change to the indexation rate on the business rate multiplier. I hope that the clause stands part of the Bill.
Question put and agreed to.
Clause 5 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Jackie Doyle-Price.)