Marcus Jones
Main Page: Marcus Jones (Conservative - Nuneaton)Local Government Finance Bill (Tenth sitting)
Marcus Jones Excerpts(7 years, 2 months ago)
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The Chair
I had not been alerted to the fact that this matter was raised this morning. The Minister has heard what has been said, but I am afraid that it is not a matter for the Chair.
Clause 42
Commencement and short title
Question (this day) again proposed, That the clause stand part of the Bill.
The Parliamentary Under-Secretary of State for Communities and Local Government (Mr Marcus Jones)
It is a pleasure to serve under your chairmanship once again, Sir David. The clause makes standard provision in relation to the commencement of provisions in the Bill, as I explained in relation to amendments 52 and 54 before we broke. Subsection (1) sets out that the provisions relating to the telecommunications relief guidance about notices relating to non-domestic rates and Her Majesty’s Revenue and Customs expenditure for digital services will come into force on Royal Assent. Powers to make regulations in the Bill as well as the final standard provisions of the Bill will also come into force on Royal Assent.
Mr Thomas
One of the things that is missing from the Bill is any reference to local enterprise partnerships. The Minister may remember that before the former Chancellor, the right hon. Member for Tatton (Mr Osborne), was sacked for incompetence by the new Prime Minister, he made reference to 100% business rate devolution and, crucially, infrastructure supplements that require the consent or support of local enterprise partnerships, but there has been no mention of local enterprise partnerships in any of the clauses, or indeed in the Minister’s speeches. Will he set out why there appears to be a change in the involvement of LEPs?
Mr Jones
The hon. Gentleman raises an interesting point. I suppose it would have been more pertinent to our earlier deliberations in considering the Bill, when we were dealing directly with supplements that can be charged by directly elected Mayors and the consultation process that will be gone through with businesses. I do not want to dwell on that point, other than to say that we clearly set out how the matter will be considered. We consulted widely with the business community, including local enterprise partnerships. That is why we came to the conclusion and took the view that we did on how Mayors will have to consult with business if they wish to implement a business rate supplement for infrastructure.
In my response to amendments 52 and 54, I set out the reasons why the Bill commencement regulations should not be delayed until 2019. We have had several discussions on delegated powers. As I have explained, the Bill provides a framework to establish a new business rates retention system. Our approach allows us to continue to work with local government over coming months and years on the details of the reforms, which councils will welcome.
In line with the approach taken in the previous local government finance legislation, the Bill necessarily contains a number of delegated powers, as set out in the delegated powers memorandum, which describes each power’s purpose, justification and proposed procedure. The Bill takes a similar number of powers to the previous legislation. As I said at our previous sitting, the majority of those powers amend or replicate existing legislation, predominantly the Local Government Finance Act 1988 and the Business Rate Supplements Act 2009.
Where replicating existing powers, the Bill retains the procedure for each from previous legislation. Where the Bill creates new powers, the majority will provide for parliamentary procedure but, as is normal for this type of legislation, the Bill contains new powers that do not have a parliamentary procedure, such as the commencement regulations under this clause.
Mr Thomas
On the commencement proceedings, the Minister might remember that I asked specifically when he intends the abolition of the local government finance statement to kick in. Does he see tomorrow’s as the last such statement, or will there be another one for 2018-19? What is the commencement date for that provision?
Mr Jones
The hon. Gentleman has listened intently to every word I have said in this Committee, so he knows that earlier in our deliberations I confirmed to him that this year’s local government finance settlement will not be the last settlement of its type. The local government finance settlement process will continue until the new policy is implemented in 2019-20. Regulations will therefore have to be put in place by 2019, in advance of the forthcoming settlement for local government for that year. I hope that clarifies the matter for him.
The central principle of our approach to implementation of the business rate reforms is that we have developed and continue to develop the detail of provisions through close work with local authorities and businesses. By way of assurance to the Committee and to ensure openness, where possible we will publish draft regulations or policy statements on the content of the provision to be made under the powers in the Bill.
Given the above assurance, I ask the Committee to let the commencement clause stand part of the Bill.
Mr Thomas
I am grateful to the Minister for confirming that the local government finance settlement debate will continue to take place. It is an opportunity for Members across the House to continue to scrutinise not only local government finance as it operates at the moment but, crucially, as we get more clarity, how business rates might end up working when 100% devolved—goodness only knows, we need that clarity.
We have no sense of how the so-called fair funding review will work for each individual local authority. We have no sense as yet of the consequences of the detail of the financial regulations to accompany the Bill. It will therefore be helpful for us to continue to have the opportunity to debate such matters on the Floor of the House and to explore what they mean for each of our local authorities and the public services that they provide to the people of England generally.
It would be helpful to hear a little more from the Minister about any further arrangements for consultation with business. It seems a little odd that before the Bill is commenced, in the light of the huge concern about the business rates revaluation that has hit the media of late, there will not be further detailed consultation with business through local enterprise partnerships. Here is a quote from the Treasury press release that accompanied the previous Chancellor—before he was sacked for incompetence by the current Prime Minister—which outlined how the infrastructure premium would operate:
“Directly elected mayors—once they have support of local business leaders through a majority vote of the business members of the Local Enterprise Partnership—will be able to add a premium to business rates”.
Yet there has been no mention by the Minister of local enterprise partnerships in any of his speeches to date. He might prefer me to have mentioned it earlier in the proceedings—perhaps his memory might have come back to him at that point about why he made the change and decided to cut out local enterprise partnerships from the Bill. It would be good to hear a little more from the Minister about how local enterprise partnerships will be involved in the coming months.
Rob Marris (Wolverhampton South West) (Lab)
I am a little surprised, given that when we were talking this morning about timing and implementation of the various clauses in the Bill, the Minister prayed in aid clause 5, on indexation, and clause 7. When he talks this afternoon about developing policy in conjunction with local authorities and liaising—my verb, not his—it would be good if we had some evidence. He challenged my hon. Friend the Member for Harrow West on whether Labour supports clause 7, on rate relief for rural shops, and clause 5, on indexation, to which my hon. Friend gave a clear answer. The Minister relied on those clauses as examples of clarity and the way forward, but if they are so clear, why will their implementation be delayed?
Mr Jones
We have made it quite clear why those matters are to be implemented in that sequence. I made it clear earlier, in answer to the hon. Member for Harrow West, that we consulted widely with business groups, including local enterprise partnerships. This Government do listen. We have decided to bring forward a system in relation to business rate supplements that reflects the views of business, and when proposals are developed in local areas they will certainly need to take into account the views of the business community in that particular combined authority area.
Mr Jones
As was shown earlier, the hon. Gentleman seems to have undergone a complete transformation while scrutinising the Bill, having previously advocated that local authorities should be able to increase the multiplier at will and therefore increase the tax rate on business rates. He then seemed to have a conversion, given that he now wants to look at a review. I set out our reasoning earlier, carefully and in some detail. As I said, the Government considered the issue of business rates as recently as 2015. We looked at the issue carefully and consulted business groups and local authorities, which at that time thought the system we had, although not perfect, was one the Government should continue with. On that basis, I will curtail my comments and commend the clause to the Committee.
Question put and agreed to.
Clause 42 accordingly ordered to stand part of the Bill.
New Clause 2
Needs assessment prior to each reset
‘(1) Before any alteration to the Business Rate Retention Scheme, an independent body must conduct a full needs assessment of every billing authority.
(2) The conclusions of the assessment under subsection (1) must be taken into account when considering any changes to calculations under paragraph 2 of Schedule 7B to the Local Government Finance Act 1988 that are made as part of the BRRS reset.”—(Jim McMahon.)
This new clause would require a full needs assessment to be carried out for every billing authority in order to inform the new tariff and top ups system at each BRRS reset.
Brought up, and read the First time.
Rob Marris
I salute my hon. Friends the Members for Oldham West and Royton and for Redcar for their perseverance. As I said this morning, the Opposition have solicited evidence from the Government 33 times before today in Committee—and evidence came there none. As my hon. Friend the Member for Oldham West and Royton said a moment ago, he wants a strong evidence base, and so does my hon. Friend the Member for Redcar.
My hon. Friend the Member for Oldham West and Royton also said—I think I have got this right; it was a double negative—that he was not saying that local government does not trust central Government. I have to tell him that I am saying that. I do not trust central Government, and the reason is that they do not want the evidence, because it would lay bare the unfair nature of local government funding and, in particular, local government cuts over the last six years. I suspect that those cuts have taken their toll in communities such as Redcar and Oldham, just as they have in Wolverhampton. The Government keep hoping that people will not notice and, thus far, they have done not a bad job of keeping away from it. New clause 3(4) would solicit evidence on
“the resource need of each billing authority”.
Subsection (5) states:
“It shall be the duty of the Commission to assess the impact of any new requirement imposed upon a billing authority”.
Well, the Government do not want that evidence.
Using my own local authority in the west midlands as an example, the evidence is clear that over the last seven years almost, the cut in the central Government grant to Wolverhampton residents has been more than £200 a head, in one of the most deprived cities in England. Correspondingly, the alliterative Wokingham, in one of the most advantaged places in England—good luck to them—has seen a slight increase in funding per capita. I hope that the Minister is going to get up and astound me and say that he accepts these amendments, but I would be extremely surprised, because they would require evidence to be generated and the Government do not want such evidence.
Mr Jones
The distribution of resources and the assessment of the relative needs of local government is an essential feature of the local government finance system, but those elements do not require legislation to determine them. However, I thank Labour Members for providing me with the opportunity to outline the work we are doing in that area.
Before doing so, I would say that I have heard what has been said, particularly by the hon. Member for Oldham West and Royton. It was unclear whether the commission would be there to simply divide the money available at the time between local authorities, or whether there is a role for it to determine the total money available and national policy on council tax. Were it the latter, it is important to set out that those issues have been determined for many years by central Government. Successive Governments, including Conservative Governments, the coalition Government of Liberal Democrats and Conservatives, and Labour Governments, have held to those principles.
In regard to the work already under way, we announced the fair funding review last year, which was universally welcomed by the local government sector. The review is conducting a thorough examination of what a relative needs assessment formula should be in a world where local government spending is funded by local government resources and not central grant. The findings of that review will set the initial baseline for the 100% business rate retention system.
From the start, we have recognised the essential role that local government has to play in shaping those reforms. That is why we have been working collaboratively with the Local Government Association, which is responsible for representing a broad range of views held by different sections of local government and their member authorities. That effective working relationship has already seen the establishment of a steering group supported by a number of technical working groups, which my officials co-chair with colleagues from the Local Government Association. That gives local experts a unique opportunity to help shape the review, and all the work of those groups is available online, adding real transparency to the progress of the review.
The process for assessing the relative needs of local government is well precedented and was, of course, followed by the Opposition when Labour was in power. Our collaborative and transparent approach represents a significant improvement on that process. In the summer, we published a call for evidence that set out key questions that the review will address. The Secretary of State has confirmed that he will report back to the House on the progress of that review.
Creating a new commission to consider needs assessment and new burdens, as these new clauses would do, blurs accountability for that important work and would add another significant layer of unnecessary bureaucracy, over-complicating the process for assessing the relative needs of local government. It is important to point out that it would undoubtedly lead to a situation where it simply costs the taxpayer more money.
Our proposals offer a better guarantee of a transparent process, supported by the best available advice from local government and elsewhere. On that basis, I ask the Opposition not to press the new clause.
Jim McMahon
Thank you, Sir David, for the opportunity to respond to the Minister. I cannot understand why the Government are so reluctant to accept these measures. Of all the changes in the Bill, some are extremely minor and it would not require legislation for the Government just to get on and make them. Their argument is that they have put them in the Bill to give clarity and to ensure that there is a clearly understood framework in place. If they were to establish an independent body to look at a needs-based assessment, potentially with redistribution, it would be right for it to form part of the same transparent framework that has been proposed for far more minor changes.
Jim McMahon
I absolutely share that point. There are 12 sets of regulations and something like 56 new powers for the Secretary of State. We are not seeing a loosening of what binds the hands of local government; it is much more a tightening. I do not think that that will be well received.
The main thing is how we move forward. There is so much uncertainty now, not just with the amount of demand in the system for public services. We have seen the social care demand, but there will also be child safeguarding and educational attainment demands and mental health and disability support pressures very soon. That is notwithstanding all the other 700 services that local authorities deliver on a daily basis to support our residents.
We are seeing a genuine crisis in public services in many parts of our country. Some have been more protected than others and some have been more affected than others, but there will be an impact across almost every community in the country. Either the Government are lining up to continue to ignore the scale of that problem and what it means to individuals, families and communities—following a similar pattern of behaviour to that which we have seen under the coalition and the current Governments—or they genuinely want to get a grip and put in place a more sustainable system that would prevent such shocks to local public services. If local government is saying that, through an independently commissioned report that has been agreed by every party political party—including the Conservative party—on the Local Government Association, I cannot understand for the life of me why the Government do not just take that with both hands and run with it. At the moment, their defence seems to be, “That would cost money. It would cost money to have this independent system in place.”
Let us be clear about what the role of that independent body would be. It would be there to assess the need in each area against some objective criteria that would be agreed with central and local government. The Government have said they are going to do that anyway, so let us put that to one side; it will happen whether this body exists or not.
We then talk about redistribution. We know how much money will be required, because a thorough and in-depth review would have taken place. We then need to understand how much money we have and how much we distribute to meet the demand that has now been identified. What Government would not want the ability to say, “This is an independent recommendation”? It would be a gift. We know that they are fearful of scrutiny. We have seen that in the decision that the annual financial settlement will not come to Parliament in the future—they do not want that parliamentary debate. But this gives them a gift to say, “This is not the Government’s saying this; this is an independent body that has worked in consultation with local government.”
Where we are going and what the end looks like is extremely unclear. We have been promised an independent assessment of need. We do not know the criteria, the timescale, the membership or the status. We do not know whether it will be inside or outside the Government or completely independent. Will it sit within local government? We do not know the detail of any of that. We do not know what the new business rate devolution will be. We do not even know which different schemes have been negotiated in each of the pilot authorities, let alone the sweetheart deal that has been agreed with Surrey, which is the only single authority negotiated business rate retention pilot in the country—I am sure the Minister will say whether this is right or wrong. All the rest have been done through a devolution deal through their combined authority arrangements or the imposition of directly elected Mayors. Surrey is being treated in a very special way—a way that other local authorities are not. The Government cannot craft a special sweetheart deal for everybody. At some point, we have to accept that the quantum of money is a quantum of money and we have to teem and ladle.
Mr Jones
I think the hon. Gentleman knows in his own heart that I have been quite clear that we need a pilot in a two-tier area. Councils across that part of the local government sector will be invited to put their name forward to be part of that pilot. No decisions around that have been made.
Coming back to the quantum of funding that the hon. Gentleman has just mentioned: I am still unclear on this. Is he saying that the commission that he wants to set up would determine the overall quantum of funding and things such as council tax setting? While he alludes to that, he has not actually said that as yet.
Jim McMahon
I hope that the Minister does not mind too much. We have done our best to be helpful and constructive and to offer ideas. Ultimately, there is only one person in this room drawing a ministerial salary and being driven around by a chauffeur and it is not me, yet.
Jim McMahon
You have to earn the perks that come with the job. I am not going to give way. We need to make progress. I am happy to receive a letter from the Minister if he feels it is necessary to justify his position. What is most important is not to conflate a number of different points that have been made that are legitimate and stand on their own two feet—they are not one and the same thing. There is a world of difference between establishing an independent financial commission to understand the need in each area for public services and then to advise back to the Government what that assessed need should be. Government may well say as part of the remit of that review that there is a quantum of money that is limited and within the criteria that are set, they may well seek advice from the independent body on how to teem and ladle within that quantum. There has been no suggestion that the independent body would take away the right of the Treasury to determine how taxation is generated and spent in the country. It is very clear if the Minister reads the new clauses and the new schedule that the remit is to advise Government.
Mr Thomas
My hon. Friend makes an interesting point. I would put it slightly differently. It seems odd that some schools offering a service to one group of children benefit from business rates relief, while other schools offering a service to another group of children in the maintained sector do not. My hon. Friend’s broader point about equalising the treatment of schools has considerable merit.
Mr Jones
I will give the hon. Gentleman some background. He is right to say that local authority maintained schools do not get the charitable relief that, say, an academy school does. However, as I am sure he will be aware, those schools are compensated for the business rate they have to pay in the funding formula provided by the Department for Education through local authorities.
Mr Thomas
Let me address the question of the funding formula, because that opens a whole can of worms in terms of the financial pressures facing many of our schools. Some immediate business rates relief, without the compensation to school budgets suggested by the Minister, might provide an additional increase in funding to schools at a time when they most need it.
It is important that we discuss new clause 4 and relief for schools in the context of the funding formula. Almost half of the schools in this country will lose funding. They are already being hit by the 8% real-terms cut that the NAO has identified, but almost half face further cuts in 2019-20 under Department for Education proposals that are on the table for consultation.
At the Public Accounts Committee recently, a number of headteachers laid bare the scale of the challenge facing their schools. Liam Collins from Uplands Community College told the Committee that his school had reduced staff numbers by nine teachers and five support staff over the past four years. He argued:
“We cannot afford to buy text books...We cannot afford to send staff on training.”
That is a dire financial situation. Perhaps a little bit of business rates relief, without a reduction in school budgets, would provide one way to help that particular school.
Mr Thomas
My hon. Friend makes a very good point. A series of additional costs, some with the best of motives, are causing financial pressures on maintained schools. New clause 4 might be one way to provide additional financial support to deal with some of those costs and pressures.
Mr Jones
Despite the fact that grant maintained schools are compensated for the business rates they incur, the hon. Gentleman wants to exempt them from business rates, although he does not want the same treatment for academy schools, which by definition of the policy he advocates would be out of pocket compared with maintained schools.
Mr Thomas
With all due respect to the Minister, I want the terrible financial situation facing schools across the country to be sorted out. I am merely proposing new clause 4 as one potential route to address one part of that problem.
Stuart McLaughlin, head teacher of Bower Park Academy, said:
“I have cut my teaching to the bare bones. Every teacher is teaching at full capacity. I have very little spare capacity in terms of spare lessons on the timetable, so I am now starting to hit the support staff. My worry about that is that it is going to affect the most vulnerable students.”
Another example of a school in serious financial trouble for which new clause 4 might provide one route for a bit of additional support.
The Institute for Fiscal Studies has also backed up the National Audit Office conclusions about the scale of pressure on schools. It did not identify the apprenticeship levy but it talked about the additional costs from the public sector pay settlement, the increased employers’ national insurance contributions and the increase in the employer pension contribution to the teachers’ pension scheme that started in April 2015 and was not funded by the Conservative party. All that leads up to the 8% cut in real terms that our schools are facing. That situation is exacerbated by the new funding formula for at least half the schools in the country, which will see significant losses.
Organisations within the schools sector, such as the National Association of Head Teachers—not the sort of body to sound the alarm unnecessarily—are also profoundly worried about the funding situation facing schools. It is in that spirit that the Opposition tabled new clause 4. I look forward to Ministers saying why they are so determined not to solve the financial crisis facing schools and hospitals. I also look forward to the Minister’s response to new clauses 8 and 9.
Mr Jones
I thank the hon. Gentleman for tabling the new clauses, which would require the Government to provide a range of additional reliefs from business rates. New clause 4 would require the Government to introduce a relief from business rates for non-domestic properties used for the provision of NHS secondary or tertiary care or the provision of education in maintained schools. New clause 8 would include a similar but wider requirement for relief to be provided to all properties used principally by public bodies.
Although I appreciate the intention to provide support to important public services, I do not agree that exempting public bodies from the payment of business rates would necessarily be a helpful step. It may help if I remind hon. Members that buildings occupied by the vast majority of public services, including NHS hospitals and maintained schools, have been subject to non-domestic rates since they were introduced in 1990. That is part of delivering a fair and consistent system of non-domestic rates.
Given that long-established position, I am sure Opposition Members will appreciate that operational costs associated with property occupied by public bodies are taken into account in determining the overall funding level for the relevant public services. More importantly, I should highlight that granting an exemption of such a nature would ultimately reduce the income under the direct control of local authorities through 100% business rate retention. It could also have a disproportionate impact on those authorities that receive a greater proportion of their business rate income from public bodies.
Jim McMahon
I am not sure whether the spirit of the new clause has been understood. To clarify, my understanding is that my hon. Friend the Member for Harrow West is trying to achieve a reduction in what is effectively a paper transaction in the system. If the money were taken away from the council because a business rate was no longer payable, it would be taken away from the public body and given to the council in a different way. The money would still get to the council; the new clause would just stop the in-and-out transaction that takes place.
Mr Jones
I hear what the hon. Gentleman says. As I have said, the current system has been employed since 1990, and for 13 years of that period we had the misfortune of a Labour Government, who did not seek to change the system because they recognised that it was the fairest way of applying non-domestic rating to non-domestic property, including public sector buildings.
Jim McMahon
This is about fairness. I am interested in the Minister’s response to this. It makes no sense for a school that was a local authority school yesterday and is today an academy to be exempt today from paying business rates.
Mr Jones
I think I made it clear earlier that there is no disparity in the system in that example. Local authority-maintained schools are given a dedicated sum to pay their business rates. Academy schools do not get that sum because they are exempt from business rates. There is an implication, particularly in terms of when the new clause would come into force. The way in which the system currently operates is that at a spending review, when the spending decisions about need are determined in relation to a particular public service, the cost of the business rate is taken into account.
I am not absolutely certain of the hon. Gentleman’s intention in tabling the clause, but if, as is implied by what has been said today, the Opposition want to apply this more quickly than the next spending review, that would involve a cost for the Exchequer. That would have to be met either through increased borrowing or additional taxation. Of course, as we all know, the Labour party does not mind racking up a deficit or taxing the public for its spendthrift nature.
Kevin Hollinrake
The Minister is absolutely right. The shadow Minister was saying exactly that: that the hospitals would be better off. That implies that the money is not going in and out; it is just not going out any more. The £360 million would have to be found from somewhere. Would the shadow Minister find it from increased borrowings or increased taxation? There are only two places it can come from.
Mr Jones
That is a really good question and very pertinent in this context. It highlights one of the challenges we have with the Opposition. One party at the general election pledged significantly more money to the NHS than the other party. The Government are now putting an additional £10 billion into the NHS, while the Labour party committed to £1.5 billion extra for the NHS; that shows that the Labour party is raising a bit of a red herring, I think, to hide its embarrassment about not being willing to back the NHS as the Conservative Government have.
Rob Marris
May I caution the Minister about praying history in aid and going back to 1990? He referred to 13 years of a Labour Government. Under 13 years of a Labour Government, the real-terms increase in funding for Wolverhampton City Council was 40%; under a Conservative Government, the real-terms cut has been 40%. Under a Labour Government for 13 years, the national debt fell; under a Conservative Government, it has gone up by 70%.
The Chair
Order. Before the Minister responds, I should say that I get the sense that the Committee is becoming demob happy. I ask the Minister and the Committee to deal specifically with the response to new clause 4 and not to become partisan and drawn by what has gone on in the past.
Mr Jones
Thank you, Sir David. I was tempted to go down the route of mentioning the £150 billion deficit that was left over, but I entirely take your point.
I turn to new clause 9. I am grateful to hon. Members for raising the important issue of support to licensed markets. I am sure that the Committee will agree that markets are an important and valued part of our local economies. When I was Minister for high streets, which included responsibility for markets, I was a very keen supporter of our markets and supported the “love your local market” competition, towards which the Government contributed and supported.
While we should certainly be supporting our markets to survive and thrive, I do not agree that introducing a new relief targeted at market stalls through new clause 9 is necessary or justified. At Budget 2016, the Government announced a package of cuts to business rates worth over £6 billion over five years. That included the permanent doubling of small business rate relief and an increase in the relevant threshold for 100% relief from £6,000 to £12,000. That will be of significant benefit to stall holders in licensed markets, many of whom qualify for the relief. As a result of the change, more than 600,000 small businesses will pay no rates at all.
It will be for the valuation office to decide on the facts of whether individual market stalls are rateable. Typically, temporary and infrequent markets in the street are not rateable, whereas permanent markets in their own dedicated hall or site will pay rates. I hope Committee members agree that where market stalls are rateable, it is right that they are subject to the same rules as other non-domestic properties. Again, that ensures they are treated fairly in comparison with other properties, whether a small high street shop, a café, a fishmonger’s or a baker’s.
Jim McMahon
Does the Minister accept that there is a fundamental difference between a market site or a market operator and an individual market trader who operates from that site? A small business will most likely be under the threshold for attracting the relief. Because the business rate is paid by the operator of the market, a market trader will almost certainly be above that threshold and liable for business rates.
Mr Jones
I have been clear that the liability for rates will operate differently in relation to different types of market. I have also been clear that the same type of regime should apply to non-domestic property, which is certainly the case in this sense. It is for the valuation office to decide on the facts whether an individual market stall is rateable or not.
To conclude, I hope the Committee is reassured that the new clauses are not necessary and would not further our collective aims to support an independent and self-sufficient local government sector. I ask the hon. Member for Harrow West to withdraw the new clause.
Mr Thomas
I am grateful for the opportunity to sum up our debate on new clauses 4, 8 and 9. New clauses 8 and 9 were very much tabled as probing amendments. Although I am not 100% satisfied by the Minister’s response—something that I have had to get used to—I do not intend to divide the Committee on the new clauses.
New clause 4 was also a probing amendment, to find out the extent to which the Minister and his colleagues have really grasped the scale of the financial crisis facing both schools and hospitals. What we have had back from the Minister and from some Government Members in interventions suggests a profoundly worrying complacency about the financial situation in schools and hospitals. One has to hope that the Chancellor of the Exchequer sees things slightly differently, but we are where we are. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 7
Duty to ensure no loss of funding following withdrawal from the European Union
‘(1) This section applies where any funding is provided to a billing authority or Combined Authority by the Secretary of State in consequence of funds made available by EU institutions in the financial years beginning on 1 April 2017, 2018 and 2019.
(2) Where this section applies, it shall be the duty of the Secretary of State to ensure that, in the five year period beginning with the date on which the United Kingdom leaves the European Union, the funding made available to a billing authority in question is not reduced in respect of any funds that were made available by EU institutions in the period specified in subsection (1).’—(Jim McMahon.)
This new clause would ensure that funding available from EU institutions is replaced by funding from the Secretary of State for the five years after exit.
Brought up, and read the First time.
Jim McMahon
The rebalancing discussion was more about making the point that there has to be a recognition that more public sector investment goes into London. There will be reasons for that. This is not about London not being entitled to the money it gets. However, there is a call from other regions, not to say, “We want London to get less,” but to say, “We want the same.” A conversation on that basis is far more productive than setting one part of the United Kingdom against another, which other parties might to seek to. No one in this room would want to do that.
On that basis, there would be an open door for retaining European funding to the regions and, absolutely, allowing flexibility on how that is spent, even tied to negotiation with Government. However, as it stands, there is no certainty that that money will continue when we leave the EU. More than that, there is concern that in order to pay the divorce bill—not just for the lawyers, but for the settlement in terms of pension costs and historical and ongoing liabilities—the nation may have to provide a lot of money up front, which could be used for regional funding in the way that has been discussed.
If the new clause is agreed today, at least we will be able to lock down the funding that is sent to the regions to ensure that they are not paying a price for that divorce. There is a world of difference between people saying, “I’m going to vote to leave because I want more determination by my nation of the future of my nation,” and “I voted to leave because I want less investment for my community.” We need to be careful. Our challenge to the Government is to prove that their flavour of Brexit is not going to leave our constituents poorer than they were before. The new clause would help to show that they will not necessarily be poorer and that the Government understand that our regions need to be supported.
I should perhaps confess that it is a probing new clause. However, if it is not supported by the Government, we run the risk of providing further evidence to our local authorities that those in this grand place simply do not get it.
Mr Jones
I thank the hon. Gentleman for providing the opportunity to discuss the new clause, which aims to ensure that local authorities see no loss in funding following our withdrawal from the European Union. The Government will want to consider the future of all programmes that are currently EU funded once we have left the EU.
Over the coming months, we will consult closely with stakeholders to review all EU funding schemes in the round to ensure that any ongoing funding commitments best serve the UK’s national interest, while ensuring appropriate investor certainty. We will, of course, ensure that local government’s voice is heard in negotiations with the EU. I think that is what the hon. Gentleman was alluding to with some of his concerns. The Government have already announced that local authorities will be guaranteed EU funding for European structural and investment funds projects that provide good value for money and meet domestic priorities that are signed off before the UK’s departure from the EU, even when those projects continue after we have left the EU.
I hope the reassurance I have provided means that the hon. Gentleman will stick to his confession and decide not to put the new clause to a vote.
Jim McMahon
I thank the Minister for his comments. We have had a good debate but I do not think we have had clarity that the Government have committed to ensure that the EU funding will be in place over the life of the programme. The programme, of course, takes us only to 2020. Beyond that date, our regions have no idea how much money they will receive for research, development and skills investment. I do not accept the Government’s response as sufficient to give comfort to those areas. However, it was important to table the new clause in order at least to elicit that response. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 10
Non-domestic rating: exemption for nursery grounds
‘(1) Schedule 5 to the Local Government Finance Act 1988 (non-domestic rating: exemption) is amended as follows.
(2) In paragraph 3(b), after “market garden” on each occasion where it appears, insert “or nursery ground”.—(Steve Double.)
This new clause would provide that the definition of an agricultural building for the purposes of the exemption from non-domestic rating includes a building which is or forms part of a nursery ground and is used solely in connection with agricultural operations at the nursery ground.—(Steve Double.)
Brought up, and read the First time.
Mr Thomas
I am minded to press the new clause to a vote, such was the clarity of the argument of the hon. Member for St Austell and Newquay. My hon. Friend the Member for Wolverhampton South West has made a compelling case in support of it. The hon. Gentleman has reassured me that, having had conversations with the Treasury, there is no cost associated with it and he clearly has the support of the NFU. The Minister will have to make a pretty powerful speech to convince us not to press the new clause to a vote.
Mr Jones
It looks as if there is no pressure on me to satisfy the hon. Gentleman. I am grateful to my hon. Friend the Member for St Austell and Newquay for raising this important issue. The Valuation Office Agency faces a challenging task of maintaining non-domestic rating lists covering a vast array of different types of property throughout England.
The background to the amendment originates from a rating case concerning a property producing mushroom mycelium, which is essentially the material from which mushrooms are grown. It is then sold on by the ratepayer to mushroom farms, which then produce the final product. The VOA felt that, because the property was not producing the mushrooms itself, it was not able to claim the agricultural building exemption and therefore should not be rateable. The ratepayer disagreed. Eventually, the matter reached the Court of Appeal which ruled that the property should be rateable.
On business rates, there is nothing unusual about that chain of events. Usually, further discussion of such technical rating cases would be confined only to the most dedicated members of the ratings profession. The Government are not usually involved in that sort of discussion, but the Court of Appeal decision has wider implications in this case.
The judgment clarified that there is a difference between market gardens and nursery grounds where buildings are involved. In effect, that means that there is a difference between the exemptions available for market gardens and nursery grounds. The Court of Appeal judgment means that where the activity at a nursey ground takes place only in buildings, it is not exempt because it is not an agricultural building as defined by the legislation. Previously it was a long-held practice to treat such buildings as though they were exempt from business rates. The VOA has been discussing with the industry what the decision means in practice. We understand that it would mean that some ratepayers operating nurseries producing plants prior to the point of sale to the consumer could face a rate bill for the first time. However, the proposed new clause would ensure that those nurseries were again exempt from business rates.
I stress that the Government believe that the exemption for agricultural property is an important part of the rating system. It ensures that large areas of agricultural land and buildings are not liable to pay a property tax that could have a significant impact on the cost of farming. We firmly believe that it is necessary for a line to be drawn for all exemptions and the Court of Appeal has clearly done that in its judgment. It is also important that reliefs and exemptions are targeted where support is most needed. I have therefore asked my officials to look at the impacts of that decision, how it will be applied in practice by the VOA and what it means for the companies affected. I will also meet the NFU to discuss it. The Government keep all taxes, including business rates, under review and I assure my hon. Friend that that includes the implications of the Court of Appeal decision.
Mr Thomas
Given that one should support even Government Back Benchers when they suggest very sensible amendments, I want to clarify whether the Minister will take a serious look at the merits of the amendment and potentially bring something back on Report, or is he just going to go through the motions of a quick chat with the NFU on the back of something else, while his colleague is sent away with nothing?
Mr Jones
The hon. Gentleman is taking an interest in this subject, but I have spoken a number of times to my hon. Friend the Member for St Austell and Newquay, who came to me with this important issue, and I have also spoken to several other hon. Friends on the Government Back Benches who are concerned about it. I have been clear today that the Government take the situation seriously and I have asked my officials to look at the impacts of the decision, how it will be applied in practice and what it means for the companies affected. I will also speak to the NFU. Given the gist of my comments, I hope that hon. Members are assured that we take this matter seriously and that we will consider it carefully before we get to the next stage of the Bill. I hope therefore that my hon. Friend will withdraw his amendment and that, in the spirit of my comments, Opposition Front Benchers will not seek to press it to a division.
Steve Double
I thank the Minister for his response and I am grateful for the support of Opposition Members. I am happy to take the Minister at his word at this stage and hope that they will, too. I have put down a clear marker and believe that the Minister takes the matter seriously, but I will be watching closely to ensure that it is addressed in the near future. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 11
Power to remove or reduce mandatory reliefs in cases of business rates avoidance
(1) Part 3 of the Local Government Finance Act 1988 (non-domestic rating) is amended as follows.
(2) In section 43 (occupied hereditaments liability) after subsection (8C) insert—
“(9) For any hereditament for any charging day to which this section applies, if the relevant billing authority has reasonable grounds to suspect that the occupier is taking inappropriate steps to reduce liability for business rates, the billing authority may treat that hereditament instead as if section 47 (discretionary relief) applied to it.”—(Jim McMahon.)
This would enable billing authorities to have powers to treat mandatory reliefs (which are specified in section 43 of the Local Government Finance Act) as discretionary reliefs, which are dealt with in section 47 of the same Act, if they had reasonable grounds to suspect that liability was being reduced through business rates avoidance.
Brought up, and read the First time.
Jim McMahon
I beg to move, That the clause be read a Second time.
Again, like the best ideas, this one has been nicked. It was taken from the LGA, which has been consulting its members on how the business rate scheme has been abused by some landlords who have sought to avoid their liability to pay business rates. During the consultation, which was held in 2014, the LGA asked local authorities what types of tricks and techniques were used by companies and landlords who wanted to avoid paying business rates.
Some of the methods shared included repeated short-term periods of occupation; declaring that vacant properties are intended for future use by a charity; and fictitious occupation of properties by charities: for instance, certain window displays are used to decorate the building, but the activity carried out inside is quite different. Landlords also use insolvency to rack up high bills. When the moment comes for them to face court, the company is wound down, and people avoid paying them. Avoidance also results from properties not being on the rating list at all; people not reporting where properties have been split and should be subject to separate assessment for rating liability; the use of shell companies or offshore companies; and the use of vacant properties whose ownership is not known, although the owner might be local and using a fictitious address or name to avoid liability.
The new clause would ensure that when such techniques are discovered, safeguards are in place to ensure that the same occupier is not entitled to apply for a discount in future. They have effectively abused their chance to play the system fairly; the intention was to support those businesses and landlords who need it. I hope that the Government see that it is about fairness and balance. It is also about showing that where fault is discovered and people are proven to have been abusing the system, the Government have no truck with them and will hold them to account and restrict them from taking advantage again in future. If the Minister supports the new clause, he will win friends in local government and show that the Government have listened to what they have said.
Mr Jones
I thank the hon. Gentleman for giving us the opportunity to discuss the important matter of business rate avoidance, which the new clause seeks to address. New clause 11 would provide billing authorities with power to treat any hereditament to which section 43 of the Local Government Finance Act 1988 applies as if it were subject to section 47 of that Act where they have reasonable grounds to suspect that the occupier took inappropriate steps to reduce their business rates liability.
The effect would be to provide the billing authority with the discretion to grant or withhold any mandatory relief that the hereditament would otherwise be eligible to receive under section 43. That would include charitable relief, rural rate and small business rate relief; however, it would not extend that discretion to empty property rates relief.
The Government have been clear that we wish to retain the benefits that the system of mandatory reliefs brings. Mandatory reliefs provide businesses and charities with certainty and a consistent framework within which to operate and grow. For example, the small business rate relief scheme provides uniform support for all small businesses, applied evenly across the country. I have some sympathy with the hon. Gentleman’s intention to ensure that mandatory reliefs and exemptions are used appropriately, and I recognise some of the questionable methods used to avoid paying business rates; I have seen them in my own area. However, I do not agree that giving local authorities a power to decide whether to grant mandatory reliefs where they have reasonable grounds to suspect that steps are being taken to avoid business rates is the right approach. Nor would it follow due legal process to enable a local authority to withhold reliefs without evidence, solely on having reasonable grounds of suspicion. It would create inconsistencies in the application of reliefs and risk penalising legitimate charities and businesses that are rightly entitled to these important reliefs and penalise those whom the policy is designed to support.
Mr Thomas
This is, if you like, Sir David, the David Hodge memorial clause. Surrey County Council has blown out of the water the rationale that the Government once used for referendums. There is a deep irony in the situation this year, where the one council that is likely to impose a 0% council tax rise will be a Labour council and the one council that proposed the single biggest increase in council tax this year is a Conservative council. We have to admire the chutzpah of Mr Hodge. He has managed to get himself a sweetheart deal by completely blowing away the rationale Ministers once had for referendums. It is in that spirit that we move this probing new clause.
Mr Jones
I thank the hon. Member for Oldham West and Royton for his explanation of new clause 12. It was a slightly more constructive effort than that of the hon. Member for Harrow West, who seems to be preoccupied with sweethearts. Perhaps that would have been best placed last week, when the House was in recess and it was Valentine’s day. He seems to persist with a misplaced line of questioning.
The new clause would remove chapter 4ZA from the Local Government Finance Act 1992 and thereby abolish the system of council tax referendums. That would allow local authorities to set whatever increases they choose, without having to seek the approval of local voters.
Arguments in favour of abolishing council tax referendums, or for not setting any referendum principles are certainly familiar to the Government. However, they are not arguments that the Government accept. Government defining an excessive increase has been part of the council tax system for decades. Council tax is currently 9% lower in real terms than it was in 2010-11. It will still be lower in real terms in 2019-20, but only if the Government continue to work with local authorities and maintain a referendum threshold, as promised in their manifesto.
The referendum threshold is not a cap. Councils can set any council tax increase that they like, provided that they have obtained the consent of their local electorate in a referendum. That is direct democracy in action. Local people have the right to choose whether they wish to pay extra council tax for additional spending and councils have the right to make the case to them.
In setting the referendum threshold, the Government listen to the views of local authorities, but clause 4 will formalise that by requiring the Secretary of State to consult their representatives. I believe that that flexible and constructive approach to setting excessiveness thresholds is crucial in striking the correct balance between funding for local services and protection of council tax payers.
Council tax is 9% lower than it was in 2010. That makes a significant case—unlike the 13 years before then, when council tax actually doubled during the Labour Government. I hope that, having reflected on the points I have made, the hon. Member for Oldham West and Royton will consider the challenge that this proposal would present to many council tax payers and withdraw his new clause.
Jim McMahon
It was interesting to hear that response from the Minister. I am not sure that the spirit of where the new clause is trying to get to was fully appreciated. This is not about the appropriateness or not of council tax increases; it is about the balance of power in the relationship between local government and central Government. The fact is that the Secretary of State in this place wants to determine what goes on in every single community in the country. I do not think that that is in the spirit of localism. We have seen in Surrey, where the 15% proposed increase—
Rob Marris
The charge for business rate appeals is understandable, given the regrettable trend of recent years, which started under a Labour Government, of charging for access to justice. However, we also need to see things in the context of something that was raised with me and the hon. Member for Thirsk and Malton—the margin of appreciation, as I think it would be called; the flexibility. A business pays a charge and there is an appeal. It wins, but is told that the difference between what it would have been charged and what it will be charged post-appeal is less than 15%. Then it has lost—even though it has won. That does not seem to me to be a good way to proceed.
Mr Jones
I am grateful to the hon. Member for Harrow West for tabling the new clause as it gives me a further opportunity to remind the Committee of the work that we are doing to improve the business rate appeal system.
The system has always suffered from too many speculative applications clogging it up, causing delays and uncertainty for those ratepayers with genuine cases. It has for far too long been too easy for rating agents to lodge speculative appeals with little or no supporting evidence.
More than 1 million appeals have been made against the 2010 rating list, using the system that was put in place on 1 April 2010. Of those that have been resolved, only 29% resulted in a change to the rating list. With the introduction of a new rating list on 1 April 2017, we have a fresh opportunity to reform the system. Our check, challenge, appeal system will introduce a new three-stage process. We will put the emphasis on early engagement and resolution by all parties to ensure that, where ratepayers and rating agents decide to make a formal challenge, they must bring forward proper evidence cases. In turn, it will support local government, giving it greater certainty over its rates income.
Mr Thomas
I do intend to withdraw the new clause. I am grateful to the Minister for the clarification; I think it is something that he should keep under review, but we have had a useful trip around the issue. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Mr Jones
On a point of order, Sir David. I would like to thank you and Mr Gapes for the skilful and diligent way in which you have chaired proceedings over the past few weeks. There were times at which the Committee may have stepped near to the edge of being in order, and at every opportunity you and Mr Gapes kept us on the straight and narrow, so I thank you and Mr Gapes for that.
I also thank the Committee Clerks for the part that they have played in this Committee and the assistance that they have provided in supporting members of this Committee. In that context, I would also like to thank the people who are here from Hansard. I also thank the Government’s officials for the hard work that they have put into the Bill so far and for the support that they have given to me throughout the Committee stage.
Finally, I would like to thank the members of the Committee. At times, it has been an interesting Committee and although not all Committee members have always seen eye to eye, I think that we have conducted it in a reasonable spirit. Despite the fact that both sides have not seen eye to eye on a number of amendments that have been put to a Division, debate has always been conducted in a respectful way. I would like to thank the members of the Committee for the part that they have played.