Mark Field
Main Page: Mark Field (Conservative - Cities of London and Westminster)
John Healey
I rise to speak to new clauses 1 and 11, and amendments 62 and 63.
My purpose with new clause 1 is to encourage the Minister to confirm, on behalf of the Government, that the necessary powers exist in legislation to make tax increment financing work in future, and also to confirm Ministers’ intent and commitment to using those powers. The case for TIFs—tax increment financing schemes—is unarguable. I myself have been arguing it for a number of years, first in the Treasury and then in the Department for Communities and Local Government. There are local government regulations in Scotland to allow six TIF pilots to go ahead. The use of TIFs is widespread in Canada and the US, particularly in areas where regeneration is required; indeed, only one state in the US—Arizona—does not have TIF legislation. TIFs build on the commitment that Labour made in government, in the Budget 2010, a commitment that was backed by a capital down payment of £120 million.
However, if the TIFs system is to work—that is, if local authorities are to borrow money for up-front infrastructure investment against the anticipated increase in business rate income as a result of the new infrastructure —there must above all be certainty for those long-term investments to be made. There needs to be certainty for a clear business plan and then an investment plan to be put in place; otherwise TIFs will not get off the ground and will not work. That certainty is required over a 20 to 30-year time scale, which is why it is needed in legislation. As the Centre for Cities said in response to the Government’s consultation:
“When the Government introduces Tax Increment Financing…it should be based on ‘Option 2’—a ringfenced TIF which is best suited for local investment finance within the proposed business rate retention system.”
That point was echoed by the British Property Federation, which said:
“Failing to ring-fence the income stream for that length of time”—
its submission referred to a 25 to 30-year period—
“would generally render the upfront investment unbankable, because the risks associated with it become too difficult to model, understand and price. TIF will only work with the sort of total ring-fencing proposed under Option 2”.
The Government made the commitment to ring-fencing, stating in the White Paper of October 2010:
“We will introduce new borrowing powers to enable authorities to carry out Tax Increment Financing”.
In response to the consultation, the Government also made a commitment to
“allow a limited number of Tax Increment Financing Projects to be exempted from any levy and reset for 25 years.”
That is the crucial commitment that I want to test against the content of the Bill before us. I expressed my concern about the freedom of the ring-fencing from any effects of reset to the Secretary of State on Second Reading on 10 January. He had no answer: either he did not know, or he did not want to say.
Let me therefore point the Minister to the source of my concern, which relates to paragraph 37(1)(d) of schedule 1 on page 32. This deals with the regulation-making powers of the Secretary of State, referring to regulations that can
“provide for that amount or that proportion to be disregarded for the purposes of calculations under any of the following provisions”—
in other words, regulation-making powers that can lead to the disregard of a proportion of business rates in specified areas, namely TIF areas, for particular payments that would otherwise be due. The provision goes on to identify payments to the central share, payments by billing to precepting local authorities, levy payments, safety net payments, payments on account and payments that follow from changes either to the local government finance report or to an amending report of a local government financing report. There is no power, however, to make regulations to exempt payments as a result of changes through a reset.
If I am mistaken, I would like the Minister to indicate where that power lies. If no such provision exists in the legislation, will he confirm that the Government will honour the commitment they made in their response to the consultation and will amend the Bill so that any payments resulting from a reset can be disregarded—and disregarded in full—for the purpose of the TIF areas? The Minister would be welcome to accept my new clause if he needs to do so.
Mark Field (Cities of London and Westminster) (Con)
The right hon. Gentleman has made admirably clear his concerns about the potential lack of commercial certainty. One of the advantages of going down the route of tax increment financing is that there would be ring fence over the 25 to 30-year period. Does he not see, however, that in very uncertain economic times, that is a very long period, so it might be unwise, where a major change required a major reset in a particular area, perhaps where new towns were being built, not to allow the Government a certain amount of leeway? Is that not more important than the exclusion of a reset from the ring fence?
John Healey
I would have thought the hon. Gentleman, who represents the Cities of London and Westminster, would recognise more than anyone else that for the sort of commercial investment required to get TIFs off the ground in circumscribed and specific areas, certainty is a premium. If the 25 or 30-year commitment required to make this work could be periodically completely set to one side in a reset process, I put it to him that the inherent risk created by that and the inherent lack of certainty entailed by it would undermine the ability to raise the finance necessary to get the TIFs off the ground.
As to the hon. Gentleman’s point about new towns, the regulations allow the disregard in the specified areas that are designated as TIF areas only. The disregard on business rate payments, a proportion of which would otherwise become payable by the local authority, would be allowed under various headings, but this would not apply to the reset. Fundamentally, that is the biggest upset factor of all, so the case for disregarding that is probably stronger than it is for the smaller-beer measures for which regulations can be designed to protect.
Mark Field
I accept what the right hon. Gentleman says and he is absolutely right about commercial certainty, which is of great importance to any would-be investor. Instead of the notion of absolute certainty embodied in new clause 1, would the right hon. Gentleman not be satisfied, particularly in view of the important effect of building a new town or a huge new industrial estate for which the notion of a reset would apply, by reassurances from the Minister that the Government do not intend to make the changes he has in mind? Would that not be better than going down the route of absolutely certainty, which provides little flexibility either to central or local government, for an incredibly long period of 25 or 30 years? We need go back only two and a half or three decades to recognise the great changes that have taken place in many of the industrial areas that we represent and to understand that absolute certainty of the sort that he—
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. [Interruption.] Order—the hon. Gentleman must not test my patience even more. Interventions are welcome, and I am prepared to give a little leeway, but the hon. Gentleman is almost making a speech.