Peter Aldous
Main Page: Peter Aldous (Conservative - Waveney)Local Government Finance Bill (First sitting)
Peter Aldous Excerpts(7 years, 11 months ago)
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The Chair
Can you dispose of it outside, please? Thank you very much. You cannot drink it inside. This was decided before you came here; it was very clear.
Peter Aldous
Q Minister, you said at the beginning that incentivising growth is at the centre of this Bill. As I said on Second Reading, I am concerned that there may be local authorities that wish to incentivise growth but, for reasons of location, the geographical make-up of their area or issues such as site contamination, may not be in a position to do that. Can you outline how you are going to support those authorities?
Mr Jones: You make a good point, Mr Aldous. We have been clear from the outset that, in developing and introducing this new system, there will need to be a form of redistribution across local authorities to make sure that we do not leave behind those that start off with a far lower business rate. The new system will also include incentives for local authorities to invest in things such as land remediation to bring forward new developments that will expand their business rate base. Local authorities will also be offered the opportunity to have local growth zones, which will be very powerful in terms of giving an area the opportunity to retain more of the additional business rate, and to have that part protected when we get to resets of the system.
Kevin Foster (Torbay) (Con)
Q My question is similar to that asked by Mr Aldous. On Second Reading, there seemed to be a negative undertone in relation to the prospects of some areas and councils to be able to incentivise growth and actually deliver the increased business rates that we hope the Bill will bring. As the Minister, how do you see the provisions helping to defeat some of those arguments? What monitoring will the DCLG be able to do to ensure that councils are actually going ahead with it, rather than adopting that negative, anti-business attitude and then using the area’s position as an excuse?
Mr Jones: The Bill will be transformational, changing attitudes in many places. In the main, local government has a good approach to local business and trying to make it thrive. We all know, though, that that does not happen everywhere. I think that the Bill will put areas to the sword. They will have to look far more carefully at how they incentivise growth in their local areas and at their attitude to business. That is not necessarily a bad thing. It might include providing a reduction in the multiplier and other provisions. That also applies to dealing with planning applications and to the general approach and demeanour towards business, which will be transformed by this. We will monitor the effect of this policy and when we get to the point of doing resets of the system, we will be able to analyse where there has been a great deal of success in increasing business rate revenues, and where that may not have happened. At that point we will have to make a judgment on how the system will be reset. We want councils to be very ambitious in bringing forward local growth.
Mr Thomas
Q The Minister painted a picture of 100% business rates retention leading to a new dawn of councils rushing out to encourage huge amounts of new economic growth. I wonder if that is a picture that you recognise. If not, what barriers to that economic growth can you think of? I ask that in the context of a rural area where the space for the type of warehouse facilities that you could imagine generating significant business rates will be much more limited.
Guy Ware: I think that “new dawn” is an interesting phrase. There are clearly incentives built into this. In our submissions to the consultation at the end of September, we identified a number of issues that prevent those incentives working clearly.
One of those, as we heard about a moment ago, is the appeals impact. Another is simply the frequency with which the system will take away the growth that is delivered by any activity in a given area. There is no straightforward answer to that. The new system has to address both the needs issues that my colleagues have mentioned and also, because it is the explicit intention of the Bill, a way of retaining a significant financial incentive while recognising those needs issues.
What are the barriers to growth? That is a very big question that it is perhaps beyond the scope of the Bill to resolve. From a London perspective, we have been very clear what we need. We think the greater local powers over these issues would enable the capital to respond better to the threats that we currently face, particularly the uncertainty arising from Brexit and also, less topically, the threat to the sustainability of growth within the capital, which to some extent is a victim of its own success.
The ability to house and transport people to keep working in London is a huge challenge. There are specific clauses in the Bill that we think would help that—for example the infrastructure supplement and designated areas—but there are others where we think it is unhelpful. For example, on the use of the infrastructure supplements, there is a broad definition of what they can be spent on, which is anything that will promote economic development, but unfortunately, two clauses later, there are specific exclusions, the first of which is housing. If you ask businesses in London, as we have repeatedly, what the biggest barrier is to continued and sustainable growth in London, they will say the lack of housing. So we want to see the Bill go further to free up local government to use some of the products of business rates in ways that are more suitable to their particular economies.
Councillor David Borrow: Given that the County Councils Network represents large rural areas and small towns, the issue around elected Mayors causes a lot of problems because elected Mayors are a prerequisite for being able to have greater control over business rates, including increased business rates to put infrastructure in. That is a real problem in shire counties. Conservative Members here know the debates they have had on that issue. The County Councils Network wants that power to be given to combined authorities without it requiring an elected mayor.
Secondly, if the Government are looking to give further responsibilities as a result of transferring 100% business rates, the LGA has clearly identified lots of areas currently delivered by Government that promote economic growth, and it seems logical and sensible for those responsibilities to be transferred to local government where they fit in with the policy of developing economic growth at the local level.
Thirdly, in many rural areas a lot of businesses are exempt from business rates as a result of the systems to promote business, and the mechanism affects the income that the council gets. You can promote small businesses, but it is different in rural areas and in more urban areas.
Graham Soulsby: The last answer I gave was about making sure we get the needs-based assessment right. The other side of that is making sure we get the incentive side of it right. Those are the two key things in terms of how the Bill might operate. The incentive side will be key in whether the changes actually promote more economic growth at local government level. From an incentive perspective, if local authorities and their communities can keep more of the additional money that comes from business growth, there is probably more of an incentive to promote economic growth.
There is an issue that we have tried to flag up through the various working groups that we have been sitting on, which have been very good, through the Department for Communities and Local Government. If a reset comes up in a five-year period, we have argued that we need to be really careful about how that works, because there could be a disincentive to economic growth as you move towards that reset. If you did it in year four of the five-year period, you would not keep much of the additional income that comes through because it would all get redistributed. We have tried to argue that for that to work properly, there needs to be some retention of incentive in the medium term so that if you want to use some of the additional business rate income, you can go out to the market and perhaps get infrastructure funding to promote some bigger schemes, but you would have to pay it back over a longer period of time. There needs to be flexibility in how much incentive there is and in how much business rate increase you can keep for a longer period to get real economic growth.
Peter Aldous
Q For the record, I am chairman of the county all-party group, for which the County Councils Network provides the secretariat. Mr Soulsby and Councillor Borrow, you very much emphasised the importance of the needs-based review of the fair funding formula being synchronised with the implementation of the provisions in the Bill. Do you think there is a case for including that in the Bill?
Councillor David Borrow: It is unusual that the two things have been separated. The timing of both parts of this change needs to be as close as possible. If they have to be done in two separate pieces, they need to be co-ordinated. Clearly, until we have sorted out the funding formula, we cannot really move ahead with 100% business rates, and getting that right is fundamentally important.
Graham Soulsby: It will be okay if the co-ordination is done properly, given that this is more of a framework. One of the things that the working groups at DCLG are working with local government on is the much longer gestation of the needs-based side of it. We have been trying to argue that the timescale needs to be brought back a bit and it needs to be done more quickly. That definitely needs to happen. Whether it needs to be part of the Bill, I am not sure, to be honest.
Jim McMahon
Q My question is for Mr Ware and London Councils. The Bill provides for business rate pooling arrangements to take place. We are in a borough where the band D council tax is £672 a year, looking at a borough across the road where the band D council tax is nearly twice that. Does London Councils have a view about the potential for council tax pooling, and have any discussions taken place with the Government?
Guy Ware: The short answer is no, there is not a clear view and there are no active discussions about council tax pooling. However, the two things will be closely interrelated. We in London would argue—this will apply in other parts of the country—that we should do this by arrangements that we devise for ourselves, but that is a slightly separate question. The two things will be interrelated because the definitions of the needs and therefore the business rate baselines that determine the top-ups and tariffs that will redistribute business rate resources between authorities will also be informed by the capacity to raise council tax. There is a whole set of quite difficult issues that sit behind that around why council tax can be very different, as you say, between two neighbouring boroughs or authorities in other parts of the country, which is bound up in previous political decisions, previous funding decisions and so on, so it is not straightforward.
We would argue that in the medium term, council tax and business rates should be reviewed together. The London Finance Commission, which reported just last Friday, certainly argues—I think persuasively—that fundamental reform of the way that property taxation is undertaken is really important. Trying to do each of those taxes independently is not necessarily the best way to go about it, because they are interrelated and affect transactions in the market and individual business rate and council tax payers.
Peter Aldous
Q As part of the whole devolution process, in order to facilitate the new business rate retention process, at present various responsibilities are being transferred from central to local government so as to ensure fiscal neutrality. I would welcome your views on that. From your perspective of taking on those responsibilities, are there any unexploded bombs that you might think are being passed to you unfairly?
Graham Soulsby: That is a really good question, but one that is quite hard to answer at this moment in time. The issue of new responsibilities, as you can see from the drafting of the Bill, is not in there. We have had discussions in the DCLG working groups about different ideas of what those new responsibilities might be, but the big point that all representatives of local government have made is that, obviously, we are open to the discussion. We do not want to take on responsibilities that have that ticking time bomb element where they are fiscally neutral at day one, but by year five a huge deficit is eating into our business rate income. As a principle, we have been trying to argue that with DCLG officials. They understand the debate, but we have not yet got to the detail in terms of thrashing it out.
Councillor David Borrow: I would go along with that. From our perspective, there is a real risk. The point that the County Councils Network would make—this may be shared by other people in local government—is that there is a first call to be made on any business rates before additional responsibilities are transferred, which is to ensure that the existing funding gap is met. Particularly in terms of adult social care and looking forward over the next few years as the revenue support grant disappears, the figures show a gap. In my own authority, we are looking at a gap of £150 million between income and expenditure in 2020-21. That sort of figure is not particularly unusual among upper-tier authorities.
Guy Ware: The equivalent figure in London, collectively, is about £2 billion, plus the GLA.
I echo what my colleagues have said. To be perhaps more positive than I have been about some other issues, one ticking time bomb has already been defused in the non-transfer of attendance allowance. I give credit and pay tribute to the joint working groups that Graham mentioned earlier and that the DCLG has been leading with the LGA. That is evidence of some listening and some progress in the joint assessment of problems.
Mr Thomas
Q Just to follow up the ticking time bomb analogy, if the £3 billion public health grant were to be abolished, would public health become a ticking time bomb for local government?
Guy Ware: I think public health is a ticking time bomb for the country as a whole. One of the comments that Graham made earlier, about the desire to shift spending into prevention and away from expensive interventions, applies fundamentally to this issue. If the grant were abolished and public health became a local authority responsibility like any others funded from council tax and business rates, the incentive to ensure that we were fulfilling the kinds of policy objectives that underpin public health would become all the stronger. There is risk involved in that, obviously—namely, that we cannot cope with the consequences—but certainly there would be benefits in aligning the responsibility and accountability for managing those services with those who are raising the resources.
Councillor David Borrow: This raises a bigger issue: local government, in terms of adult social care authorities, needs to find a way of working properly with the NHS. At the moment, there are disincentives around adult social care and the NHS. Clearly that is the direction of travel that the Government want to move in, but they need to look at what they need to do to ensure that the right partnerships between local government and the NHS can exist. With something like public health, if the funding for it is reduced, that would put more pressure on adult social care and on the NHS in the longer term, however useful that may be in reducing budgets in the short term.