Local Government Finance

Sajid Javid Excerpts

Wednesday 22nd February 2017 Commons Chamber

[The Secretary of State for Communities and Local Government (Sajid Javid)]

I beg to move,

That the Report on Local Government Finance (England) 2017-18 (HC 985), which was laid before this House on 20 February, be approved.

[Madam Deputy Speaker]

With this we shall discuss the following motions:

That the Report on Referendums Relating to Council Tax Increases (Principles) (England) 2017-18 (HC 983), which was laid before this House on 20 February, be approved.

That the Report on Referendums Relating to Council Tax Increases (Alternative Notional Amounts) (England) 2017-18 (HC 984), which was laid before this House on 20 February, be approved.

[Sajid Javid]

Local government is the frontline of our democracy. Every day, England’s almost 400 districts, counties, boroughs, unitary councils and metropolitan areas provide countless services to millions of people. They clean our streets, repair our roads and care for our most vulnerable people. They maintain our infrastructure, shape our communities, put roofs over our heads and so much more. It is our job to make sure that they are adequately funded to do just that.

A provisional financial settlement was published late last year. Since then, we have received formal representations from nearly 200 organisations and individuals. I thank everyone who took part in that process. The results of the consultation are before the House today in the shape of the final settlement. It is a settlement that provides councils with the resources required to deliver world-class public services in the year ahead, while continuing to play their part in bearing down on the deficit. Nobody knows local government better than local government itself, so this settlement answers the requests made of us by representatives of every tier of local government and every political party.

[Mrs Louise Ellman (Liverpool, Riverside) (Lab/Co-op)]

I agree with the Secretary of State about drawing attention to the importance of local government. Will he explain why Liverpool, with its high deprivation and low tax base, has now lost more than 60% of its central Government funding?

[Sajid Javid]

The hon. Lady will know that all councils have been asked to make a contribution to deal with the large deficit that the country had in 2010. That does not mean it has not been challenging—it has been for Liverpool and other councils—but many other councils have demonstrated that there are ways to deal with that and have been able to handle the challenges well. It might reassure the hon. Lady to remind her that the Liverpool city region is part of the business rates retention pilot, which I shall address in a moment and which may help to deal with some of the challenges.

[John Redwood (Wokingham) (Con)]

Does my right hon. Friend agree that the gap between the lowest-funded authorities, such as West Berkshire and Wokingham in my area, and the highest-funded, had become too extreme and that more needs to be done to create some fairness?

[Sajid Javid]

I very much agree with my right hon. Friend. I shall in a moment discuss the fair funding review, which is an attempt to do just that.

The measures can broadly be grouped into three areas, which I shall go through during the debate. Later, I would like to update the House on another important source of Government funding for local authorities: business rates.

The first request we have had from local authorities is for increased certainty about funding. For years, councils have called for the tools to improve services and deliver efficiencies over a longer horizon. That is why the 2015 spending review delivered a £200 billion flat cash settlement for local government and why we have delivered four-year funding allocations that provide the financial certainty required for councils to be bold and ambitious. They have used that funding certainty to publish long-term efficiency plans, showing their taxpayers that they can deliver great services and still live within their means.

The story does not end there, though. Last month, we introduced the Local Government Finance Bill, which will devolve 100% of business rates to local government and enshrine in law our commitment to providing funding certainty by establishing a legal framework for multi-year settlements. The revenue support grant will be abolished, so councils will become financially self-sufficient. With services financed locally, councils will be even more accountable to their electorates, rather than to Ministers in Whitehall.

[Kate Green (Stretford and Urmston) (Lab)]

The Secretary of State says that councils are living within their means, but Trafford Council, for which I am the Member of Parliament, is having to draw on its reserves to meet the spending gap it faces as a result of the reduction in the revenue support grant, which, even in a rich authority like Trafford, is not fully compensated by the ability to retain more business rates.

[Sajid Javid]

The Under-Secretary of State for Communities and Local Government, my hon. Friend the Member for Brigg and Goole (Andrew Percy), who has responsibility for local growth, met Trafford Council recently. I meet many councils myself and listen to some of their challenges. Trafford Council is one of the authorities that is implementing some efficiencies, but there are always more things that can be done, some of which I shall highlight later.

[Diana Johnson (Kingston upon Hull North) (Lab)]

Hull City Council wrote to the Secretary of State a short while ago. In his response, he offered to meet the leader of the council and its chief executive. We waited many weeks for that meeting to be set up, until we received a letter from the correspondence secretary saying that the Secretary of State was not able to meet. Having just said what he did about meeting local authorities, will he now agree to a meeting with Hull City Council?

[Sajid Javid]

I assure the hon. Lady that Ministers from my Department have had several meetings with Hull City Council, and I, too, am happy to meet the council. If I remember correctly, I received a letter in November and replied within weeks. I am more than happy to meet—in fact, I contacted Hull City Council only today to offer a meeting.

Under the new system, there will no longer be an annual finance settlement that is reviewed and imposed by Westminster each year. Instead, the Government will set the envelope and the principles for allocating funding over a period, and it will be for councils to grow their income. That could be done in a variety of ways, from attracting new businesses and building new homes to working with local partners to deliver more efficient and joined-up local services. One hundred per cent. business rates retention is being piloted from next year by Greater Manchester, Liverpool City Region, West Midlands, Cornwall, West of England and the Greater London Authority.

[Mr Mark Hendrick (Preston) (Lab/Co-op)]

Lancashire has the third lowest tax base of any of the shire local authorities. Preston welcomes the reduction in business rates, but, effectively, what it means is that the 100% tax take will be lower as a result of the reduction in business rates. We do not mind that, but the loss of central Government funding through the rate support grant will be a huge blow to both Lancashire and Preston.

[Sajid Javid]

There has been a reset for Lancashire, so it should not lose anything. If the hon. Gentleman wants to provide me with any further information that he thinks we may not be aware of, I will be happy to take a look at it.

The authorities that I have just mentioned will be able to keep more of the growth in their business rates income with no impact on the rest of local government. We plan to undertake further pilots in 2018-19 in areas without the devolution deal, including two-tier council areas.

[Robert Neill (Bromley and Chislehurst) (Con)]

I very much welcome the roll-out of these pilots right across the country; it is entirely the right approach to take. The Secretary of State’s immediate predecessor came to Bromley to meet the leader and chief executive of our council when they expressed an interest in Bromley becoming a pilot. Will he take it from me that that offer and that interest still stands, and perhaps he might like to come to Bromley to discuss it with us?

[Sajid Javid]

I know that my hon. Friend speaks with a great deal of experience when it comes to matters of local government. I am more than happy to meet the leader of Bromley Council, and I hope that my hon. Friend will join me in such a meeting.

We plan to undertake further pilots for the two-tier authorities, and I welcome applications from any council waiting to take part in this second trial. The nationwide roll-out of 100% business rates retention will take place across England in 2019-20. Earlier this month, my Department published a consultation seeking views on exactly how the system should look.

[Vernon Coaker (Gedling) (Lab)]

The explanation of why Surrey was not getting a sweetheart deal was that it was getting something that was perfectly normal and available to other authorities. Will the Secretary of State tell us where Surrey is in these pilots, because we cannot work it out?

[Sajid Javid]

Well, there is not much to work out. That ridiculous claim was demolished on the day that it was made.

[Robert Neill]

If the Secretary of State looks at page 34 of the local government finance report, he will see the Surrey-Croydon business rates pool set out in the statement.

[Sajid Javid]

I thank my hon. Friend for that.

[Lilian Greenwood (Nottingham South) (Lab)]

Which councils are eligible to be part of the pilot on the 100% retention of business rates and which ones are not?

[Sajid Javid]

All councils that are in two-tier areas.

The second key area where we have listened and responded is funding for adult social care. That issue transcends party politics. Local government may have the statutory duty to look after our most vulnerable citizens, but we all have a moral duty to help it to do so.

The spending review put in place up to £3.5 billion of additional funding for adult social care by 2019-20, but we recognise that the coming year is the most difficult in the settlement period for many councils. There are immediate challenges in the provision of care, and they must be met now before those substantial additional resources become fully available. This settlement creates a new £240 million adult social care support grant, and it allows councils to raise the adult social care precept by up to 3% next year and the year after. Together, those measures make up almost £900 million of additional funding for adult social care available over the next two years. That means that the total dedicated funding available for adult social care over the next four-year settlement period is £7.6 billion.

[Mrs Ellman]

Does the Secretary of State recognise that although the package he has put forward is a welcome step, it will go nowhere near addressing the major crisis in social care from which the people in Liverpool are suffering?

[Sajid Javid]

I recognise that there is more to do on adult social care—especially in the area of reform, to which I shall turn in a moment.

Some local authorities will be able to raise less in precept than others. That is why we have also confirmed that the improved better care fund allocations, worth £1.5 billion by 2019-20, will take into account a council’s ability to raise funding through the precept.

[Mr Clive Betts (Sheffield South East) (Lab)]

I recognise what the Secretary of State says: the better care fund will be tailored to help authorities that raise less under the precept. However, the fund does not really kick in until the following financial year. Why have the Government not done anything to help councils with a lesser ability to raise the precept in the next financial year, 2017-18?

[Sajid Javid]

The hon. Gentleman may not be aware that although the better care fund picks up over time, it has already kicked in. I think it represents £105 million this year, and it rises next year and in the following years. However, he makes an important point; I listen carefully to what he says, especially given that he is Chair of the Select Committee that oversees my Department. I hope he will agree that as the better care fund comes in and builds up, it will start to make a bigger difference.

[James Heappey (Wells) (Con)]

Will the Secretary of State confirm that all additional funds that have been and will be committed for the purposes of adult social care will be allocated according to the needs-based formula, not the existing local government formula, so that things such as sparsity of population and a deteriorating demographic will truly be taken into account?

[Sajid Javid]

I can confirm that the way in which the funding has been allocated overall is based on relative needs. I have mentioned, for example, the new £240 million fund that the settlement sets up for adult social care. That is all based on need as well.

My hon. Friend has been a passionate advocate of ensuring that we think of all parts of our country, including the more rural parts, that face particular challenges. I have had many constructive discussions with him and will continue to do so. He has often highlighted that we must make sure that those needs-based formulae, whether for adult social care or for funding for local authorities more generally, are updated and modern. That is something that I am attempting to do.

[Mr Ronnie Campbell (Blyth Valley) (Lab)]

According to figures from SPARSE Rural, by 2020 the Government revenue grant will give each person in Northumberland £6.85, while those in the neighbouring metropolitan boroughs across the Tyne and Wear conurbation will get £68.53. Can the Secretary of State explain that?

[Sajid Javid]

I do not have those figures. However, I recognise that the core spending power of many local authorities has changed and that they have therefore had to deal with some of those challenges. He might be reassured to know that in his local authority of Northumberland the core spending power per dwelling is more than £1,700—far higher than the average for that class. I am sure that that helps the people of Northumberland.

[Mr Stewart Jackson (Peterborough) (Con)]

I commend the efforts, via the better care fund, to address the demographic issues, which transcend party politics. While the Secretary of State is considering the efficacy of the funding that he has mentioned, will he bring in a fiscal incentive for local authorities such as Torbay that are trying to integrate adult social care with acute hospital care, so that they have a real incentive to drive those necessary reforms and changes?

--- Later in debate ---

[Sajid Javid]

My hon. Friend leads me directly to my next point, which is about ensuring that we all recognise that more money for adult social care is not the only answer. We want every area to move towards integration of health and social care services by 2020, so that it feels much more like one service. I welcome what I believe is a consensus on both sides of the House that we will need to develop reforms to make social care more sustainable and effective for everyone in the long term, so my hon. Friend’s point—that as we work towards integration, we should look at how we can best encourage that—is an important one.

Another key area concerns the fair funding review, through which we are devising a new funding formula for local government. It is nearly a decade since the current formula was looked at thoroughly. Some parts of it date back as far as 1991, when the Prime Minister was an up and coming young councillor. It is fair to say that a few things have changed since then: the demographic make-up of many areas has altered radically; an ageing population means that demand for different services has shifted; and we are entering a world in which local government spending is funded by local resources, not central grants. We are undertaking a fair funding review to thoroughly consider how to introduce a more up-to-date, more transparent and fairer needs assessment formula. It is vital that the new formula delivers, so we are working closely with local government to get it right.

[Mr Owen Paterson (North Shropshire) (Con)]

I welcome many aspects of my right hon. Friend’s statement, but he is aware that rural authorities were unhappy at the end of the last Conservative Government. The Labour Government then brutally shifted considerable funds to the inner cities. There is now a massive discrepancy not just in council tax raised, but in money redistributed from the centre and, above all, services. I will vote with the Government tonight without any great enthusiasm for the settlement, but I would like an absolute guarantee that this review will go back to basics, looking at the needs and significant changes on the ground so that when we discuss this next year, we will have a completely different settlement that reverses the trend and brings wealth back, fairly, to rural areas.

[Sajid Javid]

I welcome my right hon. Friend’s support for the settlement and I very much sympathise with the issues he raised about rural communities. He has been a passionate advocate of this for a long time. I am pleased that his local authority, Shropshire, is part of the working group that we have established to look at the specific challenges faced by more rural areas. I reassure him that the fair funding review must look exactly at the kinds of issues that he mentions and that he knows a lot about. We must make sure that we get it right this time.

As we conduct the fair funding review, we need to ensure that it is up to date, more transparent and brings a fairer, needs-based assessment. It is vital that the new formula delivers, so we are working closely with all of local government to try to get that right. We had hundreds of responses to the call for evidence published by my Department last year, and it is clear that people in all areas feel strongly about this, as we have just heard from my right hon. Friend.

[Huw Merriman (Bexhill and Battle) (Con)]

Will my right hon. Friend look at whether the funding review will take into account aged-based proportions within the community, not least because of the debate on social care? That may be one way of diverting more money to those at the older end of the age spectrum.

[Sajid Javid]

I can confirm that that is exactly the kind of thing that we need to look at more closely. If my hon. Friend allows me to, I will give a bit more detail about the kinds of things that I am keen to ensure are covered by the review.

I have been privileged to hear the views of colleagues from across the House, many of whom have direct experience of service in local government. Various themes have emerged. Foremost among them is the need to ensure that the formula works for all local authorities, wherever they are. Rural councils in particular have unique needs that must be met, and councils have been clear that they want to see action sooner, rather than later. I am happy to confirm what we have previously said on the issue. We will make the changes to the fastest possible parliamentary timetable, and we aim to implement new baselines for every authority in 2019-20, following Royal Assent of the Local Government Finance Bill, the necessary secondary legislation and the completion of the fair funding review. I will update the House as soon as I have further details to share.

[James Heappey]

I acknowledge that my right hon. Friend said that this will happen in the fastest time that the parliamentary process will allow. May I invite him to be a little clearer on when he anticipates that means the review will have been completed and committed to?

[Sajid Javid]

Again, I thank my hon. Friend for the role he has played in making sure that this issue is looked at properly. As he will know, the commitment we have made on business rates retention, which we want to start in the financial year 2019-20, means that there will be a requirement to have the proper baseline set for all local authorities before that system can be properly brought in. I hope that that gives him some comfort on the timing that is necessary given that the two things—the fair funding review and the business rates retention plan—are very much interlinked. There will be various staging posts on the way. As always, I am more than happy to sit down with him to take him through those and discuss this further.

[Steve Double (St Austell and Newquay) (Con)]

Much of what my right hon. Friend is saying is music to my ears as well. Does he agree that this is exactly the right time to address the issue of fair funding, because if unfairness gets baked into the system with the retention of business rates, it will basically be there for ever? It is vital that we get this right now, before the retention of business rates goes ahead.

[Sajid Javid]

My hon. Friend is right. As we move to 100% business rates retention and the requirement for local authorities to be more self-sufficient, it is right that we have the correct baselines, and that necessitates a proper review of needs for all areas, including—of course—our most rural areas.

[Simon Hoare (North Dorset) (Con)]

Does my right hon. Friend accept that one of the key bases for this welcome review is the hope that we can eradicate the urban versus rural debate? For those of us who represent rural areas, it is pretty tedious to have that arid debate every year. We are not seeking an unfair advantage for rural areas, merely fairness and transparency. I am certainly encouraged by what he has said at the Dispatch Box this afternoon.

[Sajid Javid]

My hon. Friend is correct. This is not about special treatment for one area versus another; it is about recognising the needs of each area. In more rural areas, there are some obvious differences. For example, sparsity can mean that the delivery of certain services is more expensive, while others might be cheaper. This is about having the right data and being more transparent, and then making sure that those needs are met. That is exactly my ambition in looking at this and making sure that we get it right.

[Vernon Coaker]

Will the Secretary of State give way?

[Sajid Javid]

I will give way once more on this point and then I will have to move on.

[Vernon Coaker]

I thank the Secretary of State for giving way. I do not agree with much of what he has said, but it is a refreshing change to have a Secretary of State who has given way as much as he has today, because that contributes very much to the debate. Whether he is talking about 100% retention of business rates or the fair funding review, there is a key question for local authorities. Gedling Borough Council has a 62% cash reduction—it is the eighth worst affected authority in the country. This is an opportunity to make sure that it can deliver the services that the Government require it to deliver, as so many local authorities across the country are struggling to do.

[Sajid Javid]

I thank the hon. Gentleman for his warm words. The review is about making sure that all areas of England and all local authorities, whether rural or urban, have the right settlement for the long term. Given that the formula has not been looked at properly for years and years now—it is out of date and requires a fresh look—I hope he agrees this is exactly the approach that is required.

Local government funding has to be fair not just to the area itself, but to the people who provide the funds in the first place, including the millions of hard-working business owners who pay business rates. Growing up above the family shop, I saw the impact that an increase in rates can have on small businesses. A rise in the cost lowered the mood of the whole family. Even as a child, I knew that it was not good when I found a stack of bright red final reminders hidden away at the back of a drawer. My dad was never shy about sharing what he thought of out-of-town retail parks and how they took customers away from his shop on the high street in Bedminster. If he were alive today, I am sure that he would be the first to phone and lobby me about the business rates revaluation. In particular, I can just imagine him telling me about how the treatment of large online retailers compares with that of more traditional shops on the high street.

My background helps to explain why I have always been passionate about supporting businesses. It is why as Business Secretary I championed the £6.7 billion relief package that means that some 600,000 small businesses will never have to pay rates again. That is a third of all businesses and the biggest cut in business rates in history.

The current rate revaluation is fiscally neutral. It is not being used to raise a single extra penny for the Treasury. In fact, to do so would be illegal. The amount that most businesses—three quarters of them, in fact— pay will go down or stay the same. As I have said, 600,000 small businesses are being lifted out of business rates altogether, permanently.

Although those three quarters of businesses will benefit or see no change, I am also acutely aware of the impact on the quarter that will see increases. If someone’s rates are going up, it is no consolation to hear that others will be going down. I have long recognised the need to provide support, and that is why we have put in place a £3.6 billion package of transitional relief to help more than 140,000 smaller businesses. However, as colleagues and the media have highlighted in recent days, some individual businesses will face particular difficulties. For example, businesses that are coming off rate relief can face an alarming cliff edge. Independent retailers in some high-value areas are also struggling.

I have always listened to businesses and this situation is no exception. It is clear to me that more needs to be done to level the playing field and to make the system fairer. I am working closely with my right hon. Friend the Chancellor to determine how best to provide further support to businesses facing the steepest increases. We expect to be in a position to make an announcement in the Budget in just two weeks’ time.

[Mr Charles Walker (Broxbourne) (Con)]

As my right hon. Friend trudges around the country, visiting council leaders in various chambers, may I invite him to come to a McMullen pub in Broxbourne? He will be able to meet the chief executive of McMullen, who will explain to him that some of its pubs, which employ many young people in a variety of roles, will see their rates increase by more than 200%. That is not fair. McMullen may not be a small business, but if it has to pay higher rates at that level, it will stop employing young people in my constituency.

[Sajid Javid]

I would be very happy to visit that McMullen pub with my hon. Friend. He highlights the importance of pubs—not just McMullen pubs, but more generally—and it is important for the House to note, as we have done so often, that pubs are more than just businesses. They play a very important part in our local communities, which is why I would be happy to come along and learn more from my hon. Friend and the pub itself.

[Mr Betts]

I have some sympathy with the Secretary of State’s points about revaluation. I accept that it is fiscally neutral and that it reflects the change in property prices, but perhaps the Government did not help themselves by delaying it for two years. He has referred to the difference between business rates for high street premises and those for out-of-town shopping centres. Is he therefore considering a more fundamental review of the whole basis on which valuations are made, to try to better reflect the proper cost to businesses on the high street and in out-of-town centres?

--- Later in debate ---

[Sajid Javid]

I will come to the point made by the Chair of the Communities and Local Government Committee in a moment, but first I will give way to my hon. Friend the Member for Bromley and Chislehurst (Robert Neill).

[Robert Neill]

I hope that the Secretary of State will not think me discourteous if I disappear to chair my Select Committee in a moment. I welcome his statement and the tone in which it was made. Many of us have raised concerns about the issues that he touches on, and particularly about the fact that land values are high in areas such as mine—but that is no consolation to the independent trader on the high street. Will he undertake to meet me and other London and south-east Conservative MPs who have done some detailed work on this, to see how we can best find a constructive way forward?

[Sajid Javid]

My hon. Friend makes an important point about the challenges that businesses, particularly those on the high street, will face in areas such as Bromley. I would be more than happy to meet the leader of his council and other local representatives to learn more about those challenges.

Property-based business taxes have been around in one form or another for many decades—centuries, even. Nobody would argue that the current system is perfect, and it is right to ask whether the time has come for some kind of reform. The Treasury’s 2015 consultation showed little appetite for replacing the whole business rate system. It remains a vital part of the local government finance settlement, and its importance will only increase with the introduction of business rate retention. However, with underlying concerns about globalisation, international tax structures and the struggle between the high street and the virtual world, there is clearly room for improvement. We will look closely at all possible steps to make the system fairer and more sustainable in the short and long term.

[Kate Green]

I welcome what the Secretary of State says about a review. I am sure he will be interested to know of research conducted recently by Revo with intu shopping centres, which showed that business rates were the single largest deterrent to foreign retailers establishing or expanding in the UK. Would he be willing to meet the researchers behind the report to discuss, in the context of the review, what can be done to ensure that the UK continues to be an attractive destination for foreign retailers?

[Sajid Javid]

I want to listen carefully to anyone—any business, individual or Member of Parliament—who has concerns to bring me about the business rate system. I have talked about some of those concerns. The hon. Lady talks about issues to do with foreign retailers and others, and I will gladly look at them. If she wants to furnish me with more information, I will be happy to look at it. I want to make sure that we deal with these challenges. I think we all agree that the tax is not perfect, but it serves an important purpose in funding public services, and we must always look at how we can improve the situation.

[Mr Jackson]

Notwithstanding the fact that there will always be speculative and vexatious appeals, will my right hon. Friend dispel the urban myth that the Government are somehow getting rid of the appeals process? Will he confirm that appeals will continue to be open, fair and transparent for those who are unhappy with their business rate assessment?

[Sajid Javid]

I am happy to confirm that to my hon. Friend. Appeals are a vital part of the system. Businesses must feel that the system has integrity. If they feel for any reason that their valuation could be wrong, it is right that they should be in a position to challenge it. If anything, I want to make the process more transparent and easier for businesses that have a valid reason.

For example, the changes that we have introduced through the valuation office will allow some smaller businesses to go online to check their valuation. If they are in any doubt, they will be able to contact the valuation office directly, either online or through other forms of direct contact, and get the valuation reviewed very quickly. Contrary to the view of some out there that we want to make it harder, I am determined to make sure that businesses have a proper way to challenge the system, because it is their right to do so.

I must conclude, because I want to make sure that colleagues have enough time for debate. This local government finance settlement honours our commitment to four-year funding certainty for councils that are committed to reform; it recognises the costs of delivering adult social care and makes more funding available sooner; and it puts local councillors in the driving seat with a commitment to support them with a fairer funding formula. I commend it to the House.