Local Government Finance Bill (Second sitting)

Steve Double Excerpts

Tuesday 31st January 2017 Public Bill Committees

[The Chair]

We are halfway through the time allotted for this session.

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

Q I know from my term as a local councillor that often, the relationship between elected members in particular and the business community can be quite strained and not always the best. Often, that is because many members have little experience of business. I am interested in your reflections on one thing that I see as a potential benefit of the Bill: strengthening that link between the council and the local business community. It is very much a two-way thing: the council needs to understand the local business community much more, and the business community will see a direct link between the rates that it pays and the benefit of the local community. I am interested in your reflections on that. Do you see that in the same way?

Dominic Williams: First, on the incentive in the system to encourage growth—allowing local authorities to keep 100% of additional business rates generated—our view is that that is not really an effective incentive, for a number of reasons. First, it only applies to the development of new physical property. It is an incentive to permit more development; it is not necessarily an incentive to look after your existing business community. Secondly, throughout much of the country, particularly over the last few years, there has been very little development, so it has been a questionable incentive.

Thirdly, where there has been development, it has tended to be out-of-town shopping centres. The way that the system has worked since the last reform has given local authorities an incentive to give consent to out-of-town shopping centres, which take away trade from the existing town centre. The local authority does not suffer from that, because the people in the town centre carry on paying business rates as normal. That does not get sorted out until you have a revaluation. A number of our members in retail have suffered dreadfully over the last few years through that kind of thing. There are lots of other things wrong with the high street, but that is a contributing factor.

So I do not think that that little incentive works, except in enterprise zones, where it has galvanised everyone. What I think is more important is that if local authorities are correctly funded to do what they are meant to do, they will be supportive of business. If they are underfunded—I do not blame them for this—they have to put the money towards their statutory obligations and cut back on some of their discretionary activities.

I think that there is also a wider question about what happens to activities that are now funded through ERDF European funding. Will they continue to be funded post-2020? If so, who will be responsible for delivering them? It could be that local authorities get that responsibility and get a matching amount in business rates to do it, or it could be done in some other way. We do not know at the moment. There is still a lot to be decided about how this all works.

[Steve Double]

Q I take your point about growth and development. I was more touching on the direct link and the fact that, at the moment, my local business community pay their business rates to central Government. There is no direct connection between them and their local council in how that money is spent, whereas if the Bill comes into force, there will be a direct connection, and the business community will see that they are directly funding the operation of the council. That was more what I was touching on. I take your point about future growth, but I see the current strengthening of that direct relationship.

Sean Nolan: That it includes the kind of richness of the conversation between a local council and its local businesses is undoubtedly part of the positive benefit. It feels like trying to do that is an agenda for every council up and down the country.

The caveat we need to bear in mind—I am afraid this is part of the complexity of what will now have to happen—is that it is not a one-to-one relationship. Because of the existence of top-up and tariffs, what businesses pay may not necessarily go to their local authority and may go elsewhere. That makes managing expectations in the conversation a bit more complicated. However, in theory it definitely adds to the benefit of the conversation, although the one-to-one relationship you describe is a bit confused by the top-up and tariffs.

Christian Spence: The 100% retention on its own has the potential to open up a greater and more transparent conversation between business and local authorities about where the money goes and how it is spent. You are right that most businesses perceive that business rates vanish into a black hole—they have no idea where it goes. However, the 100% retention aspect of this Bill alone will not deal with that. It can enable a better conversation between local authorities and local businesses, but there will be a lot of work to do to develop that aspect.

There is an opportunity in a later aspect of the Bill for greater involvement involving the widening of the bid arrangements to property owners, the Business Rate Supplements Act 2009 becoming applicable to mayoral combined authorities, and specifically the new idea of a mayoral infrastructure levy that is available to those bodies. There is an opportunity in those measures for a direct, two-way, open and honest relationship between the BID and/or the local authority on one side and business on the other, or between the mayor and the greater visibility of local government, which we should see following from 5 May onwards.

That transparency and openness are welcome. The view of businesses across the country is that if local authorities are looking to increase spending or even to levy specifically for additional strategic projects in their areas, business is not necessarily unwilling to pay—the existence of more than 200 BIDs in the country is tacit evidence that that is the case. We are pleased to see the consultation aspect of mayoral infrastructure levies move on from a majority vote of the local enterprise partnership to a wider consultation—that is in the spirit of moving things in the direction that we would like. However, the challenge in the Bill from our point of view is that it stops short of a ratepayer vote against the levy and simultaneously brings forward the wider participation of BIDs to owner-occupiers, and of business rate supplements to combined authorities, which means that the Bill is confusing its own purpose directly in two ways. We are very happy to lay on the table the opportunity for the mayor of a combined authority to levy a tuppence supplement in business rates under the 2009 Act, and to be forced to ballot local businesses to ensure buy-in and support, but, under the mayoral infrastructure levy it can deliver that same tuppence levy without a ballot of the members of the business community. If we are not careful, we will introduce a perverse incentive. Where there are opportunities to increase that engagement and build those relationships, one aspect of the Bill will damage that rather than move it forward.

[Mr Thomas]

Q One suggestion we have heard is that the needs assessment process should be conducted independently of Government. I wondered where the panel stands on that question.

Sean Nolan: Can I play back to the Committee some reflections from when I was involved in policing recently as a treasurer in that world? You will remember that the Home Office went through quite a challenging exercise, looking at new formulae for allocating policing, which ran into some difficulties. One of the bits of feedback that professionally a number of us put in on lessons learned is that the needs bit—the conversation we are having—is about complex statistical modelling. As well as having confidence in the actual indicators in a conversation with the sector, you also need to have confidence in the choice of statistical technique. I therefore think that it is not so much about having an independent element outside of the system. What would be really helpful would be if DCLG read across from elsewhere and brought into the process an independent element, perhaps advising in real time on the choices of statistical techniques, and some kind of independent validation of procedure. I have to say that that would be a confidence-building part of building consensus around what is fair.

Jo Miller: I thought Mr Nolan put it beautifully.

--- Later in debate ---

[Mr Thomas]

Q Do you think there should be an element of independence in the needs assessment process that is being done at the moment, and that might be done at future points?

Professor Tony Travers: The needs assessment process that underpins local government finances has been an element of pressure and complexity going back to the 1920s, but particularly since the 1960s. We are now going to have a reset, after some time without a reset. Any time there is a reset, you would expect—all other things being equal—a big jump in the change, inevitably. The longer you have a period without a change, the bigger the jump between those places that have become needier and those that have become less needy, relatively speaking.

There is another tension here: the longer you leave the period between resets, the more instability you will get at the point of the reset, but you get less within the period during which there is no reset. There is then the issue that the longer you leave it without a reset, the greater the perceived—I stress perceived—unfairness for those that feel that they are being left behind. The truth is that the English system of local government finance has a very high expectation of redistribution buried within it that goes back a long time. There are a lot of pressures from politicians of all parties to make it fair—I am sorry to say this—for their authorities. Fair is more for us—which is fair enough. At the point of the reset, there will always be a war of all against all to get it right for our class and our type of authority. Having said that, I think most politicians centrally and locally would share the view, and I say this again in front of a number of politicians, that that is a reasonable thing to do—that is, to have a system that is seen to be and is fair—but delivering fairness is difficult, particularly at a time when local government finance in total is static or the total is falling.

If you think about it, in the world we are moving to, local government spending will be lower in total in 2019-20 than it is today. At the point of the redistribution—this is also true for schools’ funding redistribution, by the way—it is not as if you are redistributing at a point where it is growing by 6% a year; it is when it is growing. That makes it a far more painful business for Ministers and other MPs, simply because there is less money in the system. It is just a fact of life.

[Steve Double]

Q Something has just come to me while listening to the discussion and following on from the question about granting planning permission for large units. I represent a fairly rural constituency in Cornwall, where we have seen a number of convenience store-type premises that qualify for relief, perhaps small business or rural rate relief, being converted to residential units. I wonder whether there will be an unintended outcome from the Bill and whether there may be an attraction for local authorities to grant permission for change in use to residential. They are not getting the income from the business rates, because of the relief, but they will suddenly get council tax if it converts to a residential unit, therefore increasing their income. Has that crossed your mind and is there anything we can do to try to prevent that happening?

Professor Tony Travers: Before James says anything about his sector, the whole purpose of introducing this system, which, as I said, I broadly sympathise with, is to create more incentives for authorities to think about their economy and to build it up. But it is absolutely the case that, if you face a choice, particularly now there is permitted development—you can change from non-domestic to domestic more easily than in the past—if the small non-domestic property does not pay a tax and the small domestic property would, inevitably, that creates—I am not saying all authorities would take it on every occasion, but it is within the realms of the incentive that you describe.

James Lowman: Alongside that there is a significant incentive to the operator or the property owner. In most cases, that property would be worth more as residential than it would be as a business, although there would be exceptions to that. There has to be a strong and effective planning system and local plans, so that we do not have case by case, site by site conversion from retail to residential. That may have to happen—some high streets may have to get a bit smaller—but it has to be done on a planned basis. It cannot be simply site by site—the lease comes up and it is converted to residential. That way you get very long, incoherent, pockmarked high streets without a clear centre to them. I think it is really important that the planning system mitigates that. As well as the commercial incentive for that to happen sometimes, there may now be—I will leave it to councils to say to what extent that will actually act as an incentive, but I entirely take the point you are making.

[The Chair]

We are just over half way through the session.