Schedule 2 — Amendment of provisions about revenue support grant

Housing (Amendment) – in the House of Commons at 7:45 pm on 24th January 2012.

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Photo of Helen Jones Helen Jones Shadow Minister (Communities and Local Government) 7:45 pm, 24th January 2012

I beg to move amendment 65, page 36, line 42, at end insert—

‘(2A) In determining whether or not to pay a grant to any authority named above the Secretary of State must satisfy him or herself—

(a) that the resources available to any local authority (including payments made under Schedule 1 of this Act) are sufficient to meet the needs of the local authority, and

(b) that there has been no significant change in the circumstances of the local authority resulting in a substantial increase in demand for the authority’s services or for reductions in council tax.’.

The schedule removes the Secretary of State’s duty to pay a revenue support grant and replaces it with a power to do so. Like many measures in the Bill, how that power will be exercised remains opaque.

From the consultation, it seems that the Government propose to use discretionary grant more like a section 31 grant to meet new burdens on local authorities, but the point is that the power in the Bill does not say that. The power is given to the Secretary of State to decide whether or not to pay a grant and there is a real possibility of the gap between the resources available to a local authority and its need growing even further.

I have already quoted the concerns of Yorkshire and Humberside councils about how the baseline was set and the possible gap that will emerge by 2013-14 between the needs of a community and the resources available to it. Their view was expressed reasonably, but many local authorities’ justified fears of increasing gaps are much stronger.

The special interest group of municipal authorities, or SIGOMA, modelled outcomes based on business rates growing at about 4%, which is 1.5% above inflation; council tax growing at 2.5%; and inflation growing at 2.5% over the same period. On that basis, many councils will suffer a real decline in overall income in the first two years of the scheme, first because the increase in business rates will be taken by the Government, and secondly because all local authorities will suffer an absolute decline in 2014-15 as the funding available to local government is reduced overall in line with the Government’s spending review.

In fact, the autumn statement was clear that the Government are not on target to meet their deficit reduction programme until 2016-17, which is much later than first thought. Local authorities will find themselves penalised, because the Bill is clear that the system can operate only within the overall spending envelope set by that programme.

This change—from a system in which grant is paid to one in which there is a dependence on business rate generation—brings with it real concerns. Levy and safety net payments could mitigate some of the impact, but as we discussed earlier, we still do not know properly how the Government will operate them. We have seen no drafts, yet everything is left to the regulations.

As time goes on, the problems with the system will likely become apparent. The Government have failed to consider the different tax base of local authorities, especially because the council tax base does not feature in the Bill. The Government have nothing to say about their role in helping weaker local economies to grow and have shown repeatedly in the debate that they do not wish to take any account of need, yet it is precisely those weaker local economies that are most likely to face the greatest strains on their resources in the coming years.

We have mentioned several times the problem of child poverty. There is a real problem for councils with weaker local economies that need to deal with levels of child poverty in their areas that are well above average. Child poverty is 29% in Hartlepool, for example, and 27% in Liverpool. Those authorities have much greater problems meeting the needs of their populations than those with fewer problems, such as Surrey. But the charities working in this sector tell us that child poverty is likely to increase, rather than decrease, as a result of the measures that the Government are taking. Their cuts to housing benefit, their Welfare Reform Bill, and the cuts in council tax benefit that they are seeking to introduce in that Bill will all increase child poverty.

One example that may have slipped through the net is the increase in the hours needed to work to qualify for working tax credit. That measure alone will affect 200,000 families and is likely to put 400,000 more children into poverty. What will that mean for local councils? It will mean more demands on their statutory social services; more people moving out of private rented accommodation and requiring emergency accommodation, at huge expense to council tax payers; more people unable to pay their council tax; more demand for council services; and less ability to meet the demand.

Photo of Graham Jones Graham Jones Opposition Assistant Whip (Commons)

Will my hon. Friend add to that list that, with a reducing income to pay for those needs, those authorities will have less opportunity to invest in business infrastructure to attract businesses—the inverse of what will be happening in the net beneficiary authorities?

Photo of Helen Jones Helen Jones Shadow Minister (Communities and Local Government)

My hon. Friend is right. Instead of a virtuous circle, authorities could end up in a vicious circle that spirals further and further downwards.

If we look at unemployment figures, we see the same problem facing particular local authorities. Unemployment is up 6.9% in Yorkshire, Humber and the north-west. In Denton and Reddish—my hon. Friend Andrew Gwynne is not in his place at the moment—it is up 14.5%. In Derby South it is up 16.7% and in parts of Newcastle it is up by 14.6%. All of those are authorities that have already experienced huge cuts in their spending power under this Government and are likely to see further cuts in their resources as the scheme proceeds.

It is estimated that by 2016 the disparity between the richer and poorer areas will become apparent. After 10 years, which is when the Government propose to reset the scheme, the gap between the affluent areas and the poorer ones will be wider still. The Government have said that no council will lose out at the start of the scheme. What will happen in year three, year five and year 10? No one knows, but in the meantime the Government expect local councils to pick up the consequences of their failed policies, policies that are designed to hit the poorest people in the poorest communities. That is why we have tabled the amendment, which would provide that the Government, when deciding whether to pay a grant, must ensure that the resources available to a local authority are sufficient to meet its needs and that there has been no significant change in circumstances that has led to a significant increase in demand for services or reductions in the amount of council tax collected.

The second part of the amendment is designed to tackle the kind of problem that occurs, for example, when a major employer closes down—we discussed that earlier. What happens then is that unemployment leads to more demand for services from councils and a loss in revenue, because more people qualify for council tax benefit at the same time as the council has lost business rate income. How is a local council to cope with that under the system the Government propose? The council will lose rate revenue and council tax, and even if it is successful in attracting new businesses, they will not come in immediately. If, as is often the case, those new businesses are small and medium-sized, they will not generate the same level of business rate. Safety net payments will not kick in until the following year and we do not know whether they will be sufficient to replace the loss of income. We do not know, because the Government will not tell us the basis for their calculation.

The Secretary of State should use his power to pay a grant where there is a real gap between needs and resources. If not, we will see—we have made the point throughout discussion of the Bill—the gap between rich and poor increase. The motto of this Bill seems to be to them that hath shall be given, but that is not the way to run services, especially statutory services, in a civilised society.

Photo of Graham Jones Graham Jones Opposition Assistant Whip (Commons)

Does my hon. Friend agree that it is grotesquely unfair that constituents in those poorer areas are paying for goods and services, the profits from which furnish plush offices and pay high executive wages in the likes of Westminster and the City of London? The poor are effectively paying the rich, because there are no head offices in deprived local authorities. Westminster and City of London will be able to keep those resources and that is grotesquely unfair.

Photo of Helen Jones Helen Jones Shadow Minister (Communities and Local Government)

My hon. Friend raises a point that I had not considered before, but he is right about that effect. Part of the problem in this country is that headquarters of major companies are often concentrated around London and the south-east, unlike many other economies, in which it is common for major companies to have their headquarters in the regions. There is huge unfairness built into the system that the Government propose.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight

How many headquarters are there on the Isle of Wight, which is in the south-east?

Photo of Helen Jones Helen Jones Shadow Minister (Communities and Local Government)

I did not say that they were in every constituency: I said that they are concentrated in London and the south-east, which is a plain fact.

In any case, we do not believe that this is the way to proceed. If the Government do not take steps to tackle the gap—and those steps are not set out in the Bill—services in many councils will decline, while others are able to reduce, even abolish their council tax as time goes on. We will therefore seek to divide the Committee on the amendment later, and I commend it to my hon. Friends.

Photo of George Howarth George Howarth Labour, Knowsley

I rise to support my hon. Friend Helen Jones on amendment 65, which encapsulates an important principle. The 2012-13 settlement, which will be used as the baseline for the new finance system that is to be introduced, has a number of problems that will affect areas such as Knowsley disproportionately—we have already heard examples from other areas.

It is important for Knowsley in particular—and I hope the Minister will comment on this when he replies to the debate—that the system is based on the damped allocations, including the grant floor, as that will lock £6 million in for Knowsley, which is a very important sum of money. The baseline also needs to consider the scale of cuts faced by some local authorities in the recent multi-year settlement which, as my hon. Friend has said, targeted some of the most deprived areas in Britain, including Knowsley. It is worth reminding the Committee that Knowsley’s cut in revenue spending power per head of population in 2011-12 was £156.09 compared with the average in England as a whole of £49.18.

If the Secretary of State were here for this debate, he would be sitting there smiling and might even be tempted to say, “The point we’re trying to make with this Bill is that local authorities such as Knowsley should go out and promote their businesses, get more inward investment and shore up the business rate, the benefits of which would offset some of these problems.” However, the difficultly is, first, that that does not address the fact that we cannot switch around economic activity in a given area in a short space of time. We can do it over time, and Knowsley has been quite successful in retaining major industries. Earlier I quoted the example of Jaguar Land Rover, which has remained in Knowsley; indeed, it has grown, with new products and a major recruitment programme last year. New businesses can also be attracted, which is what we did with QVC, a massive business, employing about 1,500 people in Knowsley, and a major contributor to the business rates of the borough. However, doing that takes time, and such changes cannot be made in a short space of time.

Added to that, the current difficulties that this country faces—I do not propose to get into a debate about their cause, although I am happy to do so if anyone wants me to—means that areas such as mine face more distress than would otherwise be the case. In turn, that will affect the needs of the area, which is why it is important that a provision such as that contained in amendment 65 should be inserted into the Bill. I want to give the Committee some information about the impact that not making such an amendment will have on areas such as Knowsley. Knowsley would support the commitment to uprating the tariffs and top-up by inflation under the proposed scheme—we talked about that earlier, but it is important that that should be included in the scheme when the Bill is enacted. At the moment, we are not entirely clear how all that will work or how it will affect some areas as compared with others.

However, what we do know, on the basis of the information that is available, is that under the Government’s proposals, local authorities such as Knowsley will be left behind by the wealthier authorities. Those authorities can easily recover from current reductions in resources—which is what took place in the comprehensive spending review—because they already have larger tax bases but we cannot will such a recovery instantly into existence in areas such as Knowsley. Areas with large tax bases find it easier to recover what has already been taken. Also, as I said earlier—although it bears repeating—the process will carry on. It is not as if it will last only one, two or three years. In the case of Knowsley, we will still face year-on-year reductions in resources of more than 5%. Indeed, after 10 years of the proposed system, we would still be facing annual reductions of 3.8%. This is therefore a serious matter for areas such as Knowsley.

I do not know whether the Minister has seen the excellent briefing that SIGOMA—the special interest group of municipal authorities—provided for MPs last week, but if he has not, I would very much commend it to him. That briefing shows the top-up and tariff updated by RPI on the current, known operation of the Bill. I accept that there is still some room for elaboration and illumination, but the briefing tells its own story. The authorities with the lowest funding growth are Liverpool with 21.9%, Knowsley with 21.9%, Bury with 21.1%, Wirral with 21%, and South Tyneside with 22.7%. Those statistics alone are fairly meaningless, unless they can be compared with those for other areas—this comes back to the wealthiest/poorest area argument. Guess which authorities, and where they are, will have the highest funding growth: the City of London with growth at a staggering 139.6%, Westminster with 90.7% growth, Hillingdon with 40.6%, Camden with 37.5%, and Kensington and Chelsea with 34.5%.

Therefore, when my hon. Friend the Member for Warrington North makes the point, which she made very effectively, that the most deprived areas are the most disproportionately affected, that is not windy rhetoric on her part—she is never one for windy rhetoric, and I would never dare make such a suggestion. Rather, it is based on fact. The available information, which has been provided by a range of organisations, including SIGOMA, shows that she is entirely correct in that assumption. The reason it is necessary to set out that background is that the amendment would require that needs, as they change over time, should be taken into account.

I will not rehearse all the difficulties that we face in Knowsley, because we have struggled with the problem, both under the previous Government and through the local authority, for many years. However, most of those problems and most of the needs that we want addressed through the local government finance system arose in the 1980s, when the industrial areas of Kirkby and the parts of Huyton that were based on industry collapsed. They collapsed because the economy was in a deep recession. There was high unemployment, reaching as high as 50% or 60% in some parts of Knowsley—staggering figures that it was almost impossible to deal with. The industrial base shrunk dramatically as a result of closures. For example, the Birds Eye factory closed in the late 1980s with the loss of 1,300 jobs, and we also lost major brand-name companies such as Hygena. That happened not because of anything that the work force did wrong or because those companies were burdened by red tape or excessively high business rates, but because of the economy and the recession at the time—I mentioned just those two closures, but I could quote a long list.

The consequence was that the needs of boroughs such as Knowsley grew enormously over that period. Indeed, the out-workings of those problems still exist today, in the form of a low skills base, welfare dependency, the poor health that is associated with long-term unemployment and benefit dependency, and so on—the list could go on and on. Indeed, my hon. Friend Steve Rotheram is now in his place, and there are parts of his constituency where the same problems exist. In fact, they exist on an even greater scale in some areas, as parts of his constituency were also former industrial areas. However, the argument that I am making, which is not unfair or unreasonable, is simply this. We cannot turn the clock back in areas such as Knowsley and expect business or those industries to be recreated at the same rate at which they retracted in the 1980s and early 1990s. It is a long-term project.

In the meantime, without that economic expansion, which is incremental, slow and difficult to manage, we still have those needs, which will be unmet unless the local government finance system works in such a way that there is redistribution from wealthier areas to those in the greatest need. We are confronted with the very reverse of that, however. The areas that will be the most disproportionately and adversely affected are those with the greatest needs, and those that will be the most rewarded and that can most easily cope with the changes are those with the fewest needs.

Photo of Steve Rotheram Steve Rotheram Labour, Liverpool, Walton 8:00 pm, 24th January 2012

My right hon. Friend is making a powerful point about the needs of specific areas, and he is correct in saying that Liverpool, Walton now has, unfortunately, the fifth highest level of unemployment in the country. Liverpool as a whole therefore needs more support. How does he think the Government can justify the fact that, proportionally, places such as Liverpool have been hit the hardest and that Liverpool has had to take a cut of £141 million in the past two years?

Photo of George Howarth George Howarth Labour, Knowsley

I shall give my hon. Friend two possible answers to his question, and I shall leave him to decide which is correct. The first possibility is that the Secretary of State and the Ministers responsible for this Bill genuinely believe that areas such as mine and that of my hon. Friend have the capacity create to economic growth—a bit like turning on a tap—and to widen the tax base and increase the revenue that they get through the business rates. They might also think that we are not doing enough to attract new investment into our areas. My hon. Friend and I know that that is not the case, however.

The alternative answer was put forward in very explicit terms by my hon. Friend Mr Jones earlier. It is that these measures are a crude way of rewarding those areas that send Conservative and Liberal Democrat MPs to this House and penalising those that do not. To put it even more crudely than my hon. Friend the Member for North Durham did—although I am not entirely sure that that is possible—I think that the Government are rewarding their friends and penalising their enemies.

I am not standing here as the representative of the Knowsley constituency to cry crocodile tears or to wave around the levels of deprivation that exist there. Those are facts. This is not a question of sentiment or of special pleading. The reality is that, as a result of historical events, some of which took place at least 20 years ago, we have problems and, as a result, we have needs. Unless the Bill can satisfy me and the people of Knowsley that those needs will be taken into account when the grant formula is determined, the more bleak interpretation that my hon. Friend the Member for Liverpool, Walton drew out of me a moment ago will be the inescapable conclusion.

I hope that the Government will accept the amendment, either here or in the House of Lords, later in the proceedings. They must not fall back on the argument that we heard earlier, when they said, “Don’t worry, we’ll take all this into account in the regulations. It will all become clear then.” The risks involved are so great for my constituents and for the local authority in Knowsley that it is impossible for me to accept those assurances. I do not believe that they have been given dishonestly. I accept that they have been given in good faith, but I have been around long enough to know that promises made in the heat of the moment in Committee in response to concerns about specific provisions have a habit of getting lost in the ether later. We need clarity, but we need it now. Local authorities are expected to plan on a long-term basis to meet their needs and determine their expenditure on services. Without that clarity, we will find ourselves in a position, some years down the line, in which the worst possible interpretation that we can put on the Bill will be the nightmare reality.

Photo of Andrew Stunell Andrew Stunell The Parliamentary Under-Secretary for Communities and Local Government 8:15 pm, 24th January 2012

The descriptions I have heard of myself today have varied enormously. Jack Dromey described me this morning as a Leninist, and earlier in these debates Mr Jones sought to name a street after me and suggested that I might be pickled. I want to respond to this debate using neither the extreme ideology of the left nor the extreme ideology of the right. I want simply to say that we have brought to the Committee a set of proposals to give local authorities control over their resources for the first time in 30 years, including not only their council tax but their business rates.

I can understand, and will respond to, the concerns that have been expressed about the precise details of the proposals. However, hon. Members will not be able to interpret correctly what we are doing if they make assumptions about an ideological direction, other than the ideology of localism, which involves getting decisions and money out of Westminster and Whitehall and returning them to town halls and local communities.

I cannot accept amendment 65, because it would place a requirement on the Secretary of State to undertake an unnecessary assessment of need, which could risk undermining our objectives to create long-term certainty for a strong growth incentive and to reduce local authorities’ dependence on central Government grants. Need is already incorporated as an important part of the system, and the different circumstances of authorities will be taken into account as the scheme is set up.

Photo of Graham Jones Graham Jones Opposition Assistant Whip (Commons)

Has the Minister made any assessment of the risk management carried out by local authorities, and of how much money they will have to put aside as a contingency to deal with any liabilities or deficits that they might incur as a result of the Bill? That could involve housing benefit, council tax and non-domestic rates. Has he assessed how much money councils will need to bank as a contingency measure?

Photo of Andrew Stunell Andrew Stunell The Parliamentary Under-Secretary for Communities and Local Government

The hon. Gentleman’s point was raised in an earlier debate on the way in which local authorities will assess the risks that are inherent in any new proposals, and in these ones in particular. In my time, I have served on three different local authorities and with about eight different chief finance officers, and their approach to these matters was that although they might get a bonus if there was money in the bank at the end of the year, they would be likely to get the sack if there was none. The job of those who control local authorities—the democratically elected representatives—is to strike the correct balance between the risks calculated by a chief finance officer and the real risks in the real world. I hope that the hon. Gentleman will be a force for good in that regard, and that by the time I have finished speaking, he will see that some of his worst fears have been grotesquely exaggerated. I hope that he will understand that there are real opportunities for every local authority in England to benefit from the system that we are bringing in.

Photo of Graham Jones Graham Jones Opposition Assistant Whip (Commons)

My local authority, Hyndburn borough council, has put away almost £1 million as a contingency for the next three or four years, mostly in anticipation of the passage of this Bill. Will the Minister comment on that, because it refutes the suggestion he has just made?

Photo of Andrew Stunell Andrew Stunell The Parliamentary Under-Secretary for Communities and Local Government

Actually, it confirms it absolutely. In another debate, the hon. Gentleman and I had an interesting discussion about whether he was receiving good advice from his council about housing policy and it transpired that he was getting very poor advice. If we were having another debate, I would ask him whether his local authority had now registered as a registered provider of housing, as it was failing to do so and was therefore losing out on opportunities for Government money. Given that fact, I would not necessarily accept that the decision it has taken to retain money in its accounts was based on the soundest available interpretation of its future financing.

Need is already incorporated as an important part of the system and the different circumstances of authorities are taken into account. I shall give some practical examples in a minute or two. Local authorities’ baseline funding levels will be set on the basis of the 2012-13 formula grant process. To pick up on the points made by Mr Howarth about damping, floors, ceilings and so on, we consulted last year and asked consultees for their views on retaining damping. He will, perhaps, not be completely surprised to hear that the answers depended strongly on whether the writers were recipients of the benefit of damping. We have considered that carefully and we are minded to retain the current damping in the assessment of formula grants, so I hope that will provide some reassurance to him and to his local authority. I know, however, that there will be others in the House for whom it will be a major disappointment.

Photo of Andrew Stunell Andrew Stunell The Parliamentary Under-Secretary for Communities and Local Government

I shall take an intervention, but perhaps the direction these interventions are coming from will give the right hon. Member for Knowsley a little comfort.

Photo of Andrew Turner Andrew Turner Conservative, Isle of Wight

Will the Minister explain to me why floor authorities that get extra grant above that determined by the formula through damping will be protected whereas councils such as my own on the Isle of Wight will not? Secondly, will the costs of concessionary fares and rurality on the island be properly accounted for?

Photo of Andrew Stunell Andrew Stunell The Parliamentary Under-Secretary for Communities and Local Government

I thank my hon. Friend for raising all those points. As I predicted, clearly a decision to retain damping benefits some local authorities and is to the disbenefit of others. The Government have announced their view and I am sure that my hon. Friend will find ways to express his disappointment at a later stage. On the other points, as my right hon. Friend the Secretary of State has made clear, the calculation of the formula grant figures will take account of new data, such as that from last year’s census, and will take a view on what might need to be done on concessionary fares and rurality. We have made that point, but nevertheless the foundation stone will be the formula grant figure for 2012-13, as amended by the measures in the points I have just made. The calculation of tariffs and top-ups will therefore be based strictly on that and will ensure that local authority funding at the outset of the scheme is in line with that assessment of relative needs and resources.

Photo of Annette Brooke Annette Brooke Liberal Democrat, Mid Dorset and North Poole

I thank the Minister for giving way, and this is a genuine question. Is it not true that the baseline funding will have taken on board the council tax base? Was that not reflected in previous formulae? An authority such as mine, for example, would naturally get less formula grant because of its council tax base.

Photo of Andrew Stunell Andrew Stunell The Parliamentary Under-Secretary for Communities and Local Government

My hon. Friend is right and I will bring some of the facts and figures to the attention of the Committee in a moment or two. I hope that will reassure not just her but Opposition Members about the impact of the scheme.

Once the baseline is set—for shorthand, let us say that it is set at formula grant level—it remains fixed in place and in amount, in real terms, until there is a reset. We have already said that that figure will be uprated by RPI to effect that. In advance of any reset, protections will be built in for those authorities that are less able to respond to the growth incentive. For instance, there will be the safety net payments we have already discussed, which will apply to any local authority that sees its income drop by more than a set percentage below its baseline funding level.

Photo of Helen Jones Helen Jones Shadow Minister (Communities and Local Government)

The Minister and his colleagues keep talking about the growth incentive, so will he now answer one simple question to which we cannot get an answer from any of his colleagues? What does he think local authorities will do differently under his scheme from what they do now? The point has been made again and again that most local authorities are constantly seeking to attract new jobs and new investment.

Photo of Andrew Stunell Andrew Stunell The Parliamentary Under-Secretary for Communities and Local Government

Similar questions were asked about the Government’s decision to apply the new homes bonus to empty homes. We were asked what possible difference that could make, but it has reduced the number of empty homes by 21,000 this year and, as I go around the country, I find that local authorities are, for the first time, seized with the importance and necessity of tackling empty homes because that is an income stream for them. That will definitely be the case with local authorities in this situation. Indeed, the Opposition have given some illustrations that suggest that they rather fear that it might. There have been questions about whether the measure will prohibit the redevelopment of sites if authorities cannot keep the business rate income coming in. Opposition Members see that the perception about receiving a business rate income will be a significant consideration for local authorities of all kinds.

Photo of Steve Rotheram Steve Rotheram Labour, Liverpool, Walton

It appears that the Minister is trying to advance the argument that that there are local authorities that are not interested in attracting inward investment. Can he name one?

Photo of Andrew Stunell Andrew Stunell The Parliamentary Under-Secretary for Communities and Local Government

I am certainly not going to name an authority that is failing to get its inward investment, but I invite the hon. Gentleman to frame his remark and revisit it in four years’ time, when he will see the results of the change we are introducing.

One of the central criticisms of the Bill has been based on a misunderstanding of what happens at the moment and a deep pessimism about what it is possible to achieve in the future. Let us look at the area of Steve Rotheram. In the four-year period from 2005-06 to 2009-10 the average annual increase in business rates in Liverpool was 8.2%. It absolutely is not the case that Liverpool loses out by getting business rates instead of formula grant. The hon. Gentleman might like to ask the treasurer at Liverpool what the annual average increase in formula grant was at that time, because that is what we are comparing—formula grant that is delivered to Liverpool and dictated by Whitehall against a business rate income that is in Liverpool’s hands. As I have said, the increase in those four years was 8.2% and I challenge the hon. Friend to say that the outgoing Labour Government were as generous as that. Let us not automatically assume that because an authority has difficult and challenging circumstances it is not possible for it to have increases in rates or that that is not happening.

Photo of Andrew Stunell Andrew Stunell The Parliamentary Under-Secretary for Communities and Local Government

I will give way to the hon. Lady in a moment, but I want to mention Knowsley first. The right hon. Member for Knowsley has done a very good job of illustrating the challenges faced by his council and his residents. He made the point that he has a number of large employers and he has understandable anxieties about the possibility of extreme volatility that that introduces. However, in the four-year period I have mentioned, Knowsley had an annual average growth of 8.7% in its business rates. Again, I invite him to talk to his chief finance officer and find out whether the formula grant increase for Knowsley under Labour was higher or lower than 8.7% per year. I hope that gives yet another illustration that it is not necessarily the most challenged or challenging authorities that face the losses he fears from the transfer of decision making and money from Whitehall to the town hall

Photo of Andrew Stunell Andrew Stunell The Parliamentary Under-Secretary for Communities and Local Government

I shall give way to the right hon. Gentleman and then to the hon. Lady.

Photo of George Howarth George Howarth Labour, Knowsley

I need to make two points. First, when I spoke earlier I made the point that as far as I know there is no danger of the two companies I mentioned—Jaguar Land Rover and QVC—not surviving and prospering in future. I mentioned them merely as examples of the sort of investment Knowsley has been able to attract and I was not saying that the inherent volatility is likely to come about because either of them will close. Secondly, the Minister suggests that I should talk to the director of finance at Knowsley, but my speech was based largely on a discussion I have already had with the director of finance. Given the current circumstances, he does not think that the kind of investment we have been able to attract in the past can be guaranteed in future.

Photo of Andrew Stunell Andrew Stunell The Parliamentary Under-Secretary for Communities and Local Government

On the right hon. Gentleman’s first point, I agree and I am sorry if any of my remarks conveyed a different impression. He is absolutely right that the issue is not about the future of particular companies in his constituency. On his second point, it is a good idea for me to tackle this issue of need head-on, as the amendment is about need.

Photo of Helen Jones Helen Jones Shadow Minister (Communities and Local Government)

I am very grateful to the Minister for giving way, but I have to say that he is advancing an entirely specious argument. He is comparing growth at a time when the Labour Government were investing hugely in cities such as Liverpool and when the economy was growing with a time when that investment has been mostly withdrawn under this Government and the economy is flatlining. Anyone who seriously thinks we will get the same amount of growth in the next—

Photo of Helen Jones Helen Jones Shadow Minister (Communities and Local Government)

No, the Minister quoted the actual growth in business rates. Anyone who thinks we are going to get the same amount of growth in the next few years is living in cloud cuckoo land.

Photo of Andrew Stunell Andrew Stunell The Parliamentary Under-Secretary for Communities and Local Government

I invite the hon. Lady to check her diary carefully and see exactly when it was that we had to buy all the banks because they had gone bust.

I want to contrast Knowsley with another local authority. Knowsley gets £1,225 per resident in formula grant. I am sure the right hon. Member for Knowsley would say that is not enough, and I understand his point of view, but I want to draw his attention to Wokingham, which is often prayed in aid as one of those rich southern places that benefits from an unfair system. Wokingham had a 3.3% growth in its business rates in the period I have mentioned against Knowsley’s 8.7%, and whereas Knowsley got £1,225 in formula grant per person, Wokingham got £686. That is being built into the system.

Graham Jones said he thought the Government were behaving grotesquely unfairly. He may think that, but I have hon. Friends who think that that outcome is grotesquely unfair for a different reason. We have a system that recognises need, albeit imperfectly and even though we have built in damping, which suits the right hon. Gentleman but does not suit my hon. Friend Mr Turner. The differences are entrenched in the system and it is important that if the Opposition make criticisms—understandably, because that is their job—they should be based on a sense of reality.

We are introducing a scheme that provides an incentive for growth and localises decisions over the money that local authorities can spend. That growth and localisation is very much better than local authorities standing as beggars at the door of Whitehall, year after year, saying, “We want more money.” Surely it is right that those who have the money can decide how to spend it and those who can promote growth have opportunities not only to do it but to benefit from it.

What about Westminster? The right hon. Gentleman prayed it in aid. Let us be clear: he should rejoice when Westminster gets loads of business rate. Why? Because the authority keeps only the baseline figure. It will keep only its formula grant figure. All the rest will go to help Knowsley, among other places—[ Interruption. ] Helen Jones says it is not true. I am not sure whether she is accusing me of deceiving the Committee.

Westminster gets its formula grant and the rest goes back into the pot. When Westminster has growth, it will be able to keep some of it. If it has disproportionate growth, it will be taken away in the levy. Two things will affect Westminster: it will get only the equivalent of its formula grant in its baseline, and when growth comes, any disproportionate growth will be taken away to fund the right hon. Gentleman’s safety net.

Photo of George Howarth George Howarth Labour, Knowsley

Let me make it clear. I am not arguing that Westminster, Wokingham or even the Isle of Wight should be penalised in any way. That is not my point. By making invidious comparisons, the Minister makes the case for the amendment. We are saying not that everybody should get the same, but that what they get should be based on rigorous analysis of the needs of individual areas.

Photo of Andrew Stunell Andrew Stunell The Parliamentary Under-Secretary for Communities and Local Government

The right hon. Gentleman should be careful about making that argument; I might be tempted to take away his damping. That would be the unchallengeable fact in what he said.

Photo of John Healey John Healey Labour, Wentworth and Dearne

The Minister may have meant it lightly, but he has just said a serious thing. It suggests that Ministers in this Government make arbitrary and personal decisions about the funding going to local councils, that are not based on any fair, open or objective formula.

Photo of Andrew Stunell Andrew Stunell The Parliamentary Under-Secretary for Communities and Local Government

That is of course wilfully misunderstanding the point I made. The damping mechanism means that Knowsley does not get what the Labour Government decided it should get if the formula of need was applied correctly. The damping formula is protecting Knowsley from full implementation of the needs formula that the Labour Government introduced, and the right hon. Member for Knowsley wants me to keep it. Let us be quite clear. I am sorry if my lightly enunciated remark was taken as meaning anything other than that the right hon. Gentleman advanced a contradictory argument to the one he was making a few minutes ago.

Photo of George Howarth George Howarth Labour, Knowsley

I suggest that in the morning, when the Minister has a quiet moment—I am sure that he has them in his life—he reads the Hansard for this debate; he can then decide which of us is being contradictory. For the purposes of absolute clarity, and following the point that my right hon. Friend John Healey made, will the Minister make it absolutely clear that his was a light-hearted debating remark, and that he does not intend to penalise Knowsley in the way that he described?

Photo of Andrew Stunell Andrew Stunell The Parliamentary Under-Secretary for Communities and Local Government

I am disappointed with that, I have to say. I said very clearly that the Government have reached a settled view about including damping in the formula grant system; I hope that that is very clearly on the record.

Let me turn to the part of the amendment that relates to what should happen to revenue support grant. We are talking about funding outside the local share of the rates retention scheme. We could only use the revenue support grant for other matters. For instance, in the financial year 2013-14, the most likely recipient will be Local Government Improvement and Development. Perhaps the scale of these things needs to be understood: £27.8 billion is being distributed through formula grant—the amount that will, in future, come through the business rates retention scheme. Local government receives funding from outside that, from departmental budgets. For instance, under the provisional settlement for the coming year, the learning disability and health reform grant will be £1.36 billion; that comes from the Department of Health. The local sustainable transport fund will be a much smaller figure—£100 million—and comes from the Department for Transport. The preventing homelessness grant will be £90 million, and comes from the Department for Communities and Local Government. In the great majority of cases, it would be completely inappropriate to do what is suggested in amendment 65 and run those through a needs assessment.

Photo of Helen Jones Helen Jones Shadow Minister (Communities and Local Government)

I am sorry, but most of the grants that the hon. Gentleman mentioned could not be run through needs assessments, because they are paid by other Departments, not by DCLG. The amendment relates to DCLG.

Photo of Andrew Stunell Andrew Stunell The Parliamentary Under-Secretary for Communities and Local Government

I think that the hon. Lady is asking a question about revenue support grant, and that is the answer that I am giving her.

The Government have strongly endorsed the previous Government’s policy that new burdens imposed on local authorities should be funded directly by central Government. We would therefore want a more tailored assessment of how those new burdens fall, rather than a needs assessment process.

The amendment misses the mark entirely. The speakers in this debate have started from a position of understandable oppositional attack on the proposals that we have introduced, and have entirely missed the point of what we are doing in returning power and opportunities to local authorities. Their fears for their individual authorities are misplaced. With that explanation and assurance, I hope that the hon. Lady will choose to withdraw the amendment.

Photo of Helen Jones Helen Jones Shadow Minister (Communities and Local Government)

I want to respond to what the Minister said, because I am not entirely sure, having listened to him, whether he has understood what is in the Bill that his Department has brought before the Committee. First, he tells us that the Bill hands control of business rates back to local authorities, but it precisely does not do that; the Secretary of State decides the central and local shares for each authority. The Minister also told us that need was in the system. Well, it may be somewhere in the system in his mind, but it is certainly not in the Bill. It appears nowhere in the Bill, and the Government have rejected every amendment that tried to put it there.

Secondly, the Minister kept quoting the growth incentive for local authorities. Throughout these debates, no one on the Government Benches has been able to tell us what they expect local authorities to do differently under the new system from what they are doing now. He also talked about local authorities giving all their growth, if they are a high growth area, to other authorities, but that is not what the Bill does. That ignores the gearing effects. Local authorities with a high tax base will gain more from the same amount of growth than an authority with a low tax base.

It is true that there is a levy on local authorities. That does not take back all the growth from a local authority, nor does the top-up and tariff system. Let me tell the Minister again that the levy takes back part of the disproportionate growth. It does not take back all the disproportionate growth. The logic of that is that some authorities grow at a higher rate than others. The problem is that the Government will not accept that the effect for some local authorities might be a huge gap between needs and resources.

Once again, we are asked to give a blank cheque to the Secretary of State to distribute grants in whatever way he thinks fit. There are a number of objections to that. We will be told, no doubt, that the Secretary of State will do that fairly, and that he is a benign, generous and wise individual. His record so far on local government finance would not support that view. Even if we believed that, there are whispers that he might not be in that post very long. However, in the Bill we are giving power not to an individual, but to an office holder, with no checks and balances whatever in the system. I am amazed that Conservative MPs, who constantly lecture us about the growth and overweening power of the state, are prepared to cede such power, with no checks and balances in the system.

What we heard from the Minister in his winding-up speech is cloud cuckoo land. It is nothing to do with what is in the Bill. Perhaps it is an aspiration, like not raising tuition fees, but we want to see these things written into the Bill. For that reason, we will press the amendment to a Division.

Question put, That the amendment be made.

The Committee divided:

Ayes 214, Noes 288.

Division number 438

See full list of votes (From The Public Whip)

Question accordingly negatived.

Schedule 2 agreed to.

Clauses 3 to 5 ordered to stand part of the Bill.