New Clause 5 — Re-set of the system

Housing (Amendment) – in the House of Commons at 9:04 pm on 24th January 2012.

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‘The Secretary of State shall establish a mechanism to allow local authorities to make representations on whether they believe a re-set of the system is required. The Secretary of State shall, prior to the publication of the Local Government Financial Report in any year, give consideration to any representations he has received and must lay before the House of Commons a report detailing—

(a) any representations he has received from local authorities on whether it would be appropriate to re-set the system, and

(b) his or her decision on such representations and the reasons for that decision.’.—(Helen Jones.)

Brought up, and read the First time.

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

I beg to move, That the clause be read a Second time.

Photo of Sir David Amess Sir David Amess Conservative, Southend West

With this it will be convenient to discuss new clause 7—Resets of the non-domestic rates retention system

‘(1) The Secretary of State shall be required to make arrangements for a “reset” of the non-domestic rates retention system every three years.

(2) Any such reset must include consideration of—

(a) relative spending needs of each authority,

(b) relative resources available through council tax income,

(c) relative resources available through non-domestic rates.

(3) The assessment of relative need shall be determined in full consultation with local government.’.

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

It is nice to see the Minister in his place after the time he spent quivering with fear in the Lobby.

Having convinced a junior Minister of new clause 2, I hope to convince the rest of them of the values of new clauses 5 and 7. The new clauses attempt to tackle the difficult problem of how often the system should be reset by requiring a reset every three years and by establishing a mechanism to allow local authorities to make representations on resets.

All hon. Members accept that there must be a balance between having stability in the system and coping with change, but a system that leaves it too long without a reset will simply increase the disparities between local councils and penalise those in greatest need. The long gap that the Government want will increase the dislocation between the resources available and the funding needed for local services, which we have discussed. There is therefore a possibility that service provision will become a postcode lottery depending on the demands made on a local council and on whether it has been successful in attracting new business.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Health)

Like me, my hon. Friend might have seen SIGOMA research that shows that all councils face a drop in their income when such changes are introduced. The research also shows that over the first five years of the 10-year period, a number of councils manage to make surpluses, but some do not. By the end of year 10, there is a huge disparity between the richest and the poorest authorities. Is not that the basic unfairness of the Bill?

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

My hon. Friend highlights the problem throughout the Bill, but the longer the period between resets, the worse it gets. It is not clear what the Government plan, but in their response to the business rate consultation, Ministers say it is their aspiration to have a reset every 10 years.

Photo of Dave Watts Dave Watts Labour, St Helens North

It is bad enough that the Minister is introducing a Bill that means that no hon. Member can work out the effect on their local communities and constituencies, but is it not even worse that he will also leave it for 10 years before he looks to reassess the situation?

Photo of Helen Jones Helen Jones Shadow Minister (Communities and Local Government) 9:30 pm, 24th January 2012

My hon. Friend, who is a clear expert in local government finance makes a valid point—[ Interruption. ] He certainly is, and he ran a very successful local authority.

Throughout proceedings on the Bill, we have tried to get some certainty. But there is no certainty about resets. It is not certain whether the Government’s aspiration will become a policy. The period is too long, and I suspect that in making it only an aspiration, the Government know that and are providing a get-out clause. They will not publish all the responses to their consultation, just a summary, but we know that the majority of respondents wanted a maximum of five years between resets, and many wanted a shorter period. This seems to have had no influence on the Government.

The problem with a 10-year reset is that all the modelling shows that the gap between the richer and poorer authorities will increase, and the Government have rejected all attempts to link resources with need. Indeed, the baseline for the redistribution of business rates is the current local government financial settlement, which has already created disadvantage, whatever the Under-Secretary might seek to tell us.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Health)

I am sorry to intervene again, but this issue is a hobby horse of mine. The general unfairness of the baseline locks in the in-year cuts that we saw in 2010-11, and the very poor settlements that Tameside in particular will receive in 2011-12, 2012-13 and 2013-14, so that those will be the baseline for the 10 years of this business rate redistribution.

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

My hon. Friend makes a very good point and I have discussed with representatives of his local authority how badly they will be affected by this. No one will believe the Under-Secretary when he tells us that fairness is built into the system and that the Government will take account of need. A man who cannot even find the right Lobby is not likely to be believed to be an expert on local government finance.

Many of the councils who will suffer most have the weakest economies, the highest unemployment and significant barriers to business rate growth, so it is likely that they will be caught in a spiral of disadvantage, with local people paying the price. Labour Members have a real fear that the link between resources and needs, which has already been eroded by this Government, will be undermined further. Authorities with a high tax base will benefit more from the same amount of growth than those with a low tax base, even after taking levy payments into account.

No account is being taken, as we have seen, of the differing council tax bases of local authorities. That means that those authorities with many properties in band D and above will benefit much more from the same rise in council tax than those with a majority of properties in the lower bands. Some councils will end up struggling to protect the most vulnerable, while others might find that they have been successful enough to reduce, or even abolish, their council tax. The result will be that the system of delivering local services will no longer be seen as fair or reasonable, with huge implications for people’s support for the system of business rates and council tax. We saw in the extreme case of the poll tax what happens when public confidence in a system of local taxation collapses—when they no longer see it as fair. I suggest that that is also a risk with this system.

Photo of Dave Watts Dave Watts Labour, St Helens North

Is that not exactly what the Government want? They want to show that local authorities have been left with two choices—either to cut vital services in their communities or to put up council tax—but they want to be able to blame them for that, rather than accepting the blame themselves.

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

As my hon. Friend knows, we have discussed what the Government are trying to achieve many times in debates on this Bill. Opposition Members are all clear that this Bill is not about giving power to local authorities, but about ensuring that they get the blame for what goes wrong.

In fact, the Government have already recognised in their response to the consultation that there is a problem with changing needs in local authorities. For example, a rise in population would create the need for more children’s services, whereas as a growth in the number of elderly people may mean that more social care was needed. However, as we have seen in our debates thus far, the Government have failed to recognise that many other things can contribute to increased demand for local authority services, including unemployment and child poverty. The argument that that has to be balanced against the requirements of those who wish to undertake long-term projects, by allowing a 10-year reset, simply does not stand up, because most of them—we are talking about the TIF 1-type projects—will run for much longer than 10 years anyway. What the Government are suggesting would therefore fail to help councils with those projects, yet cause excessive problems for others. We believe that the way to avoid them is to have the system reset at regular intervals. The reset should also look not only at the business rate baseline and the basis for redistribution, but at the council tax base.

Photo of Mike Freer Mike Freer Conservative, Finchley and Golders Green

If the Opposition are so keen on resets and the ability to affect the calculation based on need and other factors, I am intrigued to know whether the hon. Lady can tell the Committee how many resets or revaluations took place between 1997 and 2010.

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

As the hon. Gentleman knows, the difference is that when we were looking at local government finance, much of the grant was allocated on the basis of need. The problem that we are considering with this Bill, whereby the gap between local authorities will grow wider and wider, is not what were considering at that time.

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

I am going to make a bit of progress, because we have to get through.

The way to avoid those problems is to have a reset at regular intervals. Some have suggested three years, and some five. We have opted for three years in our new clause 7, because we believe that local authorities have become used to three-year financial settlements and that they have operated very well. That option is also in line with the responses to the consultation, where only 23% of respondents felt that 10-year resets were appropriate. So much for the Government taking note of the consultation.

In new clause 5, we have also suggested that local authorities should have a right to be consulted each year about whether a reset is required before the

Secretary of State publishes the local government finance report. We have done that because we think that local government is the best judge of what is happening on the ground. It should be treated as a partner in the process and allowed a say. Councils would be able to make such representations if they felt that unforeseen problems had been discovered, if major changes had occurred or simply if the system was not working as the ever-optimistic ministerial team assures us it will. Such a mechanism would recognise the key role that councils play in representing communities. That right is fundamental, if we in this House believe that councils have a democratic mandate of their own—as I think we all do—and should be able to participate in the process. The Secretary of State would have to consider representations received, and publish his decision and the reasons for it.

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

If the hon. Gentleman will forgive me, I want to wind up, because others want to get in before 10 pm.

We believe that such a proposal would introduce more clarity and accountability into the procedure. We have often been told—particularly by Government Members—that sunlight is the best disinfectant. We now have a chance, with our new clause, to let a bit of sunlight into the DCLG. We believe that both our new clauses would improve the system no end. It might help, Mr Amess, if I give the Committee notice that we will seek a vote on new clause 7. I commend new clause 5 to the Committee.

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

It is a pleasure to serve under your chairmanship, Mr Amess. I wish to make a few brief comments.

It is important that a local government body of councils should have a position on all the decision making, be it on the tariffs, the top-up or the levy or in relation to resetting. I do not know how formal that arrangement needs to be, but it is important to recognise that the information needs to come from a cross-section of local councils. Of course, we already have the Local Government Association, which is in a position to take such an overall viewpoint.

We have had some useful discussions about the length of the set-up period. It is fairly clear that no one here knows what the ideal period would be. I feel instinctively that 10 years is rather too long, but I recognise that we need a period of stability in order to make other measures work and to create incentives. I therefore hope that the Minister will assure us that a great deal of work will be done on this before we get to the regulations. I have a preference for a period of about five years, but I would also like an assurance that the Minister would have the power to reset, having listened to the LGA and other bodies, should something obviously have gone dramatically wrong. We have heard a great deal about uncertainty and, yes, there is bound to be uncertainty involved in a change of this magnitude, but the main thing for me is that we ensure that there is a safety net in place for ourselves, as decision makers.

Photo of Kevan Jones Kevan Jones Shadow Minister (Defence)

It is a pleasure to serve under your chairmanship, Mr Amess.

Annette Brooke has just said that she hopes the Minister is listening. The ministerial team might well be listening but not actually taking notice. It has already been stated in the consultation with local government that the majority of councils came out against the 10-year reset time limit. I do not think that that bodes well for the future; I do not think that the leopard will suddenly change its spots, or that the Government will suddenly start to listen to local government.

I support the new clauses. The Bill will lock in for the next 10 years the inequality and unfairness that have become apparent this year. That unfairness will affect councils such as mine in Durham and other northern Labour-controlled councils. It is part of the Secretary of State’s plan to lock in that inequality of support that favours his friends in the south-east. I shall give the Committee some examples of how that inequality has already become apparent this year, and how it will become locked in under the new mechanism.

As my hon. Friend Andrew Gwynne mentioned, the baseline figure in the 2010-11 spending round was the starting point. For example, County Durham’s budget for 2011-12 was reduced by £10.9 million. South Tyneside council’s budget was reduced by 5.6%—some £33.70 for each resident of that borough. Let us contrast that Wokingham in Berkshire, whose budget was increased by 0.2%, meaning that each of its residents got an extra 30p.

I know the Government do not believe in regions, but if we look at the average cuts per capita set by the 2010-11 and 2012-13 spending rounds, we see that per capita spending is down in the north-west by £133, in the north-east by £120, in Yorkshire and Humberside by £107, in London by £97, in the west midlands by £89, in the east midlands by £60 and—this is where it becomes quite clear that the Government are looking after their friends—in the south-west by £44, in the eastern region by £38 and, lo and behold, in the south-east of England by £31. The fact that that is used as the baseline figure locks it in under the formula for the next 10 years. That will increase inequality—we heard in an earlier debate how the Government do not recognise that there is a need in that regard—and it ignores what local government is saying.

If the new system will be perfect from day one, what have the Government to fear from reviewing it after three or five years, as local government wants them to? As councils recognise, the inequalities will continue and there would be a loud clamour and pressure on the Government to change the benchmark in three, four or five years’ time. If it is locked in for 10 years, they can keep on ignoring that, saying that as the law says they must wait that long it is the earliest time they can review it.

Photo of George Howarth George Howarth Labour, Knowsley 9:45 pm, 24th January 2012

Does my hon. Friend accept that as well as the regional disparity he has described there are disparities within regions, which mean that things could be even worse for some local authorities?

Photo of Kevan Jones Kevan Jones Shadow Minister (Defence)

I do. In regions such that represented by my right hon. Friend, there will be regional disparities between councils. We are told that this Bill is about giving local government the powers to grow business rates, for example, but it will lead to an increased cycle of deprivation in those constituencies and make it harder for councils to attract businesses and grow their council tax base.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Health)

Is the situation not worse than that, because the plans do not just lock in the funding from one period of time? Instead, on top of those real cuts in local government finance we will also have a huge increase in demand for statutory services in those areas of deprivation.

Photo of Kevan Jones Kevan Jones Shadow Minister (Defence)

Exactly. Hidden in the Bill is the localisation of council tax benefit, which the Minister does not like to talk about and which comes with a 10% cut. As unemployment is rising in the north-east under this Government, more people will qualify for that benefit. Where will the money come from if it is locked into this system? The only other option for local government would be to increase the domestic rates, but there is an inbuilt problem in doing so. For example, in the north-east, 50% of properties are in band A, so the amount that can be generated is limited. In Surrey, only 2% of houses are in band A, so it is easier for some of the wealthier areas to generate that cash if they wish to do so. An increase of 1% in council tax in Durham, for example, gives a lot less in the long-run than the same increase would in Surrey.

Photo of Steve Rotheram Steve Rotheram Labour, Liverpool, Walton

Is my hon. Friend aware of the heat map that has been produced that illustrates precisely what he is underlining? Those areas of highest deprivation that have been hit the hardest just happen to be areas that have Labour Members of Parliament.

Photo of Kevan Jones Kevan Jones Shadow Minister (Defence)

They are. My hon. Friend mentioned that map earlier and it only has to be seen—it screams inequality and exposes what the Conservative element of this coalition is about. It does not care about areas such as Liverpool and so on but about rewarding areas in the south-east, where its voters are. That is blatantly political. I am surprised that the Liberal Democrats are going along with it, but I presume that they have written off most of their northern MPs and councils for the next election in exchange for the Deputy Prime Minister’s post. Certainly, that inequality will be there when one looks at some northern councils and I do not understand why the Liberal Democrats are going along with this given the blatant unfairness that it will lock into the system. Annette Brooke said that she would like a review of this issue, but there is no sign that the Government want to look at or take on board anything that has been said in the House or by local Government regarding the Bill.

Photo of Dave Watts Dave Watts Labour, St Helens North

The proof is in the pudding, is it not? Not one council that has a high level of deprivation supports this measure and the only ones that do are those with very low levels of deprivation.

Photo of Kevan Jones Kevan Jones Shadow Minister (Defence)

That is right. This issue is highly political. All credit to the Secretary of State—he knows exactly what he is doing. As my hon. Friend Helen Jones has said from the

Front Bench, the measure will end up pushing on to local councils some of the tough decisions on spending that will have to be taken. There are two ways of dealing with this—increasing local rates or cutting services—but that will be happening at a time when demand for local government services in deprived areas such as some of those my hon. Friend Mr Watts represents is going up. One has only to look at some of the statistics we have heard on Second Reading and in our debates in Committee. Demand for adult services and other services in County Durham, south Tyneside and Liverpool, for example, will be a lot higher than in Surrey and the south-east.

I do not know what the Government have to fear from the reset being on a five-yearly or three-yearly basis. They think they can lock that unfairness into the system, and it is clear that when local people realise that not only are their services going to be cut but they face council tax increases as well, the Secretary of State will say, “Oh, well, it’s your profligate local council that’s doing this.” But in fact, the problem is the system of local government finance being introduced that will directly cause that. We need to keep repeating that point. It is quite clear that the Local Government Association and even some Conservative councils are working on the basis that what the Secretary of State says is not always true. For example, he can offer money for the freeze in council tax, but only for three years. If people take that, they have to realise that there is no guarantee about what they will get just before the next general election.

The measures build in unfairness and we need to make sure that the Minister explains why the period will be 10 years. That figure seems to have been plucked out of thin air—there is no justification for it and local governments do not support it—so what is the rationale behind it? The Under-Secretary of State for Communities and Local Government, Robert Neill said earlier that there could be in-year adjustments for councils that fall on hard times in terms of their business rate income going down, and that is mentioned in the Bill, but we have not seen exactly how that will be distributed. There is no guarantee that a council faced with large redundancies and the closure of a big provider of local business rate will get any benefit at all, because it will be down to the Secretary of State’s determination. On present form, it seems quite clear what the Secretary of State will be doing—looking after Conservative councils.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Health)

We spoke earlier about the need for local government to have certainty and the fact that the Bill does not provide adequate certainty for local government, particularly for council treasurers, in planning their budgets. Is it not ironic that although the 10-year reset provides a degree of certainty, the certainty for councils such as Tameside and Durham is that we will have pretty poor settlements for the whole decade?

Photo of Kevan Jones Kevan Jones Shadow Minister (Defence)

Indeed. I know that the Secretary of State will say, “We are giving you these local responsibilities”, but how are authorities going to plug the gap? It will be either by cutting services even more or by increasing domestic rates.

Another point on which we need clarification is the “exceptional circumstances” mentioned in the Bill. I should like to know what “exceptional circumstances” are. In what circumstances would the Secretary of State look at a reset during the 10-year period?

Local government needs certainty, and not just in providing services. For example, three-year budgets allowed councils to take decisions that led to efficiencies. If councils are not sure how much money there will be each year, that uncertainty will prevent them from making strategic decisions, savings and investments. That flexibility will be lost. The argument is that this is a localism Bill giving local councils a say, but as we have explained clearly, it actually gives more powers to the Secretary of State and Ministers to decide the future of local government. I should like to know from the Minister why 10 years was chosen for the reset.

Earlier, there were some comments about revaluation. When the Secretary of State was in opposition he argued vigorously against the revaluation of domestic rates. It is time to look at domestic rates, because in all our constituencies we see disparities between different properties. The revaluation process was rushed, which led to a record number of appeals. The Bill will give rise to a situation where the inequality set in domestic rates in the 1990s will be set in the business rate assessment too.

Photo of Bob Neill Bob Neill The Parliamentary Under-Secretary of State for Communities and Local Government

I can tell my hon. Friend Annette Brooke that of course we shall consult fully before we finally set, through regulations, the figure for the reset. It is important to bear in mind that a key point of the legislation is to give a proper incentive for growth, and the longer the period between resets, the greater the incentive for growth for local authorities. The shorter the period between resets, the more the growth incentive is minimised.

I am sorry that the Opposition, having claimed to be in favour of localisation, seek to introduce amendments that would significantly undermine the growth incentive for local authorities. It is even more unfortunate that when they make their case, having accused us in rather patronising tones of not doing our homework, they clearly get their homework very wrong, as I shall shortly demonstrate.

New clause 5 would implement a system that triggered an annual reset. That would destroy any incentive in the process whatever, and negate the whole growth incentive. The Opposition say we should listen to the interests of local government. In the consultation responses that Helen Jones cited, 78% of respondents favoured fixed resets, so their amendment ignores that 78%. It is a pity they did not do their homework properly on that one.

Photo of Bob Neill Bob Neill The Parliamentary Under-Secretary of State for Communities and Local Government

No, I do not intend to give way.

The Opposition proposal would simply recreate formula grant through the back door.

In relation to the period between resets, the hon. Member for Warrington North needs to start reading things a little more carefully. She claimed that a majority favoured three years and quoted a figure of 23%. That is incorrect in relation to three years. Let me tell her what the response said: the three-year period that the Opposition proposed as their preferred reset period was supported by exactly 10% of respondents. A 10-year reset period was supported by 23%, and a period between five and 10 years had the support of in excess of 70%. If the Opposition cannot get their basic maths right, we will not have much faith in any amendments that they table on local government finance. Their rather specious argument falls, at the very least on grounds of thorough inaccuracy.

Of course it is important to ensure that we get a proper balance of need and resource at the beginning of the system, and we will do that. At the reset periods—we will discuss with the local government sector the appropriate—

Debate interrupted (Programme Order, 10 January).

The Chair put forthwith the Question already proposed from the Chair (Standing Order No. 83D), That the clause be read a Second time.

Question put and negatived .

The Chair then put forthwith the Question necessary for disposal of the business to be concluded at that time (Standing Order No. 83D).