Only a few days to go: We’re raising £25,000 to keep TheyWorkForYou running and make sure people across the UK can hold their elected representatives to account.

Donate to our crowdfunder

Clause 16 — Extent and short title

Local Government Finance Bill – in the House of Commons at 9:00 pm on 21st May 2012.

Alert me about debates like this

Votes in this debate

  • Division number 7
    A majority of MPs voted to allow local councils to retain a proportion of the business rates generated in their area and to localise assisting those in financial need to pay their council tax.

Amendment made: 61, page 9, line 14, at end insert

‘, subject to subsection (1A).

(1A) Sections (Power for HMRC to supply information for purposes of council tax) and 14 extend also to Scotland.’.—(Robert Neill.)

Third Reading

Queen’s consent signified.

Photo of Bob Neill Bob Neill The Parliamentary Under-Secretary of State for Communities and Local Government 9:14 pm, 21st May 2012

I beg to move, That the Bill be now read the Third time.

This is a bit like coming out in the play-off final after the brief half-time break at Wembley on Saturday. We just need a little bit more to close the deal as far as this Bill is concerned—[ Interruption. ] It did not have to go to penalties.

We have had a lengthy and sometimes constructive debate during the Bill’s progress through the House, and it is worth taking stock now. The House has the opportunity to make a considerable game shift in the relationship between central and local government. We are now in a position to move away from what has been, on any independent view—as consistently endorsed by independent experts, going back to Layfield, the Lyons inquiry and the resource review—the unhealthy level of dependence of local government on central Government for income that has accrued over the years. As part of the Government’s localism agenda, we intend to hand back power to local people and the authorities that represent them. I hope that that principle will be recognised by hon. Members on both sides of the House.

I shall set out what the Bill does and its wider context as part of the coalition’s localism agenda. It is recognised that giving greater local control over expenditure and revenue raising is desirable. The principle of business rates retention is therefore supported across the House. Once we drill under some of the rhetoric, there is also a general recognition that welfare spending needs to be brought under control, and that it is right that local authorities should have control over council tax support.

The Bill incentivises local authorities to go for growth, because that is the other part of the agenda that the coalition regards as critical. We need to encourage sustainable growth and the Bill incentivises local authorities to grow their tax base by directly linking financial benefit to the decisions that they take on, for example, planning permissions that lead to more commercial floor space and economic activity, and in the design of their council tax support schemes that incentivise them to get claimants back into work, which is where we all want to see them wherever possible. It enables councils to decide how best to manage their contribution to reducing the deficit. All thoughtful commentators accept that a contribution must be made and that it is more likely to be nuanced and effectively delivered if there is local input into the design of that contribution.

Local authorities will also be given the freedom to decide how to help provide for the most vulnerable in their communities. I hope that no one seriously thinks that any party has a monopoly on concern for vulnerable people in their communities. The Government regard the vulnerable as a top priority, and that is why we have increased the weighting given to the needs element of the formula grant in our financial settlements; why we have maintained that in the baseline; why we introduced transition grants; and why we will ensure that local authorities that deal with some of those areas of greatest cost pressure in relation to adult social care and children’s care will be designated as top-up authorities and will have a degree of certainty about their funding by index-linking and protection from volatility. That is a practical commitment to helping to protect the most vulnerable in society.

The reforms are also part of our wider approach to supporting growth, which is our best hope of having the money that we need to support services for the vulnerable in a sustainable way; to get more people back into work; and to enable us to pay down the deficit, which at the moment ties the hands of central Government in seeking to deliver the services that we all want for our communities. We have made real progress on this front over the past two years. The Bill sets important incentives for business rate retention and helping people back into work through council tax support, but that is linked to other parts of the agenda. We are encouraging local authorities to build new homes, through the new homes bonus, an incentive for both commercial activity and domestic building. Homes as well as jobs are central to the incentives we are putting in place.

The local enterprise partnerships are bringing together businesses and civic leaders to provide strong local leadership and to drive growth. My right hon. Friend the Secretary of State, I and all the Ministers involved in the legislation very much hope that the Bill will not only make technical changes but bring about an attitude change in the relationship between local government and their business communities. Many of our competitors have a much closer relationship between their local authorities and the big economic drivers, but that has not always been incentivised in the UK. The Bill will enable it to happen and—I hope—help that mindset to develop. The LEPs will play a part in that by setting up the structure to enable it to happen.

We have put in place 24 enterprise zones offering discounted business rates and simplified planning to attract new local business and investment. The regional growth fund, the Growing Places fund and the Get Britain Building fund are providing a £3.3 billion boost to local economies and supporting tens of thousands of jobs, and through our welfare reforms we are seeking to bring welfare spending back under control and to target support. The 2010 spending review focused on reducing welfare costs through savings of about £7 billion a year.

Localising council tax support will help to deliver savings of £500 million across Great Britain—this in an area of activity where expenditure more than doubled under the Labour Government. It is not a sign of a healthy economy that expenditure on council tax benefit should have doubled between 1997 and 2009-10. Instead, we are providing strong incentives for local authorities to support growth and improve employment opportunities, helping to reduce poverty and reliance on support, as well as hold down costs in the long term. Speaking as someone whose grandfather clawed his way out of poverty in the east end, I, like plenty of other Government Members, have as much personal experience of such things as anyone else who has spoken.

The Bill has received extensive scrutiny. Its core principles were set out in the coalition agenda; we then proceeded with the local government resource review in early 2011; there was a consultation, along with eight detailed, technical papers to explain the thinking behind the reforms; and we have discussed the detail of the scheme through our local government finance working group and several sub-working groups. We have by no means ignored the views of local authorities; on the contrary, we have sought to engage with them, and will continue to do so, at every stage in the process. Those groups have been meeting frequently since January.

Localising council tax is a pragmatic approach to balancing the need for reform with ensuring a sensible level of deficit reduction, and builds on the welfare reform White Paper, published in autumn 2010, setting out our broad intentions. We undertook pre-consultation engagement with local authorities and other groups to help them to understand the issues, and held delivery partner engagement events last August and September, as well as a full three-month consultation from August to October that generated about 400 responses.

Against that background of consultation, nobody can say that the Government have not sought to engage with people over our reforms. Against that background of consultation and information sharing, last Thursday we published a series of statements of intent to provide clarity and assurance to the House and councils about how the reforms, including our proposal to fund localised support for council tax, will work in practice.

I shall tell the House what we have published so far and how much we have sought to set out the agenda. We have announced that business rates will be split 50:50 between central and local government and confirmed that central Government will return their share of business rates, in its entirety, to local government, and we have confirmed that the system will not be reset until 2020 at the earliest to give sufficient reward and long-term certainty while ensuring that the scheme will be fiscally sustainable, thus protecting the interests of taxpayers and the wider economy.

Our economic analysis, which has been independently verified, suggests that a 50% local share over a seven-year reset could create an additional £10 billion of gross domestic product. That figure is based on the multiplication of additional commercial floor space created through our incentive effect and, then, the additional gross GDP that stems from the economic activity in that commercial floor space.

We have set out the statements of intent indicating what will be in the secondary legislation, including—as was noted in the previous debate—the safety net threshold, to be set at between 7.5% and 10%, to protect against volatility.

On the localisation of council tax support, we have been clear that we will seek to provide as much detail as possible as early as possible. We continue to work with local authorities and service providers on the design of the scheme. [ Laughter. ] I know that Mr Raynsford does not believe that any proposal that he did not make could be taken seriously, but that perhaps says rather more about him than about the Government.

Photo of Nick Raynsford Nick Raynsford Labour, Greenwich and Woolwich

Perhaps the Minister will now tell the House how he believes that publishing everything that is required to enable early implementation as soon as possible is compatible or consistent with the current situation, where, eight months before local authorities have to finalise the scheme, they do not yet know what the legal requirements are.

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

If the right hon. Gentleman deigns to read the statements of intent, he will find what is effectively an executive summary of the regulations, which will deal with how the default scheme operates, including for pensioners, who we have indicated should be protected. We are having regular meetings with our local government working group, which includes representatives of local authority treasurers, and we are also in regular contact with the principal software provider and other service providers. We are therefore doing exactly what the right hon. Gentleman would want us to do, although I doubt whether it will satisfy him, because it is not him doing it.

We have announced £30 million of initial funding to help meet the costs of planning and analysing draft schemes for both billing and precepting authorities, so we are supporting local authorities. The statements of intent are, in fact, very detailed. We have also provided a free online calculator to help local authorities to analyse the potential impacts of their proposed schemes.

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

I notice that the hon. Lady is in what some might uncharitably term “sneering mode” this evening. I think that says something about the attitude of Labour Members towards a reform that they know needs to be undertaken, but which they never had the courage to undertake, which rather undermines their argument.

We have also taken steps in the Bill to make things easier for local authorities—for example, by clarifying that billing authorities can consult with precepting authorities, produce a draft scheme and consult more widely, all before the Bill receives Royal Assent. It is a fair point to say that the time frame is challenging, but doing those sensible things in parallel makes the scheme perfectly capable of being delivered. That is an important practical step that we have taken. We are determined to put local authorities into the best possible position to develop and consult on their local schemes. I stress that local authorities have real choices about how they develop their schemes for working-age council tax payers, what protection they choose to offer and how they choose to fund that protection.

The reality is that, under the circumstances, “one size fits all” will not work. Different areas face different challenges, and they have to make different choices. That is localism. I hope the Opposition will reflect on the fact that if they talk about being in favour of localism, it ill behoves them to seek to obstruct a Bill that, together with the Localism Act 2011, presents local authorities with the most significant practical step towards localism that we have seen in many a long day. I hope that, rather than repeating the mantra that we have heard so far—a mantra on, frankly, rather narrow ideological grounds—the Opposition will use their influence with their representatives in local government to step up to the plate, help to design the schemes that we all need to have in place and drive forward what is a real opportunity for local government in the years ahead. I commend the Bill to the House.

Photo of Hilary Benn Hilary Benn Shadow Secretary of State for Communities and Local Government 9:29 pm, 21st May 2012

I know that the Minister is an enthusiast, but those watching could be forgiven for thinking that the Bill was the answer to all the nation’s ills—at one count it was, with one thing and another, solving poverty and dealing with the deficit. Also, although I have a high regard for the Secretary of State, I am surprised that he did not make that speech, because after all, this is his flagship Bill. I know that we have a part-time Chancellor; I just hope that it is not proving contagious in the Cabinet. [ Interruption. ] I say that genuinely, as it would have been nice to hear from the Secretary of State, who has spoken only once on the Bill—on Second Reading. The House will recall that he claimed great things for the Bill, no doubt because the coalition agreement promised

“a radical devolution of power and greater financial autonomy to local government”.

The truth is, however, that as the Bill has progressed, it has failed to live up to that promise. I shall respond directly to the Minister’s point here.

As we were reminded earlier today, it pays to try to get these things right. I say that because, with one exception, those sitting on the Government Front Bench have form. People remember that the last time wonderful words were said about a reform of local government finance, it was called the poll tax and the consequences included riots on the streets. The people would not have it and the Prime Minister lost her job. The Secretary of State argued that the current system gives central Government too much power and that he wanted to change that. We would take him at face value if that is what the Bill did, but it does not.

What the Bill does and what the Secretary of State has created is a system that gives all the power to himself—the power to determine the central top-slice; the power to set the baseline; and the power to decide the extent of the tariff for the top-up and when the safety-net should kick in. It is a whole list of powers. If this really is localism—the argument that the Minister tried to advance—why are there all these central powers? It does not sound much like localisation to me, and it does not feel much like that to local government.

That matters because when local authorities look at the way in which this Government have chosen to exercise the powers they already have, particularly in relation to spending, they have found, as we know, a pattern of cuts that is utterly unfair and the very opposite of “We are all in this together”. It also matters because, as the Minister will know, although he did not refer to it, one of the real concerns about the Bill that we have heard from colleagues in local government is that it will end up accentuating the gap between more prosperous and less well-off local authorities. That is a real concern. The Government’s only reply has been to say, “Don’t worry about it, because at least you will not be worse off in year one.”

That is why the arrangements surrounding the safety net are so important. As the House knows, some authorities are very heavily dependent on the business rate income they get from a particular factory or a big employer. At the moment, it does not matter because it all goes into the central pot and is then divided and comes back, but under this Bill, it really will matter, and the consequences of losing that income—if the business were to close or relocate elsewhere, for instance—would be devastating. In those circumstances, what those local authorities want to know is whether the Government will be there to help. What we find when we look at the papers published last Thursday is that the safety net will kick in only when authorities meet a threshold for the decline in their business rate income, and we are advised that the threshold will be set between 7.5% and 10%. That is hardly reassuring, because it means that local authorities could lose a lot of money under this Bill before help arrives. To put it another way, councils are going to have to fall quite a long way before they hit the net.

The Bill was also supposed to be about trying to get rid of a complex system for funding local government—we heard the argument a few moments ago. Frankly, however, all the Bill does is to replace one version of complexity with, in the words of London Councils, another “fiendishly complex system”. If anything, on the basis of the documents produced last week, the Bill has grown even more complex during its passage through the House.

As for enabling local authorities to receive the benefits of business rate income and its growth, what do we discover? We discover that the Government like the idea of business rate income growth so much that they are going to take half of it for themselves. That is what was announced last week. It is no wonder that the Local Government Association has described this as a “tax on local authorities”, which it strongly opposes. What is more, the Government seem to intend that set-aside will continue beyond 2015. Why? Because they want to be able to continue to impose cuts on local government after the end of the current spending review period. Having heard the Minister’s argument that this was the be-all and end-all of localism, the Local Government Association said that it was

“not a localising policy and goes against the Government's stated commitment to localism.”

That deals with the first part of the Bill. What about council tax benefit? Rank inconsistency is plain for all to see. Only a few weeks ago, the Secretary of State was touring the country denouncing those who were planning a modest increase in council tax, including a number of Tory-controlled authorities. He said that he was

“determined to protect hard-working families”,

but here we have a Bill that will end up doing exactly what he was denouncing. We have legislation that will, from next year, impose council tax increases on many unsuspecting people. And whom has the Secretary of State chosen as his target for those higher council tax bills? In keeping with the Government’s philosophy, he has chosen people on low incomes—people who do not have a lot of money—because that is why they get council tax benefit in the first place; and on that, he is strangely silent.

As if to flaunt just how out of touch they are, the Government had the nerve to say, in one of the documents published last week, that the aims of the council tax benefit cut included “reducing poverty”. This is a strange way of going about it. The Government are saying to people with not a lot of money, “You know what? We are going to cut your income to make you work harder”, which is the precise opposite of the policy that they have pursued when it comes to millionaires and the tax cut that was announced in the Budget. They also claim that they do not want to affect work incentives, but, as my right hon. Friend Mr Raynsford pointed out, that is nonsense.

I pay tribute to my hon. Friend Helen Jones for the forensic analysis to which she has subjected the Bill during its passage through this House. I am sure that her cogent arguments will be considered very carefully by those in the other place. I also pay tribute to other colleagues, including my right hon. Friend the Member for Greenwich and Woolwich—who chairs the Select Committee—and my right hon. Friend John Healey.

I am genuinely surprised that so few coalition Back Benchers have twigged what is going on in the Bill in relation to council tax. They do not seem to know what they are about to troop through the Lobbies to vote for. As we pointed out on Second Reading, and as has been said today, cutting council tax benefit by 10% while—rightly—protecting pensioners means an average 16% cut for everyone else, but the impact will not be felt evenly.

In one of the other documents that were published last week, the Government said, “We considered whether we should even things out to take account of the different proportions of pensioners in different local authority areas, but we rejected the idea.” As I have said, the impact will not be felt evenly, because some areas contain much higher percentages of pensioners than others. The list is like a roll call of seats represented by Government Members, but it seems that Government Members—with, I think, only two honourable exceptions during Second Reading and Committee—are either completely unaware that their constituents who are currently receiving council tax benefit will face higher council tax bills than elsewhere, because their areas contain a higher proportion of protected pensioners than others, or are not too bothered about it.

Let me say this, very gently, to Back-Bench members of the coalition parties. When their constituents turn up at their surgeries in a year’s time, waving a bit of paper and saying, “Why have you done this to me?”, they will be very, very bothered about what the Bill actually does. Indeed, all our constituents are likely to face additional cuts, because the forecast baseline for council tax benefit expenditure that is being used for the Bill is expected, miraculously—from my point of view and that of my hon. Friend the Member for Warrington North—to fall. Do Members really believe that demand for council tax benefit will decline in the next two years, in the light of the current state of the economy and the fact that we are now back in recession thanks to the Chancellor’s economic policy?

When we come to the default scheme to be applied if local authorities do not come up with their own scheme, what do we find? We find that the Government’s courage fails completely in following through the 10% reduction, because the default scheme in effect replicates the current scheme. Instead of Ministers having the courage of their convictions and applying the 10% cut across the board, they have ducked that, and are expecting everyone else to show the courage they themselves have refused to demonstrate.

In conclusion, whichever way we look at it, this part of the Bill is unfair and wrong, and no amount of trying to describe it as something else is going to alter what the changes in council tax benefit will do to our constituents on low incomes who need that support. We urge other Members to join us and vote against the Bill on Third Reading because it fails to meet the test on business rates that the Secretary of State set out when moving it on Second Reading and, as we have discovered in our discussions, it is even harsher in respect of cutting council tax benefit than appeared to be the case at first sight. In both those respects, the Bill reminds us of what this coalition Government are all about: they are unfair, out of touch and do not work—and nor, I fear, will the Bill.

Photo of Nick Raynsford Nick Raynsford Labour, Greenwich and Woolwich 9:41 pm, 21st May 2012

The Government are having great difficulty in convincing anyone that the Bill does what they claim. They claim it is a localising measure, but, as we have heard, there is an extraordinary lack of support for it on their own Back Benches. Indeed, so far not a single one of their Back Benchers has spoken in support of it.

Local authorities are the supposed beneficiaries, but they, too, are profoundly unconvinced. Let us listen to what they say. London Councils says:

“London Councils supports the principle of business rate retention, but has grave concerns about the proposed changes set out in the Bill regarding the way in which the system will function.”

It adds:

“London Councils is strongly opposed to the introduction of local council tax reduction schemes, as set out in Clause 8 and Schedule 4 of the Bill.”

The Local Government Association says:

“In principle we support the localisation of National Non-Domestic Rates…The principle of full business rate localisation, which also ensures fair treatment of councils in areas with weak economies, would be a powerful move towards localism…However, the government proposes to keep a top slice amounting to 50 per cent of business rates for the Treasury, taking taxes paid by local businesses for local services and using them for local services based on national priorities instead. That is not a localising policy and goes against the Government’s stated commitment to localism.”

If the Government cannot convince the people who are supposedly the beneficiaries of their reforms that they are acting in their favour, I am afraid they are in serious difficulty. The Government are, indeed, clearly in deep difficulty in this regard.

Incidentally, in the earlier debate I sought to intervene on one of the Ministers, Andrew Stunell, as he had inaccurately claimed that the previous Government had done nothing to allow greater local discretion over discounts on second homes. I hope he will use this opportunity to put the record straight, because, as he will know, that is simply not correct. I am sure it was an unintentional error, however. The previous Government legislated to give local councils discretion to reduce the discount on second homes from 50% to just 10%. The Minister may wish to argue about the 10% figure, but there was good reason for deciding on it, and that was a clear extension of discretion to local government. It is therefore simply wrong to suggest that we did nothing in that regard. I hope the record will be put straight.

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

If it helps the proceedings, let me say I am happy to acknowledge the factual account the right hon. Gentleman has given, and I am sorry if I gave a misleading impression earlier.

Photo of Nick Raynsford Nick Raynsford Labour, Greenwich and Woolwich

I am very grateful indeed to the Minister for that gracious apology.

The first part of this Bill is a wasted opportunity, as it fails to deliver what people want in terms of a truly localist objective. The second part, which deals with the council tax benefit changes, is deeply flawed. The changes are damaging and will either cause serious hardship to recipients of council tax benefit or will put pressure on local authority budgets. It is not just the initial £500 million that will be a problem; increased costs may come later on as a result of further claims for council tax benefit, which may result from closures of local businesses or a further period of recession. That will be an extra risk for local government, which will get no support for central Government.

Finally, on the issue of administration, the Government are acting recklessly by rushing ahead without giving adequate time for proper preparation. It has been said repeatedly by those in the know, be they people in local authorities or their IT advisers, that the timetable is too tight to allow proper implementation. I will not go through the details, as we did so in the earlier debate, but it is reckless of the Government to ignore that and to claim that local authorities and others are happy with the timetable that the Government have set—they are not.

I shall end by quoting what local government has said on this. The LGA says:

“The tight timeframe for implementing this places an even greater burden on councils and we urge the Government to give councils the necessary time to do this”.

London Councils says that

“even under best-case scenario planning, the proposed implementation timetable may well be unachievable if council tax bills are to be sent out on time”.

That is not the action of a prudent Government; it is reckless and, I am afraid, it is typical of this Bill.

Question put, That the Bill be now read the Third time.

The House divided:

Ayes 276, Noes 204.

Division number 7 Local Government Finance Bill — Third Reading

A majority of MPs voted to allow local councils to retain a proportion of the business rates generated in their area and to localise assisting those in financial need to pay their council tax.

Aye: 276 MPs

No: 204 MPs

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Absent: 166 MPs

Absents: A-Z by last name

Question accordingly agreed to.

Bill read the Third time and passed .