Clause 39 - Council tax referendums

Local Audit and Accountability Bill [Lords] – in a Public Bill Committee at 11:30 am on 21st November 2013.

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Photo of Roberta Blackman-Woods Roberta Blackman-Woods Shadow Minister (Communities and Local Government) 11:30 am, 21st November 2013

I beg to move amendment 149, in clause 39, page 26, line 46, at end insert—

“This section shall not apply to City Deals signed prior to the commencement of this Act.”.

Clause 39, from whose scope the amendment would remove city deals, revisits council tax referendum provisions, which were discussed at great length a couple of years ago in proceedings on what became the Localism Act 2011. The effect of the clause is to include in the definition of a relevant amount of council tax certain levies which had hitherto been excluded. Previously, any increase in council tax resulting from an increase in the levy from these bodies would not have caused a determination that the level of council tax would be excessive, or trigger the requirement for a referendum. The clause extends the council tax referendum provisions  introduced in the 2011 Act to include levying bodies, such as waste disposal authorities, integrated transport authorities, pension authorities and internal drainage boards, so that in future a disproportionate increase in their levy could trigger a referendum requirement. In addition to the concern about extending the referendum requirement to include more levies over which the local authority has no control, the clause could lead to more situations in which the local authority may seek to absorb a sufficient part of that increase within its budget to avoid a referendum—a potentially awful dilemma, given the precarious state of the finances of most local authorities.

We are concerned that the way in which the clause is worded appears to allow calculations of future limits to reflect circumstances where local authorities would have breached the council tax threshold in the current year if the new rules had applied to it. In the other place, Members said that this has the whiff of retrospection—rather more than a whiff, I would say, because it would appear that subsection (15) allows the Secretary of State to decide if an increase in council tax would have been excessive for the financial year starting in April 2013, if the clause had been in force.

In financial year 2013-14, several authorities saw rises of more than 3% in council tax bills due to significant rises in levies upon them from other bodies, while their own components of council tax rose by less than the 2% threshold. Will the Minister say in what circumstances the Government would use clause 39 to penalise local authorities which have complied in every way with the rules as they stood when their council tax levels were set, and how many and which authorities would be caught by this retrospection and the inclusion of a wider number of levying bodies?

The Minister will know, and hence it is the focus of our amendment, that this clause has raised concerns in a number of local authorities, particularly about city deals and where local authorities have entered into arrangements predicated on a certain increasing levy stream. It is understood that the city deal with Leeds, for example, has been promised an investment fund partly financed by an increased levy from the integrated transport authority. In these circumstances, where arrangements have been put in hand for vital infrastructure based on the existing law and with the specific support of the Government, the provisions of the clause seem rather perverse.

My right hon. Friend the Member for Leeds Central (Hilary Benn) spoke about the potential impact on city deals at Second Reading. He asked the Minister directly why he was reneging on the deals that his Government signed by making the provisions on referendums and levying bodies retrospective. He said:

“The Secretary of State well knows that an important element of the Leeds city region deal was the establishment of a significant transport investment fund, partly funded by central Government and partly funded by the transport authority levy over 20 years. A year ago, the former cities Minister, the right hon. Member for Tunbridge Wells (Greg Clark), said that the deal was:

‘Giving cities the powers, control over resources, and funding they need to fire on all cylinders’”.

My right hon. Friend then asked a series of pertinent questions, including why the Minister was asking the House to undermine agreements on city deals; whether he would

“set out his assessment of the impact of his decision, and say what effect it will have on holding back investment in transport infrastructure and local growth in the city region”; and whether that decision would

“undermine confidence in the city deal process…and harm the certainty on which sound financial planning and private investment rely.”

Finally, he asked the Secretary of State to

“clarify for the record that at the time the city deal was signed, he had no plans, and had had no discussions, about changing the rules on levying authorities”.—[Official Report, 28 October 2013; Vol. 569, c. 689.]

The answer, my right hon. Friend said, must be no, because if he had done so, it would have been necessary to make that transparent and clearly visible in the public arena.

My right hon. Friend was not alone in making those points. They were raised by a number of noble Members in the other place. The Local Government Association has voiced its concerns too, stating that:

“Effectively capping investment by city-wide transport authorities through council tax referendum could undermine the economic benefits of City Deals.”

The LGA cites an example:

“The West Yorkshire Integrated Transport Board is currently negotiating with its constituent authorities to increase its levy to fund transport infrastructure investment across Yorkshire. As a consequence of clause 39, local authorities in the area may either have to reduce their spending at a time when services are under pressure or trigger a referendum. Should a referendum be lost it would put at risk £750 million worth of investment and 20,000 new jobs.”

That is a significant concern. The LGA also points out:

“Local government has endured the steepest reductions over the current Spending Review with core funding falling by 43 per cent over the period of the current Parliament. There is a funding gap of £2.1 billion a year which could reach more than £15.6 billion by 2019/2020 based on additional topslicing. The current financial position of many councils is unsustainable in the medium to long term, and referendums on council tax are an unnecessary and a costly burden.

Under the current terms of the Bill, a levying body would not have to abide by the result of a referendum should it be triggered and subsequently lost. In effect the financial risk is on the local authority regardless of whether or not the increase in the council tax is a direct result of their financial decisions.”

Clearly that is an absurd situation. Had the provision been in force in the last financial year, seven authorities would have been forced to hold referendums, at a cost to the taxpayer of £7.3 million. The proposal adds further uncertainty to council finances and could lead to further reductions in essential local services.

As we have said, the provisions are retrospective. That is one of the LGA’s main concerns, because it is not fair to authorities that have taken decisions in good faith, based on the legislation in force at the time. The association says:

“There is a risk of perverse outcomes that will put growth generating investment at risk. Levying bodies are, by statute or local agreement, able to recover some or all of their costs by charging local authorities a fee for infrastructures or services. Local government in England is subject to a variety of different levying arrangements, covering significant regionally important issues such as transport and drainage, as well as a wide range of more local issues. There is enormous scope for perverse outcomes as a consequence of clause 39 going forward as part of this Bill.

The LGA is aware of a number of examples where the extension of council tax referendums is likely to cause instability and uncertainty”.

The Chartered Institute of Public Finance and Accountancy supports the LGA’s points. Its director of policy said:

“The Bill tries to make levying bodies subject to the same referenda controls already in place for major preceptors and billing authorities. However, we are concerned that the mechanism chosen will confuse local accountability. The entire burden of any referendum is actually placed upon major preceptors and billing authorities despite the fact that they have no ability either to directly influence the amount of individual levies or require a body to reduce its levy as a result of a referendum.”

He went on:

“We are also concerned that the proposed requirement to factor in 2013-14 council tax increases into the referenda criteria for 2014-15 introduces an element of retrospection, potentially penalising authorities for decisions taken well before this Bill was published.”

I could not have put it better myself. That summarises the key issues really well.

The Minister therefore has a number of questions to answer. Why are the Government reneging on deals already signed by making the provision on referendums and levying bodies retrospective? Did they have any discussions or make any plans about changing the rules on levying authorities before or during the time when city deals were being signed? Does the Minister accept that including levies in the amount to trigger a council tax referendum will jeopardise the city deals that his own Government have approved? If a council tax referendum is lost and the levying body refuses to reduce its levy what does he expect a local authority to do?

When those concerns were raised in the other place, Baroness Hanham, the then Minister, said that she would look at them again; when they were raised in this House on Second Reading, the Secretary of State also said that he would look at them again; but as far as I am aware, nothing has come from the Government either to clarify the position on retrospection, or to make clear what a local authority would do in a situation where a referendum was lost and it was unable to make the changes necessary to reduce the amount of its council tax increase except by reducing the amount it takes itself from the council tax and as a result reducing its services. There are clearly questions here, I hope the Minister will give us answers this morning.

Photo of Brandon Lewis Brandon Lewis The Parliamentary Under-Secretary for Communities and Local Government 11:45 am, 21st November 2013

Amendment 149 relates to those local authorities that collectively enter into city deals—agreements with the Government on additional freedoms and financial certainties to promote local growth and skills—before the commencement of the provisions in the Bill. Its intent appears to be to place the transport levies, for example, for authorities taking part in a city deal outside the calculation of what constitutes an excessive increase in council tax. All other levies would still be included, including those relating to transport for other authorities. That approach was taken in an amendment tabled in the other place as well. The Government have not at any time agreed as part of a city deal to allow excessive increases in council tax without a referendum.

Let me be clear: this is not a retrospective provision. The Secretary of State considers all relevant factors when setting referendum principles, and those factors always include past council tax-setting decisions. The Government were clear before council tax and levies were set for 2013-14 that they may take account of council tax-setting decisions in setting future principles. However, no change will be made to the money raised in 2013-14 and both authorities and levying bodies can therefore plan for 2014 accordingly.

The system of council tax referendums that replaced capping—it is worth noting that the system of levies still had to work within the capping regime—was introduced to give the final say over large increases in council tax bills to local residents rather than central Government. Although some authorities would always want to be free to set any level of increase, the move from capping to referendums is widely accepted as being a sensible improvement. I understand that the Opposition are not seeking in Committee to change the basic principle of holding referendums, although I am sure the hon. Lady will correct me if I am wrong.

One change that took place in the move from capping to referendums was to exclude the impact of levies on council tax increases. Arguments were put during the passage of the Localism Act—I remember the days of the Public Bill Committee well—that authorities had little control and influence over the size of levies, and that levies were relatively unchanged from year to year. Since 2011, however, we have seen levies increasing significantly more than other parts of the council tax bill: they increased by 5.2% last year alone.

We have also seen how local authorities and levying bodies have worked, and are continuing to work together, to meet the terms of the successive council tax freeze schemes, which include levies. Clause 39 brings those levies back into the council tax excessiveness calculations. That is something for which many local authorities—and, it is worth noting, the LGA—had lobbied. The amendment would seek to give authorities taking part in city deals additional financial freedoms beyond those already agreed as part of the deal, which would allow them to increase council tax levels further and bypass the need to get approval from local council tax payers for those increases.

Photo of Andy Sawford Andy Sawford Shadow Minister (Communities and Local Government)

It is not our intention in the amendment to allow city deals to operate in a different way with other local authorities in the future; rather, it is to ensure that city deals already agreed are not undermined. We are confused by the Minister’s suggestion that no retrospection is implied. Our amendment is designed protect authorities from unpicking the deals already agreed, not to give them carte blanche to do different things with levies in the future.

Photo of Brandon Lewis Brandon Lewis The Parliamentary Under-Secretary for Communities and Local Government

I thank the hon. Gentleman for that clarification. I hope that, with the rest of my speech, I can convince his my hon. Friend the Member for City of Durham to withdraw the amendment. It is clear that the Secretary of State has always been able to take past council tax setting levels as part of decision making for the future. I will touch on a good example of that in a moment, to give a clear outline of how that works. However, I was clear in my opening remarks about how the provision is not retrospective.

Photo of Roberta Blackman-Woods Roberta Blackman-Woods Shadow Minister (Communities and Local Government)

Our concern is that deals signed in 2013 might have a degree of levy increase that will apply from that year onwards and could be at such a level that a referendum would be triggered in a future year.

Photo of Brandon Lewis Brandon Lewis The Parliamentary Under-Secretary for Communities and Local Government

I understand the point that the hon. Lady makes. I will come on to give a good example of a city deal that was mentioned here and in another place as well, which will show that that should not be an issue. Equally, this provision is not retrospective and no city deals have been done which exclude the excessiveness principles for a referendum.

City deals are without doubt important. They represent local authorities coming together with Government to agree mature and well thought out proposals to deliver long-term improvements in local infrastructure and to encourage investment and provide training for the next generation of skilled workers. They are not and should not be vehicles for bypassing the right of local people to take a view on excessive council tax increases.

To come to the example I mentioned, the Leeds city deal was raised in the other place by Labour Members and the shadow Secretary of State on Second Reading. On both occasions, it was claimed that the clause would in some way undermine the city deal or make it unsustainable. There is no substance in that claim. I am happy to share figures provided by the local authorities that show that if the levy increases were passed straight on to local taxpayers in the form of higher bills, those increases would be affordable without the need for a referendum. That would amount to an increase of between 0.2% and 0.9% a year—well within the referendum principles.

Given the city deal’s ambitious programme of work, local taxpayers may support a council tax increase of up to 0.9% if asked. However, at that level a referendum would not be required; the authorities could instead take up the offer from Government still to freeze their council tax and receive a further freeze grant equivalent to an increase of at least 1%, which would more than cover the cost of the projected levy increase. Should Leeds, Bradford or any other council in the same manner wish to make representations about how the proposed referendums would apply to their particular circumstances, the Secretary of State will take those into account when asking the House to approve the final principles in 2014. The figures provided so far do not make a compelling argument for different treatment.

The Opposition claim that the Government are reneging on their agreements with authorities and that we approved large council tax increases as part of the Leeds city deal, for example. That is simply not correct. The Leeds city deal was not agreed on the basis that there would be large council tax increases for local people, nor on the basis of denying those people a say if Leeds or other authorities propose large increases. There is no contradiction between granting local government greater financial freedom and certainty in funding and expecting it to listen to and respect residents’ views about how those freedoms are exercised.

The Opposition did not table the amendment to make a case for a two-tier system of local government, in which a small number of local authorities can impose large, uncontrolled increases in taxation while those that keep services such as transport in house are required to listen to and take account of their residents’ wishes,  but that is what the amendment would do. Based on the Opposition’s own figures, the Leeds city deal does not require large increases in levies or council tax, but if Leeds or other authorities wish to increase council tax to increase investment, for example, and go beyond what is set out in the deal, there is no barrier to their doing so as long as the local taxpayers, who have to bear the burden, are willing to accept it.

On the issue of retrospection, legislation already allows the Secretary of State to propose different referendum principles for different categories of authority. For example, in 2013-14 the House of Commons approved principles that gave shire authorities in the lowest quartile of charging additional flexibility to set an increase of up to £5, even if it took them over the 2% threshold. Each year, the Secretary of State takes account of all the relevant factors, including any representations, before proposing principles. That is an example of such a case. The amendment would not do anything new, but it would restrict how future principles are set. I hope, therefore, that the hon. Lady will withdraw the amendment.

Photo of Roberta Blackman-Woods Roberta Blackman-Woods Shadow Minister (Communities and Local Government)

I listened carefully to what the Minister had to say. We will take this issue away and look at it again. We need to have further discussions with the LGA and others to ensure that people are clear that retrospection will not apply.

The Minister did not deal with the point about local authorities being unable to require levying bodies to keep increases low. I would like him to look at that issue again, because if a levying body refuses to reduce the amount of its levy increase, the burden is borne by the local authority, which must reduce its own services and charges accordingly. We do not think that is fair.

Photo of Brandon Lewis Brandon Lewis The Parliamentary Under-Secretary for Communities and Local Government

There is also the issue that levying bodies are generally controlled by the same councillors. The amendment would create a potentially unfair situation in which councils that have an outside levying body are able to put up council tax more than those that keep services in house. It would therefore create a two-tier system, and we want to avoid that.

Photo of Roberta Blackman-Woods Roberta Blackman-Woods Shadow Minister (Communities and Local Government)

That is a helpful clarification. We will look at what the Minister has said today in more detail. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 39 ordered to stand part of the Bill.