Examination of Witness

Local Government Finance Bill – in a Public Bill Committee at 9:28 am on 31st January 2017.

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Mr Marcus Jones gave evidence.

We will now hear oral evidence on the Bill from the Minister. Before asking him to make some opening remarks, I remind all Members that questions should be limited to matters within the scope of the Bill, and that we must stick to the timings in the programme motion that the Committee has agreed. For this oral evidence session, we only have until 10.15 am.

For the record, Minister, will you state your name and responsibilities?

Mr Jones:

Marcus Jones, Minister for Local Government.

Q Thank you very much. Would you like to make a few opening remarks?

Mr Jones:

Thank you, Chair, for allowing me the opportunity to address the Committee. First, I thank the many in local government and in business organisations for their substantial contribution to the development of the reforms. The Bill reflects the significant input to date and our collaboration will continue, certainly as we determine the detail of the implementation of the new system.

The key themes of the Bill are: reform of the local government finance system to move local authorities away from dependency on central Government; to provide strengthened incentives and flexibilities to local authorities to boost growth and to invest for growth; making the business rates system much more business-friendly; and to modernise the business rate billing arrangements to suit businesses in the 21st century.

A change to the relationship between local and central Government is long overdue. The Bill provides for farsighted reforms to the way in which local services are funded. By the end of the Parliament, local government will retain 100% of locally raised taxes and have taken a significant step towards self-sufficiency. We aim to implement the reforms in 2019-20, which means that local government will retain about an additional £12.5 billion in locally collected revenue.

To ensure that the reforms are fiscally neutral, some existing responsibilities will be funded by locally raised taxes instead of grant. Councils will also be given new responsibilities. The reforms will also provide greater stability for councils by moving away from annual discussions of funding to multi-year settlements, which is widely supported by local government and will continue to protect local authorities from the impact of sudden reductions in income.

This framework Bill enables us to deliver the measures through an ongoing process of engagement with local authorities and businesses over the coming months on the detail of the reforms. As I made clear on Second Reading, the Bill does not address issues of distribution or assessment of councils’ relative needs. We are considering those matters separately through a fair funding review that is on track to deliver a wholesale look at councils’ relative needs and resources. We will publish further details shortly.

At the heart of the reforms to local government finance is our aim to provide the right conditions to incentivise growth. A key function of the Bill is to provide local government with strengthened incentives to grow their business rates income and to encourage local businesses to set up and grow. The Bill provides for the levy on growth to be scrapped for good, which means that councils will keep 100% of growth in their business rates incomes between reset periods.

We are going even further and, for the first time since the establishment of the business rates system, councils will be able to reduce the national business rate multiplier for the whole of their authority, helping them to attract businesses and investment to their area. To support investment where it is needed to boost growth, the Bill enables mayoral combined authorities and the Greater London Authority to raise a small supplement on the business rates, in full consultation with businesses, to enable them to develop their infrastructure to realise the area’s growth ambitions. Together the measures will provide local authorities with a real incentive and the tools to grow significantly their economies.

The Bill also contains a package of measures to make business rates much more business-friendly, including support for small businesses and local amenities that help communities to thrive. The Bill ensures that small businesses in rural areas receive the same level of business rate as those in urban areas. It provides a new discretionary relief for public toilets. We are also helping businesses up and down the country by legislating to change the business rate indexation from RPI to the significantly lower CPI measure, which will save businesses about £370 million a year, as announced in the autumn statement. We will also provide a five-year relief for the installation of new optical fibre.

We are using the Bill to modernise business rates billing. We are taking the power to make the business rate system more convenient, ensuring every business can access electronic and more consistent bills, no matter where they are in the country. We will also allow HMRC to carry out the design work to engage and to develop proposals on how more joined-up tax billing can be achieved in future.

The Bill provides an ambitious package of reforms to the funding and focus of local government that will fundamentally change the balance of power between central and local government. It will incentivise local leaders to focus on growth and will relieve the burden on hard-pressed businesses. I look forward to working with you, Mr Gapes, and with the Committee to deliberate the content of the Bill.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

YouQ will have seen overnight the concerns of the Local Government Association about the future funding of social care. Do you envisage that social care will be better funded or worse funded as a result of 100% retention of business rates by local authorities?

Mr Jones:

I have been quite clear all along, during the preparation of the Bill and on Second Reading, that it delivers a framework to allow local authorities to retain the business rate. In doing that, we have been extremely clear that this is a fiscally neutral exercise and that new responsibilities will therefore be brought forward for local government as a quid pro quo for the additional £12.5 billion of business rate income to which local authorities do not at the moment have access.

In the consultation we conducted on the additional items that local government will take on, there was a question about whether the improved better care fund would be funded through the retention of business rates. That is not yet decided. It is something that we are still considering in connection with the consultation that we began last year and are due to make a response on shortly.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

That was a very interesting answer, but it did not go anywhere close to answering what was a fairly simple question. I will ask it again to help the Minister, who may not have had a coffee or a glass of water to get him fully up to speed. Will social care be better or worse funded as a result of the measures in the Bill?

Order. Can we avoid the personal remarks please? I would rather we concentrate on the Bill.

I think it is important to set the tone now and that we do not change the nature of the Committee into something else. Please can we have questions that focus on the Bill?

Photo of Justin Tomlinson Justin Tomlinson Conservative, North Swindon

And we are not allowed coffee here.

No, you are not allowed coffee. I said that earlier. If anybody has sneaked one in, I suggest you dispose of it quickly outside.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

Q It was an interesting answer. I would be very grateful for an answer to the actual question I asked.

Mr Jones:

The quantum of funding for adult social care is not part of the provisions of the Bill. My Department, along with other Departments in government, continually look at the challenges and pressures around adult social care and the future sustainability of the system. I am therefore not sure that the Chairman will be keen for me to elaborate further on items that do not relate to the detail of the Bill.

Order. Mr Aldous, is that a coffee?

Can you dispose of it outside, please? Thank you very much. You cannot drink it inside. This was decided before you came here; it was very clear.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

Q The deletion of the revenue support grant, which funds social care among other things, is one of the key aspects of the Bill. I gently ask again: does the Minister expect social care to be better funded as a result of the abolition of the revenue support grant and the 100% devolution of business rates, or not?

Mr Jones:

Indeed, you are right, the revenue support grant will be rolled in to the quantum of the funding and the business rates retention. But I would also point out that the Bill puts in place a framework for the retention of business rates by local authorities. It does not go into the detail of what additional responsibilities local government will take on as a result of the additional funding. That is being brought forward alongside this through further work. We are also doing further work in relation to the fair funding review, which will certainly take into account the pressures of adult social care. We will be bringing forward that work, further consultation and a response to the initial consultation alongside work that is ongoing in relation to the Bill.

Photo of Justin Tomlinson Justin Tomlinson Conservative, North Swindon

Q I spent 10 very happy years as a councillor and I get lobbied regularly by council leaders and experienced councillors. Minister, you are widely respected for having a good command of this area and for recognising that there is huge potential within local authorities.

I have a number of questions. The first is: the heart of the Bill is about encouraging and incentivising local authorities, but what more can we do to ensure that there is the capacity to take advantage of that? In Communities and Local Government questions, I raised the point about attracting more business-minded people. One of the challenges is that we will be expecting more of local authorities. When we go out, all of us, with our respective parties recruiting potential councillors, we will be asking more of their time. How can we attract sufficient numbers who have the expertise to be able to understand and deliver on what will be very large budgets? It is about looking at business-minded people and at councillors of all backgrounds to have that capacity.

Mr Jones:

Thank you for your kind comments. You are absolutely right. The Bill is all about incentivising growth and incentivising local authorities to bring forward growth, so that a particular local authority area can benefit from the extension of its business rates base. Post-implementation of the system, it will be an exciting time to be a member of a local authority. We already have some excellent councillors up and down the country who are very focused on supporting business and growth in their areas, but you make a very good point about attracting new councillors who are business-savvy and entrepreneurial.

What we are doing here with the reforms will attract more business-savvy people in that sense, but we also have to help those people. My Department has to work with organisations such as the Local Government Association on councillor development and also on how councils work. One of the challenges when I was a local councillor and a council leader was that many council meetings were at times that were not appropriate for people who are running businesses. So councils will need to be mindful that, if they want to attract high-quality people, they will have to think about how that works and about how the officer team at the council works. For example, officers used to attend the council for briefings with me at six o’clock at night to reflect the fact that I had a full-time job. Those are things that certainly need to be considered, but I think that this will be a more attractive proposition for the type of people we all want to see in local government.

Photo of Justin Tomlinson Justin Tomlinson Conservative, North Swindon

Q That is great, and hopefully the LGA will take a lead on that, encouraging local authorities, particularly on the sitting hours.

We have seen other schemes introduced, such as the new homes bonus, which provide incentives to local authorities to encourage growth, and in return they are financially rewarded. However, very few residents are aware of those schemes, so they do not see the benefits and, in turn, they do not lobby the local authority to act as the scheme was intended. With all the different incentives that are being put in place, what thought is there on how we can ensure that residents are engaged? For example, if a local authority wishes to stimulate growth by discounting business rates for certain sectors, how can we ensure that the public understand what is being done and how their money is being used for a long-term decision?

Mr Jones:

The local authority, within the provisions of the Bill, will be able to reduce the business rate multiplier for its local authority area. That said, that does not prevent a local authority from giving a particular business rate discount to a particular business or a particular sector, if it chooses to do so. It is important in that context that the local authority engages properly with the community to explain the benefit that will be brought in the provision of services in the area—not just extra money to local services but other benefits such as local jobs that are created as a result.

Again, I think it is all about engagement. There is a lot of detail that we need to work through with local government and organisations such as the LGA but that is a very important point that we should take on board.

Photo of Justin Tomlinson Justin Tomlinson Conservative, North Swindon

Q Our annual council tax bills provide information on the areas where it has been spent within the council. Perhaps statements such as, “We have made the following changes for the following reasons” could be part of such bills.

When councils set council tax, they are ultimately held accountable in the annual or four-yearly election, with the check and balance of the electorate. When changes are made to business rates, that protection is not necessarily in place. You talked about consulting with businesses. Could you expand on that? Will that only be with the businesses that are business rate payers?

Mr Jones:

There is a lot of detail within that to be determined. When a local authority or a combined authority decides to put a levy on the business rate, for example, which the Bill would allow to happen, they will have to publish a prospectus. There will be a number of things within that prospectus. We will also need to consider which businesses have exemptions from any levy. We need to consider that very carefully.

We now have a situation where all businesses are exempted from business rates up to a £12,000 rateable value threshold. There will be consultation with local business in that sense. There will also be mechanisms, from the primary legislation to the implementation of the policy, for a continuing dialogue with business and local government to ensure that we get right the balance that my hon. Friend mentioned.

Photo of Justin Tomlinson Justin Tomlinson Conservative, North Swindon

Q Great. My final question is this. Potential changes in business rates may incentivise businesses to push for a revaluation. Is consideration being given to the capacity of the revaluation officers? Presumably, there would be a spike if there were changes, as people look to review their costs.

Mr Jones:

You make another very good point, Mr Tomlinson. The number of business rate appeals, particularly regarding the way the system has failed to cope with the sheer volume of appeals, is very important and does challenge local government.

We are looking at bringing forward additional changes to the way that business rate appeals are dealt with. We want to make it easier, particularly for smaller businesses, to make business rate appeals. We also want to drive out some of the worst practice within some of the more unscrupulous business rating agencies, which lead some small business people down a path of great hope that they might get a significant reduction in the business rates, when that is an unrealistic proposition. We hope our check, challenge, appeal reform to the system will reduce that situation significantly and free up the system for legitimate business rate appeals that need to be looked at carefully and expeditiously.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

In the policy background in the explanatory notes it saysQ ,

“The reformed system will also provide local authorities with strengthened incentives for growing their business rates income.”

In fact, the Government like that so much that they mention it twice in the explanatory notes, as did the Minister in his opening remarks. I note that under an Act that is now seven and a half years old, the Business Rate Supplements Act 2009, the only business rate supplement currently in force is that levied by the Mayor of London in relation to Crossrail. What evidence does the Minister have that the proposed changes will encourage local authorities to do what the Minister by implication thinks they are not doing— that is, trying to expand their local economies and build their local businesses?

Mr Jones:

There are a number of different elements to the Bill to do with expanding the business rate base, Mr Marris, and you have chosen the issue of levying the business rate supplement to provide infrastructure. That provision will be available for combined authorities and the Greater London Authority, so it will be available for authorities such as the West Midlands combined authority, of which Wolverhampton is a constituent member. In that sense, it is different from the current business rate supplement regime because it allows for consultation with business prior to the implementation of a levy on the business rate. Currently, the business rate supplement is dealt with by way of balloting businesses in the area. There is a clear distinction between the powers that exist and the powers offered in the Bill.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Q But what evidence is there that those powers are likely to work, given, as I understand it—correct me if I am wrong—that neither of the consultations your Department has done has reported yet? There is a consultation on key issues across the reforms and one on the fair funding review; has either of them reported? If not, how can the Committee weigh the evidence on a key plank of the Bill, which is to do with incentivising local authorities? Where is the evidence?

Mr Jones:

We will provide a response to those consultations shortly.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Q But we will be discussing the Bill in Committee very shortly. Your answer is not encouraging, Minister. Will we receive the responses before the end of our sittings on the Bill?

Mr Jones:

I can assure you that my intention is to bring those forward before the end of the Bill sittings.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

On redistribution, I accept that the Bill gives local authorities the incentive to grow business rates, but the vast majority of income that will go to councils will be through a redistribution of the 100%, and that will be distributed according to need. The Local Government Finance Act 1988 stated that local authority funding for people should be fair, regardless of where they live. In London, local authorities have around 40% more spending power. If you add up all the local authorities of whatever tier divided by the number of people, the residents pay a lot less in council tax. Out of the total funding—business rates, revenue support grant or council tax—they have 40% more spending power, yet they contribute less in council tax. There does not seem to be any correlation in terms of need in those local authorities. That cannot be fairQ .

Mr Jones:

I know this is a subject that you care about deeply, Mr Hollinrake. Quite rightly, at every opportunity available, you raise it with me and other Ministers in the Department. I understand that. The response to the call for evidence on the fair funding review conducted in the middle of last year will be released shortly. We will then look to introduce further consultation on fair funding. As you know, it will be complex. The way in which the needs assessment was put together more than 10 years ago means that there is significant complexity and we will have to look at the system very carefully, but we are alive to the fact that we need to bring that together with the fair funding review and the issues of redistribution by the time we get to implementing the outcome of the legislation in 2019-20. We are mindful of the fact that local authorities across the country have legitimately questioned whether the assessment of need is right, given the changes in demographic pressures and suchlike.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

Q I accept your points, but, as you say, it was revised 10 years ago and there is still an inbuilt unfairness in the system, which the LGA technical working group is looking at. Are we simply going to carry on and adjust it slightly? Are we going to accept regression as part of this and say it is just baked-in past formulas, rather than take a bold approach based on clear evidence and need? At the moment, 159 different measures go into the system, and it is not producing a fair outcome yet. I have no issue with any local authority or area getting more money than my local authority as long as it is demonstrably fair. We have got to get away from this opaque system and move to a fair system. We are using the LGA technical working group, but is there not some vested interest in there that will prevent this from being fair in the future?

Mr Jones:

There are people involved in that working group from across the local government spectrum. They represent, for example, metropolitan councils, unitary areas, county areas, district areas and a geographical mix. The working group’s scope is deliberately set up to bring in all elements of local government so there can be a serious and proper discussion about this. As you know, Mr Hollinrake, the system is being introduced not directly thorough this legislation but through work that is happening alongside it. The Government are absolutely determined to ensure that there is a full and proper review of the situation to prevent things from being baked in or predetermined.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

Q The Communities and Local Government Committee recommended that there be an independent body to look at the issue, and we are bringing forward an independent analysis of funding. I am sure the Government will look at that very carefully and take it into account before they make a decision, but I seek reassurance about that.

Mr Jones:

We are looking at the information that the LGA technical working group is providing, and I am sure we will also look at other pieces of work that have been done. As you know, Mr Hollinrake, in making our policy decisions, we always take into account things that the Select Committee puts forward and points out, as was the case recently when some amendments were made to Bob Blackman’s private Member’s Bill, which the Government supported.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

Q As part of this change to the system, another £12.5 billion of spending power is going back into local authorities, and I am sure you are going to want to see extra responsibilities commensurate with that kind of money. It is very difficult to change a system if there is no more money coming in—obviously there will be winners and losers, because it is a zero-sum game—but more money is coming in to deliver extra services. Do you think it would be fair if the local authorities that are getting an unfair deal at the moment get the greatest benefit from the extra money?

Mr Jones:

That remains to be seen, but it is usual with any significant change to local government finance to have transitional measures. We will certainly need to consider that. As I said earlier, the Government have always set out our stall to make it clear that the £12.5 billion will be a revenue-neutral situation.

Photo of Jim McMahon Jim McMahon Shadow Minister (Communities and Local Government) (Devolution)

You referred to the additional £12.8 billion in your opening statement, and it is mentioned in the explanatory note. Is it net of the rate relief that is in place?Q

Mr Jones:

Yes, it will take into account the business rate reliefs that have come through.

Mr Jones:

With the system at the moment, and the way in which it works, for example, the revaluation currently being undertaken by the Government, which comes into effect in April, will, effectively, be paid for by the Government. Therefore, there will not be any net effect to local authorities as a result of those changes. It will be exactly the same principle when the business rate system changes to the local authorities retaining the additional £12.5 billion.

Photo of Jim McMahon Jim McMahon Shadow Minister (Communities and Local Government) (Devolution)

Q So, to be clear, the £12.8 billion does not include the £2.6 billion mandatory rate relief or the £1.1 billion small business rate relief.

Mr Jones:

If I can clarify, we would not intend to give local authorities additional responsibilities that were not covered by the additional funding. I think that is where you are coming to, Mr McMahon.

Photo of Jim McMahon Jim McMahon Shadow Minister (Communities and Local Government) (Devolution)

Q Perhaps I am not explaining myself clearly enough. The idea is that local government will retain 100% of business rates collected, so the quantum of money collected in business rates. What I am trying to get to is this: when that is returned to the local authorities in whatever formula is devised at the end of all this, will the Government take the burden of rate relief outside the money collected in business rates? Or do you expect it will be covered as part of the business rates that are collected?

Mr Jones:

It will be covered as part of the business rates collected.

Photo of Jim McMahon Jim McMahon Shadow Minister (Communities and Local Government) (Devolution)

Q Right, that is quite an important point. So, the £12.8 billion that has been referred to in the report is minus the £3.7 billion relief that is in here.

Mr Jones:

Sorry, just to clarify that: the £12.8 billion is the additional amount that will be going to local government. Sorry if I misled you, Mr McMahon.

Mr Jones:

Yes.

Photo of Jim McMahon Jim McMahon Shadow Minister (Communities and Local Government) (Devolution)

Q Is it envisaged that the grants currently given to local authorities will end? So when you talk about self-sufficiency and self-financing of local government, is it envisaged that that will be solely for council tax and business rates?

Mr Jones:

Yes, although as has been discussed in the consultation, there are a number of additional matters that are still yet to be determined. There is a list of different things that have been put forward that might be paid for by the additional amount of business ratings local authorities will receive. One of the things we have ruled out that will not be paid for in that sense is attendance allowance, but all the other items listed there—the improved better care fund being one of them—are things we are going to consider and we will be responding to that initial consultation very shortly.

Photo of Jim McMahon Jim McMahon Shadow Minister (Communities and Local Government) (Devolution)

Q There is a problem, isn’t there? If we take the £12.8 billion and we deduct the £7.1 billion that is currently spent through revenue support grant, and then you take into account the adult social care pressures as £2.8 billion as well as the additional responsibilities, the truth is there will be no new money for adult social care. By the time you get down to the bottom line, there will not be enough money to cover the social care gap.

A direct question: do you agree with the Conservative chair of the LGA who calls the adult social care situation a crisis?

Mr Jones:

No, I do not agree that it is a crisis. I think there are significant challenges in the system and we are proposing significant measures to support local government in this regard. The additional council tax flexibility we have provided in terms of the adult social care precept, the additional grant we have provided this year and the improved better care fund add up to £7.6 billion of additional dedicated funding that is going towards adult social care. So we recognise the challenges and are looking to address those. What I would say, Mr McMahon, is that you cannot conflate, at this point, the figures you are referring to in terms of the additional business rate income directly to the issue of adult social care. At the moment, as I said, that is yet to be determined.

Photo of Jim McMahon Jim McMahon Shadow Minister (Communities and Local Government) (Devolution)

Q But do you accept that it is a significant part of local authority pressure? Adult social care and safeguarding make up the lion’s share of most local authorities’ spend.

This is a package, of course. Are you concerned that, based on the Department for Communities and Local Government forecast, council tax will increase by 25% over the life of the Parliament? What would you say to the average Oldhamer in a band E property who will be paying £2,000 a year in council tax?

Mr Jones:

I am surprised at your line of questioning, Mr McMahon, because during the period your party was in Government, council tax doubled between 1997 and—

Order. Can we get back to the Bill, please? I do not want to go into the history. I ask questioners and the Minister to get back to the actual Bill.

Photo of Jim McMahon Jim McMahon Shadow Minister (Communities and Local Government) (Devolution)

JustQ to be clear, I am not looking for a commentary on the last Labour Government; I am looking for a response from a Minister in today’s Government.

Mr Jones:

Mr McMahon has little room to lecture, but I take on board your comments, Mr Gapes. The facts are that, at the moment, council tax is lower in real terms—9% lower—than it was in 2010.

Photo of Jim McMahon Jim McMahon Shadow Minister (Communities and Local Government) (Devolution)

Q Do you think that a 25% increase—a council tax bill of £2,000 for band E—is reasonable?

Order. Just a moment, please. Time is limited and several other people wish to ask questions. Please can we focus on the actual Bill rather than getting into an argument that we can no doubt have at later stages? Three or four other people want to get in.

Photo of Jim McMahon Jim McMahon Shadow Minister (Communities and Local Government) (Devolution)

I understand that, Mr Gapes. That is why I am trying to push the Minister to answer the question.

Please focus on the Bill.

Photo of Clive Efford Clive Efford Labour, Eltham

We would like an answer to that last question though, Mr Gapes.

Please ask questions that focus on the Bill, and can we please also have answers that focus on the Bill, rather than on history?

Mr Jones:

I can give a direct answer. We have looked at the figures closely and, given that in real terms council tax today is 9% lower than it was in 2010, if you take into account the council tax flexibilities that we have allowed local authorities during this Parliament, council tax will still be lower in real terms than it was 2010.

Photo of Jim McMahon Jim McMahon Shadow Minister (Communities and Local Government) (Devolution)

Q Do you accept your own Department’s figures of a 25% council tax increase?

Mr Jones:

As I said, council tax will still be lower in real terms in 2020 than it was in 2010.

Photo of Jim McMahon Jim McMahon Shadow Minister (Communities and Local Government) (Devolution)

Q Do you accept your own Department’s figures of a 25% council tax increase over the life of this Parliament?

Mr Jones:

I think I have made my position clear.

Photo of Peter Aldous Peter Aldous Conservative, Waveney

Q Minister, you said at the beginning that incentivising growth is at the centre of this Bill. As I said on Second Reading, I am concerned that there may be local authorities that wish to incentivise growth but, for reasons of location, the geographical make-up of their area or issues such as site contamination, may not be in a position to do that. Can you outline how you are going to support those authorities?

Mr Jones:

You make a good point, Mr Aldous. We have been clear from the outset that, in developing and introducing this new system, there will need to be a form of redistribution across local authorities to make sure that we do not leave behind those that start off with a far lower business rate. The new system will also include incentives for local authorities to invest in things such as land remediation to bring forward new developments that will expand their business rate base. Local authorities will also be offered the opportunity to have local growth zones, which will be very powerful in terms of giving an area the opportunity to retain more of the additional business rate, and to have that part protected when we get to resets of the system.

Photo of Kevin Foster Kevin Foster Conservative, Torbay

My question is similar to that asked by Mr Aldous. On Second Reading, there seemed to be a negative undertone in relation to the prospects of some areas and councils to be able to incentivise growth and actually deliver the increased business rates that we hope the Bill will bring. As the Minister, how do you see the provisions helping to defeat some of those arguments? What monitoring will the DCLG be able to do to ensure that councils are Q actually going ahead with it, rather than adopting that negative, anti-business attitude and then using the area’s position as an excuse?

Mr Jones:

The Bill will be transformational, changing attitudes in many places. In the main, local government has a good approach to local business and trying to make it thrive. We all know, though, that that does not happen everywhere. I think that the Bill will put areas to the sword. They will have to look far more carefully at how they incentivise growth in their local areas and at their attitude to business. That is not necessarily a bad thing. It might include providing a reduction in the multiplier and other provisions. That also applies to dealing with planning applications and to the general approach and demeanour towards business, which will be transformed by this. We will monitor the effect of this policy and when we get to the point of doing resets of the system, we will be able to analyse where there has been a great deal of success in increasing business rate revenues, and where that may not have happened. At that point we will have to make a judgment on how the system will be reset. We want councils to be very ambitious in bringing forward local growth.

Photo of Kevin Foster Kevin Foster Conservative, Torbay

Q I have a second, quick question. What difference do you think the average council tax payer and council resident is going to notice if this Bill is passed?

Mr Jones:

Once the system comes into full effect, the incentives that councils have will mean that many more areas will have a more business-friendly environment, where more businesses are nurtured and more jobs created. The positive knock-on effect is that councils that take to that and do the right thing will be able to grow their income to provide local services. Residents across our local authority areas want high-quality public services, and this will help to do that.

Photo of Clive Efford Clive Efford Labour, Eltham

Q How much of the local government grant comes from the business rate collected by the Government and redistributed to local authorities?

Mr Jones:

All of the business rate, bar the £12.5 billion —or £12.8 billion, to be more exact—that has been mentioned, currently goes to local authorities, with the exception of the amount raised from the central list. That list relates to the business rate that comes from infrastructure, for example, and that money does not go directly to local government. The quantum of the funding is set out in the document.

Photo of Clive Efford Clive Efford Labour, Eltham

Q Sorry, can you remind me what it is?

Mr Jones:

As I say, the quantum of the funding that local government gets is all of the funding from the business rate, less the amount that we are looking to bring to local government.

Photo of Clive Efford Clive Efford Labour, Eltham

Q What proportion of local government spend is raised locally?

Mr Jones:

That is a question that I will have to come back to you on.

Photo of Clive Efford Clive Efford Labour, Eltham

Q It is quite a small proportion that is actually raised through council tax, so the ability of local authorities to raise money at local level is very limited in many areas in relation to business rate. What incentives are there for areas where it will prove very difficult to generate extra income through the local business rate? Will the Government be putting anything aside for those local authorities?

Mr Jones:

As I say, there will be a form of redistribution, and that is important because we do not want areas to be left behind by the implementation of the new system. The system significantly incentivises local areas to encourage business growth and the growth of new businesses on the basis that they will be able to keep far more growth than ever before. That is particularly the case with regard to the current levy in the 50% business rate retention system. In effect, that is a tax on growth and the Bill will remove it.

Order. I am sorry, but we only have time for one last question.

Photo of Clive Efford Clive Efford Labour, Eltham

If somebody else that wants to come in—

We are time-limited: we have one minute left. If anybody on your side wishes to come in, we have time for one more question. That is all we are allowed.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

Q How do you envisage the tariff and top-up system that you intend to retain differing under 100% business rates retention from the current system under 50% business rates retention?

Mr Jones:

The tariff and top-up system will very much be used to deal with things like redistribution, as I am sure you aware, Mr Thomas.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

Q I understand how it will be used; I am asking how it will be different.

Mr Jones:

The point you make is not actually a direct point in relation to—

Order.

Mr Jones:

I was about to answer.

I am afraid that that is the end of the time allotted for the Committee to ask the Minister questions. I thank him for his evidence.